China Ritar Power Corp. - FORM 10-Q

Attached files

file	filename
EX-32.1 - China Ritar Power Corp.	v193565_ex32-1.htm
EX-31.2 - China Ritar Power Corp.	v193565_ex31-2.htm
EX-32.2 - China Ritar Power Corp.	v193565_ex32-2.htm
EX-31.1 - China Ritar Power Corp.	v193565_ex31-1.htm

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: June 30, 2010

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

For the transition period from ____________ to _____________

Commission File Number: 000-25901

CHINA RITAR POWER CORP.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	87-0422564
(State or other jurisdiction of	(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 x

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 August 13, 2010 is 21,858,925.

CHINA RITAR POWER CORPORATION

INDEX

		Page
PART I	FINANCIAL INFORMATION

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

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	31
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	31
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Other Information	32
Item 5.	Exhibits	33

PART I FINANCIAL INFORMATION

Item 1. Financial Statements

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30		December 31
	2010		2009
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	9,500,664	$	20,459,361
Restricted cash		5,104,315		5,900,649
Accounts receivable, net of allowances of $1,121,447 and $1,115,321		32,749,884		24,920,825
Receivable from sale of a subsidiary		-		417,387
Due from a former subsidiary		3,152,997		3,925,348
Inventory		22,201,193		19,484,224
Advance to suppliers		2,876,943		1,643,689
Other current assets		5,063,388		3,915,605
Total current assets		80,649,384		80,667,088

Non-current assets:
Property, plant and equipment, net		16,793,774		16,248,551
Construction in progress		94,676		136,443
Intangible assets, net		7,094		9,407
Land use right		466,784		468,265
Rental deposits		379,299		82,439
Deposit for purchase of property, plant and equipment		1,010,831		833,760
Deferred income tax assets		120,171		115,064

Total assets	$	99,522,013	$	98,561,017

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	16,643,818	$	16,658,868
Income and other taxes payable		6,402,807		3,986,935
Accrued salaries		537,623		502,978
Bills payable		6,993,329		13,498,001
Other current liabilities		2,542,855		2,800,879
Derivative instruments		41,997		-
Current portion of long term loans		1,349,846		1,342,473
Short-term loans		2,944,872		1,464,515
Total current liabilities		37,457,147		40,254,649

Long-term loans		2,226,140		2,881,188

Total liabilities		39,683,287		43,135,837

Stockholders’ equity:
Preferred stock, $0.001 par value, 10,000,000 shares authorized, none issued and outstanding		-		-
Common stock at $0.001 par value; authorized 100,000,000 shares authorized, 21,858,925 and 21,450,238 shares issued and outstanding		21,859		21,450
Additional paid-in capital		31,721,124		31,461,723
Retained earnings		24,607,083		20,745,985
Accumulated other comprehensive income		3,488,660		3,196,022

Total stockholders’ equity		59,838,726		55,425,180

Total liabilities and stockholders’ equity	$	99,522,013	$	98,561,017

See accompanying notes to these condensed consolidated financial statements

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)

	Six months ended June 30,						Three months ended June 30,
	2010			2009			2010			2009
CONTINUING OPERATIONS
Net revenue	$	58,362,748		$	37,781,035		$	33,554,388		$	21,397,374
Cost of sales		48,100,168			30,424,848			28,062,204			17,333,703
Gross profit		10,262,580			7,356,187			5,492,184			4,063,671

Operating expenses:
Salaries		1,136,573			853,334			570,731			458,441
Sales commission		791,834			926,582			260,283			177,358
Shipping and handling cost		675,840			507,477			390,580			225,531
Other selling and administrative expenses		2,173,899			1,664,038			1,015,257			740,962
		4,778,146			3,951,431			2,236,851			1,602,292

Operating profit		5,484,434			3,404,756			3,255,333			2,461,379

Other income and (expenses):
Interest income		62,815			65,849			17,988			8,200
Other income		6,402			3,277			6,402			737
Interest expenses		(286,574	)		(313,494	)		(138,415	)		(166,070	)
Foreign currency exchange (loss) gain		(242,020	)		5,089			(175,126	)		54,405
Other expenses		(3,051	)		(1,664	)		(302	)		(1	)

Other expenses, net		(462,428	)		(240,943	)		(289,453	)		(102,729	)

Income from continuing operations before income taxes		5,022,006			3,163,813			2,965,880			2,358,650

Income taxes		(1,160,908	)		(528,479	)		(689,928	)		(411,432	)

Income from continuing operations		3,861,098			2,635,334			2,275,952			1,947,218

DISCONTINUED OPERATIONS (Note 28 )
Loss from discontinued operations, net of taxes		-			(314,424	)		-			(160,567	)
Net income		3,861,098			2,320,910			2,275,952			1,786,651
Add: Loss from discontinued operations attributable to noncontrolling interest		-			15,722			-			8,028

Net income attributable to China Ritar shareholders		3,861,098			2,336,632			2,275,952			1,794,679

Other comprehensive income attributable to noncontrolling interest		-			3			-			3
Foreign currency translation adjustment		292,638			117,938			278,702			10,517
Comprehensive income attributable to China Ritar shareholders		4,153,736			2,454,573			2,554,654			1,805,199
Comprehensive loss (income) attributable to non-controlling interest		-			(15,725	)		-			(8,031	)

Comprehensive income	$	4,153,736		$	2,438,848		$	2,554,654		$	1,797,168

Earnings per share attributable to China Ritar stockholders:

Basic:
- Income from continuing operations	$	0.18		$	0.14		$	0.10		$	0.10
- Income (loss) from discontinued operations		-			(0.02	)		-			(0.01	)
- Net income	$	0.18		$	0.12		$	0.10		$	0.09

Diluted
-Income from continuing operations	$	0.18		$	0.14		$	0.10		$	0.10
-Income (loss) from discontinued operations		-			(0.02	)		-			(0.01	)
- Net income	$	0.18		$	0.12		$	0.10		$	0.09

Weighted average number of shares outstanding:
- Basic		21,787,179			19,134,992			21,787,179			19,134,992
- Diluted		21,787,179			19,134,992			21,787,179			19,134,992

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2010

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

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

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

Net income for the period		-		-		-			3,861,098		-		3,861,098

Foreign currency translation difference		-		-		-			-		292,638		292,638

Balance at June 30, 2010 (Unaudited)		21,858,925	$	21,859	$	31,721,124		$	24,607,083	$	3,488,660	$	59,838,726

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Six Months Ended June 30,
	2010			2009
Cash Flows from Continuing Operating Activities:
Net income	$	3,861,098		$	2,320,910
Loss from discontinued operations, net of taxes		-			314,424
Income from continuing operations		3,861,098			2,635,334
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax assets		(4,452	)		-
Depreciation of property, plant and equipment		760,166			562,453
Amortization of intangible assets and land use right		6,384			6,377
Loss (gain) on disposal of property, plant and equipment		671			(365	)
Loss (gain) on derivative instruments		41,787			(23,005	)
Changes in operating working capital items:
Accounts receivable		(7,653,633	)		3,204,540
Inventory		(2,596,870	)		(2,782,015	)
Advance to suppliers		(1,303,755	)		(83,226	)
Notes receivable		11,761			(2,195	)
Other current assets		714,819			(1,228,918	)
Rental deposits		(294,919	)		-
Accounts payable		(105,908	)		358,680
Income and other tax payable		2,381,978			588,192
Accrued salaries		31,722			(136,233	)
Bills payable		(6,545,846	)		637,495
Other current liabilities		(304,617	)		(815,346	)
Net cash (used in) provided by operating activities		(12,429,252	)		2,921,768

Cash Flows from Continuing Investing Activities:
Repayment from (Advance to) a former subsidiary – Shanghai Ritar (see Note 13)		789,933			(1,103,170	)
Purchase of property, plant and equipment		(1,184,092	)		(1,140,133	)
Sales proceeds of disposal of property, plant and equipment		11,868			4,390
Payment of deposits for purchase of property, plant and equipment		(85,963	)		-
Net cash used in investing activities		(468,254	)		(2,238,913	)

Cash Flows from Continuing Financing Activities:
Proceeds from stock issued for warrants exercised		259,810			-
Proceeds from bank borrowings		5,860,720			3,091,483
Repayment of bank borrowings		(5,063,296	)		(4,592,848	)
Restricted cash		824,592			1,043,812
Net cash provided by (used in) financing activities		1,881,826			(457,553	)

Cash Flows from Discontinued Operations Activities:
Net cash used in discontinued operating activities		-			(1,125,512	)
Net cash provided by discontinued investing activities		-			(14,134)
Net cash provided by discontinued financing activities		-			1,103,170
Effect of exchange rate changes on cash		-			293
Change in cash from discontinued operations		-			36,183
Net cash used in discontinued operations		-			-

Effect of exchange rate changes		56,983			(177,086	)

Net (decrease) increase in cash and cash equivalents		(10,958,697)			48,216
Cash and cash equivalents, beginning of period		20,459,361			7,541,697
Cash and cash equivalents, end of period	$	9,500,664		$	7,589,913

Supplemental disclosure of cash flow information
Cash paid for interest	$	286,574		$	313,494
Cash paid for income taxes	$	281,809		$	544,409

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

See accompanying notes to these condensed consolidated financial statements.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1.	General Description of Business and Organization

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

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

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

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

Details of the subsidiaries of the Company are as follows:

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

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

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

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

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

2.	Summaries of Significant Accounting Policies

Basis of Presentation and Consolidation

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

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

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

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

Reclassification

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

Foreign currency

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

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

	June 30, 2010	December 31, 2009
Balance sheet items, except for equity accounts	US$1=RMB 6.7909	US$1=RMB6.8282

	Three months ended June 30,
	2010	2009
Items in the statements of income and cash flows	US$1=RMB 6.8235	US$1=RMB 6.8299

	Six months ended June 30,
	2010	2009
Items in the statements of income and cash flows	US$1=RMB 6.8251	US$1=RMB6.8332

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

Recent Accounting Pronouncements

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

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

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

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 Consolidated Financial Statements upon adoption.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

3.	FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

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

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

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

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

	Fair value measurement using inputs								Carrying amount at
Financial instruments	Level 1			Level 2			Level 3		June 30, 2010
	(Unaudited)			(Unaudited)			(Unaudited)		(Unaudited)
Liabilities:
Derivative instruments		$	—		$	41,997	$	—		$	41,997
Total		$	—		$	41,997	$	—		$	41,997

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

4.	Earnings Per Share

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

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

	Six months ended June 30,					Three months ended June 30,
	2010		2010			2010		2009
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net income (loss) from continuing operations attributable to China Ritar stockholders	$	3,861,098	$	2,635,334		$	2,275,952	$	1,947,218

Net income (loss) from discontinued operations attributable to China Ritar stockholders		-		(298,702	)		-		(152,539	)

Net income	$	3,861,098	$	2,336,632		$	2,275,952	$	1,794,679

Weighted average shares outstanding-basic		21,787,179		19,134,992			21,787,179		19,134,992
Add: Effect of dilutive warrants		-		-			-		-

Weighted average shares outstanding-diluted		21,787,179		19,134,992			21,787,179		19,134,992

The warrants outstanding as of June 30, 2009 were anti-dilutive as the exercise price of the outstanding warrants as of June 30, 2009 was over that of the average market price.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

5.	Cash and Cash Equivalents

Cash and cash equivalents are summarized as follows:

	June 30		December 31
	2010		2009
	(Unaudited)

Cash at banks	$	9,432,357	$	20,422,998
Cash on hand		68,307		36,363

Total	$	9,500,664	$	20,459,361

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

6.	Restricted Cash

Restricted cash consists of the following:

	June 30		December 31
	2010		2009
	(Unaudited)
Bank deposit held as collateral for:
- Bank loans (Notes 18 and 19) and bills payable (Note 16)	$	4,986,510	$	5,724,907
- Bank guarantee for tender purposes		117,805		175,742
Total	$	5,104,315	$	5,900,649

At June 30, 2010 and December 31, 2009, restricted cash of $4,986,510 and $5,724,907, respectively represented the bank deposits pledged for banking facilities. Generally, the deposits will be released when the relevant bank loans are repaid upon maturity (see Notes 18 and 19).

At June 30, 2010 and December 31, 2009, bank deposits of $117,805 and $175,742, respectively were held as collateral for bank guarantees against the Company’s tenders for the supply of lead-acid batteries to China Mobile Limited, an unrelated customer.

7.	Accounts Receivable, net

	June 30			December 31
	2010			2009
	(Unaudited)

Trade accounts receivable	$	33,871,331		$	26,036,146
Less: allowances for doubtful accounts		(1,121,447	)		(1,115,321	)
Net	$	32,749,884		$	24,920,825

Concentrations in accounts receivable - Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of accounts receivable. At June 30, 2010, one customer on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $2,944,982 representing 9% of total accounts receivable in aggregate. At December 31, 2009, two customers on an individual basis accounted for more than 5% but less than 10% of the Company’s accounts receivable, with total amounts of $2,799,836 representing 11% of total accounts receivable in aggregate.

Inventory

Inventory by major categories are summarized as follows:

	June 30		December 31
	2010		2009
	(Unaudited)

Raw materials	$	3,599,039	$	2,846,892
Work in progress		17,547,376		13,919,696
Finished goods		1,054,778		2,717,636
Total	$	22,201,193	$	19,484,224

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

9.	Other Current Assets

Other current assets consist of the following:

	June 30		December 31
	2010		2009
	(Unaudited)

Notes receivable	$	106,969	$	118,140
Advance to staff and deposit, net of allowances of $98,243 and $97,707		608,722		647,351
Refundable deposits, net of allowance of $nil		2,076,175		732,257
Value added tax recoverable		2,271,522		2,417,857
Total	$	5,063,388	$	3,915,605

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

10.	Property, Plant and Equipment

Property, plant and equipment consist of the following:

	June 30			December 31
	2010			2009
	(Unaudited)
At cost:
Building	$	8,524,972		$	8,456,956
Leasehold improvement		392,473			390,329
Plant and machinery		9,962,875			8,830,851
Furniture, fixtures and equipment		571,414			517,532
Motor vehicles		1,077,906			1,034,070
Total		20,529,640			19,229,738
Less: accumulated depreciation and amortization		(3,735,866	)		(2,981,187	)
Net book value	$	16,793,774		$	16,248,551

As of June 30, 2010 and December 31, 2009, certain property, plant and machinery with an aggregate net book value of $8,854,978 and $8,933,605, respectively, were pledged as securities against the bank loan facilities, as described in more details in Notes 18 and 19.

During the six months ended June 30, 2010, depreciation expenses amounted to $760,166, among which $592,525, $141,221 and $26,420 were recorded as cost of sales, selling expense and administrative expense respectively.

During the six months ended June 30, 2009, depreciation expenses amounted to $663,693, among which $523,905, $64,820 and $74,968 were recorded as cost of sales, selling expense and administrative expense of continuing operations, and $50,390 was included in discontinued operations, respectively.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

11.	Intangible assets

Intangible assets consist of the following:

	June 30			December 31
	2010			2009
	(Unaudited)
At cost:
Computer software	$	28,040		$	27,887
Less: Accumulated amortization		(20,946	)		(18,480	)
Net book value	$	7,094		$	9,407

During the six months ended June 30, 2010 and 2009, amortization expenses amounted to $2,352 and $2,350, respectively which were included in administrative expenses.

12.	Land Use Right

	June 30			December 31
	2010			2009
	(Unaudited)

Right to use land	$	486,238		$	483,582
Accumulated amortization		(19,454	)		(15,317	)
	$	466,784		$	468,265

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

As of June 30, 2010 and December 31, 2009, all of land use right with the net book value of $466,784 and $468,265, respectively, were pledged as securities against the bank loan facilities, as described in more details in Notes 18 and 19.

During the six months ended June 30, 2010, amortization expenses amounted to $4,032, which was included in administrative expense. During the six months ended June 30, 2009, amortization expenses amounted to $4,027, which was included in administrative expense.

The estimated amortization expense for land use right for each of the next five years is approximately $9,725.

13.	Related Party Transactions

Guarantees provided by related parties

Certain of the Company’s short-term and long-term loans (see Notes 18 and 19) and bills payable (see Note 16) are secured by personal guarantees provided by Mr. Jiada Hu (CEO and principal stockholder of the Company) and Ms. Henying Peng (director of certain subsidiaries of the Company and the spouse of Mr. Jiada Hu).

Sale of Shanghai Ritar

On October 15, 2009, Shenzhen Ritar entered into an agreement with a family member of Ms. Henying Peng (director of certain subsidiaries of the Company and the spouse of Mr. Jiada Hu, CEO and principal stockholder of the Company) to sell 95%, representing all of Shenzhen Ritar’s ownership interest in Shanghai Ritar, for RMB2,850,000 (or $417,216),which was fully settled on April 21, 2010.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

13.	Related Party Transactions – (Continued)

Receivables from a former subsidiary

Receivables from a former subsidiary as of June 30, 2010 represented the amount due from Shanghai Ritar, the former 95% subsidiary sold by the Company in October 2009, further details of which are set out in Note 28.

The following table sets out the rollforward of the amount due from Shanghai Ritar:

Amount due from Shanghai Ritar at January 1, 2010	$	3,925,348
Repayment from Shanghai Ritar		(789,933	)
Effect of exchange rate changes		17,582
Amount due from Shanghai Ritar, at June 30, 2010	$	3,152,997

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

14.	Income and Other Taxes Payables

Income and other taxes payables consist of the following:

	June 30		December 31
	2010		2009
	(Unaudited)

Income tax payable	$	4,837,200	$	3,927,626
Individual income withholding tax payable		18,331		13,131
Value added tax payable		1,547,276		46,178
Total	$	6,402,807	$	3,986,935

15.	Other Current Liabilities

Other current liabilities consist of the following:

	June 30		December 31
	2010		2009
	(Unaudited)

Other payable and accrued expenses	$	463,800	$	909,176
Advance from customers		2,079,055		1,891,703
Total	$	2,542,855	$	2,800,879

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

16. Bills Payable and Credit Facilities

In the normal course of business, the Company is requested by certain of its suppliers to settle trade liabilities incurred in the ordinary course of business by issuance of bills that is guaranteed by a bank acceptable to the supplier. The bills are interest-free with maturity dates of either three months or six months from date of issuance. In order to provide such guarantees for the bills, Shenzhen Ritar and Hengyang Ritar have obtained relevant credit facilities from Citibank, Shenzhen Development Bank, China Merchants Bank, DBS bank and Bank of China (the “Banks”). Pursuant to the Banks’ facilities letters and loan agreements, as of June 30, 2010, the Company had available facilities for such bank acceptances up to approximately $30,923,736, of which $13,514,187 was utilized as of June 30, 2010.

The Company is required to place bank deposits, classified as restricted cash as disclosed in Note 6, equal to 20-30%, subject to bank’s decision, of the bills amount as collaterals against the Banks’ guarantees for such bills. Such bank acceptance facilities up to approximately $16,934,427 granted by Citibank, China Merchants Bank and Bank of China are additionally secured by guarantees provided by Shanghai Ritar (former subsidiary), Hengyang Ritar, Mr. Jiada Hu (CEO and principal stockholder of the Company) and Ms. Henying Peng (director of certain subsidiaries of the Company and the spouse of Mr. Jiada Hu). Under this kind of arrangement, Shenzhen Ritar is obligated to pay 0.05% of the bills amount as handling charges.

17.	Derivative Instruments

The Company does not use derivative financial instruments for speculative or trading purpose, nor does it hold or issue leveraged derivative financial instruments. However, the Company’s operations are exposed to market risk primarily due to changes in currency rates. In order to manage such risks so as to reduce volatility on earnings and cash flows, the Company enters into several foreign currency forward contracts with a commercial bank to hedge for future trade receipts in U.S. dollars against RMB. The total outstanding foreign currency forward contracts amounted to $5,000,000 as of June 30, 2010. The Company’s foreign currency forward contracts are classified as Level 2 in the fair value hierarcy under ASC topic 820 since the quote prices of these foreign currency forward contracts can be obtained drectly from commercial bank. The following table summarizes the Company’s fair value of outstanding derivatives:

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

Fair value of foreign currency forward exchange contract	Current liabilities	$	41,997	$	-

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

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

Fair value of foreign currency forward exchange contract	Foreign currency exchange loss (Note 23)	$	41,787	$	235,622	$	41,787	$	208,360

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

		Forward Contracts
Notional Amount		$5 million
Rates		RMB 6.459 to 7.090
Effective date		26 March 2010 to 26 May 2010
Maturity Dates		30 July 2010 to 30 March 2011
Fair Value		$41,997

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

18.	Short-Term Loans

Short-term loans consist of the following:

Bank

Loan period

Interest

rate

Securities

June 30

2010

December 31

2009

(Unaudited)

DBS Bank

2009-10-22 to 2010-2-8

6% p.a.

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

864,064

DBS Bank

2009-11-12 to 2010-3-3

6% p.a.

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

251,897

DBS Bank

2009-12-31 to 2010-4-21

6% p.a.

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

348,554

DBS Bank

2010-3-17 to 2010-7-16

6% p.a.

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

677,377

DBS Bank

2010-3-21 to 2010-7-20

6% p.a.

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

43,931

DBS Bank

2010-5-4 to 2010-8-26

6% p.a.

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

589,024

DBS Bank

2010-6-21 to 2010-10-7

6% p.a.

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

161,981

China Merchants Bank

2010-5-18 to 2010-8-18

4.9% p.a.

Directors’ personal guarantees

1,472,559

2,944,872

1,464,515

*	The loan agreement with China Merchants Bank provides that this loan may only be applied in the purchases of raw materials, and an additional 100% interest rate will apply if the Company misuses the proceeds from this loan for purposes other than raw material purchases.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

19.	Long-Term Loans

Long-term loans consist of the following:

	June 30		December 31
	2010		2009
	(Unaudited)
Loan from DBS Bank, bearing interest at 7.01% (2009: 6.91%) p.a., repayable by monthly installments from 2009-04-18 to 2013-09-18, secured by certain property, plant and equipment and land use right of the Company as disclosed in Note 10 and Note 12, respectively.	$	3,162,688	$	3,661,288
Loan from DBS Bank, bearing interest at 5% p.a., repayable by monthly installments from 2009-07-12 to June 2011-06-12, secured by machinery and equipment of Hengyang Ritar as disclosed in Note 10 and joint guarantees given by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Hengying Peng and Mr. Jianjun Zeng		413,298		562,373
Total loans		3,575,986		4,223,661
Less: Current maturities		1,349,846		1,342,473
Long-term loans, less current maturities	$	2,226,140	$	2,881,188

Future maturities of long-term loans are as follows:
Payable within the period ending June 30,
2011			$	1,349,846
2012				1,026,863
2013				981,706
2014				217,571
Total			$	3,575,986

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

20.	Income Taxes

The provision for income taxes consists of the following:

	Six months ended June 30,				Three months ended June 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Current tax
- PRC	$	1,156,433	$	528,479	$	689,304	$	411,432
- Deferred tax provision		4,475		-		624		-

Total	$	1,160,908	$	528,479	$	689,928	$	411,432

Significant components of deferred income tax assets are as follows:

	June 30		December 31
	2010		2009
	(Unaudited)
Deferred income tax assets – non-current:
Depreciation	$	120,171	$	115,064
Less: Valuation allowance		-		-
	$	120,171	$	115,064

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

	Six months ended June 30,						Three months ended June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Pre-tax income from continuing operations	$	5,022,006		$	3,163,813		$	2,965,880		$	2,358,650

United States federal corporate income tax rate		35	%		35	%		35	%		35	%
Income tax expense computed at U.S. federal corporate income tax rate		1,757,701			1,107,335			1,038,057			825,528
Reconciling items:
Impact of tax holiday of Shenzhen Ritar		(148,476	)		(94,914	)		(83,645	)		(70,355	)
Rate differential for PRC earnings		(501,168	)		(316,381	)		(296,584	)		(206,456	)
Other		52,851			(167,561	)		32,100			(137,285	)

Effective tax expense	$	1,160,908			528,479		$	689,928		$	411,432

The effect of the tax holiday of Shenzhen Ritar amounted to $148,476 and $94,914 for the six months ended June 30, 2010 and 2009, equivalent to earnings per share (basic and diluted) of $0.007 and $0.005, respectively.

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

21.	Common Stock and Warrant Transactions

Common stock

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

Common Stock Purchase Warrants

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

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

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

Outstanding at June 30, 2010		-

Exercisable at June 30, 2010		-

22.	Other income

Other income consists of the following:

	Six months ended June 30,				Three months ended June 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Gain on disposal of property, plant and equipment	$	-	$	365	$	-	$	365
Others		6,402		2,912		6,402		372

Total	$	6,402	$	3,277	$	6,402	$	737

23.	Foreign currency exchange (loss) gain

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

	Six months ended June 30,								Three months ended June 30,
	2010				2009				2010				2009
	(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)

Foreign currency reinstatement / realization gain / (loss)		$	(200,233	)		$	240,711			$	(133,339	)		$	262,765
Derivative unrealized loss (Note 17)			(41,787	)			(235,622	)			(41,787	)			(208,360	)

Total		$	(242,020	)		$	5,089			$	(175,126	)		$	54,405

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

24.	Commitments and Contingencies

Operating Leases Commitments

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

	(Unaudited)
Payable within:
-Remainder of 2010	$	276,543
-2011		527,977
-2012		118,184
Total minimum lease payments	$	922,704

During the six months ended June 30, 2010, rent expenses amounted to $388,505, among which $287,025, $17,187 and $84,293 were recorded as cost of sales, administrative expense and selling expense, respectively.

During the six months ended June 30, 2009, rent expenses amounted to $423,736, among which $337,009, $14,880 and $71,847 were recorded as cost of sales, administrative expense and selling expense, respectively.

Capital Commitments

As of June 30, 2010, the Company had a total capital commitment of $1,684,939 for the acquisitions of property, plant and equipment, which was not provided for in the financial statements and is expected to be disbursed by the next fiscal year.

PRC employee costs

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

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

25.	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 $164,954 and $171,195 for the six months ended June 30, 2010 and 2009 respectively.

26.	Risk of Concentrations

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

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

	Six months ended June 30,						Three months ended June 30,
	2010			2009			2010			2009
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Supplier A		18	%		28	%		13	%		31	%
Supplier B		10	%		19	%		-			20	%
Supplier C		-			13	%		-			16	%

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

27.	Segment Information

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

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

	Six months ended June 30,				Three months ended June 30,
	2010		2009		2010		2009
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

PRC	$	17,162,881	$	8,998,312	$	10,795,400	$	5,294,351
Outside PRC:
- Hong Kong		2,758,157		556,112		1,472,136		450,927
- Germany		2,732,846		2,001,549		1,434,672		1,651,495
- America		7,546,616		5,467,656		4,273,770		5,467,656
- India		1,669,802		3,030,967		1,173,099		1,881,414
- Italy		2,378,199		1,363,056		1,214,078		796,405
- Australia		3,046,596		1,606,367		1,902,521		866,872
- Brazil		1,344,951		1,598,397		1,027,684		737,207
- other countries, less than 5% of total sales individually		19,722,700		13,158,619		10,261,028		4,251,047
		41,199,867		28,782,723		22,758,988		16,103,203

Total net sales	$	58,362,748	$	37,781,035	$	33,554,388	$	21,397,374

CHINA RITAR POWER CORP. AND SUBSIDIARIES

NOTES TO UNAUDITED INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

28.	Discontinued Operations

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

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

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

	Six months ended June 30,					Three months ended June 30,
	2010		2009			2010		2009
	(Unaudited)		(Unaudited)			(Unaudited)		(Unaudited)
Net revenue	$	-	$	2,116,341		$	-	$	969,198
Cost of sales		-		2,089,706			-		944,836

Gross profit		-		26,635			-		24,362
Operating expenses:
Salaries		-		136,100			-		67,359
Other selling, general and administrative expenses		-		206,774			-		119,374
		-		342,874			-		186,733

Operating loss		-		(316,239	)		-		(162,371	)

Other income (expenses), net		-		1,815			-		1,804

Loss before income taxes		-		(314,424	)		-		(160,567	)

Income taxes		-		-			-		-

Net loss		-		(314,424	)		-		(160,567	)
Loss attributable to noncontrolling interest		-		15,722			-		8,028

Net loss attributable to China Ritar stockholders	$	-	$	(298,702	)	$	-	$	(152,539	)

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

Special Note Regarding Forward Looking Statements

This Quarterly Report on Form 10-Q, including the following “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” contains forward-looking statements that are based on the beliefs of our management, and involve risks and uncertainties, as well as assumptions, that, if they ever materialize or prove incorrect, could cause actual results to differ materially from those expressed or implied by such forward-looking statements. The words “believe,” “expect,” “anticipate,” “project,” “targets,” “optimistic,” “intend,” “aim,” “will” or similar expressions are intended to identify forward-looking statements. All statements, other than statements of historical fact, are statements that could be deemed forward-looking statements, including statements regarding new and existing products, technologies and opportunities; statements regarding market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China; any statements of belief or intention; any of the factors and risks mentioned in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2009 and subsequent SEC filings, and any statements of assumptions underlying any of the foregoing. All forward-looking statements included in this report are based on information available to us on the date of this report. We assume no obligation and do not intend to update these forward-looking statements, except as required by law.

Certain Terms

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

Overview of Our Business

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

Our revenue increased from $40.9 million in fiscal year 2006 to $73.3 million in fiscal year 2007 and $112.3 million in fiscal year 2008 and decreased to $98.6 million in fiscal year 2009, representing an overall compounded annual growth rate of approximately 34.1%. These significant increases reflect our success in expanding our production lines and our increasing market penetration. We continually seek to broaden our market reach by introducing new production lines and improving our profit margin through increased vertical integration. Through our manufacturing facilities located in Shenzhen and Hengyang, we currently have 19 lead acid battery production lines that are operational. Eight of them are located at Hengyang Ritar, eleven production lines are located at Shenzhen Ritar. Our current annual designed production capacity of lead acid battery is approximately 2.51 million kilowatt-hours. We have completed construction of the first phase of our new technical and manufacturing complex in Hengyang City, Hunan Province and Lead acid battery production at this facility began in April 2008. In addition, in July of 2008, production of lead plates began at the Hengyang facility. We sold all of our ownership interest in Shanghai Ritar on October 15, 2009 and no longer maintain any manufacturing facility in Shanghai.

Our Current Organizational Structure

The following chart reflects our current organizational structure:

Second Quarter Financial Performance Highlights

We continued to experience strong demand for our products and services during the second fiscal quarter of 2010 and growth in our revenues and net income.

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

Revenues: Our revenues were $33.55 million for the second quarter of 2010, an increase of 56.82% from the same quarter of 2009.

Gross Margin: Gross margin was 16.37% for the second quarter of 2010, as compared to 18.99% for the same period in 2009.

Operating Profit: Operating profit was $3.26 million for the second quarter of 2010, an increase of 32.26% from $2.46 million of the same period last year.

Net Income: Net income was $2.28 million for the second quarter of 2010, an increase of 27.39% from $1.79 million of the same period in 2009.

Fully diluted earnings per share was $0.1 for the second quarter of 2010, an increase of 11.11% from the same period in 2009.

Cost of Revenue

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

Gross Profit and Gross Margin

Between fiscal years 2008 and 2009, we were able to maintain gross margins between approximately 19% and 21%. Gross margins in such years for domestic and international sales were approximately 18% and 22%, respectively. Changes in our gross margins are primarily driven by small changes in cost of goods sold as a percentage of revenues due to our large-scale production and decreased raw materials per unit product and decreased direct labor used per unit product.

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

Operating Expenses

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

Provision for Income Taxes

United States

The Company was incorporated in the United States of America and is subject to United States of America tax law. No provisions for income taxes have been made as the Company has no taxable income for the second quarter of 2010.

British Virgin Islands

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

PRC

Shenzhen Ritar is subject to PRC enterprises income tax (“EIT”) at the applicable tax rates on the taxable income as reported in its Chinese statutory accounts in accordance with the relevant enterprises income tax laws applicable to foreign enterprises. Pursuant to the same enterprises income tax laws, being classified as a high technology company, Shenzhen Ritar was allowed preferential tax treatment – full exemption from PRC enterprises income tax for two fiscal years 2003 and 2004, which were its first profit-making years, and 50% reduction in its EIT rates for the ensuing three years, 2005 through 2007.

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

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

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.

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 June 30, 2010						Three Months Ended June 30, 2009
	Amount			As a Percentage of Revenues			Amount			As a Percentages of Revenues
Net revenue	$	33,554,388			100	%	$	21,397,374			100	%
Cost of sales		28,062,204			83.63	%		17,333,703			81.01	%
Gross profit		5,492,184			16.37	%		4,063,671			18.99	%

Operating expenses:
Salaries		570,731			1.70	%		458,441			2.14	%
Sales commission		260,283			0.78	%		177,358			0.83	%
Shipping and handling cost		390,580			1.16	%		225,531			1.05	%
Other selling and administrative expenses		1,015,257			3.03	%		740,962			3.46	%
		2,236,851			6.67	%		1,602,292			7.49	%

Operating profit		3,255,333			9.70	%		2,461,379			11.50	%

Other income and (expenses):
Interest income		17,988			0.05	%		8,200			0.04	%
Other income		6,402			0.02	%		737			0.00	%
Interest expenses		(138,415	)		(0.41	)%		(166,070	)		(0.78	)%
Foreign currency exchange (loss) gain		(175,126	)		(0.52	)%		54,405			0.25	%
Other expenses		(302	)		(0.00	)%		(1	)		0.00	%

Other expenses, net		(289,453	)		(0.86	)%		(102,729	)		(0.48	)%

Income from continuing operations before income taxes		2,965,880			8.84	%		2,358,650			11.02	%

Income taxes		(689,928	)		(2.06	)%		(411,432	)		(1.92	)%

Income from continuing operations		2,275,952			6.78	%		1,947,218			9.10	%

Loss from discontinued operation, net of taxes		-						(160,567	)		(0.75	)%

Net income		2,275,952			6.78	%		1,786,651			8.35	%
Attributable to noncontrolling interest		-						8,028			0.04	%

Net income attributable to China Ritar shareholders		2,275,952			6.78	%		1,794,679			8.39	%

Other comprehensive income attributable to noncontrolling interest		-						3			0.00	%
Foreign currency translation adjustment		278,702			0.83	%		10,517			0.05	%
Comprehensive income attributable to China Ritar shareholders		2,554,654			7.61	%		1,805,199			8.44	%
Comprehensive loss (income) attributable to non-controlling interest		-						(8,031	)		(0.04	)%
Comprehensive income	$	2,554,654			7.61	%	$	1,797,168			8.40	%

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

Revenues. Revenues increased approximately $12.16 million, or 56.82% to approximately $33.55million for the three months ended June 30, 2010 from approximately $21.40 million for the same period in 2009. This increase was due to an increase in sales volume of 42% and a 10% increase in our average selling price which was caused by the increase in the prices of main raw materials, as a result of the global economic recovery in 2010.

Lead is the most important raw material used in the production of our products. Lead is traded on the world’s commodity markets and its price fluctuates daily. Our lead price is based on the average price in Shanghai Nonferrous Metals (the net web). The cost of lead accounts for approximately 62.8% of the total cost of raw materials. We have provided a sales policy with our clients that the price of our products will fluctuate 0.6% every time the price of lead fluctuates by 1%.

Cost of Sales. Our cost of sales increased approximately $10.73 million, or 61.89%, to approximately $28.06 million for the three months ended June 30, 2010, from approximately $17.33 million for the same period in 2009. This increase was due to the increase in prices of main raw materials and the increase of our sales volume. As a percentage of revenues, the cost of sales increased to 83.63% during the three months ended June 30, 2010 from 81% for the same period of 2009.

Gross Profit. Our gross profit increased approximately $1.43 million, or 35.15% to approximately $5.49 million for the three months ended June 30, 2010 from approximately $4.06 million for the same period in 2009. This increase was due to the increase in our sales volume. Gross profit as a percentage of revenues was 16.37% for the three months ended June 30, 2010, a decrease of 2.62% from 18.99% for the same period of 2009. Such decrease was mainly due to the increase in main raw materials price, and the increase of unit manufacturing cost as a result of low capacity utilization for the new factory in Hengyang.

Salaries. Salaries increased approximately $0.11 million, or 24.49% to approximately $0.57 million for the three months ended June 30, 2010 from $0.46 million for the same period in 2009. The increase of salaries was mainly attributable to the increased number of employees as a result of a larger sales team and the expansion of our new factory. As a percentage of revenues, salaries decreased to 1.7% for three months ended June 30, 2010 from 2.14% for the same period of 2009 as a result of economies of scale.

Sales Commission. Sales commission increased approximately $0.08 million, or 46.76% to approximately $0.26 million for the three months ended June 30, 2010 from approximately $0.18 million for the same period of 2009. This dollar increase was mainly attributable to the increase in sales revenue. As a percentage of revenues, sales commission decreased to 0.78% for the three months ended June 30, 2010 from 0.83% for the same period of 2009.

Shipping and Handling Cost. Shipping and handling cost increased approximately $0.17 million, or 73.18% to approximately $0.39 million for the three months ended June 30, 2010 from approximately $0.23 million for the same period of 2009. The dollar increase of shipping and handling was mainly attributable to the increased sales volume for the three months ended June 30, 2010. As a percentage of revenues, shipping and handling cost increased to 1.16% for the three months ended June 30, 2010 from 1.05% for the same period of 2009, as the increase of declaration expense.

Other Selling, General and Administrative Expenses. Other selling, general and administrative expenses has increased by approximately $0.27 million, or 37.02% to approximately $1.02 million for the three months ended June 30, 2010 from approximately $0.74 million for the same period of 2009. The dollar increase was mainly attributable to the increased number of employees as a result of a larger sales team and the expansion of our new factory. As a percentage of revenues, other selling, general and administrative expenses decreased to 3.03% for the three months ended June 30, 2010 from 3.46% for the same period of 2009 as a result of economies of scale.

Income From Continuing Operations Before Income Taxes. Income before income taxes increased approximately $0.61 million or 25.74% to approximately $2.97 million for the three months ended June 30, 2010 from approximately $2.36 million for the same period of 2009. Such increase was mainly attributable to the increased net revenue as discussed above. Income before income taxes as a percentage of revenues decreased to 8.84% for the three months ended June 30, 2010 from 11.02% for the same period of 2009. The percentage decrease was mainly attributable to the decreased gross margin as discussed above.

Income Taxes. Income taxes increased approximately $0.28 million to approximately $0.69 million for the three months ended June 30, 2010 from approximately $0.41 million for the same period of 2009. We paid more taxes in the second quarter of 2010 mostly because of the increased income before income taxes during this period compared to the same period of 2009. Furthermore, our income tax rate of Shenzhen Ritar increased to 22% since January 1, 2010 while during the same period of 2009 it was 20%.

Net Income. Net income increased approximately $0.49 million, or 27.39% to approximately $2.28 million for the three months ended June 30, 2010 from approximately $1.79 million for the same period of 2009. The increase was mainly attributable to the increased gross profit as discussed above. Net income as a percentage of revenues decreased to 6.78% for the three months ended June 30, 2010 from 8.35% for the same period of 2009. The percentage decrease was mainly attributable to the decreased gross margin as discussed 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.

	Six Months Ended June 30, 2010						Six Months Ended June 30, 2009
	Amount			As a Percentage of revenues			Amount			As a Percentage of revenues
Net revenue	$	58,362,748			100	%	$	37,781,035			100	%
Cost of sales		48,100,168			82.42	%		30,424,848			80.53	%
Gross profit		10,262,580			17.58	%		7,356,187			19.47	%

Operating expenses:
Salaries		1,136,573			1.95	%		853,334			2.26	%
Sales commission		791,834			1.36	%		926,582			2.45	%
Shipping and handling cost		675,840			1.16	%		507,477			1.34	%
Other selling and administrative expenses		2,173,899			3.72	%		1,664,038			4.40	%
		4,778,146			8.19	%		3,951,431			10.46	%

Operating profit		5,484,434			9.40	%		3,404,756			9.01	%

Other income and (expenses):
Interest income		62,815			0.11	%		65,849			0.17	%
Other income		6,402			0.01	%		3,277			0.01	%
Interest expenses		(286,574	)		(0.49	)%		(313,494	)		(0.83	)%
Foreign currency exchange (loss) gain		(242,020	)		(0.41	)%		5,089			0.01	%
Other expenses		(3,051	)		(0.01	)%		(1,664	)		0.00	%

Other expenses, net		(462,428	)		(0.79	)%		(240,943	)		(0.64	)%

Income from continuing operations before income taxes		5,022,006			8.60	%		3,163,813			8.37	%

Income taxes		(1,160,908	)		(1.99	)%		(528,479	)		(1.40	)%

Income from continuing operations		3,861,098			6.62	%		2,635,334			6.98	%

Loss from discontinued operation, net of taxes		-						(314,424	)		(0.83	)%

Net income		3,861,098			6.62	%		2,320,910			6.14	%
Attributable to noncontrolling interest		-						15,722			0.04	%

Net income attributable to China Ritar shareholders		3,861,098			6.62	%		2,336,632			6.18	%

Other comprehensive income attributable to noncontrolling interest		-						3			0.00	%
Foreign currency translation adjustment		292,638			0.50	%		117,938			0.31	%
Comprehensive income attributable to China Ritar shareholders		4,153,736			7.12	%		2,454,573			6.50	%
Comprehensive loss (income) attributable to non-controlling interest		-			0.00	%		(15,725	)		(0.04	)%
Comprehensive income	$	4,153,736			7.12	%	$	2,438,848			6.46	%

Six Months Ended June 30, 2010 Compared to Six Months Ended June 30, 2009

Revenues. Revenues increased approximately $20.58 million, or 54.48% to approximately $58.36 million for the six months ended June 30, 2010 from approximately $37.78 million for the same period in 2009. This increase was due to an increase in sales volume of 37.6% and a 12.3% increase in our average selling price which was caused by the increase in the prices of main raw materials, as a result of the global economic recovery in 2010.

Cost of Sales. Our cost of sales increased approximately $17.68 million, or 58.1% to approximately $48.1 million for the six months ended June 30, 2010 from approximately $30.42 million for the same period in 2009. This increase was due to the increase of our sales volume and the increase in prices of main raw materials. As a percentage of revenues, the cost of sales increased to 82.42% during the six months ended June 30, 2010 from 80.53% for the same period of 2009.

Gross Profit. Our gross profit increased approximately $2.9 million, or 39.51% to approximately $10.26 million for the six months ended June 30, 2010 from approximately $7.36 million for the same period in 2009. This increase was due to the increase in our sales volume. Gross profit as a percentage of revenues was 17.58% for the six months ended June 30, 2010, a decrease of 1.89% from 19.47% for the same period of 2009. Such decrease was mainly due to the increase in main raw materials price, and the increase of unit manufacturing cost as a result of low capacity utilization for the new factory in Hengyang.

Salaries. Salaries increased approximately $0.28 million, or 33.19% to approximately $1.14 million for the six months ended June 30, 2010 from $0.85 million for the same period in 2009. The increase of salaries was mainly attributable to the increased number of employees as a result of a larger sales team and the expansion of our new factory. As a percentage of revenues, salaries decreased to 1.95% for six months ended June 30, 2010 from 2.26% for the same period of 2009 as a result of economies of scale.

Sales Commission. Sales commission decreased approximately $0.13 million, or 14.54% to approximately $0.79million for the six months ended June 30, 2010 from approximately $0.93 million for the same period of 2009. As a percentage of revenues, sales commission decreased to 1.36% for the six months ended June 30, 2010 from 2.45% for the same period of 2009. The decrease was mainly because 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 increased approximately $0.17 million, or 33.18%, to approximately $0.68 million for the six months ended June 30, 2010, from approximately $0.51 million for the same period of 2009. This increase was due to the increase in our sales volume. As a percentage of revenues, shipping and handling cost decreased to 1.16% for the six months ended June 30, 2010 from 1.34% for the same period of 2009. 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 increased approximately $0.51 million, or 30.64% to approximately $2.17 million for the six months ended June 30, 2010 from approximately $1.66 million for the same period of 2009. The dollar increase was mainly attributable to the increased number of employees as a result of a larger sales team and the expansion of our new factory. As a percentage of revenues, other selling, general and administrative expenses decreased to 3.72% for the six months ended June 30, 2010 from 4.4% for the same period of 2009 as a result of economies of scale.

Income From Continuing Operations Before Income Taxes. Income before income taxes increased approximately $1.86 million or 58.73% to approximately $5.02 million for the six months ended June 30, 2010 from approximately $3.16 million for the same period of 2009. Such increase was mainly attributable to the increased gross profit as discussed above. Income before income taxes as a percentage of revenues increased to 8.6% for the six months ended June 30, 2010 from 8.37% for the same period of 2009.

Income Taxes. Income taxes increased approximately $0.63 million to approximately $1.16 million for the six months ended June 30, 2010 from approximately $0.53 million for the same period of 2009. We paid more taxes mostly because of the increased income before income taxes during this period compared to the same period of 2009. Furthermore, our income tax rate of Shenzhen Ritar increased to 22% since January 1, 2010 while during the same period of 2009 it was 20%.

Net Income. Net income increased approximately $1.54 million, or 66.36% to approximately $3.86 million for the six months ended June 30, 2010 from approximately $2.32 million for the same period of 2009. The increase was mainly attributable to the increased gross profit as discussed above. Net income as a percentage of revenues increased to 6.62% for the six months ended June 30, 2010 from 6.14% for the same period of 2009 was mainly attributable to the factors as discussed above.

Liquidity and Capital Resources

General

As of June 30, 2010, we had cash and cash equivalents of approximately $9.5million. The following table provides detailed information about our net cash flow for all financial statements periods presented in this report.

	Six Months Ended June 30
	2010			2009
	(Dollars in thousands)

Net cash provided by/(used in) operating activities		(12,429	)		2,922
Net cash used in investing activities		(468	)		(2,239	)
Net cash provided by/(used in) financing activities		1,882			(458	)
Net cash inflow/(outflow)		(10,959	)		48

Operating Activities

Net cash used in operating activities was approximately $12.52 million for the six months ended June 30, 2010 which was mainly attributable to (i) $3.86 million net income, (ii) net outflow of the increased accounts receivable of approximately $7.65 million arising from extended credit terms granted on large volume sales and (iii) net outflows from the decreased bills payable of approximately $6.55 million. The Company paid off vendors within the credit periods in order to secure steady supply of materials.

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 six months ended June 30, 2010 was approximately $0.47 million, primarily a result of payments to acquire property, plant and the equipment in Hengyang Ritar.

Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2010 was approximately $1.88 million which was mainly attributable to the net inflow of bank borrowings of approximately $0.8 million in the six months ended June 30, 2010.

Loan Facilities

As of June 30, 2010, the amounts and maturity dates for our bank loans were as follows.

Short-term loans consist of the following:

Bank

Loan period

Interest

rate

Securities

June 30

2010

December 31

2009

(Unaudited)

DBS Bank

2009-10-22 to

2010-2-8

6% p.a.

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

864,064

DBS Bank

2009-11-12 to

2010-3-3

6% p.a.

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

251,897

DBS Bank

2009-12-31 to

2010-4-21

6% p.a.

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

348,554

DBS Bank

2010-3-17 to

2010-7-16

6% p.a.

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

677,377

DBS Bank

2010-3-21 to

2010-7-20

6% p.a.

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

43,931

DBS Bank

2010-5-4 to

2010-8-26

6% p.a.

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

589,024

DBS Bank

2010-6-21 to

2010-10-7

6% p.a.

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

161,981

China Merchants Bank

2010-5-18 to

2010-8-18

4.9% p.a.

Directors’ personal guarantees

1,472,559

2,944,872

1,464,515

Long-term loans consist of the following:

	June 30		December 31
	2010		2009
	(Unaudited)
Loan from DBS Bank, bearing interest at 7.01% (2009: 6.91%) p.a., repayable by monthly installments from 2009-04-18 to 2013-09-18, secured by certain property, plant and equipment and land use right of the Company as disclosed in Note 10 and Note 12, respectively.	$	3,162,688	$	3,661,288
Loan from DBS Bank, bearing interest at 5% p.a., repayable by monthly installments from 2009-07-12 to June 2011-06-12, secured by machinery and equipment of Hengyang Ritar as disclosed in Note 10 and joint guarantees given by Shenzhen Ritar, China Ritar, Mr. Jiada Hu, Ms. Hengying Peng and Mr. Jianjun Zeng		413,298		562,373
Total loans		3,575,986		4,223,661
Less: Current maturities		1,349,846		1,342,473
Long-term loans, less current maturities	$	2,226,140	$	2,881,188

Future maturities of long-term loans are as follows:
Payable within the year ending June 30,
2011			$	1,349,846
2012				1,026,863
2013				981,706
2014				217,571
Total			$	3,575,986

We believe that our currently available working capital and our credit facility 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 June 30, 2010:

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	$	6,520	$	4,294	$	2,226	$	-	$	-
Operating lease obligations		923		548		375		-		-
Capital commitments		1,685		1,685		-		-		-
Purchase obligations		-		-		-		-		-
Other Long-Term Liabilities Reflected on the Registrant's Balance Sheet under GAAP		-		-		-		-		-
Total	$	9,128	$	6,527	$	2,601	$	-	$	-

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 June 30, 2010.

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 is stated at billed amounts, net of allowance for doubtful accounts. Management provides an allowance for doubtful debts arising from amounts that are due for one year or more from the expiry of credit periods allowed by the Company. The Company grants credit terms to customers varying from “cash on delivery” to 210 days from delivery. 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. 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.

Level one — Quoted market prices in active markets for identical assets or liabilities;

Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

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

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

	Fair value measurement using inputs						Carrying amount at
Financial instruments	Level 1		Level 2		Level 3		June 30, 2010
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)
Liabilities:
Derivative instruments	$	—	$	41,997	$	—	$	41,997
Total	$	—	$	41,997	$	—	$	41,997

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

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

Research and development expenses. Research and development costs are charged to expense when incurred and are included in operating expenses. During the six months ended June 30, 2010 and 2009, research and development costs expensed to operating expenses were approximately $153,818 and $50,796 respectively and $79,577 and $27,366 for the three months ended June 30, 2010 and 2009 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 year presented in accordance with FASB ASC 260-10, “Earnings Per Share.”

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

	Six months ended June 30,
	2010		2009
	(Unaudited)		(Unaudited)
Net income attributable to China Ritar stockholders	$	3,861,098	$	2,336,632

Weighted average shares outstanding-basic		21,787,179		19,134,992
Add: Effect of dilutive warrants		-		-

Weighted average shares outstanding-diluted		21,787,179		19,134,992

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 Accounting Pronouncements

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

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 sheet 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. Aijun Liu, our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2010. Based on that evaluation, Mr. Hu and Mr. Liu concluded that as of June 30, 2010, 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 June 30, 2010, 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 June 30, 2010, we made no unregistered sales of our equity securities.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Other Information

None.

Item 5. 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.

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: August 16, 2010

	CHINA RITAR POWER CORP.

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

	By: /s/ Aijun Liu
	Aijun Liu
	Chief Financial Officer
	(Principal Financial Officer)

Attached files

China Ritar Power Corp. Reports

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