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.

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

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

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.

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
                                                           ==========

The following list the aging of our accounts receivable excluding bad debt allowance, as of September 30, 2008:

                3 months         6 months       9 months      Over 9 months     Over 1 year
  Total       Amount     %      Amount   %    Amount    %     Amount      %     Amount     %
---------   ---------------     -----------   ------------    -------------   ---------------
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

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.

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.

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.

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.

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.

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 . . .