**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-Q**

**ZIOPHARM      Oncology, Inc.**

| **Delaware**                                                                                                     | **84-1475642**                                   |
|------------------------------------------------------------------------------------------------------------------|--------------------------------------------------|
| (State                or Other Jurisdiction of Incorporation or Organization)                                    | (IRS                Employer Identification No.) |
|                                                                                                             |                                             |
| **1180                Avenue of the Americas, 19th**                 **Floor,                New York, NY** | **10036**                                        |
| (Address                of Principal Executive Offices)                                                          | (Zip                Code)                        |

**(646)      214-0700**

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

----

**Index**

|                       |                                                                                                                                                                                                                                                                   |   | Page   |
|----------------------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|
| **PART                I**  | **FINANCIAL                INFORMATION**                                                                                                                                                                                                                               |   |   |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                1.     | Financial                Statements                                                                                                                                                                                                                                    |   |   |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Balance                Sheets as of September 30, 2008 (unaudited) and December 31, 2007                                                                                                                                                                               |   | 3      |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Statement                of Operations for the three and nine months ended September 30, 2008                and                2007 (unaudited) and for the period from inception (September 9,                2003) to                September 30, 2008 (unaudited) |   | 4      |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Statement                of Cash Flows for the nine months ended September 30, 2008 and 2007                (unaudited) and for the period from inception (September 9, 2003)                to                September 30, 2008 (unaudited)                          |   | 5      |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Statement                of Changes in Convertible Preferred Stock and Stockholders’                Equity/(Deficit) for the period from inception (September 9, 2003)                to                September 30, 2008 (unaudited)                           |   | 6      |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Notes                to Unaudited Financial Statements                                                                                                                                                                                                                 |   | 7      |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                2.     | Management’s                Discussion and Analysis                                                                                                                                                                                                              |   | 12     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                3.     | Quantitative                and Qualitative Disclosure About Market Risk                                                                                                                                                                                               |   | 19     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                4.     | Controls                and Procedures                                                                                                                                                                                                                                 |   | 19     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| **PART                II** | **OTHER                INFORMATION**                                                                                                                                                                                                                                   |   |   |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                1.     | Legal                Proceedings                                                                                                                                                                                                                                       |   | 19     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                2.     | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                                                                             |   | 19     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                3.     | Defaults                Under Senior Securities                                                                                                                                                                                                                        |   | 19     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                4.     | Submission                of Matters to a Vote of Security Holders                                                                                                                                                                                                     |   | 20     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                5.     | Other                Information                                                                                                                                                                                                                                       |   | 20     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
| Item                6.     | Exhibits                                                                                                                                                                                                                                                               |   | 21     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Signatures                                                                                                                                                                                                                                                             |   | 22     |
|                       |                                                                                                                                                                                                                                                                   |   |   |
|                       | Exhibit                Index                                                                                                                                                                                                                                           |   | 23     |

----

**PART      I - FINANCIAL      INFORMATION**

**Item 1.**       **UNAUDITED      FINANCIAL STATEMENTS**

***ZIOPHARM        Oncology, Inc.***

***(A        Development Stage Enterprise)***

|                                                                                                                                                                                                                                                                 |   | **September 30,****2008** |           | **December 31,****2007** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------------------------------|----------------|-------------------------------|--------|
|                                                                                                                                                                                                                                                                 |   | **(Unaudited)**                |           |                          |   |
| **ASSETS**                                                                                                                                                                                                                                                           |   |                           |           |                          |   |   |   |
| Current                  assets:                                                                                                                                                                                                                                     |   |                           |           |                          |   |   |   |
| Cash                  and cash equivalents                                                                                                                                                                                                                           |   | $                              | 15,191,789     |                          | $      | 35,028,798 |   |
| Prepaid                  expenses and other current assets                                                                                                                                                                                                           |   |                           | 577,165        |                          |   | 498,864 |   |
| Total                  current assets                                                                                                                                                                                                                                |   |                           | **15,768,954** |                          |   | **35,527,662** |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| Property                  and equipment, net                                                                                                                                                                                                                         |   |                           | 589,138        |                          |   | 746,421 |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| Deposits                                                                                                                                                                                                                                                             |   |                           | 95,497         |                          |   | 95,497 |   |
| Other                  non-current assets                                                                                                                                                                                                                            |   |                           | 360,922        |                          |   | 356,881 |   |
| Total                  assets                                                                                                                                                                                                                                        |   | **$**                          | **16,814,511** |                          | **$**  | **36,726,461** |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY**                                                                                                                                                                                                            |   |                           |           |                          |   |   |   |
| Current                  liabilities:                                                                                                                                                                                                                                |   |                           |                |                          |   |  |   |
| Accounts                  payable                                                                                                                                                                                                                                    |   | $                              | 2,227,537      |                          | $      | 2,909,170 |   |
| Accrued                  expenses                                                                                                                                                                                                                                    |   |                           | 3,473,027      |                          |   | 3,396,480 |   |
| Total                  current liabilities                                                                                                                                                                                                                           |   |                           | **5,700,564**  |                          |   | **6,305,650** |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| Deferred                  rent                                                                                                                                                                                                                                       |   |                           | **60,932**     |                          |   | **50,988** |   |
| Total                  liabilities                                                                                                                                                                                                                                   |   |                           | **5,761,496**  |                          |   | **6,356,638** |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| Commitments                  and contingencies                                                                                                                                                                                                                       |   |                           |           |                          |   |   |   |
|                                                                                                                                                                                                                                                                 |   |                           |                |                          |   |  |   |
| Stockholders'                  equity:                                                                                                                                                                                                                               |   |                           |           |                          |   |   |   |
| Common                  stock, $.001 par value; 280,000,000 shares authorized; 21,373,964                  and                  21,298,964 shares issued and outstanding at September 30, 2008                  and                  December 31, 2007, respectively |   |                           | 21,374         |                          |   | 21,299 |   |
|                                                                                                                                                                                                                                                                 |   |                           |           |                          |   |   |   |
| Preferred                  stock, $0.01 par value; 30,000,000 shares authorized and no shares                  issued                  and outstanding                                                                                                               |   |                           | -              |                          |   | - |   |
| Additional                  paid-in capital                                                                                                                                                                                                                          |   |                           | 71,025,617     |                          |   | 69,674,151 |   |
| Warrants                  issued                                                                                                                                                                                                                                     |   |                           | 20,503,894     |                          |   | 20,503,894 |   |
| Deficit                  accumulated during the development stage                                                                                                                                                                                                    |   |                           | (80,497,870    | )                             |   | (59,829,521 | ) |
| Total                  stockholders' equity                                                                                                                                                                                                                          |   |                           | **11,053,015** |                          |   | **30,369,823** |   |
|                                                                                                                                                                                                                                                                 |   |                           |           |                          |   |   |   |
| Total                  liabilities and stockholders' equity                                                                                                                                                                                                          |   | **$**                          | **16,814,511** |                          | **$**  | **36,726,461** |   |

----

***ZIOPHARM        Oncology, Inc.***

***(A        Development Stage Enterprise)***

|                                                                                                                                           |   | For the threemonthsendedSeptember 30, 2008 |       | For the threemonthsendedSeptember 30, 2007 |   | For the ninemonthsendedSeptember 30, 2008 |   | For the ninemonthsendedSeptember 30, 2007 |        | For the Periodfrom Inception(September 9, 2003)throughSeptember 30, 2008 |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------------------------------------|------------|----------------------------------------------------------------|--------|---------------------------------------------------------------|--------|---------------------------------------------------------------|-------------|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                     |   | (unaudited)                                                    |       | (unaudited)                                                    |   | (unaudited)                                                   |   | (unaudited)                                                   |        | (unaudited)                                                                                                 |   |
| Research                    contract revenue                                                                                                             |   | $                                                              | -          |                                                           | $      | -                                                             |   | $                                                             | -           |                                                                                                        | $      | - |   | $ | - |   |
|                                                                                                                                                     |   |                                                           |       |                                                           |   |                                                          |   |                                                          |        |                                                                                                        |   |   |   |   |   |   |
| Operating                    expenses and other income:                                                                                                  |   |                                                           |            |                                                           |   |                                                               |   |                                                          |             |                                                                                                        |   |  |   |   |  |   |
| Research                    and development, including costs of research contracts                                                                       |   |                                                           | 3,878,987  |                                                           |   | 5,568,872                                                     |   |                                                          | 14,219,623  |                                                                                                        |   | 13,342,389 |   |   | 51,324,017 |   |
| General                    and administrative                                                                                                            |   |                                                           | 1,740,466  |                                                           |   | 2,293,212                                                     |   |                                                          | 6,834,696   |                                                                                                        |   | 7,131,809 |   |   | 33,068,990 |   |
| Total                    operating expenses                                                                                                              |   |                                                           | 5,619,453  |                                                           |   | 7,862,084                                                     |   |                                                          | 21,054,319  |                                                                                                        |   | 20,474,198 |   |   | 84,393,007 |   |
|                                                                                                                                                     |   |                                                           |       |                                                           |   |                                                          |   |                                                          |        |                                                                                                        |   |   |   |   |   |   |
| Loss                    from operations                                                                                                                  |   |                                                           | (5,619,453 | )                                                              |   | (7,862,084                                                    | )      |                                                          | (21,054,319 | )                                                                                                           |   | (20,474,198 | ) |   | (84,393,007 | ) |
|                                                                                                                                                     |   |                                                           |       |                                                           |   |                                                          |   |                                                          |        |                                                                                                        |   |   |   |   |   |   |
| Interest                    income                                                                                                                       |   |                                                           | 74,972     |                                                           |   | 538,718                                                       |   |                                                          | 385,970     |                                                                                                        |   | 1,564,945 |   |   | 3,895,137 |   |
| Net                    loss                                                                                                                              |   | $                                                              | (5,544,481 | )                                                              | $      | (7,323,366                                                    | )      | $                                                             | (20,668,349 | )                                                                                                           | $      | (18,909,253 | ) | $ | (80,497,870 | ) |
|                                                                                                                                                     |   |                                                           |       |                                                           |   |                                                          |   |                                                          |        |                                                                                                        |   |   |   |   |   |   |
| Basic                    and diluted net loss per share                                                                                                  |   | $                                                              | (0.26      | )                                                              | $      | (0.35                                                         | )      | $                                                             | (0.97       | )                                                                                                           | $      | (0.94 | ) |   |  |   |
|                                                                                                                                                     |   |                                                           |       |                                                           |   |                                                          |   |                                                          |        |                                                                                                        |   |   |   |   |   |   |
| Weighted                    average common shares outstanding used to compute basic and diluted                    net                    loss per share |   |                                                           | 21,228,964 |                                                           |   | 21,196,607                                                    |   |                                                          | 21,228,964  |                                                                                                        |   | 20,018,480 |   |   |   |   |

----

***ZIOPHARM        Oncology, Inc.***

***(A        Development Stage Enterprise)***

|                                                                                                                                        |   | For thenine monthsendedSeptember 30, 2008 |        | For thenine monthsendedSeptember 30, 2007 |   | For the periodfrom inception(September 9, 2003)throughSeptember 30, 2008 |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------|-------------|---------------------------------------------------------------|--------|-------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                             |   | (unaudited)                                                   |        | (unaudited)                                                   |   | (unaudited)                                                                                                 |   |
| Cash                    flows from operating activities:                                                                                         |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Net                    loss                                                                                                                      |   | $                                                             | (20,668,349 | )                                                             | $      | (18,909,253                                                                                                 | )      | $ | (80,497,870 | ) |
| Adjustments                    to reconcile net loss to net cash used in operating activities:                                                   |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Depreciation                    and amortization                                                                                                 |   |                                                          | 279,355     |                                                          |   | 345,890                                                                                                     |   |   | 1,021,813 |   |
| Non-cash                    stock-based compensation                                                                                             |   |                                                          | 1,351,541   |                                                          |   | 1,079,048                                                                                                   |   |   | 6,474,658 |   |
| Loss                    on disposal of fixed assets                                                                                              |   |                                                          | 302         |                                                          |   | 4,098                                                                                                       |   |   | 8,725 |   |
| Change                    in operating assets and liabilities:                                                                                   |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| (Increase)                    decrease in:                                                                                                       |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Prepaid                    expenses and other current assets                                                                                     |   |                                                          | (78,301     | )                                                             |   | (224,226                                                                                                    | )      |   | (577,165 | ) |
| Other                    noncurrent assets                                                                                                       |   |                                                          | (4,041      | )                                                             |   | (177,176                                                                                                    | )      |   | (360,922 | ) |
| Deposits                                                                                                                                         |   |                                                          | -           |                                                          |   | (91,630                                                                                                     | )      |   | (95,497 | ) |
| Increase                    (decrease) in:                                                                                                       |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Accounts                    payable                                                                                                              |   |                                                          | (681,633    | )                                                             |   | 861,709                                                                                                     |   |   | 2,227,537 |   |
| Accrued                    expenses                                                                                                              |   |                                                          | 76,547      |                                                          |   | 1,269,965                                                                                                   |   |   | 3,473,027 |   |
| Deferred                    rent                                                                                                                 |   |                                                          | 9,944       |                                                          |   | (4,765                                                                                                      | )      |   | 60,932 |   |
| Net                    cash used in operating activates                                                                                          |   |                                                          | (19,714,635 | )                                                             |   | (15,846,340                                                                                                 | )      |   | (68,264,762 | ) |
| Cash                    flows from investing activities:                                                                                         |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| Purchases                    of property and equipment                                                                                           |   |                                                          | (123,074    | )                                                             |   | (617,959                                                                                                    | )      |   | (1,620,376 | ) |
| Proceeds                    from sale of property and equipment                                                                                  |   |                                                          | 700         |                                                          |   | -                                                                                                           |   |   | 700 |   |
| Decrease                    in short-term investments                                                                                            |   |                                                          | -           |                                                          |   | 1,555,164                                                                                                   |   |   | - |   |
| Net                    cash provided by (used in) investing activities                                                                           |   |                                                          | (122,374    | )                                                             |   | 937,205                                                                                                     |   |   | (1,619,676 | ) |
| Cash                    flows from financing activities:                                                                                         |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| Proceeds                    from the exercise of stock options                                                                                   |   |                                                          | -           |                                                          |   | 21,394                                                                                                      |   |   | 65,596 |   |
| Stockholders'                    capital contribution                                                                                            |   |                                                          | -           |                                                          |   | -                                                                                                           |   |   | 500,000 |   |
| Proceeds                    from issuance of common stock and warrants, net                                                                      |   |                                                          | -           |                                                          |   | 28,970,915                                                                                                  |   |   | 67,751,035 |   |
| Proceeds                    from issuance of preferred stock, net                                                                                |   |                                                          | -           |                                                          |   | -                                                                                                           |   |   | 16,759,596 |   |
| Net                    cash provided by financing activities                                                                                     |   |                                                          | -           |                                                          |   | 28,992,309                                                                                                  |   |   | 85,076,227 |   |
| Net                    increase (decrease) in cash and cash equivalents                                                                          |   |                                                          | (19,837,009 | )                                                             |   | 14,083,174                                                                                                  |   |   | 15,191,789 |   |
| Cash                    and cash equivalents, beginning of period                                                                                |   |                                                          | 35,028,798  |                                                          |   | 26,855,450                                                                                                  |   |   | - |   |
| Cash                    and cash equivalents, end of period                                                                                      |   | $                                                             | 15,191,789  |                                                          | $      | 40,938,624                                                                                                  |   | $ | 15,191,789 |   |
|                                                                                                                                             |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| **Supplementary                    disclosure of cash flow information:**                                                                        |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| Cash                    paid for interest                                                                                                        |   | $                                                             | -           |                                                          | $      | -                                                                                                           |   | $ | - |   |
|                                                                                                                                             |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Cash                    paid for income taxes                                                                                                    |   | $                                                             | -           |                                                          | $      | -                                                                                                           |   | $ | - |   |
|                                                                                                                                             |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| **Supplementary                    disclosure of noncash investing and financing                    activities:**                                |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
|                                                                                                                                             |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Warrants                    issued to placement agents and investors, in connection with                    private                    placement |   | $                                                             | -           |                                                          | $      | 5,432,793                                                                                                   |   | $ | 20,208,217 |   |
|                                                                                                                                             |   |                                                          |        |                                                          |   |                                                                                                        |   |   |   |   |
| Preferred                    stock conversion to common stock                                                                                    |   | $                                                             | -           |                                                          | $      | -                                                                                                           |   | $ | 16,759,596 |   |
|                                                                                                                                             |   |                                                          |             |                                                          |   |                                                                                                             |   |   |  |   |
| Warrants                    converted to common shares                                                                                           |   | $                                                             | -           |                                                          | $      | -                                                                                                           |   | $ | 17,844 |   |

----

***ZIOPHARM        Oncology, Inc.***

***(A        Development Stage Enterprise)***

|                                                        |   | **Convertible Preferred Stock and Warrants** |                         | **Stockholder's Equity (Deficit)** |   |
|-------------------------------------------------------------|--------|------------------------------------------------------------------|------------------------------|----------------------------------------------|--------|
|                                                        |   |                                                             |                         |                                         |   | **Warrants to Purchase** |   |   |   |   |   |   |   |   |   |   |   |   |   |
|                                                        |   | **Series A**                                                |                         | **Series A Convertible**           |   |   |   |   |   |   |   |   |   | **Deficit Accumulated** |   | **Total ** |   |
|                                                        |   | **Convertible Preferred Stock**                        |                         | **Preferred Stock**                     |   | **Common Stock** |   | **Additional Paid-** |   |   |   | **During The** |   | **Stockholders' Equity/** |   |
|                                                        |   | **Shares**                                                       |                         | **Amount**                                   |   | **Warrants** |   | **Shares** |   | **Amount** |   | **in Capital** |   | **Warrants** |   | **Development Stage** |   | **(Deficit)** |   |
| Stockholders'                  contribution,                |   |                                                             |                    |                                         |   |                    |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| September                  9, 2003                          |   |                                                             | -                            |                                         | $      | - |   | $ | - |   |   | 250,487 |   | $ | 250 |   | $ | 499,750 |   | $ | - |   | $ | - |   | $ | 500,000 |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (160,136 | ) |   | (160,136 | ) |
| Balance                  at December 31, 2003               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 250,487 |   |   | 250 |   |   | 499,750 |   |   | - |   |   | (160,136 | ) |   | 339,864 |   |
| Issuance                  of common stock                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 2,254,389 |   |   | 2,254 |   |   | 4,497,746 |   |   | - |   |   | - |   |   | 4,500,000 |   |
| Issuance                  of common stock for services      |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 256,749 |   |   | 257 |   |   | 438,582 |   |   | - |   |   | - |   |   | 438,839 |   |
| Fair                  value of options/warrants             |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| issued                  for nonemployee services            |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 13,240 |   |   | 251,037 |   |   | - |   |   | 264,277 |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (5,687,297 | ) |   | (5,687,297 | ) |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at December 31, 2004               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 2,761,625 |   |   | 2,761 |   |   | 5,449,318 |   |   | 251,037 |   |   | (5,847,433 | ) |   | (144,317 | ) |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                  of Series A convertible preferred |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| stock                  (net of expenses of $1,340,263 and   |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| warrant                  cost of $1,682,863)                |   |                                                             | 4,197,946                    |                                         |   | 15,076,733 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Fair                  value of warrants to purchase Series  |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| A                  convertible preferred stock              |   |                                                             | -                            |                                         |   | - |   |   | 1,682,863 |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |
| Issuance                  of Common stock to EasyWeb        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Shareholders                                                |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 189,922 |   |   | 190 |   |   | (190 | ) |   | - |   |   | - |   |   | - |   |
| Conversion                  of Series A convertible         |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| preferred                  stock @ $0.001 into $0.001       |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| common                  stock on September 13, 2005         |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| at                  an exchange ratio of .500974            |   |                                                             | (4,197,946                   | )                                            |   | (15,076,733 | ) |   | (1,682,863 | ) |   | 4,197,823 |   |   | 4,198 |   |   | 15,072,535 |   |   | 1,682,863 |   |   | - |   |   | 16,759,596 |   |
| Issuance                  of common stock for options       |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 98,622 |   |   | 99 |   |   | 4,716 |   |   |   |   |   | - |   |   | 4,815 |   |
| Fair                  value of options/warrants issued for  |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| nonemployee                  services                       |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 54,115 |   |   | 44,640 |   |   | - |   |   | 98,755 |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (9,516,923 | ) |   | (9,516,923 | ) |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at December 31, 2005               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 7,247,992 |   |   | 7,248 |   |   | 20,580,494 |   |   | 1,978,540 |   |   | (15,364,356 | ) |   | 7,201,926 |   |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Issuance                  of common stock in private        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| placement,                  net of expenses $2,719,395      |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 7,991,256 |   |   | 7,991 |   |   | 21,179,568 |   |   | - |   |   | - |   |   | 21,187,559 |   |
| Issuance                  of warrants                       |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 13,092,561 |   |   | - |   |   | 13,092,561 |   |
| Issuance                  of common stock for               |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| services                  rendered                          |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 25,000 |   |   | 25 |   |   | 106,225 |   |   | - |   |   | - |   |   | 106,250 |   |
| Stock                  based compensation for               |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| employees                                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 2,776,408 |   |   | - |   |   | - |   |   | 2,776,408 |   |
| Issuance                  of common stock due to            |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| exercise                  of stock options                  |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 5,845 |   |   | 6 |   |   | 25,186 |   |   | - |   |   | - |   |   | 25,192 |   |
| Issuance                  of common stock due to            |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| exercise                  of stock warrants                 |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 2,806 |   |   | 3 |   |   | (3 | ) |   | - |   |   | - |   |   | - |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (17,856,919 | ) |   | (17,856,919 | ) |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at December 31, 2006               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 15,272,899 |   |   | 15,273 |   |   | 44,667,878 |   |   | 15,071,101 |   |   | (33,221,275 | ) |   | 26,532,977 |   |
| Issuance                  of common stock in private        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| placement,                  net of expenses $1,909,090      |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 5,910,049 |   |   | 5,910 |   |   | 23,532,212 |   |   | - |   |   | - |   |   | 23,538,122 |   |
| Issuance                  of warrants                       |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | 5,432,793 |   |   | - |   |   | 5,432,793 |   |
| Stock-based                  compensation for employees     |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,318,096 |   |   | - |   |   | - |   |   | 1,318,096 |   |
| Stock-based                  compensation for non-employee  |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 120,492 |   |   | - |   |   | - |   |   | 120,492 |   |
| Issuance                  of common stock due to            |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| exercise                  of stock options                  |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 46,016 |   |   | 46 |   |   | 35,543 |   |   | - |   |   | - |   |   | 35,589 |   |
| Issuance                  of restricted stock               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 70,000 |   |   | 70 |   |   | (70 | ) |   | - |   |   | - |   |   | - |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (26,608,246 | ) |   | (26,608,246 | ) |
|                                                        |   |                                                             |                         |                                         |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Balance                  at December 31, 2007               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 21,298,964 |   |   | 21,299 |   |   | 69,674,151 |   |   | 20,503,894 |   |   | (59,829,521 | ) |   | 30,369,823 |   |
| Stock-based                  compensation for employees     |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | 1,351,541 |   |   | - |   |   | - |   |   | 1,351,541 |   |
| Issuance                  of restricted stock               |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | 100,000 |   |   | 100 |   |   | (100 | ) |   | - |   |   | - |   |   | - |   |
| Cancellation                  of restricted stock           |   |                                                             |                         |                                         |   |   |   |   |   |   |   | (25,000 | ) |   | (25 | ) |   | 25 |   |   | - |   |   | - |   |   | - |   |
| Net                  loss                                   |   |                                                             | -                            |                                         |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | - |   |   | (20,668,349 | ) |   | (20,668,349 | ) |
| Balance                  at September 30, 2008 (unaudited)  |   |                                                             | -                            |                                         | $      | - |   | $ | - |   |   | 21,373,964 |   | $ | 21,374 |   | $ | 71,025,617 |   | $ | 20,503,894 |   | $ | (80,497,870 | ) | $ | 11,053,015 |   |

----

| **1.** | **BASIS                OF PRESENTATION AND                OPERATIONS** |
|--------|------------------------------------------------------------------------|

| **2.** | **RECENT                ACCOUNTING PRONOUNCEMENTS** |
|--------|-----------------------------------------------------|

*Fair      Value Measurements*

*The      Fair Value Option for Financial Assets and Liabilities, Including an amendment      of FASB Statement No. 115*

*Business      Combinations*
he      measurement period. SFAS 141(R) is effective for fiscal years beginning after      December 15, 2008 with early adoption prohibited. The Company expects that      the adoption of this new standard will not have a material impact on the      Company’s financial position, results of operations or cash      flows.

----

| **2.** | **RECENT                ACCOUNTING                PRONOUNCEMENTS...CONTINUED** |
|--------|------------------------------------------------------------------------------------|

*Noncontrolling      Interests in Consolidated Financial Statements—an amendment of Accounting      Research Bulletin No. 51*

| **3.** | **STOCK-BASED                COMPENSATION AND STOCK OPTION                PLAN** |
|--------|----------------------------------------------------------------------------------|

** **

*Stock-based      Compensation Expense*

*Accounting      for Stock Issued to Employee*

|                                                                           |   | **Three months**                       |    | **Three months**                       |   | **Nine months**                        |   | **Nine months**                        |      |
|--------------------------------------------------------------------------------|--------|---------------------------------------------|---------|---------------------------------------------|--------|---------------------------------------------|--------|---------------------------------------------|-----------|
|                                                                      |   | **ended September 30, 2008** |    | **ended September 30, 2007** |   | **ended September 30, 2008** |   | **ended September 30, 2007** |      |
|                                                                           |   |                                        |    |                                        |   |                                        |   |                                        |      |
| Research                and development, including costs of research contracts |   | $                                           | 115,472 |                                        | $      | 139,696                                     |   | $                                           | 500,440   |   | $ | 511,954 |   |
| General                and administrative                                      |   |                                        | 265,488 |                                        |   | 203,601                                     |   |                                        | 851,101   |   |   | 567,094 |   |
| Share                based compensation expense before tax                     |   |                                        | 380,960 |                                        |   | 343,297                                     |   |                                        | 1,351,541 |   |   | 1,079,048 |   |
| Income                tax benefit                                              |   |                                        | -       |                                        |   | -                                           |   |                                        | -         |   |   | - |   |
| Net                compensation expense                                        |   | $                                           | 380,960 |                                        | $      | 343,297                                     |   | $                                           | 1,351,541 |   | $ | 1,079,048 |   |

----

| **3.** | **STOCK-BASED                COMPENSATION AND STOCK OPTION                PLAN...CONTINUED** |
|--------|--------------------------------------------------------------------------------------------------|

*Stock      Option Plan*

*Stock      Options*

|                                                   |   | **Number                of****Shares** |      | **Weighted-****Average****Exercise Price** |   | **Weighted-****Average****Remaining****Contractual****Term (Years)** |   | **Aggregate****Intrinsic****Value** |   |
|--------------------------------------------------------|--------|----------------------------------------|-----------|-------------------------------------------------|--------|---------------------------------------------------------------------------|--------|-------------------------------------|--------|
| Outstanding,                January 1, 2008            |   |                                   | 2,797,000 |                                            | $      | 3.81                                                                      |   |                                |        |   |   |  |   |
| Granted                                                |   |                                   | 172,000   |                                            |   | 2.63                                                                      |   |                                |        |   |   |  |   |
| Exercised                                              |   |                                   | —   |                                            |   | —                                                                   |   |                                |        |   |   |  |   |
| Cancelled                                              |   |                                   | 217,330   |                                            |   | 4.37                                                                      |   |                                |   |   |   |   |   |
| Outstanding,                September 30, 2008         |   |                                   | 2,751,670 |                                            | $      | 3.69                                                                      |   |                                | 7.79   |   | $ | 436,531 |   |
| Options                exercisable, September 30, 2008 |   |                                   | 1,553,279 |                                            | $      | 3.70                                                                      |   |                                | 6.92   |   | $ | 432,531 |   |

----

| **3.** | **STOCK-BASED                COMPENSATION AND STOCK OPTION                PLAN...CONTINUED** |
|--------|--------------------------------------------------------------------------------------------------|

*Restricted      Stock*

|                                            |   | **Restricted****Stock** |    | **Weighted-****Average ****Grant****Date Fair Value** |   |
|-------------------------------------------------|--------|-------------------------|---------|----------------------------------------------------------------------|--------|
| Non-vested                at January 1, 2008    |   |                    | 70,000  |                                                                 | $      | 2.73 |   |
| Granted                                         |   |                    | 100,000 |                                                                 |   | 3.25 |   |
| Vested                                          |   |                    | — |                                                                 |   | — |   |
| Canceled                                        |   |                    | 25,000  |                                                                 |   | 2.73 |   |
| Non-vested                at September 30, 2008 |   |                    | 145,000 |                                                                 | $      | 3.09 |   |

----

| **4.** | **INCOME                TAXES** |
|--------|---------------------------------|

----

**Item      2.**
**MANAGEMENT’S      DISCUSSION AND ANALYSIS**

**Note      Regarding Forward-Looking Statements**

**Overview:**

|   | · | Darinaparsin                is an organic arsenic compound covered by issued patents and pending                patent applications in the U.S. and in foreign countries. A form                of                commercially available inorganic arsenic (arsenic trioxide [Trisenox                ®];                “ATO”) has been approved in the United States and the European Union for                the treatment of acute promyelocytic leukemia (“APL”), a precancerous                condition. ATO is on the compendia listing for the therapy of multiple                myeloma, and has been studied for the treatment of various other                cancers.                Nevertheless, ATO has been shown to be toxic to the heart, liver,                and                brain, which limits its use as an anti-cancer agent. ATO carries                a “black                box” warning for ECG abnormalities since arsenic trioxide has been shown                to cause QT interval prolongation and complete atrioventricular block.                QT                prolongation can lead to a torsade de pointes-type ventricular arrhythmia,                which can be fatal. Inorganic arsenic has also been shown to cause                cancer                of the skin and lung in humans. The toxicity of arsenic is generally                correlated to its accumulation in organs and tissues. Our preclinical                and                clinical studies to date have demonstrated that darinaparsin is                considerably less toxic than inorganic arsenic, particularly with                regard                to cardiac toxicity. *In                vitro*                testing of darinaparsin using the National Cancer Institute’s human cancer                cell panel detected activity against lung, colon, brain, melanoma,                ovarian, and kidney cancer. Moderate activity was detected against                breast                and prostate cancer. In addition to solid tumors, *in                vitro*                testing in both the National Cancer Institute’s cancer cell panel and                *in                vivo*                testing in a leukemia animal model demonstrated substantial activity                against hematological cancers (cancers of the blood and blood-forming                tissues) such as leukemia, lymphoma, myelodysplastic syndromes, and                multiple myeloma. In ongoing *in                vitro*                studies, the activity of darinaparsin against B-cell, T-cell, and                NK-cell                Non-Hodgkin’s Lymphoma cell lines is being investigated. Preliminary                results indicate significant activity against the HuT 78 cutaneous                T-cell                lymphoma, the NK-G2MI natural killer-cell NHL, KARPAS-299 T-cell                NHL,                SU-DHL-8 B-cell NHL, SU-DHL-10 B-cell NHL and SU-DHL-16 B-cell NHL                cell                lines. Preclinical studies have also established anti-angiogenic                properties of darinaparsin, provided support for the development                of an                oral form of the drug, and established synergy of darinaparsin in                combination with other approved anti-cancer                agents. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Overview...Continued**

|   |   | Phase                I testing of the intravenous form of darinaparsin in solid tumors                and                hematological cancers has been completed. The Company has reported                clinical activity and, importantly, a safety profile from these studies                as                predicted by preclinical results. The Company is nearing completion                of                Phase II studies in advanced myeloma, in certain other hematological                cancers, and primary liver cancer. In addition, the Company has recently                initiated two Phase I studies with an oral form of darinaparsin.                Preliminary favorable results from the trial with IV-administered                darinaparsin in hematologic cancers have been reported. Initial study                results indicate efficacy and a favorable safety profile in various                types                of blood cancers. In the ongoing Phase I trials, preliminary reported                data                in solid tumors indicate the oral form is active and well tolerated.                The                Company is actively seeking a partner or partners, or other sources                of                funding, to progress both the IV and oral programs into phase II                study in                particular sub-types of non-Hodgkin’s lymphoma. If we cannot find a                partner to fund the development of either one or both forms of                darinaparsin, we would intend to complete the ongoing studies which                are                included in the Company’s current estimate of expenses and then                discontinue the development program for darinaparsin.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   | · | Palifosfamide,                or isophosphoramide mustard (“IPM”), is the active metabolite of                ifosfamide, a compound chemically related to cyclophosphamide. Patent                applications covering proprietary forms of palifosfamide for                pharmaceutical composition and method of use have been filed in the                U.S.                and internationally. Like cyclophosphamide and ifosfamide, palifosfamide                is an alkylating agent. The Company believes that cyclophosphamide                is the                most widely used alkylating agent in cancer therapy, with significant                use                in the treatment of breast cancer and non-Hodgkin’s lymphoma. Ifosfamide                has been shown to be effective at high doses in the treatment of                sarcoma                and lymphoma, either by itself or in combination with other anticancer                agents. Ifosfamide is approved by the U.S. Food and Drug                Administration ("FDA") as a treatment for testicular cancer while                ifosfamide-based treatment is a standard of care for sarcoma, although                it                is not licensed for this indication by the U.S. FDA. Preclinical                studies                have shown that palifosfamide has activity against leukemia and solid                tumors. These studies also indicate that palifosfamide may have a                better                safety profile than ifosfamide or cyclophosphamide because it does                not                appear to produce known toxic metabolites, such as acrolein and                chloroacetaldehyde. Acrolein, which is toxic to the kidneys and bladder,                can mandate the administration of a protective agent called mesna,                which                is inconvenient and expensive. Chloroacetaldehyde is toxic to the                central                nervous system, causing “fuzzy brain” syndrome for which there is                currently no protective measure. Similar toxicity concerns pertain                to                high-dose cyclophosphamide, which is widely used in bone marrow and                blood                cell transplantation. Palifosfamide has evidenced activity against                ifosfamide- and/or cyclophosphamide-resistant cancer cell lines.                Also in                preclinical cancer models, encouraging results have been obtained                with                palifosfamide in combination with doxorubicin, an agent approved                to                treat sarcoma. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |
|   |   | Following                Phase I study, Phase II testing of the intravenous form of palifosfamide                as a single agent to treat advanced sarcoma has been completed. In                both                Phase I and Phase II testing, palifosfamide has been administered                without                the “uroprotectant” mesna, and the toxicities associated with acrolein and                chloroacetaldehyde have not been observed. With an earlier form of                palifosfamide that has been recently substituted with a new form,                kidney                toxicity (Fanconi’s Syndrome) and acute renal failure were reported                primarily at doses significantly higher than the dose currently used                in                clinical trials. In clinical study to date with the new form, there                have                been no reports of kidney toxicity and palifosfamide has been otherwise                well tolerated. The Company reported clinical activity of palifosfamide                when used alone in the Phase II study addressing advanced sarcoma.                Following review of the preclinical combination studies, clinical                data,                and discussion with sarcoma experts, the Company initiated a Phase                I study                of palifosfamide in combination with doxorubicin in patients with                soft                tissue sarcoma. In light of the reported favorable phase II clinical                activity data and with the combination of palifosfamide with doxorubicin                well tolerated in the phase I trial (enrollment completed, study                ongoing),                the Company has initiated a Phase II randomized controlled trial                to                compare doxorubicin plus palifosfamide to doxorubicin alone in patients                with front and second-line soft tissue sarcoma. Data from this                trial are expected to shape a Phase III trial in the same setting.                The                Company is also developing an oral form of palifosfamide to be studied                clinically following completion of additional preclinical studies                and with                further data from the IV trials. Importantly, Orphan Drug Designation                for                palifosfamide has been obtained in both the United States and the                European                Union for the treatment of soft tissue sarcomas.                                                                                                                              |

----

**Overview...Continued**

|   | · | Indibulin                is a novel, orally available small molecular-weight inhibitor of                tubulin polymerization that was acquired from Baxter Healthcare and                is the                subject of numerous patents worldwide, including the United States,                the                European Union and Japan. The microtubule component, tubulin, is                one of                the more well established drug targets in cancer. Microtubule inhibitors                interfere with the dynamics of tubulin polymerization, resulting                in                inhibition of chromosome segregation during mitosis and consequently                inhibition of cell division. A number of marketed IV anticancer drugs                target tubulin, such as the taxane family members, paclitaxel (Taxol                ®,                Abraxane ®),                docetaxel (Taxotere ®)                ,                and the *Vinca*                alkaloid family members, vincristine and vinorelbine. This class                of agents                is typically the mainstay of therapy in a wide variety of indications.                In                spite of their effectiveness, the use of these drugs is associated                with                significant toxicities, notably peripheral neurotoxicity. Preclinical                studies with indibulin demonstrate significant and broad antitumor                activity, including activity against taxane-refractory cell lines.                The                cytotoxic activity of indibulin was demonstrated in several rodent                and                human tumor cell lines derived from prostate, brain, breast, pancreas,                lung, ovary, and cervical tumor tissues and in rodent tumor and human                tumor xenograft models. In addition, indibulin was effective against                multidrug resistant tumor cell lines (breast, lung, and leukemia)                both                *in                vitro*                and *in                vivo*.                Indibulin is potentially safer than other tubulin inhibitors. No                neurotoxicity has been observed at therapeutic doses in rodents and                in the                ongoing Phase I trials. Indibulin has also demonstrated synergy with                approved anti-cancer agents in preclinical studies. The availability                of an                oral formulation of indibulin creates significant commercial opportunity                because no oral formulations of paclitaxel or related compounds are                currently on the market in the United States. Indibulin                has completed a Phase I trial in Europe and two additional Phase                I trials                are nearing completion in the U.S. in patients with advanced solid                tumors.                The Company has reported signs of clinical activity at well-tolerated                doses using a continuous dosing scheme without the development of                clinically relevant peripheral neuropathy. Following encouraging                results                obtained with indibulin in combination with erlotinib, and 5-FU in                preclinical models, two Phase I/II combination studies have been                initiated with Tarceva® and Xeloda®. Preclinical work to explore dose                dense and metronomic dosing in the clinical setting are progressing. |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

----

**Plan      of Operation**

|   | · | Clinical                trial expenses, including the costs incurred with respect to the                conduct                of clinical trials for palifosfamide and                indibulin; |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Fees                and milestone payments required under the license agreements relating                to                our existing product candidates; |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Costs                related to the scale-up and the manufacture of palifosfamide and                indibulin; |
|--------|--------|-----------------------------------------------------------------------------------------------------------------|

|   | · | Rent                for our facilities; and |
|--------|--------|---------------------------------------------|

|   | · | General                corporate and working capital, including general and administrative                expenses. |
|--------|--------|---------------------------------------------------------------------------------------------------------------------|

***Product      Candidate Development and Clinical Trials***

*Intravenous      darinaparsin*

*Intravenous      palifosfamide*

*Indibulin*

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**Results      of Operations for the three and nine months ended September 30, 2008 versus      September 30, 2007**

*Revenues.*

*Research      and development expenses.*

*General      and administrative expenses.*

*Other      income (expense)*

*Net      income (loss).*

**Liquidity      and Capital Resources**

|   | · | Changes                in the focus and direction of our development                programs; |
|--------|--------|-----------------------------------------------------------------------------------------------|

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|   | · | Competitive                and technical advances; |
|--------|--------|----------------------------------------------------|

|   | · | Costs                associated the development of palifosfamide and indibulin and the                further                financing of darinaparsin development by a partner;                and |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

|   | · | Costs                of filing, prosecuting, defending and enforcing any patent claims                and any                other intellectual property rights, or other                developments. |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

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|                           |   | **Payments due by Period** |      |
|-----------------------------------------------|--------|-------------------------------------------|-----------|
|                                |   | **Total**                                 |      | **2009** |   | **2010** |   | **2011** |   | **2012** |   | **2013 and****thereafter** |   |
| Operating                leases     |   | $                                         | 1,184,362 |   | $ | 471,026 |   | $ | 350,804 |   | $ | 186,188 |   | $ | 176,344 |   |   | — |   |

**Critical      Accounting Policies and Significant Estimates**

**Research      and Development**

**Stock-based      compensation**

*Accounting      for Stock Issued to Employees*

**Off-Balance      Sheet Arrangements**

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**Item      3. **
**QUANTITATIVE      AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK**

**Item      4.**
**CONTROLS      AND PROCEDURES**
** **

**PART      II - OTHER INFORMATION**

**Item      1. Legal Proceedings**

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

No      response required.

**Item      3. Defaults Upon Senior Securities.**

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

**Item      5. Other Information**

 

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**Item      6. EXHIBITS**

| **Exhibit                No.** |   | **Description**                                                                                                                                                                                                          |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |   |                                                                                                                                                                                                                     |
| 31.1                           |   | Certification                of Chief Executive Officer pursuant to Securities Exchange Act Rule                13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002. |
|                           |   |                                                                                                                                                                                                                     |
| 31.2                           |   | Certification                of Chief Financial Officer pursuant to Securities Exchange Act Rule                13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002. |
|                           |   |                                                                                                                                                                                                                     |
| 32.1                           |   | Certification                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as                adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.           |
|                           |   |                                                                                                                                                                                                                     |
| 32.2                           |   | Certification                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as                adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.           |

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**SIGNATURES**

|                                       | **ZIOPHARM                ONCOLOGY, INC.** |
|--------------------------------------------|--------------------------------------------|
|                                       |                                       |   |
| Date: October                30, 2008 | By:                              | /s/ Jonathan                Lewis |
|                                       |                                       | Jonathan                Lewis, M.D., Ph.D.Chief                Executive Officer(Principal                Executive Officer) |

| Date:                October 30, 2008 | By:   | /s/ Richard                Bagley                                                                                         |
|---------------------------------------|-----------------|--------------------------------------------------------------------------------------------------------------------------------|
|                                  |            | Richard                BagleyChief                Financial Officer(Principal                Financial and Accounting Officer) |

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**EXHIBIT      INDEX**

| **Exhibit                No.** |   | **Description**                                                                                                                                                                                                          |
|--------------------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                           |   |                                                                                                                                                                                                                     |
| 31.1                           |   | Certification                of Chief Executive Officer pursuant to Securities Exchange Act Rule                13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002. |
|                           |   |                                                                                                                                                                                                                     |
| 31.2                           |   | Certification                of Chief Financial Officer pursuant to Securities Exchange Act Rule                13a-15(e)/15d-15(e) as adopted pursuant to Section 302 of the                Sarbanes-Oxley Act of 2002. |
|                           |   |                                                                                                                                                                                                                     |
| 32.1                           |   | Certification                of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as                adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.           |
|                           |   |                                                                                                                                                                                                                     |
| 32.2                           |   | Certification                of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as                adopted                pursuant to Section 906 of the Sarbanes-Oxley Act of                2002.           |

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