Edgar Filing: SIGA TECHNOLOGIES INC

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-QSB

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

For the Quarter Ended Commission File No. 0-23047
September 30, 2004

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

Delaware 13-3864870
(State or other jurisdiction of (IRS Employer Id. No.)
incorporation or organization)

420 Lexington Avenue, Suite 601
New York, NY 10170
(Address of principal executive offices) (zip code)

Registrant's telephone number, including area code: (212) 672-9100

Securities registered pursuant to Section 12(b) of the Act:

None
(Title of Class)

Securities registered pursuant to Section 12(g) of the Act:

common stock, $.0001 par value
(Title of Class)

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 |_|.

As of November 10, 2004 the registrant had outstanding 24,500,648 shares of
common stock.

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Part 1
Financial Information

Item 1. Financial Statements

SIGA TECHNOLOGIES, INC.

CONSOLIDATED BALANCE SHEET (UNAUDITED)

September 30, December 31,
2004 2003
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ASSETS
Current Assets
Cash and cash equivalents ................................................ $ 3,176,327 $ 1,440,724
Accounts receivable ...................................................... 41,505 38,786
Prepaid expenses ......................................................... 89,098 50,338
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Total current assets .................................................... 3,306,930 1,529,848

Equipment, net ........................................................... 159,523 379,046
Goodwill ................................................................. 898,334 898,334
Intangible assets, net ................................................... 3,981,423 3,117,357
Other assets ............................................................. 217,972 174,995
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Total assets ............................................................ $ 8,564,182 $ 6,099,580
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable ......................................................... $ 633,243 $ 353,051
Accrued expenses and other ............................................... 264,765 195,181
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Total liabilities ....................................................... 898,008 548,232

Stockholders' equity
Series A convertible preferred stock ($.0001 par value, 10,000,000 shares
authorized, 68,038 and 81,366 issued and outstanding at September 30, 2004
and December 31, 2003, respectively) ..................................... 58,672 72,666
Common stock ($.0001 par value, 50,000,000 shares authorized,
24,500,648 and 18,676,851 issued and outstanding at September 30, 2004
and December 31, 2003, respectively) ................................... 2,450 1,868
Additional paid-in capital ............................................... 48,679,650 40,284,856
Accumulated deficit ...................................................... (41,074,598) (34,808,042)
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Total stockholders' equity .............................................. 7,666,174 5,551,348
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Total liabilities and stockholders' equity .............................. $ 8,564,182 $ 6,099,580
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The accompanying notes are an integral part of these financial statements.

SIGA TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)

Three months ended Nine months ended
September 30, September 30,
2004 2003 2004 2003
------------ ------------ ------------ ------------

Revenues
Research and development contracts .............. $ 532,724 $ 176,342 $ 992,478 $ 625,016
------------ ------------ ------------ ------------

Operating expenses
Selling, general and administrative ............. 919,165 684,223 3,036,559 1,993,007
Research and development ........................ 826,827 1,000,911 2,872,818 2,121,154
Patent preparation fees ......................... 83,580 65,003 230,320 187,109
Purchased in-process research and development ... 568,329 -- 568,329 --
Loss on impairment of intangible assets ......... -- -- 610,063 --
------------ ------------ ------------ ------------
Total operating expenses ..................... 2,397,901 1,750,137 7,318,089 4,301,270
------------ ------------ ------------ ------------

Operating loss ............................... (1,865,177) (1,573,795) (6,325,611) (3,676,254)

Other income, net .................................... 27,824 3,336 59,055 13,048
------------ ------------ ------------ ------------
Net loss ..................................... $ (1,837,353) $ (1,570,459) $ (6,266,556) $ (3,663,206)
============ ============ ============ ============

Weighted average shares outstanding: basic and diluted 23,875,368 16,825,628 23,462,307 14,769,960
============ ============ ============ ============
Net loss per share: basic and diluted ................ (0.08) $ (0.09) (0.27) $ (0.25)
============ ============ ============ ============

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

SIGA TECHNOLOGIES, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

Nine months ended
September 30,
2004 2003
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Cash flows from operating activities:
Net loss .................................................................. $(6,266,556) $(3,663,206)
Adjustments to reconcile net loss to net
cash used in operating activities:
Purchased in-process research and development .......................... 568,329 --
Loss on impairment of intangible assets ................................ 610,063 --
Bad debt expense ....................................................... -- 14,000
Depreciation ........................................................... 269,455 262,053
Amortization of intangible assets ...................................... 473,564 225,680
Stock based compensation ............................................... 47,400 1,375
Changes in assets and liabilities:
Accounts receivable .................................................. (2,719) (23,914)
Prepaid expenses ..................................................... (38,760) (3,161)
Other assets ......................................................... (27,977) (7,808)
Accounts payable and accrued expenses ................................ 331,776 (328,069)
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Net cash used in operating activities ................................ (4,035,425) (3,523,050)
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Cash flows from investing activities:
Acquisition of intangible assets .......................................... (1,033,022) --
Capital expenditures ...................................................... (49,932) (268,360)
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Net cash flow used in investing activities .............................. (1,082,954) (268,360)
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Cash flows from financing activities:
Net proceeds from issuance of common stock ................................ 6,784,607 2,098,493
Receipts of stock subscriptions outstanding ............................... -- 791,940
Proceeds from exercise of options and warrants ............................ 69,375 --
Principal payments on capital lease obligations ........................... -- (11,206)
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Net cash provided from financing activities ............................. 6,853,982 2,879,227
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Net increase (decrease) in cash and cash equivalents ........................ 1,735,603 (912,183)
Cash and cash equivalents at beginning of period ............................ 1,440,724 2,069,004
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Cash and cash equivalents at end of period .................................. $ 3,176,327 $ 1,156,821
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Non-cash supplemental information:
Conversion of preferred stock to common stock ............................. $ 13,994 $ 371,008
Transfer of intangible assets for investment in Pecos Labs, Inc. .......... $ 15,000 $ --
Shares issued for assets from ViroPharma Incorporated ..................... $ 1,480,000 $ --
Shares issued for services ................................................ $ 47,400 $ --

Supplemental information of business acquired:
Fair value of assets acquired:
Equipment ................................................................. $ -- $ 27,711
Intangible assets ......................................................... -- 3,639,000
Goodwill .................................................................. -- 898,334
Less, liabilities assumed and non-cash consideration:
Current liabilities ....................................................... -- (494,142)
Stock issued .............................................................. -- (3,409,000)
Stock options and warrants issued ......................................... -- (255,873)
Accrued acquisition costs ................................................. -- (460,030)

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

SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2004 Unaudited Condensed Consolidated Financial
Statements

1. Organization and Basis of Presentation

Organization

The financial statements of SIGA Technologies, Inc. (the "Company") have been
prepared in accordance with generally accepted accounting principles for interim
financial information and the rules of the Securities and Exchange Commission
(the "SEC") for quarterly reports on Forms 10-QSB and do not include all of the
information and footnote disclosures required by generally accepted accounting
principles for complete financial statements. These statements should be read in
conjunction with the Company's audited financial statements and notes thereto
for the year ended December 31, 2003, included in the 2003 Form 10-KSB.

Basis of presentation

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. The Company anticipates that its current resources
will be sufficient to finance anticipated needs for operations and capital
expenditures through at least fiscal year ending 2005. 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 continues to pursue these plans, there is no assurance that the
Company will be successful in obtaining sufficient financing on terms acceptable
to the Company. See Note 5 for recent private placement offerings.

2. Significant Accounting Policies

Business Combinations, Goodwill and Intangible Assets

The Company accounts for business combinations in accordance with the provisions
of Statement of Financial Accounting Standards No. 141 "Business Combinations"
("SFAS 141"). SFAS 141 requires business combinations to be accounted for using
the purchase method of accounting. It also specifies the types of acquired
intangible assets required to be recognized and reported separately from
goodwill.

The Company accounts for the impairment of goodwill in accordance with the
provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and
Other Intangible Assets" ("SFAS 142"). Goodwill is not subject to amortization
and is tested for impairment annually, or more frequently if events or changes
in circumstances indicate that the asset may be impaired. The impairment test
consists of a comparison of the fair value of goodwill with its carrying amount.
If the carrying amount of goodwill exceeds its fair value, a second step of the
goodwill impairment test shall be performed to measure the amount of impairment
loss, if any. After an impairment loss is recognized, the adjusted carrying
amount of goodwill is its new accounting basis. The annual impairment testing
required under SFAS 142 requires management to make assumptions and judgments
regarding the estimated fair value of the Company's goodwill. Such assumptions
include the present value discount factor used to determine the fair value of a
reporting unit, which is ultimately used to identify potential goodwill
impairment. Such estimated fair values might produce significantly different
results if other reasonable assumptions and estimates were to be used.

The Company accounts for the impairment of long-lived assets such as acquired
technology, non-compete agreements and research contracts in accordance with the
provisions of Statement of Financial Accounting Standards No. 144 "Accounting
for the Impairment or Disposal of Long-Lived Assets" ("SFAS 144"). SFAS 144
requires that long-lived assets be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. The Company compares the carrying amount of the asset to the
estimated undiscounted future cash flows expected to result from the use of the
asset. If the carrying amount of the asset exceeds estimated expected
undiscounted future cash flows, the Company records an impairment charge for the
difference between the carrying amount of the asset and its fair value. Changes
in events or circumstances to the Company that may affect long-lived assets
include, but are not limited to, cancellations or terminations of research
contracts or pending government research grants.

Net loss per 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

SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2004 Unaudited Condensed Consolidated Financial
Statements

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.

For the three months ended September 30, 2004 and 2003 and the nine months ended
September 30, 2004 and 2003, the Company's Series A convertible preferred stock
has been excluded from the computation of diluted loss per share as they are
anti-dilutive. For the three months ended September 30, 2004 and 2003 and the
nine months ended September 30, 2004 and 2003, outstanding options to purchase
the Company's common stock with exercise prices ranging from $1.00 to $5.50 have
been excluded from the computation of dilutive loss per share as they are
anti-dilutive. For the three months ended September 30, 2004 and 2003 and the
nine months ended September 30, 2004 and 2003, outstanding warrants to purchase
the Company's common stock with exercise prices ranging from $1.00 to $3.63 have
been excluded from the computation of dilutive loss per share as they are
anti-dilutive.

Accounting estimates

The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of expenses during the reporting period. Significant
estimates include the fair value of goodwill and intangible assets and the value
of options and warrants granted by the Company. Actual results could differ from
those estimates.

Accounting for stock based compensation

The Company has elected to account for its stock-based compensation programs
according to the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Accordingly, compensation
expense has been recognized to the extent of employee or director services
rendered based on the intrinsic value of compensatory options or shares granted
under the plans. The Company has adopted the disclosure provisions required by
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), as amended by SFAS 148, "Accounting for Stock-Based Compensation -
Transaction and Disclosure, an amendment to FASB Statement No. 123."

Had compensation cost for stock options granted been determined based upon the
fair value at the grant date for awards, consistent with the methodology
prescribed under SFAS 123, the Company's net loss and net loss per share would
have been as follows:

Three Months Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
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Net loss, as reported ....................................... ($1,837,353) ($1,570,459) ($6,266,556) ($3,663,206)
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Add: Stock-based employee compensation expense recorded under
APB No. 25 .................................................. -- -- -- --
Deduct: Total stock-based employee compensation expense
determined under fair value based method for all awards,
net of related tax effects .................................. (816,882) (75,055) (1,084,685) (578,059)
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Pro forma net loss .......................................... ($2,654,235) ($1,645,514) ($7,351,241) ($4,241,265)
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Net loss per share:
Basic and diluted -as reported .............................. $ (0.08) $ (0.09) $ (0.27) $ (0.25)
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Basic and diluted -pro forma ................................ $ (0.11). $ (0.10) $ (0.31) $ (0.29)
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SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2004 Unaudited Condensed Consolidated Financial
Statements

The weighted average fair value of options granted to employees during 2004 was
$1.08 using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used for 2004: no dividend yield, expected
volatility of 100%, weighted average risk free interest rates of 3.89% and a
weighted average expected term of 6.5 years.

The weighted average fair value of options granted to employees during 2003 was
$1.19 using the Black-Scholes option-pricing model. The following
weighted-average assumptions were used for 2003: no dividend yield, expected
volatility of 100%, weighted average risk free interest rates of 3.18% and a
weighted average expected term of 4 years.

Recent Accounting Pronouncements

In December 2003, the FASB revised its FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements". FIN 46R requires that a business enterprise review all of its legal
structures used to conduct its business activities, including those to hold
assets, and its majority-owned subsidiaries, to determine whether those legal
structures are variable interest entities (VIEs) required to be consolidated for
financial reporting purposes by the business enterprise. A VIE is a legal
structure for which the holders of a majority voting interest may not have a
controlling financial interest in the legal structure. FIN 46R provides guidance
for identifying those legal structures and provides guidance for determining
whether a business enterprise shall consolidate a VIE. FIN 46R requires that a
business enterprise that holds a significant variable interest in a VIE make new
disclosures in their financial statements. The Company adopted the provisions of
FIN 46R for the period ended March 31, 2004. The Company does not hold any
interests in VIEs that would require consolidation or additional disclosures.

In March 2004, the Emerging Issues Task Force issued EITF 03-06, "Participating
Securities and the Two-Class Method under FASB Statement No. 128". This
statement provides additional guidance on the calculation and disclosure
requirements for earnings per share. The FASB concluded in EITF 03-06 that
companies with multiple classes of common stock or participating securities, as
defined by SFAS No. 128, calculate and disclose earnings per share based on the
two-class method. The adoption of this statement did not have an impact to the
Company's financial statements presentation as the Company is in a loss
position.

3. Business acquisition of Plexus Vaccine, Inc.

On May 23, 2003, the Company acquired substantially all of the assets of Plexus
and assumed certain liabilities in exchange for 1,950,000 shares of the
Company's common stock and 190,950 of the Company's options and warrants at an
exercise price of $1.62 per share. The results of operations of Plexus have been
included in the statement of operations of the combined entity since May 23,
2003.

Selected Unaudited Pro Forma Financial Information

The Company has prepared a condensed pro forma statement of operations in
accordance with SFAS 141, for the three and nine months ended September 30, 2003
as if Plexus were part of the Company as of January 1, 2003.

Three Months Ended Nine Months Ended
September 30, September 30,
2003 2003
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Revenues ........................................... $ 176,342 $ 719,798

Net loss ........................................... $ (1,570,459) $ (5,931,951)

Net loss per common share - basic and diluted ...... $ (0.09) $ (0.38)
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Weighted average number of common shares outstanding 16,825,628 15,791,389
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SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2004 Unaudited Condensed Consolidated Financial
Statements

4. Intangible Assets

Purchase of Intangible Assets

In August 2004, the Company acquired certain government grants and two early
stage antiviral programs, Smallpox and Arenavirus, targeting certain agenda of
biological warfare for a purchase price of $1,000,000 in cash and 1,000,000
shares of the Company's common stock from ViroPharma Incorporated
("ViroPharma"). Each program is in the early stage of development and the
Company expects both programs to be completed in or by 2008. The shares issued
to ViroPharma were valued at the closing date price.

The total purchase price of approximately $2.5 million was preliminarily
allocated to the government grants (approximately $1.9 million) and to purchased
in-process research and development (approximately $464,000 allocated to the
Smallpox program and approximately $104,000 to the Arenavirus program) ("IPRD").
The grants will be amortized over the contractual life of each grant or 2 years.
The amount expensed as IPRD was attributed to technology that has not reached
technological feasibility and has no alternate future use. The value allocated
to IPRD was determined using the income approach that included an excess
earnings analysis reflecting the appropriate costs of capital for the purchase.
Estimates of future cash flows related to the IPRD were made for both the
Smallpox and Arenavirus programs. The aggregate discount rate of approximately
55% utilized to discount the programs' cash flows were based on consideration of
the Company's weighted average cost of capital as well as other factors,
including the stage of completion and the uncertainty of technology advances for
these programs. If the programs are not successful or completed in a timely
manner, the Company's product pricing and growth rates may not be achieved and
the Company may not realize the financial benefits expected from the programs.

Transfer of Intangible Assets to Pecos Labs, Inc.

In May 2004, the Company sold intangible assets from its immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos Labs, Inc. ("Pecos") in exchange for 150,000
shares of Pecos common stock. In addition, concurrent with the asset transfer,
the Company terminated its employment agreement with the President of the
Company. The Company paid approximately $270,000 in severance to the President
as well as accelerated vesting on 100,000 stock options that were due to vest in
May 2004. No compensation charge was recorded as the exercise price of the
options was above the fair value market price on the date of termination. In
addition, the Company reduced the covenant not to compete with the President to
one year from the date of termination.

As a result of the Pecos transaction in the second quarter of 2004, the Company
performed an impairment review of the intangible assets in accordance with SFAS
144. The impairment of intangible assets consists of $307,063 of impairments to
unamortized intangible assets related to the grants transferred to Pecos and
$303,000 of impairment to the unamortized covenant not to compete with the
President of the Company due to the reduction of the covenant to one year from
the date of termination.

The Company is accounting for its investment in Pecos under the cost method
under Accounting Principles Board Opinion No. 18, "The Equity Method of
Accounting for Investments in Common Stock" based upon its 10% ownership of
Pecos. The Company valued the 150,000 common shares at $0.10 per share based on
an investment made at a concurrent time by an outside investor to Pecos at $0.10
per share.

Amortization of Intangible Assets

For the three and nine months ended September 30, 2004, amortization of acquired
technology was approximately $55,000 and $165,000, respectively, amortization of
customer contract and grants was approximately $90,000 and $163,000,
respectively, and amortization of a covenant not to compete was approximately
$51,000 and $146,000, respectively. The Company anticipates amortization expense
to be approximately $833,000, $1,318,000, $904,000, $219,000, and $219,000 for
the fiscal years ending December 31, 2004, 2005, 2006, 2007, and 2008,
respectively.

5. Stockholders' Equity

At September 30, 2004, the Company's authorized share capital consisted of
60,000,000 shares, of which 50,000,000 are designated common shares and
10,000,000 are designated preferred shares. The Company's Board of Directors is
authorized to issue preferred shares in series with rights, privileges and
qualifications of each series determined by the Board.

Holders of the Series A Convertible Preferred Stock are entitled to (i)
cumulative dividends at an annual rate of 6% payable when and if declared by the
Company's board of directors; (ii) in the event of liquidation of the Company,
each holder is entitled to receive $1.4375 per share (subject to certain
adjustment) plus all accrued but

SIGA TECHNOLOGIES, INC.
Notes to the September 30, 2004 Unaudited Condensed Consolidated Financial
Statements

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 January 2004, MacAndrews & Forbes Holdings Inc. ("MacAndrews & Forbes"), a
holding company of which the Company's Chairman of the Board of Directors is
Vice Chairman and a director, and TransTech Pharma, Inc., a related party to the
Company and an affiliate of MacAndrews & Forbes ("TransTech Pharma"), completed
the final portion of their investment, following the approval of the Company's
stockholders at its annual meeting of stockholders held on January 8, 2004.
Immediately following the stockholders' meeting, MacAndrews & Forbes invested
$1,840,595 in exchange for 1,278,191 shares of common stock at a price of $1.44
per share, and warrants to purchase up to an additional 639,095 shares of common
stock at an exercise price of $2.00 per share; and TransTech Pharma invested
$5,000,000 in exchange for 3,472,222 shares of common stock and warrants to
purchase up to an additional 1,736,111 shares of common stock on the same terms.
In addition, as part of the investment, MacAndrews & Forbes and TransTech Pharma
each were given the right to appoint one board member to the Board of Directors,
subject to certain terms and conditions. On January 8, 2004, in accordance with
the terms of the investment, the respective designees of MacAndrews & Forbes and
TransTech Pharma were appointed to serve on SIGA's board of directors. In 2004,
the Company paid $120,000 to TransTech Pharma for work performed in connection
with the DegP SBIR grant.

During the three months September 30, 2004, the Company reached a settlement
agreement for breach of contract with a founder of the Company, whereby the
founder returned 40,938 common shares, 150,000 warrants and $15,000 to the
Company. The common shares were retired by the Company in the period ended
September 30, 2004. Other than the $15,000 recorded as Other income, this
transaction had no affect on the Statement of Operations.

6. Employee Agreements

In July 2004, the Company entered into an employment agreement with Bernard L.
Kasten, M.D. to serve as the Company's Chief Executive Officer. The employment
agreement provides for an annual salary of $250,000 plus, at the discretion of
the Board of Directors, bonus payments for a 3-year initial term with an
automatic 3-year renewal unless either party gives notice that it does not want
to renew. The agreement also provides for an option grant of 2,500,000 options
to purchase common stock with an exercise price of $1.30, of which 500,000
vested upon signing, 1 million options vest over the 3-year initial term and the
remaining 1 million options vest over the renewal term.

In July 2004, the Company entered into an amendment to its existing employment
agreement with the Company's Chief Scientific Officer. Pursuant to the
amendment, the employment agreement is effective through December 31, 2007 and
provides for an annual salary of $225,000 plus, at the discretion of the Board
of Directors, a bonus not to exceed 50% of the Chief Scientific Officer's
salary. The agreement also provides for an option grant of 150,000 options to
purchase common stock with an exercise price of $1.40, of which 75,000 vest on
December 31, 2005 and 75,000 vest on December 31, 2006.

In June 2004, the Company entered into an amendment to its existing employment
agreement with the Company's Chief Financial Officer. Pursuant to the amendment,
the employment agreement is effective through December 31, 2005 and provides for
an annual salary of $230,000 plus a one-time payment of $50,000 for the Chief
Financial Officer's prior service as Acting Chief Executive Officer. An
additional bonus not to exceed 25% of the Chief Financial Officer's salary may
be awarded at the discretion of the Board of Directors. The agreement also
provides for an option grant of 150,000 options to purchase common stock with an
exercise price of $1.40, of which 75,000 vested upon signing and the remainder
to vest on a prorata basis from January 1, 2005 through December 31, 2005.

The Company's employment agreement with its Vice President of Business
Development became effective in August 2004. The employment agreement provides
for an annual salary of $230,000 plus bonuses based on certain objectives and
goals met for a 3-year initial term with a 1-year renewal unless either party
gives notice that it does not want to renew. The agreement also provides for an
option grant of 200,000 options to purchase common stock with an exercise price
of $1.40, of which 50,000 vested upon signing and 50,000 vesting each
anniversary of the 3-year initial term. The agreement also provides for an
option grant, at the discretion of the Board of Directors and not to exceed
25,000 shares, upon certain milestone events during the 3-year initial term.

In addition to the 3,000,000 options granted to the executives mentioned above,
during the three months ended September 30, 2004, the Company granted 120,500
options at fair market value at the date of the grant with a ten-year term and
an exercise price of $1.40 per share.

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, we have been principally engaged in
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. The effort to develop a drug
for Smallpox is being aided by a $1.6 million contract with the U.S. Army which
commenced in January 2003 and a Small Business Innovation Research (SBIR) grant
from the National Institutes for Health (NIH) totaling approximately $5.8
million which commenced in August 2004. In addition, commencing August 2004, we
received SBIR grants from the NIH totaling $6.2 million to develop a drug for
Arenavirus. Smallpox and Arenavirus have been designated as Category A
bioterrorism agents by the Centers for Disease Control (CDC).

We are developing technology for the mucosal delivery of our 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. Our anti-infectives programs are aimed at the
increasingly serious problem of drug resistance, and they are designed to block
the ability of infectious agents to attach to human tissue, the first step in
the infection process.

In August 2004, we acquired certain government grants and two early stage
antiviral programs, Smallpox and Arenavirus, targeting certain agents of
biological warfare from ViroPharma Incorporated ("ViroPharma") for a purchase
price of $1,000,000 in cash and 1,000,000 shares of our common stock on the date
of the closing. As part of the closing, we were awarded Phase I and II SBIR
grants from the NIH totaling approximately $12 million, which will be received
over the next two years, for the development of drugs for the treatment of
Smallpox and Arenavirus as noted above.

In May 2004, we sold intangible assets from our immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos Labs, Inc. ("Pecos") in exchange for 150,000
shares of Pecos common stock. As a result of this transaction, we performed an
impairment review of the intangible assets and concluded that the carrying
amount of certain transferred intangible assets of $307,063 would not be
recoverable. In addition, we terminated our employment agreement with our
President. We paid approximately $270,000 in severance to the President as well
as accelerated vesting on 100,000 stock options that were due to vest in May
2004. No compensation charge was recorded as the exercise price of the options
was above the fair value market price on the date of termination. In addition,
we reduced the covenant not to compete with the President to one year from the
date of termination. We recognized $303,000 of impairment to the unamortized
covenant not to compete with our former President due to the reduction of the
covenant to one year from the date of termination.

We do not have commercial biomedical products, and we do not expect to
have such products for several years, if at all. We believe that we will need
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 continue to pursue these plans, there is no assurance
that we will be successful in obtaining sufficient financing on terms acceptable
to us. The financial statements do not include any adjustments that might result
from the outcome of this uncertainty. Management believes it has sufficient
funds to support operations through at least the year ending December 31, 2005.

Our biotechnology operations are run out of our research facility in
Corvallis, Oregon. We continue to seek to fund a major portion of our ongoing
vaccine and anti-infectives programs through a combination of government
contracts and grants and strategic alliances. While we have had success in
obtaining strategic alliances, contracts and grants, no assurance can be given
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.

Recent Accounting Pronouncements

In December 2003, the FASB revised its FASB Interpretation No. 46,
"Consolidation of Variable Interest Entities" (FIN 46R). FIN 46R clarifies the
application of Accounting Research Bulletin No. 51, "Consolidated Financial
Statements". FIN 46R requires that a business enterprise review all of its legal
structures used to conduct its business activities, including those to hold
assets, and its majority-owned subsidiaries, to determine whether those legal
structures are variable interest entities (VIEs) required to be consolidated for
financial reporting purposes by the business enterprise. A VIE is a legal
structure for which the holders of a majority voting interest may not have a
controlling financial interest in the legal structure. FIN 46R provides guidance
for identifying those legal structures and provides guidance for determining
whether a business enterprise shall consolidate a VIE. FIN 46R requires that a
business enterprise that holds a significant variable interest in a VIE make new
disclosures in their financial statements. We adopted the provisions of FIN 46R
for the period ended March 31, 2004. We do not hold any interests in VIEs that
would require consolidation or additional disclosures.

In March 2004, the Emerging Issues Task Force issued EITF 03-06, "Participating
Securities and the Two-Class Method under FASB Statement No. 128". This
statement provides additional guidance on the calculation and disclosure
requirements for earnings per share. The FASB concluded in EITF 03-06 that
companies with multiple classes of common stock or participating securities, as
defined by SFAS No. 128, calculate and disclose earnings per share based on the
two-class method. The adoption of this statement did not have an impact to our
financial statements presentation as the Company is in a loss position.

Contractual Obligations, Commercial Commitments and Purchase Obligations

As of September 30, 2004, our purchase obligations are not material. We
lease 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 are as follows:

Year ending December 31,

2004 $ 47,355
2005 190,627
2006 195,975
2007 200,863
2008 5,817
Thereafter --
--------
Total $640,637
=========

Results of Operations

Three months ended September 30, 2004 and September 30, 2003

Revenues from grants and research and development contracts were $532,724
for the three months ended September 30, 2004, compared to $176,342 for the same
period of 2003, an approximate 202% increase. The increase is due to revenue
from the Small Business Innovation Research (SBIR) grants awarded to us as the
result of our purchase of certain assets from ViroPharma in August 2004.
Revenues from these grants were $430,417 in the three month period ended
September 30, 2004. Revenue from the U.S. Army contract was $88,419 for the
three months ended September 30, 2004, an increase of approximately 14% from the
$77,343 received in the prior year. We also received $13,888 from an SBIR grant
that we have in conjunction with Oregon State University that was awarded in the
current year three month period. During the three months ended September 30,
2003 we received $40,000 under a subcontract with Oregon State University and
$58,999 in revenue from an SBIR grant. Work underwritten by this grant was
completed in May 2004.

Selling, general and administrative expenses for the three months ended
September 30, 2004 were $919,165 an increase of approximately 34% from expenses
of $684,223 for the three months ended September 30, 2003. Legal

expenses were $212,753 for the three months ended September 30, 2004 compared to
$24,627 for the prior year three month period. The increase was the primarily
due to the expenses incurred in association with hiring our new Chief Executive
Officer and other employee contractual matters and the settlement of a lawsuit
against a founder. Payroll expenses increased approximately 32% from $187,034
for the three months ended September 30, 2003 to $246,949 in the current year
period. The increase reflects the addition of the new Chief Executive Officer
and Vice President of Business Development and a one-time bonus payment of
$50,000 to the Chief Financial Officer. The increase in payroll costs was
partially offset by the salary of $54,000 of our former President who was
terminated in the second quarter of 2004. Consulting fees declined approximately
12% to $195,864 for the three months ended September 30, 2004 from $223,307 in
the prior year period. This decrease in consulting expenses was offset by an
increase in expenses associated with obtaining government funding and higher
investor relations costs.

Research and development expenses were $826,827 for the three months ended
September 30, 2004, an approximately 17% decrease from $1,000,911 for the same
period in 2003. The decrease was primarily the result of a decrease in
amortization by approximately 42% from $108,104 to $63,132 due to the sale of
certain intangible assets to Pecos Labs, Inc. in May 2004. The sale also
resulted in a reduction of sponsored research and development expense of
approximately $210,000 from the prior year three month period as well as a
$32,902 decrease in travel expenses as the result of integration of Plexus in
the prior year period. Offsetting these decreases was an additional amortization
expense of $81,779 for the grants purchased in conjunction with the ViroPharma
asset acquisition in the current year period. The decreases in expenses were
also partially offset by the approximately 37% increase in laboratory supply
costs to $144,864 for the three months ended September 30, 2004 from $105,853 in
the prior year period.

All of our product programs are in the early stage of development except
for the strep vaccine which is in Phase I clinical trials. At this stage of
development, we cannot make estimates of the potential cost for any program to
be completed or the time it will take to complete the project. For the three
months ended September 30, 2004, excluding non-cash and other charges, we
estimate that we spent a total of approximately $680,000 on all our research
programs: approximately $272,000 or 40% of the total was spent for the
development of Smallpox antivirals; approximately $136,000 or 20% of the total
was spent for the development of the Smallpox vaccine; approximately $204,000 or
30% of the total was spent for the development of the Arenavirus antiviral and
the remaining 10% of the total, approximately $68,000, was spent on the
development of other programs.

For the three months ended September 30, 2003, excluding non-cash and
other charges, we estimate that we spent approximately $800,000 on all our
product programs: approximately $320,000, or 40% of the total was spent for the
Smallpox anti-viral program; approximately $200,000 or 25% of the total was
spent for the DegP anti-infectives program; approximately 120,000 or 15% of the
total was spent on the Smallpox vaccine program; approximately $80,000 or 10% of
the total was spent on SARS and other vaccine programs including other vaccines
acquired from Plexus; and approximately $80,000 or 10% of the total was spent
for all other programs.

In addition to our own programs, we are working with TransTech Pharma on a
Smallpox anti-viral product and our DegP broad spectrum anti-biotic. There is a
high risk of non-completion of any program because of the lead time to program
completion and uncertainty of the costs. Net cash inflows from any products
developed from these programs is at least two 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 is in the
relatively early stage of development. Products for the biological warfare
defense market, such as the Smallpox anti-viral, could be available for sale in
two to three years. We believe the products directed toward this market are on
schedule. We expect the future research and development cost of this program to
increase as the potential products enter animal studies and safety testing.
Funds for future development will be partially paid for by the contract we have
with the U.S. Army and the SBIR grants from the NIH, 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. The clinical
trials for our Strep vaccine through Phase II are being funded under an
agreement with the NIH. The time to market for this product should be several
years from now because of the nature of the FDA requirements for approval of a
pediatric vaccine. We expect to fund the development of the Strep vaccine beyond
the Phase II clinical trials through a corporate collaboration or from
additional funding from debt or equity financings. We do not yet have a
corporate partner for this product and there is no assurance that we will ever
have one or that we will be able to raise the funds needed to go forward. If the
funding is not available or the clinical trials are not successful, the program
could be delayed or cancelled. We believe this product program is on schedule.
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.

Patent preparation expenses for the three months ended September 30, 2004
were $83,580 an approximate 29% increase from the prior year period expense of
$65,003. The increase is due to a higher number of foreign patent filings in the
current year period.

For the three months ended September 30, 2004, as a result of the
acquisition of certain government grants and two early stage antiviral programs,
Smallpox and Arenavirus, targeting certain agenda of biological warfare from
ViroPharma Incorporated, $568,329 was immediately expensed as purchased
in-process research and development ("IPRD"). The amount expensed as IPRD was
attributed to technology that has not reached technological feasibility and has
no alternate future use. The value preliminarily allocated to IPRD was
determined using the income approach that included an excess earnings analysis
reflecting the appropriate costs of capital for the purchase. Estimates of
future cash flows related to the IPRD were made for both the Smallpox and
Arenavirus programs. The aggregate discount rate of approximately 55% utilized
to discount the programs' cash flows were based on consideration of the
Company's weighted average cost of capital, as well as other factors including
the stage of completion and the uncertainty of technology advances for these
programs. If the programs are not successful or completed in a timely manner,
the Company's product pricing and growth rates may not be achieved and the
Company may not realize the financial benefits expected from the programs.

Other income, net was $27,824 for the three months ended September 30,
2004, compared to $3,336 for the three months ended September 30, 2003. The
increase is the result of higher cash balances in the three months ended
September 30, 2004 compared to the prior year period. The increase in cash
balances was the result of the completion of the investment by MacAndrews &
Forbes Holdings Inc., TransTech Pharma, Inc. and related parties in January
2004. Additionally, we received $15,000 in the three months ended September 30,
2004, as a result of a settlement of a lawsuit against a founder. No such income
was received in the prior year period.

Nine months ended September 30, 2004 and September 30, 2003

Revenues from grants and research and development contracts were $992,478
for the nine months ended September 30, 2004, compared to $625,016 for the same
period of 2003, an approximate 59% increase. The increase is the result of
revenue from the Small Business Innovation Research (SBIR) grants awarded to us
as the result of our purchase of certain assets from ViroPharma in August 2004.
Revenues from these grants were $430,417 in the nine month period ended
September 30, 2004. Revenue from the U.S. Army contract was $269,357 for the
nine months ended September 30, 2004, compared to $226,804 received in the prior
year. During the nine months ended September 30, 2003 we received $351,433 in
revenue from an SBIR grant from the NIH compared to revenue from the grant of
$254,816 in the current year prior. Work underwritten by this grant was
completed in May 2004 causing the decline compared to the prior year.

Selling, general and administrative expenses for the nine months ended
September 30, 2004 were $3,036,559 an increase of approximately 52% from
expenses of $1,993,007 for the nine months ended September 30, 2003.
Approximately 69% of the increase was due to materially higher legal expenses.
The expenses were incurred as the result of costs incurred to review and amend
our corporate governance policies and procedures to ensure compliance with the
regulations promulgated under the Sarbanes Oxley Act of 2002, as well as the
NASDAQ Stock Market. Also contributing to the increase in legal expenses were
costs incurred in connection with a review of a potential business combination,
the sale of certain non-core vaccine assets, the hiring of a new Chief Executive
Officer and a legal action we initiated against a founder. Payroll expenses
increased approximately 124% in the nine months ended September 30, 2004 to
$826,437 from $368,525 in the nine months ended September 30, 2004. The increase
was the result of the addition of former Plexus employees to our staff in May
2003 and, therefore, only partially included in the prior year balance, the
addition of the salary expense of the Chief Executive Officer hired in July of
2003, the approximate $270,000 severance payment associated with the termination
agreement entered into with our former President in May 2004 and one time bonus
payments totaling $110,000. Consulting expenses for marketing efforts to present
our programs to agencies of the federal government increase approximately 9% in
the current year period to a total of $609,194. Furthermore, the nine months
ended September 30, 2004 had an increase of approximately $41,000 for
amortization of certain intangible assets acquired in the Plexus transaction in
May 2003 compared to the prior year period, which was only a partial period of
amortization.

Research and development expenses increased approximately 35% to
$2,872,818 for the nine months ended September 30, 2004 from $2,121,154 for the
same period in 2003. Amortization of certain intangible assets acquired in
connection with the Plexus acquisition and the acquisition of assets from
ViroPharma increased by approximately $194,000 and accounted for approximately
26% of the period to period increase. Payroll expense for the nine months ended
September 30, 2004, increased approximately 19% to $1,098,241 compared to prior
year expense of approximately $925,688. The increase was the result of the
addition of former Plexus employees to our staff, an increase in staff to
accelerate development on our lead products and bonus payments. Sponsored
research expense increased by approximately $266,000 for the nine months ended
September 30, 2004 compared to the same period in 2003 as the result of payments
for work being performed on former Plexus programs at a Danish University and
payments made to TransTech Pharma, Inc. for work performed on the SBIR grant
that was concluded in May 2004.

All our product programs are in the early stage of development except for
the strep vaccine which is in Phase I clinical trials. At this stage of
development, we cannot make estimates of the potential cost for any program to
be completed or the time it will take to complete the project. For the nine
months ended September 30, 2004, excluding non-cash charges, we estimate that we
spent a total of approximately $2,545,000 on all our research programs:
approximately $865,000 or 34% of the total for the development of the Smallpox
anti-viral; approximately $509,000 or 20% of the total for the development of
Smallpox vaccine; approximately $305,000 or 12% of the total for the development
of the strep vaccine; approximately $200,000 of the total for the development of
the Arenavirus anti-viral and approximately $666,000 or 26% of the total on all
other programs including programs that were transferred to Pecos in the second
quarter of 2004.

For the nine months ended September 30, 2003, excluding non-cash charges,
we estimate we spent a total of $1,615,000 on all our product programs:
approximately $375,000, or 23% of total was spent for the strep vaccine program;
approximately $510,000 or 32% of the total was spent for the Smallpox antiviral
program; approximately $390,000 or 24% of the total was spent for the DegP
anti-infectives program; approximately $260,000 or 16% of the total was spent
for other anti-infective programs and approximately $80,000 or 5% of the total
was spent on the SARS antiviral program.

In addition to our own programs we are working with TransTech Pharma on a
Smallpox anti-viral product and our DegP broad spectrum anti-biotic. There is a
high risk of non-completion of any program because of the lead time to program
completion and uncertainty of the costs. Net cash inflows from any products
developed from these programs is at least two 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.

Patent preparation expenses for the nine months ended September 30, 2004
were $230,320 compared to $187,109 for the nine months ended September 30, 2003.
The 23% increase was the result of increased costs of patent work required on
the intellectual property acquired in the Plexus transaction, including foreign
patent filings.

For the nine months ended September 30, 2004, as a result of the
acquisition of certain government grants, Smallpox and Arenavirus, and two early
stage antiviral programs targeting certain agenda of biological warfare from
ViroPharma Incorporated, $568,329 was immediately expensed as purchased
in-process research and development ("IPRD"). The amount expensed as IPRD was
attributed to technology that has not reached technological feasibility and has
no alternate future use. The value preliminarily allocated to IPRD was
determined using the income approach that included an excess earnings analysis
reflecting the appropriate costs of capital for the purchase. Estimates of
future cash flows related to the IPRD were made for both the Smallpox and
Arenavirus programs. The aggregate discount rate of approximately 55% utilized
to discount the programs' cash flows were based on consideration of the
Company's weighted average cost of capital as well as other factors, including
the stage of completion and the uncertainty of technology advances for these
programs. If the programs are not successful or completed in a timely manner,
the Company's product pricing and growth rates may not be achieved and the
Company may not realize the financial benefits expected from the programs.

For the nine months September 30, 2004, we incurred a $307,063 loss on
impairment of intangible assets due to the transfer of certain grants to Pecos
Labs, Inc. and incurred an impairment of $303,000 to intangible assets due to
the change of the covenant not to compete with our President who was terminated
during the current year period.

Other income, net was $59,055 for the nine months ended September 30,
2004, compared to $13,048 for the nine months ended September 30, 2003. The
increase is the result of higher cash balances in the nine months ended
September 30, 2004 compared to the prior year period. The increase in cash
balances was the result of the completion of the investment by MacAndrews &
Forbes Holdings Inc., TransTech Pharma, Inc. and related parties in January
2004. Additionally, we received $15,000 in the nine

months ended September 30, 2004, as the result of the settlement of a lawsuit
against a founder. No such income occur in the prior year period.

Liquidity and Capital Resources

As of September 30, 2004, we had $3,176,327 in cash and cash equivalents.

In August 2004, we acquired certain government grants and two early stage
antiviral programs, Smallpox and Arenavirus, targeting certain agents of
biological warfare from ViroPharma for a purchase price of $1,000,000 in cash
and 1,000,000 shares of our common stock. As part of the closing, we were
awarded Phase I and II SBIR grants from the NIH totaling approximately $12
million, which will be received over the next two years, for the development of
drugs for the treatment of Smallpox and Arenavirus as noted above.

In May 2004, we sold intangible assets from our immunological
bioinformatics technology and certain non-core vaccine development assets to a
privately-held company, Pecos Labs, Inc. ("Pecos") in exchange for 150,000
shares of Pecos common stock. As a result of this transaction, we performed an
impairment review of the intangible assets and concluded that the carrying
amount of certain transferred intangible assets of $307,063 would not be
recoverable. In addition, we terminated our employment agreement with our
President. We paid approximately $270,000 in severance to our former President
as well as accelerated vesting on 100,000 stock options that were due to vest in
May 2004. No compensation charge was recorded as the exercise price of the
options was above the fair value market price on the date of termination. In
addition, we reduced the covenant not to compete with our former President to
one year from the date of termination. We recognized $303,000 of impairment to
the unamortized covenant not to compete with our former President due to the
reduction of the covenant to one year from the date of termination.

In October 2003, MacAndrews & Forbes Holdings Inc., TransTech Pharma, Inc.
and related parties, exercised their option to invest an additional $9,000,000
in us under the terms of the agreement signed in August 2003, as amended in
October 2003. Upon exercise of the option, we received gross proceeds of
$2,159,405 in exchange for 1,499,587 shares of common stock at a price of $1.44
per share and warrants to purchase 749,794 shares of common stock. The warrants
have an initial exercise price of $2.00 per share and a term of seven years. The
sale of the remaining 4,750,413 shares of common stock and warrants to purchase
2,375,206 shares of common stock on the same terms was subject to shareholder
approval. On January 8, 2004, at a meeting of shareholders, the transaction was
approved, the additional $6,840,595 of gross proceeds was received and the
common shares and warrants were issued.

We anticipate that our current resources will be sufficient to finance our
currently anticipated needs for operating and capital expenditures at least
through the year ending December 31, 2005. In addition, we will attempt to
generate additional working capital through a combination of collaborative
agreements, strategic alliances, research grants, equity and debt financing.
However, no assurance can be provided that additional capital will be obtained
through these sources or, if obtained, will be on commercially reasonable terms.

Our working capital and capital requirements will depend upon numerous
factors, including pharmaceutical research and development programs;
pre-clinical and clinical testing; timing and cost of obtaining regulatory
approvals; levels of resources that we devote to the development of
manufacturing and marketing capabilities; technological advances; status of
competitors; and our ability to establish collaborative arrangements with other
organizations.

We lease certain facilities and office space under operating leases.
Minimum future rental commitments under operating leases having noncancellable
lease terms are $47,355, $190,627 and $195,975 for the years ending December 31,
2004, 2005 and 2006, respectively.

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 promised funding for its development projects or other needed funding,
and (d) SIGA may not be able to secure or enforce adequate legal protection,
including patent protection, for its products. 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, 2003, 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. SIGA does not undertake to
publicly update or revise its forward-looking statements as a result of new
information, future events or otherwise.

Item 3. Controls and Procedures

As of the end of the fiscal quarter ended September 30, 2004, the
Company's management, including the Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the design and operation of the
Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15(d)-15(e) of the Securities Exchange Act of 1934, as amended). Based on that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that such disclosure controls and procedures were effective for recording,
processing, summarizing and reporting information that the Company is required
to disclose in reports filed under the Securities and Exchange Act of 1934, as
amended.

There have been no changes in the Company's internal controls over
financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the
Securities Exchange Act, as amended) or in other factors during the fiscal
quarter ended September 30, 2004, that materially affected, or are reasonably
likely to materially affect, the Company's internal controls over financial
reporting.

Part II
Other information

Item 1. Legal Proceedings - SIGA is not a party, nor is its property the subject
of, any legal proceedings other than routine litigation incidental to its
business.

Item 2. Changes in 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 and Reports on Form 8-K

(a) Exhibits

10.1 Employment Agreement, dated as of July 29, 2004, between SIGA
and John Odden.

10.2 Amendment No. 5 to Employment Agreement, dated as of July 29,
2004, between SIGA and Dr. Dennis E. Hruby.

10.3 Amendment No. 3 to Amended and Restated Employment Agreement,
dated as of July 29, 2004, between SIGA and Thomas N.
Konatich.

31.1 Certification of Chief Executive Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

31.2 Certification of Chief Financial Officer Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002.

32.1 Certification of Chief Executive Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

32.2 Certification of Chief Financial Officer Pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.

(b) Reports on Form 8-K

(1) On July 6, 2004, SIGA filed a Current Report on Form 8-K dated
July 6, 2004, pursuant to which SIGA reported under Item 5 that SIGA issued a
press release announcing the appointment of Bernard L. Kasten, M.D. as its Chief
Executive Officer.

(2) On August 24, 2004, SIGA filed a Current Report on Form 8-K
dated August 24, 2004, pursuant to which SIGA reported under Item 7.01 that SIGA
issued a press release announcing the receipt of two grants totaling
approximately $12 million from the National Institutes of Health.

(3) On September 14, 2004, SIGA filed a Current Report on Form 8-K
dated September 14, 2004, pursuant to which SIGA reported under Item 7.01 that
SIGA issued a press release announcing that it had been designated as a prime
contractor by the U.S. Air Force Surgeon General's office to create rational
development of vaccines and therapeutics against potential agents of biological
warfare.

(4) On October 5, 2004, SIGA filed a Current Report on Form 8-K
dated October 6, 2004, pursuant to which SIGA reported under Item 7.01 that SIGA
issued a press release announcing that the company's lead compound, SIGA-246 has
demonstrated significant antiviral activity against several mouse models of
poxvirus disease.

(5) On October 25, 2004, SIGA filed a Current Report on Form 8-K
dated October 12, 2004, pursuant to which SIGA reported under Item 7.01 that
SIGA issued a press release announcing that Dennis Hruby, SIGA's Chief
Scientific Officer, will present at the Rodman & Renshaw Techvest Conference on
October 27, 2004.

SIGNATURES

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

SIGA Technologies, Inc.
(Registrant)

Date November 15, 2004 By: /s/ Thomas N. Konatich
----------------------

Thomas N. Konatich
Chief Financial Officer
(Authorized Signatory and
Principal Accounting Officer
and Financial Officer and Vice
President, Finance)