Edgar Filing: SIGA TECHNOLOGIES INC

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

(Mark One)

|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934

For the Quarter Ended September 30, 2006

|_| Transition Report Pursuant To Section 13 Or 15(d) Of
the Securities Exchange Act of 1934

For the Transition Period from ___________ to _____________

Commission File No. 0-23047

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SIGA Technologies, Inc.
(Exact name of registrant as specified in its charter)

A Delaware Corporation IRS Employer No. 13-3864870

420 Lexington Avenue, Suite 408, New York, NY 10170
Telephone Number (212) 672-9100

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|.

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):

Large Accelerated Filer |_| Accelerated Filer |_| Non-Accelerated Filer |X|.

Indicate by check mark whether the registrant is a shell company (as defined in
rule 12b-2 of the Exchange Act). Yes |_| No |X|.

As of October 31, 2006 the registrant had 31,765,621 shares of common stock
outstanding.

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SIGA Technologies, Inc.

Form 10-Q

Table of Contents

Page No.
PART I FINANCIAL INFORMATION

Item 1. Financial Statements ....................................... 2

Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations .................................. 13

Item 3. Quantitative and Qualitative Disclosure About Market Risk .. 23

Item 4. Controls and Procedures .................................... 23

PART II OTHER INFORMATION

Item 1. Legal Proceedings .......................................... 24

Item 1A. Risk Factors ............................................... 24

Item 2. Changes in Securities, Use of Proceeds and Issuer Purchases of
Equity Securities .......................................... 24

Item 3. Defaults Upon Senior Securities ............................ 24

Item 4. Submission of Matters to a Vote of Security Holders ........ 24

Item 5. Other Information .......................................... 24

Item 6. Exhibits ................................................... 24

SIGNATURES .......................................................... 25

PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

SIGA TECHNOLOGIES, INC.

BALANCE SHEETS

Unaudited
September 30, December 31,
2006 2005
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ASSETS
Current assets
Cash and cash equivalents ............................................... $ 2,649,684 $ 1,772,489
Accounts receivable ..................................................... 112,522 883,054
Prepaid expenses ........................................................ 131,937 160,144
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Total current assets ................................................... 2,894,143 2,815,687

Property, plant and equipment, net ...................................... 1,498,667 1,224,147
Goodwill ................................................................ 898,334 898,334
Intangible assets, net .................................................. 191,471 932,735
Other assets ............................................................ 246,201 234,126
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Total assets ........................................................... $ 5,728,816 $ 6,105,029
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ........................................................ $ 708,785 $ 1,251,854
Accrued expenses and other .............................................. 387,823 452,082
Deferred revenue ........................................................ 434,466 347,319
Common stock rights ..................................................... -- 73,400
Notes payable ........................................................... 3,107,520 107,520
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Total current liabilities .............................................. 4,638,594 2,232,175

Non-current portion of notes payable ..................................... 43,784 106,705
Common stock warrants .................................................... 969,095 535,119
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Total liabilities ...................................................... 5,651,473 2,873,999

Commitments and contingencies ............................................ -- --

Stockholders' equity
Series A convertible preferred stock ($ 0001 par value, 10,000,000 shares
authorized, 68,038 issued and outstanding at September 30, 2006
and December 31, 2005) ................................................. 58,672 58,672
Common stock ($.0001 par value, 50,000,000 shares authorized,
28,070,148 and 26,500,648 issued and outstanding at September 30, 2006
and December 31, 2005, respectively) ................................... 2,807 2,650
Additional paid-in capital .............................................. 52,132,184 49,638,619
Accumulated deficit ..................................................... (52,116,320) (46,468,911)
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Total stockholders' equity ............................................. 77,343 3,231,030
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Total liabilities and stockholders' equity ............................. $ 5,728,816 $ 6,105,029
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The accompanying notes are an integral part of these financial statements.

SIGA TECHNOLOGIES, INC.

STATEMENTS OF OPERATIONS (UNAUDITED)

Three Months Ended Nine Months Ended
September 30, September 30,
2006 2005 2006 2005
------------ ----------- ------------ ------------

Revenues
Research and development ........................................ $ 2,035,668 $ 2,910,065 $ 4,888,987 $ 6,232,625
------------ ----------- ------------ ------------

Operating expenses
Selling, general and administrative (include $91,078 and $274,926
of non-cash share based compensation for the three
and nine months ended September 30, 2006, respectively) ... 802,391 415,275 3,237,002 2,071,223
Research and development (include $12,205 and $65,355
of non-cash share based compensation for the three
and nine months ended September 30, 2006, respectively) ... 2,156,473 1,764,980 6,245,640 5,899,371
Patent preparation fees ......................................... 36,304 8,031 258,751 273,921
------------ ----------- ------------ ------------
Total operating expenses ...................................... 2,995,168 2,188,286 9,741,393 8,244,515
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Operating income (loss) ....................................... (959,500) 721,779 (4,852,406) (2,011,890)

Decrease (increase) in fair market value of common stock rights
and common stock warrants ....................................... 350,790 -- (721,062)
Other income (expense), net ...................................... (48,088) 1,982 (73,941) (2,221)
------------ ----------- ------------ ------------
Net income (loss) ............................................. $ (656,798) $ 723,761 $ (5,647,409) $ (2,014,111)
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Weighted average shares outstanding: basic and diluted ........... 27,656,368 24,500,648 27,219,221 24,500,648
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Net income (loss) per share: basic and diluted ................... $ (0.02) $ 0.03 $ (0.21) $ (0.08)
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The accompanying notes are an integral part of these financial statements.

SIGA TECHNOLOGIES, INC.

STATEMENT OF CASH FLOWS (UNAUDITED)

Nine Months Ended
September 30,
2006 2005
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Cash flows from operating activities:
Net loss ........................................................... $(5,647,409) $(2,014,111)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation ..................................................... 530,855 111,294
Amortization of intangible assets ................................ 741,264 907,213
Increase in fair market value of common stock rights and warrants 721,062 --
Stock based compensation ......................................... 340,281 11,700
Non-cash consulting expense ...................................... 156,470 --
Loss on impairment of investments ................................ -- 15,000
Loss on write-off of prepaid investments ......................... -- 91,083
Changes in assets and liabilities:
Accounts receivable ........................................... 770,532 (411,813)
Prepaid expenses .............................................. 28,207 10,330
Other assets .................................................. (12,075) (67,401)
Accrued interest payable ...................................... 97,822 --
Deferred revenue .............................................. 87,147 --
Accounts payable and accrued expenses ......................... (687,432) (66,430)
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Net cash used in operating activities ......................... (2,873,276) (1,413,135)
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Cash flows from investing activities:
Capital expenditures ............................................. (805,375) (655,053)
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Net cash used in investing activities ......................... (805,375) (655,053)
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Cash flows from financing activities:
Proceeds from note payable ....................................... 3,000,000 276,435
Net proceeds from from exercise of common stock rights ........... 1,534,500 --
Net proceeds from from exercise of warrants to purchase common stock 101,985 --
Repayment of note payable ........................................ (80,639) (35,329)
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Net cash provided by financing activities ..................... 4,555,846 241,106
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Net increase (decrease) in cash and cash equivalents ............... 877,195 (1,827,082)
Cash and cash equivalents at beginning of period ................... 1,772,489 2,020,938
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Cash and cash equivalents at end of period ......................... $ 2,649,684 $ 193,856
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The accompanying notes are an integral part of these financial statements.

SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2006 Financial Statements (Unaudited)

1. Basis of Presentation

SIGA Technologies, Inc. ("SIGA" or the "Company") is a bio-defense company
engaged in the discovery, development and commercialization of products for use
in defense against biological warfare agents such as Smallpox and Arenaviruses.
The Company is also engaged in the discovery and development of other novel
anti-infectives, vaccines, and antibiotics for the prevention and treatment of
serious infectious diseases. The Company's anti-viral programs are designed to
prevent or limit the replication of viral pathogens. SIGA's anti-infectives
programs target the increasingly serious problem of drug resistant bacteria and
emerging pathogens.

The financial statements of the Company have been prepared in accordance with
accounting principles generally accepted in the United States of America for
interim financial information and the rules and regulations of the Securities
and Exchange Commission (the "SEC") for quarterly reports on Forms 10-Q and
should be read in conjunction with the Company's audited financial statements
and notes thereto for the year ended December 31, 2005, included in the 2005
Form 10-K. All terms used but not defined elsewhere herein have the meaning
ascribed to them in the Company's 2005 annual report and Form 10-K. In the
opinion of management, all adjustments (consisting of normal and recurring
adjustments) considered necessary for a fair presentation of the results of the
interim periods presented have been included. The results of operations for the
nine months ended September 30, 2006 are not necessarily indicative of the
results expected for the full year.

The accompanying financial statements have been prepared on a basis which
assumes that the Company will continue as a going concern and which contemplates
the realization of assets and the satisfaction of liabilities and commitments in
the normal course of business. The Company has incurred cumulative net losses
and expects to incur additional losses to perform further research and
development activities. The Company does not have commercial products and has
limited capital resources. Management's plans with regard to these matters
include continued development of its products as well as seeking additional
research support funds and financial arrangements. Although management will
continue to pursue these plans, there is no assurance that the Company will be
successful in obtaining sufficient future financing on commercially reasonable
terms or that the Company will be able to secure funding from anticipated
government contracts and grants. Management believes that existing cash balances
combined with anticipated cash flows will be sufficient to support its
operations beyond the next twelve months, and will fund the Company's business
objectives during that period. If the Company is unable to continue to raise
adequate capital or achieve profitability, its future operations might need to
be scaled back or discontinued.

On October 19, 2006, the Company entered into a Securities Purchase Agreement
for the issuance and sale of 2,000,000 shares of the Company's common stock at
$4.54 per share and warrants to purchase 1,000,000 shares of the Company's
common stock. The warrants are exercisable at 110% of the closing price on the
closing date of the transaction at any time and from time to time through and
including the seventh anniversary of the closing date. With respect to the
transaction, the Company also entered into a Finders Agreement. The finders' fee
under the agreement includes cash compensation of 3% of the amount financed and
warrants to acquire 136,200 shares of the Company's common stock at terms equal
to the investors' warrants. Also in connection with the transaction, pursuant to
the Company's existing Exclusive Finders Agreement, the Company paid finders fee
consisting of cash consideration of 4% of the amount financed and warrants
acquiring 136,200 shares of the Company's common stock at terms equal to the
investors' warrants. The Company received net proceeds of $8.4 million from the
transaction.

In October, 2006, the Company also received net proceeds of $3.0 million from
exercises of warrants and options to purchase shares of the Company's common
stock.

On October 23, 2006, the Company repaid in full $3,000,000 of outstanding notes
payable and the interest accrued thereon.

2. Significant Accounting Policies

Share-based Compensation

for all share-based payment awards made to employees and directors including
employee stock options and employee stock purchases related to the Employee
Stock Purchase Plan ("employee stock purchases") based on estimated fair values.
SFAS 123(R) supersedes the Company's previous accounting under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB 25") for periods beginning on January 1, 2006. In March 2005, the SEC
issued Staff Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R).
The Company has applied the provisions of SAB 107 in its adoption of SFAS
123(R).

The Company adopted SFAS 123(R) using the modified prospective transition
method, which requires the application of the accounting standard as of January
1, 2006, the first day of the Company's fiscal year 2006. The Company's
Financial Statements as of and for the three and nine months ended September 30,
2006 reflect the impact of SFAS 123(R). In accordance with the modified
prospective transition method, the Company's Financial Statements for prior
periods have not been restated to reflect, and do not include, the impact of
SFAS 123(R). Share-based compensation related to stock options expense
recognized under SFAS 123(R) for the three and nine months ended September 30,
2006 was $103,583 and $340,281, respectively. No share-based compensation
expense related to employee stock options was recognized during the three and
nine months ended September 30, 2005.

SFAS 123(R) requires companies to estimate the fair value of share-based payment
awards on the grant-date using an option-pricing model. The value of the portion
of the award that is ultimately expected to vest is recognized as expense over
the requisite service periods in the Company's Statements of Operations. Prior
to the adoption of SFAS 123(R), the Company accounted for share-based awards to
employees and directors using the intrinsic value method in accordance with APB
25 as allowed under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS 123"). Under the intrinsic
value method, no share-based compensation expense related to stock options had
been recognized in the Company's Statements of Operations when the exercise
price of the Company's stock options granted to employees and directors equaled
the fair market value of the underlying stock at the grant-date.

Share-based compensation expense recognized during the current period is based
on the value of the portion of share-based payment awards that is ultimately
expected to vest. SFAS 123(R) requires forfeitures to be estimated at the time
of grant in order to estimate the amount of share-based awards that will
ultimately vest. The forfeiture rate is based on historical rates. Share-based
compensation expense recognized in the Company's Statements of Operations for
the nine months ended September 30, 2006 includes (i) compensation expense for
share-based payment awards granted prior to, but not yet vested as of December
31, 2005, based on the grant-date fair value estimated in accordance with the
pro forma provisions of SFAS 123 and (ii) compensation expense for the
share-based payment awards granted subsequent to December 31, 2005, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). The Company utilizes the Black-Scholes option pricing model for the
valuation of share-based awards.

Share-based compensation expense reduced the Company's results of operations for
the three and nine months ended September 30, 2006 by $103,583 and $340,281,
respectively, or $0.00 and 0.01 per share, respectively, and had no impact on
the Company's cash flow.

The following table illustrates the effect on net loss and net loss per share as
if the Company had applied the fair value recognition provisions of SFAS No.
123, as amended by SFAS No. 148, "Accounting for Stock-Based Compensation -
Transition and Disclosures" ("SFAS 148") during the respective periods in the
prior year.

Three months Nine months
ended September ended September
30, 2005 30, 2005
---------------- ---------------

Net gain (loss) available to common stockholders, as reported $ 723,761 $ (2,014,111)
Add: Stock-based employee compensation expense included
in reported net income -- 11,700
Deduct: Total stock based compensation expense determined
under the fair value based method (172,201) (624,243)
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Net gain (loss) available to common stockholders, pro forma $ 551,560 $ (2,626,654)
================ ===============

Gain (loss) per common share - basic and diluted:
As reported $ 0.03 $ (0.08)
Pro forma $ 0.02 $ (0.11)

Use of Estimates

The financial statements and related disclosures are prepared in conformity with
accounting principles generally accepted in the United States of America.
Management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities, the disclosure of contingent assets
and liabilities at the date of the financial statements and revenue and expenses
during the period reported. These estimates include the realization of deferred
tax assets, useful lives and impairment of tangible and intangible assets, and
the value of options and warrants granted by the Company. Estimates and
assumptions are reviewed periodically and the effects of revisions are reflected
in the financial statements in the period they are determined to be necessary.
Actual results could differ from these estimates.

Cash and cash equivalents

Cash and cash equivalents consist of short term, highly liquid investments, with
original maturities of less than three months when purchased and are stated at
cost. Interest income is accrued as earned.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation.
Depreciation is provided on the straight-line method over the estimated useful
lives of the various asset classes. Estimated lives are 5 years for laboratory
equipment; 3 years for computer equipment; 7 years for furniture and fixtures;
and the shorter of the estimated lives or the life of the lease for leasehold
improvements. Maintenance, repairs and minor replacements are charged to expense
as incurred. Upon retirement or disposal of assets, the cost and related
accumulated depreciation are removed from the Balance Sheet and any gain or loss
is reflected in the Statement of Operations.

Revenue Recognition

The Company recognizes revenue from contract research and development and
research payments in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed or determinable, collectibility is reasonably
assured, contractual obligations have been satisfied and title and risk of loss
have been transferred to the customer. The Company recognizes revenue from
non-refundable up-front payments, not tied to achieving a specific performance
milestone, over the period which the Company is obligated to perform services or
based on the percentage of costs incurred to date, estimated costs to complete
and total expected contract revenue. Payments for development activities are
recognized as revenue as earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.

For the three month periods ended September 30, 2006 and 2005, revenues from
National Institutes of Health ("NIH") Small Business Innovation Research
("SBIR") grants approximated 51% and 92%, respectively, of total revenues
recognized by the Company. For the nine month periods ended September 30, 2006
and 2005, revenues from NIH SBIR grants approximated 46% and 93%, respectively,
of total revenues recognized by the Company.

Accounts Receivable

Accounts receivable are recorded net of provisions for doubtful accounts. An
allowance for doubtful accounts is based on specific analysis of the
receivables. At September 30, 2006 and December 31, 2005 the Company had no
allowance for doubtful accounts.

Research and development

Research and development expenses include costs directly attributable to the
conduct of research and development programs, including employee related costs,
materials, supplies, depreciation on and maintenance of research equipment, the
cost of services provided by outside contractors, and facility costs, such as
rent, utilities, and general support services. All costs associated with
research and development are expensed as incurred. Costs related to the
acquisition of technology rights, for which development work is still in
process, and that have no alternative future uses, are expensed as incurred.

Goodwill

Goodwill is recorded when the purchase price paid for an acquisition exceeds the
estimated fair value of the net identified tangible and intangible assets
acquired.

The Company performs an annual review in the fourth quarter of each year, or
more frequently if indicators of potential impairment exist, to determine if the
carrying value of the recorded goodwill is impaired. Goodwill impairment is
determined using a two-step approach in accordance with Statement of Financial
Accounting Standards No. 142 "Goodwill and Other Intangible Assets" ("SFAS
142"). The impairment review process compares the fair value of the reporting
unit in which goodwill resides to its carrying value.

Intangible Assets

Acquisition-related intangible assets include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 2 to 4 years.

Income taxes

Income taxes are accounted for under the asset and liability method prescribed
by Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Deferred income taxes are recorded for temporary differences between
financial statement carrying amounts and the tax basis of assets and
liabilities. Deferred tax assets and liabilities reflect the tax rates expected
to be in effect for the years in which the differences are expected to reverse.
A valuation allowance is provided if it is more likely than not that some or the
entire deferred tax asset will not be realized.

Net income (loss) per common share

The Company computes, presents and discloses earnings per share in accordance
with SFAS 128 "Earnings Per Share" ("EPS") which specifies the computation,
presentation and disclosure requirements for earnings per share of entities with
publicly held common stock or potential common stock. The statement defines two
earnings per share calculations, basic and diluted. The objective of basic EPS
is to measure the performance of an entity over the reporting period by dividing
income (loss) by the weighted average shares outstanding. The objective of
diluted EPS is consistent with that of basic EPS, that is to measure the
performance of an entity over the reporting period, while giving effect to all
dilutive potential common shares that were outstanding during the period. The
calculation of diluted EPS is similar to basic EPS except the denominator is
increased for the conversion of potential common shares.

The Company incurred losses for the three and nine months ended September 30,
2006 and for the nine months ended September 30, 2005, and as a result, certain
equity instruments are excluded from the calculation of diluted loss per share
for these periods. At September 30, 2006 and 2005, 68,038 shares of the
Company's Series A convertible preferred stock have been excluded from the
computation of diluted loss per share as they are anti-dilutive. At September
30, 2006 and 2005, outstanding options to purchase 8,482,227 and 9,788,228
shares, respectively, of the Company's common stock with exercise prices ranging
from $0.94 to $5.50 have been excluded from the computation of diluted loss per
share as they are anti-dilutive. At September 30, 2006 and 2005, outstanding
warrants to purchase 9,985,896 and 8,419,594 shares, respectively, of the
Company's common stock, with exercise prices ranging from $1.18 to $3.60 have
been excluded from the computation of diluted loss per share as they are
anti-dilutive.

Fair value of financial instruments

The carrying value of cash and cash equivalents, accounts payable and accrued
expenses approximates fair value due to the relatively short maturity of these
instruments.

Concentration of credit risk

The Company has cash in bank accounts that exceed the Federal Deposit Insurance
Corporation insured limits. The Company has not experienced any losses on its
cash accounts. No allowance has been provided for potential credit losses
because management believes that any such losses would be minimal.

Segment information

The Company is managed and operated as one business. The entire business is
managed by a single management team that reports to the Acting Chief Executive
Officer. The Company does not operate separate lines of business or separate
business entities with respect to any of its product candidates. Accordingly,
the Company does not prepare discrete financial information with respect to
separate product areas or by location and only has one reportable segment as
defined by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information".

Recent accounting pronouncements

In July 2006, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes--an
interpretation of FASB Statement No. 109" ("FIN 48"), which clarifies the
accounting for uncertainty in tax positions. This Interpretation requires an
entity to recognize the impact of a tax position in its financial statements if
that position is more likely than not to be sustained on audit based on the
technical merits of the position. The provisions of FIN 48 are effective as of
the beginning of fiscal year 2007, with the cumulative effect of the change in
accounting principle recorded as an adjustment to opening retained earnings.
Early application of FIN 48 is encouraged. The Company is evaluating the timing
of its adoption of FIN 48 and the potential effects of implementing this
Interpretation on its financial condition and results of operations.

3. Research Agreements

On August 30, 2006, the Company received a three-year, $6.0 million award from
the NIH to support the development of its antiviral drugs for the Lassa fever
virus. Revenues will be recognized as services are performed.

On August 1, 2006, SIGA received a three-year, $4.8 million SBIR Phase II
continuation grant from the NIH to support the Company's development of its
smallpox drug candidate, SIGA-246. Revenues will be recognized as services are
performed.

On September 26, 2006, the Company entered into a three-year, $16.5 million
contract with the National Institute of Allergy and Infectious Diseases of the
NIH, to further advance the development of SIGA-246, the Company's smallpox drug
candidate. Revenues will be recognized as services are performed.

4. Intangible Assets

Amortization expense recorded for the nine months ended September 30, 2006 and
2005 was as follows:

Nine Months Ended September 30,
2006 2005
-------------- -------------

Amortization of acquired grants $ 654,228 $ 736,010
Amortization of customer contract and grants 25,070 25,070
Amortization of covenants not to compete -- 84,167
Amortization of acquired technology 61,966 61,966
-------------- -------------
$ 741,264 $ 907,213
-------------- -------------

5. Stockholders' Equity

At September 30, 2006, the Company's authorized share capital consisted of
60,000,000 shares, of which 50,000,000 are designated common shares and
10,000,000 are designated preferred shares. The Company's Board of Directors is
authorized to issue preferred shares in series with rights, privileges and
qualifications of each series determined by the Board.

Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at an annual rate of 6% payable when and if declared by the
Company's board of directors; (ii) in the event of liquidation of the Company,
each holder is entitled to receive $1.4375 per share (subject to certain
adjustments) plus all accrued but unpaid dividends; (iii) convert each share of
Series A to a number of fully paid and non-assessable shares of common stock as
calculated by dividing $1.4375 by the Series A Conversion Price (shall initially
be $1.4375); and (iv) vote with the holders of other classes of shares on an
as-converted basis. In October, 2006, holders of the Company's Series A
Preferred Stock converted their shares into shares of the Company's common
stock.

In November 2005, the Company sold 2,000,000 shares of the Company's common
stock at $1.00 per share, warrants to purchase 1,000,000 shares of the Company's
common stock with an initial exercise price of $1.18 per share, and rights to
purchase 2,000,000 additional shares of the Company's common stock for an
initial price of $1.10 per share. The warrants are exercisable at any time and
from time to time through and including the seventh anniversary of the sale
closing date and the rights are exercisable for a period of 90 trading days
following the effectiveness of a registration statement. In May, July and August
2006, holders of 1,500,000 rights to acquire shares of the Company's common
stock exercised their rights. Net proceeds from the exercise of the rights were
$1,534,500. On August 25, 2006, 500,000 rights to acquire common stock expired
unexercised.

The Company accounted for the transaction under the provisions of EITF 00-19
which requires that free standing derivative financial instruments that require
net cash settlement be classified as assets or liabilities at the time of the
transaction, and recorded at their fair value. EITF 00-19 also requires that any
changes in the fair value of the derivative instruments be reported in earnings
as long as the derivative contracts are classified as assets or liabilities. At
September 30, 2006, the fair value of the outstanding warrants to acquire common
stock was $969,095. The Company applied the Black-Scholes model to calculate the
fair values of the derivative instruments using the contracted term of the
instruments. Management estimates the expected volatility using a combination of
the Company's historical volatility and the volatility of a group of comparable
companies. For the 3 and 9 months ended September 30, 2006, SIGA recorded a gain
of $350,789 and a loss of $721,063, respectively, representing changes in the
instruments' fair value.

6. Related Parties

During the nine months ended September 30, 2006, the Company incurred costs of
$62,500 related to work performed by an affiliate of a related party in
connection with one of the Company's lead product programs. On September 30,
2006, the Company's outstanding payables included $81,400 payable to the related
party and its affiliate. Accounts receivable at September 30, 2006 included
$46,883 due from a related party.

7. Notes Payable

On March 20, 2006, SIGA entered into a Bridge Note Purchase Agreement ("Note
Purchase Agreement") with PharmAthene, Inc. ("PHTN") for the sale of three 8%
Notes by SIGA, for $1,000,000 each. The first, second and third Notes were
issued on March 20, 2006, April 19, 2006, and June 19, 2006, respectively. The
proceeds of the Notes were used by the Company for (i) expenses directly related
to the development of SIGA's lead product, SIGA-246, (ii) expenses related to
the Company's planned merger with PHTN and (iii) corporate overhead. Pursuant to
a Security Agreement between the Company and PHTN, also entered into on March
20, 2006, the Notes were secured by a first priority security interest in the
Company's assets (other than assets subject to the security interest granted to
General Electric Capital Corporation). On October 23, 2006, the Company paid
PHTN $3,114,400 in full repayment of the three notes and interest accrued
thereon.

8. Stock Compensation Plans

In January 1996, the Company implemented its 1996 Incentive and Non-Qualified
Stock Option Plan (the "Plan"). The Plan as amended provides for the granting of
up to 11,000,000 shares of the Company's common stock to employees, consultants
and outside directors of the Company. The exercise period for options granted
under the Plan, except those granted to outside directors, is determined by a
committee of the Board of Directors. Stock options granted to outside directors
pursuant to the Plan must have an exercise price equal to or in excess of the
fair market value of the Company's common stock at the date of grant.

For the three and nine months ended September 30, 2006, the Company recorded
compensation expense of $103,583 and $340,281, respectively, related to stock
options. The total fair value of options vested during the three and nine months
ended September 30, 2006 was $184,061 and $502,761. The total compensation cost
not yet recognized related to non-vested awards at September 30, 2006 is
$173,384. The weighted average period over which total compensation cost is
expected to be recognized is 2.25 years.

The Company did not grant any option awards during the 3 months ended September
30, 2006. SIGA calculated the fair value of options awarded during the first 3
months of 2006 using the Black-Scholes model with the following weighted average
assumptions:

Nine months ended
Weighted Average Assumptions September 30, 2006
------------------
Expected volatility 54.35%
Dividend Yield 0.00%
Risk-free interest rate 4.29%
Forfeitures rate 2.50%
Expected holding period 3.00

The Company calculates the expected volatility using a combination of SIGA's
historical volatility and the volatility of a group of comparable companies. The
risk-free interest rate assumption is based upon observed interest rate
appropriate for the term of the Company's employee stock options. The dividend
yield assumption is based on the Company's intent not to issue a dividend in the
foreseeable future. The expected holding period assumption was estimated based
on historical experience.

Stock options activity of the Company during the nine months ended September 30,
2006, is summarized as follows:

Weighted
Number of Average Exercise
Shares Price ($)

Options outstanding at December 31, 2005 9,399,561 2.00
Granted 122,500 0.94
Forfeited (1,256,500) 1.30
Expired (33,334) 1.50
Exercised -- --
----------------------------
Options outstanding at September 30, 2006 8,232,227 2.09

Weighted
Average
Number of Intrinsic Value
Shares ($)

Nonvested options at December 31, 2005 1,987,500 --
Nonvested options at September 30, 2006 343,839 0.20
Options vested during 2006 516,212 0.12

Options available for future grant at September 30, 2006 2,552,732
Weighted average fair value of options granted during 2006 $ 0.38
Weighted average fair value of options forfeited during 2006 $ 1.02

The following table summarizes information about options outstanding at
September 30, 2006:

Number of Weighted Number Fully
Options Average Vested & Aggregate
Range of Outstanding at Remaining Weighted Exercisable at Weighted Intrinsic Value at
Exercise September 30, Contractual Life Average Exercise September 30, Average Exercise September 30,
Price($) 2006 (Years) Price ($) 2006 Price ($) 2006

1.00 - 1.85 3,056,750 7.20 1.38 2,712,911 1.39 $ 329,033
2.00 - 2.75 4,837,250 4.44 2.38 4,837,250 2.38 --
3.94 - 5.50 338,227 2.41 4.36 338,227 4.36 --
------------- ------------- --------------
8,232,227 7,888,388 $ 329,033
============= ============= ==============

In February 2003, the Company entered into an agreement with an outside
consultant for its support in obtaining certain government contracts. Under the
terms of the agreement, upon meeting certain criteria, the Company was obligated
to issue 400,000 fully vested warrants with an exercise price of $1.32 and a 3
year term. On June 30, 2006, SIGA recorded a non-cash consulting charge of
$216,840 in connection with its assessment that as of June 30, 2006, it was
probable that the criteria for earning the 400,000 warrants under the agreement
will be met during the third quarter of fiscal 2006. On August 1, 2006, the
Company issued the warrant and reduced the total charge recorded initially to
$156,470, representing the total fair market value of the warrants on the
issuance date.

9. Commitments and Contingencies

As of September 30, 2006, our purchase obligations are not material. The Company
leases certain facilities and office space under operating leases. Minimum
future rental commitments under operating leases having non-cancelable lease
terms in excess of one year and future minimum payments under notes payable are
as follows:

Loans and related
Year ended December 31, Lease obligations interest payable Total commitments

Remainded of 2006 $ 63,850 $ 26,880 $ 90,730
2007 261,800 107,521 369,321
2008 133,200 3,533,760 3,666,960
2009 135,900 -- 135,900
2010 22,700 -- 22,700
----------------- ----------------- -----------------
Total $ 617,450 $ 3,668,161 $ 4,285,611
================= ================= =================

On October 23, 2006, the Company repaid $3,000,000 of notes payable to PHTN, and
the interest accrued thereon, originally due in 2008.

From time to time, the Company is involved in disputes or legal proceedings
arising in the ordinary course of business. The Company believes that there is
no dispute or litigation pending that could have, individually or in the
aggregate, a material adverse effect on its financial position, results of
operations or cash flows.

10. Other Transactions

On October 4, 2006, SIGA exercised its right, pursuant to its Agreement and Plan
of Merger, dated June 8, 2006, with PHTN (the "Merger Agreement"), to terminate
the transaction pursuant to which a subsidiary of SIGA was going to merge with
PHTN. Pursuant to Section 12.1(a) of the Merger Agreement, SIGA must exclusively
negotiate with PHTN the terms of a license agreement relating to SIGA-246. There
can be no assurance whether, or on what terms, the parties will conclude any
such license.

SIGA TECHNOLOGIES, INC.

Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

The following discussion should be read in conjunction with our financial
statements and notes to those statements and other financial information
appearing elsewhere in this Quarterly Report. In addition to historical
information, the following discussion and other parts of this Quarterly Report
contain forward-looking information that involves risks and uncertainties.

Overview

Since our inception in December 1995, SIGA has pursued the research and
development of novel products for the prevention and treatment of serious
infectious diseases, including products for use in the defense against
biological warfare agents such as Smallpox and Arenaviruses. During the third
quarter of 2006 we were awarded a 3 year, $16.5 million contract from the NIH
and an additional 3 year, $4.8 million SBIR Phase II continuation grant from the
NIH. Both awards support the continuing development of our smallpox drug
candidate, SIGA-246. Our efforts to develop SIGA-246 were also supported by
previous SBIR grants from the NIH totaling $5.8 million, a $1.1 million
agreement with Saint Louis University, and a $1.6 million contract with the U.S.
Army. Our initiative to advance SIGA's Arenavirus programs is supported by a 3
year, $6.0 million SBIR grant from the NIH, received in September 2006 and
previous SBIR grants from the NIH totaling $6.3 million.

Our anti-viral programs are designed to prevent or limit the replication
of the viral pathogen. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance. These programs are designed to
block the ability of bacteria to attach to human tissue, the first step in the
infection process. We are also developing a technology for the mucosal delivery
of our vaccines which may allow the vaccines to activate the immune system at
the mucus lined surfaces of the body -- the mouth, the nose, the lungs and the
gastrointestinal and urogenital tracts -- the sites of entry for most infectious
agents.

SIGA does not have any commercial biomedical products, and we do not
expect to have such products for one to three years, if at all. We believe that
we may require additional funds to complete the development of our biomedical
products. Our plans with regard to these matters include continued development
of our products as well as seeking additional research support funds and
financial arrangements. Although we will continue to pursue these plans, there
is no assurance that we will be successful in obtaining sufficient future
financing on terms acceptable to us. Management believes it has sufficient funds
and projected cash flows to support SIGA's operations beyond the next twelve
months.

Our biotechnology operations are based in our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
antiviral, antibiotic and vaccine programs through a combination of government
grants and strategic alliances. While we have had success in obtaining strategic
alliances and grants, there is no assurance that we will continue to be
successful in obtaining funds from these sources. Until additional relationships
are established, we expect to continue to incur significant research and
development costs and costs associated with the manufacturing of product for use
in clinical trials and pre-clinical testing. It is expected that general and
administrative costs, including patent and regulatory costs, necessary to
support clinical trials and research and development will continue to be
significant in the future.

To date, we have not marketed, or generated revenues from the commercial
sale of any products. Our biopharmaceutical product candidates are not expected
to be commercially available for several years, if at all. Accordingly, we
expect to incur operating losses for the foreseeable future. There can be no
assurance that we will ever achieve profitable operations.

Critical Accounting Estimates

The methods, estimates and judgments we use in applying our accounting
policies have a significant impact on the results we report in our financial
statements, which we discuss under the heading "Results of Operations" following
this section of our MD&A. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include share-based compensation, the assessment of recoverability of
goodwill, which could impact goodwill impairments; and the assessment of
recoverability of long-lived assets, which primarily impacts operating income if

impairment exists. Below, we discuss these policies further, as well as the
estimates and judgments involved. Other key accounting policies, including
revenue recognition, are less subjective and involve a far lower degree of
estimates and judgment.

Significant Accounting Policies

The following is a brief discussion of the more significant accounting
policies and methods used by us in the preparation of our financial statements.
Note 2 of the Notes to the Financial Statements includes a summary of all of the
significant accounting policies.

Share-based Compensation

On January 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), "Share-Based Payment" ("SFAS 123(R)"), which
requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors including employee
stock options and employee stock purchases related to the Employee Stock
Purchase Plan ("employee stock purchases") based on estimated fair values. SFAS
123(R) supersedes the Company's previous accounting under Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25") for
periods beginning on January 1, 2006. In March 2005, the SEC issued Staff
Accounting Bulletin No. 107 ("SAB 107") relating to SFAS 123(R). The Company has
applied the provisions of SAB 107 in its adoption of SFAS 123(R).

SFAS 123(R) requires companies to estimate the fair value of share-based
payment awards on the grant-date using an option-pricing model. The value of the
portion of the award that is ultimately expected to vest is recognized as
expense over the requisite service periods in the Company's Statements of
Operations. Prior to the adoption of SFAS 123(R), the Company accounted for
share-based awards to employees and directors using the intrinsic value method
in accordance with APB 25 as allowed under Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"). Under
the intrinsic value method, no share-based compensation expense related to stock
options had been recognized in the Company's Statements of Operations when the
exercise price of the Company's stock options granted to employees and directors
equaled the fair market value of the underlying stock at the grant-date.

Share-based compensation expense recognized during the current period is
based on the value of the portion of share-based payment awards that is
ultimately expected to vest. SFAS 123(R) requires forfeitures to be estimated at
the time of grant in order to estimate the amount of share-based awards that
will ultimately vest. The forfeiture rate is based on historical rates.
Share-based compensation expense recognized in the Company's Statements of
Operations for the nine months ended September 30, 2006 includes (i)
compensation expense for share-based payment awards granted prior to, but not
yet vested as of December 31, 2005, based on the grant-date fair value estimated
in accordance with the pro forma provisions of SFAS 123 and (ii) compensation
expense for the share-based payment awards granted subsequent to December 31,
2005, based on the grant-date fair value estimated in accordance with the
provisions of SFAS 123(R). The Company utilizes the Black-Scholes options
pricing model for the valuation of share-based awards. Determining the fair
value of these awards at the grant date requires judgment. It is reasonably
likely that forfeiture rates will change in the future and impact future
compensation expense. It is also reasonably likely that the variables used in
the Black Scholes option pricing model will change in the future and impact the
fair value of future options at the grant date and future compensation expense.

Revenue Recognition

The Company recognizes revenue from contract research and development and
research progress payments in accordance with SEC Staff Accounting Bulletin No.
104, Revenue Recognition, ("SAB 104"). In accordance with SAB 104, revenue is
recognized when persuasive evidence of an arrangement exists, delivery has
occurred, the fee is fixed and determinable, collectibility is reasonably
assured, contractual obligations have been satisfied and title and risk of loss
have been transferred to the customer. The Company recognizes revenue from
non-refundable up-front payments, not tied to achieving a specific performance
milestone, over the period which the Company is obligated to perform services or
based on the percentage of costs incurred to date, estimated costs to complete
and total expected contract revenue. Payments for development activities are
recognized as revenue is earned, over the period of effort. Substantive at-risk
milestone payments, which are based on achieving a specific performance
milestone, are recognized as revenue when the milestone is achieved and the
related payment is due, providing there is no future service obligation
associated with that milestone. In situations where the Company receives payment
in advance of the performance of services, such amounts are deferred and
recognized as revenue as the related services are performed.

Goodwill

Goodwill is recorded when the purchase price paid for an acquisition
exceeds the estimated fair value of the net identified tangible and intangible
assets acquired.

The Company evaluates goodwill for impairment annually, in the fourth
quarter of each year. In addition, the Company would test goodwill for
recoverability between annual evaluations whenever events or changes in
circumstances indicate that the carrying amounts may not be recoverable.
Examples of such events could include a significant adverse change in legal
matters, liquidity or in the business climate, an adverse action or assessment
by a regulator or government organization, loss of key personnel, or new
circumstances that would cause an expectation that it is more likely than not
that we would sell or otherwise dispose of a reporting unit. Goodwill impairment
is determined using a two-step approach in accordance with Statement of
Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("SFAS 142"). The impairment review process compares the fair value of the
reporting unit in which goodwill resides to its carrying value. In 2005, the
Company operated as one business and one reporting unit. Therefore, the goodwill
impairment analysis was performed on the basis of the Company as a whole using
the market capitalization of the Company as an estimate of its fair value. In
the past, our market capitalization has been significantly in excess of the
Company's carrying value. It is reasonably likely that the future market
capitalization of SIGA may exceed or fall short of our current market
capitalization, in which case a different amount for potential impairment would
result. The use of the discounted expected future cash flows to evaluate the
fair value of the Company as a whole is reasonably likely to produce different
results than the Company's market capitalization.

Intangible Assets

Acquisition-related intangibles include acquired technology, customer
contracts, grants and covenants not to compete, and are amortized on a straight
line basis over periods ranging from 1-4 years.

In accordance with Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"),
the Company performs a review of its identified intangible assets to determine
if facts and circumstances exist which indicate that the useful life is shorter
than originally estimated or that the carrying amount of assets may not be
recoverable. If such facts and circumstances do exist, the Company assesses the
recoverability of identified intangible assets by comparing the projected
undiscounted net cash flows associated with the related asset or group of assets
over their remaining lives against their respective carrying amounts.
Impairment, if any, is based on the excess of the carrying amount over the fair
value of those assets. Our estimates of projected cash flows are dependent on
many factors, including general economic trends, technological developments and
projected future contracts and government grants. It is reasonably likely that
that future cash flows associated with our intangible assets may exceed or fall
short of our current projections, in which case a different amount for
impairment would result. If our actual cash flows exceed our estimates of future
cash flows, any impairment charge would be greater than needed. If our actual
cash flows are less than our estimated cash flows, we may need to recognize
additional impairment charges in future periods, which would be limited to the
carrying amount of the intangible assets.

Recent accounting pronouncements

the change in accounting principle recorded as an adjustment to opening retained
earnings. Early application of FIN 48 is encouraged. The Company is evaluating
the timing of its adoption of FIN 48 and the potential effects of implementing
this Interpretation on its financial condition and results of operations.

Results of Operations

Three months ended September 30, 2006 and 2005

Revenues from grants and research and development contracts for the three
months ended September 30, 2006 and 2005 were $2.0 million and $2.9 million,
respectively. For the three months ended September 30, 2006 we recognized
$907,000 from NIH SBIR grants supporting two of our lead programs. Revenues from
NIH SBIR grants supporting these programs during the same period in 2005 were
$2.7 million. $1.1 million of the revenues recognized from these grants and
contracts during the three months ended September 30, 2005, related to
expenditures that SIGA incurred during the quarter ended June 30, 2005, prior to
approval of the second year of these grants. The decline of $1.8 million was
partially offset by an increase of $834,000 in revenues recognized in connection
with a $3.2 million, one year contract with USAMRMC. The agreement, for the
rapid identification and treatment of anti-viral diseases, was entered into on
September 22, 2005 and is funded through the USAF (the "USAF Agreement"). The
decline was also offset by $119,000 recorded in connection with a $500,000, one
year, Phase I SBIR grant from the NIH to support the development of our
Bacterial Commensal Vector technology for the delivery of smallpox vaccine,
ending on February 28, 2007. On August 30, 2006, we received a three year, $6.0
million award from the NIH to support the development of our antiviral drugs for
Lassa fever virus. On August 1, 2006, we received a three year, $4.8 million
SBIR Phase II continuation grant from the NIH to support the development of our
smallpox drug candidate, SIGA-246. On September 26, 2006, we entered into a
three year, $16.5 million contract with the National Institute of Allergy and
Infectious Diseases of the NIH, to further advance the development of our
smallpox drug candidate. Revenues from these new grants and contracts will be
recognized as services are performed.

Selling, general and administrative expenses ("SG&A") were $802,000 and
$415,000 for the three months ended September 30, 2006, and 2005, respectively.
The increase of $387,000 or 93% is primarily due to legal and accounting
expenses of $258,000 incurred during the three months ended September 30, 2006
in connection with our merger agreement with PHTN which was terminated in
October 2006, and a credit of $200,000 in legal expenses recorded during the
same period in 2005. The increase in legal and accounting fees were partially
offset by a decline of $100,000 in payroll expenses from the quarter ended
September 30, 2005.

Research and development expenses ("R&D") increased $391,000 or 22% from
$1.8 million for the three months ended September 30, 2005 to $2.2 million for
the three months ended September 30, 2006. The increase is primarily due to
$345,000 incurred during the three months ended September 30, 2006 under our
agreement with the USAF and an increase of $200,000 in payroll expenses related
to the expansion of the Company's research and development work force. In
addition, on April 1, 2006, we completed the renovation of a new laboratory
space in Corvallis, Oregon. Depreciation expense and lab supplies expenditures
for the three months ended September 30, 2006, increased by $220,000 and
$105,000, respectively, from the same period in 2005. These increases were
partially offset by a decline of $80,000 in amortization expense and a decline
of $375,000 in expenditures related to two of our lead programs.

During the three months ended September 30, 2006, and 2005 we invested
$442,000 and $600,000, respectively, in the development of our lead drug
candidate, SIGA-246, an orally administered anti-viral drug that targets the
smallpox virus. For the three months ended September 30, 2006, we invested
$176,000 in our internal development resources and $266,000 on external
manufacturing and clinical testing activities. For the three months ended
September 30, 2005, we invested $168,000 in our internal development resources
and $464,000 in pre-clinical testing of SIGA-246. From inception of the SIGA-246
development program to-date, we have invested $5.9 million related to this
initiative, of which $1.4 million and $4.5 million were spent on internal
development resources, and clinical and pre-clinical work, respectively. These
resources reflect SIGA's research and development expenses directly related to
the program. They exclude additional expenditures such as the cost to acquire
the program, patent costs, allocation of indirect expenses, and the value of
other services received from the NIH and the Department of Defense ("DoD").

$326,000 and $349,000 of our R&D expenses during the three months ended
September 30, 2006 and 2005, respectively, were used to support the development
of ST-294, a drug candidate which has demonstrated significant antiviral
activity in cell culture assays against arenavirus pathogens. For the three
months ended September 30, 2006,

we invested $110,000 in internal development resources and $216,000 in
pre-clinical testing. For the three months ended September 30, 2005, we spent
$189,000 on internal human resources and $160,000 on pre-clinical testing of
ST-294. From inception of the ST-294 development program to-date, we have spent
a total of $2.8 million related to this program, of which $1.5 million and $1.3
million were expended on internal human resources and pre-clinical work,
respectively. These resources reflect SIGA's research and development expenses
directly related to the program. They exclude additional expenditures such as
the cost to acquire the program, patent costs, allocation of indirect expenses,
and the value of other services received from the NIH and the DoD.

R&D expenses related to our USAF Agreement were $172,000 and $360,000 for
internal human resources and external R&D services, respectively, during the
three months ended September 30, 2006. During the same period in 2005, we spent
$26,000 and $16,000 on internal human resources and external R&D services,
respectively. Costs related to our work on the USAF Agreement, during the term
of the agreement to-date were $1.7 million, of which we spent $717,000 and
$903,000 on internal human resources and external R&D services, respectively.
These resources reflect SIGA's research and development expenses directly
related to this agreement. They exclude additional expenditures such as patent
costs and allocation of indirect expenses.

Patent preparation expenses for the three months ended September 30, 2006
and 2005 were $36,000 and $8,000, respectively.

A gain of $351,000 was recorded during the three months ended September
30, 2006, reflecting the decline in fair market value of common stock rights and
common stock warrants sold in November 2005, from June 30, 2006 to September 30,
2006. The warrants and rights to purchase common stock of SIGA were recorded at
fair market value and classified as liabilities at the time of the transaction.

Other expenses, net, were $48,000 for the three months ended September 30,
2006 primarily reflecting interest expense related to the three $1.0 million
notes payable to PHTN. During the same period in 2005 we recorded net other
income of $2,000.

Our product programs are in the early stage of development. At this stage
of development, we cannot make reasonable estimates of the potential cost for
most of our programs to be completed or the time it will take to complete the
project. Our lead product, SIGA-246, is an orally administered anti-viral drug
that targets the smallpox virus. In December 2005 the FDA accepted our IND
application for SIGA-246 and granted it Fast-Track status. Fast Track programs
of the FDA are designed to facilitate the development and expedite the review of
new drugs that are intended to treat serious or life-threatening conditions and
that demonstrate the potential to address unmet medical needs.

We expect that costs to complete our SIGA-246 program will approximate $15
million to $20 million, and that the project could be completed in 12 months to
36 months. There is a high risk of non-completion of any program, including
SIGA-246, because of the lead time to program completion and uncertainty of the
costs. Net cash inflows from any products developed from our programs are at
least one to three years away. However, we could receive additional grants,
contracts or technology licenses in the short-term. The potential cash and
timing is not known and we cannot be certain if they will ever occur.

The risk of failure to complete any program is high, as each, other than our
smallpox program that entered phase I clinical trials in 2006, is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the SIGA-246 smallpox anti-viral, could generate
revenues in one to three years. We believe the products directed toward this
market are on schedule. We expect the future research and development cost of
our biological warfare defense programs to increase as the potential products
enter animal studies and safety testing, including human safety trials. Funds
for future development will be partially paid for by NIH SBIR grants, the
contract we have with the U.S. Army, additional government funding and from
future financing. If we are unable to obtain additional federal grants and
contracts or funding in the required amounts, the development timeline for these
products will slow or possibly be suspended. Delay or suspension of any of our
programs could have an adverse impact on our ability to raise funds in the
future, enter into collaborations with corporate partners or obtain additional
federal funding from contracts or grants.

Nine months ended September 30, 2006 and 2005

Revenues from grants and research and development contracts for the nine
months ended September 30, 2006 and 2005 were $4.9 million and $6.2 million,
respectively. Revenues recorded for the nine months ended September 30,

2006 declined $1.3 million or 22% from the same period in the prior year. For
the nine months ended September 30, 2006 we recorded $2.2 million from NIH SBIR
grants and an agreement with Saint Louis University, supporting two of our lead
programs. Revenues from NIH SBIR grants supporting these programs during the
same period in 2005 were $5.6 million. The decline of $3.4 million was partially
offset by $2.1 million of revenues recognized in connection with our $3.2
million, one year contract with USAMRMC. The agreement, for the rapid
identification and treatment of anti-viral diseases, was entered into on
September 22, 2005 and is funded through the USAF. The decline was also offset
by $278,000 recorded in connection with a $500,000, one year, Phase I SBIR grant
from the NIH to support the development of our Bacterial Commensal Vector
technology for the delivery of smallpox vaccine, ending on February 28, 2007. On
August 30, 2006, we received a three year, $6.0 million award from the NIH to
support the development of our antiviral drugs for Lassa fever virus. On August
1, 2006, we received a three year, $4.8 million SBIR Phase II continuation grant
from the NIH to support the development of our smallpox drug candidate,
SIGA-246. On September 26, 2006, we entered into a three year, $16.5 million
contract with the National Institute of Allergy and Infectious Diseases of the
NIH, to further advance the development of our smallpox drug candidate. Revenues
from these new grants and contracts will be recognized as services are
performed.

Selling, general and administrative expenses ("SG&A") for the nine months
ended September 30, 2006 and 2005 were $3.2 million and $2.1 million,
respectively. The increase of $1.1 million or 56% is mainly attributed to
professional fees and non-cash consulting charge recorded for the nine months
ended September 30, 2006, and a credit of $200,000 in legal expenses recorded
during the same period in 2005. During the nine months ended September 30, 2006
we recorded legal, accounting and consulting expenses of $752,000, $164,000 and
$82,000, respectively, for due diligence services, fairness opinion and legal
advice related to our merger agreement with PHTN, which was terminated in
October 2006. On June 30, 3006, we recorded $217,000 of a non-cash consulting
charge reflecting our assessment that certain criteria for the issuance of
400,000 warrants under a February 2003 consulting agreement, will be met during
the third quarter of fiscal 2006. On August 1, 2006, we issued the warrants and
reduced the total charge recorded initially to $156,470, the total fair market
value of the warrants on the issuance date. We also recorded a $275,000 non-cash
charge for share based compensation following the adoption of FAS 123(R) on
January 1, 2006. The increases were partially offset by a decline of $140,000 in
investor relations expense, a decline of $168,000 in payroll expense and a
decline of $84,000 in amortization expense.

Research and development expenses were $6.2 million and $5.9 million for
the nine months ended September 30, 2006 and 2005, respectively. R&D
expenditures related to two of our lead programs declined $2.0 million from the
nine months period in 2005. The decline was partially offset by an increase of
$515,000 in payroll expenses related to the expansion of the Company's research
and development work force. In addition, on April 1, 2006, we completed the
renovation of a new laboratory space in Corvallis, Oregon. Depreciation expense,
lab supplies expenditures and rent expense for the nine months ended September
30, 2006, increased by $418,000, $258,000, and $124,000, respectively, from the
same period in 2005.

During the nine months ended September 30, 2006, and 2005 we spent $1.6
million and $2.8 million, respectively, on the development of our lead drug
candidate, SIGA-246, an orally administered anti-viral drug that targets the
smallpox virus. For the nine months ended September 30, 2006, we spent $489,000
on internal human resources and $1.1 million mainly on clinical testing. For the
nine months ended September 30, 2005, we spent $485,000 on internal human
resources and $2.3 million on pre-clinical testing of SIGA-246. From inception
of the SIGA-246 development program to-date, we expended a total of $5.9 million
related to the program, of which $1.4 million and $4.5 million were spent on
internal human resources, and clinical and pre-clinical work, respectively.
These resources reflect SIGA's research and development expenses directly
related to the program. They exclude additional expenditures such as the cost to
acquire the program, patent costs, allocation of indirect expenses, and the
value of other services received from the NIH and the DoD.

$769,000 and $1.6 million of our R&D expenses during the nine months ended
September 30, 2006 and 2005, respectively, were used to support the development
of ST-294, a drug candidate which has demonstrated significant antiviral
activity in cell culture assays against arenavirus pathogens. For the nine
months ended September 30, 2006, we spent $456,000 on internal human resources
and $313,000 mainly on pre-clinical testing. For the nine months ended September
30, 2005, we spent $777,000 on internal human resources and $787,000 on
pre-clinical testing of ST-294. From inception of the ST-294 development program
to-date, we spent a total of $2.8 million related to the program, of which $1.5
million and $1.3 million were expended on internal human resources and
pre-clinical work, respectively. These resources reflect SIGA's research and
development expenses directly related to the program. They exclude

additional expenditures such as the cost to acquire the program, patent costs,
allocation of indirect expenses, and the value of other services received from
the NIH and the DoD.

R&D expenses related to our USAF Agreement were $548,000 and $653,000 for
internal human resources and external R&D services, respectively, during the
nine months ended September 30, 2006. During the same period in 2005, we spent
$26,000 and $16,000 on internal human resources and external R&D services,
respectively. Costs related to our work on the USAF Agreement, during the term
of the agreement to-date were $1.6 million, of which we spent $717,000 and
$903,000 on internal human resources and external R&D services, respectively.
These resources reflect SIGA's research and development expenses directly
related to this agreement. They exclude additional expenditures such as patent
costs and allocation of indirect expenses.

Patent preparation expenses for the nine months ended September 30, 2006
were $259,000 compared to $274,000 for the nine months ended September 30, 2005.
During the nine months period in 2005 we incurred higher patent costs in
connection with the Plexus Vaccine Inc. and ViroPharma Incorporated asset
acquisitions.

A loss from the increase in fair market value of common stock rights and
common stock warrants was recorded in connection with the sale of common stock,
warrants and rights in November 2005. The warrants and rights to purchase common
stock of SIGA were recorded at fair market value and classified as liabilities
at the time of the transaction. A loss of $721,000 was recorded by us,
reflecting the increase in the fair value of the warrants and the rights to
acquire additional shares of our common stock, during the period December 31,
2005 to September 30, 2006.

Other loss of $60,000 for the nine months ended September 30, 2006
comprised mainly of interest expense of $116,000 related to our loans payable
and interest income of $48,000. Other loss of $2,200 for the nine months ended
September 30, 2005 comprised of interest income of $12,800 and loss on
impairment of our investment in Pecos' common stock of $15,000.

The risk of failure to complete any program is high, as each, other than
our smallpox program that entered phase I clinical trials in 2006, is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the SIGA-246 smallpox anti-viral, could generate
revenues in one to three years. We believe the products directed toward this
market are on schedule. We expect the future research and development cost of
our biological warfare defense programs to increase as the potential products
enter animal studies and safety testing, including human safety trials. Funds
for future development will be partially paid for by NIH SBIR grants, the
contract we have with the U.S. Army, additional government funding and from
future financing. If we are unable to obtain additional federal grants and
contracts or funding in the required amounts, the development timeline for these
products would slow or possibly be suspended. Delay or suspension of any of our
programs could have an adverse impact on our ability to raise funds in the
future, enter into collaborations with corporate partners or obtain additional
federal funding from contracts or grants.

Liquidity and Capital Resources

As of September 30, 2006, we had $2.6 million in cash and cash
equivalents. On October 19, 2006, we entered into a Securities Purchase
Agreement for the issuance and sale of 2,000,000 shares of the Company's common
stock at $4.54 per share and warrants to purchase 1,000,000 shares of the
Company's common stock. The warrants are exercisable at 110% of the closing
price on the closing date of the transaction at any time and from time to time
through and including the seventh anniversary of the closing date. With respect
to the transaction, we also entered into a Finder's Agreements. The finders fee
under the agreement includes cash compensation of 3% of the gross amount
financed and warrants to acquire 136,200 shares of the Company's common stock at
terms equal to the investors' warrants. Also in connection with the transaction,
pursuant to our existing Exclusive Finder's Agreement, we paid a finder's fee
consisting of cash compensation of 4% of the amount financed and warrants to
acquire 136,200 shares of our common stock, at terms equal to the investors'
warrants. We received net proceeds of $8.4 million from the transaction.

In October, 2006, we received net proceeds of $3.0 million from exercises
of warrants and options to purchase shares of the Company's Common stock.

On August 30, 2006, we received a three year, $6.0 million award from the
NIH to support the development of our antiviral drugs for Lassa fever virus. On
August 1, 2006, we received a three year, $4.8 million SBIR Phase II
continuation grant from the NIH to support the development of our smallpox drug
candidate, SIGA-246. On September 26, 2006, we entered into a three year, $16.5
million contract with the National Institute of Allergy and Infectious Diseases
of the NIH, to further advance the development of our smallpox drug candidate.
Revenues from these new grants and contracts will be recognized as services are
performed.

On October 4, 2006, SIGA exercised its right, pursuant to its Agreement
and Plan of Merger, dated June 8, 2006, with PHTN (the "Merger Agreement"), to
terminate the transaction pursuant to which a subsidiary of SIGA was going to
merge with PHTN. Pursuant to Section 12.1(a) of the Merger Agreement, SIGA must
exclusively negotiate with PHTN the terms of a license agreement relating to
SIGA-246. There can be no assurance whether, or on what terms, the parties will
conclude any such license.

On March 20, 2006, in connection with the transaction, we entered into a
Bridge Note Purchase Agreement ("Notes Purchase Agreement") with PHTN for the
sale of three 8% Notes by SIGA, for $1,000,000 each. The first, second and third
Notes were issued on March 20, 2006, April 19, 2006, and June 19, 2006,
respectively. The proceeds of the Notes were used by the Company for (i)
expenses directly related to the development of SIGA's lead product, SIGA-246,
(ii) expenses related to the Company's planned merger with PHTN and (iii)
corporate overhead. Pursuant to a Security Agreement between SIGA and PHTN also
entered into on March 20, 2006, the Notes were secured by a first priority
security interest in the Company's assets (other than assets subject to the
security interest granted to General Electric Capital Corporation). On October
23, 2006, we paid PHTN $3,114,400 in full repayment of the three notes and
interest accrued thereon.

We believe that our existing cash combined with anticipated cash flows,
including receipt of future funding from government contracts and grants will be
sufficient to support our operations beyond the next twelve months and that
sufficient cash flows will be available to meet our business objectives.

Operating activities

Net cash used in operations during the nine months ended September 30,
2006 was $2.9 million compared to $1.4 million used during the nine months ended
September 30, 2005. The increase in cash used in operations is mainly due to
professional fees of $1.0 million incurred in connection with the terminated
merger with PHTN, and development expenses of $660,000 incurred in connection
with human clinical trials of SIGA-246. During the nine months ended September
30, 2006, cash generated from the collection of outstanding accounts receivable
and receipt of payments from the USAF was $2.0 million higher than during the
same period in 2005. This increase was partially offset by the use of $687,000
to reduce our accounts payable balance during the nine months ended September
30, 2006, as compared with a decline of $66,000 in the accounts payable balance
during the same period in 2005.

Investing activities

Capital expenditures during the nine months ended September 30, 2006 and
2005 were $805,000 and $655,000, respectively, and mainly supported the
renovation of our research facility in Oregon.

Financing activities

Cash provided by financing activities was $4.6 million and $241,000 during
the nine months ended September 30, 2006 and 2005, respectively. During the nine
months ended September 30, 2006 we received $3.0 million from notes payable
issued to PHTN, $1.5 million from exercises of rights to purchase 1,500,000
shares of our common stock for $1.10 per share, and $100,000 from exercises of
warrants to purchase shares of our common stock. On October 23, 2006, we paid
PHTN $3,114,400 as repayment of the three notes and interest accrued thereon.
During the nine months ended September 30, 2005 we received $276,000, net, from
the issuance of a promissory note payable to General Electric Capital
Corporation (GE). The note is payable in 36 monthly installments of principal
and interest of 10.31% per annum. During the nine months ended September 30,
2005 we made payments of $35,000 to GE.

Other

As of September 30, 2006, we do not expect receipt of up-front and
milestone payments from any of our current collaborative and other agreements.
Payments from current NIH SBIR grants are received upon recognition of the
related revenue. As of September 30, 2006, we have received the entire amount of
$3.2 million from the USAF agreement, of which, $434,000 was recorded as
deferred revenue on September 30, 2006.

Off-Balance Sheet Arrangements

SIGA does not have any off-balance sheet arrangements.

Safe Harbor Statement

This report contains certain "forward-looking statements" within the
meaning of the Private Securities Litigation Reform Act of 1995, as amended,
including statements regarding the efficacy of potential products, the timelines
for bringing such products to market and the availability of funding sources for
continued development of such products. Forward-looking statements are based on
management's estimates, assumptions and projections, and are subject to
uncertainties, many of which are beyond the control of SIGA. Actual results may
differ materially from those anticipated in any forward-looking statement.
Factors that may cause such differences include the risks that (a) potential
products that appear promising to SIGA or its collaborators cannot be shown to
be efficacious or safe in subsequent pre-clinical or clinical trials, (b) SIGA
or its collaborators will not obtain appropriate or necessary governmental
approvals to market these or other potential products, (c) SIGA may not be able
to obtain anticipated funding for its development projects or other needed
funding, (d) SIGA may not be able to secure funding from anticipated government
contracts and grants, (e) SIGA may not be able to secure or enforce adequate
legal protection, including patent protection, for its products, (f)
unanticipated internal control deficiencies or weaknesses or ineffective
disclosure controls and procedures and (g) regulatory approval for SIGA's
products may require further or additional testing that will delay or prevent
approval. More detailed information about SIGA and risk factors that may affect
the realization of forward-looking statements, including the forward-looking
statements in this presentation, is set forth in SIGA's filings with the
Securities and Exchange Commission, including SIGA's Annual Report on Form 10-K
for the fiscal year ended December 31, 2005, and in other documents that SIGA
has filed with the Commission. SIGA urges investors and security holders to read
those documents free of charge at the Commission's Web site at
http://www.sec.gov. Interested parties may also obtain those documents free of
charge from SIGA. Forward-looking statements speak only as of the date they are
made, and except for our ongoing obligations under the U.S. federal securities
laws, we undertake no obligation to publicly update any forward-looking
statements whether as a result of new information, future events or otherwise.

Item 3. Quantitative and Qualitative Disclosure About Market Risk

None

Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures. The Company's management, with the
participation of the Company's Chief Financial Officer, has evaluated the
effectiveness of the Company's disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the
fiscal period covered by this Quarterly Report on Form 10-Q. Based upon such
evaluation, the Acting Chief Executive Officer and Chief Financial Officer have
concluded that, as of the end of such period, the Company's disclosure controls
and procedures are effective.

(b) Internal Control Over Financial Reporting. There have not been any
changes in the Company's internal control over financial reporting (as such term
is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the
fiscal period covered by this Quarterly Report on Form 10-Q that have materially
affected, or are reasonably likely to materially affect, the Company's internal
control over financial reporting.

Part II
Other information

Item 1. Legal Proceedings - On or about February 28, 2006, Four Star Group, a
Division of Executive Intelligence Network, LLC filed suit in the
Supreme Court of the State of New York naming as defendants SIGA
Technologies, Inc., Bernard Kasten and "John Odgen [sic]." In 2004,
SIGA renewed a contract with Four Star under which Four Star was to
assist SIGA in identifying and obtaining contracts and grants.
Plaintiff Four Star alleged that SIGA breached its contract by
allegedly failing to compensate Four Star within the time set by the
contract and that SIGA breached the contract, and tortuously interfered
with Four Star's contractual relationships, by allegedly soliciting
and/or hiring certain affiliates of Four Star. Plaintiff asserted that
it had not fully calculated its damages, but stated that they were
"believed to be" in excess of approximately $700,000. Plaintiff also
sought relief preventing defendants from soliciting agents and
employees of plaintiff. SIGA and plaintiff Four Star Group have agreed
in principle, subject to the execution of definitive documentation, on
a settlement of their lawsuit. Pursuant to this settlement, Four Star
will grant a general release in exchange for which SIGA will pay
$35,000 to Four Star and will file on or before December 5, 2006 a
registration statement with respect to the shares underlying the
warrants previously granted to Four Star.

Item 1A. Risk Factors - There were no material changes to Risk Factors disclosed
in SIGA's 2005 Form 10-K

Item 2. Unregistered Sale of Equity Securities and Use of Proceeds - None

Item 3. Defaults upon Senior Securities - None

Item 4. Submission of Matters to a Vote of Security Holders - None

Item 5. Other Information - None

Item 6. Exhibits

* 31 Certification of Chief Financial Officer and Acting Chief
Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

* 32 Certification of Chief Financial Officer and Acting Chief
Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.

* Filed herein

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

SIGA Technologies, Inc.
(Registrant)

Date: November 1, 2006 By:/s/ Thomas N. Konatich
---------------------------

Thomas N. Konatich

Chief Financial Officer and
Acting Chief Executive Officer