This Quarterly Report on Form 10-Q and the documents incorporated herein contain "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this Quarterly Report, statements that are not statements of current or historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words "plan", "intend," "may," "will," "expect," "believe", "could," "anticipate," "estimate," or "continue" or similar expressions or other variations or comparable terminology are intended to identify such forward-looking statements. Forward-looking statements may not be realized due to a variety of factors, including, without limitation, (i) the Company's ability to manage the business despite continuing operating losses and cash outflows; (ii) the Company's ability to obtain sufficient capital or a strategic business arrangement to fund its operations; (iii) the Company's ability to build the management and human resources and infrastructure necessary to support the growth of the business; (iv) competitive factors and developments beyond the Company's control; (v) scientific and medical developments beyond the Company's control; (vi) the Company's inability to obtain appropriate governmental licenses or any other adverse effect or limitations caused by government regulation of the business; (vii) whether any of the Company's current or future patent applications result in issued patents; and (viii) the other factors listed under "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2007 filed with the SEC on March 28, 2008, as amended by Amendment No. 1 on Form 10-K/A filed with the SEC on April 29, 2008 (collectively, the "NeoStem Form 10-K) and other reports that we file with the Securities and Exchange Commission. Additional risks and uncertainties relate to the proposed Merger and proposed Share Exchange that may cause actual future experience and results to differ materially from those discussed in these forward-looking statements. Important factors related to the proposed Merger that might cause such a difference include, but are not limited to, costs related to the Merger; failure of NeoStem's or CBH's stockholders to approve the Merger; NeoStem's or CBH's inability to satisfy the conditions of the Merger; NeoStem's inability to maintain its American Stock Exchange listing; the inability to integrate NeoStem's and CBH's businesses successfully; the need for outside financing to meet capital requirements; failure to have an effective Joint Venture Agreement satisfactory to the parties and regulatory authorities and other events and factors disclosed herein under Part II, Item 1A, Risk Factors, and previously and from time to time in NeoStem's filings with the SEC, including the NeoStem Form 10-K, and the Proxy Statement/Registration Statement. Important factors related to the Share Exchange that might cause such a difference include, but are not limited to, costs related to the Share Exchange; failure of NeoStem's stockholders to approve the Share Exchange; an inability to satisfy the conditions of the Share Exchange; NeoStem's inability to maintain its American Stock Exchange listing; the inability to integrate NeoStem's and Shandong's businesses successfully; the need for outside financing to meet capital requirements; and other events and factors disclosed herein under Part II, Item 1A, Risk Factors, and previously and from time to time in NeoStem's filings with the SEC, including the NeoStem Form 10-K, and to be disclosed in the Proxy Statement/Registration Statement. The Company's filings with the Securities and Exchange Commission are available for review at www.sec.gov under "Search for Company Filings." Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Except as required by law, the Company undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise.

GENERAL

NeoStem is engaged in a platform business of operating a commercial autologous (donor and recipient are the same) adult stem cell bank and is pioneering the pre-disease collection, processing and long-term storage of stem cells from adult donors that they can access for their own future medical treatment. We are managing a network of adult stem cell collection centers in major metropolitan areas of the United States. We have also entered the research and development arenas, through the acquisition of a worldwide exclusive license to an early-stage technology to identify and isolate rare stem cells from adult human bone marrow, called VSEL (very small embryonic-like) stem cells. VSELs have many physical characteristics typically found in embryonic stem cells, including the ability to differentiate into specialized cells found in substantially all the different types of cells and tissue that make up the body. On January 19, 2006, we consummated the acquisition of the assets of NS California, Inc., a California corporation ("NS California") relating to NS California's business of collecting and storing adult stem cells. Effective with the acquisition, the business of NS California became our principal business, rather than our historic business of providing capital and business guidance to companies in the healthcare and life science industries. The Company provides adult stem cell processing, collection and banking services with the goal of making stem cell collection and storage widely available, so that the general population will have the opportunity to store their own stem cells for future healthcare needs.

The adult stem cell industry is a field independent of embryonic stem cell research which the Company believes is more likely to be burdened by governmental, legal, ethical and technical issues than adult stem cell research. Medical researchers, scientists, medical institutions, physicians, pharmaceutical companies and biotechnology companies are currently developing therapies for the treatment of disease using adult stem cells. As these adult stem cell therapies obtain necessary regulatory approvals and become standard of care, patients will need a service to collect, process and bank their stem cells. The Company intends to provide this service.

Initial participants in our collection center network have been single physician practices who opened collection centers in California, Pennsylvania and Nevada. Revenues generated by these early adopters have not been significant and are not expected to become significant. However, these centers have served as a platform for the development of the Company's business model and today the Company is focusing on multi-physician and multi-specialty practices joining its network in major metropolitan areas. Toward this end, the Company signed an agreement in June 2008 for a New York City stem cell collection center and this facility will become operational by the end of 2008. In July 2008, the Company signed an agreement for a Santa Monica, California based stem cell collection center to be opened by Stem Collect of Santa Monica LLC at The Hall Center. This facility became operational in the fall of 2008. Additionally, the Company signed an agreement with Celvida LLC pursuant to which a Southern Florida stem cell collection center located in Coral Gables, a suburb of Miami, became operational in September 2008. The Company is considering whether to continue to keep the single-physician Pennsylvania center active given poor performance of the center and the failure of the center to comply with certain financial obligations under its collection center agreement.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2008 Compared to Three Months Ended September 30, 2007

For the three months ended September 30, 2008, total revenues were $25,200 compared to $12,600 for the three months ended September 30, 2007. The revenues generated in the three months ended September 30, 2008 are a combination of revenues from start up fees collected from physicians in the Company's physician's network, stem cell collection fees and monthly stem cell storage fees and the revenues generated in the three months ended September 30, 2007 were principally derived from stem cell collections in the period.

Selling, general and administration expenses for the three months ended September 30, 2008 has decreased by $2,392,000 or 55% over the three months ended September 30, 2007, from $4,328,000 to $1,936,000. This decrease in operating expense is the result of management decisions to reduce various operating expenses to conserve cash and reduce our operating loss. During the last two years the Company has used a variety of equity instruments to pay for services in an effort to minimize its use of cash to incentivize staff and consultants and in the quarter ending September 30, 2008 the reduced use of equity instruments was the primary source of decrease in operating expenses. The reduced use of equity instruments to pay for staff compensation and director fees decreased our operating expenses by $1,856,000, or 73%. Operating expenses funded by cash were $1,253,000 for the three months ended September 30, 2008 compared with $1,789,00 in cash funded expenses for the three months ended September 30, 2007, a decrease of $536,000 or 30%. The decrease in cash expenses was primarily related to a decrease in salary and benefits of $150,000, investor relations activities of $222,000, travel and entertainment expenses of $69,000, rent expense of $32,000, validation expenses required for New York licensing of $64,000, and consulting fees of $71,000. These expense decreases were offset by an increase in marketing expense of $39,000, accounting fees of $30,000 and a reduction in a variety of other expenses that resulted in a net expense increase of $3,000.

For the reasons cited above the net loss for the three months ended September 30, 2008 was reduced to $1,922,000 from $4,328,000 for the three months ended September 30, 2007.

Nine Months Ended September 30, 2008 Compared to Nine Months Ended September 30, 2007

For the nine months ended September 30, 2008, total revenues were $49,500 compared to $74,500 for the nine months ended September 30, 2007. The revenues generated in the nine months ended September 30, 2008 are a combination of revenues from start up fees collected from physicians in the Company's physician's network, stem cell collection fees and monthly stem cell storage fees and the revenues generated in the nine months ended September 30, 2007 were principally a combination of revenues from start up fees collected from physicians in the Company's physician's network, stem cell collection fees and monthly stem cell storage fees. The reduction in revenues was due primarily to a reduction in fees collected from physicians in the Company's physician's network. The Company has reduced its activity in recruiting physicians and is concentrating its efforts on recruiting clients into the existing network in the Greater New York area, Southern California and Coral Gables.

Selling, general and administration expenses for the nine months ended September 30, 2008 has been reduced, by $1,324,000 or 16% over the nine months ended September 30, 2007, from $8,163,000 to $6,839,000. This decrease in operating expense is the result of management decisions to reduce various operating expenses to conserve cash and reduce our operating loss. During the last two years the Company has used a variety of equity instruments to pay for services in an effort to minimize its use of cash to incentivize staff and consultants and in the nine months ended September 30, 2008 the reduced use of equity instruments was the primary source of decrease in operating expenses.. The reduced use of equity instruments to pay for staff compensation and director fees decreased our operating expenses by $843,000, or 21%. Operating expenses funded by cash were $3,706,000 for the nine months ended September 30, 2008 compared with $4,185,000 in cash funded expenses for the nine months ended September 30, 2007, a decrease of $479,000 or 11%. The decrease in cash funded operating expenses was primarily related to a decrease in legal expense of $273,000, investor relations expense of $230,000, consulting fees of $62,000, validation expenses required for New York licensing of $55,000, stock exchange fees of $37,000, laboratory expenses of $17,000 and travel and entertainment expenses of $69,000, which decreases were offset by increases in salary and benefits of $63,000, marketing expenses of $81,000, accounting fees of $36,000, research and development fees primarily related to fees due the University of Louisville in connection with our VSEL license of $54,000, investment banking fees of $25,000 and a variety of other expenses that resulted in a net expense increase of $5,000.

For the reasons cited above the net loss for the nine months ended September 30, 2008 decreased to $6,811,000 from $8,102,000 for the nine months ended September 30, 2007.

LIQUIDITY AND CAPITAL RESOURCES

General

At September 30, 2008, the Company had working capital of $461,000. The Company generates revenues from its adult stem cell collection activities. To date, our revenues generated from such activities have not been significant and we had minimal adult stem cell collection activity in the first nine months of 2008. The Company has met its immediate cash requirements through an offering of common stock and warrants completed in May 2008 in the amount of $900,000 and September 2008 of $1,250,000. In addition to the $250,000 raised in October 2008 through an offering of common stock and warrants, the Company currently intends to meet its cash requirements in the near term through further financing activities. In the event these activities are not successful, the Company would need to curtail its operations. The Company had been exploring acquisition opportunities of revenue generating businesses. The Company recently entered into the Merger Agreement to acquire the 51% interest in Erye, which has been in business for more than 50 years and currently manufactures over 100 drugs on seven Good Manufacturing Practices (GMP) lines, including small molecule drugs. Erye specializes in research and development, production and sales of pharmaceutical products, as well as chemicals used in pharmaceutical products. The Company also recently entered into the Share Exchange Agreement to establish control over Shandong, which is engaged in the business of research, development popularization and transference of regenerative medicine technology (except for those items for which it does not have special approval) in the PRC.

The following chart represents the net funds provided by or used in operating, financing and investment activities for each period indicated:

                                                       Nine Months Ended
                                            September 30, 2008     September 30, 2007
Cash (used) in Operating activities        $         (3,618,000 ) $         (4,548,000 )
Cash (used) in investing activities        $            (27,000 ) $            (67,000 )
Cash provided by financing activities      $          2,136,000   $          7,827,000

At September 30, 2008 the Company had a cash balance of $794,000, working capital of $461,000 and a stockholders' equity of $1,830,000. The Company incurred a net loss of $6,811,000 for the nine months ended September 30, 2008. Such loss adjusted for non-cash items, including common stock, common stock option and common stock purchase warrant issuances which were related to services rendered of $3,176,000, depreciation of $59,000 and bad debt expense of $22,000 which was offset by cash settlements of various accounts payable, notes payable, accrued liabilities and increases in prepaid insurance expenses of $67, 000, resulted in cash used in operations totaling $3,618,000 for the period ended September 30, 2008. Accordingly, the large difference between operating loss and cash used in operations was the result of a number of non-cash expenses charged to results of operations.

To meet its cash requirements for the three and nine months ended September 30, 2008, the Company relied on offerings of common stock and warrants completed in each of May 2008 and September 2008 in the aggregate amount of $2,150,000 and its existing cash balances. Under the Company's current business plan it is generating revenues from its platform business of adult stem cell collection activities which to date have not been significant, having had only two collections during the third quarter of 2008. The Company currently intends to meet its cash requirements in the near term through financing activities, other collaborative arrangements and government awards and anticipates that with the opening of collection centers in New York City, Miami and Santa Monica revenues may start to increase. Furthermore, the Company has been included in the Department of Defense Fiscal Year 2009 Appropriations Bill in the amount of $800,000 and the Company continues to make application for other awards through the Small Business Innovative Research ("SBIR") Program, although it has received no notice of any SBIR award to date.

On November 2, 2008, the Company signed the Merger Agreement to acquire the 51% interest in Erye and the Share Exchange Agreement to establish control over Shandong. In order to maximize the potential of Shandong, a capital infusion into the company will be needed to, among other things, build a laboratory and develop its regenerative medicine business. Erye is in the middle of its expansion through relocation of the pharmaceutical manufacturing facility which is planned to be completed over the next three years. To date this activity has been self funded by Erye and minority shareholders of Erye and it is anticipated that they will continue to fund this project. In the event Erye is unable to raise the remaining funds needed for the relocation of its pharmaceutical manufacturing facility it could become incumbent on the Company to assist in this effort. Erye's revenues for the year ended December 31, 2007 were approximately $32 million and for the six months ended June 30, 2008 were approximately $24 million. NeoStem has agreed to reinvest 45% of its 51% interest in Erye into the company for its relocation pursuant to Erye's joint venture agreement for a period of three years. NeoStem's 6% of net profit will be distributed to it. In the event either or both of the acquisitions does not close, the Company would also need to raise substantial additional funds to fund its platform business and/or acquire a revenue generating business. Additionally, even if either or both of the acquisitions closes, the closings will likely not occur until the end of the first quarter of 2009 and the Company will need to fund its platform business as well as the large costs associated with the acquisition transactions until such time. The Company's history of losses and liquidity problems may make it difficult to raise additional funding. There can be no assurance that the Company will be able to obtain additional funding on terms acceptable to the Company. Any equity financing may be dilutive to stockholders and debt financing, if available, may involve significant restrictive covenants.

In November 2007, the Company acquired the exclusive, worldwide rights to very small embryonic like (VSEL) technology developed by researchers at the University of Louisville. These rights were acquired through the Company's acquisition of Stem Cell Technologies, Inc., the licensee to a license agreement (the "License Agreement") with the University of Louisville. Concurrent with acquiring these rights, the Company entered into a sponsored research agreement (the "Sponsored Research Agreement" or "SRA") with the University of Louisville Research Foundation ("ULRF") under which the Company will support further research in the laboratory of Mariusz Ratajczak, M.D., Ph.D., a co-inventor of the VSEL technology and head of the Stem Cell Biology Program at the James Graham Brown Cancer Center at the University of Louisville. The term of the research is two and one-half years and shall commence after all applicable institution (e.g., institutional review board ("IRB")) and Federal approvals are obtained and upon the adult stem cell specimens required for the research being provided to the laboratory. The License Agreement requires the payment of certain license fees, royalties and milestone payments, payments for patent filings and applications and the use of due diligence in developing and commercializing the VSEL technology. The SRA requires periodic and milestone payments. All payments required to be made to date have been made. Under the License Agreement, upon the commencement of the research (which has not yet occurred pending receipt of IRB approvals and collection of the appropriate samples), the Company will be required to make payments of $66,000 in license issue fees and prepayment of patent costs and will be responsible for additional patent-related costs. Thereafter, an annual license maintenance fee of $10,000 will be required upon the issuance of a licensed patent and royalties will be payable based upon the sale of certain licensed products. Under the Sponsored Research Agreement, the Company agreed to support the research as set forth in a research plan in an amount of $375,000. Such costs are to be paid by the Company in accordance with a payment schedule which sets forth the timing and condition of each such payment over the term of the SRA, the first payment of $100,000 (for which there was originally a $50,000 credit) being due upon the commencement of the research. In October 2008, the SRA was amended to provide for certain additional research to be conducted as work preliminary to the first research aim under the SRA, for which approximately one-half of the $50,000 credit was utilized to pay the fee. We will require additional research and development capacity and access to funds to meet our development obligations under the License Agreement and develop the VSEL technology. The Company has applied for Small Business Innovation Research (SBIR) grants and may also seek to obtain funds through applications for other State and Federal grants, direct investments, sublicensing arrangements as well as other funding sources to help offset all or a portion of these costs. We are seeking to develop increased internal research capability and sufficient laboratory facilities or establish relationships with third parties to provide such research capability and facilities. In this regard, in July 2008 the Company hired a Director of Stem Cell Research and Laboratory Operations.

In October 2007, the Company entered into a development agreement with Stem Collect LLC ("Stem Collect") to act as a developer of collection centers to join the Company's network. Stem Collect agreed to make certain upfront payments of which $30,000 were paid through December 31, 2007. In December 2007, the parties amended the terms of this agreement to provide for the extension of certain other payment and notice periods under the development agreement and in March 2008 Stem Collect advised the Company that due diligence resulting in their revising their targeted locations and associated funding requirements were requiring that Stem Collect have additional time to meet its notice and payment obligations under the development agreement. After discussions between the parties, the original development agreement was terminated, and the Company may discuss the terms of a new development agreement with Stem Collect. Pursuant to the original development agreement, a center agreement had been entered into with Stem Collect of Beverly Hills, LLC which has been replaced by a center agreement entered into in July 2008 with Stem Collect of Santa Monica, LLC for a center on the premises of The Hall Center in Santa Monica, California.