UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   FORM 10-QSB

(Mark One)

|X|  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934.

     For the Period ended June 30, 2007 or

|_|  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

     For the transition period from ___________ to __________

                          Commission File No. 814-00063

                     CHINA BIOPHARMACEUTICALS HOLDINGS, INC.
                 (Name of small business issuer in its charter)

            Delaware                                     13-2949462
(State or other jurisdiction of             (I.R.S. Employer Identification No.)
 incorporation or organization)

   No. 859, Pan Xu Road
   Suzhou, Jiangsu Province
   China                                                   215000
   (Address of principal executive offices)              (Zip Code)

Issuer's telephone number: (86) 512 6855 0568

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: Common Stock, par
value $0.01

Check whether the issuer: (1) 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 is a shell company (as defined in
Rule 12b-2 of the Exchange Act) Yes: |_| No: |X|

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

Title of Each Class of                              Number of Shares Outstanding
Equity Securities                                   as of August 14, 2007
-----------------------------                       ----------------------------
Common Stock, $0.01 par value                         36,340,312

Transitional Small Business Disclosure Format:  Yes:  |_|    No:  |X|

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART I -   FINANCIAL INFORMATION

  ITEM 1.  FINANCIAL STATEMENTS                                               1

  ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS                                         33

  ITEM 3.  CONTROL AND PROCEDURES                                            40

PART II -  OTHER INFORMATION

  ITEM 1.  LEGAL PROCEEDINGS                                                 41

  ITEM 5.  OTHER INFORMATION                                                 41

  ITEM 6.  EXHIBITS                                                          42

      References in this Quarterly Report on Form 10-QSB to the "Company", "we",
"us" or "our" include China Biopharmaceuticals Holdings, Inc. and its
subsidiaries, unless the context requires otherwise.

<PAGE>

                         PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENT

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEET
                               AS OF JUNE 30, 2007

                                   ASSETS

<TABLE>
<CAPTION>
                                                                                       June 30,
                                                                                         2007
                                                                                     ------------
CURRENT ASSETS:                                                                       Unaudited
                                                                                     ------------
<S>                                                                                  <C>
    Cash                                                                             $  1,230,258
    Accounts receivable, trade, net of allowance for doubtful accounts of $934,516      6,860,309
    Accounts receivable, related parties                                                  259,347
    Other receivables                                                                   2,614,674
    Other receivables - related parties                                                 3,123,894
    Advances to suppliers                                                                 244,161
    Prepaid expenses                                                                       48,257
    Inventories                                                                         7,605,936
    Loan to shareholders                                                                   42,794
                                                                                     ------------
       Total current assets                                                            22,029,630
                                                                                     ------------

PLANT AND EQUIPMENT, net                                                               12,278,966
                                                                                     ------------
OTHER ASSETS:
    Intangible asset, net                                                              12,702,943
    Long term notes receivable                                                            657,797
    Long term other receivables - related parties                                         554,344
    Restricted cash                                                                       840,285
    Other assets                                                                          989,624
                                                                                     ------------
       Total other assets                                                              15,744,993
                                                                                     ------------

         Total assets                                                                $ 50,053,589
                                                                                     ============

                              LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    Accounts payable                                                                 $  5,427,225
    Short-term loans                                                                    5,588,750
    Long term debt - current maturities                                                11,500,000
    Other payables                                                                        104,896
    Other payables - related parties                                                    1,514,292
    Customer deposits                                                                   1,845,349
    Notes payable                                                                       2,406,450
    Taxes payable                                                                       1,308,375
    Other accrued liabilities                                                           1,403,995
                                                                                     ------------
       Total current liabilities                                                       31,099,332
                                                                                     ------------
LONG TERM LIABILITIES:
    Other long term liabilities                                                           164,848
                                                                                     ------------
       Total liabilities                                                               31,264,180
                                                                                     ------------
COMMITMENTS AND CONTINGENCIES                                                                  --
                                                                                     ------------
MINORITY INTEREST                                                                       5,420,442
                                                                                     ------------
SHAREHOLDERS' EQUITY:
    Preferred stock, $0.01 par value, 10,000,000 shares authorized;
       417,500 shares Issued and outstanding                                                4,175
    Common stock, $0.01 par value, 200,000,000 shares authorized;
       36,465,312  shares issued and outstanding                                          364,654
    Paid-in capital                                                                    13,093,750
    Capital receivable                                                                   (252,471)
    Deferred compensation                                                                 (46,125)
    Statutory reserves                                                                  2,754,547
    Retained earnings (deficit)                                                        (3,771,410)
    Accumulated other comprehensive income                                              1,221,847
                                                                                     ------------
       Total shareholders' equity                                                      13,368,967
                                                                                     ------------

         Total liabilities and shareholders' equity                                  $ 50,053,589
                                                                                     ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      -1-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

      CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
        FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 2007 AND 2006

<TABLE>
<CAPTION>
                                                           Three months ended June 30,      Six months ended June 30,
                                                               2007            2006            2007            2006
                                                           ------------    ------------    ------------    ------------
                                                           (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)
                                                           ------------    ------------    ------------    ------------
                                                                             Restated                        Restated
                                                                           ------------                    ------------
<S>                                                        <C>             <C>             <C>             <C>
REVENUES                                                   $  8,891,559    $  6,965,818    $ 16,423,681    $ 12,515,741

COST OF GOODS SOLD                                            6,656,183       5,077,169      12,179,463       9,193,323
                                                           ------------    ------------    ------------    ------------

GROSS PROFIT                                                  2,235,376       1,888,649       4,244,218       3,322,418
                                                           ------------    ------------    ------------    ------------
OPERATING EXPENSES
     Research and development                                    66,748         240,747         109,911         498,822
     Selling, general and administrative                      1,519,246         788,133       2,844,561       1,502,105
                                                           ------------    ------------    ------------    ------------
        Total Operating Expenses                              1,585,994       1,028,880       2,954,472       2,000,927
                                                           ------------    ------------    ------------    ------------

INCOME  FROM OPERATIONS                                         649,382         859,769       1,289,746       1,321,491
                                                           ------------    ------------    ------------    ------------
OTHER INCOME (EXPENSE)
     Interest income (expense), net                            (314,481)       (138,091)       (677,838)       (184,833)
     Other income (expense),net                                 217,597         195,139         214,923         177,733
                                                           ------------    ------------    ------------    ------------
        Total Other Income (expense), net                       (96,884)         57,048        (462,915)         (7,100)
                                                           ------------    ------------    ------------    ------------

INCOME BEFORE INCOME TAXES AND MINORITY INTEREST                552,498         916,817         826,831       1,314,391

PROVISION FOR INCOME TAXES                                       16,015          59,530          25,621          59,530
                                                           ------------    ------------    ------------    ------------

INCOME BEFORE MINORITY INTEREST                                 536,483         857,287         801,210       1,254,861

MINORITY INTEREST                                               565,772         412,970         918,767         659,268
                                                           ------------    ------------    ------------    ------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                        (29,289)        444,317        (117,557)        595,593

LOSS FROM DISCONTINUED OPERATIONS, net of tax                        --         (53,717)             --         (11,001)
                                                           ------------    ------------    ------------    ------------

NET  (LOSS) INCOME                                              (29,289)        390,600        (117,557)        584,592
OTHER COMPREHENSIVE INCOME:
     Foreign currency translation adjustment                    319,364         394,168         354,318         512,135
                                                           ------------    ------------    ------------    ------------

COMPREHENSIVE (LOSS) INCOME                                $    290,075    $    784,768    $    236,761    $  1,096,727
                                                           ============    ============    ============    ============
INCOME (LOSS) PER SHARE OF COMMON STOCK
BASIC
     CONTINUING OPERATIONS                                 $     (0.001)   $      0.013    $     (0.003)   $      0.018
     DISCONTINUED OPERATIONS                                         --          (0.002)             --              --
                                                           ------------    ------------    ------------    ------------
     Total-Basic                                           $     (0.001)   $      0.011    $     (0.003)   $      0.018
                                                           ============    ============    ============    ============
DILUTED
     CONTINUING OPERATIONS                                 $     (0.001)   $      0.013    $     (0.003)   $      0.017
     DISCONTINUED OPERATIONS                                         --          (0.002)             --              --
                                                           ------------    ------------    ------------    ------------
     Total-diluted                                         $     (0.001)   $      0.011    $     (0.003)   $      0.017
                                                           ============    ============    ============    ============

WEIGHTED AVERAGED NUMBER OF SHARES OUTSTANDING - BASIC       36,402,125      33,662,770      36,217,286      33,662,770
                                                           ============    ============    ============    ============

WEIGHTED AVERAGED NUMBER OF SHARES OUTSTANDING - DILUTED     36,819,625      34,592,770      36,743,626      34,592,770
                                                           ============    ============    ============    ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      -2-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
                 FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

<TABLE>
<CAPTION>
                                                                  Preferred  Stock              Common Stock
                                                            ---------------------------   ---------------------------   Paid-in
                                                               Shares       Par Value        Shares       Par Value      Capital
                                                            ------------   ------------   ------------   ------------  ------------
<S>                                                            <C>         <C>              <C>          <C>           <C>
 BALANCE, December 31, 2005                                    1,152,500   $     11,525     28,616,716   $    286,167  $  3,572,207

    Common shares issued for cash                                                            7,831,863         78,319     6,845,090
    Common shares issued for services                                                           50,000            500         4,500
    Common shares issued for note conversion                                                   399,820          3,998       421,002
    Common shares issued for preferred stock conversion         (312,500)        (3,125)       443,277          4,433        (1,308)
    Preferred shares issued                                       90,000            900                                      89,100
    Assumed warrants to issue common stock                                                                                2,640,000
    Net income
    Statutory reserves
    Foreign currency translation adjustments
                                                            ------------   ------------   ------------   ------------  ------------
 BALANCE, June 30, 2006, Unaudited, restated                     930,000   $      9,300     37,341,676   $    373,417  $ 13,570,591

    Common shares issued for service                                                            49,805            498        52,002
    Common shares returned from Hengyi due to divestiture                                   (1,200,000)       (12,000)     (520,026
    Deferred compensation
    Common shares cancelled                                                                   (604,741)        (6,047)        6,047
    Preferred stock dividends                                                                                               (48,703
    Net loss
    Statutory reserves
    Foreign currency translation adjustments
                                                            ------------   ------------   ------------   ------------  ------------
 BALANCE, December 31, 2006                                      930,000   $      9,300     35,586,740   $    355,868  $ 13,059,911

    Common shares issued for preferred stock conversion         (512,500)        (5,125)       753,572          7,536        (2,411)
    Common shares issued for service                                                           125,000          1,250        36,250
    Net loss
    Statutory reserves
    Foreign currency translation adjustments
                                                            ------------   ------------   ------------   ------------  ------------
 BALANCE, June 30, 2007,Unaudited                                417,500   $      4,175     36,465,312   $    364,654  $ 13,093,750
                                                            ============   ============   ============   ============  ============

<CAPTION>

                                                                                              Retained Earnings
                                                                                         ----------------------------
                                                               Capital      Deferred                       Statutory
                                                              Receivable   Compensation  Unrestricted      Reserves
                                                              -----------  ------------  ------------    ------------
<S>                                                           <C>           <C>          <C>             <C>
 BALANCE, December 31, 2005                                   $ (252,471)   $ (24,000)   $  1,074,584    $    444,623

    Common shares issued for cash
    Common shares issued for services
    Common shares issued for note conversion
    Common shares issued for preferred stock conversion
    Preferred shares issued
    Assumed warrants to issue common stock
    Net income                                                                                584,592
    Statutory reserves                                                                     (2,028,121)      2,028,121
    Foreign currency translation adjustments
                                                              ----------    ---------    ------------    ------------
 BALANCE, June 30, 2006, Unaudited, restated                  $ (252,471)   $ (24,000)   $   (368,945)   $  2,472,744

    Common shares issued for service
    Common shares returned from Hengyi due to divestiture
    Deferred compensation                                                       6,000
    Common shares cancelled
    Preferred stock dividends
    Net loss                                                                               (3,003,105)
    Statutory reserves                                                                        (51,911)         51,911
    Foreign currency translation adjustments
                                                              ----------    ---------    ------------    ------------
 BALANCE, December 31, 2006                                   $ (252,471)   $ (18,000)   $ (3,423,961)   $  2,524,655

    Common shares issued for preferred stock conversion
    Common shares issued for service                                          (28,125)
    Net loss                                                                                 (117,557)
    Statutory reserves                                                                       (229,892)        229,892
    Foreign currency translation adjustments
                                                              ----------    ---------    ------------    ------------
 BALANCE, June 30, 2007,Unaudited                             $ (252,471)   $ (46,125)   $ (3,771,410)   $  2,754,547
                                                              ==========    =========    ============    ============

<CAPTION>

                                                                  Other
                                                               Comprehensive
                                                               Income (Loss)     Totals
                                                               -------------  ------------
<S>                                                            <C>            <C>
 BALANCE, December 31, 2005                                    $    156,089   $  5,268,724

    Common shares issued for cash                                                6,923,409
    Common shares issued for services                                                5,000
    Common shares issued for note conversion                                       425,000
    Common shares issued for preferred stock conversion                                 --
    Preferred shares issued                                                         90,000
    Assumed warrants to issue common stock                                       2,640,000
    Net income                                                                     584,592
    Statutory reserves                                                                  --
    Foreign currency translation adjustments                        512,135        512,135
                                                               ------------   ------------
 BALANCE, June 30, 2006, Unaudited, restated                   $    668,224   $ 16,448,860

    Common shares issued for service                                                52,500
    Common shares returned from Hengyi due to divestiture                         (532,026)
    Deferred compensation                                                            6,000
    Common shares cancelled                                                             --
    Preferred stock dividends                                                      (48,703)
    Net loss                                                                    (3,003,105)
    Statutory reserves                                                                  --
    Foreign currency translation adjustments                        199,775        199,775
                                                               ------------   ------------
 BALANCE, December 31, 2006                                    $    867,999   $ 13,123,301

    Common shares issued for preferred stock conversion                                 --
    Common shares issued for service                                                 9,375
    Net loss                                                                      (117,557)
    Statutory reserves                                                                  --
    Foreign currency translation adjustments                        353,848        353,848
                                                               ------------   ------------
 BALANCE, June 30, 2007,Unaudited                              $  1,221,847   $ 13,368,967
                                                               ============   ============
</TABLE>

The accompanying notes are an integral part of this statement.


                                      -3-
<PAGE>


            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                 FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2006

<TABLE>
<CAPTION>
                                                                                          2007           2006
                                                                                       -----------    -----------
                                                                                        Unaudited      Unaudited
                                                                                       -----------    -----------
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:                                                        Restated
                                                                                                      -----------
<S>                                                                                    <C>            <C>
    Net (loss) income                                                                  $  (117,557)   $   584,592
    Net income from discontinued operations                                                     --        (11,001)
                                                                                       -----------    -----------
    Net income (loss) from continuing operations                                          (117,557)       595,593
    Adjustments to reconcile net income (loss)  from continuing
      operations to cash provided by (used in) continuing operating activities:
        Depreciation and amortization                                                      662,048        421,966
        Issuance of common stock for service                                                 9,375             --
        Minority interest                                                                1,284,090        657,311
    Change in operating assets and liabilities:
      (Increase) decrease in assets:
        Accounts receivable, trade                                                      (1,828,364)      (749,226)
        Accounts receivable, related parties                                              (201,967)       (69,787)
        Note receivable                                                                         --         47,434
        Other receivables and prepayments                                                  104,752     (1,558,357)
        Other receivables - related parties                                             (1,178,997)    (2,021,518)
        Advances to suppliers                                                              120,791         80,415
        Other assets                                                                        78,456             --
        Inventories                                                                       (459,250)      (768,199)
      Increase (decrease) in liabilities:
        Accounts payable                                                                   709,157         10,051
        Accounts payable - related parties                                                      --       (242,061)
        Other payables and accrued liabilities                                             472,051         88,067
        Other payables - related parties                                                (1,290,480)     2,082,352
        Customer deposits                                                                  839,636       (183,762)
        Taxes payable                                                                       31,178        (51,095)
                                                                                       -----------    -----------
           Net cash used in continuing operating activities                               (765,081)    (1,660,816)
                                                                                       -----------    -----------
CASH FLOWS FROM CONTINUING OPERATIONS INVESTING ACTIVITIES:
    Business acquisition-cash paid                                                              --       (500,000)
    Cash acquired from business acquisition                                                     --        415,361
    Purchase of intangible asset                                                                --       (348,936)
    Purchase of equipment                                                                 (103,070)      (106,246)
    Payment to purchsae land use right                                                    (512,095)            --
    Payment paid to ENSHI former shareholder                                                    --       (430,000)
    Dividend paid to ENSHI former shareholder                                                   --       (186,930)
    Payment paid to receivables from related party                                          80,504             --
    Payment to long term loans receivables                                                 173,531        626,326
    Long term other receivables - related parties                                               --     (1,424,806)
                                                                                       -----------    -----------
           Net cash used in continuing operations investing activities                    (361,130)    (1,955,231)
                                                                                       -----------    -----------

CASH FLOWS FROM CONTINUING OPERATIONS FINANCING ACTIVITIES:
    Restricted cash                                                                         76,122        402,352
    Proceeds from issuance of perferred stock                                                   --         90,000
    Proceeds from issuance of common stock                                                      --      7,348,409
    Payments on loans payable                                                              (64,855)    (1,170,860)
    Payments on short-term convertible notes                                                    --       (425,000)
    Payments on long-term debts                                                                 --       (604,376)
    Proceeds from long term debts-related party                                                 --         40,097
    Payments on long term debts - related parties                                         (390,252)            --
                                                                                       -----------    -----------
           Net cash (used in) provided by continuing operations financing activities      (378,985)     5,680,622
                                                                                       -----------    -----------

Net (decrease) increase in cash from continuing operations                              (1,505,196)     2,064,575
                                                                                       -----------    -----------
Cash provided by discontinued operating activities                                              --      1,230,065
Cash used in discontinued operations investing activities                                       --     (1,824,183)
Cash provided by discontinued operations financing activities                                   --        578,237
                                                                                       -----------    -----------
Net cash used in discontinued operations                                                        --        (15,881)
                                                                                       -----------    -----------

EFFECT OF EXCHANGE RATE ON CASH                                                           (223,102)        92,139
                                                                                       -----------    -----------
(DECREASE) INCREASE IN CASH                                                             (1,728,298)     2,140,833

CASH, beginning of period                                                                2,958,556      1,026,606
                                                                                       -----------    -----------

CASH, end of period                                                                    $ 1,230,258    $ 3,167,439
                                                                                       ===========    ===========
</TABLE>

The accompanying notes are an integral part of this statement.


                                      -4-
<PAGE>


            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Note 1- ORGANIZATION AND OPERATIONS

China  Biopharmaceuticals  Holdings,  Inc.  (CBH), a Delaware  corporation,  was
originally organized as a corporation under the laws of the state of New York on
August 6, 1976 under the name of  Globuscope,  Inc. On August 7, 1984,  its name
was changed to Globus Growth Group, Inc., which was its name until it was merged
into CBH,  its wholly  owned  subsidiary  in the state of Delaware on August 28,
2004 through an internal  re-organizational  merger.  Effective August 28, 2004,
CBH completed the  acquisition  of China  Biopharmaceuticals  Corp.  ("CBC"),  a
British Virgin Islands  corporation  as the parent,  the management  company and
holder of 90% of the ownership  interest in its then only  operating  subsidiary
and asset,  Nanjing  Keyuan  Pharmaceutical  R&D Co.,  Ltd.,  doing  business in
English  a.k.a.  Nanjing  Chemsource  Pharmaceutical  R&D Co. Ltd,  ("Keyuan" or
"Chemsource"),  a company  established  in China and  engaged in the  discovery,
development   and    commercialization   of   innovative   drugs   and   related
bio-pharmaceutical  products in China.  Nanjing Keyuan  Pharmaceutical  R&D Co.,
Ltd. was established in March 2000 in Nanjing City of Jiangsu Province, China.

On  September  29,  2004,  we signed a purchase  agreement  which was amended on
December 31, 2004 to acquire  approximately  75.8% ownership  interest of Suzhou
Hengyi  Pharmaceuticals  of Feedstock  Co., Ltd  ("Hengyi"),  a Chinese  company
established in Suzhou, China for 1,200,000 of common shares and $1,600,000 to be
used for working capital and/or expansion purposes.  The cash contribution is to
be made in installments. On August 28, 2006, the Company entered to an agreement
with the minority  shareholders  of Suzhou  Hengyi to rescind and  terminate the
purchase of Hengyi and its 50%  subsidiary,  Suzhou  Sintofarm.  Pursuant to the
agreement  all  consideration  paid  to the  shareholders  of  Hengyi  including
1,200,000  shares of the  Company's  common stock and $620,000 in cash,  will be
returned to the Company.  As of June 30, 2007, Hengyi had already fully returned
all 1,200,000 shares of the Company's common stock to the Company.  Furthermore,
the Company  anticipates  Hengyi  will return the  $620,000 in cash by March 31,
2008.  The  Company  will  not have  any  other  obligations  to  Hengyi  or its
shareholders.  Simultaneously  the 75.8%  ownership  interest  of Hengyi will be
returned to Hengyi's  shareholders or its designated party. As a result,  Hengyi
ceased to be a  subsidiary  of the  Company.  All the parties to the  rescission
agreed  that  the  transaction  took  effect  as of July  1,  2006.  The  detail
information  of  accounting  for  this  transaction  is  disclosed  in Note 16 -
Business Combinations.

On June 11, 2005, we signed a purchase agreement, which was amended on August 3,
2005 under which, we acquired  approximately  51% of the  controlling  ownership
interest of Suzhou  Erye  Pharmaceutical  Limited  Company  ("Erye"),  a company
established  in Suzhou,  China.  Total  consideration  paid by us to acquire 51%
ownership  interest in Erye is $3,000,000 cash to be paid in  installments,  and
3,300,000 of common shares valued at $1.00 per share or  $3,300,000.  Out of the
$3,000,000 to be paid in cash,  $2,200,000  will be  contributed to the acquired
Erye for working capital and/or expansion purposes.

On  December  31,  2005,  our wholly  owned  subsidiary,  CBC,  entered  into an
Agreement  with four  shareholders  of Chengdu  Tianyin  Pharmaceutical  Limited
Company,  a  pharmaceutical  company  located  in the city of  Chengdu,  Sichuan
Province, China ("Tianyin") to immediately assume operational control of Tianyin
in all  aspects  of its  business  operations  and to  acquire  a 51%  ownership
interest in Tianyin.  Pursuant to the Agreement,  subject to certain conditions,
we agreed to issue 3 million shares of common stock to existing  shareholders of
Tianyin or their  designees  and also agreed to invest $2 million  into  Tianyin
operations.  An additional  300,000 shares of our common stock will be issued to
the existing shareholders of Tianyin or their designees,  if Tianyin's after tax
audited  profit for the year ended  December  31, 2005 reaches  $3,000,000.  The
unaudited  numbers are  substantially  lower than the agreed to targets.  We are
currently evaluating the viability of the implementation of the Tianyin purchase
agreement and will make a final  determination  after consulting with management
of Tianyin.  Based on the pre-conditions in the purchase Agreement,  the Company
decided  not to assume  the  operational  control of Tianyin at this time and is
exploring   options  of  changing  the  transaction   terms  or  abandoning  the
acquisition of Tianyin should Tianyin's shareholders not compromise and meet the
company's request for a reasonable purchase price.  Appropriate  disclosure will
be announced upon the final  determination by the board of the directors.  Since
this  transaction is in the process of evaluation,  the final  determination  of
this merger transaction has not reasonably  reached a conclusion;  the financial
statements  of Tianyin  have not been  included  in the  consolidated  financial
statements for the period ended June 30, 2007.


                                      -5-
<PAGE>


            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
On May 16, 2006 we entered into a purchase  agreement which became  effective at
June 5, 2006, under which we acquired 100% of the controlling ownership interest
of RACP Pharmaceutical Holdings LTD. ("RACP") which owns 100% ownership interest
of Shengyang Enshi Pharmaceutical Limited Company ("Enshi"). Total consideration
of $14,690,000 paid by us to acquire the 100% interest in both RACP and Enshi is
$550,000 paid in cash, 12,000,000 of CBH warrants valued at $0.22 per warrant or
$2,640,000 and to assume  $11,500,000  debt of RACP.  The detail  information of
accounting for this transaction is disclosed in Note 16 - Business Combinations.

The principal  activities of the Company,  located in Mainland China ("China" or
"PRC"),  are  research,   manufacture,  and  sale  of  drug  raw  materials  and
intermediates  as well as prescription and  non-prescription  chemical drugs and
Traditional Chinese Medicines.

Note 2- RESTATEMENT OF FINANCIAL STATEMENT

In March 2007,  management  determined that  approximately $2.6 million of trade
receivables  purchased in connection with acquisition of Enshi were non-existent
and therefore had no fair value on the date of acquisition. Consistent with SFAS
No. 141, the Company is allowed an  allocation  period not to exceed one year to
re-allocate  its purchase price to the "fair value of the net assets acquired on
the purchase date" based on facts available today. Accordingly,  $2.6 million of
the purchase price originally allocated to receivables have been re-allocated to
buildings  and land use rights.  In  addition,  the Company  increased  $625,000
receivable  from the escrow funds due to existence of certain  contingencies  in
related to Enshi  acquisition.  Certain  disclosures  in  notes15  and 16 to the
consolidated  financial statements are being restated to reflect the correction.
As a result, the Company restated it's June and September 2006 interim financial
statements. The effects of this restatement are as follows:

In  addition,  in late 2006 the  Company  rescinded  its  acquisition  of Suzhou
Hengyi.  Due to the  rescission,  Suzhou  Hengyi  and its 50%  owned  subsidiary
Sintofarm  ceased to be  subsidiaries  of the Company.  In accordance  with FASB
Statement  No. 144,  Accounting  for the  Impairment  or Disposal of  Long-Lived
Assets,  the  Company  reclassified  the  financial  statements  for all periods
presented  to reflect  Suzhou  Hengyi and  Sintofarm  business  as  discontinued
operations.


                                      -6-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Consolidated Balance Sheet

<TABLE>
<CAPTION>
                                                   June 30,        Reclassifications       June 30,
                                                     2006                  and               2006
                                              Previously reported      Adjustments         Restated
                                              -------------------  -----------------     ------------
<S>                                               <C>                 <C>                <C>
Account receivables, net                          $ 11,132,994        $ (3,305,280)      $  7,827,714
                                                  ============        ============       ============
Other receivables                                 $  2,690,617        $    625,000       $  3,315,617
                                                  ============        ============       ============
Other receivables, related party                  $    164,894        $    500,000       $    664,894
                                                  ============        ============       ============
Total current asset                               $ 24,785,269        $ (2,180,280)      $ 22,604,989
                                                  ============        ============       ============
Plant and equipment, net                          $ 12,772,244        $  1,155,444       $ 13,927,688
                                                  ============        ============       ============
Intangible asset,net                              $ 12,696,792        $    844,449       $ 13,541,241
                                                  ============        ============       ============
Total Asset                                       $ 53,516,649        $   (180,387)      $ 53,336,262
                                                  ============        ============       ============

Tax payable                                       $  1,312,964        $   (101,412)      $  1,211,552
                                                  ============        ============       ============
Long term debt                                    $ 11,000,000        $    500,000       $ 11,500,000
                                                  ============        ============       ============
Total liabilities                                 $ 31,183,406        $    398,588       $ 31,581,994
                                                  ============        ============       ============
Statutory reserve                                 $  2,529,945        $    (57,201)      $  2,472,744
                                                  ============        ============       ============
Retained earning                                  $    137,820        $   (514,805)      $   (376,985)
                                                  ============        ============       ============
Accumulated other comprehensive                   $    675,193        $     (6,969)      $    668,224
                                                  ============        ============       ============
Total liabilities and shareholder s ' equity      $ 53,516,649        $   (180,387)      $ 53,336,262
                                                  ============        ============       ============
</TABLE>


                                      -7-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>

                                                              For the six months ended June 30, 2006

                                                                           Efffects of
                                                                     ----------------------------
                                                     Previously                         Disc
                                                       reported         Error           Ops           Restated
                                                     ------------    ------------    ------------   ------------
                                                     (Unaudited)                                     (Unaudited)
<S>                                                  <C>             <C>             <C>            <C>
Revenues                                             $ 16,916,873    $   (672,948)   $ (3,728,184)  $ 12,515,741
COGS                                                   12,680,884              --      (3,487,561)     9,193,323
                                                     ------------    ------------    ------------   ------------
Cross profit                                            4,235,989        (672,948)       (240,623)     3,322,418
Operating expense                                       2,176,675              --        (175,748)     2,000,927
                                                     ------------    ------------    ------------   ------------
Income from operations                                  2,059,314        (672,948)        (64,875)     1,321,491
Other income(expense)                                     (84,933)             --          77,833         (7,100)
                                                     ------------    ------------    ------------   ------------
Income before income tax                                1,974,381        (672,948)         12,958      1,314,391
Provision for income tax                                  160,472        (100,942)             --         59,530
                                                     ------------    ------------    ------------   ------------
Income before minortiy interest                         1,813,909        (572,006)         12,958      1,254,861
Minority interest                                         657,311              --           1,957        659,268
                                                     ------------    ------------    ------------   ------------
Income(loss) from continuing operations                 1,156,598        (572,006)         11,001        595,593
Loss from discountined operations, net of tax                  --              --         (11,001)       (11,001)
                                                     ------------    ------------    ------------   ------------
Net(Loss)Income                                         1,156,598        (572,006)             --        584,592
Foreign currency translation adjustment                   519,104          (6,969)             --        512,135
                                                     ------------    ------------    ------------   ------------
Comprehensive income(loss)                           $  1,675,702    $   (578,975)   $         --   $  1,096,727
                                                     ============    ============    ============   ============
Income(loss)per share of common stock
Basic
      Continuing operations                          $       0.05    $    (0.0323)   $     0.0003   $      0.018
      Discontinued operations                                  --              --    $    (0.0003)        (0.000)
                                                     ------------    ------------    ------------   ------------
                                                     $       0.05    $    (0.0323)   $         --   $      0.018
                                                     ============    ============    ============   ============
Diluted
      Continuing operations                          $       0.05    $    (0.0333)   $     0.0003   $      0.017
      Discontinued operations                                  --              --    $    (0.0003)        (0.000)
                                                     ------------    ------------    ------------   ------------
                                                     $       0.05    $    (0.0333)   $         --   $      0.017
                                                     ============    ============    ============   ============
</TABLE>


                                      -8-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------



<TABLE>
<CAPTION>
                                                          For the three months ended June 30, 2006
                                                                          Efffects of
                                                                -----------------------------
                                                Previously                          Disc
                                                  reported         Error            Ops           Restated
                                                ------------    ------------     ------------   ------------
                                                (Unaudited)                                      (Unaudited)
<S>                                             <C>             <C>             <C>             <C>
Revenues                                        $  9,776,364    $   (672,948)   $ (2,137,598)   $  6,965,818
COGS                                               7,122,201              --      (2,045,032)      5,077,169
                                                ------------    ------------    ------------    ------------
Cross profit                                       2,654,163        (672,948)        (92,566)      1,888,649
Operating expense                                  1,132,766              --        (103,886)      1,028,880
                                                ------------    ------------    ------------    ------------
Income from operations                             1,521,397        (672,948)         11,320         859,769
Other income(expense)                                 12,429              --          44,619          57,048
                                                ------------    ------------    ------------    ------------
Income before income tax                           1,533,826        (672,948)         55,939         916,817
Provision for income tax                             160,472        (100,942)             --          59,530
                                                ------------    ------------    ------------    ------------
Income before minortiy interest                    1,373,354        (572,006)         55,939         857,287
Minority interest                                    410,748              --           2,222         412,970
                                                ------------    ------------    ------------    ------------
Income(loss) from continuing operations              962,606        (572,006)         53,717         444,317
Loss from discountined operations, net of tax             --              --         (53,717)        (53,717)
                                                ------------    ------------    ------------    ------------
Net(Loss)Income                                      962,606        (572,006)             --         390,600
Foreign currency translation adjustment              401,137          (2,622)         (4,347)        394,168
                                                ------------    ------------    ------------    ------------
Comprehensive income(loss)                      $  1,363,743    $   (574,628)   $     (4,347)   $    784,768
                                                ============    ============    ============    ============
Income(loss)per share of common stock
Basic
     Continuing operations                      $      0.040    $     (0.029)   $      0.002    $      0.013
     Discontinued operations                              --              --    $     (0.002)         (0.002)
                                                ------------    ------------    ------------    ------------
                                                $      0.040    $     (0.029)   $         --    $      0.011
                                                ============    ============    ============    ============
Diluted
     Continuing operations                      $      0.040    $     (0.029)   $      0.002    $      0.013
     Discontinued operations                              --              --    $     (0.002)         (0.002)
                                                ------------    ------------    ------------    ------------
                                                $      0.040    $     (0.029)   $         --    $      0.011
                                                ============    ============    ============    ============
</TABLE>


                                      -9-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

<TABLE>
<CAPTION>
                                                                               For the six months ended June 30, 2006
                                                                   -------------------------------------------------------------
                                                                   Previously
                                                                    reported                  Effects of               Restated
                                                                   ------------     ----------------------------    ------------
                                                                                                    Discontinued
                                                                                      Reclass        Operations
                                                                                    ------------    ------------
<S>                                                                <C>              <C>             <C>             <C>
Net income                                                         $  1,156,598     $   (572,006)   $         --    $    584,592
Net income from discontinued operations                                      --               --         (11,001)        (11,001)
                                                                   ------------     ------------    ------------    ------------
Net income (loss) from continuing operations                       $  1,156,598     $   (572,006)   $    (11,001)   $    595,593
                                                                   ------------     ------------    ------------    ------------
Cash used in continuing operating activities                         (1,501,200)        (159,616)             --      (1,660,816)
Cash used in continuing operations investing activities              (2,354,608)         399,377              --      (1,955,231)
Cash provided by continuing operations financing activities           5,901,370         (220,748)             --       5,680,622
                                                                   ------------     ------------    ------------    ------------
     Net increase in cash from continuing operations               $  2,045,562     $     19,013    $         --    $  2,064,575
                                                                   ------------     ------------    ------------    ------------

Cash provided by discontinued operating activities                           --               --       1,230,065       1,230,065
Cash used in discontinued operations investing activities                    --               --      (1,824,183)     (1,824,183)
Cash provided by discontinued operations financing activities                --               --         578,237         578,237
                                                                   ------------     ------------    ------------    ------------
     Net cash used in discontinued operations                      $         --     $         --    $    (15,881)   $    (15,881)
                                                                   ------------     ------------    ------------    ------------

EFFECT OF EXCHANGE RATE ON CASH                                          95,271           (3,132)             --          92,139
                                                                   ------------     ------------    ------------    ------------
INCREASE (DECREASE) IN CASH                                           2,140,833               --              --       2,140,833
CASH, beginning of period                                             1,026,606               --              --       1,026,606
                                                                   ------------     ------------    ------------    ------------
CASH, end of period                                                $  3,167,439               --    $         --    $  3,167,439
                                                                   ============     ============    ============    ============
</TABLE>

Note 3 - SIGNIFICANT ACCOUNTING POLICIES

Economic and Political Risks

The Company faces a number of risks and challenges  since its assets are located
in China and its revenues are derived from its  operations in China.  China is a
developing  country  with a young market  economic  system  overshadowed  by the
state.  Its  political  and economic  systems are very  different  from the more
developed countries and are still in the stage of change.  China also faces many
social,  economic and  political  challenges  that may produce  major shocks and
instabilities  and even crises,  in both its domestic arena and its relationship
with other  countries,  including  but not  limited to the United  States.  Such
shocks, instabilities and crises may in turn significantly and negatively affect
the Company's performance.

Basis of Presentation

The consolidated  financial  statements  include the accounts of the Company and
all  its  majority-owned  subsidiaries  which  require  consolidation.  Material
inter-company transactions have been eliminated in the consolidation.

The consolidated financial statements of China biopharmaceuticals holdings, Inc.
and  subsidiaries   reflect  the  activities  of  the  following   subsidiaries:


                                      -10-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Entity            Percentage of Ownership                      Location
--------------------------------------------------------------------------------
CBH                   Parent Company                   United States of America
Enshi                100% owned by CBH                          P.R.C
Erye                 51% owned by CBH                           P.R.C
CBC                  100% owned by CBH                  British Virgin Inland
Keyuan               90% owned by CBC                           P.R.C

Reclassifications

Certain  prior  period  amounts  have been  reclassified  to  conform to current
period's   presentation.   This  reclassification  had  no  material  effect  on
operations or cash flows

Land Use Rights

According to Chinese law, the government  owns all the land in China.  Companies
or individuals  are authorized to possess and use the land only through land use
rights granted by the Chinese  government.  Land use rights are being  amortized
using the straight-line method over the lease term of 40 to 50 years.

Plant and Equipment

Plant  and  equipment  are  stated  at  cost  less   accumulated   depreciation.
Depreciation  is  provided  on the  straight-line  basis over  their  respective
estimated useful lives. Estimated useful lives are as follows.

Equipment and machinery                    5 years
Motor vehicles                             5 years
Furniture and fixtures                     5 years
Buildings                                 20 years
Land use right                         40-50 years

The cost and  related  accumulated  depreciation  of  assets  sold or  otherwise
retired are eliminated from the accounts and any gain or loss is included in the
statement  of  operations.  The cost of  maintenance  and  repairs is charged to
income  as  incurred,   whereas   significant   renewals  and   betterments  are
capitalized. Long-term assets of the Company are reviewed annually as to whether
their carrying value has become impaired, pursuant to the guidelines established
in Statement of Financial  Accounting  Standards (SFAS) No. 144,  Accounting for
the Impairment or Disposal of Long-Lived  Assets.  The Company also re-evaluated
the  periods  of  amortization  to  determine  whether   subsequent  events  and
circumstances  are warrant revised estimate of useful lives. The Company will be
assessing  the  realizability  of the  carrying  value of all long  term  assets
associated with Enshi operations  prior to year end, given the  deterioration of
revenues  generated this year as the Company  pursues  litigation with the prior
owners. See Note 14 for legal proceedings with the prior owner.


                                      -11-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Cash and Cash Equivalents

For  financial  reporting  purposes,  the Company  considers  all highly  liquid
investment  purchased with original  maturity of three months or less to be cash
equivalents.  The Company  maintains  no bank  accounts in the United  States of
America.

Inventories

Inventories  are  stated  at the lower of cost or  market  using  the  first-in,
first-out basis.

Patent

The  patents  represent  patented  pharmaceutical  formulas,  on  which  we have
obtained  official  registration  certificate or official  approval for clinical
trials.  No  amortization  is provided  when the Company  intends to and has the
ability  to sell  the  patent  or  formulas  within  not more  than two  months,
otherwise  the patent costs will be subject to  amortization  over its estimated
useful  life   period.   Such  costs   comprise   purchase   costs  of  patented
pharmaceutical formulas and costs incurred for patent application.  Patent costs
are accounted for on an individual  basis. The carrying value of patent costs is
reviewed  for  impairment  annually  when  events and  changes in  circumstances
indicate that the carrying value may not be recoverable.
Research and Development Costs

Research and development (or "R&D") expenses  include  salaries,  benefits,  and
other headcount related costs, clinical trial and related clinical manufacturing
costs,  contract and other outside  service fees,  and  facilities  and overhead
costs. R&D costs are expensed when incurred.

Under the  guidance of  paragraphs  8 to 11 of SFAS 2, the Company  expenses the
costs  associated  with the research and  development  activities when incurred.
None of the intangible  assets of the Company and its  subsidiaries was recorded
based on R&D costs.

Concentration of risks

Cash includes cash on hand and demand deposits in accounts maintained with state
owned banks within the People's  Republic of China and Hong Kong.  Total cash in
these banks at June 30, 2007  amounted to  $1,072,458  of which no deposits  are
covered  by  insurance.  The  Company  has not  experienced  any  losses in such
accounts  and  believes  it is not  exposed  to any  risks  on its  cash in bank
accounts.

The Company has five major  customers which  represent  approximately  18.5% and
26.6% of the  Company's  total sales for the six months  ended June 30, 2007 and
2006,  respectively.  For the three  months  ended June 30, 2007 and 2006,  five
major  customers  represent  approximately14.6%  and 23.6%,  respectively.  Five
customers accounted for 42% of total accounts receivable as of June 30, 2007.

For the six  months  ended  June  30,  2007  and  2006,  the  Company  purchases
approximately  62.6% and 40.5%,  respectively,  of their raw materials from five
major  suppliers.  For the three months ended June 30, 2007 and 2006, five major
customers represent approximately 57.5% and 46.4%, respectively.  Five suppliers
accounted for 70.5% of total accounts payables at June 30, 2007.


                                      -12-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Fair Value of Financial Instruments

The Company's financial instruments primarily include cash and cash equivalents,
accounts receivable,  and accounts payable, accrued expenses,  customer deposits
and amounts due to related  parties and  shareholders.  Management has estimated
that the carrying amounts  approximate their fair values due to their short-term
nature.  In  addition,  the  Company  has notes  payable  issued by the bank and
special  payables.  Management  estimates the carrying amount  approximates fair
values because the historical  terms of the notes  approximate  terms  available
today.

Revenue Recognition

The  Company  has  three  categories  of  revenue  resources,  sales of new drug
formulas, R&D services and revenue from sales of medical product.

The Company  recognizes  revenue from product and drug formula  sales when title
has passed,  the risks and rewards of  ownership  have been  transferred  to the
customer,  the fee is fixed and determinable,  and the collection of the related
receivable  is probable  which is generally at the time of shipment.  Allowances
are established for estimated rebates, wholesaler charge backs, prompt pay sales
discounts, product returns, and bad debts.

For the six months  ended June 30, 2007 and 2006,  revenue  from sale of product
was $16,423,681 and $15,992,564,  respectively, made up of the following product
categories.

                                                         2007            2006
                                                     -----------     -----------
                                                     (Unaudited)     (Unaudited)
                                                     -----------     -----------
Revenue from continued operations:                                      Restated
                                                                     -----------
Intermediary pharmaceutical products                 $ 4,344,660     $ 3,822,593
Prescription drugs                                    10,911,906       6,830,299
Over-the-counter drugs                                 1,167,115       1,613,111
Service                                                       --         249,738
                                                     -----------     -----------
Total revenue from continuing operations             $16,423,681     $12,515,741
                                                     ===========     ===========

Revenue from discontinued operations:
Intermediary pharmaceutical products                 $        --     $ 3,726,561
                                                     ===========     ===========

For the three months ended June 30, 2007 and 2006,  revenue from sale of product
was $8,891,559 and $8,853,659,  respectively,  made up of the following  product
categories.


                                      -13-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

                                                        2007           2006
                                                     ----------     ----------
                                                     (Unaudited)    (Unaudited)
                                                     ----------     ----------
Revenue from continued operations:                                    Restated
                                                                    ----------
Intermediary pharmaceutical products                 $2,421,660     $3,348,575
Prescription drugs                                    6,285,227      2,700,817
Over-the-counter drugs                                  184,672        666,688
Service                                                      --        249,738
                                                     ----------     ----------
Total revenue from continuing operations             $8,891,559     $6,965,818
                                                     ==========     ==========

Revenue from discontinued operations:
Intermediary pharmaceutical products                 $       --     $2,137,579
                                                     ==========     ==========

For  revenue  from R&D  service,  revenue  is  recognized  based on  fixed-price
refundable new drug contracts.  The fixed-price  refundable new drug contract is
also called as milestone contract,  which establishes the phase goals of the R&D
service provided by the Company and the corresponding  milestone payments by the
customers.  Milestone payments become payable and are recognized as revenue when
milestone  goals,  as defined in the  contract,  are  achieved.  Milestones  are
substantive and not derived solely from arriving at a specific date.  Revenue is
recognized when milestone goals are achieved at the amount of the  corresponding
milestone  payment.  To determine when milestones are achieved,  typically,  the
milestone goals require one or more of the following:  (1) a certificate  from a
licensed  authoritative agency, (2)  approval/acknowledgement  by a governmental
agency,  such as agency like Food and Drug  Administration of the United States,
(3) an  authoritative  professional  appraisal  report,  or  (4) an  independent
technological  feasibility report,  testing analysis and other form of valuation
on  the  result  and  value  of  products  and  service.  After  receipt  of the
certificate,  and/or approval and/or report,  continued  service is not required
thus the  respective  milestone  goals are  achieved.  Therefore,  the milestone
payment is no longer refundable and revenue is recognized.

For the six months ended June 30, 2007, revenue from sales of product,  sales of
new  drug  formulas,  and R&D  service  amounted  to  $16,423,681,  $0,  and $0,
respectively.  For the six months  ended June 30,  2006,  revenue  from sales of
product, sales of new drug formulas, and R&D service was $15,992,564,  $0, and $
249,738 respectively.

For the three months ended June 30, 2007,  revenue from sales of product,  sales
of new drug  formulas,  and R&D  service  amounted  to  $8,891,559,  $0, and $0,
respectively.  For the three months  ended June 30, 2006,  revenue from sales of
product, sales of new drug formulas,  and R&D service was $8,853,659,  $0, and $
249,738 respectively.

Income Taxes

Income taxes are provided on the liability  method  whereby  deferred tax assets
and  liabilities  are recognized for the expected tax  consequences of temporary
differences   between  the  tax  basis  and  reported   amounts  of  assets  and
liabilities.  Deferred tax assets and liabilities are computed using enacted tax
rates  expected  to apply to taxable  income in the  periods in which  temporary
differences are expected to be recovered or settled.  The effect on deferred tax
assets and liabilities from a change in tax rates is recognized in income in the
period that  includes  the  enactment  date.  The  Company  provides a valuation
allowance  for certain  deferred tax assets,  if it is more likely than not that
the Company will not realize tax assets through future operations.


                                      -14-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

The Company  adopted FASB  Interpretation  48,  "Accounting  for  Uncertainty in
Income Taxes" ("FIN 48"), as of January 1, 2007. A tax position is recognized as
a benefit only if it is "more  likely than not" that the tax  position  would be
sustained in a tax examination,  with a tax examination being presumed to occur.
The amount  recognized is the largest amount of tax benefit that is greater than
50% likely of being realized on  examination.  For tax positions not meeting the
"more  likely than not" test,  no tax benefit is  recorded.  The adoption had no
effect on the Company's financial statements.

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the 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  periods.  For example,  the Company estimates the
collectibility  of its receivables  which affects the carry value of the related
asset.  Management makes these estimates using the best information available at
the time the estimate are made;  however actual results could differ  materially
from those estimates.

Comprehensive Income

SFAS No. 130,  Reporting  Comprehensive  Income,  establishes  standards for the
reporting and display of  comprehensive  income,  its components and accumulated
balances in a full set of general  purpose  financial  statements.  SFAS No. 130
defines  comprehensive  income to include  all  changes in equity  except  those
resulting form investments by owners and  distributions  to owners.  Among other
disclosures,  SPAS No.  130  requires  that all items  that are  required  to be
recognized  under current  accounting  standards as components of  comprehensive
income be  reported  in  financial  statement  that is  presented  with the same
prominence as other financial  statements.  The Company's only current component
of comprehensive income is the foreign currency translation adjustment.

Foreign Currency Translation

The reporting  currency of the Company is the US dollar.  The Company's  Chinese
subsidiaries'  financial  records are  maintained  and the  statutory  financial
statements are stated in its local currency, Renminbi (RMB), as their functional
currency.  Results of operations are translated at average exchange rates during
the period,  assets and liabilities are translated at the unified  exchange rate
as quoted by the People's Bank of China at the end of each reporting period, and
equity are stated at their historical  rates.  Cash flows are also translated at
average  translation  rates for the period,  therefore,  amounts reported on the
statement  of  cash  flows  will  not  necessarily  agree  with  changes  in the
corresponding balances on the balance sheet.

This quotation of the exchange rates does not imply free  convertibility  of RMB
to other foreign currencies.  All foreign exchange transactions continue to take
place either through the People's Bank of China or other banks authorized to buy
and sell foreign  currencies at the exchange rate quoted by the People's Bank of
China.


                                      -15-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Approval of foreign currency payments by the Bank of China or other institutions
requires submitting a payment application form together with invoices,  shipping
documents and signed contracts.

Translation  adjustments resulting from this process are included in accumulated
other comprehensive income in the consolidated statement of shareholders' equity
and  amounted to $353,848  and  $511,655  the six months ended June 30, 2007 and
2006,  respectively.  Assets and  liabilities  at June 30, 2007 and December 31,
2006 were translated at 7.60 and 7.80 RMB to $1.00 USD. The average  translation
rates applied to income  statement  accounts and statement of cash flows for the
six months ended June 30, 2007 and 2006 were 7.71 and 8.05 RMB to $1.00 USD, and
for the  three  months  ended  June  30,  2007  and 2006  were  7.69  and  8.02,
respectively..  Cash flows are also translated at average  translation rates for
the period, therefore,  amounts reported on the statement of cash flows will not
necessarily  agree with  changes in the  corresponding  balances  on the balance
sheet.

Transaction  gains and losses  that arise from  exchange  rate  fluctuations  on
transactions  denominated in a currency  other than the functional  currency are
included in the results of operations as incurred.  These amounts are immaterial
to the consolidated financial statements.

Earnings Per Share

The  Company  adopted  Statement  of  Financial  Accounting  Standards  No. 128,
"Earnings Per Share"  (SFAS128).  SFAS 128 requires the presentation of earnings
per  share  (EPS) as Basic  and  Diluted  EPS.  Basic  earnings  per  share  are
calculated by taking net income divided by the weighted average shares of common
stock outstanding during the period. Diluted earnings per share is calculated by
taking  basic  weighted  average  shares of common stock and  increasing  it for
dilutive common stock  equivalents  such as preferred stock, as well as warrants
and options that are in the money.

The Company  determined  that all the warrants  were  anti-dilutive  because the
exercise  prices were higher than average market price in the period  presented.
The number of shares used in  computing  diluted  earnings per share for the six
months  ended June 30,  2007 and 2006 was  36,743,626,  which  included  526,340
weighted average number of convertible  preferred  stock, and 34,592,770,  which
included  930,000  weighted  average  number  of  convertible  preferred  stock,
respectively.  The number of shares used in computing  basic  earnings per share
for the six months ended June 30, 2007 and 2006 was 36,217,286  and  33,662,770,
respectively.  Basic and  Diluted  (loss)  earning  per share for the six months
ended June 30, 2007 were ($0.003).  Basic and Diluted earnings per share for the
six months ended June 30, 2006 amounted to $0.018 and $0.017, respectively.

The number of shares used in computing  diluted earnings per share for the three
months  ended  June 30,  2007 and 2006 was  36,819,625  which  included  417,500
weighted average number of convertible  preferred  stock, and 34,592,770,  which
included  930,000  weighted  average  number  of  convertible  preferred  stock,
respectively.  The number of shares used in computing  basic  earnings per share
for the three months ended June 30, 2007 and 2006 was 36,402,125 and 33,662,770,
respectively.  Basic and Diluted  (loss)  earning per share for the three months
ended June 30, 2007 were ($0.001).  Basic and Diluted earnings per share for the
three months ended June 30, 2006 amounted to $0.011 and $0.011, respectively.


                                      -16-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Recent Accounting Pronouncements

In June 2006, the Emerging  Issues Task Force (EITF) reached a consensus on EITF
No. 06-3,  How Taxes  Collected  from  Customers  and  Remitted to  Governmental
Authorities  Should Be Presented in the Income  Statement (EITF No. 06-3).  EITF
No. 06-3  permits  that such taxes may be presented on either a gross basis or a
net basis as long as that  presentation  is used  consistently.  The adoption of
EITF No.  06-3 on  January 1, 2007 did not  impact  our  consolidated  financial
statements.  We present  the taxes  within  the scope of EITF No.  06-3 on a net
basis.

In September 2006, the FASB issued Statement of Financial  Accounting  Standards
No.  157,  "Fair Value  Measurements"  ("SFAS  157"),  which  provides  enhanced
guidance for using fair value to measure assets and  liabilities.  This standard
also responds to investors'  requests for expanded  information about the extent
to which companies measure assets and liabilities at fair value, the information
used to  measure  fair  value,  and the  effect of fair  value  measurements  on
earnings.  The standard  applies  whenever other  standards  require (or permit)
assets or liabilities to be measured at fair value. The standard does not expand
the use of fair  value  in any new  circumstances.  SFAS  157 is  effective  for
financial  statements issued for fiscal years beginning after November 12, 2007,
and interim periods within those fiscal years.  Early adoption is permitted.  We
are  currently  evaluating  whether the adoption of SFAS157 will have a material
effect on our consolidated results of operations and financial condition.

In February 2007, the Financial  Accounting Standards Board issued SFAS No. 159,
The Fair Value Option for Financial Assets and Financial  Liabilities--Including
an Amendment of SFAS 115 (SFAS No. 159),  which allows for the option to measure
financial  instruments and certain other items at fair value.  Unrealized  gains
and  losses on items  for  which the fair  value  option  has been  elected  are
reported in earnings.  The objective of SFAS 159 is to provide  opportunities to
mitigate  volatility in reported earnings caused by measuring related assets and
liabilities  differently  without having to apply hedge  accounting  provisions.
SFAS 159 also establishes  presentation and disclosure  requirements designed to
facilitate  comparisons  between  companies  that choose  different  measurement
attributes  for  similar  types of assets and  liabilities.  This  statement  is
effective  for  financial  statements  issued for fiscal years  beginning  after
November 15, 2007.  The Company is currently  evaluating  the impact of SFAS No.
159 on our consolidated financial statements.

In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, "Accounting for
Nonrefundable  Advance Payments for Goods or Services Received for use in Future
Research and Development  Activities" ("FSP EITF 07-3"), which addresses whether
nonrefundable  advance  payments for goods or services that used or rendered for
research and development  activities should be expensed when the advance payment
is made or when the  research  and  development  activity  has  been  performed.
Management is currently evaluating the effect of this pronouncement on financial
statements.


                                      -17-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Note 4 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest and income taxes paid

      o     Interest  expense paid amounted to $797,452 and $154,348 for the six
            months ended June 30, 2007 and 2006.

      o     Income  taxes paid  amounted  to  $15,974  and $0 for the six months
            ended June 30, 2007 and 2006, respectively.

Non-cash investing and financing activities

      o     During the first  quarter of 2007,  the  Company  converted  512,500
            shares of preferred stock to 753,572 shares of common stock.

      o     During the second quarter of 2007, the Company issued 125,000 shares
            of restricted common stock in exchange of consulting service.

Note 5 - ACCOUNTS RECEIVABLE

Accounts receivable are carried at original invoice amount less an estimate made
for  doubtful  receivables  based on a review of all  outstanding  amounts  on a
monthly basis.  Management's  judgment and estimates are made in connection with
establishing the allowance for doubtful accounts.  Specifically,  we analyze the
aging  of  accounts  receivables   balances,   historical  bad  debts,  customer
concentrations, customer credit-worthiness,  current economic trends and changes
in our customer payment terms. Significant changes in customer concentrations or
payment  terms,  deterioration  of customer  credit-worthiness  or  weakening in
economic  trends  could  have a  significant  impact  on the  collectibility  of
receivables  and  our  operating  results.  If the  financial  condition  of our
customers  were to  deteriorate,  resulting in an impairment of their ability to
make payments,  additional allowances may be required. The reserve for bad debts
was $934,516 at June 30, 2007.

As of June 30, 2007, accounts receivable consisted of the following:

Accounts receivable                      $ 7,794,825
Allowance for doubtful accounts             (934,516)
                                         -----------
Accounts receivable, net                 $ 6,860,309
                                         ===========

Note 6 - INVENTORIES

Inventories consisted of the following at June 30, 2007:


                                      -18-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Raw materials                                                         $2,462,248
Refinery material                                                      1,706,504
Packaging supplies                                                       351,723
Sundry supplies                                                           11,932
Work in process                                                          697,877
Finished goods                                                         2,375,652
                                                                      ----------
 Total inventories                                                    $7,605,936
                                                                      ==========

Note 7 - PLANT AND EQUIPMENT

Plant and equipment consisted of the following as of June 30, 2007:

Plant                                                                $ 9,689,685
Office equipment                                                         233,018
Machinery                                                              9,197,661
Automobiles                                                              372,844
Construction inprogress                                                   40,742
Total plant and equipment                                             19,533,950
Less: accumulated depreciation                                         7,254,984
                                                                     -----------
Plant and equipment, net                                             $12,278,966
                                                                     ===========

Depreciation  expense  for the six  months  ended  June 30,  2007 and 2006  were
$425,636  and $491,459 , and for the three  months were  $201,218 and  $211,835,
respectively.

Note 8- OTHER ASSETS

Intangible Assets

Intangible  assets at June 30, 2007  included  land use rights and drug patents,
and consist of the following:


                                      -19-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Land use rights:
         Erye                                                      $  5,837,976
         Less: Accumulated amortization                                (413,613)
                                                                   ------------
                                                                      5,424,363

         Enshi                                                        5,658,559
         Less: Accumulated amortization                                (471,804)
                                                                   ------------
                                                                      5,186,755

         Prepayment on land - Erye                                    1,183,500

Patents:
         Approved drugs                                               1,549,978
         Less: Accumulated amortization                                (641,653)
                                                                   ------------
                                                                        908,325

                                                                   ------------
Total intangible assets, net                                       $ 12,702,943
                                                                   ============

Amortization  expense  for the six  months  ended  June  30,  2007  and 2006 was
$236,412  and  $78,511,  and for the three  months  ended June 30, 2007 and 2006
amounted to $191,010, and $54,081, respectively.

Restricted Cash

Restricted  cash  represents  cash  required to be deposited  with banks for the
balance of bank notes  payable but are subject to withdrawal  with  restrictions
according  to the  agreement  with  the  bank.  The  required  deposit  rate  is
approximately  30-50% of the notes  payable.  Given the nature of the restricted
cash, it is reclassified as a financing activity in Statement of Cash Flows. The
following lists the depositors, the amount and names of the banks as of June 30,
2007:

Depositor            Name of Bank                               Amount
---------            ------------                               ------

Erye            Hua Xia Bank, Suzhou                          $449,730
               Industrial and Commercial Bank, Suzhou          390,555
                                                              --------
Total                                                         $840,285
                                                              ========

Long Term Notes Receivable

Long term notes receivable  represents loans made to third parties for cash flow
needs for R&D projects on new drugs.  The Company has first priority to purchase
the new drug rights if the projects are successfully  completed.  If the Company
gives up the right, the debtors required to repay the loans plus 3% interest per
annum within one month after the drug rights are sold to another party. If on or
before  February 28, 2010,  the R&D  projects are not  completed or failed,  the
debtors are  required to repay the loans plus 6% interest  per annum  within ten
days after such a conclusion  was made. As of June 30, 2007, the total amount of
the long term notes  receivable  was  $657,797.  51% of ownership  equity of the
debtor was pledged for the loan. Management believes the likelihood of repayment
to be  collected  is high  based on the  above  conditions  and  well  financial
conditions of the counter parties.



                                      -20-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------

Note 9- RELATED PARTIES TRANSACTIONS

Accounts Receivables - Related Parties

<TABLE>
<CAPTION>
Subsidiary                   Amount       Due from           Term         Manner of settlement
--------------------------  --------    --------------    ----------      ------------------------
<S>                          <C>        <C>               <C>             <C>
Erye                        $244,269    Hainan Kaiye      Short term      To be received in cash
Enshi                         15,078    Liaoning xiehe    Short term      To be received in cash
                            --------
Total - June 30, 2007       $259,347
                            ========
</TABLE>

Other Receivables - Related Parties

<TABLE>
<CAPTION>
Subsidiary                   Amount       Due from           Term            Manner of settlement
------------------------   ----------   --------------    ----------      --------------------------
<S>                          <C>        <C>               <C>             <C>
Erye                       $1,175,610   Hainan Kaiye      Short term      To be received in cash
Erye                        1,315,000   Erye Trading      Short term      To be received in cash
Enshi                         133,284   Li Xiao Bo        Short term      To be received in cash
CBH                           500,000   Li Xiao Bo        Short term      To be received in cash
                           ----------
Total - June 30,2007       $3,123,894
                           ==========
</TABLE>

Loan to Shareholder

<TABLE>
<CAPTION>
Subsidiary                   Amount       Due from           Term            Manner of settlement
------------------------   ----------   --------------    ----------      --------------------------
<S>                        <C>          <C>               <C>             <C>
Keyuan                     $   42,794   Keyuan's          Short term      To be received in cash
                                        shareholder
</TABLE>

Other Payables - Related Parties

<TABLE>
<CAPTION>
     Subsidiaries             Amount        Due to          Term          Manner of settlement
-----------------------    -----------  --------------    ----------      -------------------------
<S>                          <C>        <C>               <C>             <C>
Erye                       $   618,413  Erye Trading      Short term      To be paid in cash
Erye                           551,661  Hainan Kaiye      Short term      To be paid in cash
CBH                            344,218  Shareholders      Short term      To be paid in cash
                           -----------
Total-June 30,2007         $ 1,514,292
                           ===========
</TABLE>

At December 31, 2006,  Enshi had payables to LiangNing Xie He and its owner, Mr.
Li,  Xiao Bo, who is also the prior owner of Enshi,  amounted  to  $555,106  and
$85,894, respectively. In April 2007, Enshi returned the full amount of $641,000
to LiangNing Xie He and Mr. Li, Xiaobo.


                                      -21-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Long Term Other Receivables - Related Parties

Subsidiary      Amount         Due from       Term        Manner of settlement
------------   ---------   ---------------  ----------  -----------------------

CBH            $554,344    Hengyi           Long term   To be received in cash

Note 10 - NOTES PAYABLE

The Company's subsidiary Erye has $2,406,450 notes payable to Erye's vendors for
the purchase of drug raw materials.  Notes payable are interest free and usually
mature after a six month period.

Note 11 - MINORITY INTEREST

Minority  interest  consists of the  interest of  minority  shareholders  in the
subsidiaries of the Company.  The Company owns a 51% ownership interest in Erye.
The Company's wholly owned subsidiary China Biopharmaceuticals  Corporation (BVI
Company) owns 90% ownership interest in Keyuan. There is no minority interest in
Enshi since the Company owns 100% of Enshi.

<TABLE>
<CAPTION>
                                    Ownership                    Minority
            Equity of the              in                       Interest in
            Subsidiaries          Subsidiaries                 Subsidiaries
                as of       -------------------------    --------------------------
Subsidary   June 30, 2007   Percentage       Amount      Percentage       Amount
----------  -------------   ----------    -----------    ----------    -----------
<S>          <C>                    <C>   <C>                    <C>   <C>
Erye         $10,920,758            51%   $ 5,569,586            49%   $ 5,351,173
Keyuan           692,692            90%       623,422            10%        69,269
Enshi         14,687,222           100%    14,687,222             0%            --
             -----------                  -----------                  -----------
Total        $26,300,672                  $20,880,230                  $ 5,420,442
             ===========                  ===========                  ===========
</TABLE>

Note 12- STATUTORY RESERVES

According  to  Chinese  corporation  law,  a  company  incorporated  in China is
required  to  contribute  an amount of no less than 10% of its yearly net income
for its employees to a reserve  account in the company.  This statutory  reserve
fund is planned  for future  development  of the  company or use for  employee's
benefits.  These reserves represent restricted retained earnings.  The following
list the provision of statutory reserves contributed as of June 30, 2007.

   Year                  Amount
------------          -----------

   2004               $    60,750
   2005                   383,873
   2006                 2,080,032
   2007                   229,892
                      -----------
   Total              $ 2,754,547
                      ===========


                                      -22-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Note 13 - INCOME TAXES

Corporation Income Tax (CIT)

In  accordance  with  the  relevant  tax laws and  regulations  of the  People's
Republic of China,  a company is entitled to a full  exemption  from CIT for the
first two years, and a 50% deduction in CIT for the next three years, commencing
from the first profitable year. For 2005, of the Company's subsidiaries,  Keyuan
and Enshi were exempt from CIT,  while Erye was subject to a 33% income tax rate
for the year of 2005.  Erye was  granted  income  tax  exemption  for two  years
commencing from January 1, 2006.

The Company's income tax expense for the six months ended June 30, 2007 and 2006
were $25,621 and $59,530, respectively.  Income tax expense for the three months
ended June 30, 2007 and 2006 were $16,015 and $59,530, respectively.

According to China's income tax law,  company income tax is due to the State Tax
Bureau monthly or quarterly.  Subsidiaries of the Company paid its income tax by
quarter.  Before  every 15th day of pay month,  subsidiaries  pay its income tax
base on its  quarterly  net  profit.  Since  income  tax rate,  with  income tax
preference or not, is a flat rate in China, that there is no need for income tax
reconciliation to practice in China.

The  Company's  subsidiaries  operate in China.  According to the Chinese  Joint
Venture Business Law, these  subsidiaries  have been registered and incorporated
with the status of Sino-foreign joint venture companies and are subject to a two
year tax exemption and a three year 50% reduction in income tax rates preference
treatment, which generally commences from the first year of establishing a joint
venture or the approval date of the income tax preference application.

The  following  list  depicts  the  tax  preference   rate   applicable  to  the
subsidiaries and the applicable years:

                        Income Tax 5 year preference Period and Tax Rate
                     -------------------------------------------------------
                        Full Exemption Period         Half-Reduction Period
                     -------------------------   ---------------------------
Subsidiaries           Period        Tax Rate       Period        Tax Rate
-----------------    ---------      ----------   ------------     ----------
Nanjing Keyuan       2005-2006         0.00%       2007             16.50%
Suzhou Erye          2006-2007         0.00%       2008-2010        12.00%
Shengyang Enshi      2004-2005         0.00%       2006-2007        15.00%

After the  income  tax  preference  period  expires,  a 25%  income  tax rate is
applicable.

Beginning  January 1, 2008,  the new  Enterprise  Income  Tax  ("EIT")  law will
replace the existing laws for Domestic  Enterprises ("DES") and Foreign Invested
Enterprises ("FIEs"). The new standard EIT rate of 25% will replace the 33% rate
currently  applicable to both DES and FIEs. The two years tax  exemption,  three
years  50% tax  reduction  tax  holiday  for  production-oriented  FIEs  will be
eliminated.  The Company is currently  evaluating  the effect of the new EIT law
will have on its financial position.


                                      -23-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
The  following  table  reconciles  the U.S.  statutory  rates  to the  Company's
effective tax rate:

                                           June 30,
                                       -----------------
                                         2007       2006
                                       ------     ------
U.S. Statutory rate                      34.0%      34.0%
Foreign income not recognized in USA    (34.0)     (34.0)
China income taxes                       33.0       33.0
Income tax exempted                     (33.0)     (33.0)
                                       ------     ------
Total provision for income taxes           --%        --%
                                       ======     ======

The  estimated  tax savings due to the reduced tax rate for the six months ended
June 30, 2007 and 2006 amounted to $758,633 and $491,071,  respectively. The net
effect on  earnings  (loss) per share if the income tax had been  applied  would
decrease  (increase)  earnings  (loss)  per share for June 30,  2007 and 2006 by
($0.02) and $0.01, respectively.

Business Tax

The Company is subject to Business Tax, which is charged on the selling price of
applicable  product and service at a general rate of 5% in  accordance  with the
tax law  applicable.  Keyuan is exempt  from  business  tax  according  to local
applicable favorable tax policy.

Value Added Tax ("VAT")

In  accordance  with  the  relevant  taxation  laws in  China,  the VAT rate for
domestic sales is 17% and 0% for export sales on the invoiced value of sales and
is payable  by the  purchaser.  A credit is  available  whereby  VAT paid on the
purchases of  semi-finished  products or raw materials used in the production of
the  Company's  finished  products can be used to offset the VAT due on sales of
the finished product.

VAT on sales and VAT on purchases  amounted to $2,428,668 and $1,830,447 for the
six months ended June 30, 2007 and  $2,209,113 and $1,737,811 for the six months
ended June 30, 2006,  respectively.  Sales and purchases are recorded net of VAT
collected and paid as the Company acts as an agent for the government. VAT taxes
are not impacted by the income tax holiday.

Note 14 - LOANS

Loan from RimAsia

The Company  assumed a loan of $11,500,000 in connection with the acquisition of
Enshi as presented in Note 15 Business Combination. Interest on the loan will be
paid semi-annually at an annual rate of 11%. As of June 30, 2007, the balance of
the debt was $11,500,000.

After a review of the  Company's  loan  covenants in  connection  with the above
loan,  the  Company  determined  that  it is in  violation  of  certain  of  the
covenants,  and  the  Company  has not  been  granted  a  waiver  from  RimAsia.
Therefore,  In accordance with GAAP, the $11.5 million loan is fully  classified
as a current liability at June 30, 2007.


                                      -24-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
In  connection  with  the  Enshi  acquisition  described  in Note 15 -  Business
acquisition,  12,000,000  warrants  were  issued to RimAsia  in June  2006.  The
warrants  have an exercise  price of $1.375 and an  expiration  date of June 30,
2009, three years from the issuance date.

On August 2, 2007, the Company and entered into a letter of intent with RimAsia.
Pursuit to the  agreement,  the principal of the $11.5 million RACP  acquisition
loan will be converted into shares of senior  redeemable  convertible  preferred
stock  "Preferred  Stock" with a conversion price of $1.02, see Note 18 for more
details.

Short Term Bank Loans

The  Company  has a total  amount of  $5,588,750  in short  term loans from five
different  banks in  China.  These  loans  mature  in one year or less and renew
automatically.  The average  interest rate is  approximately  6.3%.  Among those
short term bank loans,  $1,643,750 was  collateralized  by the land use right of
Erye,  $1,078,300  was  collateralized  by the land use right and  buildings  of
Enshi,  $1,315,000 was collateralized by Enshi's prior shareholder,  Li Xiaobo's
personal assets, and $920,500 was collateralized by buildings of a third party.

Interest  expense for the six months ended June 30, 2007 and 2006 were  $712,661
and $259,765, respectively. Interest expense for the three months ended June 30,
2007 and 2006 were $344,548 and $192,584, respectively.

Note 15 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space and dormitory  facilities for its employees from
a third party. Accordingly, for the six months ended June 30, 2007 and 2006, the
Company  recognized rent expense of $32,111 and $13,476,  respectively.  For the
three months ended June 30, 2007 and 2006, the Company  recognized  rent expense
of $15,046 and $6,738, respectively.

As of June 30,  2007,  the Company  has  outstanding  commitments  in respect to
non-cancelable operating leases, which fall due as follows:


                               Amount
                             ---------
                   2007      $  81,596
                   2008         56,783
                   2009         35,870
                   2010         39,000
                Thereafter          --
                             ---------
                             $ 213,249
                             =========

                                      -25-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Legal Proceedings

The Company has  commenced  action to freeze up to $10 million  assets of Mr. Li
Xiaobo,   the  former  shareholder  and  management  of  Enshi,  for  breach  of
representations  and  warranties  as  contained in the  acquisition  agreements.
Additionally,  the Company  reserves the right to seek further  damages from the
former shareholder.

Note 16 - BUSINESS COMBINATIONS

Enshi Acquisition

On May 16, 2006, we entered into a purchase  agreement which became effective at
June 5, 2006, under which we acquired 100% of the controlling ownership interest
of RACP Pharmaceutical Holdings LTD. ("RACP") which owns 100% ownership interest
of Shengyang Enshi  Pharmaceutical  Limited Company ("Enshi").  The Company paid
$14.7  million to acquire  100%  interest in both RACP and Enshi.  Consideration
included  $12  million  cash  and $2.7  million  in  warrants.  We  applied  the
Black-Scholes model method to determine the value of the warrants.

We  determined  the  fair  value of the  acquired  assets  of Enshi  based on an
independent  appraisal.  The fair value of Enshi's net assets was in  accordance
with the independent appraisal of $16.7 million.  Pursuant to SFAS 141, Business
Combination,  the excess of total fair value acquired over the acquisition  cost
should be allocated as pro rata  deduction of the amount of Enshi's fixed assets
and intangible assets that would have been assigned to those assets.

Under the terms of the purchase  agreement,  the Company placed $625 thousand of
the purchase price in escrow to cover certain contingencies including collection
of  receivables  on the  date  of  purchase.  In  October  2006,  because  those
conditions  were not met, the escrowed  funds are being returned to the Company,
and  therefore  the purchase  price was reduced,  pursuant to FAS 141,  Business
Combinations,  paragraph  27. As of June 30, 2007,  the Company was still in the
process collecting escrowed funds through legal action.

In March 2007,  management  determined that  approximately $2.6 million of trade
receivables purchased are likely non-existent and therefore had no fair value on
the date of  acquisition.  (See Note 17 for  discussion of legal action  pursued
against the former  owner and manager of Enshi.)  Consistent  with SFAS No. 141,
the  Company  is  allowed  an  allocation  period  not to  exceed  one  year  to
re-allocate  its purchase price to the "fair value of the net assets acquired on
the purchase date" based on facts available today. Accordingly,  $2.6 million of
the purchase price originally allocated to receivables have been re-allocated to
buildings and land use rights.


                                      -26-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Assets acquired and debts assumed are listed below:

                                       Original
                                       Allocated   Re-allocated
                Item                   Fair Value    Fair Value
-------------------------------       -----------   -----------
Current assets                        $ 6,840,881   $ 4,220,081
Property, plant, and equipment          7,188,912     8,340,664
Intangible assets                       5,253,973     6,098,021
                                      -----------   -----------
Total assets                           19,283,766    18,658,766
                                      -----------   -----------

Total liabilities                       4,593,766     4,593,766
                                      -----------   -----------

Net assets                            $14,690,000   $14,065,000
                                      ===========   ===========

Discontinued Operation - Suzhou Hengyi

On August 28,  2006,  the  Company  entered to an  agreement  with the  minority
shareholders  of Suzhou  Hengyi to rescind and  terminate the purchase of Hengyi
and  its  50%  subsidiary,  Suzhou  Sintofarm.  Pursuant  to the  agreement  all
consideration  paid to the  shareholders  of Hengyi of  1,200,000  shares of the
Company's  common  stock and  $620,000  in cash,  which will be  returned to the
Company in three installments by March 2008.

As of June 30, 2007,  the  1,200,000  shares of common  stock were  returned and
cancelled.  The  Company  will not have any other  obligations  to Hengyi or its
shareholders.  Simultaneously  the 75.8%  ownership  interest  of Hengyi will be
returned to Hengyi's  shareholders or its designated party. As a result,  Hengyi
will cease to be a subsidiary of the Company.

All the parties to the rescission  agreed that the transaction took effect as of
July 1, 2006,  considering  the fact that there was a significant  change in the
financial condition and operating performance of the two companies.  The Company
recognized loss on discontinued  operation,  net of tax effect, of $108,182, for
the six months ended June 30, 2006.  The prior period  results of operations and
cash flows for Hengyi have been reported within  discontinued  operations in the
accompanying statements.

Note 17 - SHAREHOLDERS' EQUITY

Private placement closed on December 31, 2004 (the "Notes Private Placement")

In January  2005,  we raised  gross  proceeds of  $500,000  through the sales of
promissory notes, pursuant to a subscription agreement (referred to as the Notes
Subscription  Agreement),  which we entered  into with  twenty  (20)  accredited
investors  (referred  to  as  the  Notes  Subscribers.  Pursuant  to  the  Notes
Subscription  Agreement,   the  Notes  Subscribers  received  convertible  notes
("Notes" or "Convertible Notes") for a total aggregate amount of $500,000 with a
maturity date of 180 days from the Notes issuance (the  "Maturity"),  bearing an
interest rate on the  principal  balance of the Notes of 7% per annum payable at
Maturity or upon satisfaction or discharge of the Note.

Each note  holder has the right to convert  all,  but not less than all,  of the
Notes into shares of our common  stock (each a "Share") at one dollar per share.
In September 2005, the Notes Subscribers extended the maturity date of the Notes
until December 31, 2005.  All of the Notes were either  converted into shares or
redeemed.


                                      -27-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
In addition,  as an inducement for the Notes  Subscribers to extend the maturity
date, the Company has issued 42,500 additional shares to these Notes Holders who
agreed to grant the  extension as described  above.  Management  determined  the
warrants had no value.

Upon the execution of the Notes  Subscription  Agreement,  we also issued to the
Notes  Subscribers  one (1) warrant for every one (1) Share that the convertible
notes can  convert  into  under  the Notes  Subscription  Agreement  (the  "Note
Warrants").  The exercise  price of the  majority of Note  Warrants is $1.50 per
share.  Pursuant to the Note  Warrants,  the Notes  Subscribers  are entitled to
purchase  an  aggregate  amount of  341,657  shares.  The Note  Warrants  may be
exercised  only in full.  The Note  Warrants  will  expire  three (3) years from
issuance date of the Note  Warrants.  Management  determined the warrants had no
value.

WestPark Capital Inc.  ("WestPark")  acted as our placement agent in the private
placement described above. In consideration of WestPark's services,  the Company
issued to  WestPark  or its  designees  65,000  shares in  consideration  of its
service as our private  placement  agent and 26,666  warrants  representing  the
right to purchase up to 26,666  shares  under the same terms as described in the
preceding paragraph.
Management determined the warrants had no value.

Pursuant to the Notes Subscription  Agreement,  we are required to file with the
Securities and Exchange  Commission ("SEC") a registration  statement within 120
days after the issuance date of the Notes and the Note Warrants, which registers
all the shares to which the Notes may be converted and the shares underlying the
Note Warrants  issued or issuable to the Notes  Subscribers  and WestPark in the
private placement. In addition, pursuant to the Notes Subscription Agreement, we
are required to pay a penalty of 5% per month if the registration  statement has
not become  effective  before the required date. The related  penalties prior to
the SB-2  registration  effective  date were  accrued  for and  recorded  by the
Company. The SB-2 registration was filed and effective on May 11, 2006.

Common stock issued for lab use right

On March 8, 2005,  the Company  issued  300,000  shares of common stock to China
Pharmaceutical  University  located  in  Nanjing,  China,  pursuant  to a  joint
laboratory  agreement  and agreed to invest  $36,245 into the  laboratory in the
next five years.  The value of the  300,000  shares was  estimated  at $0.10 per
share as of December 31, 2005.

Private  placement  closed  in June,  2005  (the  "Initial  Preferred  A Private
Placement")

In June 2005, the Company entered into a June subscription  agreement,  referred
to as the Initial Preferred A Subscription Agreement,  with each of twenty eight
(28)  accredited  investors,  to which  we  collectively  refer  as the  Initial
Preferred  A  Subscribers.  Pursuant to the  Initial  Preferred  A  Subscription
Agreement,  the Initial Preferred A Subscribers  received shares of our Series A
Convertible Preferred Stock ("Series A Convertible Preferred Stock"), face value
$1.00 per share,  purchase  price $1.00 per share  convertible at a ratio of 1:1
into shares.


                                      -28-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Upon the  execution  of the Initial  Preferred A  Subscription  Agreements,  the
Company also issued to the Initial  Preferred A Subscribers  one (1) warrant for
every one (1) share of Series A Convertible Preferred Stock subscribed under the
Initial Preferred A Subscription  Agreements  ("Initial  Preferred A Warrants").
The  exercise  price of the  Initial  Preferred  A Warrants  is $2.00 per Share.
Pursuant  to  the  Initial  Preferred  A  Warrants,   the  Initial  Preferred  A
Subscribers  are entitled to purchase an aggregate  amount of 1,090,000  shares.
The Initial  Preferred A Warrants  may be  exercised  only in full.  The Initial
Preferred A Warrants  will expire three (3) years from the issuance  date of the
Initial Preferred A Warrants. Management determined the warrants had no value.

WestPark acted as placement agent in the private  placement  described above. In
consideration  of  WestPark's  services,  the Company  issued to WestPark or its
designees  76,500 shares of common stock in  consideration of its service as our
private placement agent and 76,500 Initial Preferred A Warrants representing the
right to purchase up to 76,500  shares  under the same terms as described in the
preceding paragraph. Management determined the warrants had no value.

Private  placement  closed on October  19,  2005 (the  "Subsequent  Preferred  A
Private Placement")

On October 19, 2005, the Company entered into a subscription agreement, referred
to as the  Subsequent  Preferred A  Subscription  Agreement  (together  with the
Initial  Preferred A  Subscription  Agreement,  the  "Preferred  A  Subscription
Agreement"),  with each of three (3) accredited investors,  to which the Company
collectively refers to as the Subsequent Preferred A Subscribers  (together with
the Initial Preferred A Subscribers, the "Preferred A Subscribers"). Pursuant to
the Subsequent  Preferred A Subscription  Agreement,  the Subsequent Preferred A
Subscribers received 62,500 shares of our Series A Convertible Preferred Stock.

Upon the execution of the Subsequent Preferred A Subscription Agreement, we also
issued to the Subsequent  Preferred A Subscribers  one (1) warrant for every one
(1)  share  of  Series  A  Convertible  Preferred  Stock  subscribed  under  the
Subsequent  Preferred  A  Subscription   Agreement   ("Subsequent   Preferred  A
Warrants",  and together with the Initial Preferred A Warrants, the "Preferred A
Warrants").  The Subsequent  Preferred A Warrants has the same terms as of those
of the Initial  Preferred A Warrants and the Subsequent  Preferred A Subscribers
are  entitled to  purchase  an  aggregate  amount of 62,500  shares.  Management
determined the warrants had no value.

WestPark acted as placement agent in the private  placement  described above. In
consideration  of  WestPark's  services,  the Company  issued to WestPark or its
designees  5,625  common  stock in  consideration  of its service as our private
placement  agent and 5,625  warrants  representing  the right to  purchase up to
5,625  shares of our  common  stock  under the same  terms as  described  in the
preceding paragraph.

Management  determined  the warrants have no value.  Pursuant to the Preferred A
Subscription  Agreement,  we are  required  to file with the SEC a  registration
statement  within 120 days, which registers all the shares to which the Series A
Preferred  Convertible  Stock may be  converted  and the shares  underlying  the
Preferred  A Warrants  issued or issuable to the  Preferred  A  Subscribers  and
WestPark in the private placements.


                                      -29-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
In  addition,  pursuant  to  Initial  Preferred  A  Subscription  Agreement  and
Subsequent  Preferred A Subscription  Agreement we are required to pay a penalty
of 5% per month if the  registration  statement has not become  effective before
the required date. The related  penalties  prior to the SB-2 effective date were
accrued by the Company. The SB-2 was filed and effective on May 11, 2006.

Dividend Paid on the Preferred Stocks

Pursuant  to  the  Initial  Preferred  A  Subscription  Agreement,  the  Initial
Preferred A Subscribers  were entitled to receive  annual  dividend of 7% of the
amount invested.

Issuance of Shares for Requisitions

On May 31,  2005,  the Company  issued  3,300,000  shares of common  stock to 38
persons  including  and  represented  by Shi Ming Sheng or its assigned  natural
person or legal  representative,  all 38 persons are shareholders of Suzhou Erye
Pharmaceutical  Limited Co.,  pursuant to the acquisition of Erye effective June
11, 2005.

Issuance of Shares/Warrants for Services

During 2005, the Company  engaged with  Consulting For Strategic  Growth 1, Ltd.
for six months  ending May 14,  2006.  The terms of the  agreement  were for the
consultant  to receive cash payment of $4,000 plus value at $2,500 common stocks
and 10,000 three year warrants to purchase common stock at $0.50 per share, each
month during the agreement. In December 2005, the Company reengaged this company
for a period of six months and the terms of the agreement are for the consultant
to  receive a cash  payment of $4,000  plus  common  stock  valued at $2,500 and
10,000 three year  warrants to purchase  common  stock at $0.50 per share,  each
month  during  the  agreement.  The shares of common  stock  were  issued to the
consultant in 2006.

On April 1, 2005,  the Company  entered  into an advisory  agreement  with Robin
Smith as the Chairman of the Company's  Advisory Board for a period of one year.
The  terms of the  agreement  were for Ms.  Smith to  receive  60,000  shares of
unregistered  common stock plus three year warrants to purchase 35,000 shares of
common stock of the Company at an exercise  price equal to $2.00.  The shares of
common stock were issued to Ms. Smith in 2005.

On April 1, 2005, the Company  engaged a consultant for a period of seven months
ending  October 31, 2005.  The terms of the agreement are for the  consultant to
receive a cash  payment of $50,000  plus  50,000  shares of common  stock of the
Company.  On December 20, 2005,  the Company  reengaged  this  consultant  for a
period  ending  December  31, 2006 and the terms of the  agreement  were for the
consultant  to receive a cash  payment of $50,000  plus 50,000  shares of common
stock of the Company. During the year of 2006, total number of shares issued for
services was 99,805, valued at a total amount of $57,500.

On April 1, 2007, the Company engaged a consulting firm for a period of one year
ending March 31, 2008. The terms of the agreement are for the consulting firm to
receive a cash  payment of $17,000  plus  125,000  shares of common stock of the
Company.


                                      -30-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Private  placement closed in February 2, 2006 (the "Initial Common Stock Private
Placement")

On February 2, 2006, the Company entered into a securities  purchase  agreement,
referred to as the Initial Common Stock Securities Purchase Agreement,  with GCE
Property  Holdings,  Inc.  ("GCE"),  referred  to as the  Initial  Common  Stock
Purchaser.  Pursuant to the Initial Common Stock Securities  Purchase Agreement,
the Company  issued one million  (1,000,000)  shares of our common  stock to the
Initial Common Stock Purchaser at $1.00 per share.

Upon the execution of the Initial Common Stock Securities Purchase Agreement, we
also issued to the  Initial  Common  Stock  Purchaser  one  million  (1,000,000)
warrant  with an  exercise  price of $1.25 per share of common  stock  ("Initial
Common Stock Warrants").  The Initial Common Stock Warrants will expire four (4)
years from the date of the issuance.

Under the Initial Common Stock Securities  Purchase  Agreement,  The Company has
agreed not to issue shares or securities convertible or exchangeable into shares
at a price equal to or lower than $1.00 per share and not issue any  warrants or
securities  that are  exercisable  into  shares at a price  lower than $1.25 per
share.

Pursuant to the Initial Common Stock Securities Purchase Agreement,  the Initial
Common Stock  Purchaser was granted a right to  participate up to 100% in any of
our subsequent financing by offering of common stock or common stock equivalents
in the twelve (12) months the effective date of the registration statement..

The Company  agreed to file a  registration  statement with the SEC covering the
shares and shares underlying the Warrants,  within 65 days from this closing and
obtain  effectiveness  of such  registration  statement  within  170  days  from
closing.  The SB-2 registration  statement was filed timely and became effective
on May 11, 2006. Therefore, no penalties were incurred.

Private placement closed on March 10, 2006 (the "Subsequent Common Stock Private
Placement")

On March 10, 2006,  the Company  entered into a securities  purchase  agreement,
referred to as the Subsequent Common Stock Securities Purchase  Agreement,  with
various  investors,  referred  to as  the  Subsequent  Common  Stock  Purchaser.
Pursuant to the Subsequent Common Stock Securities Purchase Agreement, we issued
6,831,863 shares to the Subsequent Common Stock Purchaser at $1.01 per share.

Upon the execution of the Subsequent Common Stock Securities Purchase Agreement,
the Company  also issued to the  Subsequent  Common  Stock  Purchaser  6,831,684
warrants with an exercise price of $1.26 per share of common stock  ("Subsequent
Common Stock  Warrants").  The Subsequent Common Stock Warrants will expire four
(4) years from the date of the issuance.

Under the Subsequent  Common Stock Securities  Purchase  Agreement,  The Company
agreed not to issue shares or securities convertible or exchangeable into shares
at a price equal to or lower than $1.01 per share and not to issue any  warrants
or securities that are  exercisable  into shares at a price lower than $1.26 per
share.


                                      -31-
<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2007
                                    Unaudited

--------------------------------------------------------------------------------
Pursuant to the Subsequent Common Stock Securities Purchase  Agreement,  subject
and  subordinated  to the  participation  rights  of the  Initial  Common  Stock
Purchasers,  the  Subsequent  Common  Stock  Purchaser  was  granted  a right to
participate up to 100% in any of our subsequent  financing by offering of common
stock or common stock  equivalents  in the twelve (12) months from the effective
date of the registration statement of which this prospectus constitutes a part.

Note 18 - Subsequent Event

On August 2, 2007,  the  Company and the RimAsia  Capital  Partnes L.P  ("RACP")
entered into a letter of intent to restructure the $11.5 million  financing loan
discussed in Note 14.

If executed as drafted, the Company must first acquire the 49% minority interest
in Erye, so that Erye becomes wholly owed by the Company. Then, the Company must
authorize a new class of preferred stock.  Then, Rim Asia will convert the $11.5
million  loan  into  senior  redeemable   convertible  preferred  stock  with  a
conversion  price of $1.02.  Additionally,  the Company will reduce the exercise
price on the warrants  issued with the original $11.5 million loan,  from $1.375
to $1.26 and the term of the warrants is extended from 3 years to 4.5 years from
the date of the  conversion of the principal of the loan into  preferred  stock.
The preferred  stock has 9% cumulative  compounding  dividends is not redeemable
for the first two years and may be redeemable with a scheduled early  redemption
penalty.

The parties  also worked out  arrangement  to continue  the  cooperation  in the
litigation  against Mr. Li Xiaobo and related parties  ("Defendants").  To date,
approximately  $10 million of assets of the Defendants  have been seized per the
court  order in Hong  Kong and the  Defendants  lost  their  opposition  actions
against the seizure order.


                                      -32-
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

      The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes thereto. The following
discussion contains forward-looking statements. China Biopharmaceuticals
Holdings, Inc. is referred to herein as "we", "our,", "us", or "the Company".
The words or phrases "would be," "will allow," "expect to", "intends to," "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," or similar expressions are intended to identify forward-looking
statements. Such statements include those concerning our expected financial
performance, our corporate strategy and operational plans. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of risks and uncertainties, including: (a) those risks and
uncertainties related to general economic conditions in China, including
regulatory factors that may affect such economic conditions; (b) whether we are
able to manage our planned growth efficiently and operate profitable operations,
including whether our management will be able to identify, hire, train, retain,
motivate and manage required personnel or that management will be able to
successfully manage and exploit existing and potential market opportunities;(c)
whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations; and (d) whether we are able to successfully
fulfill our primary requirements for cash which are explained below under
"Liquidity and Capital Resources". Statements made herein are as of the date of
the filing of this Form 10-QSB with the Securities and Exchange Commission and
should not be relied upon as of any subsequent date. Unless otherwise required
by applicable law, we do not undertake, and we specifically disclaim any
obligation, to update any forward-looking statements to reflect occurrences,
developments, unanticipated events or circumstances after the date of such
statement.

OUR BUSINESS

      We are a vertically integrated bio-pharmaceutical company focused on
developing, manufacturing and distributing innovative drugs in the People's
Republic of China ("China" or PRC"). Our mission is to maximize investment
returns for our shareholders by integrating our strong drug discovery and
development strength with manufacturing and commercialization capabilities and
by actively participating in the consolidation and privatization of the
pharmaceutical industry in China to become a dominant player in the
bio-pharmaceutical industry in China.

CRITICAL ACCOUNTING POLICIES

      We have identified the policies below as critical to understanding of our
financial statements. The application of these polices requires management to
make estimates and assumptions that affect the valuation of assets and expenses
during the reporting period. There can be no assurance that actual results will
not differ from these estimates. The impact and any associated risks related to
these policies on our business operations are discussed below.

REVENUE AND REVENUE RECOGNITION

      For fixed-price refundable contracts, we recognize revenue on a milestone
basis. Progress payments received/receivables are recognized as revenue only if
the specified milestone is achieved and accepted by the customer. Confirmed
revenue is not refundable and continued performance of future research and
development services related to the milestone are not required. For sale of
patented pharmaceutical formulas, the Company recognizes revenue upon delivery
of the patented formulas. For sales of final medicines and processed materials,
we recognize revenue upon delivery of the goods. The company usually does not
offer sales returns or refunds on the products except for some specific
circumstances, such as quality problems, which is rare and is difficult to have
an accurate estimate.



                                      -33-
<PAGE>

ACCOUNTS RECEIVABLE

      Accounts receivable are carried at original invoice amount less an
estimate made for doubtful receivables based on a review of all outstanding
amounts on a monthly basis. Management judgment and estimates are made in
connection with establishing the allowance for doubtful accounts. Specifically,
we analyze the aging of accounts receivable balances, historical bad debts,
customer concentrations, customer credit-worthiness, current economic trends and
changes in our customer payment terms. Significant changes in customer
concentration or payment terms, deterioration of customer credit-worthiness or
weakening in economic trends could have a significant impact on the
collectibility of receivables and our operating results. If the financial
condition of our customers were to deteriorate, resulting in an impairment of
their ability to make payments, additional allowances may be required. The
reserve for bad debts increased to $934,516 at June 30, 2007 from $911,064 at
December 31, 2006. This increase represents 0.1% of total revenues and is mainly
resulted from increase in the aged balances due to the slower collection during
the Chinese holiday season in February and March. As of June 30, 2007, accounts
receivable, net of allowance for doubtful accounts, amounted to $6,860,309. The
days sales outstanding were 75 days for three months ended June 30, 2007,
compared to 71 days for the same period in 2006. The increase in the collection
period was mainly resulted from the slow collection of AR from Keyuan's
customers due to the enhanced government regulations on R&D activities. Also, in
2007, we approved to extend payment term for several major customers, which
slightly slowed down the collection of accounts receivable.

The following table provides the roll forward of the allowance of doubtful
accounts:

     Allowance for doubtful accounts

     As of December 31, 2006                                       $911,064
     Provision for the six month period ended
     June, 2007                                                      23,452
                                                                   --------

     As of June 30, 2007                                           $934,516
                                                                   ========

The following list the aging of our accounts receivable as of June 30, 2007:

<TABLE>
<CAPTION>
                       3 months            6 months           9 months       Over 9 months          Over 1 year
     Total          Amount      %        Amount     %      Amount      %     Amount       %        Amount     %
----------------  ---------  ------    ---------  ------  --------   -----  ---------   ------    --------  ------
<S>               <C>        <C>        <C>        <C>     <C>       <C>     <C>         <C>         <C>      <C>
  $7,794,825      4,195,832  53.83%     854,290    10.96%  946,471   12.14%  1,798,232   23.07%
</TABLE>

We prepare the above consolidated aging based on the aging for each subsidiary
in above format. As each subsidiary of the Company conducts business with
different customers with different size and creditworthiness, and each
subsidiary has different impact on and different relationship with their
customers, we determine the allowance on an individual basis. Basically, we
assign various rates to each of the aging group of AR and add up the products
for respective aging group to the total allowance for doubtful accounts.
Different subsidiaries have different rates for even the same aging category. In
addition to that, we also consider the changes in specific financial condition
of their customers if situation or events indicate that some accounts may pose
unusual risk compared to others, additional allowance may be provided for those
accounts.


                                      -34-
<PAGE>

INCOME TAX

      Significant judgment is required in determining our income tax provision.
In the ordinary course of business, there are many transactions and calculations
where the ultimate tax outcome is uncertain. Although we believe that our
estimates are reasonable, no assurance can be given that the final outcome of
these matters will not be different than that which is reflected in our
historical income tax provisions and accruals. Such differences could have a
material effect on our income tax provision and net income in the period in
which such determination is made. We apply an asset and liability approach to
accounting for income taxes. Deferred tax liabilities and assets are recognized
for the expected future tax consequences of temporary differences between the
financial statement and tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to reverse.
The recoverability of deferred tax assets is dependent upon our assessment of
whether it is more likely than not that sufficient future taxable income will be
generated to utilize the deferred tax asset. In the event we determine that
future taxable income will not be sufficient to utilize the deferred tax asset,
a valuation allowance is recorded.

RESULTS OF OPERATIONS - THREE MONTHS ENDED JUNE 30, 2007 AS COMPARED TO THREE
MONTHS ENDED JUNE 30, 2006

      We acquired Shenyang Enshi Pharmaceutical Limited Company ("Enshi") on
June 6, 2006; therefore, operating results of Enshi for the three months ended
June 30, 2006 are only partially reflected in our results for the three months
ended June 30, 2006. On August 29, 2006, the Company entered to an agreement
with the minority shareholders of Hengyi to divest Hengyi and its subsidiary,
Suzhou Sintofarm, in which Hengyi has 50% controlling ownership interest from
its subsidiary portfolio. Therefore, the results of Hengyi's operations and cash
flows for the three months ended June 30, 2006 were reported as discontinued
operations in the consolidated financial statements.

REVENUE.

     Revenue for the three months ended June 30, 2007 was $8,891,559 while the
revenue for the three months ended June 30, 2006 was $6,965,818 representing an
approximately 28% increase. The increase is mainly attributed to the Company's
subsidiary, Suzhou Erye Pharmaceutical Limited Company ("Erye") significant
revenue growth. Erye's revenue increased approximately 31% in the second quarter
of 2007 comparing with its revenue in second quarter of 2006. The current
industry environment provides a great opportunity for Erye to grow its core
business. The government issued a new medical insurance policy called
"Cooperative Medicare" which tries to cover all the farmers in the countryside
in China. The government has been putting in billions of dollars to implement
this new policy. Erye's products are mainly focused on middle end to low end
markets and therefore, fit the new government policy. The management believes
that the high growth of Erye's core business will continue in the future. In
addition, revenue of Enshi which was acquired on June 6, 2006 was only partially
reflected in our results for the three months ended June 30, 2006.

COST OF GOODS SOLD

      Cost of goods sold for the three months ended June 30, 2007 was $6,656,183
as compared to $5,077,169 for the three months ended June 30, 2006. Cost of
goods sold as a percentage of sales revenues was approximately 75% for the three
months ended June 30, 2007 as compared to approximately 74% for the three months
ended June 30, 2006. The increase in cost of goods sold is mainly attributed to
the cost of good sold of Erye which had a high growth in its sales in second
quarter. In addition, the cost of goods of Enshi which was acquired on June 6,
2006 and therefore was only partially reflected in our results for the three
months ended June 30, 2006. Cost of goods sold as percentage of sales revenues
remains consistent.

GROSS PROFIT.

      Gross profit in the three months ended June 30, 2007 amounted at
$2,235,376, as compared to $1,888,649 for the three months ended June 30, 2006,
representing approximately 18% increase. The gross profit margin for the three
months ended June 30, 2007 was 25% as compared to approximately 27% for the
three months ended June 30, 2006. Erye's lower gross margin contributed mainly
to the company's decrease in gross margin.


                                      -35-
<PAGE>

OPERATING EXPENSES

      Operating expenses for the three months ended June 30, 2007 was $1,585,994
as compared to $1,028,880 for the three months ended June 30, 2006, representing
54% increase. The increase is attributed mainly to high operational expenses of
Enshi which financials were only partially reflected for the three months ended
June 30, 2006

RESEARCH AND DEVELOPMENT

      Research and development costs for the three months ended June 30 ,2007
were $66,748 as compared to $240,747 for the three months ended June 30, 2006,
This decrease was primarily attributable to a slowing of research and
development activity as the Chinese SFDA drastically reduced its level of
regulatory approval activity. This change at the Chinese SFDA occurred because
of wide-ranging scandals leading to the departure of many high and mid-level
SFDA officials.

INCOME FROM OPERATIONS

      Income from operations in the three months ended June 30, 2007 amounted at
$649,382, as compared to $859,769 for the three months ended June 30, 2006,
representing approximately 25% decrease. The decrease is mainly attributable to
high operational expenses and poor operational performance of Enshi which
financials were only partially reflected for the three months ended June 30,
2006.

NET INCOME

      Net loss for the three months ended June 30, 2007 was $29,289 as compared
to net income of $390,600 for the three months ended June 30, 2006, representing
108% decrease. The decrease is attributable to higher payment and accrued
interest expenses as a result of the acquisition financing loan due to RimAsia
Capital Partners L.P. ("RimAsia") for the Enshi acquisition. In addition, Enshi
had a poor performance in generating profit and suffered a net loss of
approximately $94,100 in the three months ended June 30, 2007. A detailed
description of the factual circumstances surrounding the operation of Enshi
since its acquisition and the related litigation against its former shareholder
is provided further in this discussion under Liquidity and Capital Resources and
also in part II of this quarterly report.

INTEREST EXPENSE

      Interest expense for the three months ended June 30, 2007 was $344,548 as
compared to $192,584 for the three months ended June 30, 2006, representing 128%
increase. This significant increase is mainly attributed to the large interest
payment on the RimAsia's acquisition loan for the Enshi acquisition.

RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 2007 AS COMPARED TO SIX MONTHS
ENDED JUNE 30, 2006

      We acquired Enshi on June 6, 2006; therefore, operating results of Enshi
for the three months ended June 30, 2007 are only partially reflected in our
financial results for the six months ended June 30, 2006 On August 29, 2006, the
Company entered to an agreement with the minority shareholders of Hengyi to
divest Hengyi and its subsidiary, Suzhou Sintofarm, in which Hengyi has 50%
controlling ownership interest from its subsidiary portfolio. Therefore, the
results of Hengyi's operations and cash flows for the three months ended June
30, 2006 were reported as discontinued operations in the consolidated financial
statements.



                                      -36-
<PAGE>

REVENUE.

     Revenue for the six months ended June 30, 2007 was $16,423,681 while the
revenue for the six months ended June 30, 2006 was $12,515,741, representing an
approximately 31% increase. The increase is mainly attributed to Erye's
significant revenue growth. Erye's revenue increase approximately 19% in the
first half year of 2007 comparing with its revenue in the first half year of
2006. The current industry environment provides a great opportunity for Erye to
grow its core business. The government issued a new medical insurance policy
called "Cooperative Medicare" which try to cover all the farmers in the
countryside in China. The government has been putting in billions of dollars
into this new policy. Erye's products are mainly focused on middle to low end
markets and therefore, fit the new government policy. The management believe
that the high growth of Erye's core business will continue in the future. In
addition, revenue of Enshi which was acquired on June 6, 2006 was only partially
reflected in our results for the six months ended June 30, 2006.

COST OF GOODS SOLD

      Cost of goods sold for the six months ended June 30, 2007 was $12,179,463
as compared to $9,193,323 for the six months ended June 30, 2006. Cost of goods
sold as a percentage of sales revenues was approximately 74% for the six months
ended June 30, 2007 as compared to approximately 73% for the six months ended
June 30, 2006. The increase in cost of goods sold is mainly attributed to the
cost of good sold of Erye which had a high growth in its sales in the first half
year of 2007. In addition, the cost of goods of Enshi which was acquired on June
6, 2006 and therefore was only partially reflected in our results for the three
months ended June 30, 2006. Cost of goods sold as percentage of sales revenues
remains consistently.

GROSS PROFIT.

     Gross profit in the six months ended June 30, 2007 amounted at $4,244,218,
as compared to $3,322,418 for the six months ended June 30, 2006, representing
approximately 40% increase. The gross profit margin for the six months ended
June 30, 2007 was 26% as compared to approximately 27% for the six months ended
June 30, 2006. Erye is mainly focusing on the middle and its lower end markets
with slightly lower selling prices in response to the newly issued medical
insurance policy "Cooperative Medicare". Therefore Erye's lower gross margin
mainly contributed to the slight decrease in gross profits.

OPERATING EXPENSES

      Operating expenses for the six months ended June 30, 2007 was $2,954,472
as compared to $2,000,927 for the six months ended June 30, 2006, representing
48% increase. The increase is attributed mainly to higher operational expenses
of Enshi which financials were only partially reflected for the three months
ended June 30, 2006, as well as higher professional service fees incurred at the
parent company level, many of which were one time transactional expenses and
litigation expense against Mr. Li Xiaobo, former shareholders of Enshi, and
related parties of him.

RESEARCH AND DEVELOPMENT

      Research and development costs for the six months ended June 30 ,2007 was
$109,911 as compared to $498,822 for the six months ended June 30, 2006,
representing a 78% decrease. This decrease was primarily attributable to a
slowing of research and development activity as the Chinese SFDA drastically
reduced its level of regulatory approval activity. This change at the Chinese
SFDA occurred because of wide-ranging scandals leading to the departure of many
high and mid-level SFDA officials.

INCOME FROM OPERATIONS

      Income from operations in the six months ended June 30, 2007 amounted at
$1,289,746, as compared to $1,321,491 for the six months ended June 30, 2006,
representing approximately 2% decrease. The decrease is mainly attributable to
high operational expenses and poor operational performance of Enshi which
financials were only partially reflected for the three months ended June 30,
2006.


                                      -37-
<PAGE>

NET INCOME

      Net loss for the six months ended June 30, 2007 was $117,557 as compared
to net income of $584,592 for the six months ended June 30, 2006,representing
120% decrease. The decrease is attributable to higher payment and accrued
interest expenses as a result of the acquisition financing loan due to RimAsia
for the Enshi acquisition. In addition, Enshi had a poor performance in
generating profit and suffered a net loss of approximately $45,970 in the six
months ended June 30, 2007. A detailed description of the factual circumstances
surrounding the operation of Enshi since its acquisition and the related
litigation against its former shareholder is provided further in this discussion
under Liquidity and Capital Resources and also in part II of this quarterly
report

INTEREST EXPENSE

      Interest expense for the six months ended June 30, 2007 was $712,661 as
compared to $259,765 for the six months ended June 30, 2006, representing 174%
increase. This significant increase is mainly attributed to the large interest
payment on RimAsia's acquisition loan for the Enshi acquisition.

LIQUIDITY AND CAPITAL RESOURCES

      As of June 30, 2007, total current assets were $22,029,630 and total
current liabilities were $31,099,332. Cash and cash equivalents on June 30, 2007
were $1,230,258, a decrease of $1,886,098 from the $2,958,556 reported on
December 31, 2006.

For the six months ended June 30, 2007, net cash used in operating activities
was $765,081, net cash used in investing activities was $361,130 net cash used
in financing activities was $378,985. For the six months ended June 30, 2006,
net cash used in operating activities was $1,660,816, net cash used in investing
activities was $1,955,231, net cash provided in financing activities was
$5,680,622. Cash used by operating activities in the six months ended June 30,
2007 results primarily from account receivables and other receivables due from
Enshi. Cash provided by investing activities during the six months ended June 30
2007 results mainly from purchase of property, plant and equipment and payments
to long term loans receivable. Cash used by financing activities in the six
months ended June 30, 2007 results primarily from payments on long term debts.

The Enshi acquisition has created a drag on the Company's overall operational
results and expansion plan due to Enshi below-expectation results and the
associated large acquisition financing loan. The Company has been investing
significant time and significant efforts in order to stabilize the operations of
Enshi. Upon the acquisition of Enshi the Company has identified major breaches
and fraud by the previous owner and controlling shareholders of Enshi, Mr. Li
Xiaobo and his related parties ("Defendants") in the representations and
warranties provided by them to the Company and the Defendants' refusal to honor
their indemnification obligations to the Company. The Company's subsidiary RACP
filed a lawsuit against the Defendants alleging fraud and for rescission and
damages. Currently, RimAsia, which provided the Company with the Enshi
acquisition related financing loan has taken custody of RACP, the holding
company of Enshi with expectation to return Enshi to the Defendants.

Other than Enshi, the other main manufacturing unit, Erye, demonstrated an
impressive growth of more than 38% in net income in the first half year of 2007,
along the line of our expectation. The Enshi acquisition may slow down our
original expansion plan in terms of management resources devoted to its
operations and integration but we are still actively looking for growth and
expansion opportunities and still believe in the overall strategy of internal
growth and acquisitions. We expect that the recent changes in our management,
whereas Erye's top management, Ms. ZHANG Jian and Mr. SHI Mingsheng joined our
board of directors and are now playing an active role in our management, will
improve our overall operations, giving play to their industrial and
manufacturing and marketing expertise.


                                      -38-
<PAGE>

This is a unique period for merger and acquisition in China. To achieve our goal
of continued acquisitions in the industry, we need to raise additional funding
in the near future to fund such future acquisitions. In February 2006, we
conducted a private placement of our common stock with gross proceeds of
$1,000,000. In March 2006, we sold additional shares of our common stock with
gross proceeds of $6,900,000. Pursuant to various agreements entered by us in
connection with the private placement mentioned above, we are required to file
with the SEC a registration statement, which registers all the shares of common
stock issued under these placements, including the shares to which the Series A
Preferred Convertible Stock may be converted and the shares underlying the
warrants issued or issuable pursuant to these placements. In addition, pursuant
to the agreements, we are required to pay a penalty of 5% per month if the
registration statement has not become effective before required date. We filed a
registration statement on form SB-2 covering the shares issued and issuable on
April 30, 2006 and this registration statement has became effective on May 11,
2006 and therefore no penalty needed to be paid.

Due to the Enshi acquisition financing, the Company is servicing a loan of
$11,500,000 in connection with the acquisition of RACP Pharmaceuticals as
presented in Note 14 of our notes to consolidated financial statements, Business
Combination. Interest on the loan will be paid semi-annually at an annual rate
of 11%. As of June 30, 2007, the balance of the debt was $11,500,000.

After a review of the covenants in connection with the above-mentioned loan, the
Company determined that it may be in violation of certain of the covenants due
to the situation at Enshi. Therefore, the $11.5 million loan is fully classified
as a current liability.

The Company has entered into a letter of intent with RimAsia and a certain
representative of the shareholders of Erye, on August 2, 2007 as a follow-up to
the letter of intent signed on July 14, 2007, to provide for more detailed terms
for reorganizing the outstanding acquisition financing loan. Detailed
description of the letter of intent can be found under Part II, Item 5 of this
quarterly report.

In addition, the board of directors has approved a loan of RMB4,000,000 from
Erye and Erye affiliate to finance the operations of Enshi using the Company's
51% ownership interest as collateral. Erye's assistance and expertise are
instrumental in improving the performance of Enshi.

Going forward, our primary requirements for cash consist of: (1) Stabilize and
streamline the Enshi operation;(2) acquisition of additional pharmaceutical
manufacturing companies with GMP standard facilities in order to commercialize
new drugs in our extensive new drug pipeline and further extend of product
pipeline and expand the our sales network (3) Continued R&D for more selected
new drug projects (4) build up sales network for new drug distribution. We
anticipate that our internal source of liquid assets may enable us to continue
our operation activities other than acquisition activities for next three
months. However, we anticipate that our current operating activities may not
enable us to meet the anticipated cash requirements for future acquisition
activities. External source of capital may be needed for our expansion. We are
exploring bank loans and private equity financing to finance such expenditures
and intend to raise equity through the capital market to allow us to accomplish
our future acquisition goals.

MANAGEMENT ASSUMPTIONS

      Management anticipates, based on internal forecasts and assumptions
relating to our current operations, that existing cash and funds generated from
operations may not be sufficient to meet capital requirements for future
acquisition activities. We could therefore be required to seek additional
financing. There can be no assurance that we will be able to obtain such
additional financing at acceptable terms to us, or at all.


                                      -39-
<PAGE>

EFFECT OF FLUCTUATION IN FOREIGN EXCHANGE RATES

      Our operating subsidiaries are located in China. Their business activities
are mainly in China using Chinese Renminbi as the functional currency. The value
of the Renminbi against the U.S. dollar and other currencies may fluctuate and
is affected by, among other things, changes in China's political and economic
conditions. As we rely entirely on revenues earned in China, any significant
revaluation of the Renminbi may materially and adversely affect our cash flows,
revenues and financial condition. For example, to the extent that we need to
convert U.S. dollars we receive from an offering of our securities into Renminbi
for our operations, appreciation of the Renminbi against the U.S. dollar could
have a material adverse effect on our business, financial condition and results
of operations.

      Conversely, if we decide to convert our Renminbi into U.S. dollars for the
purpose of making payments for dividends on our common shares or for other
business purposes and the U.S. dollar appreciates against the Renminbi, the U.S.
dollar equivalent of the Renminbi we convert would be reduced. To date, however,
we have not engaged in transactions of either type.

      Since 1994 China has pegged the value of the Renminbi to the U.S. dollar.
We do not believe that this policy has had a material effect on our business.
However, there have been indications that the Chinese government may be
reconsidering its monetary policy in light of the overall devaluation of the
U.S. dollar against the Euro and other currencies during the last two years. In
July 2005, the Chinese government revalued the Renminbi by 2.1% against the U.S.
dollar, moving from Renminbi 8.28 to Renminbi 8.11 per dollar. As of June 30,
2007, the value of the Renminbi to the U.S. dollar was translated at 7.73 RMB to
$1.00 USD.

ITEM 3. CONTROL AND PROCEDURES

      Evaluation of Disclosure Controls and Procedures - We maintain a system of
disclosure controls and procedures that are designed for the purposes of
ensuring that information required to be disclosed in our SEC reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC's rules and forms, and that such information is accumulated and
communicated to our management, including our Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), as appropriate to allow timely decisions
regarding required disclosures.

      As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our CEO and CFO,
of the effectiveness of our disclosure controls and procedures as defined in
Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended. Based on that
evaluation, our CEO and CFO concluded that our disclosure controls and
procedures are effective.

      Changes in Internal Control Over Financial Reporting - There has been no
change in our internal control over financial reporting during the second
quarter of 2007 that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting.


                                      -40-
<PAGE>

                           PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

      The Company has commenced legal proceeding for damages of $10,000,000
against Mr. Li Xiaobo ("Mr. Li") the previous owner and controlling shareholder
of Enshi and his related parties ("Defendants") for breach of representations
and warranties and fraud and frozen approximately $10,000,000 worth of assets
per the court order in Hong Kong and the Defendants lost their opposition
actions against the seizure order. The Company reasonably expects to prevail in
the lawsuit against the Defendants. The Company reserves the right to take
further actions if necessary to seek additional damages and compensation for
such serious breach of representations and warranties and fraud and will make
appropriate disclosures pending the legal proceedings. In April 2007, the
Company lost an action in a court in Shenyang, China to offset claims against
Mr. Li against Mr. Li's working capital loan to Enshi. The court decided to view
each action separately on its own merit. The Company paid the amount of $560,735
due to Liao Ning Xie He and $86,765 due to Mr. Li. The Company reserves the
right to take additional actions against Mr. Li and will continue its
proceedings in other courts outside as well as in China.

ITEM 5. OTHER INFORMATION

The Company entered into a letter of intent on August 2, 2007 (the "Second LOI")
with RimAsia and its currently 51% owned subsidiary Erye, as a follow-up to a
preliminary letter of intent signed on July 14, 2007 (the "Initial LOI"), to
reflect, a) the more detailed terms for restructuring the outstanding
acquisition loan (the "Loan") from RimAsia to RACP Pharmaceutical Holdings
Limited ("RACP"), the borrower under the Loan and previously an indirect wholly
owned subsidiary of the Company, which Loan was used for funding the original
acquisition by RACP of Enshi in June of 2006 and was later assumed by the
Company, and b) the proposed acquisition of a 49% ownership interest of Erye not
already owned by the Company (the "Restructuring").

In the Second LOI, the parties also agreed (the terms of which are subject to
final negotiation and agreement) to continue the cooperation in the litigation
("Litigation") by RACP as the plaintiff against the Defendants, as well as how
to apply the Litigation judgment proceeds (the "Judgment Proceeds") in the event
the Litigation is successful against the Defendants.

Prior to the execution of the initial LOI, RimAsia served a notice of
acceleration against the Company on July 10, 2007 in relation to the Loan when
the Company failed to make an interest payment due on June 29, 2007. Such
acceleration notice became effective as of July 12, 2007, and was subsequently
suspended pursuant to a suspension agreement signed on July 16, 2007 based on
the Initial LOI, reflecting the mutual willingness of the parties to enter into
negotiation regarding the Restructuring.

On August 10, 1007, the Company acknowledged and consented to the prior seizure
by RimAsia of all the outstanding shares of RACP previously pledged as
collateral for the Loan and the registration of such shares in the name of RACP
Consol Holdings Limited ("RACPCH"), a wholly owned special purpose vehicle of
RimAsia, as part of the initial Loan acceleration action (subsequently stayed),
to hold such pledged shares of RACP in custody pending the final outcome of the
Restructuring  and the Litigation.

The Litigation is based on a main claim for breach of representations and
warranties and fraud in the previous Enshi acquisition transaction, the refund
of the original purchase price of Enshi paid by the Company, the payment of
RACP's costs incurred in connection with the Litigation, and the payment of
certain damages and rescission.


                                      -41-
<PAGE>

The parties agreed in the Second LOI in principle regarding the allocation of
the Judgment Proceeds arising from the Litigation, subject to final negotiation
and agreement on the terms of such allocation under certain circumstances. RACP
as the plaintiff in the Litigation thus far has been successful in seizing and
freezing certain real estate holdings, bank and securities accounts of Mr. Li
and the other Defendants in Canada, the US and Hong Kong pursuant to injunctions
issued in such jurisdictions, and it is currently expected that such efforts
will be continued. The Defendants to date have not been successful in their
oppositions against the seizure orders. The main rescission action and claim
against Mr. Li and the other claims against the Defendants, in the absence of
any out of court settlements, are expected to go to trial in the latter part of
2007 or the early part of 2008. On the basis of the progress achieved to date
against the Defendants, both the Company and RACP intend to vigorously continue
the Litigation against the Defendants.

In the proposed Restructuring, in addition to some of the principal terms
referred to above, it is currently envisaged that the other major elements
thereof will comprise the following:

      a)    The principal amount of the $11.5 million Loan is anticipated to be
            converted in full into shares of senior redeemable convertible
            preferred shares of the Company ("Preferred Shares") at an effective
            conversion price between US$1.01 and US$1.02 per Preferred Share.

      b)    It is anticipated that the exercise price of US$1.375 for the 12
            million existing warrants exercisable into the Company's common
            stock previously issued to and currently held by RimAsia in
            connection with the extension of the Loan financing ("Existing
            Warrants") will be lowered and the exercise period extended. Under
            certain circumstances, it is anticipated that RimAsia may also be
            issued additional warrants.

      c)    The shareholders of Erye have agreed in principle to sell their
            remaining 49% equity stake of Erye not already owned by the Company
            into the Company to enable Erye to become a wholly-owned subsidiary
            of the Company. The acquisition by the Company of such additional
            Erye shares ("Erye Injection") is expected to be effected by the
            issuance of 40 million new common shares, each at an issuance price
            of US$0.50 per share, to the Erye shareholders.

      d)    It is anticipated that the Erye Injection will include the issuance
            of a special preferred share of the Company to the selling Erye
            shareholders that would confer on such shareholders a super voting
            right of 30% on all matters subject to a vote of the shareholders of
            the Company. The terms and conditions of such super voting preferred
            share are to be further discussed and agreed by the parties.

The parties have agreed to target the execution of final definitive agreements
with respect to the Restructuring by August 31, 2007 (or such later date as may
be mutually agreed).

ITEM 6. EXHIBITS

The following exhibits are filed as part of this quarterly report on Form
10-QSB:

EXHIBIT
NUMBER         DESCRIPTION
------         --------------------------------------------------------------

31.1           Certification of Chief Executive Officer Pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.

31.2           Certification of Chief Financial Officer Pursuant to Section 302
               of the Sarbanes-Oxley Act of 2002.

32.1            Certification of Chief Executive Officer pursuant to Section 906
               of the Sarbanes-Oxley Act of 2002

32.2           Certification of Acting Chief Financial Officer pursuant to
               Section 906 of the Sarbanes-Oxley Act of 2002


                                      -42-
<PAGE>

SIGNATURES

      In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                     CHINA BIOPHARMACEUTICALS HOLDINGS, INC.


                                     By: /s/ Chris Peng Mao
                                     -------------------------------------------
                                     Name:  Chris Peng Mao
                                     Title: Chief Executive Officer
                                     Date: August 14, 2007


                                     By: /s/ HUNAG Chentai
                                     -------------------------------------------
                                     Name:  HUANG Chentai
                                     Title: Chief Financial Officer
                                     Date: August 14, 2007


                                      -43-