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

                             ----------------------

                                    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

                                       OR

|_|   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

                             ----------------------


                             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


                                       1


PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements

                             SIGA TECHNOLOGIES, INC.

                                 BALANCE SHEETS



                                                                              Unaudited
                                                                             September 30,    December 31,
                                                                                 2006             2005
                                                                             -------------    ------------
                                                                                        
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
                                                                             -------------    ------------
  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
                                                                             -------------    ------------
  Total assets ...........................................................   $   5,728,816    $  6,105,029
                                                                             =============    ============

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
                                                                             -------------    ------------
  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
                                                                             -------------    ------------
  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)
                                                                             -------------    ------------
  Total stockholders' equity .............................................          77,343       3,231,030
                                                                             -------------    ------------
  Total liabilities and stockholders' equity .............................   $   5,728,816    $  6,105,029
                                                                             =============    ============



   The accompanying notes are an integral part of these financial statements.


                                       2


                             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
                                                                     ------------    -----------   ------------    ------------

   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)
                                                                     ============    ===========   ============    ============


Weighted average shares outstanding: basic and diluted ...........     27,656,368     24,500,648     27,219,221      24,500,648
                                                                     ============    ===========   ============    ============
Net income (loss) per share: basic and diluted ...................   $      (0.02)   $      0.03   $      (0.21)   $      (0.08)
                                                                     ============    ===========   ============    ============



   The accompanying notes are an integral part of these financial statements.


                                       3


                             SIGA TECHNOLOGIES, INC.

                       STATEMENT OF CASH FLOWS (UNAUDITED)



                                                                            Nine Months Ended
                                                                              September 30,
                                                                           2006           2005
                                                                       -----------    -----------
                                                                                
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)
                                                                       -----------    -----------
     Net cash used in operating activities .........................    (2,873,276)    (1,413,135)
                                                                       -----------    -----------

Cash flows from investing activities:
  Capital expenditures .............................................      (805,375)      (655,053)
                                                                       -----------    -----------
     Net cash used in investing activities .........................      (805,375)      (655,053)
                                                                       -----------    -----------

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)
                                                                       -----------    -----------
     Net cash provided by financing activities .....................     4,555,846        241,106
                                                                       -----------    -----------
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
                                                                       -----------    -----------
Cash and cash equivalents at end of period .........................   $ 2,649,684    $   193,856
                                                                       ===========    ===========



   The accompanying notes are an integral part of these financial statements.


                                       4



                             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

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


                                       5


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)
                                                                ----------------   ---------------
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)



                                       6



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.


                                       7


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.

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.  Changes  in events  or  circumstances  that may  affect
long-lived assets include, but are not limited to, cancellations or terminations
of research contracts or pending government grants.

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.


                                       8


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.


                                       9


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.


                                       10


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



                                       11


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.


                                       12


                             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


                                       13


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).

      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  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.


                                       14


      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

      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


                                       15


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,


                                       16


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,


                                       17


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


                                       18


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.

      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 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.


                                       19


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.


                                       20


      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.


                                       21


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.


                                       22


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.


                                       23


                                     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


                                       24


                                   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


                                       25