UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, 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, 2008

                                       OR

|_|  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             (I.R.S. Employer Identification No.)
 incorporation or organization)

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

                               (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 |_|

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 |_|                         Accelerated filer |_|
Non-accelerated filer|_|                            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 |_| No |X|

As of November 14, 2008, 37,082,313 shares of Common Stock, par value $0.01 per
share, were outstanding.




<PAGE>



                               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.                          25

Item 3.       Quantitative and Qualitative Disclosures About Market Risk.   37

Item 4T.      Controls and Procedures.                                      37

PART II - OTHER INFORMATION

Item 1.       Legal Proceedings.                                            38

Item 1A       Risk Factors.                                                 39

Item 2.       Unregistered Sales of Equity Securities and Use of Proceeds.  39

Item 3.       Defaults Upon Senior Securities.                              39

Item 4.       Submission of Matters to a Vote of Security Holders.          39

Item 5.       Other Information.                                            39

Item 6.       Exhibits.                                                     39

SIGNATURES                                                                  40







<PAGE>


            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                           CONSOLIDATED BALANCE SHEETS
                 AS OF SEPTEMBER 30, 2008 AND DECEMBER 31, 2007

<TABLE>
<CAPTION>
                                                                               September 30,   December 31,
                                                                                   2008            2007
                                                                              -------------   --------------
                                                                                 Unaudited
<S>                                                                           <C>             <C>
                                                        ASSETS

CURRENT ASSETS:
   Cash                                                                       $   4,857,211   $      669,699
   Short term investment                                                                 --        1,096,800
   Accounts receivable, trade, net of allowance for doubtful accounts of          4,228,598        3,551,483
     $1,405,533 and $1,260,760 at September 30, 2008 and December 31, 2007,
     respectively
   Accounts receivable, related parties                                             141,446           41,932
   Other receivables                                                                 21,592          863,627
   Other receivables - related parties                                            1,444,902          819,621
   Advances to suppliers                                                            320,124          797,302
   Prepaid expenses                                                                 165,339          363,819
   Inventories                                                                   10,244,494        8,962,055
   Loan to shareholders                                                              48,279           45,243
                                                                              -------------   --------------
     Total current assets                                                        21,471,985       17,211,581
                                                                              -------------   --------------

PLANT AND EQUIPMENT, net                                                         10,294,403        4,122,169
                                                                              -------------   --------------
OTHER ASSETS:
   Intangible asset, net                                                          7,606,319        7,398,189
   Long term notes receivable                                                       585,200          640,518
   Long term other receivables - related parties                                    224,928          267,768
   Restricted cash                                                                1,566,832          518,589
   Advance on patent and right purchase                                           1,024,100          959,700
   Advance on equipment purchase                                                    381,331               --
   Other assets                                                                      52,611           81,484
                                                                              -------------   --------------
     Other assets                                                                11,441,321        9,866,248
                                                                              -------------   --------------

       Total assets                                                           $  43,207,709   $   31,199,998
                                                                              =============   ==============
                                        LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts payable                                                           $   5,597,288   $    5,988,289
   Short-term loans                                                               2,604,140        2,371,830
   Other payables                                                                   616,362        1,381,462
   Other payables - related parties                                                 712,514          689,338
   Customer deposits                                                              2,848,834        2,129,318
   Notes payable                                                                  5,214,132        1,727,460
   Taxes payable                                                                  2,533,249        1,488,964
   Redeemable series B preferred stock                                           13,521,209       12,585,641
   Other accrued liabilities                                                        449,953          281,390
                                                                              -------------   --------------
     Total current liabilities                                                   34,097,681       28,643,692

LONG TERM LIABILITIES:                                                               55,545           65,114
                                                                              -------------   --------------
       Total liabilities                                                         34,153,226       28,708,806
                                                                              -------------   --------------
COMMITMENTS AND CONTINGENCIES                                                            --               --
                                                                              -------------   --------------
MINORITY INTEREST                                                                 8,941,658        5,508,061
                                                                              -------------   --------------

SHAREHOLDERS' EQUITY:
   Preferred stock, $0.01 par value, 10,000,000 shares authorized; 50,000               500              500
     shares issued and outstanding at September 30, 2008 and December 31,
     2007, respectively
   Common stock, $0.01 par value, 200,000,000 shares authorized; 36,490,312         364,903          364,903
     shares issued and outstanding at September 30, 2008 and December 31,
     2007, respectively
   Paid-in capital                                                               13,199,476       13,199,476
   Capital receivable                                                              (252,471)        (252,471)
   Deferred compensation                                                             (2,625)         (21,375)
   Statutory reserves                                                             1,668,259          976,439
   Accumulated deficit                                                          (16,609,096)     (18,059,232)
   Accumulated other comprehensive income                                         1,743,879          774,891
                                                                              -------------   --------------
     Total shareholders' equity                                                     112,825       (3,016,869)
                                                                              -------------   --------------

       Total liabilities and shareholders' equity                             $  43,207,709   $   31,199,998
                                                                              =============   ==============
</TABLE>

The accompanying notes are an integral part of this statement.

                                      - 1 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
         FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                                    UNAUDITED

<TABLE>
<CAPTION>
                                                                           Three months ended               Nine months ended
                                                                               September 30,                  September 30,
                                                                       -----------------------------------------------------------
                                                                           2008            2007           2008            2007
                                                                       ------------   -------------   ------------   -------------
<S>                                                                    <C>            <C>             <C>            <C>
REVENUES                                                               $ 12,552,437   $   8,586,051   $ 36,866,222   $  22,502,081

COST OF GOODS SOLD                                                        8,580,330       5,968,079     25,506,662      16,532,703
                                                                       ------------   -------------   ------------   -------------

GROSS PROFIT                                                              3,972,107       2,617,972     11,359,560       5,969,378
                                                                       ------------   -------------   ------------   -------------
OPERATING EXPENSES
   Research and development                                                 102,701         315,335        362,048         329,603
   Selling, general and administrative                                    1,203,592       2,167,721      3,502,753       4,217,023
                                                                       ------------   -------------   ------------   -------------
     Total operating expenses                                             1,306,293       2,483,056      3,864,801       4,546,626
                                                                       ------------   -------------   ------------   -------------

INCOME FROM OPERATIONS                                                    2,665,814         134,916      7,494,759       1,422,752
                                                                       ------------   -------------   ------------   -------------
OTHER INCOME (EXPENSE)
   Interest expense, net                                                   (242,018)       (410,518)      (945,252)     (1,042,904)
   Other income (expense), net                                               15,693        (158,562)       (14,034)         10,389
                                                                       ------------   -------------   ------------   -------------
     Total other expense, net                                              (226,325)       (569,080)      (959,286)     (1,032,515)
                                                                       ------------   -------------   ------------   -------------
INCOME (LOSS) BEFORE INCOME TAXES AND MINORITY INTEREST                   2,439,489        (434,164)     6,535,473         390,237

PROVISION FOR INCOME TAXES                                                  377,583              --      1,008,196              --
                                                                       ------------   -------------   ------------   -------------

INCOME (LOSS) BEFORE MINORITY INTEREST                                    2,061,906        (434,164)     5,527,277         390,237

MINORITY INTEREST                                                         1,223,579         387,374      3,385,321       1,307,259
                                                                       ------------   -------------   ------------   -------------

INCOME (LOSS) FROM CONTINUING OPERATIONS                                    838,327        (821,538)     2,141,956        (917,022)

LOSS FROM DISCONTINUED OPERATIONS
   Loss from discountinued operations, net of tax effect                         --              --             --         (22,074)
   Loss from disposal of discountinued operations, net of tax effect             --     (10,788,868)            --     (10,788,868)
                                                                       ------------   -------------   ------------   -------------
     Loss from discountinued operations                                          --     (10,788,868)            --     (10,810,942)
                                                                       ------------   -------------   ------------   -------------

NET INCOME (LOSS)                                                           838,327     (11,610,406)     2,141,956     (11,727,964)

   Foreign currency translation adjustment                                   68,492        (821,955)       968,988        (467,637)
                                                                       ------------   -------------   ------------   -------------

COMPREHENSIVE INCOME (LOSS)                                            $    906,819   $ (12,432,361)  $  3,110,944   $ (12,195,601)
                                                                       ============   =============   ============   =============

EARNINGS (LOSS) PER SHARE OF COMMON STOCK
   Continuing operations
     Basic                                                             $      0.023   $      (0.023)  $      0.059   $      (0.025)
     Diluted                                                                  0.023          (0.023)         0.059          (0.025)
                                                                       ============   =============   ============   =============
   Discontinued operations
     Basic                                                                       --          (0.296)            --          (0.298)
     Diluted                                                                     --          (0.296)            --          (0.298)
                                                                       ============   =============   ============   =============
WEIGHTED AVERAGED NUMBER OF SHARES OUTSTANDING - BASIC                   36,490,312      36,465,312     36,490,312      36,300,869
                                                                       ============   =============   ============   =============
WEIGHTED AVERAGED NUMBER OF SHARES OUTSTANDING - DILUTED                 36,540,312      36,465,312     36,540,312      36,300,869
                                                                       ============   =============   ============   =============
</TABLE>

The accompanying notes are an integral part of this statement.

                                      - 2 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                 CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

<TABLE>
<CAPTION>
                                                    Preferred stock (series A)        Common stock
                                                    --------------------------   ----------------------      Paid-in      Capital
                                                      Shares        Par value      Shares     Par value      capital     receivable
                                                    -----------   ------------   ----------   ---------   ------------   ----------
<S>                                                 <C>           <C>            <C>          <C>         <C>            <C>
BALANCE, December 31, 2006, Restated                    930,000   $      9,300   35,586,740   $ 355,868   $ 13,059,911   $ (252,471)

   Common shares issued for service                                                 125,000       1,250         36,250
   Common shares issued for preferred stock
      conversion                                       (512,500)        (5,125)     753,572       7,535         (2,410)
   Net loss
   Staturoty reserves
   Foreign currency translation adjustments

                                                    -----------   ------------   ----------   ---------   ------------   ----------
BALANCE, September 30, 2007, (Unaudited)                417,500          4,175   36,465,312     364,653     13,093,751     (252,471)

   Common shares issued for preferred stock
      conversion                                        (25,000)          (250)      25,000         250             --
   Cancellation of preferred shares                    (342,500)        (3,425)                                  3,425
   Amortization of deferred compensation
   Disposal of Enshi
   Change in value of warrants issued for Enshi
      acquisition                                                                                              102,300
   Net loss
   Statutory reserves
   Foreign currency translation adjustments

                                                    -----------   ------------   ----------   ---------   ------------   ----------
BALANCE, December 31, 2007                               50,000   $        500   36,490,312   $ 364,903   $ 13,199,476   $ (252,471)

   Amortization of deferred compensation
   Net income
   Statutory reserves
   Foreign currency translation adjustments

                                                    -----------   ------------   ----------   ---------   ------------   ----------
BALANCE, September 30, 2008 (Unaudited)                  50,000   $        500   36,490,312   $ 364,903   $ 13,199,476   $ (252,471)
                                                    ===========   ============   ==========   =========   ============   ==========

<CAPTION>
                                                                                                 Accumulated
                                                                                                    Other
                                                       Deferred      Accumulated    Statutory    comprehensive
                                                     compensation     deficit       reserves     income (loss)       Total
                                                     ------------   ------------   -----------   -------------   -------------
<S>                                                  <C>            <C>            <C>           <C>             <C>
BALANCE, December 31, 2006, Restated                 $    (18,000)  $ (6,060,461)  $ 2,524,655   $     885,998   $  10,504,800

   Common shares issued for service                       (18,750)                                                      18,750
   Common shares issued for preferred stock
      conversion                                                                                                            --
   Net loss                                                          (11,727,964)                                  (11,727,964)
   Staturoty reserves                                                   (268,747)      268,747                              --
   Foreign currency translation adjustments                                                           (467,637)       (467,637)

                                                     ------------   ------------   -----------   -------------   -------------
BALANCE, September 30, 2007, (Unaudited)                  (36,750)   (18,057,172)    2,793,402         418,361      (1,672,051)

   Common shares issued for preferred stock
      conversion                                          (18,750)                                                     (18,750)
   Cancellation of preferred shares                                                                                         --
   Amortization of deferred compensation                   34,125                                                       34,125
   Disposal of Enshi                                                   1,862,414    (1,862,414)       (837,320)       (837,320)
   Change in value of warrants issued for
      Enshi acquisition                                                                                                102,300
   Net loss                                                           (1,819,023)                                   (1,819,023)
   Statutory reserves                                                    (45,451)       45,451                              --
   Foreign currency translation adjustments                                                          1,193,850       1,193,850

                                                     ------------   ------------   -----------   -------------   -------------
BALANCE, December 31, 2007                           $    (21,375)  $(18,059,232)  $   976,439   $     774,891   $  (3,016,869)

   Amortization of deferred compensation                   18,750                                                       18,750
   Net income                                                          2,141,956                                     2,141,956
   Statutory reserves                                                   (691,820)      691,820                              --
   Foreign currency translation adjustments                                                            968,988         968,988

                                                     ------------   ------------   -----------   -------------   -------------
BALANCE, September 30, 2008 (Unaudited)              $     (2,625)  $(16,609,096)  $ 1,668,259   $   1,743,879   $     112,825
                                                     ============   ============   ===========   =============   =============
</TABLE>

The accompanying notes are an integral part of this statement.

                                      - 3 -

<PAGE>
            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES

                     CONSOLIDATED STATEMENTS OF CASH FLOWS
             FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2008 AND 2007
                                   UNAUDITED

<TABLE>
<CAPTION>
                                                                                                         2008              2007
                                                                                                    --------------    --------------
<S>                                                                                                 <C>               <C>
CASH FLOWS FROM CONTINUING OPERATING ACTIVITIES:
   Net income (loss)                                                                                $    2,141,956    $ (11,727,964)
   Net loss from discontinued operations                                                                        --       10,810,942
                                                                                                    ---------------   --------------
   Net income (loss) from continuing operations                                                          2,141,956         (917,022)
   Adjustments to reconcile net loss from continuing
     operations to cash provided by (used in) continuing operating activities:
       Common stock issued for services                                                                         --           18,750
       Amortization of stock based compensation                                                             18,750               --
       Depreciation                                                                                        408,253          363,647
       Amortization                                                                                        132,931           77,041
       Bad debt expense                                                                                     58,966          522,560
       Minority interest                                                                                 3,385,321        1,120,717
   Change in operating assets and liabilities:
       Accounts receivable, trade                                                                         (488,973)      (1,742,677)
       Accounts receivable, related parties                                                                (15,743)         (42,661)
       Other receivables and prepayments                                                                 1,062,776         (766,004)
       Advances to suppliers                                                                               520,052         (536,774)
       Other assets                                                                                         29,791               --
       Inventories                                                                                        (667,407)      (2,764,315)
       Accounts payable                                                                                   (776,962)       2,337,325
       Accounts payable - related parties                                                                  (79,021)              --
       Other payables and accrued liabilities                                                              296,152        1,367,241
       Other payables - related parties                                                                     (7,600)      (1,217,880)
       Customer deposits                                                                                   565,081        2,603,385
       Taxes payable                                                                                       925,456           79,693
                                                                                                    ---------------   --------------
         Net cash provided by continuing operating activities                                            7,509,779          503,026
                                                                                                    ---------------   --------------
CASH FLOWS FROM CONTINUING OPERATION INVESTING ACTIVITIES:
   Purchase of intangible assets                                                                                --         (515,767)
   Payment received from long term notes receivables                                                        92,118          169,067
   Purchase of equipment                                                                                  (287,550)        (209,265)
   Additions to construction in progress                                                                (5,904,126)              --
   (Increase) in other receivables - related parties                                                      (572,263)              --
   Decrease in other receivables - related parties                                                              --          198,787
   Proceeds from sale of short term investment                                                           1,146,960               --
   Proceeds on loan from related party                                                                      42,840           65,656
                                                                                                    ---------------   --------------
         Net cash used in continuing operation investing activities                                     (5,482,021)        (291,522)
                                                                                                    ---------------   --------------
CASH FLOWS FROM CONTINUING OPERATION FINANCING ACTIVITIES:
   (Increase)decrease in restricted cash                                                                  (993,147)          92,010
   Payments on bank loan                                                                                 2,365,605               --
   Proceeds from bank loan                                                                              (2,437,290)
   Proceeds from notes payable                                                                           3,303,245               --
   Payments on notes payable                                                                                    --         (378,856)
   Payments on long term debt                                                                              (13,659)        (102,855)
                                                                                                    ---------------   --------------
         Net cash provided by (used in) continuing operation financing activities                        2,224,754         (389,701)
                                                                                                    ---------------   --------------

   Net  increase (decrease) in cash from continuing operations                                           4,252,512         (178,197)
                                                                                                    ---------------   --------------

Cash provided by discontinued operating activities                                                              --        2,218,568
Cash provided by discontinued operations investing activities                                                   --       17,036,316
Cash used in discontinued operations financing activities                                                       --      (20,382,480)
                                                                                                    ---------------   --------------
   Net cash used in discontinued operations                                                                     --       (1,127,596)
                                                                                                    ---------------   --------------

Effect of exchange rate on cash                                                                            (65,000)         (84,150)
                                                                                                    ---------------   --------------

INCREASE (DECREASE) IN CASH                                                                              4,187,512       (1,389,943)
Cash, beginning of period                                                                                  669,699        2,958,556
                                                                                                    ---------------   --------------

Cash, end of period                                                                                 $    4,857,211    $   1,568,613
                                                                                                    ===============   ==============
</TABLE>

The accompanying notes are an integral part of this statement.

                                      - 4 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Note 1- ORGANIZATION AND OPERATIONS

China  Biopharmaceuticals  Holdings,  Inc.  (CBH), a Delaware  corporation,  was
originally organized as a Corporation under the laws of the state of New York on
August 6, 1976.  Since August 2004, the Company  acquired  various  subsidiaries
located in mainland China (also referred to as "PRC"). The principal  activities
of the Company,  through its subsidiaries,  are research,  manufacture,  and the
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.

Note 2 -  SIGNIFICANT ACCOUNTING POLICIES

Economic and Political Risks

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

Use of Estimates

The  preparation  of the  financial  statements  in  conformity  with  generally
accepted  accounting  principles  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the reported amounts of
assets and  liabilities  and disclosure of contingent  assets and liabilities at
the date of the financial  statements  and the reported  amounts of revenues and
expenses during the reporting  periods.  For example,  the Company estimates the
collectibility  of its receivables  which affects the carry value of the related
asset and estimates 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.

Management has included all normal recurring adjustments considered necessary to
give a fair presentation of operating results for the periods presented. Interim
results  are  not  necessarily  indicative  of  results  for a  full  year.  The
information  included  in this Form  10-Q  should  be read in  conjunction  with
information included in the 2007 annual report filed on Form 10-K.

Basis of Presentation

The consolidated  financial  statements  include the accounts 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:

                                      - 5 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

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

Land Use Rights

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

Plant and Equipment

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

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

The cost and  related  accumulated  depreciation  of  assets  sold or  otherwise
retired are eliminated from the accounts and any gain or loss is included in the
statement  of  operations.  The cost of  maintenance  and  repairs is charged to
income  as  incurred,   whereas   significant   renewals  and   betterments  are
capitalized.

Construction  in progress  represents the costs incurred in connection  with the
construction of buildings or new additions to the Company's plant facilities. No
depreciation  is provided  for  construction  in  progress  until the assets are
completed and are placed into service.

Long-term assets of the Company are reviewed  periodically to determine  whether
their carrying value has become impaired, pursuant to the guidelines established
in Statement of Financial  Accounting  Standards (SFAS) No. 144,  Accounting for
the  Impairment  or Disposal of  Long-Lived  Assets.  As of September  30, 2008,
management concluded long term assets are not impaired.

Cash and Cash Equivalents

For  financial  reporting  purposes,  the Company  considers  all highly  liquid
investments  purchased with original maturity of three months or less to be cash
equivalents.

                                      - 6 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Short Term Investment

In 2007,  the Company  opened an account with an investment  broker to invest in
short term  investments  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 in income.  Total amount in
this account was $0 as of September  30, 2008 and  $1,096,800 as of December 31,
2007.  For the nine months ended  September 30, 2008, the Company did not record
any realized or unrealized gain or loss since the account didn't have activities
in 2008 and had no balance as of September 30, 2008.

Accounts Receivable

Accounts receivable are carried at original invoice amount less an estimate made
for  doubtful  receivables  based on a review of all  outstanding  amounts  on a
monthly basis.  Management's  judgment and estimates are made in connection with
establishing  the allowance  for doubtful  accounts.  Specifically,  the Company
analyzes  the aging of  accounts  receivables  balances,  historical  bad debts,
customer concentrations, customer credit-worthiness, current economic trends and
changes  in  our  customer  payment  terms.   Significant  changes  in  customer
concentrations or payment terms,  deterioration of customer credit-worthiness or
weakening  economic trends could have a significant impact on the collectibility
of the 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 allowance may be required. The ultimate collection of
the  Company's  accounts  receivables  may  take  over  one  year  and  accounts
receivables outstanding more than one year is considered to be written-off.

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.

Patents

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

Research and Development Costs

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

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

                                      - 7 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

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, 2008 and 2007 amounted $10,202 and $37,587, and for the nine
months ended September 30, 2008 and 2007 amounted $83,320 and $61,918.

Shipping and Handling Costs

Shipping  and  handling  costs  related to costs of goods sold are  included  in
selling,  general and  administrative  costs which were $90,620 and $288,691 for
the three months and nine months ended  September 30, 2008; For the three months
and nine  months  ended  September  30,  2007  amounted  $79,582  and  $218,867,
respectively.

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 Untied States.  Total
cash in these banks at  September  30, 2008 and  December  31, 2007  amounted to
$4,673,945  and  $731,956  of  which  $100,000  deposits  are  covered  by  FDIC
insurance.  The  Company has not  experienced  any losses in such  accounts  and
believes it is not exposed to any risks on its cash in bank accounts.

The Company sells  pharmaceutical  products to pharmacies  and  hospitals.  Five
major customers  accounted for approximately  12.0% and 11.1% of the net revenue
for the three months and nine months ended September 30, 2008, respectively.  No
sales revenue from any single  customer was above 5% of total sales revenue.  At
September 30, 2008, the total  receivable  balance due from these  customers was
$742,096,  representing 17.5% of total accounts receivable.  For the nine months
and three months ended September 30, 2007,  five major  customers  accounted for
12.6% and 15% of the net revenue, respectively.

For the three months  ended  September 30 2008,  five major  suppliers  provided
approximately  50.9% of the  Company's  purchases  of raw  materials  with  each
suuplier  individually   accounted  for  15.7%,  12.8%,  8.8%,  8.1%  and  5.5%,
respectively. For the nine months ended September 30, 2008, five major suppliers
provided  approximately  53.7% of the Company's  purchases of raw materials with
each supplier  individually  accounting  for 18.4% 14.7%,  9.2%,  6.3% and 5.1%,
respectively.  Five suppliers  provided  54.0% of the Company's  purchase of raw
materials  for the three months ended  September 30, 2007,  with each  suppliers
individually accounted for 19.9%, 16.0%, 6.4%, 6.3% and 5.4%, respectively. Five
suppliers provided 52.9% of the Company's purchase of raw materials for the nine
months ended September 30, 2007, with each suppliers individually accounting for
16.4%, 15.7%, 11.3%, 5.2% and 4.2%, respectively

Fair Value of Financial Instruments

On January 1, 2008, the Company adopted SFAS 157, Fair Value Measurements, which
defines  fair  value,   establishes  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 balance sheets for
current assets and current  liabilities  qualify as financial  instruments are a
reasonable  estimate of fair value  because of the short  period of time between
the  origination of such  instruments  and their expected  realization and their
current market rate of interest. The three levels are defined as follow:

                                      - 8 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

      o     Level 1  inputs  to the  valuation  methodology  are  quoted  prices
            (unadjusted) for identical assets or liabilities in active markets.

      o     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.

      o     Level 3 inputs to the valuation  methodology  are  unobservable  and
            significant to the fair value.

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.

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.

For the three months ended September 30, 2008 and 2007,  revenue was $12,552,437
and $8,586,051, respectively, made up of the following product categories.

                                                2008           2007
                                           -------------   ------------
                                             Unaudited      Unaudited
                                                           ------------
Revenue:
   Intermediary pharmaceuticals products   $   2,744,041   $  2,442,040
   Prescription drugs                          9,750,436      6,144,011
   R&D service                                    57,960             --
                                           -------------   ------------
Total revenue                              $  12,552,437   $  8,586,051
                                           =============   ============

For the nine months ended  September 30, 2008 and 2007,  revenue was $36,866,222
and $22,502,081, respectively, made up of the following product categories.

                                      - 9 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

                                                2008            2007
                                           -------------   -------------
                                             Unaudited       Unaudited
                                                           -------------
Revenue:
   Intermediary pharmaceuticals products   $  10,261,372   $   6,568,968
   Prescription drugs                         26,490,154      15,933,113
   R&D service                                   114,696              --
                                           -------------   -------------
Total revenue                              $  36,866,222   $  22,502,081
                                           =============   =============

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.

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

Comprehensive Income

SFAS  130,  Reporting  Comprehensive  Income,   establishes  standards  for  the
reporting and display of  comprehensive  income,  its components and accumulated
balances in a full set of general purpose financial statements. SFAS 130 defines
comprehensive  income to include all changes in equity  except  those  resulting
from investments by owners and distributions to owners. Among other disclosures,
SFAS 130  requires  that all items  that are  required  to be  recognized  under
current accounting  standards as components of comprehensive  income be reported
in financial  statement  that is  presented  with the same  prominence  as other
financial statements.

The  Company's  only current  component of  comprehensive  income is the foreign
currency translation adjustment.

Foreign Currency Translation

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

                                     - 10 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

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.

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

Translation  adjustments resulting from this process are included in accumulated
other comprehensive income in the consolidated statement of shareholders' equity
and amounted to  $1,743,879  and $774,891 at September 30, 2008 and December 31,
2007,  respectively.  Assets and  liabilities at September 30, 2008 and December
31, 2007 were translated at 6.84 and 7.29 RMB to $1.00. The average  translation
rates  applied to income  statement  accounts,  statement  of cash flows for the
third  quarter of 2008 and 2007 were 6.83 and 7.55 RMB to $1.00.  For the,  nine
months  ended  September  30,  2008 and 2007  were  6.97 and 7.75 RMB to  $1.00,
respectively.  Cash flows are also translated at average  translation  rates for
the period, therefore,  amounts reported on the statement of cash flows will not
necessarily  agree with  changes in the  corresponding  balances  on the balance
sheet.

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

Earnings per Share

The Company  adopted  SFAS 128,  "Earnings  per Share".  SFAS 128  requires  the
presentation  of  earnings  per share  (EPS) as Basic  and  Diluted  EPS.  Basic
earnings per share are  calculated by taking net income  divided by the weighted
average shares of common stock outstanding  during the period.  Diluted earnings
per share is calculated by taking basic weighted  average shares of common stock
and increasing it for dilutive common stock equivalents such as preferred stock,
as well as warrants and options that are in the money.

Under   SFAS  150   "Accounting   for   Certain   Financial   Instruments   with
Characteristics  of both  Liabilities  and  Equity",  entities  that have issued
mandatory  redeemable  shares of common stock or entered into forward  contracts
that require physical settlement by repurchase of a fixed number of the issuer's
equity  shares of common  stock in  exchange  for cash shall  exclude the common
shares that are to be redeemed or repurchased  in calculating  basic and diluted
earnings per share.  Thus, the redeemable  shares described in Note 14 have been
excluded from the September 30, 2008 earnings per share calculations.

The Company  determined  that all the warrants  were  anti-dilutive  because the
exercise  prices were higher than average market price in the period  presented.
For the  three  and nine  months  ended  September  30,  2008,  the  convertible
preferred stock of 50,000 was considered to have diluted effect. The convertible
preferred stock was  anti-dilutive for the three and nine months ended September
30, 2007 because the Company  recorded net loss for the periods  presented.  The
number of shares used in computing basic earnings per share for the three months
and nine months ended  September 30, 2008 was  36,490,312.  The number of shares
used in  computing  diluted  earnings  per share for the three  months  and nine
months ended  September  30, 2008 was  36,540,312.  The number of shares used in
computing  basic and  diluted  earnings  per share for the three and nine months
ended September 30, 2007 were 36,465,312 and 36,300,869, respectively. Basic and
diluted  earnings per share for the three months and nine months ended September
30,  2008 were $0.023 and  $0.059.  Basic and  diluted  losses per share for the
three and nine months ended September 30, 2007 was amount to $0.32 and 0.32.

                                     - 11 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Shares Subject to Mandatory Redemption

The Company adopted SFAS 150, "Accounting for Certain Financial Instruments with
Characteristics   of  both   Liabilities  and  Equity".   SFAS  150  established
classification  and  measurement  standards  for  three  types  of  freestanding
financial  instruments that have characteristics of both liabilities and equity.
Instruments  within  the  scope of SFAS 150 must be  classified  as  liabilities
within the  Company's  Consolidated  Financial  Statements  and be  reported  at
settlement  date value.  The Company  issued  redeemable  stock in November 2007
related to the  settlement  of notes  payables  owed to  RimAisa.  The amount of
redeemable  stock was  presented as a liability on the balance sheet at the fair
market value plus the accrued interest expense at the balance sheet date.

Recent Accounting Pronouncements

In February  2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial  Liabilities--Including  an amendment of FASB Statement No.
115. SFAS 159 permits companies to choose to measure many financial  instruments
and  certain  other  items at fair value that are not  currently  required to be
measured at fair value. The objective of SFAS 159 is to provide opportunities to
mitigate  volatility in reported earnings caused by measuring related assets and
liabilities  differently  without having to apply hedge  accounting  provisions.
SFAS 159 also establishes  presentation and disclosure  requirements designed to
facilitate  comparisons  between  companies  that choose  different  measurement
attributes for similar types of assets and liabilities. The Company chose not to
elect the option to  measure  the fair value of  eligible  financial  assets and
liabilities.

In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, "Accounting for
Nonrefundable  Advance Payments for Goods or Services Received for use in Future
Research and Development  Activities" ("FSP EITF 07-3"), which addresses whether
nonrefundable  advance  payments for goods or services that used or rendered for
research and development  activities should be expensed when the advance payment
is made or when the research and development  activity has been  performed.  The
Company adopted FSP EITF 07-3 on January 1, 2008 and there is no material effect
on financial statements.

In  December  2007,  the FASB  issued  SFAS 160,  "Noncontrolling  Interests  in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51",  which  establishes  accounting  and reporting  standards for ownership
interests in subsidiaries  held by parties other than the parent,  the amount of
consolidated  net income  attributable to the parent and to the  non-controlling
interest, changes in a parent's ownership interest and the valuation of retained
non-controlling  equity  investments  when a subsidiary is  deconsolidated.  The
Statement  also  establishes  reporting  requirements  that  provide  sufficient
disclosures that clearly  identify and distinguish  between the interests of the
parent and the interests of the  non-controlling  owners.  SFAS 160 is effective
for fiscal  years  beginning  after  December  15,  2008.  The  Company  has not
determined  the  effect  that  the  application  of SFAS  160  will  have on its
consolidated financial statements.

                                     - 12 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

In December 2007, SFAS 141(R), Business Combinations,  was issued. SFAS No. 141R
replaces  SFAS 141,  Business  Combinations.  SFAS 141R retains the  fundamental
requirements in SFAS 141 that the acquisition  method of accounting  (which SFAS
141 called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business  combination.  SFAS 141R requires an
acquirer to recognize the assets  acquired,  the  liabilities  assumed,  and any
non-controlling  interest in the acquiree at the acquisition  date,  measured at
their fair values as of that date, with limited  exceptions.  This replaces SFAS
141's cost-allocation  process,  which required the cost of an acquisition to be
allocated to the individual  assets  acquired and  liabilities  assumed based on
their estimated fair values.  SFAS 141R also requires the acquirer in a business
combination  achieved in stages (sometimes referred to as a step acquisition) to
recognize   the   identifiable   assets   and   liabilities,   as  well  as  the
non-controlling  interest  in the  acquiree,  at the full  amounts of their fair
values (or other amounts  determined in  accordance  with SFAS 141R).  SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual  reporting  period beginning on or
after  December  15,  2008.  An entity may not apply it before  that  date.  The
Company believes  adopting SFAS No. 141R might materially  impact the accounting
treatment for any future merger or acquisition consummated January 1, 2009.

In  March  2008,  the  FASB)  issued  SFAS  161,  Disclosures  about  Derivative
Instruments  and Hedging  Activities - An  Amendment  of SFAS No. 133.  SFAS 161
seeks to improve  financial  reporting for  derivative  instruments  and hedging
activities by requiring enhanced  disclosures  regarding the impact on financial
position,  financial  performance,  and cash flows.  To achieve  this  increased
transparency,  SFAS  161  requires  (1) the  disclosure  of the  fair  value  of
derivative  instruments  and gains  and  losses  in a  tabular  format;  (2) the
disclosure  of  derivative  features  that  are  credit  risk-related;  and  (3)
cross-referencing  within the  footnotes.  SFAS 161 is  effective  on January 1,
2009.   The  Company  is  in  the  process  of  evaluating  the  new  disclosure
requirements under SFAS 161.

In June 2008,  the FASB issued EITF 07-5  Determining  whether an Instrument (or
Embedded  Feature) is indexed to an Entity's Own Stock.  This Issue is effective
for financial  statements  issued for fiscal years  beginning after December 15,
2008, and interim  periods within those fiscal years.  Early  application is not
permitted.  Paragraph  11(a) of SFAS 133 "Accounting for Derivatives and Hedging
Activities"  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.  EITF 07-5 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 SFAS 133 paragraph 11(a) scope exception.  The Company believes adopting
this statement will have a material impact on the financial  statements  because
among  other  things,  any  option  or  warrant  previously  issued  and all new
issuances  denominated  is US  dollars  will  be  required  to be  carried  as a
liability and marked to market each reporting period.

In June 2008, FASB issued EITF 08-4,  Transition Guidance for Conforming Changes
to Issue No. 98-5. The objective of EITF 08-4 is to provide transition  guidance
for conforming changes made to EITF 98-5, Accounting for Convertible  Securities
with  Beneficial  Conversion  Features  or  Contingently  Adjustable  Conversion
Ratios,  that result from EITF 00-27  "Application  of Issue No. 98-5 to Certain
Convertible  Instruments",  and  SFAS  150,  Accounting  for  Certain  Financial
Instruments with  Characteristics of both Liabilities and Equity.  This Issue is
effective for financial statements issued for fiscal years ending after December
15, 2008. Early application is permitted. Management is currently evaluating the
impact  the  adoption  of EITF  08-4  will  have on its  consolidated  financial
statements.

                                     - 13 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

On October 10, 2008, the FASB issued FSP.157-3,  Determining the Fair Value of a
Financial  Asset When the Market for That Asset Is Not Active,  which  clarifies
the  application  of SFAS 157 in a market  that is not  active and  provides  an
example to illustrate  key  considerations  in  determining  the fair value of a
financial  asset when the market for that  financial  asset is not  active.  FSP
157-3  became  effective  on October 10,  2008,  and its adoption did not have a
material impact on the Company's  financial  position or results for the quarter
ended September 30, 2008.

Reclassifications

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.

Note 3 - SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest and Income Taxes Paid

      o     Interest expense paid amounted to $115,531 and $109,656 for the nine
            months ended September 30, 2008 and 2007, respectively.

      o     Income  tax was  paid  $246,001  and $0 for the  nine  months  ended
            September 30, 2008 and 2007, respectively.

Note 4 - ACCOUNTS RECEIVABLE

The reserve for bad debts was  $1,405,533  and  $1,260,760 at September 30, 2008
and December 31, 2007, respectively.

Accounts receivable consisted of the following:

                                   September 30,
                                       2008        December 31,
                                    (Unaudited)        2007
                                  --------------   ------------
Accounts receivable               $    5,634,131   $  4,812,243
Allowance for doubtful accounts       (1,405,533)    (1,260,760)
                                  --------------   ------------
   Accounts receivable, net       $    4,228,598   $  3,551,483
                                  ==============   ============

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.  Accounts  considered  uncollectible  are  written  off.  As of
September 30, 2008 and December 31, 2007, management concluded its allowance for
bad debts were sufficient.

The following table consists of allowance for doubtful accounts.

                                     - 14 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Allowance for bad debt, 12/31/2007                          $ 1,260,760
   Addition                                                      58,966
   Recovery                                                          --
   Translation adjustment                                        85,807
                                                            -----------
Allowance for bad debt, 9/30/2008 (Unaudited)               $ 1,405,533
                                                            ===========

Note 5 - INVENTORIES

Inventories consisted of the following:

                                                   September 30,
                                                        2008       December 31,
                                                    (Unaudited)        2007
                                                   -------------   ------------
Raw materials                                      $   2,386,866   $  1,858,866
Refinery materials                                     3,082,366      3,139,200
Packaging supplies                                       310,502        239,624
Sundry supplies                                           10,032         11,984
Work in process                                          463,652        351,611
Finished goods                                         3,991,076      3,360,770
                                                   -------------   ------------
      Total inventories                            $  10,244,494   $  8,962,055
                                                   =============   ============

Note 6 - PLANT AND EQUIPMENT

Plant and equipment consisted of the following:

                                                   September 30,
                                                        2008       December 31,
                                                    (Unaudited)        2007
                                                   -------------   ------------
Plant                                              $   2,485,555   $  2,286,051
Office equipment                                         104,879         25,478
Machinery                                              6,883,480      6,368,927
Automobile                                               317,233        228,043
Construction in progress                               6,223,228        185,963
                                                   -------------   ------------
   Total plant and equipment                          16,014,375      9,094,462
   Less: accumulated depreciation                     (5,719,972)    (4,972,293)
                                                   -------------   ------------
      Plant and equipment, net                     $  10,294,403   $  4,122,169
                                                   =============   ============

Depreciation  expense for the three  months  ended  September  30, 2008 and 2007
amounted to $127,073 and $121,216,  and for the nine months ended  September 30,
2008 and 2007 amounted to $408,253 and $363,647,  respectively.  As of September
30,  2008  and  2007,   capitalized   interest  amounted  to  $107,203  and  $0,
respectively.

Note 7 - OTHER ASSETS

Intangible Assets

Intangible assets consist of the following:

                                     - 15 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

                                                   September 30,
                                                        2008       December 31,
                                                    (Unaudited)        2007
                                                   -------------   ------------
  Land use rights:
  Erye                                             $   5,636,629   $  5,282,173
  CBH                                                  2,406,464      2,406,464
                                                   -------------   ------------
    Total land use rights                              8,043,093      7,688,637
    Less: accumulated amortization                      (602,728)      (459,333)
                                                   -------------   ------------
         Land use rights, net                          7,440,365      7,229,304
                                                   -------------   ------------
   Patent:
    Approved drugs                                       190,190        322,596
    Less: accumulated amortization                       (24,236)      (153,711)
                                                   -------------   ------------
           Subtotal:                                     165,954        168,885
                                                   =============   ============
            Total intangible assets, net           $   7,606,319   $  7,398,189
                                                   =============   ============

Land use rights are pledged as collateral for bank loans.  Amortization expenses
three months ended September 30, 2008 and 2007 amounted $25,747 and $49,247, for
the nine months  ended  September  30, 2008 and 2007 were $ 132,931 and $77,041,
respectively.

One of the Company's  patent of approved drug was fully  amortized  during 2008,
$154,054 of costs and  accumulated  amortization  were deducted from  intangible
asset account.

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.  The  following  lists the  depositors,  the amount and names of the
banks:

                                                   September 30,
                                                        2008       December 31,
                   Name of Bank                     (Unaudited)        2007
------------------------------------------------   -------------   ------------
Hua Xia Bank, Suzhou                               $         374   $    164,871
Industrial and commercial bank, Suzhou                        --        353,718
China CITIC Bank                                       1,566,458             --
------------------------------------------------   -------------   ------------
                                         Total     $   1,566,832   $    518,589
                                                   =============   ============

Long Term Notes Receivable

Long term notes receivable  represents loans made to third parties for cash flow
needs for R&D projects on new drugs.  The Company has first priority to purchase
the new drug rights if the projects are successfully  completed.  If the Company
gives up the right, the debtors are required to repay the loans plus 3% interest
per annum within one month after the drug rights are sold to another  party.  If
on or before  February 28, 2010,  the R&D projects are not  completed or failed,
the debtors are  required to repay the loans plus 6% interest  per annum  within
ten days after such a conclusion was made. As of September 30, 2008 and December
31, 2007,  the total amount of the long term notes  receivable  was $585,200 and
$640,518,  respectively, where 51% of ownership equity of the debtor was pledged
for the loan. Management believes the likelihood of repayment to be collected is
high based on the above  conditions  and the well  financial  conditions  of the
counter parties.

                                     - 16 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Note 8 - RELATED PARTIES TRANSACTIONS

Accounts Receivables - Related Parties

Accounts receivable included the following:

           September 30,   December 31,                               Manner of
               2008            2007         Due From        Term      Settlement
            (unaudited)
--------   -------------   -----------------------------------------------------
  Erye     $     141,446      41,932      Hainan Kaiye   Short Term      Cash

Hainan  Kaiye  is  company  owned  by  minority   shareholders  of  Suzhou  Erye
Pharmaceutical Limited Company.

Other Receivables - Related Parties

Other  receivable  contained the following  related party  balances where Hainan
Kaiye is a company owned by minority  shareholders of Suzhou Erye Pharmaceutical
Limited Company and Enshi is the discontinued subsidiary since July 2007.

           September 30,   December 31,                               Manner of
               2008            2007         Due From        Term      Settlement
            (unaudited)
--------   -------------   -----------------------------------------------------
  Erye     $     982,385   $    819,621   Hainan Kaiye   Short Term      Cash
  Erye           292,600                     Enshi       Short term      Cash
  CBH            169,917             --      Enshi       Short Term      Cash
--------   -------------   ------------
  Total    $   1,444,902   $    819,621
           =============   ============

Loan to Shareholder and Officer

<TABLE>
<CAPTION>
           September 30,   December 31,                                       Manner of
               2008            2007             Due From            Term      Settlement
            (unaudited)
--------   -------------   -------------------------------------------------------------
<S>        <C>             <C>            <C>                    <C>          <C>
 Keyuan    $      48,279   $     45,243   Keyuan's shareholder   Short Term      Cash
</TABLE>

Other Payables - Related Parties

           September 30,   December 31,                               Manner of
               2008            2007          Due To         Term      Settlement
            (unaudited)
--------   -------------   -----------------------------------------------------
  Erye     $     701,948   $    644,750   Erye Trading   Short Term      Cash

Erye  Trading  is  company  owned  by  minority   shareholders  of  Suzhou  Erye
Pharmaceutical Limited Company.

Other Payables- Shareholders

<TABLE>
<CAPTION>
           September 30,   December 31,                                         Manner of
               2008            2007              Due To               Term      Settlement
            (unaudited)
--------   -------------   ---------------------------------------------------------------
<S>        <C>             <C>            <C>                      <C>          <C>
 CBH       $          --   $     43,961       Chris Peng Mao       Short Term      Cash
 Keyuan           10,566            627   Lufan An & Xiaohao Liu   Short Term      Cash
--------   -------------   ------------
  Total    $      10,566   $     44,588
           =============   ============
</TABLE>

Chris  Peng  Mao is the CEO of the  Company.  Lufan  An &  Xiaohao  Liu are both
shareholder of the Company.

                                     - 17 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Long Term Other Receivables - Related Parties

          September 30,   December 31,                                Manner of
              2008            2007          Due From         Term     Settlement
           (unaudited)
-------   -------------   ------------------------------------------------------
  CBH     $     224,928   $    267,768   Suzhou Heng yi   Long Term      Cash

Suzhou Hengyi is the discontinued subsidiary since August 2006.

Note 9 - NOTES PAYABLE

The Company's  subsidiary  Erye has  $5,214,132and  $1,727,460  notes payable to
Erye's  vendors for the purchase of drug raw  materials as of September 30, 2008
and December 31, 2007.  Notes payable are interest free and usually mature after
a six month period.

Note 10 - STATUTORY RESERVES

According  to  Chinese  corporation  law,  a  company  incorporated  in China is
required  to  contribute  an amount of no less than 10% of its yearly net income
for its employees to a reserve account in the company.

This statutory reserve fund is planned for future  development of the company or
use for  employee's  benefits.  These  reserves  represent  restricted  retained
earnings.   The  following  table  list  the  provision  of  statutory  reserves
contributed as of September 30, 2008.

   Year          Amount                           Description
----------   --------------   --------------------------------------------------
   2004      $       60,750
   2005             383,873   15% of China Subsidiaries' net income
   2006           2,080,032   10% of China Subsidiaries' net income
   2007          (1,548,216)  10% of Erye's net income, deducted Enshi's
                              Statutory reserve balance at December 12/31/2006
   2008             691,820   10% of China Subsidiaries' net income
----------   ==============
  Total      $    1,668,259
             ==============

Note 11 - 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.

                                     - 18 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Erye was granted income tax exemption for two years  commencing  from January 1,
2006. Keyuan's total revenue is subject to 1.7% to 3.3% income tax rates depends
on the range of the taxable income.  Provision for CIT amounted  $377,583 and $0
for three months ended  September 30, 2008 and 2007,  and amounted to $1,008,196
and $0 for the nine months ended September 30, 2008 and 2007,and respectively.

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. The company is subject to 50% of the 25% EIT tax rate, or 12.5%
from January 1, 2008 through December 31, 2010.

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

                                          September 30,
                                         ---------------
                                          2008     2007
                                         ------   ------
U.S. Statutory rate                        34.0%    34.0%
Foreign income not recognized in USA      (34.0)   (34.0)
China income taxes                         25.0     33.0
Income tax exempted                       (12.5)   (33.0)
                                         ------   ------
Total provision for income taxes           12.5%      --%
                                         ======   ======

The  estimated  tax savings due to the reduced tax rate for the three months and
nine months  ended  September  30, 2008 are  $360,279 and $990,800 for the three
months and nine months ended  September  30, 2007 were  $128,266  and  $913,740,
respectively.  The net  effect on income  per share if the  income  tax had been
applied would decrease  income per share by $0.01 and $0.03 for the three months
and nine months ended  September  30, 2008.  The net effect on loss per share if
the income tax had been applied would  increase net loss per share for the three
months  and  nine  months  ended   September   30,  2007  by  $0.03  and  0.004,
respectively.

Business Tax

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

Value Added Tax ("VAT")

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

                                     - 19 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

VAT on sales and VAT on  purchases  amounted to  $2,254,536  $1,347,136  for the
three months ended  September 30, 2008,  and  $1,280,388  and $1,157,650 for the
same period in 2007, respectively. VAT on sales and VAT on purchases amounted to
$6,212,023  $4,575,536 for nine months ended  September 30, 2008, and $3,591,543
and $2,949,533,  for the same period in 2007, respectively.  Sales and purchases
are recorded net of VAT  collected  and paid as the Company acts as an agent for
the government. VAT taxes are not impacted by the income tax holiday.

Note 12 - LOANS

Short Term Bank Loans

The Company has a total of  $2,604,140  and  $2,371,830 in short term loans from
different  banks  in  China  at  September  30,  2008  and  December  31,  2007,
respectively.  These loans  mature in one year or less and renew  automatically.
The average interest rates were approximately 7.0% and 7.75%, respectively. Bank
loans were collateralized by the land use right and buildings of Erye.

Interest  expense  of the short  term bank  loans  for the  three  months  ended
September  30, 2008 and 2007 amounted  $46,621 and $42,602,  for the nine months
ended September 30, 2008 and 2007 were $115,531 and $96,513; respectively..

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.

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 maybe 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. The
Company  adopted SFAS 150,  Accounting for Certain  Financial  Instruments  with
Characteristics  of both  Liabilities  and  Equity and the  6,185,607  shares of
series  B  preferred  stock  was  counted  as  liability  due to  the  mandatory
redemption  feature.  The  shares  were  recorded  at fair  value on the date of
issuance  and  any  accrued  interest  expense  at the  reporting  dates.  As of
September  30,  2008,   balance  of  redeemable   preferred  stock  amounted  to
$13,521,209, in which $1,012,675 was the accrued interest expense for the period
of November 16, 2007 through September 30, 2008.

                                     - 20 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

The  holders  of the  series B shares  shall be  entitled  to  receive an annual
dividend of 5% of the original  issue price  ($2.0222 per share) and dividend is
payable  annually  on January 1st in either  cash or in kind  determined  by the
Board of directors.  Accrued  dividend payable at September 30, 2008 amounted to
$506,337.  Further,  since the  Company  did not make a dividend  payment to the
shareholders  on time  pursuant to the  Agreement,  the Company has to accrue an
additional  5% of the  original  issue  price  of  series B  shares  per  annum,
effective  January  1, 2008,  as an  addition  to the  redemption  price.  As of
September  30, 2008,  $506,337 of penalty was  included in the accrued  dividend
payable.

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.

Note 14 - COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases office space from third parties.  Accordingly,  for the three
months ended  September 30, 2008 and 2007, the Company  recognized rent expenses
of $3,865 and $4,621.  For the nine months  ended  September  30, 2008 and 2007,
rent expense amounted to $11,595 and $42,124, respectively.

As of September 30, 2008, the Company has outstanding  commitments in respect to
non-cancelable operating leases as follows:

                                                                        Amount
                                                                   -----------
For the year ended December 31, 2008                               $     3,283
Thereafter                                                               6,566
                                                                   -----------
     Total                                                         $     9,849
                                                                   ===========

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  $1.6  million  (RMB12  million)  to the
Developer.  Of the total $1.6 million,  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.  The  Company  had  paid  $1,459,000  (RMB
10,000,000) by September 30, 2008.

                                     - 21 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Legal Proceedings

In March 2007, the Company's former subsidiary RACP identified non-existent
trade accounts receivable acquired in the acquisition of Enshi. RACP has
commenced legal proceeding for damages of $10,000,000 against Mr. Li Xiaobo
("Mr. Li"), the previous owner and controlling shareholder of Enshi, and his
related parties ("Defendants") for breach of representations and warranties and
fraud ("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.

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 an  Understanding  on
Litigation   Residual   Payment   (the   "Understanding").   Pursuant   to  this
Understanding,  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
Economy & Trade Ltd ("EET") 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 EET 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.

In October 17, 2008, RACP has entered into a settlement with Mr. Li and the
Defendants (the "Settlement"). Pursuant to the Settlement RACP was to receive an
amount of $8,125,000 to be paid by Mr. Li Xiaobo (the "Consideration"). Of the
Consideration, $7,310,815 was paid by November 12, 2008. An amount of $5,725,000
was used to pay for legal expenses in connection with the above described
litigation.


                                     - 22 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

Note 15 - BUSINESS COMBINATIONS

Discontinued Operation - Shenyang Enshi

We acquired Shenyang Enshi  Pharmaceutical  Limited Company ("Enshi") on June 6,
2006.  Subsequent to the acquisition of Enshi,  the Company  identified fraud by
the previous owner and controlling  shareholder of Enshi,  Mr. Li Xiaobo and his
related  parties   ("Defendants")  and  breaches  in  the   representations  and
warranties  provided by him to the Company and the  Defendants'  including their
refusal to honor their indemnification obligations to the Company. The Company's
former subsidiary RACP filed a lawsuit against the Defendants alleging fraud and
had requested  rescission of the agreement and damages.  Enshi's operations have
been  interfered  with  and as a result  the  Company  decided  to  suspend  its
operations in the third quarter of 2007. In addition,  Enshi has been taken over
by RimAsia  in July 2007 since  Enshi was  pledged as  collateral  for the $11.5
million  loan owed to RimAsia in  connection  with the Enshi  Acquisition.  As a
result,  Enshi is no longer a subsidiary of the Company.  Due to the uncertainty
on the amount to be recovered from the lawsuit,  management has decided to write
off the entire carrying value of Enshi in third quarter of 2007 and has reported
a loss on discontinued operations in the consolidated financial statements.  The
recovered  value of Enshi  after the  completion  of the  litigation  against Li
Xiaobo, if any, will be recognized as income.

Note 16 - SUBSEQUENT EVENTS

As  previously  mentioned  in Note 13, 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.

                                     - 23 -

<PAGE>

            CHINA BIOPHARMACEUTICALS HOLDINGS, INC. AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 2008
                                   (Unaudited)

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

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.  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 EET 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 EET 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 EET and lent back to
Erye by EET 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 EET,  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.

                                     - 24 -

<PAGE>


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

     The following discussion and analysis should be read in conjunction with
the consolidated financial statements and related notes thereto. The following
discussion contains forward-looking statements. China Biopharmaceuticals
Holdings, Inc. is referred to herein as "we", "our,", "us", or "the Company".
The words or phrases "would be," "will allow," "expect to", "intends to," "will
likely result," "are expected to," "will continue," "is anticipated,"
"estimate," or similar expressions are intended to identify forward-looking
statements. Such statements include those concerning our expected financial
performance, our corporate strategy and operational plans. Actual results could
differ materially from those projected in the forward-looking statements as a
result of a number of risks and uncertainties, including: (a) those risks and
uncertainties related to general economic conditions in China, including
regulatory factors that may affect such economic conditions; (b) whether we are
able to manage our planned growth efficiently and operate profitable operations,
including whether our management will be able to identify, hire, train, retain,
motivate and manage required personnel or that management will be able to
successfully manage and exploit existing and potential market opportunities;(c)
whether we are able to generate sufficient revenues or obtain financing to
sustain and grow our operations; and (d) whether we are able to successfully
fulfill our primary requirements for cash which are explained below under
"Liquidity and Capital Resources". Statements made herein are as of the date of
the filing of this Form 10-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.

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.

                                     - 25 -

<PAGE>
     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.


                                     - 26 -
<PAGE>

         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.

     The transactions contemplated by the Merger Agreement 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. As part of the Merger
negotiation, CBC will receive $300,000 from the settlement proceeds from the
settlement of the LXB Litigation and use it as working capital. The Merger
currently is expected to be consummated in the first quarter of 2009. Further
description of the Merger terms and related agreements can be found in Current
Report on Form 8-K dated November 6, 2008 and in the Merger Agreement, which was
filed as Exhibit 2.1 to the said Form 8-K hereto and is incorporated herein by
reference.

     We acquired Shenyang Enshi Pharmaceutical  Limited Company ("Enshi) on June
6, 2006. Upon the acquisition of Enshi the Company identified major breaches and
fraud by the previous owner and controlling shareholders of Enshi, Mr. Li Xiaobo
and his related parties  ("Defendants")  in the  representations  and warranties
provided  by him to the  Company  and the  Defendants'  refusal  to honor  their
indemnification obligations to the Company. The Company's former subsidiary RACP
filed a lawsuit against the Defendants alleging fraud and is pursuing rescission
and  damages  (the "LXB  Litigation").  Enshi's  operations  have been  severely
hindered  and as a result we decided to suspend  its  operations.  In  addition,
since Enshi was pledged as collateral for the $11.5 million debt owed to RimAsia
Capital  Partners,  L.P.  ("RimAsia") in connection with the Enshi  Acquisition,
Enshi was taken over by RimAsia in July 2007. As a result,  Enshi is no longer a
subsidiary of the Company.  Due to the uncertainty on the amount to be recovered
from the lawsuit,  our management  decided to write off the total carrying value
of Enshi in the third quarter of 2007 and report it as  discontinued  operations
in the consolidated financial statements.  Accordingly,  assets, liabilities and
operating  results that were  attributed to Enshi are presented as  discontinued
operations.  The recovered  value of Enshi,  if any, after the completion of the
litigation against the Defendants will be recognized as income.  Under Statement
of Financial  Accounting  Standards No. 144 ("SFAS 144"), when a component of an
entity,  as defined in SFAS 144, has been  disposed of or is  classified as held
for sale,  the  results  of its  operations,  including  the gain or loss on its
disposal  should be classified  as  discontinued  operations  and the assets and
liabilities  of such  component  should be classified as assets and  liabilities
attributed to  discontinued  operations,  that is provided that the  operations,
assets and liabilities and cash flows of the component have been eliminated from
the company's  consolidated  operations  and the Company will no longer have any
significant continuing involvement in the operations of the component.

                                     - 27 -
<PAGE>
     Therefore, the results of Enshi's operations and cash flows for the three
months and nine months ended September 30, 2007 were reported as discontinued
operations in our consolidated financial statements.


CRITICAL ACCOUNTING POLICIES

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

REVENUE AND REVENUE RECOGNITION

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

ACCOUNTS RECEIVABLE

     Accounts receivable are carried at original invoice amount less an estimate
made for doubtful receivables based on a review of all outstanding amounts on a
monthly basis. Management judgment and estimates are made in connection with
establishing the allowance for doubtful accounts. Specifically, we analyze the
aging of accounts receivable balances, historical bad debts, customer
concentrations, customer credit-worthiness, current economic trends and changes
in our customer payment terms. Significant changes in customer concentration or
payment terms, deterioration of customer credit-worthiness or weakening in
economic trends could have a significant impact on the collectibility of
receivables and our operating results. If the financial condition of our
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required. The reserve for bad debts
increased to $1,405,533 as of September 30, 2008 from $1,260,760 as of December
31, 2007. This increase is mainly resulted from additional allowance reserved
for accounts receivable balance outstanding for over one year, and change in the
exchange rate of RMB to USD. As of September 30, 2008, accounts receivable, net
of allowance for doubtful accounts, amounted to $4,228,598.

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

     Allowance for doubtful accounts

     As of December 31, 2007                               $1,260,760
     Current period bad debt allowance                         58,966
     Foreign currency translation adjustment                   85,807
                                                           ----------
     As of September 30, 2008 (unaudited)                  $1,405,533
                                                           ==========

                                     - 28 -
<PAGE>

     The following list the aging of our accounts receivable excluding bad debt
allowance, as of September 30, 2008:
<TABLE>
<CAPTION>
                3 months         6 months       9 months      Over 9 months     Over 1 year
  Total       Amount     %      Amount   %    Amount    %     Amount      %     Amount     %
---------   ---------------     -----------   ------------    -------------   ---------------
<C>         <C>        <C>      <C>     <C>   <C>      <C>    <C>       <C>   <C>        <C>
5,634,132   4,395,220  78.0     43,419  0.8   34,078   0.6    9,960     0.2   1,151,455  20.4
</TABLE>


     We prepare the above consolidated aging based on the aging for each
subsidiary in above format. As each subsidiary of the Company conducts business
with different customers with different size and creditworthiness, and each
subsidiary has different impact on and different relationship with their
customers, we determine the allowance on an individual basis. Basically, we
assign various rates to each of the aging group of 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.

INCOME TAX

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

                                     - 29 -
<PAGE>

New Accounting Pronouncements

In February 2007, the FASB issued SFAS 159, The Fair Value Option for Financial
Assets and Financial Liabilities--Including an amendment of FASB Statement No.
115. SFAS 159 permits companies to choose to measure many financial instruments
and certain other items at fair value that are not currently required to be
measured at fair value. The objective of SFAS 159 is to provide opportunities to
mitigate volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply hedge accounting provisions.
SFAS 159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between companies that choose different measurement
attributes for similar types of assets and liabilities. The Company chose not to
elect the option to measure the fair value of eligible financial assets and
liabilities.

In June 2007, the FASB issued FASB Staff Position No. EITF 07-3, "Accounting for
Nonrefundable Advance Payments for Goods or Services Received for use in Future
Research and Development Activities" ("FSP EITF 07-3"), which addresses whether
nonrefundable advance payments for goods or services that used or rendered for
research and development activities should be expensed when the advance payment
is made or when the research and development activity has been performed. The
Company adopted FSP EITF 07-3 on January 1, 2008 and there is no material effect
on financial statements.

In December 2007, the FASB issued SFAS 160, "Noncontrolling Interests in
Consolidated Financial Statements - an amendment of Accounting Research Bulletin
No. 51", which establishes accounting and reporting standards for ownership
interests in subsidiaries held by parties other than the parent, the amount of
consolidated net income attributable to the parent and to the non-controlling
interest, changes in a parent's ownership interest and the valuation of retained
non-controlling equity investments when a subsidiary is deconsolidated. The
Statement also establishes reporting requirements that provide sufficient
disclosures that clearly identify and distinguish between the interests of the
parent and the interests of the non-controlling owners. SFAS 160 is effective
for fiscal years beginning after December 15, 2008. The Company has not
determined the effect that the application of SFAS 160 will have on its
consolidated financial statements.


                                     - 30 -
<PAGE>
In December 2007, SFAS 141(R), Business Combinations, was issued. SFAS No. 141R
replaces SFAS 141, Business Combinations. SFAS 141R retains the fundamental
requirements in SFAS 141 that the acquisition method of accounting (which SFAS
141 called the purchase method) be used for all business combinations and for an
acquirer to be identified for each business combination. SFAS 141R requires an
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at the acquisition date, measured at
their fair values as of that date, with limited exceptions. This replaces SFAS
141's cost-allocation process, which required the cost of an acquisition to be
allocated to the individual assets acquired and liabilities assumed based on
their estimated fair values. SFAS 141R also requires the acquirer in a business
combination achieved in stages (sometimes referred to as a step acquisition) to
recognize the identifiable assets and liabilities, as well as the
non-controlling interest in the acquiree, at the full amounts of their fair
values (or other amounts determined in accordance with SFAS 141R). SFAS 141R
applies prospectively to business combinations for which the acquisition date is
on or after the beginning of the first annual reporting period beginning on or
after December 15, 2008. An entity may not apply it before that date. The
Company believes adopting SFAS No. 141R might materially impact the accounting
treatment for any future merger or acquisition consummated January 1, 2009.

In March 2008, the FASB) issued SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities - An Amendment of SFAS No. 133. SFAS 161
seeks to improve financial reporting for derivative instruments and hedging
activities by requiring enhanced disclosures regarding the impact on financial
position, financial performance, and cash flows. To achieve this increased
transparency, SFAS 161 requires (1) the disclosure of the fair value of
derivative instruments and gains and losses in a tabular format; (2) the
disclosure of derivative features that are credit risk-related; and (3)
cross-referencing within the footnotes. SFAS 161 is effective on January 1,
2009. The Company is in the process of evaluating the new disclosure
requirements under SFAS 161.

In June 2008, the FASB issued EITF 07-5 Determining whether an Instrument (or
Embedded Feature) is indexed to an Entity's Own Stock. This Issue is effective
for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. Early application is not
permitted. Paragraph 11(a) of SFAS 133 "Accounting for Derivatives and Hedging
Activities" 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. EITF 07-5 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 SFAS 133 paragraph 11(a) scope exception. The Company believes adopting
this statement will have a material impact on the financial statements because
among other things, any option or warrant previously issued and all new
issuances denominated is US dollars will be required to be carried as a
liability and marked to market each reporting period.


                                     - 31 -
<PAGE>
In June 2008, FASB issued EITF 08-4, Transition Guidance for Conforming Changes
to Issue No. 98-5. The objective of EITF 08-4 is to provide transition guidance
for conforming changes made to EITF 98-5, Accounting for Convertible Securities
with Beneficial Conversion Features or Contingently Adjustable Conversion
Ratios, that result from EITF 00-27 "Application of Issue No. 98-5 to Certain
Convertible Instruments", and SFAS 150, Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity. This Issue is
effective for financial statements issued for fiscal years ending after December
15, 2008. Early application is permitted. Management is currently evaluating the
impact the adoption of EITF 08-4 will have on its consolidated financial
statements.

On October 10, 2008, the FASB issued FSP.157-3, Determining the Fair Value of a
Financial Asset When the Market for That Asset Is Not Active, which clarifies
the application of SFAS 157 in a market that is not active and provides an
example to illustrate key considerations in determining the fair value of a
financial asset when the market for that financial asset is not active. FSP
157-3 became effective on October 10, 2008, and its adoption did not have a
material impact on the Company's financial position or results for the quarter
ended September 30, 2008.


                                     - 32 -
<PAGE>
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 2008 AS COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 2007

REVENUE

Revenue for the three months ended September 30, 2008 was $12,552,437 while the
revenue for the three months ended September 30, 2007 was $8,586,051,
representing an approximately 46.2% increase. The increase is mainly attributed
to the following reasons:

First and foremost is the rise in selling price and sales volume of Erye's raw
material Drugs, in Which oxacillin sodium sales are more than 90% coverage in
domestic; Second, the reform of medical insurance system in rural areas of China
helps to promote the sales of Erye's drugs. Third, the selling price of the
freeze-dried drugs has increased. At present, the low-price products have been
replaced by the high-price products, and the variety of products are changing
gradually. In addition, as market coverage is expanded, products awareness
drives sales.

COST OF GOODS SOLD

Cost of goods sold for the three months ended September 30, 2008 was $8,580,330
as compared to $5,968,079 for the three months ended September 30, 2007. Cost of
goods sold as a percentage of sales revenues was approximately 68.4% for the
three months ended September 30, 2008 as compared to approximately 69.5% for the
three months ended September 30, 2007. The increase in cost of goods sold in
terms of dollar amount is mainly attributed to the increase of sales.

GROSS PROFIT

Gross profit in the three months ended September 30, 2008 amounted to
$3,972,107, as compared to $2,617,972 for the three months ended September 30,
2007, representing approximately 51.7% increase. The gross profit margin for the
three months ended September 30, 2008 was 31.6% as compared to approximately
30.5% for the three months ended September 30, 2007. The increase is attributed
primarily to the increase of the gross profit of the freeze-dried drugs and raw
material drugs.

OPERATING EXPENSES

Operating expenses for the three months ended September 30, 2008 was $1,306,293
as compared to $2,483,056 for the three months ended September 30, 2007,
representing 47.4% decrease. The decrease is attributed mainly to operating
expenses of Erye. During current period, due to Chinese Government's effort to
improve the Chinese Pharmaceutical market, Erye reduced operating expenses such
as advertising and meeting expenses.

RESEARCH AND DEVELOPMENT

Research and development costs for the three months ended September 30, 2008
were $102,701 as compared to $315,335 for the three months ended September 30,
2007. This decrease was primarily attributed to R&D expense of Erye. During the
last three months of current period, Erye decreased R&D expense spending.

INCOME FROM OPERATIONS

Income from operations in the three months ended September 30, 2008 amounted to
$2,665,814, as compared to $134,916 for the three months ended September 30,
2007, representing approximately 1,875.9% increase. The increase is mainly
attributable to Erye's strong performance in sales and decreased operating
expense

NET INCOME

Net income for the three months ended September 30, 2008 was $838,327 as
compared to net loss of $11,610,406 for the three months ended September 30,
2007. The net loss in 2007 was mainly caused by loss from discontinued
operations of $10,788,868 from Shenyang Enshi. Excluding loss form discontinued
operations, for the three months ended September 30, 2007, the Company had a net
loss of $821,955. The net income increase is mainly attributed to Erye's strong
operating performance and decreased legal expenses in relation to the
discontinued operation.

                                     - 33 -

<PAGE>

RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 2008 AS COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 2007 REVENUE

Revenue for the nine months ended September 30, 2008 was $36,866,222 while the
revenue for the nine months ended September 30, 2007 was $22,502,081,
representing an approximately 63.8% increase. The increase is mainly attributed
to Erye's significant revenue growth. The current industry environment provides
a great opportunity for Erye to grow its core business. Erye consistently
expands its market share in rural area in China.

COST OF GOODS SOLD

Cost of goods sold for the nine months ended September 30, 2008 was $25,506,662
as compared to $16,532,703 for the nine months ended September 30, 2007. Cost of
goods sold as a percentage of sales revenues was approximately 69.2% for the
nine months ended September 30, 2008 as compared to approximately 73.5% for the
nine months ended September 30, 2007. The increase in cost of goods sold in
terms of dollar amount is mainly attributed to the cost of good sold of Erye
which had a high growth in its sales in 2008.

GROSS PROFIT

Gross profit in the nine months ended September 30, 2008 amounted at
$11,359,560, as compared to $5,969,378 for the nine months ended September 30,
2007, representing approximately 90.3% increase. The gross profit margin for the
nine months ended September 30, 2008 was 30.8% as compared to approximately
26.5% for the nine months ended September 30, 2007. The increase in gross profit
as percentage to sales is mainly due to the Company has adjusted its product
mixture and increased the sales volume of products with higher GP%.

OPERATING EXPENSES

Operating expenses for the nine months ended September 30, 2008 was $3,864,801
as compared to $4,546,626 for the nine months ended September 30, 2007,
representing 15.0% decrease. The decrease is attributed mainly to lower sales
expenses of Suzhou Erye such as promotional meeting and commission etc.

RESEARCH AND DEVELOPMENT

Research and development costs for the nine months ended September 30, 2008 were
$362,048 as compared to $329,603 for the nine months ended September 30, 2007,
representing approximately 9.8% increase.


                                     - 34 -
<PAGE>
INCOME FROM OPERATIONS

Income from operations in the nine months ended September 30, 2008 amounted at
$7,494,759, as compared to $1,422,752 for the nine months ended September 30,
2007, representing approximately 426.8% increase. The increase is mainly
attributable to Erye's strong performance in sales and increased gross margin.

NET INCOME

Net income for the nine months ended September 30, 2008 was $2,141,956 as
compared to net loss of $11,727,964 for the nine months ended September 30,
2007. The net loss in 2007 was mainly caused by loss from discontinued
operations of $10,810,942 from Enshi. Excluding loss form discontinued
operations, for the nine months ended September 30, 2007, the Company had a net
loss of $917,022. The net income increase is mainly attributed to Erye's strong
operating performance and increased profit margin. Legal expenses relating to
discontinued Enshi decrease also contributed to the net income increase.

LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2008, total current assets were $21,471,985 and total
current liabilities were $34,097,681. Cash and cash equivalents on September 30,
2008 was $4,857,211, an increase of $4,187,512 from the $669,699 reported on
December 31, 2007.

For the nine months ended September 30, 2008, net cash provided by continuing
operating activities was $7,509,779, net cash used in investing activities was
$5,482,021, and net cash provided by financing activities was $2,224,754. Cash
provided by operating activities results primarily from the Company's strong
performance in sales and increase in its profit margin. Cash used for investing
activities during the nine months ended September 30, 2008 results mainly from
the construction of the new plant and purchase of equipments.

The Enshi acquisition has created a drag on the Company's overall operational
results and expansion plan due to Enshi below-expectation results and the
associated large acquisition financing loan. Upon the acquisition of Enshi the
Company has identified major breaches and fraud by the previous owner and
controlling shareholders of Enshi, Mr. Li Xiaobo and his related parties
("Defendants") in the representations and warranties provided by him to the
Company and the Defendants' refusal to honor their indemnification obligations
to the Company. The Company's former subsidiary RACP filed a lawsuit against the
Defendants alleging fraud and for rescission and damages. Currently, RimAsia,
which provided the Company with the Enshi acquisition related financing loan has
taken ownership of RACP, the holding company of Enshi with expectation to return
Enshi to the Defendants. Enshi's operations have been interfered with and as a
result we have decided to suspend its operations. Enshi's operations have been
suspended and Enshi is no longer a subsidiary of the Company. Due to the
uncertainty on the amount to be recovered from the lawsuit, our management
decided to write off the total carrying value of Enshi in the third quarter of
2007 and report it as discontinued operations in the consolidated financial
statements. Accordingly, assets, liabilities and operating results that were
attributed to Enshi were written off and presented as discontinued operations.
The recovered value of Enshi, if any, after the completion of the litigation
against the Defendants will be recognized as income.

                                      -35 -
<PAGE>
Our main manufacturing unit, Erye, recorded a significant growth of 46.1% in
sales revenue for the nine months ended September 30, 2008, along the line with
our expectation.

As we entered into the Merger Agreement, going forward, our primary requirements
for cash consist of: (1) Stabilize and streamline the Erye operation;(2)
relocation of Erye to a new factory which is under construction;(3) continue R&D
for more selected new drug projects; and (4) build up sales network for new drug
distribution. Our current operating activities may not enable us to meet the
anticipated cash requirements. In the event that the Merger is not consummated,
external source of capital may be needed for our expansion.

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.

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,
2008, the value of the Renminbi to the U.S. dollar was translated at 6.85 RMB to
$1.00 USD.

                                     - 36 -
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4T. Controls and Procedures

Disclosure Controls and Procedures. As of September 30, 2008, 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, 2007, our management identified significant
deficiencies related to the following:

1. The current staff in the accounting department is relatively inexperienced,
and needs substantial training so as to meet with the higher demands of being a
U.S. public company. The accounting skills and understanding necessary to
fulfill the requirements of U.S. GAAP-based reporting, including the skills of
subsidiary financial statement consolidation, are not at par, which resulted in
a less than optimal segregation of duties relative to key financial reporting
functions.

                                     - 37 -
<PAGE>
2. The Company lacks qualified resources to perform the internal audit functions
properly. In addition, the scope and effectiveness of internal audit function
are yet been fully developed.

3. The Company lacked 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.

As disclosed in our Management's Annual Report on Internal Control over
Financial Reporting filed with the 2007 Form 10KSB, 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, 2008, 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.

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

None of our directors, officers or affiliates is involved in a proceeding
adverse to our business or has a material interest adverse to our business.

In March 2007, The Company's former subsidiary RACP filed a lawsuit alleging
fraud and is pursuing rescission and damages against Mr. Li Xiaobo ("Mr. Li")
the previous owner and controlling shareholder of Enshi and his related parties
("Defendants") for breach of representations and warranties and fraud and frozen
approximately $10,000,000 worth of assets per the court order in Hong Kong and
the Defendants lost their opposition actions against the seizure order. In
October 17, 2008, RACP has entered into a settlement with Mr. Li and the
Defendants (the "Settlement"). Pursuant to the Settlement RACP was to receive an
amount of $8,125,000 to be paid by Mr. Li Xiaobo (the "Consideration"). Of the
Consideration, $7,310,815 was paid by November 12, 2008 including fortification
and other security deposits. An amount of $5,725,000 was used to pay for legal
expenses in connection with the above described litigation.




                                     - 38 -
<PAGE>
Item 1A. RISK FACTORS.

Not applicable.

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

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES.

None.

Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

There was no matter submitted to a vote of security holders during the fiscal
quarter ended September 30, 2008.

Item 5. OTHER INFORMATION.

None.

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



                                     - 39 -
<PAGE>
                                   SIGNATURES

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

                     CHINA BIOPHARMACEUTICALS HOLDINGS, INC.

                                    By: /s/ Chris Peng Mao
                                    -------------------------------------------
                                    Name:  Chris Peng Mao
                                    Title: Chief Executive Officer
                                    Date: November 14, 2008


                                    By: /s/ ZHANG Jian
                                    -------------------------------------------
                                    Name: ZHANG Jian
                                    Title: Chief Financial Officer
                                    Date: November 14, 2008



                                     - 40 -
<PAGE>