UNITED STATES 
SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

FORM
10-Q

|  |                                                                                          
|- | -----------------------------------------------------------------------------------------
|x | QUARTERLY REPORT PURSUANT TO
  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2009 OR

|  |                                                                                             
|- | --------------------------------------------------------------------------------------------
|o | TRANSITIONAL REPORT PURSUANT TO
  SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to _____________

Commission File No. 814-00063

|                                       
|---------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC.
|                                       

(Exact Name of registrant as specified in its charter)

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



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

|(86)   512 6855 0568                                
|----------------------------------------------------
|                                                    
|(Registrants telephone number, including area code)



(Former name, former address and former fiscal year, 
of changed since last report)

Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 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 o

Indicate by check mark
whether the registrant has submitted electronically and posted on its corporate
Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T (Section.232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files).
Yes  x No o

Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule
12b-2 of the Exchange Act. (Check one):

|                                                |                               
|----------------------------------------------- | ------------------------------
|Large accelerated filer
   o                    | Accelerated filer   o         
|Non-accelerated filer
   o                      | Smaller Reporting Company
   x
|(Do not check if a smaller
  reporting company) |                               

Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). Yes o No  x.

State the number of shares
outstanding of each of the issuers classes of common stock as of the latest
practicable date: 37,207,313 shares of Common Stock, par value $0.01 per share,
as of October 29, 2009.

---



TABLE OF CONTENTS

|           |                                                                                          |         
|---------- | ---------------------------------------------------------------------------------------- | --------
|ITEM NO.   | DESCRIPTION                                                                              | PAGE NO.
|           |                                                                                          |         
|PART I -   | FINANCIAL INFORMATION                                                                    |         
|           |                                                                                          |         
|ITEM 1.    | FINANCIAL STATEMENTS.                                                                    | 1       
|           |                                                                                          |         
|ITEM 2.    | MANAGEMENTS DISCUSSION
  AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. | 34      
|           |                                                                                          |         
|ITEM 3.    | QUANTITATIVE AND
  QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                            | 44      
|           |                                                                                          |         
|ITEM 4T.   | CONTROLS AND PROCEDURES.                                                                 | 44      
|           |                                                                                          |         
|PART II -  | OTHER INFORMATION                                                                        |         
|           |                                                                                          |         
|ITEM 6.    | EXHIBITS.                                                                                | 45      
|           |                                                                                          |         
|SIGNATURES |                                                                                          | 45      

---



ITEM 1. FINANCIAL STATEMENTS

CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008

|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | ----------- | ------------------- | - | ----------- | -
|                                                                                                                                                                                       |  | September 30,
  2009 |             | December 31,
  2008 |  
|                                                                                                                                                                                       |  |                      |             |                     |  
|ASSETS                                                                                                                                                                                 |  |                      |             |                     |   |            
|                                                                                                                                                                                       |  | (Unaudited)          |             |                     |   |            
|CURRENT ASSETS:                                                                                                                                                                        |  |                      |             |                     |   |             |  
|Cash                                                                                                                                                                                   |  | $                    | 2,847,192   |                     | $ | 470,672     |  
|Short term investment                                                                                                                                                                  |  |                      | 15,297      |                     |   | 4,432,657   |  
|Restricted cash                                                                                                                                                                        |  |                      | 3,935,443   |                     |   | 1,373,228   |  
|Accounts receivable, net of allowance for
  doubtful accounts of $323,330 and                                                                                                          |  |                      |             |                     |   |             |  
|$290,856 at September 30, 2009 and December
  31, 2008, respectively                                                                                                                   |  |                      | 3,155,766   |                     |   | 3,371,225   |  
|Other receivables and prepayments, net of
  allowance for doubtful accounts of                                                                                                         |  |                      |             |                     |   |             |  
|$224,928 and $224,928 at September 30, 2009
  and December 31, 2008, respectively                                                                                                      |  |                      | 288,415     |                     |   | 505,987     |  
|Other receivables - related parties                                                                                                                                                    |  |                      | 331,500     |                     |   | 321,500     |  
|Advances to suppliers                                                                                                                                                                  |  |                      | 266,630     |                     |   | 45,877      |  
|Inventories, net of $26,249 and $26,250
  allowance at September 30, 2009                                                                                                              |  |                      |             |                     |   |            |  
|and December 31, 2008, respectively                                                                                                                                                    |  |                      | 11,868,536  |                     |   | 9,033,655   |  
|Loans receivable                                                                                                                                                                       |  |                      | 2,743,290   |                     |   |            |  
|Assets to be disposed                                                                                                                                                                  |  |                      |            |                     |   | 178,717     |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total current assets                                                                                                                                                                   |  |                      | 25,452,069  |                     |   | 19,733,518  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|PLANT AND EQUIPMENT, NET                                                                                                                                                               |  |                      | 4,254,381   |                     |   | 4,236,173   |  
|CONSTRUCTION-IN-PROGRESS                                                                                                                                                               |  |                      | 14,309,440  |                     |   | 7,379,805   |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|OTHER ASSETS:                                                                                                                                                                          |  |                      |             |                     |   |             |  
|Intangible asset, net                                                                                                                                                                  |  |                      | 7,451,877   |                     |   | 7,587,057   |  
|Long term prepayments                                                                                                                                                                  |  |                      |            |                     |   | 80,541      |  
|Advance on patent purchase                                                                                                                                                             |  |                      | 1,321,561   |                     |   | 1,321,561   |  
|Other assets                                                                                                                                                                           |  |                      | 30,676      |                     |   | 40,678      |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total other assets                                                                                                                                                                     |  |                      | 8,804,114   |                     |   | 9,029,837   |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total assets                                                                                                                                                                           |  | $                    | 52,820,004  |                     | $ | 40,379,333  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|LIABILITIES
  AND SHAREHOLDERS EQUITY                                                                                                                                                 |  |                      |             |                     |   |             |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|CURRENT LIABILITIES:                                                                                                                                                                   |  |                      |             |                     |   |             |  
|Notes payable                                                                                                                                                                          |  | $                    | 10,080,577  |                     | $ | 4,563,837   |  
|Accounts payable and accrued liabilities                                                                                                                                               |  |                      | 6,355,613   |                     |   | 4,870,285   |  
|Other payables                                                                                                                                                                         |  |                      | 879,054     |                     |   | 1,129,031   |  
|Other payables - related parties                                                                                                                                                       |  |                      | 239,571     |                     |   | 666,694     |  
|Customer deposits                                                                                                                                                                      |  |                      |            |                     |   | 998,006     |  
|Taxes payable                                                                                                                                                                          |  |                      | 2,620,303   |                     |   | 2,212,422   |  
|Short-term loans                                                                                                                                                                       |  |                      | 117,360     |                     |   | 2,611,260   |  
|Dividend payables                                                                                                                                                                      |  |                      | 1,110,346   |                     |   | 1,110,346   |  
|Liabilities to be disposed                                                                                                                                                             |  |                      |            |                     |   | 411,351     |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total current liabilities                                                                                                                                                              |  |                      | 21,402,824  |                     |   | 18,573,232  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|LONG TERM LIABILITIES:                                                                                                                                                                 |  |                      |             |                     |   |             |  
|Long-term loans - related party                                                                                                                                                        |  |                      | 7,702,767   |                     |   |            |  
|Warrants liabilities                                                                                                                                                                   |  |                      | 1,429,698   |                     |   |            |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total long-term liabilities                                                                                                                                                            |  |                      | 9,132,465   |                     |   |            |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|COMMITMENTS AND CONTINGENCIES                                                                                                                                                          |  |                      |             |                     |   |             |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|REDEEMABLE PREFERRED STOCK - Series B,
  $0.01 par value, 6,185,607                                                                                                                    |  |                      |             |                     |   |             |  
|shares issued and outstanding at September
  30, 2009 and December 31, 2008                                                                                                            |  |                      | 12,508,534  |                     |   | 12,508,534  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|EQUITY                                                                                                                                                                                 |  |                      |             |                     |   |             |  
|Preferred stock - $0.01 par value,
  10,000,000 shares authorized;                                                                                                                     |  |                      |             |                     |   |             |  
|Series A, Nil and 50,000 share issued and
  outstanding at September 30, 2009 and December 31, 2008, respectively;                                                                     |  |                      |            |                     |   | 500         |  
|Series B, 6,185,607 shares issued and
  outstanding at September 30, 2009,                                                                                                             |  |                      |             |                     |   |             |  
|classified above outside permanent
  shareholders equity.                                                                                                                             |  |                      |             |                     |   |             |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Common stock, $0.01 par value, 200,000,000
  shares authorized; 37,207,313 and 36,590,312 shares issued and outstanding as
  of September 30, 2009 and December 31, 2008, respectively |  |                      | 372,073     |                     |   | 365,903     |  
|Paid-in capital                                                                                                                                                                        |  |                      | 10,661,636  |                     |   | 13,222,851  |  
|Capital receivable                                                                                                                                                                     |  |                      |            |                     |   | (252,471    | )
|Statutory reserves                                                                                                                                                                     |  |                      | 1,398,677   |                     |   | 1,508,798   |  
|Accumulated deficit                                                                                                                                                                    |  |                      | (11,034,247 | )                   |   | (16,797,813 | )
|Accumulated other comprehensive income                                                                                                                                                 |  |                      | 569,853     |                     |   | 904,971     |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total shareholders equity (deficit)                                                                                                                                                   |  |                      | 1,967,992   |                     |   | (1,047,261  | )
|Non-controlling interests                                                                                                                                                              |  |                      | 7,808,189   |                     |   | 10,344,828  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total equity                                                                                                                                                                           |  |                      | 9,776,181   |                     |   | 9,297,567   |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  
|Total liabilities and shareholders
equity                                                                                                                                             |  | $                    | 52,820,004  |                     | $ | 40,379,333  |  
|                                                                                                                                                                                       |  |                      |             |                     |   |             |  

The
accompanying notes are an integral part of these consolidated financial
statements.

- 1 -

---



CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 
(UNAUDITED)

|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|---------------------------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                                                   |  | Three months ended September 30, |            | Nine months ended September 30, |  
|                                                                                   |  | 2009                             |            | 2008                            |   | 2009       |   | 2008 |           
|                                                                                   |  |                                  |            |                                 |   |            |   |      |           
|REVENUE                                                                            |  | $                                | 17,051,816 |                                 | $ | 12,512,711 |   | $    | 45,042,881 |   | $ | 36,767,712 |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|COST OF REVENUE                                                                    |  |                                  | 11,129,366 |                                 |   | 8,596,513  |   |      | 29,760,088 |   |   | 25,522,533 |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|GROSS PROFIT                                                                       |  |                                  | 5,922,450  |                                 |   | 3,916,198  |   |      | 15,282,793 |   |   | 11,245,179 |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|OPERATING EXPENSES:                                                                |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Research and development                                                           |  |                                  | 76,035     |                                 |   | 30,620     |   |      | 312,098    |   |   | 279,909    |  
|Selling, general and administrative                                                |  |                                  | 1,332,672  |                                 |   | 1,176,356  |   |      | 3,926,645  |   |   | 3,424,263  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Total operating expenses                                                           |  |                                  | 1,408,707  |                                 |   | 1,206,976  |   |      | 4,238,743  |   |   | 3,704,172  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|INCOME FROM OPERATIONS                                                             |  |                                  | 4,513,743  |                                 |   | 2,709,222  |   |      | 11,044,050 |   |   | 7,541,007  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|OTHER INCOME (EXPENSE):                                                            |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Interest (expense) income, net                                                     |  |                                  | (3,692     | )                               |   | 76,212     |   |      | (6,871     | ) |   | 7,099      |  
|Gain on trading securities                                                         |  |                                  | 42,510     |                                 |   |           |   |      | 54,015     |   |   |           |  
|Changes in fair value of warrants                                                  |  |                                  | (41,066    | )                               |   |           |   |      | (1,005,774 | ) |   |           |  
|Other (expense) income, net                                                        |  |                                  | (51,683    | )                               |   | 13,596     |   |      | (34,279    | ) |   | (14,058    | )
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Total other (expense) income, net                                                  |  |                                  | (53,931    | )                               |   | 89,808     |   |      | (992,909   | ) |   | (6,959     | )
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|INCOME FROM CONTINUING OPERATIONS BEFORE
  INCOME TAXES AND NON-CONTROLLI          |  |                                  | 4,459,812  |                                 |   | 2,799,030  |   |      | 10,051,141 |   |   | 7,534,048  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|PROVISION FOR INCOME TAXES                                                         |  |                                  | 554,133    |                                 |   | 377,583    |   |      | 1,416,393  |   |   | 1,008,196  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|INCOME FROM CONTINUING OPERATIONS BEFORE
  NON-CONTROLLING INTEREST                |  |                                  | 3,905,679  |                                 |   | 2,421,447  |   |      | 8,634,748  |   |   | 6,525,852  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Less - Income from continuing operations
  attributable to noncontrolling interest |  |                                  | 1,997,403  |                                 |   | 1,186,470  |   |      | 4,841,743  |   |   | 3,343,935  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|INCOME FROM CONTINUING OPERATIONS
  ATTRIBUTABLE TO CONTROLLING INTEREST           |  |                                  | 1,908,276  |                                 |   | 1,234,977  |   |      | 3,793,005  |   |   | 3,181,917  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|LOSS FROM DISCONTINUED OPERATIONS
  ATTRIBUTABLE TO CONTROLLING INTEREST           |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Loss from discontinued operations, net of
  tax effect                             |  |                                  | 35,381     |                                 |   | 78,342     |   |      | 77,022     |   |   | 87,369     |  
|Loss from disposal of discontinued
  operations, net of tax effect                 |  |                                  | 417,150    |                                 |   |           |   |      | 417,150    |   |   |           |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Loss from discontinued operations                                                  |  |                                  | 452,531    |                                 |   | 78,342     |   |      | 494,172    |   |   | 87,369     |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|INCOME ATTRIBUTABLE TO CONTROLLING INTEREST                                        |  |                                  | 1,455,745  |                                 |   | 1,156,635  |   |      | 3,298,833  |   |   | 3,094,548  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Dividends and accretion on redeemable
  preferred stock                            |  |                                  |           |                                 |   | (318,308   | ) |      |           |   |   | (952,592   | )
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|NET INCOME AVAILABLE TO COMMON SHAREHOLDERS                                        |  |                                  | 1,455,745  |                                 |   | 838,327    |   |      | 3,298,833  |   |   | 2,141,956  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|OTHER COMPREHENSIVE INCOME (LOSS):                                                 |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Foreign currency translation adjustment
  attributable to controlling interest     |  |                                  | (58,294    | )                               |   | 21,881     |   |      | (335,118   | ) |   | 474,179    |  
|Foreign currency translation adjustment
  attributable to non-controlling interest |  |                                  | 24,781     |                                 |   | 46,611     |   |      | (240,944   | ) |   | 494,809    |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|COMPREHENSIVE INCOME                                                               |  | $                                | 1,422,232  |                                 | $ | 906,819    |   | $    | 2,722,771  |   | $ | 3,110,944  |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|EARNINGS PER SHARE- BASIC                                                          |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Continuing operations                                                              |  |                                  | 0.05       |                                 |   | 0.02       |   |      | 0.10       |   |   | 0.06       |  
|Discontinued operations                                                            |  |                                  | (0.01      | )                               |   | (0.00      | ) |      | (0.01      | ) |   | (0.00      | )
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Earnings per share - Basic                                                         |  | $                                | 0.04       |                                 | $ | 0.02       |   | $    | 0.09       |   | $ | 0.06       |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|EARNINGS PER SHARE- DILUTED                                                        |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Continuing operations                                                              |  |                                  | 0.04       |                                 |   | 0.02       |   |      | 0.08       |   |   | 0.06       |  
|Discontinued operations                                                            |  |                                  | (0.01      | )                               |   | (0.00      | ) |      | (0.01      | ) |   | (0.00      | )
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Earnings per share - Diluted                                                       |  | $                                | 0.03       |                                 | $ | 0.02       |   | $    | 0.07       |   | $ | 0.06       |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|WEIGHTED AVERAGED NUMBER OF SHARES
  OUTSTANDING:                                  |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Basic                                                                              |  |                                  | 37,082,739 |                                 |   | 36,490,312 |   |      | 37,082,457 |   |   | 36,490,312 |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Diluted                                                                            |  |                                  | 49,453,953 |                                 |   | 36,490,312 |   |      | 49,453,671 |   |   | 36,490,312 |  
|                                                                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  

The
accompanying notes are an integral part of these consolidated financial
statements.

- 2 -

---



CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|----------------------------------------------------- |  | ------------------------------------------------------ | ------- | -------------- | - | ------- | - | ----------- | ---------- | --------- | - | ---------- |  | ------------- | ---------- | ------------- | - | -------------- | - | -------- | --------- | ------ | - | ----------- | - | - | -------- | - | - | ---------- | - | - | ---------- | -
|                                                      |  | CHINA
  BIOPHARMACEUTICALS HOLDINGS, INC. Shareholders |         | Accumulated    |   |         |   |             |           
|                                                      |  |                                                        |         |                |   |         |   |             |           
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            | Accumulated   |   | Other
  Income |   |          |           |        |  
|                                                      |  | Preferred
  stock (series A)                           |         | Common
  Stock |   | Paid-in |   | Capital     |            | Statutory |   | Income     |  | Comprehensive |            | Noncontrollig |   |                |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |  
|                                                      |  | Shares                                                 |         | Par
  value    |   | Shares  |   | Par
  Value |            | Capital   |   | Receivable |  | Reserves      |            | (Deficit)     |   | (Loss)         |   | Interest |           | Totals |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |  
|BALANCE, December 31, 2007                            |  |                                                        | 50,000  |                | $ | 500     |   |             | 36,490,312 |           | $ | 364,903    |  | $             | 13,178,101 |               | $ | (252,471       | ) | $        | 976,439   |        | $ | (18,059,232 | ) | $ | 389,084  |   | $ | 5,942,144  |   | $ | 2,539,468  |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|Stock based compensation                              |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               | 18,750     |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   | 18,750     |  
|Dividends and accretion on redeemable preferred
stock |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   | (1,033,239  | ) |   |          |   |   |            |   |   | (1,033,239 | )
|Net income                                            |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   | 2,141,956   |   |   |          |   |   | 3,385,321  |   |   | 5,527,277  |  
|Statutory reserves                                    |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          | 691,820   |        |   | (691,820    | ) |   |          |   |   |            |   |   |           |  
|Foreign currency translation adjustments              |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   | 474,179  |   |   | 494,809    |   |   | 968,988    |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|BALANCE, September 30, 2008 (Unaudited)               |  |                                                        | 50,000  |                |   | 500     |   |             | 36,490,312 |           |   | 364,903    |  |               | 13,196,851 |               |   | (252,471       | ) |          | 1,668,259 |        |   | (17,642,335 | ) |   | 863,263  |   |   | 9,822,274  |   |   | 8,021,244  |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|Common shares issued for service                      |  |                                                        |         |                |   |         |   |             | 100,000    |           |   | 1,000      |  |               | 26,000     |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   | 27,000     |  
|Net income                                            |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   | 685,061     |   |   |          |   |   | 536,727    |   |   | 1,221,788  |  
|Statutory reserves                                    |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          | (159,461  | )      |   | 159,461     |   |   |          |   |   |            |   |   |           |  
|Foreign currency translation adjustments              |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   | 41,708   |   |   | (14,173    | ) |   | 27,535     |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|BALANCE, December 31, 2008                            |  |                                                        | 50,000  |                | $ | 500     |   |             | 36,590,312 |           | $ | 365,903    |  | $             | 13,222,851 |               | $ | (252,471       | ) | $        | 1,508,798 |        | $ | (16,797,813 | ) | $ | 904,971  |   |   | 10,344,828 |   | $ | 9,297,567  |  
|Cumulative effect of reclassification of
warrants     |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               | (8,874,548 | )             |   |                |   |          |           |        |   | 8,450,624   |   |   |          |   |   |            |   |   | (423,924   | )
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|BALANCE, January 1, 2009, as adjusted                 |  |                                                        | 50,000  |                |   | 500     |   |             | 36,590,312 |           |   | 365,903    |  |               | 4,348,303  |               |   | (252,471       | ) |          | 1,508,798 |        |   | (8,347,189  | ) |   | 904,971  |   |   | 10,344,828 |   |   | 8,873,643  |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|Reconcilation of discrepancy shares                   |  |                                                        | 25,000  |                |   | 250     |   |             | 492,001    |           |   | 4,920      |  |               | (5,170     | )             |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |           |  
|Conversion of preferred stock                         |  |                                                        | (75,000 | )              |   | (750    | ) |             | 75,000     |           |   | 750        |  |               |           |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |           |  
|Common shares issued for service                      |  |                                                        |         |                |   |         |   |             | 50,000     |           |   | 500        |  |               | 11,000     |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   | 11,500     |  
|Dividend declaration                                  |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               | 6,307,503  |               |   |                |   |          |           |        |   | (6,712,396  | ) |   |          |   |   | (7,208,920 | ) |   | (7,613,813 | )
|Disposal of Keyuan and CBC                            |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   | 252,471        |   |          | (110,121  | )      |   | 726,505     |   |   | (83,176  | ) |   | 71,482     |   |   | 857,161    |  
|Net income                                            |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   | 3,298,833   |   |   |          |   |   | 4,841,743  |   |   | 8,140,576  |  
|Foreign currency translation adjustments              |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   | (251,942 | ) |   | (240,944   | ) |   | (492,886   | )
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  
|BALANCE, September 30, 2009 (Unaudited)               |  |                                                        |        |                | $ |        |   |             | 37,207,313 |           | $ | 372,073    |  | $             | 10,661,636 |               | $ |               |   | $        | 1,398,677 |        | $ | (11,034,247 | ) | $ | 569,853  |   | $ | 7,808,189  |   | $ | 9,776,181  |  
|                                                      |  |                                                        |         |                |   |         |   |             |            |           |   |            |  |               |            |               |   |                |   |          |           |        |   |             |   |   |          |   |   |            |   |   |            |  

The accompanying notes are an
integral part of these consolidated financial statements.

- 3 -

---



CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND
SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008 
(UNAUDITED)

|                                                                                                       |  |                                 |            |      |   |            |  
|------------------------------------------------------------------------------------------------------ |  | ------------------------------- | ---------- | ---- | - | ---------- | -
|                                                                                                       |  | Nine months ended September 30, |           
|                                                                                                       |  | 2009                            |            | 2008 |  
|                                                                                                       |  |                                 |            |      |  
|CASH FLOWS FROM CONTINUING OPERATING
  ACTIVITIES:                                                     |  |                                 |            |      |   |            |  
|Net income available to common
shareholders                                                            |  | $                               | 3,298,833  |      | $ | 2,141,956  |  
|Dividends and accretion on redeemable
  preferred stock                                                |  |                                 |           |      |   | 952,592    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Income attributable to controlling
interest                                                            |  |                                 | 3,298,833  |      |   | 3,094,548  |  
|Loss from discontinued operations                                                                      |  |                                 | 494,172    |      |   | 87,369     |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Income from continuing operations
  attributable to controlling interest                               |  |                                 | 3,793,005  |      |   | 3,181,917  |  
|Income from continuing operations
  attributable to noncontrolling interest                            |  |                                 | 4,841,743  |      |   | 3,343,935  |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Income from continuing operations                                                                      |  |                                 | 8,634,748  |      |   | 6,525,852  |  
|Adjustments to reconcile net income from
  operations to cash provided by operating activities:        |  |                                 |            |      |   |            |  
|Amortization of shares issued for
service                                                              |  |                                 | 11,500     |      |   | 18,750     |  
|Depreciation                                                                                           |  |                                 | 402,005    |      |   | 398,305    |  
|Amortization                                                                                           |  |                                 | 135,106    |      |   | 132,931    |  
|Bad debt expense                                                                                       |  |                                 | 32,449     |      |   | 58,965     |  
|Change in fair value of warrants                                                                       |  |                                 | 1,005,774  |      |   |           |  
|Change in operating assets and
liabilities:                                                            |  |                                 |            |      |   |            |  
|Accounts receivable                                                                                    |  |                                 | 182,848    |      |   | (488,973   | )
|Accounts receivable - related parties                                                                  |  |                                 |           |      |   | (15,743    | )
|Other receivable and prepayments                                                                       |  |                                 | 315,155    |      |   | 1,062,777  |  
|Advance to suppliers                                                                                   |  |                                 | (140,107   | )    |   | 520,053    |  
|Inventories                                                                                            |  |                                 | (2,832,755 | )    |   | (667,406   | )
|Other assets                                                                                           |  |                                 | 10,002     |      |   | 29,791     |  
|Increase in notes payable                                                                              |  |                                 | 5,512,603  |      |   | 3,303,245  |  
|Accounts payable                                                                                       |  |                                 | 1,054,248  |      |   | (776,962   | )
|Accounts payable - related parties                                                                     |  |                                 |           |      |   | (79,021    | )
|Other payable and other current
liabilities                                                            |  |                                 | 153,672    |      |   | (754,151   | )
|Customer deposits                                                                                      |  |                                 | (997,258   | )    |   | 565,082    |  
|Taxes payable                                                                                          |  |                                 | 407,606    |      |   | 926,787    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Net cash provided by continuing operating
activities                                                   |  |                                 | 13,887,596 |      |   | 10,760,282 |  
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH FLOWS FROM CONTINUING OPERATION
  INVESTING ACTIVITIES:                                           |  |                                 |            |      |   |            |  
|Income tax paid on dividend distributed to
  CBH                                                       |  |                                 | (404,893   | )    |   |           |  
|Proceeds from long term notes receivables                                                              |  |                                 |           |      |   | 92,118     |  
|Purchase of equipment                                                                                  |  |                                 | (420,185   | )    |   | (286,503   | )
|Payment to construction-in-progress                                                                    |  |                                 | (6,924,439 | )    |   | (5,904,126 | )
|Increase in other receivables - related
  parties                                                      |  |                                 | (10,000    | )    |   | (698,569   | )
|(Payments on) repayment received from loan
  to third parties                                          |  |                                 | (2,741,233 | )    |   | 42,840     |  
|Decrease in short term Investment                                                                      |  |                                 | 4,414,048  |      |   | 1,146,960  |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Net cash used in continuing operation investing
activities                                             |  |                                 | (6,086,702 | )    |   | (5,607,280 | )
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH FLOWS FROM CONTINUING OPERATION
  FINANCING ACTIVITIES:                                           |  |                                 |            |      |   |            |  
|Increase in restricted cash                                                                            |  |                                 | (2,560,294 | )    |   | (993,147   | )
|Principal payment on bank loans                                                                        |  |                                 | (2,492,030 | )    |   | (71,685    | )
|Decrease on other payables - related
  parties                                                         |  |                                 | (499,872   | )    |   |            |  
|Increase (decrease) on long term
  liabilities                                                         |  |                                 | 100,150    |      |   | (13,659    | )
|                                                                                                       |  |                                 |            |      |   |            |  
|Net cash used in continuing financing
activities                                                       |  |                                 | (5,452,046 | )    |   | (1,078,491 | )
|                                                                                                       |  |                                 |            |      |   |            |  
|EFFECT OF EXCHANGE RATE ON CASH                                                                        |  |                                 | 27,672     |      |   | (54,904    | )
|                                                                                                       |  |                                 |            |      |   |            |  
|Net cash provided by (used in) continuing
  operation                                                  |  |                                 | 2,376,520  |      |   | 4,019,608  |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Cash provided by discontinued operation
  operating activities                                         |  |                                 | (67,953    | )    |   | 52,742     |  
|Cash provided by discontinued operation
  investing activities                                         |  |                                 |           |      |   | (1,048     | )
|Cash providied by discontinued operation
  financing activities                                        |  |                                 |           |      |   | 126,307    |  
|Effect of exchange rate on cash -
  discontinued opeartions                                            |  |                                 | (43,102    | )    |   | (10,097    | )
|                                                                                                       |  |                                 |            |      |   |            |  
|Net cash (used in) provided by discontinued
  operations                                               |  |                                 | (111,055   | )    |   | 167,904    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH, beginning of period - continuing
  operations                                                    |  |                                 | 470,672    |      |   | 634,189    |  
|CASH,beginning of period - discontinued
  operations                                                   |  |                                 | 111,055    |      |   | 35,510     |  
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH, beginning of period                                                                              |  |                                 | 581,727    |      |   | 669,699    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH, end of period - continuing operations                                                            |  |                                 | 2,847,192  |      |   | 4,653,797  |  
|CASH, end of period - discontinued
  operations                                                        |  |                                 |           |      |   | 203,414    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|CASH, end of period                                                                                    |  | $                               | 2,847,192  |      | $ | 4,857,211  |  
|                                                                                                       |  |                                 |            |      |   |            |  
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW
  INFORMATION:                                                    |  |                                 |            |      |   |            |  
|Interest paid                                                                                          |  | $                               |           |      | $ | 81,073     |  
|                                                                                                       |  |                                 |            |      |   |            |  
|Income taxes paid                                                                                      |  | $                               | 1,098,623  |      | $ | 112,150    |  
|                                                                                                       |  |                                 |            |      |   |            |  
|NON-CASH TRANSACTIONS OF INVESTING AND
  FINANCING ACTIVITIES:                                         |  |                                 |            |      |   |            |  
|Loan payable to related party which was
  transferred from dividend payable and noncontrolling interes |  | $                               | 7,476,086  |      | $ |           |  
|                                                                                                       |  |                                 |            |      |   |            |  

The
accompanying notes are an integral part of these consolidated financial
statements.

- 4 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Note 1 - ORGANIZATION AND OPERATIONS

China
Biopharmaceuticals Holdings, Inc. (CBH, We and the Company), a Delaware
corporation, was originally organized as a Corporation under the laws of the
state of New York on August 6, 1976. Since August 2004, the Company acquired
various subsidiaries located in mainland China (PRC). The principal
activities of the Company, through its subsidiaries, are research, manufacture,
and sale of drug raw materials and intermediates as well as prescription and
non-prescription drugs and traditional Chinese medicines. The Company is also
engaged in the discovery, development and commercialization of innovative drugs
and related bio-pharmaceutical products in China.

As a
pre-condition to complete the merger with Neostem (see detail disclosure in
Note 20), on July 11, 2009, the Company decided to spin-off China
Biopharmaceuticals Corporation (CBC), the 100% owned subsidiary of CBH, and
to write off the investment in Keyuan Pharmaceutical R&D Co., Ltd
(Keyuan), which is 90% owned by CBC.

On September
4, 2009, CBH entered into a trust agreement with Stephen Globus, a board member
of CBH, as trustee for the benefit of the holders of the common stock of CBH
(the Trust Agreement). Keyuan was written off on August 31, 2009 (see detail
disclosure in Note 20)

Note 2 - SIGNIFICANT ACCOUNTING POLICIES

The unaudited
consolidated financial statements have been prepared by the Company pursuant to
the rules and regulations of the Securities and Exchange Commission. The
information furnished herein reflects all adjustments (consisting of normal
recurring accruals and adjustments) which are, in the opinion of management,
necessary to fairly present the operating results for the respective periods.
Certain information and footnote disclosures normally present in annual
consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States of America have been omitted
pursuant to such rules and regulations. These consolidated financial statements
should be read in conjunction with the audited consolidated financial
statements and footnotes included in the Companys Annual Report on Form 10-K.
The results for the nine months ended September 30, 2009, are not necessarily
indicative of the results to be expected for the full year ending December 31,
2009.

Basis of Presentation

The
accompanying consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America and
have been consistently applied.

The
consolidated financial statements include the financial statements of the
Company and all its majority-owned subsidiaries that 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:

|       |                         |                                     
|------ | ----------------------- | ------------------------------------
|Entity | Percentage of Ownership | Location                            
|       |                         |                                     
|CBH    | Parent Company          | United States of America            
|Erye   | 51% owned by CBH        | Peoples Republic of China (P.R.C.)

In the
accompanying financial statements, financial results related to the divested
operations of CBC and Keyuan are presented as discontinued operations.
Previously reported amounts have been restated to present the divested
operations in a manner consistent with the current period presentation. Total
assets and liabilities of CBC and Keyuan were reclassified as Assets(
Liabilities) held for disposal on the consolidated balance sheet as of December
31, 2008. Unless otherwise noted, discussions and amounts throughout these
notes relate to CBHs continuing operations.

- 5 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        
|                                                        

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
collectability of its receivables which affects the carry value of the related
asset and the fair value of share-based compensation which affects the amount
of compensation recognized in earnings. 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.

Foreign Currency Translation

The reporting
currency of the Company is the US dollar. The Companys operating subsidiaries
financial records are maintained in its local currency, Renminbi (RMB);
therefore, the Companys functional currency is the RMB. Results of operations
are translated at the 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.

Translation
adjustments resulting from this process are included in accumulated other
comprehensive income in the consolidated statement of shareholders equity and
amounted to $569,853 and $ 904,971 as of September 30, 2009 and December 31,
2008, respectively. Assets and liabilities at September 30, 2009 and December
31, 2008 were translated at 6.82 and 6.82 RMB to $1.00. The average translation
rates applied to income statement accounts and the statement of cash flows for
the three and nine months ended September 30, 2009 were 6.82 and 6.82 RMB to
$1.00, respectively. The average translation rates applied to income statement
accounts, statement of cash flows for the three and nine months ended September
30, 2008 were 6.83 and 6.97 RMB to $1.00.

The Company
adjusted $385,807 from accumulated other comprehensive income to
non-controlling interest which was presented as component of equity section as
of December 31, 2007 as a result of application of Financial Accounting Standard Board's
 (FASB) accounting standard regarding Non-controlling Interest in Consolidated Financial
Statements  effective January 1, 2009. For the nine months ended
September 30, 2009 and 2008, $240,944 of loss and $494,809 of gain from
translation adjustment was borne by noncontrolling interest.

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.

- 6 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

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 economic market 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.

Concentration of Risks

Cash includes
cash on hand and demand deposits in accounts maintained with banks within the
Peoples Republic of China, Hong Kong and the United States. Total cash in
these banks at September 30, 2009 and December 31, 2008 amounted to $6,779,455
and $1,953,720 of which $18,102 and $0 deposits are federally-insured,
respectively. 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
sells pharmaceutical products to pharmacies and hospitals. There is no sales
concentration risk for the Company since no sales to one customer individually
accounted for more than 10% of the total sales revenue for the three and nine
months ended September 30, 2009 and 2008.

For the three
months ended September 30, 2009, one major supplier provided approximately
10.8% of the Companys purchases of raw material. For the nine-month period
ended September 30, 2009, two major suppliers provided approximately 26.0% of
the Companys purchases of raw materials with each supplier individually
accounting for 15.7% and 10.3%, respectively. As of September 30, 2009, the
total accounts payable to the two major suppliers was $777,168, 13.6% of the
total accounts payable.

For the three
months ended September 2008, two major suppliers provided approximately 28.5%
of the Companys purchases of raw materials with each supplier individually
provided 15.7% and 12.8%, respectively. For the nine months ended September 30,
2008, two major suppliers provided approximately 33.1% of the Companys
purchases of raw materials with each supplier individually accounting for
18.4%, and 14.7%, respectively.

Fair Value of Financial Instruments

Effective
January 1, 2008, the Company adopted FASB's accounting standards regarding fair value of financial instruments and
related fair value measurements. Those accounting standards established a
three-level valuation hierarchy for disclosures of fair value measurement and
enhances disclosures requirements for fair value measures. The carrying amounts
reported in the accompanying consolidated balance sheets for receivables,
payables and short term loans qualify as financial instruments are a reasonable
estimate of fair value because of the short period of time between the
origination of such instruments, their expected realization and, if applicable,
the stated rate of interest is equivalent to rates currently available. The
three levels of valuation hierarchy are defined as follows:

| |   |                                                                                                                                                                                                                                                                                         
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Level 1
  inputs to the valuation methodology are quoted prices (unadjusted) for
  identical assets or liabilities in active markets.                                                                                                                                                   
| |  | Level 2
  inputs to the valuation methodology include quoted prices for similar assets
  and liabilities in active markets, and inputs that are observable for the
  assets or liability, either directly or indirectly, for substantially the
  full term of the financial instruments.
| |  | Level 3
  inputs to the valuation methodology are unobservable and significant to the
  fair value.                                                                                                                                                                                     

- 7 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

As required by
the accounting standard, financial assets and liabilities are classified in
their entirety based on the lowest level of input that is significant to the
fair value measurement.

Balance of
short term investment represented the quoted price of the securities in active
markets.

The Company
determined the fair value of the issued and outstanding warrants using the
Black-Scholes option pricing model (Black-Scholes Model,) as level 2 inputs,
which does not entail material subjectivity because the methodology employed
does not necessitate significant judgment, and the pricing inputs are observed
from actively quoted markets. The change in the fair value of warrants
liabilities were charged to non-operating expenses. As a result, the warrant
liabilities are carried on the consolidated balance sheets at fair value.

The following
table sets forth by level within the fair value hierarchy our financial assets
and liabilities that were accounted for at fair value on a recurring basis as
of September 30, 2009:

|                        |  |                |            |                                                    |   |         |  |         |            |   |  |   | 
|----------------------- |  | -------------- | ---------- | -------------------------------------------------- | - | ------- |  | ------- | ---------- | - |  | - | 
|                        |  | Carrying Value |            | Fair Value Measurements Using Fair Value Hierarchy |  
|                        |  |                |            |                                                    |  
|                        |  |                |            | Level 1                                            |   | Level 2 |  | Level 3 |           
|Short term
  investment |  | $              | 15,297     |                                                    | $ | 15,297  |  |         |           |   |  |  | 
|                        |  |                |            |                                                    |   |         |  |         |            |   |  |   | 
|Warrant
  liabilities   |  | $              | (1,429,698 | )                                                  |   |        |  | $       | (1,429,698 | ) |  |  | 

Other than the
short-term investments and warrant liabilities carried at fair value, the
Company did not identify any other assets and liabilities that are required to
be presented on the balance sheet at fair value in accordance with the FASBs
accounting standards.

Revenue Recognition

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

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.

Management
regularly reviews aging of receivables and changes in payment trends by its
customers, and records a reserve when they believe collection of amounts due
are at risk. The Company reserves 20%, 50% and 100% for AR balances with aging
more than six-month, nine-month and more than one year, respectively, based on
the nature of the business and AR collection history.

Revenue was
made up of the following product categories.

|                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |            | 
|------------------------------------- |  | ---------------------------------------- | ---------- | --------------------------------------- | - | ---------- |  | ---- | ---------- |  | - | ---------- | 
|                                      |  | For the three months ended September 30, |            | For the nine months ended September 30, |  
|                                      |  | 2009                                     |            | 2008                                    |   | 2009       |  | 2008 |           
|                                      |  | (Unaudited)                              |            | (Unaudited)                             |  
|                                      |  |                                          |            |                                         |  
|Revenue:                              |  |                                          |            |                                         |   |            |  |      |            |  |   |            | 
|Intermediary pharmaceuticals products |  | $                                        | 3,853,302  |                                         | $ | 2,744,041  |  | $    | 9,523,631  |  | $ | 10,261,372 | 
|Prescription drugs                    |  |                                          | 13,140,136 |                                         |   | 9,750,436  |  |      | 35,460,872 |  |   | 26,490,154 | 
|Others                                |  |                                          | 58,378     |                                         |   | 18,234     |  |      | 58,378     |  |   | 16,186     | 
|                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |            | 
|Total revenue                         |  | $                                        | 17,051,816 |                                         | $ | 12,512,711 |  | $    | 45,042,881 |  | $ | 36,767,712 | 
|                                      |  |                                          |            |                                         |   |            |  |      |            |  |   |            | 

- 8 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Cash

Cash includes
cash on hand, demand deposits with banks and liquid investments with an
original maturity of three months or less.

Short Term Investment

In 2007, the
Company opened an account with an investment broker to invest in a short term
in initial public offering securities. The Company classified the account
balance as trading securities, which should be carried at fair value with
unrealized gains and losses reported as other comprehensive income. Total
balance of this account was $15,297 and $4,432,657 as of September 31, 2009 and
December 31, 2008, respectively. For the three and nine months ended September
30, 2009, the Company recorded $42,510 and $54,015 gain on trading securities,
respectively. No realized gain or loss on short-term investment for the three
and nine months ended September 30, 2008. In addition, there was no unrealized
gain or loss relating to short-term investments for the three and nine months
ended September 30, 2009 and 2008, there was no such amounts were included in
other comprehensive income for the afore-mentioned periods.

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 and saving accounts. 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.

Accounts Receivable

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

Inventories

Inventories
are stated at the lower of cost or market using the first-in, first-out basis.
The Company reviews its inventory periodically for possible obsolescence or to
determine if any reserves are necessary.

Plant and Equipment, Net

Plant and
equipment are stated at cost less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
assets. Estimated useful lives are as follows.

- 9 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

|                          |         
|------------------------- | --------
|Equipment
  and machinery | 5 years 
|Motor
  vehicles          | 5 years 
|Furniture
  and fixtures  | 5 years 
|Buildings                 | 20 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 operations as
incurred, whereas significant renewals and betterments are capitalized.

Construction-In-Progress

Construction-in-progress
represents the costs incurred in connection with the construction of buildings
or new additions to the Companys plant facilities. Interest incurred during
the period of construction, if material, is capitalized.
Construction-in-progress is not depreciated until the assets are completed and
placed into service.

Impairment of Long-term Assets

Long-term
assets of the Company are reviewed at each financial reporting date, more often
if necessary, to determine whether their carrying value has become impaired,
pursuant to the guidelines established by the FASB. The Company determines the
existence of such impairment by measuring the expected future cash flows
(undiscounted and without interest charges) and comparing such amount to the
net asset carrying value. An impairment loss, if it exists, is measured as the
amount by which the carrying amount of the asset exceeds the fair value of the
asset. Based on its review, management concluded there was no impairment for
its plant and equipment, and construction-in-progress as of September 30, 2009
and December 31, 2008.

Intangible asset - Land Use Rights

According to
the 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. The
Company reviews the carrying value of land use rights at each financial
reporting date, more often if necessary, to determine whether their carrying
value has become impaired. Impairment charges are recorded when the carrying
value of the asset exceeds future benefits to be derived from the asset.

Intangible asset - Patents - Approved Drugs

The Company
obtained various official registration certificates or official approvals for
clinical trials representing patented pharmaceutical formulas. No amortization
is recorded when the Company intends to and has the ability to sell the patent
or formulas within two months; otherwise the patent costs will be subject to
amortization over its estimated useful life period, generally fifteen years.
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
at each financial reporting date, and more often when events and changes in
circumstances indicate that the carrying value may not be recoverable.

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.

- 10-

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Effective
January 1, 2007, the Company adopted an accounting standard which indicates 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.

Warrants Liabilities

Effective
January 1, 2009, the Company adopted the provisions of an accounting standard
regarding instruments that are indexed to an entitys own stock. This
accounting standard specifies that a contract that would otherwise meet the
definition of a derivative but is both (a) indexed to the Companys own stock
and (b) classified in stockholders equity in the statement of financial
position would not be considered a derivative financial instrument. It provides
a new two-step model to be applied in determining whether a financial
instrument or an embedded feature is indexed to an issuers own stock and thus
able to qualify for the scope exception within the standards.

As a result,
20,370,298 of our issued and outstanding warrants previously treated as equity
pursuant to the derivative treatment exemption were no longer afforded equity
treatment because the strike price of the warrants is denominated in US dollar,
a currency other than the Companys functional currency, the Chinese Renminbi.
As a result, the warrants are not considered indexed to the Companys own
stock, and as such, all future changes in the fair value of these warrants will
be recognized currently in earnings until such time as the warrants are
exercised or expired.

As such,
effective January 1, 2009, we reclassified the fair value of these warrants
from equity to liability, as if these warrants were treated as a derivative
liability since their corresponding issuance dates. On January 1, 2009, we
reclassified from additional paid-in capital, as a gain of cumulative effect
adjustment of $8,450,624 to beginning retained earnings and $423,924 to
long-term derivative instruments to recognize the fair value of such warrants
on such date. The fair value of these warrants increased to $1,429,698 as of
September 30, 2009. As such, the Company recognized loss of $41,066 and
$1,005,774 for the three and nine months ended September 30, 2009,
respectively. These warrants do not trade in an active securities market, and
as such, we estimate the fair value of these warrants using the Black-Scholes
Model using the following assumptions:

|                        |  |                    |           |                   |  |           |   |    |            |    |  |           |   |  |           |   |  |            |  
|----------------------- |  | ------------------ | --------- | ----------------- |  | --------- | - | -- | ---------- | -- |  | --------- | - |  | --------- | - |  | ---------- | -
|                        |  | September 30, 2009 |           | December 31, 2008 | 
|                        |  | #A                 |           | #B                |  | #C        |   | #A |            | #B |  | #C        |  
|Number of warrants      |  |                    | 1,000,000 |                   |  | 7,370,298 |   |    | 12,000,000 |    |  | 1,000,000 |   |  | 7,370,298 |   |  | 12,000,000 |  
|Expected life (years)   |  |                    | 0.34      |                   |  | 0.44      |   |    | 2.64       |    |  | 1.1       |   |  | 1.2       |   |  | 3.4        |  
|Annual dividend yield   |  |                    |          |                   |  |          |   |    |           |    |  |          |   |  |          |   |  |           |  
|Risk-free interest rate |  |                    | 0.18      | %                 |  | 0.18      | % |    | 1.45       | %  |  | 0.4       | % |  | 0.4       | % |  | 1.1        | %
|Expected volatility     |  |                    | 86.1      | %                 |  | 96.5      | % |    | 130.2      | %  |  | 131.2     | % |  | 134.5     | % |  | 115.4      | %

- 11-

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Expected
volatility is based primarily on historical volatility. Historical volatility
was computed using daily pricing observations for recent periods that
correspond to the term of the warrants. We believe this method produces an
estimate that is representative of our expectations of future volatility over
the expected term of these warrants. We currently have no reason to believe
future volatility over the expected remaining life of these warrants is likely
to differ materially from historical volatility. The expected life is based on
the remaining term of the warrants. The risk-free interest rate is based on the
U.S. Treasury securities with compatible life terms.

Shares Subject to Mandatory Redemption

FASBs
accounting standard regarding certain financial instruments with
characteristics of both liabilities and equity establishes classification and
measurement standards for three types of freestanding financial instruments
that have characteristics of both liabilities and equity. Instruments within
the scope of this accounting standard must be classified as liabilities within
the Companys Consolidated Financial Statements and be reported at settlement
date value. FASBs accounting standard regarding classification and measurement
of redeemable securities requires contingently redeemable securities to be
classified outside of permanent equity until the contingency occurs, and then
the instrument will need to be analyzed for proper classification as a
liability or permanent equity.

The Company
issued redeemable stock in November 2007 related to the settlement of notes
payables owed to RimAisa. Under the terms of the redeemable stock, the issuer
has the right to redeem and the holder has the right to convert any time up to
and including the fourth anniversary of the issuance. Therefore, liability
accounting is not triggered because the stock is not mandatorily redeemable
until after the fourth anniversary. However, pursuant to FASBs accounting
standard regarding classification and measurement of redeemable securities, the
redeemable stock is classified outside of shareholders equity, because
pursuant to the terms of the preferred stock, if the redeemable stock is not
converted by the fourth anniversary, then mandatory redemption is triggered,
and the shares will be reclassified to liabilities.

Comprehensive Income

FASBs
accounting standard regarding comprehensive income establishes requirements for
the reporting and display of comprehensive income, its components and
accumulated balances in a full set of general purpose financial statements.
This accounting standard defines comprehensive income to include all changes in
equity except those resulting from investments by owners and distributions to
owners. Among other disclosures, it also 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.

Earnings per Share

The Company
has adopted the FASBs accounting standard regarding earnings per share (EPS)
which requires the presentation of earnings per share 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.

Noncontrolling interests

Effective
January 1, 2009, the Company adopted a FASBs accounting standard regarding
non-controlling interest in consolidated financial statements. Certain
provisions of this accounting standard are required to be adopted
retrospectively for all periods presented. Such provisions include a
requirement that the carrying value of non-controlling interests (previously
referred to as minority interests) be removed from the mezzanine section of the
balance sheet and reclassified as equity.

- 12 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Further, as a
result of adoption this accounting standard, net income attributable to
non-controlling interests is now excluded from the determination of
consolidated net income. In addition, foreign currency translation adjustment
is allocated between controlling and non-controlling interests.

The Company
reclassified non-controlling interests in the amounts of $7,808,189 and
$10,344,828 from the mezzanine section to equity in the September 30, 2009 and
December 31, 2008 balance sheets, respectively.

Research and Development Costs

Research and
development (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 the FASBs accounting standard regarding research and development
costs, the Company expenses the costs associated with the research and
development activities when incurred. None of the intangible assets of the
Company was recorded based on R&D costs.

Advertising Costs

The Company
expenses the cost of advertising as incurred or, as appropriate, the first time
the advertising takes place. Advertising costs for the three months ended
September 30, 2009 and 2008 amounted $5,727 and $10,202, respectively.
Advertising costs for the nine months ended September 30, 2009 and 2008
amounted $78,104 and $83,320, respectively.

Shipping and Handling Costs

Shipping and
handling costs related to costs of goods sold are included in selling, general
and administrative costs were $145,352 and $90,620 for the three-month period
ended September 30, 2009 and 2008, and $376,308 and $288,691 for the nine
months ended September 30, 2009 and 2008, respectively.

Reclassification

Certain prior
period amounts have been reclassified to conform to current periods presentation.
Those reclassifications had no material effect on operations or cash flows.

The Company
made certain reclassifications of prior period amounts in the consolidated
financial statements to conform to the 2009 presentation. The reclassifications
were to reflect the retrospective adoption of the FASBs accounting standards
regarding non-controlling interest, as well as the standards regarding the
discontinued operations. The reclassifications had no impact on previously
reported net income.

Recent Accounting Pronouncements

In January
2009, the FASB issued an accounting standard which amended the impairment model
by removing its exclusive reliance on market participant estimates of future
cash flows used in determining fair value. Changing the cash flows used to
analyze other-than-temporary impairment from the market participant view to a
holders estimate of whether there has been a probable adverse change in
estimated cash flows allows companies to apply reasonable judgment in assessing
whether an other-than-temporary impairment has occurred. The adoption of this
accounting standard did not have a material impact on the Companys
consolidated financial statements because all of the investments in debt
securities are classified as trading securities.

- 13 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

In April 2009,
the FASB issued an accounting standard that makes the other-than-temporary
impairments guidance more operational and improves the presentation of
other-than-temporary impairments in the financial statements. This standard
replaced the existing requirement that the entitys management assert it has
both the intent and ability to hold an impaired debt security until recovery
with a requirement that management assert it does not have the intent to sell
the security, and it is more likely than not it will not have to sell the
security before recovery of its cost basis. This standard provides increased
disclosure about the credit and noncredit components of impaired debt
securities that are not expected to be sold and also requires increased and
more frequent disclosures regarding expected cash flows, credit losses, and an
aging of securities with unrealized losses. Although this standard does not
result in a change in the carrying amount of debt securities, it does require
that the portion of an other-than-temporary impairment not related to a credit
loss for a held-to-maturity security be recognized in a new category of other
comprehensive income and be amortized over the remaining life of the debt
security as an increase in the carrying value of the security. The Company
adopted this accounting standard, but it did not have a material impact on its consolidated
financial statements.

In April 2009,
the FASB issued an accounting standard that requires disclosures about fair
value of financial instruments not measured on the balance sheet at fair value
in interim financial statements as well as in annual financial statements.
Prior to this accounting standard, fair values for these assets and liabilities
were only disclosed annually. This standard applies to all financial
instruments within its scope and requires all entities to disclose the
method(s) and significant assumptions used to estimate the fair value of
financial instruments. This standard does not require disclosures for earlier
periods presented for comparative purposes at initial adoption, but in periods
after the initial adoption, this standard requires comparative disclosures only
for periods ending after initial adoption. The Company adopted this accounting
standard, but it did not have a material impact on the disclosures related to
its consolidated financial statements.

In June 2009,
the FASB issued an accounting standard amending the accounting and disclosure
requirements for transfers of financial assets. This accounting standard
requires greater transparency and additional disclosures for transfers of
financial assets and the entitys continuing involvement with them and changes
the requirements for derecognizing financial assets. In addition, it eliminates
the concept of a qualifying special-purpose entity (QSPE). This accounting
standard is effective for financial statements issued for fiscal years
beginning after November 15, 2009, and the Company does not expect this
standard to have a material effect on its consolidated financial statements.

In June 2009,
the FASB also issued an accounting standard amending the accounting and disclosure
requirements for the consolidation of variable interest entities (VIEs). The
elimination of the concept of a QSPE, as discussed above, removes the exception
from applying the consolidation guidance within this accounting standard.
Further, this accounting standard requires a company to perform a qualitative
analysis when determining whether or not it must consolidate a VIE. It also
requires a company to continuously reassess whether it must consolidate a VIE.
Additionally, it requires enhanced disclosures about a companys involvement
with VIEs and any significant change in risk exposure due to that involvement,
as well as how its involvement with VIEs impacts the companys financial
statements. Finally, a company will be required to disclose significant
judgments and assumptions used to determine whether or not to consolidate a
VIE. This accounting standard is effective for financial statements issued for
fiscal years beginning after November 15, 2009, and the Company does not expect
this standard to have a material effect on its consolidated financial
statements.

- 14 -

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|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

In August
2009, the FASB issued an Accounting Standards Update (ASU) regarding
measuring liabilities at fair value. This ASU provides additional guidance
clarifying the measurement of liabilities at fair value in circumstances in
which a quoted price in an active market for the identical liability is not
available; under those circumstances, a reporting entity is required to measure
fair value using one or more of valuation techniques, as defined. This ASU is
effective for the first reporting period, including interim periods, beginning
after the issuance of this ASU. The Company is currently evaluating the impact
of this ASU on its consolidated financial statements.

In October
2009, the FASB issued an ASU regarding accounting for own-share lending
arrangements in contemplation of convertible debt issuance or other financing.
This ASU requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the
loaned shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently evaluating the impact of this ASU on its consolidated financial
statements.

Note 3 - RESTRICTED CASH

Restricted
cash consisted of the followings:

|                     |  |                    |           |                   |   |           | 
|-------------------- |  | ------------------ | --------- | ----------------- | - | --------- | 
|                     |  | September 30, 2009 |           | December 31, 2008 |  
|Name of Bank         |  | (Unaudited)        |           |                   |  
|                     |  |                    |           |                   |  
|Hua Xia Bank, Suzhou |  | $                  | 374,179   |                   | $ | 3,863     | 
|China CITIC Bank     |  |                    | 683,215   |                   |   | 1,369,365 | 
|China Merchants Bank |  |                    | 2,875,892 |                   |   |          | 
|Others               |  |                    | 2,157     |                   |   |          | 
|                     |  |                    |           |                   |   |           | 
|Total                |  | $                  | 3,935,443 |                   | $ | 1,373,228 | 
|                     |  |                    |           |                   |   |           | 

Note 4 - ACCOUNTS RECEIVABLE, NET

The Company
had accounts receivable amounted to $3,155,766 and $3,371,225 after net of
allowance for doubtful accounts of $323,330 and $290,856 as of September 30,
2009 and December 31, 2008, respectively.

Accounts
receivable consisted of the following:

|                                |  |                    |           |                   |   |           |  
|------------------------------- |  | ------------------ | --------- | ----------------- | - | --------- | -
|                                |  | September 30, 2009 |           | December 31, 2008 |  
|                                |  | (Unaudited)        |           |                   |  
|                                |  |                    |           |                   |  
|Accounts receivable             |  | $                  | 3,479,096 |                   | $ | 3,662,081 |  
|Allowance for doubtful accounts |  |                    | (323,330  | )                 |   | (290,856  | )
|                                |  |                    |           |                   |   |           |  
|Accounts receivable, net        |  | $                  | 3,155,766 |                   | $ | 3,371,225 |  
|                                |  |                    |           |                   |   |           |  

The following
table consists of allowance for doubtful accounts.

- 15 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

|                                                                  |  |   |          |  
|----------------------------------------------------------------- |  | - | -------- | -
|Allowance for doubtful accounts, December
  31, 2007              |  | $ | 410,192  |  
|Addition                                                          |  |   |         |  
|Recovery                                                          |  |   | (145,484 | )
|Translation adjustment                                            |  |   | 26,148   |  
|                                                                  |  |   |          |  
|Allowance for doubtful accounts, December
  31, 2008              |  | $ | 290,856  |  
|Addition                                                          |  |   | 33,639   |  
|Written-off                                                       |  |   | (1,190   | )
|Recovery                                                          |  |   |         |  
|Translation adjustment                                            |  |   | 25       |  
|                                                                  |  |   |          |  
|Allowance for doubtful accounts, September
  30, 2009 (Unaudited) |  | $ | 323,330  |  
|                                                                  |  |   |          |  

As of
September 30, 2009 and December 31, 2008, management concluded its allowance
for bad debts was adequate.

Note 5 - INVENTORIES, NET

Inventories
consisted of the following:

|                             |  |                    |            |                   |   |           |  
|---------------------------- |  | ------------------ | ---------- | ----------------- | - | --------- | -
|                             |  | September 30, 2009 |            | December 31, 2008 |  
|                             |  | (Unaudited)        |            |                   |  
|                             |  |                    |            |                   |  
|Raw
  materials              |  | $                  | 4,355,711  |                   | $ | 2,043,597 |  
|Refinery
  materials         |  |                    | 1,682,399  |                   |   | 2,231,623 |  
|Packaging
  supplies         |  |                    | 351,464    |                   |   | 274,282   |  
|Finished
  goods             |  |                    | 5,007,524  |                   |   | 3,859,646 |  
|Work in
  process            |  |                    | 475,976    |                   |   | 637,021   |  
|Sundry
  supplies            |  |                    | 21,711     |                   |   | 13,736    |  
|                             |  |                    |            |                   |   |           |  
|Total
  inventory            |  |                    | 11,894,785 |                   |   | 9,059,905 |  
|Minus:
  inventory allowance |  |                    | (26,249    | )                 |   | (26,250   | )
|                             |  |                    |            |                   |   |           |  
|Total
  inventories, net     |  | $                  | 11,868,536 |                   | $ | 9,033,655 |  
|                             |  |                    |            |                   |   |           |  

As of
September 30, 2009 and December 31, 2008, the Company reserved $26,249 and
$26,250 as inventory allowance, respectively.

Note 6  LOANS RECEIVABLE

The Company
had loans to three unrelated parties amounting to $1,980,450, $586,800, and
$176,040 with a total loan amount of $2,743,290 as of September 30, 2009. The
loans are non-interest bearing, unsecured and due on demand.

Note 7 - PLANT AND EQUIPMENT, NET

Plant and
equipment consisted of the following:

- 16 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

|                               |  |                    |            |                   |   |            |  
|------------------------------ |  | ------------------ | ---------- | ----------------- | - | ---------- | -
|                               |  | September 30, 2009 |            | December 31, 2008 |  
|                               |  | (Unaudited)        |            |                   |  
|                               |  |                    |            |                   |  
|Plant                          |  | $                  | 2,482,911  |                   | $ | 2,446,124  |  
|Machinery and equipment        |  |                    | 7,690,665  |                   |   | 7,306,952  |  
|Vehicles                       |  |                    | 196,093    |                   |   | 196,093    |  
|                               |  |                    |            |                   |   |            |  
|Total plant and equipment      |  |                    | 10,369,669 |                   |   | 9,949,169  |  
|Less: accumulated depreciation |  |                    | (6,115,288 | )                 |   | (5,712,996 | )
|                               |  |                    |            |                   |   |            |  
|Plant and equipment, net       |  | $                  | 4,254,381  |                   | $ | 4,236,173  |  
|                               |  |                    |            |                   |   |            |  

Depreciation
expense for the three months ended September 30, 2009 and 2008 amounted to
$120,184 and $114,095, respectively. Depreciation expense for the nine months
ended September 30, 2009 and 2008 amounted to $402,005 and $398,305,
respectively.

Note 8 - CONSTRUCTION-IN-PROGRESS

Erye is
currently under construction of a new factory and will relocate to the new
place after the entire project is completed. Construction in progress is
related to a production facility being built in accordance with the PRCs Good
Manufacturing Practices (GMP) Standard. The Company expects that the work
shops for the main products  Penicillin and Cephems Sterile Injection Powder
will be completed by the end of 2009 and the estimated additional cost to be
completed will be approximately $13.50 million. No depreciation is provided for
construction-in-progress until such time the assets are completed and placed
into service.

As of
September 30, 2009 and December 31, 2008, the Company had construction-in-progress
amounted to $14,309,440 and $7,379,805, respectively. For the three months
ended September 30, 2009 and 2008, the Company capitalized interest as part of
construction-in-progress amounted to $109,034 and $19,736, respectively. For
the nine months ended September 30, 2009 and 2008, the Company capitalized
interest as part of construction-in-progress amounting to $285,162 and $105,056
with 5.6% and 7.0% effective weighted average interest rate, respectively.

Note 9 - INTANGIBLE ASSETS, NET

Intangible
assets consist of the following as of September 30, 2009 and December 31, 2008:

|                               |  |                    |           |                   |   |           |  
|------------------------------ |  | ------------------ | --------- | ----------------- | - | --------- | -
|                               |  | September 30, 2009 |           | December 31, 2008 |  
|                               |  | (Unaudited)        |           |                   |  
|                               |  |                    |           |                   |  
|Land use rights:               |  | $                  | 8,058,504 |                   | $ | 8,058,504 |  
|Less: accumulated amortization |  |                    | (765,562  | )                 |   | (641,074  | )
|                               |  |                    |           |                   |   |           |  
|Land use rights, net           |  |                    | 7,292,942 |                   |   | 7,417,430 |  
|                               |  |                    |           |                   |   |           |  
|                               |  |                    |           |                   |   |           |  
|Patent - Approved drugs        |  |                    | 190,710   |                   |   | 190,710   |  
|Less: accumulated amortization |  |                    | (31,775   | )                 |   | (21,083   | )
|                               |  |                    |           |                   |   |           |  
|Patent, net                    |  |                    | 158,935   |                   |   | 169,627   |  
|                               |  |                    |           |                   |   |           |  
|Total intangible assets, net   |  | $                  | 7,451,877 |                   | $ | 7,587,057 |  
|                               |  |                    |           |                   |   |           |  

Land use
rights are pledged as collateral for notes payable as of September 30, 2009.
Amortization expense for the three months periods ended September 30, 2009 and
2008 amounted $55,047 and $25,747, respectively. Amortization expenses for the
nine months periods ended September 30, 2009 and 2008 amounted $135,106 and
$132,931, respectively.

- 17 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

On September
1, 2008, the Company and RimAisa entered into a Memorandum of Understanding
(the Understanding). Pursuant to term #2 of the Understanding, both parties
agreed that all the proceeds arising from the land of Eryes original plant
belong to Erye Trading (including income derived from relocation compensation,
lease, transfer or other income related to the land use right). As of September
30, 2009, the aforesaid land use right was valued at approximately $5,500,000
net of accumulated amortization.

One of the
Companys patent of approved drug was fully amortized during 2008, $151,790 of
costs and accumulated amortization were deducted from intangible asset account.

The following
table consists of the expected amortization expense for the next five years:

|                            |  |        |           | 
|--------------------------- |  | ------ | --------- | 
|Years ended
  September 30, |  | Amount |          
|                            |  |        |          
|2010                        |  | $      | 180,142   | 
|2011                        |  |        | 180,142   | 
|2012                        |  |        | 180,142   | 
|2013                        |  |        | 180,142   | 
|2014                        |  |        | 180,142   | 
|Thereafter                  |  |        | 6,551,167 | 
|                            |  |        |           | 
|Total                       |  | $      | 7,451,877 | 
|                            |  |        |           | 

Note 10 - RELATED PARTIES TRANSACTIONS

Other Receivables  Related Parties

Other
receivable contained the following related party balances where Enshi was the
discontinued subsidiary since July 2007. Chris Peng Mao is the CEO of the
Company. Lufan An is the board member and shareholder of the Company. Stephen
Globus is a shareholder of CBC.

|      |  |                    |         |                   |   |          |  |      |                |                      |  |            |  |  |      | 
|----- |  | ------------------ | ------- | ----------------- | - | -------- |  | ---- | -------------- | -------------------- |  | ---------- |  |  | ---- | 
|      |  | September 30, 2009 |         | December 31, 2008 |   | Due From |  | Term |                | Manner of Settlement | 
|      |  | (Unaudited)        |         |                   |   |          |  |      |                |                      | 
|      |  |                    |         |                   |  
|CBH   |  | $                  | 46,058  |                   | $ | 46,058   |  |      | Chris Peng Mao |                      |  | Short Term |  |  | Cash | 
|CBH   |  |                    | 10,000  |                   |   | 10,000   |  |      | Lufan An       |                      |  | Short term |  |  | Cash | 
|CBH   |  |                    | 10,000  |                   |   |         |  |      | Stephen Globus |                      |  | Short Tern |  |  | Cash | 
|CBH   |  |                    | 265,442 |                   |   | 265,442  |  |      | Enshi          |                      |  | Short Term |  |  | Cash | 
|      |  |                    |         |                   |   |          |  |      |                |                      |  |            |  |  |      | 
|Total |  | $                  | 331,500 |                   | $ | 321,500  |  |      |                |                      |  |            |  |  |      | 
|      |  |                    |         |                   |   |          |  |      |                |                      |  |            |  |  |      | 

Other
Payables  Related Parties

|      |  |                    |         |                   |   |         |  |      |              |                      |  |            |  |  |      | 
|----- |  | ------------------ | ------- | ----------------- | - | ------- |  | ---- | ------------ | -------------------- |  | ---------- |  |  | ---- | 
|      |  | September 30, 2009 |         | December 31, 2008 |   | Due To  |  | Term |              | Manner of Settlement | 
|      |  | (Unaudited)        |         |                   |   |         |  |      |              |                      | 
|      |  |                    |         |                   |  
|Erye  |  | $                  | 42,949  |                   | $ | 499,186 |  |      | Erye Trading |                      |  | Short Term |  |  | Cash | 
|CBH   |  |                    | 196,622 |                   |   | 167,508 |  |      | Erye Trading |                      |  | Short Term |  |  | Cash | 
|      |  |                    |         |                   |   |         |  |      |              |                      |  |            |  |  |      | 
|Total |  | $                  | 239,571 |                   | $ | 666,694 |  |      |              |                      |  |            |  |  |      | 
|      |  |                    |         |                   |   |         |  |      |              |                      |  |            |  |  |      | 

Erye Trading
was a company owned by minority shareholders of Erye. The 38 minority
shareholders of Erye transferred their shares of Erye to Erye Trading in 2008
and the transactions was consummated on June 24, 2008. Erye Trading is the 49%
shareholder of Erye as of September 30, 2009.

- 18 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Long-term Loans  Related Party

|     |  |                    |           |                   |   |        |  |      |              |                      |  |           |  |  |      | 
|---- |  | ------------------ | --------- | ----------------- | - | ------ |  | ---- | ------------ | -------------------- |  | --------- |  |  | ---- | 
|     |  | September 30, 2009 |           | December 31, 2008 |   | Due To |  | Term |              | Manner of Settlement | 
|     |  | (Unaudited)        |           |                   |   |        |  |      |              |                      | 
|     |  |                    |           |                   |  
|Erye |  | $                  | 7,702,767 |                   | $ |       |  |      | Erye Trading |                      |  | Long-term |  |  | Cash | 

In May 2009,
Erye entered a loan agreement with Erye Trading, the noncontrolling shareholder
of Erye, to borrow the dividend Erye was entitled to for the purpose of
constructing the new factory pursuant to the board resolutions executed on the
same time. The total loan amounted to $7,702,767 was unsecured with due date on
the later of 1)one year after all new buildings pass the inspection, and the
new factory is in the production stage; 2) December 31, 2013. The applied
interest rate equals to the prevailing interest rate of the one-year bank loan,
currently 5.31% per annum. Interest payment is due every six months. Erye
Trading will lend Erye the dividend received from Erye in future following the
same terms.

For the three
months and nine months ended September 30, 2009, Erye accrued $103,154 and
$232,063 interest expense payable to Erye Trading connected to the said
long-term loan.

Note 11 - NOTES PAYABLE

The Companys
subsidiary Erye has $10,080,577 and $4,563,837 of notes payables as of
September 30, 2009 and December 31, 2008, respectively. Notes are payables to
the banks who issue bank notes to Eryes creditors. Notes payable are interest
free and usually mature after a three to six months period.

In order to
issue notes payable on behalf of the Company, the banks required collateral,
such as cash deposit which was approximately 30%-50% of notes to be issued, or
properties owned by companies or etc. As of September 30, 2009 and December 31,
2008, $3,935,443 and $1,373,228 of restricted cash were put up for collateral
for the balance of notes payable, respectively, which was approximately 39.0%
of the notes payable (See notes 3) the Company issued, and the remaining of the
notes payable is collateralized by pledging the land use right the Company
owned amounted to approximately $1,840,000 as of September 30, 2009 and December 31, 2008.

Note 12  SHORT-TERM LOANS

The Company
had a total of $117,360 of short-term loans as of September 30, 2009. These
loans are due on demand, unsecured and interest free. The average interest
rates including short-term and long-term loans (see Note 8) was approximately
5.6% for the nine months period ended September 30, 2009. During the nine
months ended September 30, 2009, the Company paid the loan principal back to
several Chinese banks amounted to $2,492,030.

The Company
had $2,611,260 short term loans as of December 31, 2008, including bank loans
amounted to $2,492,030. These loans mature in one year or less. The average
interest rates were approximately 7.1% for the year ended December 31, 2008.
Bank loans were collateralized by certain buildings owned by Erye with
historical value of $127,749 as of December 31, 2008.

Interest
expense of short-term loans for the three months ended September 30, 2009 and
2008 were $109,034 and $30,211, respectively, of which $109,034 and $19,736
were capitalized as part of construction-in-progress. Interest expense of the
short-term loans for the nine months ended September 30, 2009 and 2008 amounted
to $285,162 and $115,531 respectively, of which $285,162 and $105,056 were
capitalized for construction in progress, respectively.

- 19 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Note 13  REDEEMABLE PREFERRED STOCK

On November
16, 2007, the Company entered a conditional loan conversion agreement (the
Agreement) with RimAsia, under which the principal amount of the $11.5
million loan owed to RimAsia in connection with the Enshi acquisitions plus
unpaid interest of $1,008,534 (combined total of $12,508,534) was converted
into 6,185,607 shares of Series B redeemable convertible preferred shares of
the Company at an effective conversion price at $2.0222 per share. Each series
B share may be converted into two shares of common stock. Additionally, the
exercise price of $1.375 for the 12 million existing warrants exercisable into
common stock previously issued to and currently held by RimAsia in connection
with the extension of the loan financing (Existing Warrants) was lowered to
$1.26 per share and the term extended to 4.5 years from the closing date. This
Agreement was conditional subsequent to the completion of at least one of
sizeable acquisition by the end of June 2008. RimAsia extended the wavier to
not to convert the Series B preferred stock to debt to earlier of (a) October
31, 2009 or (b) abandonment of the merger with NeoStem which is disclosed in
Note 18.

Under the
terms of the redeemable stock, the issuer has the right to redeem and the
holder has the right to convert any time up to and including the fourth
anniversary of the issuance. Pursuant to the FASBs accounting standard, the
redeemable stock is classified outside of permanent equity.

According to
the Agreement, the series B preferred stock is subject to optional redemption
at the Companys option before the 4th anniversary of issuance date and
mandatory redemption at the investors of the Companys option thereafter. The
Company may be required to repurchase the remaining series B preferred stock
four years after the closing date at a per share price of the sum of (1) the
original Series B issue price $2.0222 per share; (2) all accrued but unpaid
annual dividends; (3) 5% of the original series B issue price per annum accrued
from the occurrence of certain triggering events, such as the Companys failure
to pay annual dividends, mandatory redemption price or any other amount due,
either in cash or in kind. (4)The four-percent suspendible premium which shall
be deemed to have begun to accrue from the Series B Issuance date and shall
continue to accrue until the date when the average closing price of the common
stock over 30 consecutive trading days each with a daily trading volume of no
fewer than 100,000 shares exceeds the following price thresholds: during the 2nd
year from the Series B Issuance date, $1.4, during the 3rd year,
$1.58, and during the 4th year, $1.72.

On March 31,
2009, RimAsia waived the dividend of 5% of the original Series B issue price
and 4% suspendible premium for the period from September 15, 2008 through the
earlier of (a) October 31, 2009 and (b) abandonment of the Merger Agreement.
However, RimAsia reserves the right to reinstate all the waived dividends and
premiums if the Merger announced on November 2008 is not consummated by October
31, 2009.

The series B
redeemable stock was recorded at fair value on the date of issuance. As of
September 30, 2009 and December 31, 2008, redeemable preferred stock amounted
to $12,508,534. Dividend payables amounted to $1,110,346 as of September 30,
2009 and December 31, 2008. Pursuant to the optional redemption clause, the
holders of the series B are be entitled to receive an annual dividend of 5%
amounted to $651,129; and, the four-percent suspendible premium was accrued in
the amount of $459,217, which were included in dividend payable. For the nine
months periods ended September 30, 2009 and 2008, the Company recorded $0 and
$952,592 dividends and accretion on the redeemable preferred stock,
respectively.

- 20 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

On November 2,
2008, the Company entered into an Agreement and Plan of Merger (the Merger
Agreement) with Neostem, Inc., a Delaware corporation, and CBH Acquisition LLC
(Merger Sub), a Delaware NBS limited liability company and wholly-owned
subsidiary of Neostem. Pursuant to the Merger Agreement, CBH will merge into
Merger Sub, with Merger Sub as the surviving entity. All of the shares of the
Companys series B shares issued and outstanding immediately prior to the
effective time of the Merger will be converted into (i) 5,383,009 shares of
NeoStem Common Stock, (ii) 6,977,512 shares of Series C Convertible Preferred
Stock, without par value, of NeoStem, each with a liquidation preference of
$1.125 per share and convertible into shares of NeoStem Common Stock at a
conversion price of $0.90 per share, and (iii) warrants to purchase 2,400,000
shares of NeoStem Common Stock at an exercise price of $0.80 per share.

As of July 1,
2009, the Company entered into Amendment No. 1 to the Merger Agreement with
Neostem, CBC and CBH Acquisition LLC, NeoStems wholly-owned subsidiary.
Pursuant to the terms of the Amendment:

The number of
shares of NeoStem Common Stock to be issued to the CBH Common Stockholders was
reduced to an aggregate of 7,150,000 shares, with no additional shares being
escrowed;

The number of
shares to be issued to RimAsia will be increased to 6,458,009 shares of Common
Stock and 8,177,512 shares of NeoStem Series C Convertible Preferred Stock,
each with a liquidation preference of $1.125 and convertible to shares of
NeoStem Common Stock at an initial conversion price of $.90 (with the Class B
warrants to be issued to RimAsia eliminated), in exchange for certain advances
made or to be made by RimAsia and described below;

Privately
issued NeoStem warrants outstanding immediately prior to the closing of the
merger shall be amended to reduce their exercise price if the current exercise
price is $4.00 and above;

the
Compensation Committee of NeoStems Board of Directors may in lieu of lowering
the exercise price of outstanding options to $.80 as provided in the original
merger agreement, lower the exercise price to a price which is greater than
$.80 (but not less than fair market value) and provide alternative cash or
equity consideration to eligible NeoStem employees, directors, advisors and
consultants;

Note 14 - STATUTORY RESERVES

The laws and
regulations of the PRC require that before foreign invested enterprise can
legally distribute profits, it must first satisfy all tax liabilities, provide
for losses in previous years, and make allocations, in proportions determined
at the discretion of the board of directors, after the statutory reserves. The
statutory reserves include the surplus reserve fund and the common welfare
fund.

The Company is
required to transfer 10% of its net income, as determined in accordance with
the PRC accounting rules and regulations, to a statutory surplus reserve fund
until such reserve balance reaches 50% of the Companys registered capital.
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 transfer
to this reserve must be made before distribution of any dividends to
shareholders. The surplus reserve fund is non-distributable other than during
liquidation and can be used to fund previous years losses, if any, and may be
utilized for business expansion or converted into share capital by issuing new
shares to existing shareholders in proportion to their shareholding or by
increasing the par value of the shares currently held by them, provided that
the remaining reserve balance after such issue is not less than 25% of the
registered capital. The Chinese government restricts distributions of
registered capital and the additional investment amounts required by a foreign
invested enterprise. Approval by the Chinese government must be obtained before
distributions of these amounts can be returned to the shareholders.

- 21 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

The Company
had fully contributed its required surplus reserve as of December 31, 2008. As
of September 30, 2009, the Company has statutory surplus reserve and common
welfare reserve amounted to $1,337,979 and $60,698, respectively.

Note 15  DIVIDEND DISTRIBUTION

On May 2009,
the board of Erye declared a dividend to be distributed pro rata accordingly to
the ownership percentage which is 51% owned by CBH and 49% owned by the
non-controlling shareholder  Erye Trading. The board also decided that board
would request the dividend distributed to Erye Trading to be lent back to Erye
for the ongoing construction-in-project, and the dividend distributed to CBH
would be invested back to Erye as additional paid in capital.

The table
below represents the detail of dividend distribution and utilization:

|                                                                            |  |        |            |  
|--------------------------------------------------------------------------- |  | ------ | ---------- | -
|Dividend
  Declaration to                                                   |  | Amount |           
|                                                                            |  |        |           
|Erye Trading                                                                |  | $      | 7,208,920  |  
|CBH                                                                         |  |        | 6,712,396  |  
|                                                                            |  |        |            |  
|Total                                                                       |  | $      | 13,921,316 |  
|                                                                            |  |        |            |  
|                                                                            |  |        |            |  
|Dividend distributed to Erye Trading                                        |  | $      | 7,208,920  |  
|Foreign currency translation gain                                           |  |        | 493,847    |  
|                                                                            |  |        |            |  
|Long-term loans from related party
  increased through dividend distributed |  | $      | 7,702,767  |  
|                                                                            |  |        |            |  
|                                                                            |  |        |            |  
|Dividend distributed to CBH                                                 |  | $      | 6,712,396  |  
|Chinese income tax applied (see Note 16)                                    |  |        | (432,040   | )
|Foreign currency translation gain                                           |  |        | 27,147     |  
|                                                                            |  |        |            |  
|Additional paid-in capital increased
  through dividend distributed         |  | $      | 6,307,503  |  
|                                                                            |  |        |            |  

Note 16 - INCOME TAXES

Corporation Income Tax (CIT)

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.

- 22 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Effective
January 1, 2008, the New Enterprise Income Tax (EIT) law replaced the
existing laws for Domestic Enterprises (DES) and Foreign Invested Enterprises
(FIEs). The new standard EIT rate of 25% has replaced the 33% rate previously
applicable to both DES and FIEs. Companies established before March 16, 2007
will continue to enjoy tax holiday treatment approved by local government for a
grace period of the next 5 years or until the tax holiday term is completed,
whichever is sooner.

The Companys
subsidiaries, Suzhou Erye was established before March 16, 2007 and therefore
is qualified to continue enjoying the reduced tax rate as described above. Erye
was granted income tax exemption for two years commencing from January 1, 2006,
and is subject to 50% of the 25% EIT tax rate, or 12.5% from January 1, 2008
through December 31, 2010. Provision for income taxes amounted $1,416,393 and
$1,008,196 for the nine months ended September 30, 2009 and 2008, respectively.

Pursuant to
the China Tax Regulation No. 91 executed in 2008, the Chinese tax authority no
longer granted tax credit for reinvestment in Chinese company, and the dividend
paid to foreign shareholders from foreign-owned Chinese company is subjected to
10% income tax rate. Also, based on PRC Tax Regulation No. 1 item 4, only
dividend declared after 2008 is subjected to 10% income tax rate. As of
September 30, 2009, $432,040 income tax has been paid by CBH for the 2008
dividend distributed and reinvested to Erye as additional paid-in capital.

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

|                                     |  |                                    |       |                                   |  |       |   |      |       |   |  |       |  
|------------------------------------ |  | ---------------------------------- | ----- | --------------------------------- |  | ----- | - | ---- | ----- | - |  | ----- | -
|                                     |  | Three months ended
  September 30, |       | Nine months ended
  September 30, | 
|                                     |  | 2009                               |       | 2008                              |  | 2009  |   | 2008 |      
|                                     |  |                                    |       |                                   |  |       |   |      |      
|U.S. Statutory rate                  |  |                                    | 34.0  | %                                 |  | 34.0  | % |      | 34.0  | % |  | 34.0  | %
|Foreign income not recognized in USA |  |                                    | (34.0 | )                                 |  | (34.0 | ) |      | (34.0 |   |  | (34.0 | )
|China income taxes rate              |  |                                    | 25.0  |                                   |  | 25.0  |   |      | 25.0  |   |  | 25.0  |  
|China income tax exemption           |  |                                    | (12.5 | )                                 |  | (12.5 | ) |      | (12.5 | ) |  | (12.5 | )
|Other items (1)                      |  |                                    | (0.1  | )                                 |  | 1.0   |   |      | 1.6   |   |  | 1.3   |  
|                                     |  |                                    |       |                                   |  |       |   |      |       |   |  |       |  
|Total provision for income taxes     |  |                                    | 12.4  | %                                 |  | 13.5  | % |      | 14.1  | % |  | 13.8  | %
|                                     |  |                                    |       |                                   |  |       |   |      |       |   |  |       |  

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | The (0.1%)
  represents the $117,863 expense incurred by CBH that is not deductible in
  PRC, and offset by the $24,358 prior year income tax refund received by Erye
  for the three months ended September 30, 2009, and 1.0% represents the
  $67,878 expenses incurred by CBH that is not deductible in PRC for the three
  months ended September 30, 2008. The 1.6% represents the $1,246,357 expense
  incurred by CBH that is not deductible in PRC, and offset by the $24,358
  prior year income tax refund received by Erye for the nine months ended
  September 30, 2009, and 1.3% represents the $392,349 expenses incurred by CBH
  that is not deductible in PRC for the nine months ended September 30, 2008.

The estimated
tax savings due to the reduced tax rate for the three months ended September
30, 2009 and 2008 are $553,986 and $377,583, respectively. The net effect on
income per basic outstanding share if the income tax had been applied would
decrease income per share by $0.01 and $0.01 for the three months ended
September 30, 2009 and 2008, respectively.

The estimated
tax savings due to the reduced tax rate for the nine months ended September 30,
2009 and 2008 are $1,416,393 and $1,008,196, respectively. The net effect on
income per basic outstanding if the income tax had been applied would decrease
income per share by $0.04 and $0.03 for the nine months ended September 30,
2009 and 2008, respectively.

- 23 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

The Company
was incorporated in the United States and incurred a net operating loss for
income tax purposes for 2009 and 2008. The estimated net operating loss carry
forwards for United States income tax purposes amounted to $5,414,808 and
$5,358,669 as of September 30, 2009 and December 31, 2008, respectively, which
may be available to reduce future years taxable income. These carry forwards
will expire, if not utilized, in 2029. Management believes that the realization
of the benefits arising from this loss appear to be uncertain due to Companys
limited operating history and continuing losses for United States income tax
purposes. Accordingly, the Company has provided a 100% valuation allowance at
September 30, 2009 and December 31, 2008. Management reviews this valuation
allowance periodically and makes adjustments as warranted

The estimated
valuation allowance for the nine months periods ended September 30, 2009 and
2008 were as follow:

|                                          |  |        |           | 
|----------------------------------------- |  | ------ | --------- | 
|                                          |  | Amount |          
|                                          |  |        |          
|Balance of December 31, 2008              |  | $      | 1,821,947 | 
|Increase                                  |  |        | 19,087    | 
|                                          |  |        |           | 
|Balance of September 30, 2009 (unaudited) |  | $      | 1,841,034 | 
|                                          |  |        |           | 

The Company
has cumulative undistributed earnings of foreign subsidiaries of approximately
$6.1 million as of September 30, 2009, is included in consolidated retained
earnings and will continue to be indefinitely reinvested in internationaloperations. Accordingly, no provision has
been made for U.S. deferred taxes related to future repatriation of these
earnings, nor is it practicable to estimate the amount of income taxes that
would have to be provided if we concluded that such earnings will be remitted
in the future.

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 $2,892,296 and $1,774,719 for the three months
ended September 30, 2009, and $2,254,536 and $1,347,136 for the three months
ended September 30, 2008. VAT on sales and VAT on purchases amounted to
$7,649,272 and $5,797,836 for the nine months period ended September 30, 2009,
and $6,212,023 and $4,575,536 for the same period in 2008, 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.

Tax payable

Taxes payable
was comprised as follows as of September 30, 2009 and December 31, 2008:

- 24 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

|                    |  |                    |           |                   |   |           | 
|------------------- |  | ------------------ | --------- | ----------------- | - | --------- | 
|                    |  | September 30, 2009 |           | December 31, 2008 |  
|                    |  | (Unaudited)        |           |                   |  
|                    |  |                    |           |                   |  
|Income tax payable  |  | $                  | 1,869,762 |                   | $ | 1,548,509 | 
|VAT payable         |  |                    | 705,727   |                   |   | 657,978   | 
|Other taxes payable |  |                    | 44,814    |                   |   | 5,935     | 
|                    |  |                    |           |                   |   |           | 
|Total               |  | $                  | 2,620,303 |                   | $ | 2,212,422 | 
|                    |  |                    |           |                   |   |           | 

Note 17  EARNINGS PER SHARE

The Company
reports earnings per share in accordance with the provisions of SFAS 128,
Earnings per Share. SFAS 128 requires presentation of basic and diluted
earnings per share in conjunction with the disclosure of the methodology used
in computing such earnings per share. Basic earnings per share is computed by
dividing income available to common stockholders by the weighted average common
shares outstanding during the period. Diluted earnings per share takes into
account the potential dilution that could occur if securities or other
contracts to issue common stock were exercised and converted into common stock.

The following
is a reconciliation of the basic and diluted earnings per share computation (unaudited) for
the three and nine months ended September 30:

|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|-------------------------------------------------------------- |  | -------------------------------- | ---------- | ------------------------------- | - | ---------- | - | ---- | ---------- | - | - | ---------- | -
|                                                               |  | Three months ended September 30, |            | Nine months ended September 30, |  
|                                                               |  |                                  |            |                                 |  
|                                                               |  | 2009                             |            | 2008                            |   | 2009       |   | 2008 |           
|                                                               |  |                                  |            |                                 |   |            |   |      |           
|Net income
  from continuing operations for earnings per share |  | $                                | 1,908,276  |                                 | $ | 1,234,977  |   | $    | 3,793,005  |   | $ | 3,181,917  |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Net loss
  from discontinued operations for earnings per share |  | $                                | (452,531   | )                               | $ | (78,342    | ) | $    | (494,172   | ) | $ | (87,369    | )
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Weighted
  average shares used in basic computation            |  |                                  | 37,082,739 |                                 |   | 36,490,312 |   |      | 37,082,457 |   |   | 36,490,312 |  
|Diluted
  effect of stock options and warrants                 |  |                                  | 12,371,214 |                                 |   |           |   |      | 12,371,214 |   |   |           |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Weighted
  average shares used in diluted computation          |  |                                  | 49,453,953 |                                 |   | 36,490,312 |   |      | 49,453,671 |   |   | 36,490,312 |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Earnings per
  share - Basic                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Continuing
  operations                                        |  |                                  | 0.05       |                                 |   | 0.02       |   |      | 0.10       |   |   | 0.06       |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Discontinued
  operations                                      |  |                                  | (0.01      | )                               |   | (0.00      | ) |      | (0.01      | ) |   | (0.00      | )
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Basic                                                          |  | $                                | 0.04       |                                 | $ | 0.02       |   | $    | 0.09       |   | $ | 0.06       |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Earnings per share - Diluted                                   |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Continuing operations                                          |  |                                  | 0.04       |                                 |   | 0.02       |   |      | 0.08       |   |   | 0.06       |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Discontinued operations                                        |  |                                  | (0.01      | )                               |   | (0.00      | ) |      | (0.01      | ) |   | (0.00      | )
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  
|Diluted                                                        |  | $                                | 0.03       |                                 | $ | 0.02       |   | $    | 0.07       |   | $ | 0.06       |  
|                                                               |  |                                  |            |                                 |   |            |   |      |            |   |   |            |  

- 25 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Note 18 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company
leases office space from third parties. Accordingly, the Company incurred rent
expenses amounted to $0 and $3,865 for the three months ended September 30,
2009 and 2008, respectively. The Company recognized rent expenses of $6,592 and
$11,595 for the nine months periods ended September 30, 2009 and 2008,
respectively.

As of
September 30, 2009, the Company has no outstanding commitments in respect to
non-cancelable operating leases.

Research and Development Contract

On November 5,
2007, the Company entered into a new drug development contract with a third
party (the Developer). Pursuant to the contract, the Developer will transfer
a drug patent to the Company, and also is responsible for obtaining the New
Drug Certificate and the Drug Manufacturing Approval from the PRC Drug
Administration Authority no later than July 1, 2009. In exchange, the Company
will pay up to approximately $1,600,000 (RMB12,000,000) to the Developer. Of
the total $1,600,000, approximately $933,800 and $266,800 will need to be paid
before December 31, 2007 and February 25, 2008, respectively, and the final
payment ranging from $0 to $400,200 (depending on the date of the Manufacturing
Approval) needs to be paid no later than 10 days after the grant date of the
Manufacturing Approval. Further, the two parties agreed that the Company will
pay sales commission to the Developer based on the sales volume of the
contracted new drug during a 10 year period after this drug is put into
production. If the PRC Drug Administration Authority denies the application of
the Drug Manufacturing, all payments made by the Company would be fully
returned to the Company by the Developer. As of September 30, 2009, the new
drug has been in the trial stage. The Company expected the developing contract
to delay one more year to complete.

The Company
had advanced $1,321,561 (RMB9,008,596) and $1,321,561 (RMB9,008,596) for the
aforesaid contract as of September 30, 2009 and December 31, 2008,
respectively.

Purchase commitment

The Company
entered a Long-term purchase contract with one of its major suppliers
(Supplier A) for the period of May 1, 2006 to April 30, 2009 and later
extended to February 28, 2010. Pursuant to the contract, Erye committed to
purchase a certain quantity of raw materials from Supplier A at a fixed price
with VAT and pay the purchase price with bank notes or bank remittances within
30 days after the raw materials are delivered. If Supplier A could not provide
the raw materials on time which resulted in the contract being in default by
Supplier A, Supplier A would pay a penalty to the Company amounting to $146,500
(RMB1,000,000) and other related loss. The fixed purchase price was adjusted
one time on November 18, 2008 in an amendment in which the two parties agreed
that no more price increases would be allowed during the remaining period of
the contract.

For the nine
months ended September 30, 2009, the Company purchased raw materials from the
aforesaid supplier amounted to $3,234,939 to which the Company had accounts
payable in the amount of $46,940, 0.8% of total payable balance as of September
30, 2009.

Legal Proceedings

- 26 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

In March 2007,
the Company identified non-existent trade accounts receivable acquired in the
acquisition of Enshi. RACP Pharmacetical Holdings Limited, (RACP), a former
subsidiary of CBH, 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 (LXB Litigation) The Hong Kong
courts has 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.

In July 2007,
Enshi was foreclosed on by RimAsia and ceased to be part of the Company.
RimAsia assumed the litigation activities against Mr. Li Xiaobo and certain
other defendants in connection with the acquisition of shares of Enshi (LXB)
and on October 17, 2008_reached a settlement with LXB pursuant to which Enshi
was returned to LXB against a payment of certain sum of funds of which the
residual sum post litigation costs were to be eventually transferred to the
Company. The expected residual is not expected to be meaningful to the Company.

On November
16, 2007 and amended on January 22, 2008, the Company and RimAisa entered into
a litigation agreement (Litigation Agreement). Pursuant to this Litigation
Agreement, if RimAisa or RACP (as the plaintiff) prevail in the LXB Litigation
or the settlement is reached, any judgment awards, settlement amount and
salvage value realized from Enshi, would be firstly used to reimburse all the
legal and related expenses incurred by RimAsia in the LXB Litigation, up to
$4,000,000, and the remaining amounts of the judgment proceeds would be
entitled to the Company. If RimAisa and the Company do not prevail in the LXB
Litigation, RACP should be returned to CBH and all the proceeds of any sale of
liquidation of Enshi or any assets of or interest in Enshi shall be distributed
as agreed by both parties. In addition, all the costs and expenses (including
attorneys fees) incurred by or on behalf of the plaintiffs shall be borne 55%
by RimAsia and 45% by the Company.

On September
1, 2008, the Company and RimAisa entered into a Memorandum of Understanding
(the Understanding). Pursuant to term #7 of the Understanding - Litigation
Residual Payment, if there is no consummation of the Merger, the gross residual
(the Gross Residual) from the LXB Litigation receivable by CBH (being the
gross settlement proceeds of the LXB litigation paid by Li Xiao Bo less the
litigation and related expenses incurred by and reimbursed to RACP pursuant to
the Litigation Agreement shall be paid to CBH in cash or shares of common stock
and warrants to purchase common stock of NBS (collectively, NBS Securities),
such NBS Securities being valued at their original purchase price but in no
case to be more than (a) US$1,250,000 or (b) the value of the Gross Residual,
whichever is less, and only to the extent there is any such residual from the
LXB litigation. Any amount of the Gross Residual remaining after deducting the
value of NBS Securities under the immediately preceding sentence shall be
immediately paid to CBH in cash. In case of a closing of the Merger, RACP may
no longer deliver such NBS Securities to CBH, but shall be able to deliver to Erye
Trading NBS Securities, valued at their purchase price and up to an amount
equal to 50% of the Net Residual (to be defined below), in exchange for the
withholding of an equal amount of cash from the Gross Residual, pursuant to the
terms of an agreement with Erye Trading that will be documented and signed
prior to or at the closing of the Merger. The Net Residual means the Gross
Residual minus the sum of (a) US$1.3 million representing the legal fees and
costs and the un-reimbursed advances and expenses made by Erye to Shenyang
Enshi Pharmaceutical Ltd. and CBH, and (b) US$300,000 for operating expenses of
CBH over the next 12 months.

Note 19  SHAREHOLDERS EQUITY
Issuance of Shares for Services

In December
2008, the Company issued 100,000 shares of common stock to a consultant for the
services provided during the period from January 2007 to February 2009. Shares
were valued at $27,000 based on the market price at the service contract
signing dates.

- 27 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

On July 11
2009, the board of directors of the Company approved to issue 50,000 shares of
common stock to a consultant for the service provided during the period from
March 1, 2009 to August 15, 2009. Shares were valued at $11,500 based on the
market price at the service contract signing dates.

Reconciliation of Discrepancy Shares

The Company
reconciled the outstanding 25,000 shares of the Companys Series A convertible
preferred stock as of September 30, 2009 which was previously recorded as
cancelled shares. The Company reconciled the outstanding 492,001 shares of
common stock which was the provision for the original Globus Growth Fund that
have not exchanged for CBH shares. As a result of this reconciliation, the
Company adjusted $5,170 out from additional paid in capital, and allocated $250
and $4,920 to the par value of the preferred stock and the common stock,
respectively.

Conversion of Series A preferred stock

In July 2009,
75,000 shares of Series A preferred stock were converted to 75,000 shares of
the Companys common stock.

Warrants

Following is a
summary of the status of warrants outstanding at December 31, 2008:

| |                      |      |                      |  |                                    |  |                        |      |        |  |      |  |  |            | 
| | -------------------- | ---- | -------------------- |  | ---------------------------------- |  | ---------------------- | ---- | ------ |  | ---- |  |  | ---------- | 
| | Outstanding Warrants |      | Exercisable Warrants | 
| |                      |     
| | Exercise Price       |      | Number               |  | Average Remaining Contractual Life |  | Average Exercise Price |      | Number | 
| |                      |      |                      | 
| |                      | 1.26 |                      |  | 12,000,000                         |  |                        | 2.64 |        |  | 1.26 |  |  | 12,000,000 | 
| |                      | 1.25 |                      |  | 1,000,000                          |  |                        | 0.34 |        |  | 1.25 |  |  | 1,000,000  | 
| |                      | 1.26 |                      |  | 7,370,298                          |  |                        | 0.44 |        |  | 1.26 |  |  | 7,370,298  | 
| |                      |      |                      |  |                                    |  |                        |      |        |  |      |  |  |            | 
| |                      |      |                      |  | 20,370,298                         |  |                        |      |        |  |      |  |  | 20,370,298 | 
| |                      |      |                      |  |                                    |  |                        |      |        |  |      |  |  |            | 

Following is a
summary of the Warrant activity:

|                                       |  |          |            |  
|-------------------------------------- |  | -------- | ---------- | -
|                                       |  | Warrants |           
|Outstanding
  as of January 1, 2008    |  |          | 22,094,738 |  
|Granted                                |  |          |           |  
|Forfeited                              |  |          | (1,639,833 | )
|Exercised                              |  |          |           |  
|                                       |  |          |            |  
|Outstanding
  as of December 31, 2008  |  |          | 20,454,905 |  
|Granted                                |  |          |           |  
|Forfeited                              |  |          | (84,607    | )
|Exercised                              |  |          |           |  
|                                       |  |          |            |  
|Outstanding
  as of September 30, 2009 |  |          | 20,370,298 |  
|                                       |  |          |            |  

Note 20  RESTRUCTURING

BUSINESS COMBINATIONS

- 28 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

Merger with NeoStem, Inc.

As previously
mentioned in Note 1, on November 2, 2008, CBH entered into an Agreement and
Plan of Merger (the Merger agreement) with CBC, NeoStem, Inc., and CBH
Acquisition LLC (Merger Sub). The Merger Agreement contemplates the merger of
CBH with and into Merger Sub, with Merger Sub as the surviving entity (the
Merger). Prior to the consummation of the Merger, CBH will spin off all of
its shares of capital stock of CBC to CBHs stockholders in a liquidating
distribution so that the only material assets of CBH following such spin-off
will be CBHs 51% ownership interest in Erye, plus net cash which shall not be
less than $550,000.

Pursuant to
the terms and subject to the conditions set forth in the Merger Agreement, all
of CBHs common stock, par value $.01 per share, issued and outstanding
immediately prior to the effective time of the Merger (the Effective Time)
will be converted into the right to receive, in the aggregate, 7,500,000 shares
of NeoStems common stock at par value of $.001 per share (of which 150,000
shares will be held in escrow pursuant to the terms of an escrow agreement to
be entered into between CBH and NeoStem).

Subject to the
cancellation of outstanding warrants to purchase shares of CBH Common Stock
held by RimAsia, all of the shares of CBH series B preferred stock solely held
by RimAsia, issued and outstanding immediately prior to the Effective Time will
be converted into NeoStems common stock, series C convertible preferred stock
and warrants to purchase NeoStems common stock. See details in Note 13.

At the
Effective Time, in exchange for cancellation of all of the outstanding shares
of CBH series A convertible preferred stock which is held by Stephen Globus, a
director of CBH, and/or related persons, NeoStem will issue to Mr. Globus
and/or related persons 50,000 shares of NeoStem common stock at $1.00 per
share. NeoStem also will issue 60,000 shares of NeoStem Common Stock to Mr.
Globus and 40,000 shares of NeoStem common stock to Chris Peng Mao, the Chief
Executive Officer of CBH, in exchange for the cancellation and the satisfaction
in full of indebtedness in the aggregate principal amount of $90,000, plus any
and all accrued but unpaid interest thereon, and other obligations of CBH to
Globus and Mao. NeoStem will bear 50% of up to $450,000 of CBHs expenses
post-merger, and satisfaction of the liabilities of Messrs. Globus and Mao will
count toward that obligation. NeoStem also will issue 200,000 shares to CBC to
be held in escrow, payable if NeoStem successfully consummates its previously
announced acquisition of control of Shandong New Medicine Research Institute of
Integrated Traditional and Western Medicine Limited Liability Company.

Also at the
Effective Time, subject to acceptance by the holders of all of the outstanding
warrants to purchase shares of CBH common stock (other than warrants held by
RimAsia), such warrants shall be canceled and the holders thereof shall receive
warrants to purchase up to an aggregate of up to 2,012,097 shares of NeoStem
common stock at an exercise price of $2.50 per share.

Upon
consummation of the transactions contemplated by the Merger, Merger Sub will
own 51% of the ownership interests in Erye, and Suzhou Erye Economy and Trading
Co. Ltd., a company incorporated in the PRC (EET), will own the remaining 49%
ownership interest. In connection with the execution of the Merger Agreement,
NeoStem, Merger Sub and Erye Trading have negotiated a revised joint venture
agreement (the Joint Venture Agreement), which, subject to finalization and
approval by the requisite PRC governmental authorities, will become effective and
will govern the rights and obligations with respect to their respective
ownership interests in Erye. Pursuant to the terms and conditions of the Joint
Venture Agreement, dividend distributions to Erye Trading and Merger Sub will
be made in proportion to their respective ownership interests in Erye;
provided, however, that for the three-year period commencing on the first day
of the first fiscal quarter after the Joint Venture Agreement becomes
effective, (i) 49% of undistributed profits (after tax) will be distributed to
Erye Trading and lent back to Erye by Erye Trading for use by Erye in
connection with the construction of a new plant for Erye; (ii) 45% of the net
profit (after tax) will be provided to Erye as part of the new plant
construction fund, which will be characterized as paid-in capital for Merger
Subs 51% interest in Erye; and (iii) 6% of the net profit will be distributed
to Merger Sub directly for NeoStems operating expenses. In the event of the
sale of all of the assets of Erye or liquidation of Erye, Merger Sub will be
entitled to receive the return of such additional paid-in capital before
distribution of Eyres assets is made based upon the ownership percentages of
NeoStem and Erye Trading, and upon an initial public offering of Erye which
raises at least $7,300,000 (RMB 50,000,000), Merger Sub will be entitled to
receive the return of such additional paid-in capital. CBC will receive
$300,000 from the settlement proceeds from the settlement of the litigation in
Hong Kong and Canada by RACP Pharmaceutical Holdings Limited, a wholly-owned
subsidiary of CBC, against Li Xiaobo and certain other defendants in connection
with the acquisition of shares of Enshi (the LXB Litigation) and use it as
working capital.

- 29 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

As of July 1,
2009, the Company entered into Amendment No. 1 to Agreement and Plan of Merger
with NeoStem, CBC and CBH Acquisition LLC, NeoStems wholly-owned subsidiary.
Pursuant to the terms of the Amendment:

The number of
shares of NeoStem Common Stock to be issued to the CBH Common Stockholders was
reduced to an aggregate of 7,150,000 shares, with no additional shares being
escrowed, and Exchange Ratio was amended such that, as of the date thereof,
it was 0.19255;

The number of
shares to be issued to RimAsia was increased to 6,458,009 shares of NeoStem
Common Stock and 8,177,512 shares of NeoStem Series C Convertible Preferred
Stock, each with a liquidation preference of $1.125 and convertible to shares
of NeoStem Common Stock at an initial conversion price of $.90 (with the Class
B warrants to be issued to RimAsia eliminated), in exchange for certain
advances made or to be made by RimAsia and as described below under that
certain Funding Agreement;

125,000 shares
of NeoStem Common Stock will be issued to Erye Trading or its designee for
assistance in effectuating the merger;

The number of
shares of NeoStem Common Stock to be issued to Steven E. Globus and Chris Peng
Mao, a director and the CEO of CBH, respectively, in exchange for satisfaction
of loans made by them to CBH, shall be reduced to an aggregate of approximately
17,158 shares;

Conditions to
closing were amended to (a) add a condition that in order to satisfy its
obligations under a memorandum of understanding with EET, CBH shall have caused
Erye to transfer the land and building for its principal manufacturing facility
to Erye Trading or its affiliate for a sum to be agreed upon, and for Erye
Trading or its affiliate to lease that facility back to Erye at a nominal fee
for a term through the construction and validation period of Eryes new
manufacturing facility and until such date as Eryes new facility is completed
and fully operational (which transaction will remove a significant asset from
the CBH balance sheet) and (b) provide that instead of a spin-off of the CBC
shares as a liquidating distribution to the shareholders of CBH, such shares
will be privately sold to a third party, and CBH and CBC each represent that it
has the corporate power and authority to effect the CBC sale transaction;

|  |                                                                                                                                                                                                                                            
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Eric Wei
  will be added to the current Board of Directors of NeoStem immediately after
  the effective time and Shi Mingsheng will be added to the current Board of
  Directors of NeoStem immediately after receipt of all PRC approvals;
|  |                                                                                                                                                                                                                                            
| | The exercise
  price of privately issued NeoStem warrants outstanding immediately prior to
  the closing of the merger has been adjusted from current exercise prices
  starting at $4.00 to adjusted exercise prices starting at $3.8182; 

- 30 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  | The
  Compensation Committee of NeoStems Board of Directors may, in lieu of
  lowering the exercise price of outstanding options to $.80 as provided in the
  original merger agreement, lower the exercise price to a price which is
  greater than $.80 (but not less than fair market value) and provide
  alternative cash or equity consideration to eligible NeoStem employees,
  directors, advisors and consultants;                  
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|  | The outside
  date for completion of the merger is extended to October 31, 2009.                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | There is no
  longer a need for new employment contracts for Robin Smith and Zhang Jian,
  and the consulting agreement for Chris Mao has been amended to release
  NeoStem and CBH from any obligations with respect to any employment agreement
  or arrangements between Mr. Mao and CBH and its affiliates;                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Certain PRC
  approvals and assurances are no longer strict conditions to closing and
  instead CBH will use reasonable commercial efforts to obtain such approvals
  prior to closing. If NeoStem waives such condition, then such condition shall
  remain as a condition subsequent to the merger. Mr. Shi and Madame Jian will
  receive an aggregate of 203,338 shares of NeoStem Common Stock if all PRC
  approvals are timely received;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The number
  and price of shares may be adjusted to reflect any reverse stock split that
  the company may undertake at the time of the merger;                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The parties
  reaffirm their respective representations and warranties, and CBC
  acknowledges that neither it nor any of its affiliates has or will have any
  claims against NeoStem or CBH and releases NeoStem and CBH in full; and                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | As an
  additional closing condition, NeoStem and CBH each shall provide to the other
  an opinion of counsel with respect to its corporate authorization of the
  merger.                                                                                                                                                                                                                                                                     

Additionally,
as of July 1, 2009, NeoStem, CBH, CBC and RimAsia, which is already a
significant investor in Neostem and CBH, entered into a Funding Agreement
pursuant to which it was agreed that RimAsia shall supply additional funding to
both NeoStem and CBH in an amount up to $1.6 million (including approximately
$1 million advanced to date), which amount shall be forgiven upon its receipt
of the increased amount of NeoStem securities described above to be received by
RimAsia as part of the merger consideration. If less than $1.6 million has been
advanced at that time, the difference shall be paid to NeoStem at the closing
of the merger. In the event the merger has not received shareholder approval by
October 31, 2009, NeoStem is required to repay RimAsia all payments incurred or
made by RimAsia on behalf of NeoStem.

On August 27,
2009, the Company entered into Amendment No. 2 to Agreement and Plan of Merger
with NeoStem, CBC and CBH Acquisition LLC. Pursuant to the terms of the
Amendment:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | TheExchange
  Ratio is amended to 0.1921665;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | The parties
  eliminated any exchange offer with respect to outstanding CBH Common Stock
  Purchase Warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
| | CBH agrees
  to cause Erye to use reasonable commercial efforts to obtain certain
  approvals from PRC regulatory authorities and certain assurances from PRC
  governmental authorities. However, the parties will not enter into an escrow
  agreement, and there will be no provision such that the consideration to be
  paid or issued by NeoStem in connection with the Merger is held in escrow,
  subject to a right of NeoStem to receive back all such consideration and
  rescind the Merger if any such PRC regulatory approvals are not obtained. Mr.
  Mingsheng Shi and Madam Jian Zhang shall use reasonable efforts to expediate
  the receipt of all PRC approvals and shall be paid an aggregate of 203,338
  shares of NeoStems common stock when all PRC approvals are received.

- 31 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

On July 15,
2009, Neostem filed a Form S-4 in connection with the Merger and it was declared effective on October 7, 2009.

Disposal of CBC and Keyuan

Pursuant to
the Amendment No. 1 to the Merger Agreement, as an additional covenant of CBH
and an additional condition to NeoStems obligation to close, (a) no later than
15 days prior to the effective date of the Form S-4 NeoStem submitted to SEC on
July 16, 2009, CBH shall have entered into a binding agreement to transfer the
stock of CBC to a third party in a private transaction and (b) no later than 15
days prior to the Closing of the Merger plan with Neostem, CBH shall have
consummated the transfer of all of the CBC stock to such third party, all in a
manner such that, following the transfer, the only material assets and
liabilities of CBH at the time of the merger shall be the Eyre Ownership and at
least $550,000 cash, and CBH shall have no liabilities except transaction
related expenses of $450,000 or less. All documents and accounting for such CBC
sale transaction shall be reasonably acceptable to NeoStem and shall include a
full release in favor of NeoStem and its affiliates from any and all claims or
liabilities due or asserted to be due to CBC, Keyuan or any of their
affiliates. CBH shall take appropriate action to liquidate or extinguish any
intercompany debt owed to CBH or Erye by CBC or Keyuan or any of their
affiliates

On July 11,
2009, the Company decided to take actions to comply with the requirements of
Amendment No. 1 to the Merger Agreement and to write off the Keyuan investment.
CBH has already written off Keyuan, effective August 31, 2009. On September 4,
2009, CBH entered into a trust agreement  with Stephen Globus, a board
member of CBH, as trustee for the benefit of the holders of the common stock of
CBH. As a result of those business dispositions, the Company recorded $417,150
loss from disposal of discontinued operations, net of tax effect. Loss from
discontinued operations amounted to $35,381 and $77,022 for the three and nine
months ended September 30, 2009, respectively. Loss from CBC and Keyuan were
$78,342 and $87,369 for the three and nine months ended September 30, 2008,
respectively.

Total assets
and liabilities of CBC and Keyuan were reclassified as Assets( Liabilities)
held for disposal on the consolidated balance sheets as of December 31, 2008,
and the major classes of such items are as follows,

|                                      |  |                   |         | 
|------------------------------------- |  | ----------------- | ------- | 
|                                      |  | December 31, 2008 |        
|                                      |  |                   |        
|Current
  asset                       |  | $                 | 138,845 | 
|Equipment                             |  |                   | 39,202  | 
|                                      |  |                   |         | 
|Total assets
  held for disposal      |  | $                 | 178,047 | 
|                                      |  |                   |         | 
|                                      |  |                   |         | 
|Current
  liabilities                 |  | $                 | 411,351 | 
|                                      |  |                   |         | 
|Total
  liabilities held for disposal |  | $                 | 411,351 | 
|                                      |  |                   |         | 

- 32 -

---



|                                                        
|--------------------------------------------------------
|CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
|NOTES TO CONSOLIDATED FINANCIAL STATEMENTS              
|SEPTEMBER 30, 2009                                      
|(Unaudited)                                             
|                                                        

The
transactions contemplated by the Merger Agreement and the Amendment are subject
to the authorization for listing on the American Stock Exchange (or any other
stock exchange on which shares of NeoStem Common Stock are listed) of the
shares to be issued in connection with the Merger, shareholder approval,
approval of NeoStems acquisition of 51% ownership interest in Erye by relevant
PRC governmental authorities, receipt of a fairness opinion and other customary
closing conditions set forth in the Merger Agreement and its Amendment. If the
necessary approvals for the Merger are not obtained and the Merger is not
consummated, the Company will fail to comply with our agreement with RimAsia
which may cause irreparable damage to our business and operations. Specials
shareholders meetings of each of CBH and Neostem will be held on October 29,
2009 in order to approve the transactions contemplated by the Merger Agreement
and the Amendment.

Note 21  SUBSEQUENT EVENTS

The Company
has performed an evaluation of subsequent events through the date these
consolidated financial statements were issued.

- 33 -

---



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, CBH 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 the Merger Agreement we signed with Neostem
Inc., 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-Q 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. Further information
on potential factors that could affect our business is described under the
heading Risks Factors in Part I, Item 1A of our Annual Report on Form 10-K
for the fiscal year ended December 31, 2008. Readers are also urged to
carefully review and consider the various disclosures we have made in that
report.

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.

As reported on our Current
Report on Form 8-K dated November 6, 2008, on November 2, 2008, we entered into
an Agreement and Plan of Merger (the Merger Agreement) with NeoStem, Inc., a
Delaware corporation (NeoStem), China Biopharmaceuticals Corp., a British
Virgin Islands corporation and our wholly-owned subsidiary (CBC), and CBH
Acquisition LLC, a Delaware limited liability company and wholly-owned
subsidiary of NeoStem (Merger Sub). The Merger Agreement contemplates our
merger with and into Merger Sub, with Merger Sub as the surviving entity (the
Merger); provided, that prior to the consummation of the Merger, we will spin
off all of our shares of capital stock of CBC to our stockholders in a
liquidating distribution so that the only material assets of us following such
spin-off will be our 51% ownership interest in Suzhou Erye Pharmaceuticals
Company Ltd. (Erye), a Sino-foreign joint venture with limited liability
organized under the laws of the Peoples Republic of China (the PRC), plus
net cash which shall not be less than $550,000. Pursuant to the terms and
subject to the conditions set forth in the Merger Agreement, all of our shares
of common stock, par value $.01 per share (CBH Common Stock), issued and
outstanding immediately prior to the effective time of the Merger (the
Effective Time) will be converted into the right to receive, in the
aggregate, 7,500,000 shares of common stock, par value $.001 per share, of
NeoStem (the NeoStem Common Stock) (of which 150,000 shares will be held in
escrow pursuant to the terms of an escrow agreement to be entered into between
CBH and NeoStem). Subject to the cancellation of outstanding warrants to
purchase shares of CBH Common Stock held by RimAsia Capital Partners, L.P.
(RimAsia), a current holder of approximately 14% of the outstanding shares of
NeoStem Common Stock and the sole holder of shares of Series B Convertible
Preferred Stock, par value $0.01 per share, of CBH (the CBH Series B Preferred
Stock), all of the shares of CBH Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time will be converted into (i)
5,383,009 shares of NeoStem Common Stock, (ii) 6,977,512 shares of Series C
Convertible Preferred Stock, without par value, of NeoStem, each with a
liquidation preference of $1.125 per share and convertible into shares of
NeoStem Common Stock at a conversion price of $.90 per share, and (iii)
warrants to purchase 2,400,000 shares of NeoStem Common Stock at an exercise
price of $0.80 per share. At the Effective Time, in exchange for cancellation
of all of the outstanding shares of CBH Series A Convertible Preferred Stock,
par value $.01 per share, of CBH (the CBH Series A Preferred Stock) held by
Stephen Globus, a director of CBH, and/or related persons, NeoStem will issue
to Mr. Globus and/or related persons an aggregate of 50,000 shares of NeoStem
Common Stock. NeoStem also will issue 60,000 shares of NeoStem Common Stock to
Mr. Globus and 40,000 shares of NeoStem Common Stock to Chris Peng Mao, the
Chief Executive Officer of CBH, in exchange for the cancellation and the
satisfaction in full of indebtedness in the aggregate principal amount of
$90,000, plus any and all accrued but unpaid interest thereon, and other
obligations of CBH to Globus and Mao. NeoStem will bear 50% of up to $450,000
of CBHs expenses post-merger, and satisfaction of the liabilities of Messrs.
Globus and Mao will count toward that obligation. NeoStem also will issue
200,000 shares to CBC to be held in escrow, payable if NeoStem successfully
consummates its previously announced acquisition of control of Shandong New
Medicine Research Institute of Integrated Traditional and Western Medicine
Limited Liability Company.

Also at the Effective Time,
subject to acceptance by the holders of all of the outstanding warrants to
purchase shares of CBH Common Stock (other than warrants held by RimAsia), such
warrants shall be canceled and the holders thereof shall receive warrants to
purchase up to an aggregate of up to 2,012,097 shares of NeoStem Common Stock
at an exercise price of $2.50 per share. Upon consummation of the transactions
contemplated by the Merger, Merger Sub will own 51% of the ownership interests
in Erye, and Suzhou Erye Economy and Trading Co. Ltd., a company incorporated
in the PRC (EET), will own the remaining 49% ownership interest. As of July
1, 2009, the Company entered into an Amendment No. 1 to Agreement and Plan of
Merger with NeoStem, CBC and CBH Acquisition LLC, NeoStems wholly-owned
subsidiary (Amendment). Pursuant to the terms of the Amendment:

- 34 -

---



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The number of shares of
  NeoStem Common Stock to be issued to the CBH Common Stockholders was reduced
  to an aggregate of 7,150,000 shares, with no additional shares being
  escrowed, and Exchange Ratio was amended such that, as of the date thereof,
  it was 0.19255;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The number of shares to be
  issued to RimAsia was increased to 6,458,009 shares of NeoStem Common Stock
  and 8,177,512 shares of NeoStem Series C Convertible Preferred Stock, each
  with a liquidation preference of $1.125 and convertible to shares of NeoStem
  Common Stock at an initial conversion price of $.90 (with the Class B
  warrants to be issued to RimAsia eliminated), in exchange for certain
  advances made or to be made by RimAsia and as described below under that
  certain Funding Agreement;                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | 125,000 shares of NeoStem
  Common Stock will be issued to EET or its designee for assistance in effectuating
  the Merger;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | The number of shares of
  NeoStem Common Stock to be issued to Steven E. Globus and Chris Peng Mao, a
  director and the CEO of CBH, respectively, in exchange for satisfaction of
  loans made by them to CBH, shall be reduced to an aggregate of approximately
  17,158 shares;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | Conditions to closing were
  amended to (a) add a condition that in order to satisfy its obligations under
  a memorandum of understanding with EET, CBH shall have caused Erye to
  transfer the land and building for its principal manufacturing facility to
  EET or its affiliate for a sum to be agreed upon, and for EET or its
  affiliate to lease that facility back to Erye at a nominal fee for a term
  through the construction and validation period of Eryes new manufacturing
  facility and until such date as Eryes new facility is completed and fully
  operational (which transaction will remove a significant asset from the CBH
  balance sheet) and (b) provide that instead of a spin-off of the CBC shares
  as a liquidating distribution to the shareholders of CBH, such shares will be
  privately sold to a third party, and CBH and CBC each represent that it has
  the corporate power and authority to effect the CBC sale transaction;

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Eric Wei will be added to
  the current Board of Directors of NeoStem immediately after the effective
  time and Shi Mingsheng will be added to the current Board of Directors of
  NeoStem immediately after receipt of all PRC approvals;                                                                                                                                                                                                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The exercise price of
  privately issued NeoStem warrants outstanding immediately prior to the
  closing of the merger has been adjusted from current exercise prices starting
  at $4.00 to adjusted exercise prices starting at $3.8182;                                                                                                                                                                                                     
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The Compensation Committee
  of NeoStems Board of Directors may, in lieu of lowering the exercise price
  of outstanding options to $.80 as provided in the original Merger Agreement,
  lower the exercise price to a price which is greater than $.80 (but not less
  than fair market value) and provide alternative cash or equity consideration
  to eligible NeoStem employees, directors, advisors and consultants;                    
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The outside date for
  completion of the merger is extended to October 31, 2009.                                                                                                                                                                                                                                                                                                                                                               
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | There is no longer a need
  for new employment contracts for Robin Smith and Zhang Jian, and the
  consulting agreement for Chris Mao has been amended to release NeoStem and
  CBH from any obligations with respect to any employment agreement or
  arrangements between Mr. Mao and CBH and its affiliates                                                                                                                                 
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | Certain PRC approvals and
  assurances are no longer strict conditions to closing and instead CBH will
  use reasonable commercial efforts to obtain such approvals prior to closing.
  If NeoStem waives such condition, then such condition shall remain as a
  condition subsequent to the merger. Mr. Shi and Madame Jian will receive an
  aggregate of 203,338 shares of NeoStem Common Stock if all PRC approvals are
  timely received;
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The number and price of
  shares may be adjusted to reflect any reverse stock split that the company
  may undertake at the time of the merger;                                                                                                                                                                                                                                                                                                
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | The parties reaffirm their
  respective representations and warranties, and CBC acknowledges that neither
  it nor any of its affiliates has or will have any claims against NeoStem or
  CBH and releases NeoStem and CBH in full; and                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                
| | As an additional closing
  condition, NeoStem and CBH each shall provide to the other an opinion of
  counsel with respect to its corporate authorization of the merger.                                                                                                                                                                                                                                                                       

Additionally, as of July 1,
2009, NeoStem, CBH, CBC and RimAsia, which is already a significant investor in
Neostem and CBH, entered into a Funding Agreement pursuant to which it was
agreed that RimAsia shall supply additional funding to both NeoStem and CBH in
an amount up to $1.6 million (including approximately $1 million advanced to
date), which amount shall be forgiven upon its receipt of the increased amount
of NeoStem securities described above to be received by RimAsia as part of the
Merger consideration. If less than $1.6 million has been advanced at that time,
the difference shall be paid to NeoStem at the closing of the Merger. In the
event the Merger has not received shareholder approval by October 31, 2009,
NeoStem is required to repay RimAsia all payments incurred or made by RimAsia
on behalf of NeoStem.

- 35 -

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On July 15, 2009, Neostem
filed a registration statement on Form S-4 in connection with the Merger, which
was declared effective on October 7, 2009. On July 11, 2009, the Company
decided to take actions to comply with the requirements of the Merger Agreement
and its amendment and to spin off or dissolve CBC and to write off CBCs 90%
owned subsidiary Keyuan Pharmaceutical R&D Co., Ltd. On September 4, 2009,
the Company entered into a trust agreement as settlors with Stephen Globus as
trustee for the benefit of the holders of the common stock of the Company (the
Trust Agreement). Pursuant to the Trust Agreement, the Company transferred
all issued and outstanding stock of CBC to the Trust for the benefit of all CBH
shareholders for the purpose of winding down the operations of CBC.

As of August 27, 2009, the
Company entered into an Amendment No. 2 to Agreement and Plan of Merger with
NeoStem, CBC and CBH Acquisition LLC, NeoStems wholly-owned subsidiary
(Amendment No. 2). Pursuant to the terms of the Amendment No. 2:

|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | TheExchange Ratio is amended
  to 0.1921665;                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | The parties eliminated any
  exchange offer with respect to outstanding CBH Common Stock Purchase
  Warrants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | CBH agrees to cause Erye
  to use reasonable commercial efforts to obtain certain approvals from PRC
  regulatory authorities and certain assurances from PRC governmental
  authorities. However, the parties will not enter into an escrow agreement,
  and there will be no provision such that the consideration to be paid or
  issued by NeoStem in connection with the Merger is held in escrow, subject to
  a right of NeoStem to receive back all such consideration and rescind the
  Merger if any such PRC regulatory approvals are not obtained.Mr. Mingsheng
  Shi and Madam Jian Zhang shall use reasonable efforts to expediate the
  receipt of all PRC approvals and shall be paid an aggregate of 203,338 shares
  of NeoStems common stock when all PRC approvals are received.

The transactions
contemplated by the Merger Agreement and the Amendment are subject to the
authorization for listing on the American Stock Exchange (or any other stock
exchange on which shares of NeoStem Common Stock are listed) of the shares to
be issued in connection with the Merger, shareholder approval, approval of
NeoStems acquisition of 51% ownership interest in Erye by relevant PRC
governmental authorities, receipt of a fairness opinion and other customary
closing conditions set forth in the Merger Agreement and its Amendment. If the
necessary approvals for the Merger are not obtained and the Merger is not
consummated, the Company will fail to comply with our agreement with RimAsia
which may cause irreparable damage to our business and operations. Specials
shareholders meetings of each of CBH and Neostem will be held on October 29,
2009 in order to approve the transactions contemplated by the Merger Agreement
and the Amendment.

For more detailed
information regarding the Merger, please refer to the Form S-4/A filed on
October 6, 2009 at http://www.sec.gov/Archives/edgar/data/320017/000114420409051713/v161358_s4a.htm#tSJPSP.

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

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

- 36 -

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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 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.

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.

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 accounts receivable 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.

- 37 -

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INCOME TAX

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.

In addition the Company
accounts for an regarding uncertainty in Income Taxeswhere 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..

FAIR VALUE OF FINANCIAL
INSTRUMENTS

Effective January 1, 2008,
the Company adopted the accounting standard regarding fair value of financial
instruments and related fair value measurements. Those accounting standard
established a three-level valuation hierarchy for disclosures of fair value
measurement and enhances disclosures requirements for fair value measures. The
carrying amounts reported in the accompanying consolidated balance sheets for
receivables, payables and short term loans qualify as financial instruments are
a reasonable estimate of fair value because of the short period of time between
the origination of such instruments, their expected realization and, if
applicable, the stated rate of interest is equivalent to rates currently
available. The three levels of valuation hierarchy are defined as follows:

|  |                                                                                                                                                                                                                                                                                         
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Level 1 inputs to the
  valuation methodology are quoted prices (unadjusted) for identical assets or
  liabilities in active markets.                                                                                                                                                   
|  |                                                                                                                                                                                                                                                                                         
| | Level 2 inputs to the
  valuation methodology include quoted prices for similar assets and
  liabilities in active markets, and inputs that are observable for the assets
  or liability, either directly or indirectly, for substantially the full term
  of the financial instruments.
|  |                                                                                                                                                                                                                                                                                         
| | Level 3 inputs to the
  valuation methodology are unobservable and significant to the fair value.                                                                                                                                                                                       

Effective January 1, 2009,
the Company adopted the provisions of an accounting standard regarding
instruments that are indexed to an entitys own stock. This accounting standard
specifies that a contract that would otherwise meet the definition of a
derivative but is both (a) indexed to the Companys own stock and (b)
classified in stockholders equity in the statement of financial position would
not be considered a derivative financial instrument. It provides a new two-step
model to be applied in determining whether a financial instrument or an
embedded feature is indexed to an issuers own stock and thus able to qualify
for the scope exception within the standards.

As a result , 20,370,298 of
our issued and outstanding warrants previously treated as equity pursuant to the
derivative treatment exemption were no longer afforded equity treatment because
the strike price of the warrants is denominated in US dollar, a currency other
than the Companys functional currency, the Chinese Renminbi. As a result, the
warrants are not considered indexed to the Companys own stock, and as such,
all future changes in the fair value of these warrants will be recognized
currently in earnings until such time as the warrants are exercised or expired.

NONCONTROLLING INTERESTS

Effective January 1, 2009,
the Company adopted an accounting standard regarding non-controlling interest
in consolidated financial statements. Certain provisions of this accounting
standard are required to be adopted retrospectively for all periods presented.
Such provisions include a requirement that the carrying value of
non-controlling interests (previously referred to as minority interests) be
removed from the mezzanine section of the balance sheet and reclassified as
equity. Further, as a result of adoption this accounting standard, net income
attributable to non-controlling interests is now excluded from the
determination of consolidated net income. In addition, foreign currency
translation adjustment is allocated between controlling and non-controlling
interests.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2009, the FASB
issued an accounting standard which amended the impairment model by removing
its exclusive reliance on market participant estimates of future cash flows
used in determining fair value. Changing the cash flows used to analyze
other-than-temporary impairment from the market participant view to a
holders estimate of whether there has been a probable adverse change in
estimated cash flows allows companies to apply reasonable judgment in assessing
whether an other-than-temporary impairment has occurred. The adoption of this
accounting standard did not have a material impact on the Companys
consolidated financial statements because all of the investments in debt
securities are classified as trading securities.

- 38 -

---



In April 2009, the FASB
issued an accounting standard that makes the other-than-temporary impairments
guidance more operational and improves the presentation of other-than-temporary
impairments in the financial statements. This standard replaced the existing
requirement that the entitys management assert it has both the intent and
ability to hold an impaired debt security until recovery with a requirement
that management assert it does not have the intent to sell the security, and it
is more likely than not it will not have to sell the security before recovery
of its cost basis. This standard provides increased disclosure about the credit
and noncredit components of impaired debt securities that are not expected to
be sold and also requires increased and more frequent disclosures regarding
expected cash flows, credit losses, and an aging of securities with unrealized
losses. Although this standard does not result in a change in the carrying
amount of debt securities, it does require that the portion of an
other-than-temporary impairment not related to a credit loss for a
held-to-maturity security be recognized in a new category of other
comprehensive income and be amortized over the remaining life of the debt
security as an increase in the carrying value of the security. The Company
adopted this accounting standard, but it did not have a material impact on its
consolidated financial statements.

In April 2009, the FASB
issued an accounting standard that requires disclosures about fair value of financial
instruments not measured on the balance sheet at fair value in interim
financial statements as well as in annual financial statements. Prior to this
accounting standard, fair values for these assets and liabilities were only
disclosed annually. This standard applies to all financial instruments within
its scope and requires all entities to disclose the method(s) and significant
assumptions used to estimate the fair value of financial instruments. This
standard does not require disclosures for earlier periods presented for
comparative purposes at initial adoption, but in periods after the initial
adoption, this standard requires comparative disclosures only for periods
ending after initial adoption. The Company adopted this accounting standard,
but it did not have a material impact on the disclosures related to its
consolidated financial statements.

In June 2009, the FASB
issued an accounting standard amending the accounting and disclosure
requirements for transfers of financial assets. This accounting standard
requires greater transparency and additional disclosures for transfers of
financial assets and the entitys continuing involvement with them and changes
the requirements for derecognizing financial assets. In addition, it eliminates
the concept of a qualifying special-purpose entity (QSPE). This accounting
standard is effective for financial statements issued for fiscal years
beginning after November 15, 2009, and the Company does not expect this
standard to have a material effect on its consolidated financial statements.

In June 2009, the FASB also
issued an accounting standard amending the accounting and disclosure
requirements for the consolidation of variable interest entities (VIEs). The
elimination of the concept of a QSPE, as discussed above, removes the exception
from applying the consolidation guidance within this accounting standard.
Further, this accounting standard requires a company to perform a qualitative
analysis when determining whether or not it must consolidate a VIE. It also
requires a company to continuously reassess whether it must consolidate a VIE.
Additionally, it requires enhanced disclosures about a companys involvement
with VIEs and any significant change in risk exposure due to that involvement,
as well as how its involvement with VIEs impacts the companys financial
statements. Finally, a company will be required to disclose significant
judgments and assumptions used to determine whether or not to consolidate a
VIE. This accounting standard is effective for financial statements issued for
fiscal years beginning after November 15, 2009, and the Company does not expect
this standard to have a material effect on its consolidated financial
statements.

In August 2009, the FASB
issued an Accounting Standards Update (ASU) regarding measuring liabilities
at fair value. This ASU provides additional guidance clarifying the measurement
of liabilities at fair value in circumstances in which a quoted price in an
active market for the identical liability is not available; under those
circumstances, a reporting entity is required to measure fair value using one
or more of valuation techniques, as defined. This ASU is effective for the
first reporting period, including interim periods, beginning after the issuance
of this ASU. The Company is currently evaluating the impact of this ASU on its
consolidated financial statements.

In October 2009, the FASB
issued an ASU regarding accounting for own-share lending arrangements in
contemplation of convertible debt issuance or other financing. This ASU
requires that at the date of issuance of the shares in a share-lending
arrangement entered into in contemplation of a convertible debt offering or
other financing, the shares issued shall be measured at fair value and be
recognized as an issuance cost, with an offset to additional paid-in capital.
Further, loaned shares are excluded from basic and diluted earnings per share
unless default of the share-lending arrangement occurs, at which time the
loaned shares would be included in the basic and diluted earnings-per-share
calculation. This ASU is effective for fiscal years beginning on or after
December 15, 2009, and interim periods within those fiscal years for
arrangements outstanding as of the beginning of those fiscal years. The Company
is currently evaluating the impact of this ASU on its consolidated financial
statements.

In the accompanying
financial statements, financial results related to the divested operations of
CBC and Keyuan are presented as discontinued operations. Previously reported
amounts have been restated to present the divested operations in a manner
consistent with the current period presentation. Unless otherwise noted,
discussions and amounts throughout these notes relate to CBHs continuing
operations.

RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2009
AS COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 2008

REVENUE

Revenue for the three months
ended September 30, 2009 was $17,051,816 while the revenue for the three months
ended September 30, 2008 was $12,512,711, representing an approximately 36.3%
increase. The increase is mainly attributed to the increase in production and
sales of prescription drugs, which has increased 34.8% compared with the same
period of 2008. The Company has improved its sales structure, sales policy and
expanded the market of products to include products with higher gross profit
and sales volume. The sales of the major products have increased 54.0% compared
with the same period of 2008.The sales agent have increased 36.4% compared with
the same period of 2008 Taking advantage of the
governments new policy, especially the provincial online purchase
system, the Company has made significant progress in expanding its sales
market. Sales volume has leaped in pace with the deepening of the reform of
medical insurance system in rural areas of China. More than 60% drug categories
of the Company have been allowed to enter the New Rural Cooperative Medical
Insurance System, through which the Company realized stable growth.

- 39 -

---



COST OF GOODS SOLD

Cost of goods sold for the
three months ended September 30, 2009 was $11,129,366 as compared to $8,596,513
for the three months ended September 30, 2008. Cost of goods sold as a
percentage of sales revenues was approximately 65.3% for the three months ended
June 30, 2009 compared to approximately 68.7% for the three months ended
September 30, 2008. The increase in cost of goods sold in terms of dollar
amount is associated with the increase of sales.

GROSS PROFIT

Gross profit in the three
months ended September 30, 2009 amounted to $5,922,450, as compared to
$3,916,198 for the three months ended September 30, 2008, representing
approximately 51.2% increase. The gross profit margin for the three months
ended September 30, 2009 was 34.7% compared to approximately 31.3% for the
three months ended September 30, 2008. The increase is attributed primarily by
the Companys increased sales of products of higher gross margin replacing
products with lower gross margin, especially the high margin products in Cephems
and Penicilin. The sales of powders for injection (Cephems) and of Penicillin
still play a dominant role. The sales volume for all products has increased
20.1% compared with the same period of 2008, which has lower the fixed cost per
product unit and the entire product cost decreased and improved the profit
margin as a result.

OPERATING EXPENSES

Operating expenses for the
three months ended September 30, 2009 amounted to $1,408,707 as compared to
$1,206,976 for the three months ended September 30, 2008, representing 16.7%
decrease.

RESEARCH AND DEVELOPMENT

Research and development
costs for the three months ended September 30, 2009 were $76,035 as compared to
$30,620 for the three months ended September 30, 2008. Erye has been working on
its research and development projects and one major project has reached the
clinical trial stage as of September 30, 2009. As a result, the research and
development expenses associated with such projects increased.

INCOME FROM OPERATIONS

Income from operations in
the three months ended September 30, 2009 amounted to $4,513,743, as compared
to $2,709,222 for the three months ended September 30, 2008, representing
approximately 66.6% increase. The increase is mainly attributable by Eryes
strong performance in sales revenue

OTHER INCOME (EXPENSE)

Other expense net of other
expense was $53,931 for the three months ended September 30, 2009, with
$143,739 increase compared with $89,808 other income for the three months ended
September 30, 2008. The main reason of the increase was attributed by the loss
recognized from change in fair value of warrants for the three months ended
September 30, 2009 after adopting the new accounting standard.

PROVISION FOR INCOME TAX

Provision for income tax for
the three months ended September 30, 2009 and 2008 were $554,133 and $377,583,
respectively with 46.7% increase. The increase is due to Eryes strong
performance in sales revenue and the related income tax increased.

LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO CONTROLLING
INTEREST

Loss from discontinued
operations for the three months ended September 30, 2009 and 2008 were $35,381
and $78,342, respectively, improved by 54.8%, and represented the operating
results of Keyuan and CBC for the aforesaid periods.

Loss from disposal of
discontinued operations for the three months ended September 30, 2009 and 2008
were $417,150 and $0, respectively, and this change was because the Company
discontinued Keyuan and spun-off CBC in the 3rd quarter of 2009.

- 40 -

---



NET INCOME AVAILABLE TO COMMON STOCK SHAREHOLDERS

Net income available to
common shareholders for the three months ended September 30, 2009 was
$1,455,745 compared to $838,327 for the three months ended September 30, 2008,
representing 73.6% increase. The net income increase is mainly attributed by
sales increase and gross profit margin improved
through Eryes strong performance for the three months ended September 30,
2009. The Company has improved its sales structure, reorganized their sales
teams and sales direction based on the National Medical Reform Proposal. The
Company has also integrated its customers resources and purchasing power,
which helped it make the significant progress in sales.

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2009
AS COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 2008

REVENUE

Revenue for the nine months
ended September 30, 2009 was $45,042,881 compared with $36,767,712 for the nine
months ended September 30, 2008, representing an approximately 22.5% increase.
The increase is mainly attributed to the increase in production and sales of
prescription drugs, which has increased 33.9% compared with the same period of
2008. The Company has improved its sales structure, sales policy and expanded
the market of products to include products with higher gross profit and sales
volume. The sales of the major products have increased 54.0% compared with the
same period of 2008. The sales agent have increased 36.4% compared with the
same period of 2008 taking advantage of the governments new policy, especially the provincial online purchase system, the
Company has
made significant progress in expanding its sales market. Sales volume has
leaped in pace with the deepening of the reform of medical insurance system in
rural areas of China. More than 60% drug categories of the Company have been
allowed to enter the New Rural Cooperative Medical Insurance System, through
which the Company realized stable growth.

COST OF GOODS SOLD

Cost of goods sold for the
nine months ended September 30, 2009 was $29,760,088 as compared to $25,522,533
for the nine months ended September 30, 2008. Cost of goods sold as a
percentage of sales revenues was approximately 66.1% for the nine months ended
September 30, 2008 compared to approximately 69.4% for the nine months ended
September 30, 2008. The increase in cost of goods sold in terms of dollar
amount is associated with the increase of sales.

GROSS PROFIT

Gross profit in the six
months ended September 30, 2009 amounted to $15,282,793, as compared to
$11,245,179 for the nine months ended September 30, 2008, representing
approximately 35.9% increase. The gross profit margin for the nine months ended
September 30, 2009 was 33.9% compared to approximately 30.6% for the nine
months ended September 30, 2008. The increase is attributed primarily to the
Companys increased sales of products of higher gross margin replacing products
with lower gross margin, especially the high margin products in Cephems and
Penicilin. The sales of powders for injection (Cephems) and of Penicillin still
play a dominant role. The sales volume has increased 20.1% compared with the
same period of 2008, which has lower the fixed cost per product unit and the
entire product cost decreased and improved the profit margin as a result.

OPERATING EXPENSES

Operating expenses for the
nine months ended September 30, 2009 was $4,238,743 as compared to $3,704,172
for the nine months ended September 30, 2008, representing 14.4% increase. The
increase of operation expenses is related to the increase of sales. In particular,
selling expense increased 18.7% for nine months ended September 30, 2009
compared with the same period of 2008, among which the travel expense .meals
and entertainment expense and shipping and handling cost etc. all increased
signficantly, which were related to visiting customers in wider sales markets
more frequently.

RESEARCH AND DEVELOPMENT

Research and development
costs for the nine months ended September 30, 2009 were $312,098 as compared to
$279,909 for the nine months ended September 30, 2008. Erye has been working on
its research and development projects and one major project has reached the
clinical trial stage as of September 30, 2009. As a result the research and
development expenses associated with such projects decreased.

INCOME FROM OPERATIONS

Income from operations in
the nine months ended September 30, 2009 amounted to $11,044,050, as compared
to $7,541,007 for the nine months ended September 30, 2008, representing
approximately 46.5% increase. The increase is mainly attributable by Eryes
strong performance in sales revenue.

OTHER INCOME (EXPENSE)

Other expense net of other
expense was $992,909 for the nine months ended September 30, 2009, with
$985,950 increase compared with $6,959 other expense for the nine months ended
September 30, 2008. The main reason of the increase was attributed by the
$1,005,774 loss recognized from change in fair value of warrants for the nine
months ended September 30, 2009 after adopting the new accounting standard..

- 41 -

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PROVISION FOR INCOME TAX

Provision for income tax for
the nine months ended September 30, 2009 and 2008 were $1,416,391 and
$1,008,196, respectively with 40.5% increase. The increase is due to Eryes
strong performance in sales revenue and the related income tax increased.

LOSS FROM DISCONTINUED OPERATIONS ATTRIBUTABLE TO CONTROLLING
INTEREST

Loss from discontinued
operations for the nine months ended September 30, 2009 and 2008 were $77,022
and $87,369, respectively, improved by 11.8%, and represented the operating
results of Keyuan and CBC for the aforesaid periods..

Loss from disposal of
discontinued operations for the three months ended September 30, 2009 and 2008
were $417,150 and $0, respectively, and this change was because the Company
discontinued Keyuan and spun-off CBC in the 3rd quarter of 2009.

NET INCOME AVAILABLE TO COMMON STOCK SHAREHOLDERS

Net income available to
common stock shareholders for the nine months ended September 30, 2009 was $3,
298,833 compared to $2,141,956 for the nine months ended September 30, 2008,
representing 54.0% increase. The net income increase is mainly attributed by
sales increase and gross profit margin improved through Eryes strong
performance for the nine months ended September 30, 2009. The Company has
improved its sales structure, reorganized their sales teams and sales direction
based on the National Medical Reform Proposal. The Company has also integrated
its customers resources and purchasing power, which helped it make the
significant progress in sales.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2009,
total current assets were $25,452,069 and total current liabilities were
$21,402,824. Cash and cash equivalents on September 30, 2009 was $2,847,192, an
increase of $2,376,520 from the $470,672 reported on December 31, 2008. The increase
in cash and can equivalents is mainly attributable to the increase in sales
revenue of Erye and the receivable collections which increased.

For the nine months ended
September 30, 2009, net cash provided by continuing operating activities was
$13,887,596. Cash provided by operating activities results primarily from the
Eryes strong performance in sales and increase in its profit margin. Erye has
paid $2,832,755 more for its inventories in order to produce sufficient
products for the busy sales season

Net cash used in investing
activities and financing activities were $6,086,702 and $5,452,046,
respectively, for the nine month ended September 30, 2009. Cash provided by
investing activities during the period was mainly contributed by the withdrawal
$4,414,048 from the short-term investment account of Erye. The Company also
used $7,344,624 for the construction of the new plant, and purchases of
equipment, and lent $2,741,233 out as loans. During the nine months ended September 30, 2009, Net cash used
in financing activities was mainly due to Erye repayment of $2,492,030
short-term bank loans and deposited $2,560,294 more in bank accounts for the notes payable issued.

Relocation of Erye

The new plant of Erye is
currently under construction. To date, all the buildings in the manufacturing
area have been completed, and the Purification plant is under construction and
the equipment has been delivered and in the process of being assembled. The
Company expects that the Penicillin and Cephems sterile injection powder
workshops will be completed by the end of 2009. In early 2010, the company
plans to apply for GMP approval with China Food and Drug Administration (SFDA)
for these two workshops.

The total expenditure of the
new factory project and the relocation of Erye is estimated up to $29,340,000
(RMB200,000,000), of which approximately $15.84 millon has been spent to date.

OUTLOOK

Our Company has entered into
a Merger Agreement with Neostem and expects to complete the Merger on the
fourth quarter of 2009, subject to receipt of all necessary approvals.

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. If the Merger is
not consummated, 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.

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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. As of September 30, 2009, the
value of the Renminbi to the U.S. dollar was translated at 6.82 RMB to $1.00
USD.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.

Not applicable.

ITEM 4T. CONTROLS AND PROCEDURES

Disclosure Controls and
Procedures. As of September 30, 2009, we carried out an evaluation, under the
supervision and with the participation of our management, including our chief
executive officer and our chief financial officer, of the effectiveness of the
design and operation of our disclosure controls and procedures. Based on the
foregoing, our chief executive officer and chief financial officer concluded
that our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934) were not effective.

During our assessment of the
effectiveness of internal control over financial reporting as of December 31,
2008, our management identified significant deficiencies related to the
following:

1. Insufficient U.S.GAAP
qualified accounting and finance personnel.

As U.S. GAAP closing process
relates to non-routine transactions and estimates, we didnt have sufficient
and skilled accounting and finance personnel necessary to close our books under
U.S.GAAP at our subsidiaries in China because of the differences between two
accounting policies, and on the other hand, the accounting personnel arent
familiar with U.S.GAAP and lack training. This material weakness resulted in
adjustments to several significant accounts and disclosures and contributed to
other material weakness described above.

2. Lack of Internal Audit
System.

The Company does not have
the internal audit department, which was ineffective in preventing and
detecting control lapses and errors in the accounting of certain key areas like
revenue recognition, purchase approvals, inter-company transactions, cash
receipt and cash disbursement authorizations, inventory safeguard and proper
accumulation for cost of products, in accordance with the appropriate costing
method used by the Company.

3. Financial Statement
closing process.

We found that controls over
the financial statement close process related to account reconciliation and
analyses, including bank accounts, certain long-lived assets and accrued
liabilities, were not effective. As a result, a large volume of adjustments
were necessary to completely and accurately present the financial statements
close process to the preparation of reliable financial statements, there is
reasonable possibility that a material misstatement of the interim and annual
financial statements would not have been prevented or detected on a timely
basis.

As disclosed in our
Managements Annual Report on Internal Control over Financial Reporting filed
with the 2008 Form 10-K, the Companys management has identified the steps
necessary to address the material weaknesses described above and we are in the
process to have the remediation procedures implemented.

Changes in Internal Control
over Financial Reporting.

During the fiscal quarter
ended September 30, 2009, except as described below, there have been no changes
in the Companys internal control over financial reporting, identified in
connection with our evaluation thereof, that have materially affected, or are
reasonably likely to materially affect, its internal control over financial
reporting.

We are continuing to build
our accounting resources in response to the weaknesses. While we continue to
develop and implement new control processes and procedures to address these
weaknesses, we have determined that further improvements are required in our
accounting processes before we can consider the material weakness remediated.

PART II - OTHER INFORMATION

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS.

In September 2009, the
Company issued 50,000 shares of its common shares to a consultant in
consideration for services rendered. The issuance was deemed to be exempt under
Regulation D and Section 4(2) of the 1933 Securities Act, as amended.

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ITEM 6. EXHIBITS

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

|               |  |                                                                                                              
|-------------- |  | -------------------------------------------------------------------------------------------------------------
|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

|  |                                       
|- | --------------------------------------
| | Filed herewith **
  Furnished herewith

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: October 29, 2009          
| |                                           | By: /s/ ZHANG Jian              
| |                                           |                                 
| |                                           | Name: ZHANG Jian                
| |                                           | Title: Chief Financial   Officer
| |                                           | Date: October 29, 2009          

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