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-KS 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.

OVERVIEW

OUR BUSINESS

We are a vertically integrated bio-pharmaceutical company focused on developing, manufacturing and distributing innovative drugs in China. 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 our subsidiary CBC, NeoStem, Inc., and CBH Acquisition LLC ("Merger Sub"). The Merger Agreement contemplates the merger of our company with and into Merger Sub, with Merger Sub as the surviving entity (the "Merger"). 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 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 ourcommon 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.

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, our director, 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, our Chief Executive Officer, 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 our 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.

Our current directors and officers, AN Lufan, LIU Xiaohao and Chris Mao, will give up their personal portions of the Neostem shares to be received to Erye minority holders holding 49% control of Erye to incentivize them to approve the transaction.

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 second 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.

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.

(1) 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.

2) ACCOUNTS RECEIVABLE.

Accounts receivable are carried at original invoice amount less an estimate made for doubtful accounts 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 collectability 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 decreased to $1,200,983 at December 31, 2008 from $1,260,760 at December 31, 2007. This decrease represents 0.1% of the revenue mainly due to the collection period of Erye's accounts receivable was shortened. At December 31, 2008, accounts receivable, net of allowance for doubtful accounts, amounted to $3,371,225. The decrease in the collection period was mainly resulted from the shortening of the collection period of Erye's accounts receivable.

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

Allowance for doubtful accounts
As of December 31, 2007                                             $ 1,260,760
Recovery for the year of 2008                                           (59,777)
                                                                    -----------
As of December 31, 2008                                             $ 1,200,983
                                                                    ===========

The following list the aging of our accounts receivable as of December 31, 2008

                  3 months            6 months           9 months       Over 9 months        Over 1 year
             ------------------   ----------------   ---------------   ---------------   ------------------
   Total       Amount       %       Amount      %     Amount      %     Amount     %       Amount       %
----------   ----------   -----   ---------   ----   --------   ----   --------   ----   ----------   -----
$4,572,208   $3,240,875   70.9%    $188,900   4.1%    $29,869   0.7%    $18,968   0.4%   $1,093,596   23.9%

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

(3) 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.

(4) 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. Under the terms of the redeemable stock, the issuer has the right to redeem and the holder has the right to convert any time up to and including the fourth anniversary of the issuance. Therefore, liability accounting is not triggered under SFAS 150, because the stock is not mandatorily redeemable until after the fourth anniversary. However, pursuant to EITF Topic D-98, "Classification and Measurement of Redeemable Securities," the redeemable stock is classified outside of shareholders' equity. If the redeemable stock is not converted by the fourth anniversary, then the shares the mandatory redemption is triggered, and pursuant to SFAS 150, the shares will be reclassified to liabilities.

RESULTS OF OPERATIONS - YEAR ENDED DECEMBER 31, 2008 COMPARED TO YEAR ENDED
DECEMBER 31, 2007

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 fact that RACP foreclosed on Enshi, and the subject settlement between RACP and LXB, 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. 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

Therefore, the results of Enshi's operations and cash flows for the year ended December 31, 2007 were reported as discontinued operations in our consolidated financial statements.

REVENUE

Revenue for the year ended on December 31, 2008 was $49,841,158, while the revenue for the year ended December 31, 2007 was $31,927,378, representing an approximately 56.1% increase. The increase is mainly attributed to a significant increase of the Company's subsidiary, Suzhou Erye Pharmaceutical Limited Company ("Erye"). The sales of Erye's intermediary pharmaceutical products increased 47.2% in 2008 compared to 2007. Erye's prescription drugs sales increased 60.6% in 2008 compared to 2007. Reasons for the significant increase include the following: 1.The government has increased its inputs in the healthcare market, especially the medical insurance system in rural areas of China. According to the statistics from competent authorities, the growing rate of the medical care in rural areas is 50 billion RMB to 100 billion RMB annually. 2. The Company has expanded its sales representative offices in provinces and cities of China. Its customers now come from 374 cities across China. 3. After years of effort, Erye's brand and quality have gained client's approbation from both domestic and overseas markets, and its popularity and cost performance have largely upgraded. Erye has become an innovative high-tech enterprise with reasonable financial capacity and relatively complete product structure. 4. The Company has focused efforts on collaborating with other pharmaceuticals companies with good sales capabilities and resources.

In years ahead, the government is expected to increase the coverage of national medical care service to 95% among China, which the Company expects to have a positive impact on the sales of pharmaceutical products. Erye will speed up the construction of its new plant, which is expected to be completed by the end of 2009. After then, the productivity of Erye will be greatly enhanced, which will also adapt to the increasing needs of sales. On the other hand, new products such as Piperacillin Sodium and Sulbactam Sodium will form new sales and profit growth points.

COST OF GOODS SOLD

Along with the significant increase of sales in 2008, the relevant cost of goods sold for the year ended December 31, 2008 has also increased, 45.7% as compared to the year ended December 31, 2007. The increase is mainly attributable to the increase of Erye's sales for the year 2008. Cost of goods sold as a percentage of revenues was approximately 69.1% for the year ended December 31, 2008, as compared to approximately 74.0% for the year ended December 31, 2007, representing a 4.9% decrease. The decrease is attributed to the fact that the fixed cost was allocated on more sales as a result of increase in sales and as a result the cost per product decreased. In addition the Company is gradually using high margin profit products to replace some low profit margin products which also reduce the cost of goods sold.

GROSS PROFIT

The gross profit margin for the year ended December 31, 2008 was 30.9%, as compared to 26.0% for the year ended December 31, 2007 representing a 4.9% increase. The increase of gross profit results from the strong performance of Erye in year 2008. High profit products have replaced the low profit ones, the sales of Powders for injection (Cephems) and Penicillins still plays a dominant role. Company's sales volume has leaped in pace with the deepening of the reform of medical insurance system in rural areas of China and the cost of goods as a percentage of revenues decreased..

OPERATING EXPENSES

Although the sales increased significantly in 2008, the operating expenses for the year ended December 31, 2008 remained stable on the whole, as compared with 2007. The reasons are:

1. Total account receivables outstanding of 2008 remain steady as compared with 2007.

According to 2008's sales results, account receivables as a percentage of sales of 2008 is significantly lower than the same percentage in 2007. Account Receivables which can be paid back within 6 months account for 75.0% of the total account receivables, which is 11.6% improvement compared to the same period in 2007. Therefore, bad debt risk has been reduced. Provision for bad debts under prudence principle has also been reduced trading accounts receivables accordingly.

2. The operating expenses of our Company at the parent level have significantly decreased in 2008 as compared with 2007.

The deduction is around $840,000 in a total. The expenses of the parent company in 2008 were mainly used in daily office expenses, labor charge, travel expenses and professional fees. During 2008 we have reduced our attorney fees, audit fees, public relation expenses and service fees to transfer agent because of the write off of our former subsidiary- Enshi. In addition, our headquarters moved into the facilities of Erye, which saved us rent charges. The parent company has better improved its control over general expenses

3. The Company had $2,602,618 bad debt expenses for the year ended December 31, 2008 with 157.7% increase compared with $1,009,910 for the year ended December 31, 2007. The management of the Company determined that some aged receivables were no longer collectable and had written-off the receivables as of December 31, 2008.

RESEARCH AND DEVELOPMENT

Research and development costs for the year ended December 31, 2008 were $388,848, as compared to $271,030 for the year ended December 31, 2007, representing a 43.5% increase. R&D cost as a percentage of revenue was approximately 0.8% for the year ended December, 2008 which was compatible with the percentage for the year ended December 31, 2007. Our subsidiary Erye has advanced $1,321,561 in a significant R&D project which is expected to generate new sales and profits growth for our company in the future after the project is completed..

NET INCOME (LOSS) FROM CONTINUING OPERATIONS

Gains from continuing operations for the year ended December 31, 2008 amounted at $2,827,017, as compared to a loss of $2,055,815 for the year ended December 31, 2007. Turning from deficits to profit is mainly because of the great performance of Erye in 2008. Additionally, the operating expenses as a percentage of sales revenue were 14.3% in 2008, as compared to 22.7% in 2007. The reduction is also one of the main reasons leading to the increase of gains from continuing operations.

NON-OPERATING INCOME (EXPENSE)

Non-operating income for the year ended December 31, 2008 were $114,953, as compared to non-operating expense $1,623,652 for the year ended December 31, 2007, which representing a 110.2% increase. The main reason for the increase is because the Company recorded $1,008,534 interest expenses for the loan from Rimasia in the year ended December 31, 2007 and no interest expense for the loan booked in the year ended December 31, 2008 due to the Company converted the loan from Rimasia and unpaid interest to redeemable convertible preferred stock in November 16, 2007.

INCOME TAX

According to the Enterprise Income Tax ("EIT") Law of China, Erye was continue to enjoy tax benefit of 50% of the 25% EIT tax rate, or 12.5% from January 1, 2008 through December 31, 2010 as being a High-tech Company in Jiangsu, China. Comparatively, Erye was except from income tax for the year ended December 31, 2007. The income tax expenses for the year ended December 31, 2008 and 2007 were $1,418,334 and $1,245, respectively, which account for 2.8% . . .