The following discussion should be read in conjunction with our consolidated 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, development and commercialization 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. In September 1, 2008, we were awarded a five-year, $55.0 million contract from the National Institute of Allergy and Infectious Diseases (NIAID), to support the development of additional formulations and orthopox-related indications for ST-246®, our lead orthopox drug candidate. In September 2008, we were awarded $20.0 million from the NIAID in supplemental funding to our existing $16.5 million contract, to accelerate process development related to large-scale manufacturing and packaging of ST-246® and commercial-scale validation. The term of the contract was extended through September 28, 2011. In September 2007, we received a two-year grant from the NIH for a total of approximately $600,000, to support the development of ST-246® treatment of smallpox conventional vaccine-related adverse events. 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 Phase II continuation grant from the NIH. Both awards support the continuing development of our smallpox drug candidate, ST-246® Our efforts to develop ST-246® were also supported by previous grants from the NIH totaling $5.8 million, a $1.0 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 grant from the NIH, received in September 2006 and previous 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. As a result of the success of our efforts to develop products for use against agents of biological warfare, we have not spent significant resources to further the development of our anti-infective technologies.

We do not have commercial products, and we cannot predict with certainty when our products will be able to be sold in substantial quantities. We will need additional funds to complete the development of our products. Our plans with regard to these matters include continued development of our products as well as seeking additional capital through a combination of collaborative agreements, strategic alliances, research grants, and future equity and debt financing. Although we continue to pursue these plans, there is no assurance that we will be successful in obtaining future financing on commercially reasonable terms or that we will be able to secure funding from anticipated government contracts and grants.

Management believes that its existing cash balances combined with cash flows primarily from proceeds from our investment commitment, continuing government grants and contracts, and anticipated new government grants and contracts, will be sufficient to support SIGA's operations beyond the next twelve months, and that sufficient cash flows will be available to meet the Company's business objectives during that period. We believe that we have sufficient liquidity to support our operations beyond the next twelve months despite the disruption of the capital markets. We are not dependent on the availability of short-term debt facilities and the limited availability of credit in the market has not affected our liquidity or materially affected our funding.

Our technical 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, contracts and strategic alliances. While we have had success in obtaining strategic alliances, contracts 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. We may incur operating losses for the foreseeable future and there can be no assurance that we will ever achieve profitable operations.

The Biomedical Advance Research and Development Authority ("BARDA"), an office within the U.S. Department of Health and Human Services, has issued a Request for Proposal (the "RFP") with respect to the procurement of 1.7 million courses of medical countermeasures that can be used to treat symptomatic individuals exposed to smallpox. The RFP also invites proposals to supply up to an additional 12 million courses, at BARDA's option. BARDA has indicated that it intends to grant awards under this solicitation in September 2009 to a single vendor. The RFP contemplates the award of a five-year, firm-fixed-price contract for the initial 1.7 million courses. The RFP seeks antivirals that would have at least a 36-month shelf-life. Additional options within the RFP seek vendors that can provide a "warm production" capacity; an intravenous formulation for the antiviral; an oral suspension for both children and elderly adults; and pursuit of post-exposure prophylaxis countermeasures. BARDA intends to require the company awarded the contract to seek full FDA approval for the contracted antiviral and implement a "Phase IV" monitoring plan for the drug. The RFP also notes that the company awarded the contract may also receive funds for physical and informational security of the company and its suppliers.

SIGA intends to respond to the RFP and seek a contract from BARDA based on its ST-246 drug candidate. There can be no assurance that SIGA or any other company will receive an award pursuant to the RFP. Further, any award on the RFP would be subject to negotiation of final contract terms and specifications; thus, the final terms under any contract with BARDA may be materially different than those indicated in the RFP.

Critical Accounting Policies and Estimates

The methods, estimates and judgments we use in applying our accounting policies have a significant impact on the results we report in our consolidated financial statements, which we discuss under the heading "Results of Operations" following this section of our Management's Discussion and Analysis. 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 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.

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

The Company accounts for its stock-based compensation programs under the provisions of 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) requires companies to estimate the fair value of share-based 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 recorded as expense over the requisite periods in the Company's consolidated statement of operations.

On January 1, 2009, the Company adopted the provisions of EITF issue No. 07-05: Determining Whether an Instrument (or Embedded Feature) Is Indexed to an Entity's Own Stock (EITF 07-05). In accordance with EITF 07-05, the cumulative effect of the change in accounting principle recorded by SIGA in connection with certain warrants to acquire shares of the common stock (See Note
3), was recognized by SIGA as an adjustment to the opening balance of retained earnings as summarized in the following table:

                            As reported on          As adjusted on        Effect of change in
                           December 31, 2008       January 1, 2009        accounting principle

  Common stock warrants   $                 -               2,710,000    $            2,710,000
Accumulated deficit       $       (70,605,553 )  $        (73,315,553 )  $           (2,710,000 )

The Company applied the Black-Scholes model to calculate the fair value of the warrants using the Monte Carlo simulation to estimate the price of the Company's common stock on the warrant's expiration date. The expected volatility was estimated using the Company's historical volatility.

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. Common stock warrants which are classified as liabilities under the provisions of Emerging Issues Task Force ("EITF") 00-19, are recorded at their fair market value as of each reporting period.

The Company applies SFAS 157, "Fair Value Measurement", (SFAS 157) and FASB Staff Position 157-2 (FSP 157-2), for financial assets and liabilities that are required to be measured at fair value, and non-financial assets and liabilities that are not required to be measured at fair value on a recurring basis.

SFAS 157 provides that the measurement of fair value requires the use of techniques based on observable and unobservable inputs. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. The inputs create the following fair value hierarchy:

• Level 1 - Quoted prices for identical instruments in active markets.

• Level 2 - Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations where inputs are observable or where significant value drivers are observable.

• Level 3 - Instruments where significant value drivers are unobservable to third parties.

SIGA uses model-derived valuations where inputs are observable in active markets to determine the fair value of certain common stock warrants on a recurring basis and classify such warrants in Level 2. At March 31, 2009 and 2008, the fair value of such warrants was as follows:

                                                      March 31,       December 31,
                                                        2009              2008


 Common stock warrants classified as current
 liabilities                                        $   3,870,000    $            -
 Common stock warrants classified as long term
 liabilities                                            5,708,267         2,923,532

 Total                                              $   9,578,267    $    2,923,532

FASB Staff Position 157-2, "Effective Date of FASB Statement No. 157," applies to nonfinancial assets and nonfinancial liabilities and was effective January 1, 2009. The adoption of this standard had no impact on the Company in first quarter 2009.

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 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.

Recent accounting pronouncements

In April 2009, FASB Staff Position FAS 107-1 and APB 28-1, Interim Disclosures about Fair Value of Financial Instruments, or FSP FAS 107-1 and APB 28-1. FSP FAS 107-1 and APB 28-1, amends FASB Statement No. 107, Disclosures about Fair Value of Financial Instruments, to require disclosures about fair value of financial instruments in interim as well as in annual financial statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to require those disclosures in all interim financial statements.

In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments. This FSP amends the other-than-temporary impairment guidance for debt securities to make the guidance more operational and to improve the presentation and disclosure of other-than-temporary impairments in the financial statements. The most significant change the FSP brings is a revision to the amount of other-than-temporary loss of a debt security recorded in earnings. FSP FAS 115-2 and FAS 124-2 is effective for interim and annual reporting periods ending after June 15, 2009. The Company does not believe that the implementation of this standard will have a material impact on its consolidated financial statements.

These standards are effective for periods ending after June 15, 2009. We are evaluating the impact that these standards will have on our financial statements.

Results of Operations

Three months ended March 31, 2009 and 2008

Revenues from research and development contracts and grants for the three months ended March 31, 2009 and 2008 were $1.93 million and $1.98 million, respectively. Revenue recognized for the three months ended March 31, 2009 declined approximately $57,000 or 2.9% from the same period in the prior year mainly due to a decline of $385,000 in revenue recognized from our Arenavirus programs. The decline was partially offset by revenues of $270,000 related to our $55 million contract with the NIH to support the development of additional formulations and orthopox-related indications of ST-246®.

Selling, general and administrative expenses ("SG&A") for the three months ended March 31, 2009 and 2008 were $2.1 million and $1.0 million, respectively. The increase of $1.1 million or 105% is mainly due to $136,000 recorded in connection with the severance agreement reached between SIGA and our former Chief Financial Officer, $216,000 of higher stock based compensation charges, and an increase of $690,000 in legal and litigation support incurred during the three months ended March 31, 2009.

Research and development ("R&D") expenses for the three months ended March 31, 2009 and 2008 were $2.7 million and $2.8 million, respectively. The decline of approximately $139,000 or 4.9% is mainly due to a $208,000 decline in depreciation expense related to declines in capital expenditures over the past several years and a decline of $194,000 in expenses related to our leading drug development programs. The declines were partially offset by an increase of $284,000 in employee related expenses due to the hiring of additional research and development support personnel.

During the three months ended March 31, 2009 and 2008, we spent $1.3 and $1.2 million, respectively, on the development of our lead drug candidate, ST-246®. For the three months ended March 31, 2009, we spent $338,000 on internal human resources and $975,000 mainly on manufacturing and clinical testing. For the three months ended March 31, 2008, we spent $232,000 on internal human resources and $968,000 mainly on clinical testing and manufacturing of ST-246®. From inception of the ST-246® development program to-date, we expended a total of $16.3 million related to the program, of which $4.0 million and $12.3 million were spent on internal human resources, and manufacturing, 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").

During the three months ended March 31, 2009 and 2008, we spent $130,000 and $379,000, respectively, to support the development of ST-193, a drug candidate for Lassa fever virus, ST-294, a drug candidate for certain arenavirus pathogens, and other drug candidates for hemorrhagic fevers. For the three months ended March 31, 2009, we spent $60,000 on internal human resources and $70,000 mainly on pre-clinical testing of our drug candidates. For the three months ended March 31, 2008, we spent $60,000 on internal human resources and $319,000 on pre-clinical testing.

From inception of our program to develop ST-193, ST-294 and other drug candidates for hemorrhagic fevers, to-date, we spent a total of $5.6 million related to the program, of which $2.1 million and $3.5 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.

For the three months ended March 31, 2008 we spent $100,000 in expenses related to our USAF agreements. For the three months ended March 31, 2008 we spent $77,000 and $23,000 for internal human resources and external R&D services, respectively. Costs related to our work on the USAF Agreements from September 2005 to date were $3.4 million, of which we spent $1.8 million and $1.6 million 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. In January 2008, we completed a one-year agreement with the USAF for approximately $1.4 million, for the development of counter-measures against Dengue viruses and other water-related viral agents. In April 2008, we completed a second one-year agreement with the USAF for approximately $873,000 for the USAF's Rapid Identification and Treatment program. As the USAF Agreement was completed in 2008, there was no expense for the USAF Agreement for the three months ended March 31, 2009.

Patent preparation expenses decreased to $109,000 for the three months ended March 31, 2009, from $130,000 for the same period in the prior year. Higher costs in 2008 reflect timing of patents filings related to our efforts to protect our lead drug candidates in expanded geographic territories.

Changes in the fair value of certain warrants to acquire common stock are recorded as gains or losses. For the three months ended March 31, 2009 and 2008, we recorded a loss of $3.9 million and a gain of $1.1 million, respectively, reflecting changes in the fair market value of warrants to purchase common stock during the respective three month periods.

For the three months ended March 31, 2009 and 2008, we recorded other income of $1,000 and $43,000, respectively, mainly related to interest income on our cash and cash equivalent balance. The decline in other income is due to lower average cash and cash equivalent balance during the three months ended March 31, 2009 as compared to the same period in the prior year.

Liquidity and Capital Resources

On March 31, 2009, we had approximately $1.6 million in cash and cash equivalents.

Operating activities

Net cash used in operations during the three months ended March 31, 2009 and 2008 was $2.1 million and $1.6 million, respectively. The increase in net cash used in operations relates to higher operating expenses incurred during the three months ended March 31, 2009 mainly due to legal and litigation support. The increase was partially offset by the collection of $712,000 of accounts receivables during the three months ended March 31, 2009, as compared to $435,000 during the same period in 2008, and the net payment of payables of $165,000 during the three months ended march 31, 2009, as compared with $570,000 during the same period in 2008..

Investing activities

Capital expenditures of $158,000 during the three months ended March 31, 2008 supported acquisitions of laboratory equipment. We incurred no capital expenditure during the three months ended March 31, 2009.

Financing activities

Cash provided by financing activities during the three months ended March 31, 2009 and 2008 was $1.3 million and $26,000, respectively, generated from exercises of options and warrants to purchase common stock.

On June 19, 2008, we entered into a letter agreement (the "Letter Agreement"), with MacAndrews & Forbes, LLC ("M&F"), a related party, for M&F's commitment to invest, at SIGA's discretion, up to $8 million over a one-year period (the "Investment Period") in exchange for (i) SIGA common stock at per share price equal to the lesser of (A) $3.06 and (B) the average of the volume-weighted average price per share for the 5 trading days immediately preceding each funding date, and (ii) warrants to purchase 40% of the number of SIGA shares acquired by the Investor, exercisable

at 115% of the common stock purchase price on such funding date (the "Consideration Warrants"). The Consideration Warrants will be exercisable for up to four years following the issuance of such warrants. M&F has the option, during the Investment Period, to invest in the Company under the same investment terms. As of March 31, 2009, the entire amount of the commitment remains outstanding.

On April 29, 2009, SIGA and M&F entered into a letter agreement (the "Extension Agreement") extending the Investment Period of the Company's Letter Agreement with M&F through June 19, 2010 and increasing the number of tranches pursuant to the Investment Commitment and the Investment Option to no more than six. On April 29, 2009, SIGA notified the Investor that it intends to exercise its right to cause the Investor to invest $1.5 million in SIGA pursuant to the terms of the Letter Agreement. On April 30, 2009, the Company issued M&F 490,196 shares of common stock and 196,078 warrants to acquire common stock in exchange for total proceeds of $1.5 million. The warrants are exercisable until April 30, 2013, for exercise price of $3.519 per share. The proceeds of the investment will be used for general corporate purposes.

We have incurred cumulative net losses and may incur additional losses as we perform further research and development activities. We do not currently have commercial products and currently have limited capital resources. Our plans with regard to these matters include responding to current and future RFPs and seeking to obtain commercial contracts for the manufacture and delivery of ST-246, continued development of our products as well as seeking additional working capital through a combination of collaborative agreements, strategic alliances, research grants, and future equity and debt financing. Although we continue to pursue these plans, there is no assurance that we will be successful in any of these activities, including no assurance that we will be awarded any supply contract, obtain future financing on commercially reasonable terms or be able to secure funding from anticipated government contracts and grants.

We believe that our existing cash balances combined with cash flows primarily from proceeds from our investment commitment, continuing government grants and contracts, and anticipated new government grants and contracts 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 during that period. We believe that we have sufficient liquidity to support our operations beyond the next twelve months despite the disruption of the capital markets. We are not dependent on the availability of short-term debt facilities . . .