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. Our lead product, ST-246®, is an orally administered antiviral drug that targets orthopox viruses. In December 2005, the U.S. Food and Drug Administration (the "FDA") accepted our Investigational New Drug ("IND") application for ST-246® and granted the program "Fast-Track" status. In December 2006, the FDA granted Orphan Drug designation to ST-246® for the prevention and treatment of smallpox. In May 2009, we submitted a response to a Request for Proposal ("RFP") issued by the U.S. Biomedical Research and Development Agency ("BARDA") with respect to the purchase of 1.7 million courses of a smallpox antiviral (the "BARDA Smallpox RFP"), and, in June 2009, BARDA informed us that our response to the BARDA Smallpox RFP was deemed technically acceptable and in the competitive range. There can be no assurance that SIGA or any other company will receive an award pursuant to this RFP. Further, any award on this 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.

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 currently have any product approved for sale commercially, 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 responding to current and future RFPs and seeking to obtain commercial contracts for the manufacturing and delivery of ST-246®, 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, that we will be awarded any supply contract, 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 ("R&D") 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 R&D 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.

Critical Accounting Policies and Estimates

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. There were no significant changes to the critical accounting policies described in the 2008 Annual Report on Form 10-K other than the cumulative effect of changes in accounting principles as noted below.

Cumulative Effect of Changes in Accounting Principles On January 1, 2009, the Company adopted the provisions of ASC 815. In accordance with ASC 815, the cumulative effect of the change in accounting principle recorded by SIGA in connection with certain warrants to acquire shares of the company's 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 )

Results of Operations

Three months ended September 30, 2009 and 2008

Revenue from R&D contracts and grants for the three months ended September 30, 2009 was $3.9 million, an increase of $2.0 million or 111% from the $1.9 million recognized during the same period in the prior year. Revenue recognized from our program for the large-scale manufacturing and packaging of ST-246® increased by $1.6 million, and revenue recognized from our $55 million contract with the NIH to support the development of additional formulations and orthopox-related indications of ST-246® increased by $526,000.

Selling, general and administrative expenses ("SG&A") for the three months ended September 30, 2009 and 2008 were $1.5 million and $945,000, respectively, reflecting an increase of approximately $576,000 or 61%. Higher SG&A expenses for the three month period in 2009 are mainly due to an increase of $205,000 in accounting services resulting from additional governmental audits, an increase of $80,000 in stock based compensation charges, a $34,000 increase in insurance premiums related to the Company's expanded research operations and higher market capitalization, and an increase of $223,000 in legal and litigation support incurred during the three months ended September 30, 2009, from the same period in 2008.

R&D expenses for the three months ended September 30, 2009 and 2008 were $4.8 million and $2.9 million, respectively. The increase of approximately $2.0 million or 69% is due to a $1.8 million increase in expenses related to our leading drug development programs, as well as an increase of $105,000 in employee compensation expenses mainly related to the hiring of additional R&D support personnel. As of September 30, 2009 and 2008, the Company had 45 and 36 full time R&D employees, respectively.

During the three months ended September 30, 2009 and 2008, we spent $3.1 and $1.2 million, respectively, on the development of our lead drug candidate, ST-246®. For the three months ended September 30, 2009, we spent $381,000 on internal human resources and $2.7 million mainly on manufacturing and clinical testing. For the three months ended September 30, 2008, we spent $330,000 on internal human resources and $870,000 mainly on clinical testing. From inception of the ST-246® development program to-date, we expended a total of $22.5 million related to the program, of which $4.8 million and $17.7 million were spent on internal human resources, and manufacturing, clinical and pre-clinical work, respectively. These resources reflect SIGA's R&D 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 September 30, 2009 and 2008, we spent $96,000 and $243,000, 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 September 30, 2009, we spent $37,000 on internal human resources and $59,000 mainly on pre-clinical testing of our drug candidates. For the three months ended September 30, 2008, we spent $62,000 on internal human resources and $181,000 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 $5.8 million related to the program, of which $2.2 million and $3.6 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.

Patent preparation expenses decreased to $191,000 for the three months ended September 30, 2009, from $198,000 for the same period in the prior year. Higher costs in 2008 reflect timing of patent 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 September 30, 2009 and 2008, we recorded a gain of $1.2 million and a loss of $913,000, respectively, reflecting changes in the fair market value of warrants to purchase common stock during the respective three month periods.

Other income of $18,000 recorded for the three months ended September 30, 2008, reflected interest income on our cash and cash equivalent balance. During the three months ended September 30, 2009, the majority of our cash and cash equivalent balance was invested in non-interest bearing accounts.

Nine months ended September 30, 2009 and 2008

Revenues from R&D contracts and grants for the nine months ended September 30, 2009 and 2008 were $9.9 million and $5.6 million, respectively, reflecting an increase of $4.3 million or 77% which is mainly due to expanded activities supporting the development of ST-246®. For the nine months ended September 30, 2009, we recorded $8.9 million from grants and contracts supporting the development of our lead drug candidate, ST-246® and its alternative formulations. Revenue from grants and contracts supporting these programs during the same period in 2008 was $4.2 million.

SG&A expenses increased $2.3 million or 73% to $5.4 million for the nine months ended September 30, 2009, from $3.1 million for the same period in 2008. The increase relates mainly to $655,000 of higher stock based compensation charges, $177,000 increase in accounting services, and an increase of $1.2 million in legal and litigation support.

R&D expenses were $12.2 million for the nine months ended September 30, 2009, an increase of $4.0 million or 49% from the $8.2 million spent during the nine months ended September 30, 2008. Expenditures related to the development of our lead drug candidates increased $3.3 million from the same period in the prior year. Employee compensation expenses increased $654,000 mainly due to the hiring of additional R&D support personnel. As of September 30, 2009 and 2008, the Company had 45 and 36 full time R&D employees, respectively.

During the nine months ended September 30, 2009 and 2008, we spent $7.6 million and $3.7 million, respectively, on the development of ST-246. For the nine months ended September 30, 2009, we spent $1.2 million on internal human resources and $6.4 million mainly on manufacturing and clinical testing. For the nine months ended September 30, 2008, we spent $850,000 on internal human resources and $2.9 million mainly on clinical testing. From inception of the ST-246® development program to-date, we expended a total of $22.5 million related to the program, of which $4.8 million and $17.7 million were spent on internal human resources, and clinical and pre-clinical work, respectively. These resources reflect SIGA's R&D 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 of $347,000 and $760,000 during the nine months ended September 30, 2009 and 2008, respectively, were used to support the development of ST-193, a drug candidate for Lassa fever virus, ST-294, a drug candidate for certain arena virus pathogens, and other drug candidates for hemorrhagic fevers. For the nine months ended September 30, 2009, we spent $143,000 on internal human resources and $204,000 mainly on pre-clinical testing. For the nine months ended September 30, 2008, we spent $190,000 on internal human resources and $570,000 mainly on pre-clinical testing. From inception of our program to develop ST-294 and other drug candidates for hemorrhagic fevers, to-date, we spent a total of $5.8 million related to the program, of which $2.2 million and $3.6 million were expended on internal human resources and pre-clinical work, respectively. These resources reflect SIGA's R&D 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.

Patent preparation expenses for the nine months ended September 30, 2009 and 2008 were $385,000 and $462,000, respectively. 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 nine months ended September 30, 2009 and 2008, we recorded losses of $10.5 million and $923,000, respectively, reflecting changes in the fair market value of warrants to purchase common stock during the respective nine month periods.

For the nine months ended September 30, 2009 and 2008, we recorded other income of $1,000 and $85,000, 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 nine months ended September 30, 2009 as compared to the same period in the prior year.

Liquidity and Capital Resources

On September 30, 2009, we had approximately $1.4 million in cash and cash equivalents.

Operating activities
Net cash used in operations during the nine months ended September 30, 2009 and 2008 was approximately $6.4 million. For the nine months ended September 30, 2008, we used $1.25 million for a deposit paid to a third party under an agreement to manufacture ST-246® for testing.

On September 23, 2009, the Company was awarded a two-year, $1.7 million grant from the National Institute of Allergy and Infectious Diseases ("NIAID") of the NIH, to support the development of broad spectrum, small-molecule inhibitors of bunyaviruses. The grant was awarded under the American Recovery and Reinvestment Act of 2009.

In September 2009, SIGA received a three-year, $3.0 million Phase II grant from the NIH to fund the continued development of ST-246® treatment of smallpox vaccine-related adverse events.

Investing activities
Capital expenditures of $304,000 and $289,000 during the nine months ended September 30, 2009 and 2008 mainly supported acquisitions of laboratory and computer equipment.

Financing activities
Cash provided by financing activities during the nine months ended September 30, 2009 and 2008 was $5.8 million and $2.8 million, respectively, generated from exercises of options and warrants to purchase common stock as well as investments made under SIGA's Letter Agreement with MacAndrews & Forbes, LLC ("M&F").

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 (the "Investment Commitment"), 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 M&F, 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 (the "Investment Option").

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 draws pursuant to the Investment Commitment and the Investment Option to no more than nine. On April 29, 2009, we notified M&F of our intention to exercise our right to cause M&F to invest $1.5 million in SIGA pursuant to the terms of the Letter Agreement. On April 30, 2009, we 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 an exercise price of $3.519 per share. The proceeds of the investment will be used for general corporate purposes. On August 25, 2009, SIGA notified M&F of its intention to exercise its right to cause M&F to invest $1,000,000 in SIGA pursuant to the terms of the Letter Agreement. On September 17, 2009 the Company issued M&F 326,797 shares of common stock and 130,719 warrants to acquire common stock in exchange for total proceeds of $1.0 million. The warrants are exercisable until September 17, 2013, for an exercise price of $3.519 per share. As of September 30, 2009, $5.5 million of the commitment remains outstanding.

Other
We have incurred cumulative net losses and may incur additional losses as we perform further research and development activities. We do not currently have any product approved for sale commercially 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, that we will be awarded any supply contract, 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 and the limited availability of credit in the market has not affected our liquidity or materially impacted our funding.

Our working capital and capital requirements will depend upon numerous factors, including whether we are successful in obtaining government-funded contracts for the manufacture and delivery of ST-246; whether the terms of any such contract are commercially favorable; the progress, if any, and the future needs of our pharmaceutical R&D programs; pre-clinical and clinical testing activity; the timing and cost of obtaining regulatory approvals; the levels of resources that we devote to the development of manufacturing and marketing capabilities; technological advances; the status of competitors; and our ability to establish collaborative arrangements with other organizations.

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 (i) the risks that 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, (ii) the risk that SIGA or its collaborators will not obtain appropriate or necessary governmental approvals to market these or other potential products, (iii) the risk that SIGA may not be able to obtain anticipated funding for its development projects or other needed funding, (iv) the risk that SIGA may not be able to secure funding from anticipated government contracts and grants, (v) the risk that SIGA may not be able to secure or enforce adequate legal protection, including patent protection, for its products, (vi) the risk that regulatory approval for SIGA's products may require further or additional testing that will delay or prevent approval, (vii) the Biomedical Advanced Research & Development Authority may not complete the procurement set forth in a solicitation for the acquisition of a smallpox antiviral for the strategic national stockpile, or may complete it on different terms, (viii) the volatile and competitive nature of the biotechnology industry, (ix) changes in domestic and foreign economic and market conditions, and (x) the effect of federal, state and foreign regulation on SIGA's businesses. 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, 2008, 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 United States of America 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.