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UNITED STATES




SECURITIES AND EXCHANGE COMMISSION  WASHINGTON, D.C. 20549




FORM 10-K




(Mark
One)




x
            
            Annual Report Pursuant to Section 13 or
      15(d) of the Securities Exchange Act of 1934For the
      fiscal year ended December 31, 2009Oro
            
            Transition Report Pursuant to Section 13
      or 15(d) of the Securities Exchange Act of 1934For the
      transition period from ________ to
___________


Commission File No.
0-23047




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




Delaware
            13-3864870(State or other jurisdiction
of
            (IRS Employer Identification.
    No.)incorporation or organization)35 East 62ndStreet
            10065New York,
      NY
            (zip code)(Address of principal executive
      offices)


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




Securities registered pursuant to
      Section 12(b) of the Act:Title of each
    class
            Name of each exchange on which
      registeredcommon stock, $.0001 par value
            Nasdaq Global
Market


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




None




Indicate by check
mark if the registrant is a well-known seasoned issuer, as defined in Rule 405
of the Securities Act Yes o No x .




Indicate by check
mark if the registrant is not required to file reports pursuant to Section 13 or
15(d) of the Act Yes o No x .




Note —Checking the box above will not relieve any
registrant required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act from their obligations under those Sections.




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 o.




Indicate by check
mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted
and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes o
No o.




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Indicate by check
mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K
is not contained herein, and will not be contained, to the best of registrant’s
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.
o.




Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer,
a non-accelerated filer or a smaller reporting company. See definition of “large
accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (check one): Large Accelerated Filer o Accelerated Filer x Non-Accelerated Filer o Smaller Reporting Company o.




Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act) Yes o No x .




The aggregate market
value of the voting and non-voting common stock held by non-affiliates of the
registrant, based upon the closing sale price of the common stock on June 30,
2009 as reported on the Nasdaq Capital Market was approximately
$314,569,000.




As of February 23,
2010 the registrant had outstanding 43,228,135 shares of common
stock.




DOCUMENTS INCORPORATED BY
REFERENCE




The following
document is incorporated herein by reference:




Document
            Parts Into Which
      IncorporatedProxy Statement for the Company's 2010
      Annual
            Part IIIMeeting of Stockholders


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SIGA Technologies,
Inc.




Form 10-K




Table of
Contents




Page No.PART IItem 1.
            
            Business
            
            2Item 1A.
            
            Risk Factors
            
            12Item 1B.
            
            Unresolved Staff Comments
            
            27Item 2.
            
            Properties
            
            27Item 3.
            
            Legal
      Proceedings
            
            27Item 4.
            
            Reserved
            
            27PART IIItem 5.
            
            Market For Registrant’s Common Equity, Related Stockholder Matters
      and Issuer Purchases of Equity Securities
            
            28Item 6.
            
            Selected Financial Data
            
            29Item 7.
            
            Management’s Discussion and Analysis of Financial Condition and
      Results of Operations
            
            30Item 7A.
            
            Quantitative and Qualitative Disclosures
      About Market Risk
            
            38Item 8.
            
            Financial Statements and Supplementary Data
            
            39Item 9.
            
            Changes in and Disagreements with
      Accountants on Accounting and Financial Disclosure
            
            58Item 9A.
            
            Controls and Procedures
            
            58Item 9B.
            
            Other Information
            
            59PART IIIItem 10.
            
            Directors, Executive Officers and Corporate Governance
            
            60Item 11.
            
            Executive Compensation
            
            60Item 12.
            
            Security Ownership of Certain Beneficial Owners and Management and
      Related Stockholder Matters
            
            60Item 13.
            
            Certain Relationships and Related
      Transactions, and Director Independence
            
            61Item 14.
            
            Principal Accountant Fees and Services
            
            61PART IVItem 15.
            
            Exhibits, Financial Statements and Schedules
            
            62SIGNATURES
            
            68


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Item 1.  Business




Certain statements in this Annual Report on
Form 10-K, including certain statements contained in “Business” and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations,” constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The words or phrases “can be,”
“expects,” “may affect,” “may depend,” “believes,” “estimate,” “project” and
similar words and phrases are intended to identify such forward-looking
statements. Such forward-looking statements are subject to various known and
unknown risks and uncertainties and SIGA cautions you that any forward-looking
information provided by or on behalf of SIGA is not a guarantee of future
performance. SIGA’s actual results could differ materially from those
anticipated by such forward-looking statements due to a number of factors, some
of which are beyond SIGA’s control, including, but not limited to, (i) the risk
that potential products that appear promising to SIGA or its collaborators
cannot be shown to be efficacious or safe in subsequent pre-clinical or clinical
trials, (ii) the risk that SIGA or its collaborators will not obtain appropriate
or necessary governmental approvals to market these or other potential products,
(iii) the risk that SIGA may not be able to obtain anticipated funding for its
development projects or other needed funding, (iv) the risk that SIGA may not be
able to secure funding from anticipated government contracts and grants, (v) the
risk that SIGA may not be able to secure or enforce sufficient legal rights in
its products, including patent protection, for its products, (vi) the risk that
any challenge to our patent and other property rights, if adversely determined,
could affect our business and, even if determined favorably, could be costly,
(vii) the risk that regulatory requirements applicable to SIGA’s products may
result in the need for further or additional testing or documentation that will
delay or prevent seeking or obtaining needed approvals to market these products,
(viii) the risk that the U.S. Biomedical Advanced Research & Development
Authority (“BARDA”) may not complete the procurement set forth in its
solicitation for the acquisition of smallpox antiviral for the strategic
national stockpile, or may complete it on different terms, (ix) the risk that
the volatile and competitive nature of the biotechnology industry may hamper
SIGA’s efforts, (x) the risk that the changes in domestic and foreign economic
and market conditions may adversely affect SIGA’s ability to advance its
research or its products, and (xi) the effect of federal, state, and foreign
regulation on SIGA’s businesses. All such forward-looking statements are current only as of the date on
which such statements were made. SIGA does not undertake any obligation to
publicly update any forward-looking statement to reflect events or circumstances
after the date on which any such statement is made or to reflect the occurrence
of unanticipated events.




Introduction




SIGA Technologies, Inc. is referred
to throughout this report as “SIGA,” “the Company,” “we” or “us.”




Since we were incorporated in Delaware on
December 28, 1995, SIGA has pursued the research, development and
commercialization of novel products for the prevention and treatment of serious
infectious diseases, including products for use in defense against biological
warfare agents such as smallpox and Arenaviruses. Our lead product, ST-246®, is
an orally administered antiviral drug that targets orthopox viruses. In December
2006 the FDA granted Orphan Drug designation to ST-246® for the prevention and
treatment of smallpox. In May 2009, we submitted a response to a Request for
Proposal (“RFP”) issued by BARDA with respect to the purchase of 1.7 million
courses of a smallpox antiviral (the “BARDA Smallpox RFP”), and, in June 2009,
BARDA informed us that our response to the BARDA Smallpox RFP was deemed
technically acceptable and in the competitive range. There can be no assurance
that SIGA or any other company will receive an award pursuant to this RFP.
Further, any award on this RFP would be subject to negotiation of final contract
terms and specifications; thus, the final terms under any contract with BARDA
may be materially different than those indicated in the RFP.




Our antiviral programs are designed to prevent
or limit the replication of the viral pathogen. As a result of the success of
our efforts to develop products for use against agents of biological warfare, we
have not spent significant resources to further the development of our
anti-infective technologies.




2




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Product Candidates and Market
Potential




SIGA Biological Warfare Defense
Product Portfolio




Anti-Orthopoxvirus
Drug : Smallpox virus is
classified as a Category A agent by the U.S. Centers for Disease Control and
Prevention (“CDC”) and is considered one of the most significant threats for use
as a biowarfare agent. While deliberate introduction of any pathogenic agent
would be devastating, we believe the one that holds the greatest potential for
harming the general U.S. population is smallpox. At present there is no
effective drug with which to treat or prevent smallpox infections. To address
this serious risk, SIGA scientists have identified a lead drug candidate,
ST-246®, which inhibits vaccinia, cowpox, ectromelia (mousepox), monkeypox,
camelpox, and variola (smallpox) replication in cell culture and in various
animal models, but not other unrelated viruses. Given the safety concerns with
the current smallpox vaccine, there should be several uses for an effective
smallpox antiviral drug: prophylactically, to protect the non-immune who are at
risk to exposure; therapeutically, to reduce mortality and morbidity in those
infected with the smallpox virus; and lastly, as an adjunct to the smallpox
vaccine in order to reduce the frequency of serious adverse events due to the
live virus used for vaccination. In December 2005, the FDA approved our IND
application for ST-246®. In June 2006, we successfully completed the first human
clinical safety study of ST-246®. The trial showed the drug to be well-tolerated
in healthy human volunteers at all tested orally administered doses. In
addition, data from blood level exposure was sufficient to support once a day
dosing. The study was a double-blind, randomized, placebo controlled, and
ascending single dose study. In 2006, ST-246® became the first drug ever to
demonstrate 100% protection against human smallpox virus in a primate trial
conducted at the CDC. Later in 2006, in two non-human primate trials the drug
demonstrated 100% protection for animals injected with high doses of monkeypox
virus. One study was sponsored by the National Institute of Allergy and
Infectious Diseases (“NIAID”) at the National Institutes of Health (“NIH”). The
second study was conducted by the U.S. Army Medical Research Institute of
Infectious Diseases (“USAMRIID”) and was funded by the Department of Defense’s
Threat Reduction Agency (“DTRA”). In late 2006, ST-246® received Orphan Drug
designation for both the treatment and prevention of smallpox. An additional
Phase I clinical trial was started in February 2007. The trial was a 21 day,
escalating, multiple-dose, Phase I safety, tolerability and pharmacokinetics
study of ST-246® at three different dosages in healthy volunteers. The study was
completed in December 2007 and as reported the preliminary results indicated
that the drug is safe and well tolerated at all tests doses. In August 2008 a
Phase I bioequivalence was performed at the Orlando Clinical Research Center in
Orlando, Florida to compare ST-246® polymorph form I to form V. We submitted the
final Clinical Study Report for that study to the FDA in May 2009. In June 2009
a two phase multiple dose safety/pharmacokinetics evaluation clinical trial was
begun to evaluate the effectiveness of ST-246® at different dosage levels. We
estimate the final Clinical Study Report for that study will be submitted to the
FDA in the second quarter of 2010. During 2006, SIGA was awarded grants and
contracts from the NIH totaling approximately $21 million for the continued
development of ST-246®. In 2007, SIGA was awarded a grant from the NIH for a
total of approximately $600,000, to support the development of ST-246® treatment
of smallpox vaccine-related adverse events. In 2008, SIGA was awarded a $55
million contract from the NIH to support the development of additional
formulations and orthopox-related indications for ST-246®. In 2008, SIGA was
also awarded $20 million from the NIH in supplemental funding to the Company’s
existing $16.5 million contract. In September 2009, SIGA received a three-year,
$3.0 million Phase II grant from the NIH to fund the continued development of
ST-246® treatment of smallpox vaccine-related adverse events.




Anti-Arenavirus Drug: Arenaviruses are hemorrhagic fever viruses that have been classified as
Category A agents by the CDC due to the great risk that they pose to public
health and national safety. Among the Category A viruses recognized by the CDC,
there are four hemorrhagic fever arenaviruses (Junin, Machupo, Guanarito and
Sabia viruses) for which there are no FDA approved treatments available. In
order to meet this threat, SIGA scientists have identified two lead drug
candidates, ST-294 and ST-193, which have demonstrated significant antiviral
activity in cell culture assays against arenavirus pathogens. We have also
demonstrated the therapeutic efficacy of ST-193 in several animal challenge
studies. SIGA also has programs against other hemorrhagic fever viruses,
including Dengue Fever, Rift Valley Fever, Lymphocytic choriomeningitis virus
and Ebola. We believe that the availability of hemorrhagic fever virus antiviral
drugs will address national and global security needs by acting as a significant
deterrent and defense against the use of arenaviruses as weapons of
bioterrorism. In 2006, SIGA received a three-year grant of $6.0 million from the
NIH to support the development of antiviral drugs for Lassa fever virus. In
2008, SIGA received a two-year Phase I grant of $1.0 million from the NIH to
support the development of antiviral drugs against Dengue Fever.




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Broad Spectrum Antiviral : Research and development efforts currently underway at SIGA are aimed
at developing a comprehensive biodefense against those microbial agents most
likely to be deployed as biological weapons. A broad-spectrum antiviral would
have great utility against natural or intentional introduction of these agents
into population centers, as well as provide a treatment option in areas where
these pathogens are endemic. Screening for antivirals against specific CDC
Category A and B pathogens, utilizing SIGA’s high throughput screening program,
led to the identification of a unique collection of compounds with broad
spectrum antiviral activity. Compounds with potent, non-toxic activity against a
diversity of virus families are currently being characterized with respect to
antiviral mechanism(s) of action. SIGA chemi-informatics tools are being
employed to explore and determine structure-activity relationships within lead
compound series. To date, we have documented sub-micromolar activity of the
broad spectrum antiviral candidate, ST-669, against viruses in the Poxviridae,
Filoviridae, Bunyaviridae, Arenaviridae, Flaviviridae, Togaviridae,
Retroviridae, and Picornaviridae families. Lead series are currently being
assessed with respect to the mechanism of antiviral action, formulated for
testing in vivo , and administered by multiple routes and
dosing regimens to those small animal species traditionally used for modeling
the pathogenesis of Category A viruses. In September 2009, the Company was
awarded a two-year, $1.7 million grant from the NIAID to support the development
of broad spectrum, small-molecule inhibitors of bunyaviruses. The grant was
awarded under the American Recovery and Reinvestment Act of 2009 (“the Recovery
Act”).




Dengue antiviral :
Dengue fever, dengue hemorrhagic fever, and dengue shock syndrome are caused by
one of four serotypes of dengue virus of the genus Flavivirus. Dengue is
considered by the World Health Organization to be the most important
arthropod-borne viral disease with an estimated 50-100 million people infected
with the virus each year. There is currently no approved antiviral or vaccine
for the treatment or prevention of dengue-mediated disease. SIGA currently has
four drug series in the pre-clinical development stage, each with activity
against all four serotypes of virus. Compounds from two of these series have
recently shown efficacy in a murine model of disease, including ST-610 and
ST-148. In 2008, SIGA was awarded a $1.0 million, two-year grant from the NIH to
support lead optimization and animal efficacy for our Dengue antiviral program.




Market for Biological Defense
Programs




The market for biodefense countermeasures has
grown dramatically as a result of the increased awareness of the threat of
global terror activity in the wake of the September 11, 2001 terrorist attacks
and the October 2001 anthrax letter attacks. The U.S. government is the
principal source of worldwide biodefense spending. Most U.S. government spending
on biodefense programs results from development funding awarded by NIAID, BARDA
and the Department of Defense (“DoD”), and procurement of countermeasures by The
U.S. Department of Health and Human Services (“HHS”), the CDC and the DoD. The
U.S. government is now the largest source of development and procurement funding
for academic institutions and biotechnology companies conducting biodefense
research or developing vaccines and immunotherapies directed at potential agents
of bioterror or biowarfare.




The Project BioShield Act, which became law in
2004, authorizes the procurement of countermeasures for biological, chemical,
radiological and nuclear attacks for the Strategic National Stockpile (“SNS”),
which is a national repository of medical assets and countermeasures designed to
provide federal, state and local public health agencies with medical supplies
needed to treat those affected by terrorist attacks, natural disasters,
industrial accidents and other public health emergencies. Project BioShield
provided appropriations of $5.6 billion to be expended over ten years. The
Pandemic and All-Hazards Preparedness Act (“the Preparedness Act”), passed in
2006, established BARDA as the agency responsible for awarding procurement
contracts for biomedical countermeasures and providing development funding for
advanced research and development in the biodefense arena. The Preparedness Act
supplements the funding available under Project BioShield for radiological,
nuclear, chemical and biological countermeasures, and provides funding for
infectious disease pandemics. Funding for BARDA is created by annual
appropriations by Congress. Congress also appropriates annual funding for the
CDC for the procurement of medical assets and countermeasures for the SNS and
for NIAID to conduct biodefense research. This appropriation funding supplements
amounts available under Project BioShield.




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Since 2002, HHS has provided over $10 billion
to States and localities through various programs to enhance their emergency
preparedness activities and to better enable them to respond to large-scale,
natural or man-made public health emergencies, such as acts of bioterrorism or
infectious disease outbreaks. One of the major concerns in the field of
biological warfare agents is smallpox – although declared extinct in 1980 by the
World Health Organization (WHO), there is a threat that a rogue nation or a
terrorist group may have an illegal inventory of the virus that causes smallpox.
The only legal inventories of the virus are held under extremely tight security
at the CDC in Atlanta, Georgia and at a laboratory in Russia. As a result of
this threat, the U.S. government has announced its intent to make significant
expenditures on finding a way to counteract the virus if turned loose by
terrorists or on a battlefield.




In addition to the U.S. government, we believe
that other potential additional markets for the sale of biodefense
countermeasures include:


- state and local governments, which
  we expect may be interested in these products to protect emergency responders, such as police, fire
  and emergency medical personnel;
- foreign governments, including
  both defense and public health agencies;
- non-governmental organizations and
  multinational companies, including transportation and security companies; and
- health care providers, including
  hospitals and clinics.

The FDA amended its regulations, effective
June 30, 2002, so that certain new drug and biological products used to reduce
or prevent the toxicity of chemical, biological, radiological, or nuclear
substances may be approved for use in humans based on evidence of effectiveness
derived only from appropriate animal studies and any additional supporting data.
We believe that this change could make it possible for us to have our products
which have been proven effective in animal studies to be approved for sale more
quickly than under the standard regulatory path.




SIGA Antivirals Product
Portfolio




SIGA currently has the following antiviral
programs which are in various stages of development, ranging from initial
research and screening to Phase I human clinical trials: Orthopox antiviral, New
World Arenavirus antiviral, Old World Arenavirus antiviral, Filovirus (Ebola
& Marburg) antivirals, Dengue Fever virus antiviral, and Bunyavirus
antivirals. Currently there are no approved antivirals available against any of
these viruses.




Technology




Antiviral Technology: Two Approaches




SIGA has two approaches to the discovery and
development of new antiviral compounds: high-throughput screening (“HTS”) and
rational drug design. For HTS SIGA uses whole cell virus inhibition assays,
pseudotype virus inhibition assays, as well as validated target biochemical
assays. SIGA currently has a 200,000 small molecule compound library in-house
that is utilized for screening in these various assays. This strategy allows for
both target specific and target neutral screening and identification of novel
antiviral compounds. Compounds are also screened for toxicity in various cell
lines to develop a therapeutic index (“TI”) which is the concentration that the
compound is toxic to 50% of the cells (CC50) divided by the concentration of
compound required to inhibit 50% of the virus (EC50) (TI= CC50/EC50). Once hits
are identified with an acceptable TI they are selected for chemical optimization
and proceed into the antiviral drug development pipeline.




For rational drug design SIGA applies advanced
receptor structure-based Virtual Ligand Screening technology for
ligand/inhibitor discovery. The analysis of the structure reveals potentially
“drugable” pockets. The technology allows us to utilize the three-dimensional
structure of the target receptor to screen large virtual compound collections as well as databases of
commercially available compounds and prioritize them for subsequent experimental
validation. Rational drug design is also used to develop structure activity
relationships and lead optimization.




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Collaborative Research and Licenses




We have entered into the following
license agreements, collaborative research arrangements and contracts:




National Institutes of Health . On September 23, 2009, the Company was
awarded a two-year, $1.7 million grant from the NIH to support the development
of broad spectrum, small-molecule inhibitors of bunyaviruses. The grant was
awarded under the Recovery Act. In September 2009, SIGA was awarded a
three-year, $3.0 million Phase II grant from the NIH to fund the continued
development of ST-246® treatment of smallpox vaccine-related adverse events. On
September 1, 2008, we were awarded a five-year, $55.0 million contract from the
NIAID to support the development of additional formulations and orthopox-related
indications for ST-246, our lead orthopox drug candidate. In September 2008, we
were awarded $20.0 million from the NIAID in supplemental funding to our
existing $16.5 million contract, to accelerate process development related to
large-scale manufacturing and packaging of ST-246® and commercial-scale
validation. The term of the contract was extended through September 28, 2011. In
September 2008, we received a two-year, $1.0 million Phase I grant from the NIH
to fund lead optimization and animal efficacy for our Dengue antiviral program.
In September 2007, we received a two-year, $600,000 grant supporting the
development of ST-246® treatment of smallpox vaccine-related adverse events. In
July 2007, the NIH awarded us a two-year grant for a total of $530,000 to
support our Strep Bacterial Commensal Vector (“BCV”) program as a subunit
vaccine delivery system. In October and August 2006, the NIH awarded us a $16.5
million, 3-year contract and a $4.8 million, 3-year grant, respectively, both to
advance the development of our lead drug candidate, ST-246®. In September 2006,
the NIH awarded us a $6.0 million, 3-year grant for the development of an
antiviral drug for Lassa fever virus. In August 2004, we were awarded four
grants totaling approximately $11.1 million to support our work on smallpox and
arenaviruses. For the years ending December 31, 2009, 2008, and 2007, we
have recognized grants-related revenue of $3.1 million, $3.0 million, and $2.6
million, respectively, from grants with the NIH. In 2009, 2008 and 2007, we
recognized $10.7 million, $5.0 million, and $2.2 million, respectively, in
revenue from our contracts with the NIH.




SIGA receives cash payments from the
NIH under its grants on monthly and semi-monthly bases, and under its contract
on a monthly basis, as the work is performed and the related revenue is
recognized. SIGA’s current NIH grants and contracts do not include milestone
payments. The agreements can be cancelled for non-performance and if cancelled,
the Company will not receive funds for additional future work under the
agreements.




For a discussion of research and development
expenses, see Item 7, “Management’s Discussion and Analysis of Financial
Condition and Results of Operations”




Competition




The biotechnology and pharmaceutical
industries are characterized by rapidly evolving technology and intense
competition. Our competitors include most of the major pharmaceutical companies
which have financial, technical and marketing resources significantly greater
than ours. Biotechnology and other pharmaceutical competitors include Acambis,
Achillion Pharmaceuticals, Arrow Therapeutics, Celldex Therapeutics, Inc.,
Bavarian Nordic AS, Chimerix Inc., Bioport, Emergent BioSolutions and Novartis.
Academic institutions, governmental agencies and other public and private
research organizations are also conducting research activities and seeking
patent protection and may commercialize products on their own or through joint
venture.




Our biodefense product candidates face
significant competition for U.S. government funding for both development and
procurement of medical countermeasures for biological, chemical and nuclear
threats, diagnostic testing systems and other emergency preparedness
countermeasures.




Our potential commercial opportunity could be
reduced or eliminated if our competitors develop and commercialize products that
are safer, more effective, have fewer side effects, are more convenient or are
less expensive than any products that we
may develop. In addition, we may not be able to compete effectively if our
product candidates do not satisfy government procurement requirements,
particularly requirements of the U.S. government with respect to biodefense
products.




6




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Human Resources and Research Facilities




As of February 15, 2010, we had  55  full-time
employees. None of our employees is covered by a collective bargaining
agreement, and we consider our employee relations to be good. Our research and
development facilities are located in Corvallis, Oregon where we lease
approximately 18,100 square feet under a lease agreement signed in January 2007,
which expires in December 2011. Our facility in Oregon has been improved to meet
the special requirements necessary for the operation of our research and
development activities. In January 2010 we entered into a sublease agreement for
a 5,700 square foot additional research facility in Corvallis, Oregon.




Intellectual Property and Proprietary
Rights




Our commercial success will depend in part on
our and our collaborators’ ability to obtain and maintain patent protection for
our proprietary technologies, drug targets and potential products and to
effectively preserve our trade secrets. Because of the substantial length of
time and expense associated with bringing potential products through the
development and regulatory clearance processes to reach the marketplace, the
pharmaceutical industry places considerable importance on obtaining patent and
trade secret protection. The patent positions of pharmaceutical and
biotechnology companies can be highly uncertain and involve complex legal and
factual questions. No consistent policy regarding the breadth of claims allowed
in biotechnology patents has emerged to date. Accordingly, we cannot predict the
type and breadth of claims allowed in these patents.




We have exclusively licensed the rights to
five issued U.S. patents and one issued European patent. These patents have
varying lives and they are related to licensed technology for the strep and
Gram-positive products. We have one additional patent application in the U.S.
and one application in Europe relating to this technology. In addition, we have
a nonexclusive license from Washington University of one issued patent in the
U.S. This patent is for the technology used for the Gram-negative product
opportunities. We are also exclusive owner of six U.S. patents and eleven U.S.
utility patent applications. One of these U.S. utility applications relates to
our DegP product opportunities. We are also exclusive owner of two U.S.
provisional patent applications.




The following are our patent
positions as of December 31, 2009:




PATENTS
            
            NumberNon-ExclusivelyLicensedfromWashingtonUniv.
            
            NumberOwned
      bySIGA
            
            Patent Expiration
      DatesU.S.
            
            1
            
            6
            
            2014 (4), 2015 (3), 2021 (1),
      2016(2), 2013 (1), 2017 (1)Europe
            
            
            
            2
            
            2021
      (1), 2015 (1), 2014 (1)


7




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APPLICATIONS
            
            NumberOwned
      bySIGAU.S.
      applications
            
            11U.S.
      provisionals
            
            2PCT
            
            11Australia
            
            6Canada
            
            10Europe
            
            9Japan
            
            9


We also rely upon trade secret protection for
our confidential and proprietary information. No assurance can be given that
other companies will not independently develop substantially equivalent
proprietary information and techniques or otherwise gain access to our trade
secrets or that we can meaningfully protect our trade secrets.




Government Regulation




Regulatory Approval Process. Regulation by governmental authorities in the
United States and other countries will be a significant factor in the production
and marketing of any biopharmaceutical products that we may develop. The nature
and the extent to which such regulations may apply to us will vary depending on
the nature of any such products. Virtually all of our potential
biopharmaceutical products will require regulatory approval by governmental
agencies prior to commercialization. In particular, human therapeutic products
are subject to rigorous pre-clinical and clinical testing and other approval
procedures by the FDA and similar health authorities in foreign countries.
Various federal statutes and regulations also govern or influence the
manufacturing, safety, labeling, storage, record keeping and marketing of such
products. The process of obtaining these approvals and the subsequent compliance
with appropriate federal and foreign statutes and regulations requires the
expenditure of substantial resources.




In order to test clinically, produce and
market products for diagnostic or therapeutic use, a company must comply with
mandatory procedures and safety standards established by the FDA and comparable
agencies in foreign countries. Before beginning human clinical testing of a
potential new drug in the United States, a company must file an IND and receive
clearance from the FDA. This application is a summary of the pre-clinical
studies that were conducted to characterize the drug, including toxicity and
safety studies, as well as an in-depth discussion of the human clinical studies
that are being proposed.




The pre-marketing program required for
approval by the FDA of a new drug typically involves a time-consuming and costly
three-phase process. In Phase I, trials are conducted with a small number of
healthy patients to determine the early safety profile, the pattern of drug
distribution and metabolism. In Phase II, trials are conducted with small groups
of patients afflicted with a target disease in order to determine preliminary
efficacy, optimal dosages and expanded evidence of safety. In Phase III, large
scale, multi-center comparative trials are conducted with patients afflicted
with a target disease in order to provide enough data for statistical proof of
efficacy and safety required by the FDA and others.




The FDA amended its regulations, effective
June 30, 2002, so that certain new drug and biological products used to reduce
or prevent the toxicity of chemical, biological, radiological, or nuclear
substances may be approved for use in humans based on evidence of effectiveness
derived only from appropriate animal studies and any additional supporting
data.




8




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The FDA closely monitors the progress of each
of the three phases of clinical testing and may, in its discretion, reevaluate,
alter, suspend or terminate the testing based on the data that have been
accumulated to that point and its
assessment of the risk/benefit ratio to the patient. Estimates of the total time
required for carrying out such clinical testing vary between two and ten years.
Upon completion of such clinical testing, a company typically submits a New Drug
Application (“NDA”) or Product License Application (“PLA”) to the FDA that
summarizes the results and observations of the drug during the clinical testing.
Based on its review of the NDA or PLA, the FDA will decide whether to approve
the drug. This review process can be quite lengthy, and approval for the
production and marketing of a new pharmaceutical product can require a number of
years and substantial funding; there can be no assurance that any approvals will
be granted on a timely basis, if at all.




Once the product is approved for sale, FDA
regulations govern the production process and marketing activities, and a
post-marketing testing and surveillance program may be required to monitor
continuously a product’s usage and its effects. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained. Other
countries in which any products developed by us may be marketed could impose a
similar regulatory process.




An alternative regulatory mechanism is also
available. The Emergency Use Authorization authority allows the FDA Commissioner
to strengthen the public health protections against biological, chemical,
radiological, and nuclear agents that may be used to attack the American people
or the U.S. armed forces. Under this authority, the FDA Commissioner may allow
medical countermeasures to be used in an emergency to diagnose, treat, or
prevent serious or life-threatening diseases or conditions caused by such
agents, when there is no adequate, approved, and available alternative.




Legislation and Regulation Related to
Bioterrorism Counteragents and Pandemic Preparedness. Because some of our drug candidates are
intended for the treatment of diseases that may result from acts of bioterrorism
or for pandemic preparedness, they may be subject to the specific legislation
and regulation described below and elsewhere herein.




Project BioShield. The Project BioShield Act of 2004 provides expedited procedures for
bioterrorism related procurement and awarding of research grants, making it
easier for HHS to quickly commit funds to countermeasure projects. Project
BioShield relaxes procedures under the Federal Acquisition Regulation for
procuring property or services used in performing, administering or supporting
biomedical countermeasure research and development. In addition, if the
Secretary of HHS deems that there is a pressing need, Project BioShield
authorizes the Secretary to use an expedited award process, rather than the
normal peer review process, for grants, contracts and cooperative agreements
related to biomedical countermeasure research and development
activity.




Under Project BioShield, the Secretary of HHS,
with the concurrence of the Secretary of the Department of Homeland Security and
upon the approval of the President, can contract to purchase unapproved
countermeasures for the SNS in specified circumstances. Congress is notified of
a recommendation for a stockpile purchase after Presidential approval. Project
BioShield specifies that a company supplying the countermeasure to the SNS is
paid on delivery of a substantial portion of the countermeasure. To be eligible
for purchase under these provisions, the Secretary of HHS must determine that
there are sufficient and satisfactory clinical results or research data,
including data, if available, from pre-clinical and clinical trials, to support
a reasonable conclusion that the countermeasure will qualify for approval or
licensing within eight years. Project BioShield also allows the Secretary of HHS
to authorize the emergency use of medical products that have not yet been
approved by the FDA. To exercise this authority, the Secretary of HHS must
conclude that:


- the agent for which the
  countermeasure is designed can cause serious or life-threatening
  disease;
- the product may reasonably be
  believed to be effective in detecting, diagnosing, treating or preventing the
  disease;
- the known and potential benefits
  of the product outweigh its known and potential risks; and
- there is no adequate alternative
  to the product that is approved and available.

Although this provision permits the Secretary
of HHS to circumvent the FDA approval process, its use would likely be limited
to rare circumstances.




9




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Public Readiness and Emergency Preparedness Act. The Public Readiness and Emergency
Preparedness Act, or PREP Act, provides immunity for manufacturers from all
claims under state or federal law for “loss” arising out of the administration
or use of a “covered countermeasure.” However, injured persons may still bring a
suit for “willful misconduct” against the manufacturer under some circumstances.
“Covered countermeasures” include security countermeasures and “qualified
pandemic or epidemic products”, including products intended to diagnose or treat
pandemic or epidemic disease, such as pandemic vaccines, as well as treatments
intended to address conditions caused by such products. For these immunities to
apply, the Secretary of HHS must issue a declaration in cases of public health
emergency or “credible risk” of a future public health emergency. Since 2007,
the Secretary of HHS has issued 8 declarations under the PREP Act to protect
from liability countermeasures that are necessary to prepare the nation for
potential pandemics or epidemics, including a declaration on October 10, 2008,
that provides immunity from tort liability as it relates to smallpox
countermeasures.




Foreign Regulation. As noted above, in addition to regulations in the United States, we might
be subject to a variety of foreign regulations governing clinical trials and
commercial sales and distribution of our drug candidates. Whether or not we
obtain FDA approval for a product, we must obtain approval of a product by the
comparable regulatory authorities of foreign countries before we can commence
clinical trials or marketing of the product in those countries. The actual time
required to obtain clearance to market a product in a particular foreign
jurisdiction may vary substantially, based upon the type, complexity and novelty
of the pharmaceutical drug candidate, the specific requirements of that
jurisdiction, and in some countries whether the FDA has previously approved the
drug for marketing. The requirements governing the conduct of clinical trials,
marketing authorization, pricing and reimbursement vary from country to
country.




Regulations Regarding Government Contracting. The status of an organization as a government
contractor in the United States and elsewhere means that the organization is
also subject to various statutes and regulations, including the Federal
Acquisition Regulation, which governs the procurement of goods and services by
agencies of the United States and other countries. These governing statutes and
regulations can impose stricter penalties than those normally applicable to
commercial contracts, such as criminal and civil damages liability and
suspension and debarment from future government contracting. In addition,
pursuant to various statutes and regulations, government contracts can be
subject to unilateral termination or modification by the government for
convenience in the United States and elsewhere, detailed auditing requirements,
statutorily controlled pricing, sourcing and subcontracting restrictions and
statutorily mandated processes for adjudicating contract disputes.




American Recovery and Reinvestment Act. The Recovery Act was passed on February 13,
2009 in response to the current economic crisis. The Recovery Act is designed to
spur job creation and preservation, increase economic activity and investment in
long-term economic growth, and improve levels of accountability and transparency
in government spending, in part through grants like the one we were awarded in
September 2009. Recipients of Recovery Act funds are required to report
quarterly on the amount of funds spent, the status of the funded project, the
number of jobs created and/or saved as a result of the funded project, and other
details, all of which are made available to the public through the federal
government’s official Recovery Act website, Recovery.gov. Compliance with
Recovery Act requirements will thus involve increased public disclosure
regarding our activities, and may increase our costs.




Availability of Reports and Other Information




We file annual, quarterly, and current
reports, proxy statements, and other documents with the Securities and Exchange
Commission (“SEC”) under the Securities Exchange Act of 1934 (the “Exchange
Act”). The public may read and copy any materials that we file with the SEC at
the SEC’s Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549.
The public may obtain information on the operation of the Public Reference Room
by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains an Internet
website that contains reports, proxy and information statements, and other
information regarding issuers, including us, that file electronically with the
SEC. The public can obtain any documents that we file with the SEC at
www.sec.gov.




10




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In addition, our company website can be found
on the Internet at www.siga.com. The website contains information about us and
our operations. Copies of each of our filings with the SEC on Form 10-K, Form
10-Q, and Form 8-K, and all
amendments to those reports, can be viewed and downloaded free of charge as soon
as reasonably practicable after the reports and amendments are electronically
filed with or furnished to the SEC. To view the reports, access www.siga.com,
click on “Investor Relations” and “SEC Filing”.




The following corporate governance
related documents are also available on our website:


- Code of Ethics and Business
  Conduct
- Amended and Restated Audit
  Committee Charter
- Compensation Committee
  Charter
- Nominating and Corporate
  Governance Committee Charter
- Procedure for Sending
  Communications to the Board of Directors
- Procedures for Security Holder
  Submission of Nominating Recommendations
- 2004 Policy on Confidentiality of
  Information and Securities Trading

To review these documents, access
www.siga.com and click on “Corporate Governance”.




Any of the above documents can also
be obtained in print by any shareholder upon request to the Secretary, SIGA
Technologies, Inc., 35 East 62nd Street, New York, New York 10065.




11




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Item 1A. Risk Factors




This report contains forward-looking
statements and other prospective information relating to future events. These
forward-looking statements and other information are subject to risks and
uncertainties that could cause our actual results to differ materially from our
historical results or currently anticipated results including the
following:




Risks Related to Our Financial Position and
Need for Additional Financing




We have incurred operating losses since our inception and expect to incur
net losses and negative cash flow for the foreseeable future.




We incurred net losses of approximately $17.6
million, $8.6 million, and $5.6 million, for the years ended December 31, 2009,
2008, and 2007, respectively. On January 1, 2009, we recognized a $2.7 million
increase in our opening accumulated deficit balance reflecting the cumulative
effect of a change in accounting principle recorded in connection with certain
warrants to acquire shares of the Company’s common stock. As of December 31,
2009, 2008, and 2007, our accumulated deficit was approximately $90.9 million,
$70.6 million, and $62.0 million, respectively. We expect to continue to have
significant operating expenses. We will need to generate significant revenues to
achieve and maintain profitability.




We cannot guarantee that we will achieve
sufficient revenues for profitability. Even if we do achieve profitability, we
cannot guarantee that we can sustain or increase profitability on a quarterly or
annual basis in the future. If revenues grow slower than we anticipate, or if
operating expenses exceed our expectations or cannot be adjusted accordingly,
then our business, results of operations, financial condition and cash flows
will be materially and adversely affected. Because our strategy might include
acquisitions of other businesses, acquisition expenses and any cash used to make
these acquisitions will reduce our available cash.




Our business will suffer if we are unable to raise additional equity
funding.




Unless and until we successfully sell any of
our products, such as pursuant to the BARDA Smallpox RFP, we will continue to be
dependent on our ability to raise money through the exercise of existing options
or warrants or through the issuance of new equity. There is no guarantee that we
will continue to be successful in raising such funds. If we are unable to raise
additional equity funds, we may be forced to discontinue or cease certain
operations. We currently have sufficient operating capital to finance our
operations beyond the next twelve months. Our annual operating needs vary from
year to year depending upon the amount of revenue generated through grants,
contracts and licenses and the amount of projects we undertake, as well as the
amount of resources we expend, in connection with acquisitions all of which may
materially differ from year to year and may adversely affect our business.




Any additional equity that we raise may
contain terms, such as liquidation and other preferences that are not favorable
to us or our stockholders. If we raise additional funds through collaboration
and licensing arrangements with third parties, it may be necessary to relinquish
valuable rights to our technologies or product candidates or grant licenses on
terms that may not be favorable to us.




12




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Risks Related to Our Common
Stock




Our stock price is, and we expect it to remain, volatile, which could
limit investors’ ability to sell stock at a profit.




The volatile price of our stock makes it
difficult for investors to predict the value of their investments, to sell
shares at a profit at any given time, or to plan purchases and sales in advance.
A variety of factors may affect the market price of our common stock. These
include, but are not limited to:


- publicity regarding actual or
  potential clinical results relating to products under development by our
  competitors or us;
- initiating, completing or
  analyzing, or a delay or failure in initiating, completing or analyzing,
  pre-clinical or clinical trials or the design or results of these
  trials;
- achievement or rejection of
  regulatory approvals by our competitors or us;
- announcements of technological
  innovations or new commercial products by our competitors or
  us;
- developments concerning
  proprietary rights, including patents;
- developments concerning our
  collaborations;
- regulatory developments in the
  United States and foreign countries;
- economic or other crises and other
  external factors;
- period-to-period fluctuations in
  our revenues and other results of operations; and
- changes in financial estimates by
  securities analysts.

Additionally, because the volume of trading in
our stock fluctuates significantly at times, any information about SIGA in the
media may result in significant volatility in our stock price.




We will not be able to control many of these
factors, and we believe that period-to-period comparisons of our financial
results will not necessarily be indicative of our future performance.




In addition, the stock market in general, and
the market for biotechnology companies in particular, has experienced extreme
price and volume fluctuations that may have been unrelated or disproportionate
to the operating performance of individual companies. These broad market and
industry factors may seriously harm the market price of our common stock,
regardless of our operating performance.




A future issuance of preferred stock may adversely affect the rights of
the holders of our common stock.




Our certificate of incorporation allows our
Board of Directors to issue up to 10,000,000 shares of preferred stock and to
fix the voting powers, designations, preferences, rights and qualifications,
limitations or restrictions of these shares without any further vote or action
by the stockholders. The rights of the holders of common stock will be subject
to, and could be adversely affected by, the rights of the holders of any
preferred stock that we may issue in the future. The issuance of preferred
stock, while providing desirable flexibility in connection with our future
activities, could also have the effect of making it more difficult for a third
party to acquire a majority of our outstanding voting stock, thereby delaying,
deferring or preventing a change in control.




Concentration of ownership of our capital stock could delay or prevent a
change of control.




Our directors, executive officers and
principal stockholders beneficially own a significant percentage of our common
stock. They also have, through the exercise or conversion of certain securities,
the right to acquire additional common stock. As a result, these stockholders,
if acting together, have the ability to significantly influence the outcome of
corporate actions requiring shareholder approval. Additionally, this
concentration of ownership may have the effect of delaying or preventing a
change in control of SIGA. As of December 31, 2009, directors, officers and
principal stockholders beneficially owned approximately 31.0% of our stock.




13




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Risks Related to Our Dependence on U.S.
Government Contracts and Grants




Most of our immediately foreseeable future revenues are contingent upon
grants and contracts from the U. S. government, and we may not achieve
sufficient revenues from these agreements to attain profitability.




Until and unless we successfully sell any of
our products, our ability to generate revenues will largely depend on our
ability to enter into additional research grants, collaborative agreements,
strategic alliances, contracts and license agreements with third parties or
maintain the agreements we currently have in place. Substantially all of our
revenues for the years ended December 31, 2009, 2008, and 2007, respectively,
were derived from grants and contracts. Our current revenue is primarily derived
from contract work being performed for the NIH under grants and two major
contracts which are scheduled to expire from September 2011 through September
2013.




Our future business may be harmed as a result of the government
contracting process, which is a competitive bidding process that involves risks
not present in the commercial contracting process.


- We expect that a significant
  portion of the business that we will seek in the near future will be under
  government contracts or subcontracts awarded through competitive bidding.
  Competitive bidding for government contracts presents a number of risks that
  are not typically present in the commercial contracting process,
  including:
- the need to devote substantial
  time and attention of management and key employees to the preparation of bids
  and proposals for contracts that may not be awarded to us;
- the need to accurately estimate
  the resources and cost structure that will be required to perform any contract
  that we might be awarded;
- the risk that the government will
  issue a request for proposal to which we would not be eligible to
  respond;
- the risk that third parties may
  submit protests to our responses to requests for proposal that could result in
  delays or withdrawals of those requests for proposal; and
- the expenses that we might incur
  and the delays that we might suffer if our competitors protest or challenge
  contract awards made to us pursuant to competitive bidding, and the risk that
  any such protest or challenge could result in the resubmission of bids based
  on modified specifications, or in termination, reduction or modification of
  the awarded contract.

The U.S. government may choose to award future
contracts for the supply of smallpox anti-virus and other biodefense product
candidates that we are developing to our competitors instead of to us. If we are
unable to win particular contracts, we may not be able to operate in the market
for products that are provided under those contracts for a number of years. For
example, BARDA has issued a request for proposal for treatment courses for
symptomatic individuals exposed to smallpox for the SNS. We have submitted a
proposal responding to this request for proposal. We expect that our ability to
secure an award will depend primarily on the technical merits of ST-246®. The
U.S. government may purchase another company’s product candidate instead. If we
are unable to consistently win new contract awards over an extended period, or
if we fail to anticipate all of the costs and resources that will be required to
secure such contract awards, our growth strategy and our business, financial
condition, and operating results could be materially adversely
affected.




The success of our business with the U.S. government depends on our
compliance with regulations and obligations under our U.S. government contracts
and various federal statutes and regulations.




Our business with the U.S. government is
subject to specific procurement regulations and a variety of other legal
compliance obligations. These laws and rules include those related
to:


- procurement
  integrity;
- export control;
- government security
  regulations;
- employment practices;
- protection of the
  environment;
- accuracy of records and the
  recording of costs; and
- foreign corrupt practices.

14




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In addition, before awarding us any contracts,
the U.S. government could require that we respond satisfactorily to a request to
substantiate our commercial viability and industrial capabilities. Compliance
with these obligations increases our performance and compliance costs. Failure
to comply with these regulations and requirements could lead to suspension or
debarment, for cause, from government contracting or subcontracting for a period
of time. The termination of a government contract or relationship as a result of
our failure to satisfy any of these obligations would have a negative impact on
our operations and harm our reputation and ability to procure other government
contracts in the future.




Unfavorable provisions in government contracts, some of which may be
customary, may harm our future business, financial condition and potential
operating results.




Government contracts customarily contain
provisions that give the government substantial rights and remedies, many of
which are not typically found in commercial contracts, including provisions that
allow the government to:


- terminate existing contracts, in
  whole or in part, for any reason or no reason;
- unilaterally reduce or modify
  contracts or subcontracts, including through the use of equitable price
  adjustments;
- cancel multi-year contracts and
  related orders if funds for contract performance for any subsequent year
  become unavailable;
- decline to exercise an option to
  renew a contract;
- exercise an option to purchase
  only the minimum amount specified in a contract;
- decline to exercise an option to
  purchase the maximum amount specified in a contract;
- claim rights to products,
  including intellectual property, developed under the
  contract;
- take actions that result in a
  longer development timeline than expected;
- direct the course of a development
  program in a manner not chosen by the government contractor;
- suspend or debar the contractor
  from doing business with the government or a specific government
  agency;
- pursue criminal or civil remedies
  under the False Claims Act and False Statements Act; and
- control or prohibit the export of
  products.

Generally, government contracts contain
provisions permitting unilateral termination or modification, in whole or in
part, at the government’s convenience. Under general principles of government
contracting law, if the government terminates a contract for convenience, the
terminated company may recover only its incurred or committed costs, settlement
expenses and profit on work completed prior to the termination.




If the government terminates a contract for
default, the defaulting company is entitled to recover costs incurred and
associated profits on accepted items only and may be liable for excess costs
incurred by the government in procuring undelivered items from another source.
Our government contracts could be terminated under these circumstances. Some
government contracts grant the government the right to use, for or on behalf of
the U.S. government, any technologies developed by the contractor under the
government contract. If we were to develop technology under a contract with such
a provision, we might not be able to prohibit third parties, including our
competitors, from using that technology in providing products and services to
the government.




15




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Risks Related to Product
Development




Our business depends significantly on our success in completing
development of and commercializing drug candidates that are still under
development. If we are unable to commercialize these drug candidates, or
experience significant delays in doing so, our business will be materially
harmed.




We have invested a substantial majority of our
efforts and financial resources in the development of our drug candidates. Our
ability to generate near-term revenue is particularly dependent on the success
of our smallpox antiviral drug candidate ST-246®. The commercial success of our
drug candidates will depend on many factors, including:


- successful development,
  formulation and cGMP scale-up of drug manufacturing that meets FDA
  requirements;
- successful development of animal
  models;
- successful completion of
  non-clinical development, including studies in approved animal
  models;
- our ability to pay the expense of
  filing, prosecuting, defending and enforcing patent claims and other
  intellectual property rights.
- successful completion of clinical
  trials;
- receipt of marketing approvals
  from the FDA and similar foreign regulatory authorities;
- a determination by BARDA that our
  biodefense drug candidates should be purchased for the SNS prior to FDA
  approval;
- establishing commercial
  manufacturing processes of our own or arrangements on reasonable terms with
  contract manufacturers;
- manufacturing stable commercial
  supplies of drug candidates, including availability of raw
  materials;
- launching commercial sales of the
  product, whether alone or in collaboration with others; and
- acceptance of the product by
  potential government customers, physicians, patients, healthcare payors and
  others in the medical community.

We expect to rely on FDA regulations known as
the “animal rule” to obtain approval for our biodefense drug candidates. The
animal rule permits the use of animal efficacy studies together with human
clinical safety trials to support an application for marketing approval. These
regulations are relatively new, and we have limited experience in the
application of these rules to the drug candidates that we are developing. It is
possible that results from these animal efficacy studies may not be predictive
of the actual efficacy of our drug candidates in humans. If we are not
successful in completing the development and commercialization of our drug
candidates, our business could be harmed.




We will not be able to commercialize
our drug candidates if our pre-clinical development efforts are not successful,
our clinical trials do not demonstrate safety or our clinical trials or animal
studies do not demonstrate efficacy.




Before obtaining regulatory approval for the
sale of our drug candidates, we must conduct extensive pre-clinical development,
clinical trials to demonstrate the safety of our drug candidates and clinical or
animal trials to demonstrate the efficacy of our drug candidates. Pre-clinical
and clinical testing is expensive, difficult to design and implement, can take
many years to complete and is uncertain as to outcome. Success in pre-clinical
testing and early clinical trials does not ensure that later clinical trials or
animal efficacy studies will be successful, and interim results of a clinical
trial or animal efficacy study do not necessarily predict final
results.




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A failure of one or more of our clinical
trials or animal efficacy studies can occur at any stage of testing. We may
experience numerous unforeseen events during, or as a result of, pre-clinical
testing and the clinical trial or animal efficacy study process that could delay
or prevent our ability to receive regulatory approval or commercialize our drug
candidates, including:


- regulators or institutional review
  boards may not authorize us to commence a clinical trial or conduct a clinical
  trial at a prospective trial site;
- we may decide, or regulators may
  require us, to conduct additional pre-clinical testing or clinical trials, or
  we may abandon projects that we expect to be promising, if our preclinical
  tests, clinical trials or animal efficacy studies produce negative or
  inconclusive results;
- we might have to suspend or
  terminate our clinical trials if the participants are being exposed to
  unacceptable health risks;
- regulators or institutional review
  boards may require that we hold, suspend or terminate clinical development for
  various reasons, including noncompliance with regulatory
  requirements;
- the cost of our clinical trials
  could escalate and become cost prohibitive;
- any regulatory approval we
  ultimately obtain may be limited or subject to restrictions or post-approval
  commitments that render the product not commercially viable;
- we may not be successful in
  recruiting a sufficient number of qualifying subjects for our clinical trials;
  and
- the effects of our drug candidates
  may not be the desired effects or may include undesirable side effects or the
  drug candidates may have other unexpected characteristics.

We are in various stages of product development and there can be no
assurance of successful commercialization.




In general, our research and development
programs are at an early stage of development. To obtain FDA approval for our
biological warfare defense products we will be required to perform at least one
animal efficacy model and provide animal and human safety data. Our other
products will be subject to the usual FDA regulatory requirements which include
a number of phases of testing in humans.




The FDA has not approved any of our
biopharmaceutical product candidates. Any drug candidate we develop will require
significant additional research and development efforts, including extensive
pre-clinical and clinical testing and regulatory approval, prior to commercial
sale. We cannot be sure our approach to drug discovery will be effective or will
result in the development of any drug. We cannot predict with certainty whether
any drug resulting from our research and development efforts will be
commercially available within the next several years, or if they will be
available at all.




17




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Even if we receive initially positive
pre-clinical or clinical results, such results do not mean that similar results
will be obtained in later stages of drug development, such as additional
pre-clinical testing or human clinical trials. All of our potential drug
candidates are prone to the risks of failure inherent in pharmaceutical product
development, including the possibility that none of our drug candidates will or
can:


- be safe, non-toxic and
  effective;
- otherwise meet applicable
  regulatory standards;
- receive the necessary regulatory
  approvals;
- develop into commercially viable
  drugs;
- be manufactured or produced
  economically and on a large scale;
- be successfully
  marketed;
- be reimbursed by government and
  private insurers; and
- achieve customer
  acceptance.

In addition, third parties may preclude us
from marketing our drugs through enforcement of their proprietary rights that we
are not aware of, or third parties may succeed in marketing equivalent or
superior drug products. Our failure to develop safe, commercially viable drugs
would have a material adverse effect on our business, financial condition and
results of operations.




Risks Related to
Commercialization




Because we must obtain regulatory clearance or otherwise operate under
strict legal requirements in order to test and market our products in the U. S.,
we cannot predict whether or when we will be permitted to commercialize our
products.




A pharmaceutical product cannot generally be
marketed in the U.S. until it has completed rigorous pre-clinical testing and
clinical trials and an extensive regulatory clearance process implemented by the
FDA. Pharmaceutical products typically take many years to satisfy regulatory
requirements and require the expenditure of substantial resources depending on
the type, complexity and novelty of the product and its intended
use.




Before commencing clinical trials in humans,
we must submit and receive clearance from the FDA by means of an IND
application. Institutional review boards and the FDA oversee clinical trials and
such trials:


- must be conducted in conformance
  with the FDA regulations;
- must meet requirements for institutional
  review board oversight;
- must meet requirements for
  informed consent;
- must meet requirements for good
  clinical and manufacturing practices;
- are subject to continuing FDA
  oversight;
- may require large numbers of test
  subjects; and
- may be suspended by us or the FDA
  at any time if it is believed that the subjects participating in these trials
  are being exposed to unacceptable health risks or if the FDA finds
  deficiencies in any of the Company’s IND applications or the conduct of these
  trials.

Before receiving FDA clearance to market a
product in the absence of a medical or public health emergency, we must
demonstrate that the product is safe and effective on the patient population
that will be treated. Data we obtain from pre-clinical and clinical activities
are susceptible to varying interpretations that could delay, limit or prevent
regulatory clearances. Additionally, we have limited experience in conducting
and managing the clinical trials and manufacturing processes necessary to obtain
regulatory clearance.




18




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If full regulatory clearance of a product is
granted, this clearance will be limited only to those states and conditions for
which the product is demonstrated through clinical trials to be safe and
efficacious. We cannot ensure that any compound developed by us, alone or with
others, will prove to be safe and efficacious in clinical trials and will meet
all of the applicable regulatory requirements needed to receive full marketing
clearance.




The biopharmaceutical market in which we compete and will compete is
highly competitive.




The biopharmaceutical industry is
characterized by rapid and significant technological change. Our success will
depend on our ability to develop and apply our technologies in the design and
development of our product candidates and to establish and maintain a market for
our product candidates. There also are many companies, both public and private,
including major pharmaceutical and chemical companies, specialized biotechnology
firms, universities and other research institutions engaged in developing
pharmaceutical and biotechnology products. Many of these companies have
substantially greater financial, technical, research and development resources,
and human resources than us. Competitors may develop products or other
technologies that are more effective than any that are being developed by us or
may obtain FDA approval for products more rapidly than us. If we commence
commercial sales of products, we still must compete in the manufacturing and
marketing of such products, areas in which we have no experience. Many of these
companies also have manufacturing facilities and established marketing
capabilities that would enable such companies to market competing products
through existing channels of distribution. Three companies with similar profiles
are VaxGen, Inc., which is developing vaccines against anthrax, smallpox and
HIV/AIDS; Avant Immunotherapeutics, Inc., which has vaccine programs for agents
of biological warfare; and Chimerix, Inc., which is developing an alternative
smallpox therapeutic.




Our potential products may not be acceptable in the market or eligible
for third-party reimbursement resulting in a negative impact on our future
financial results.




Any product we develop may not achieve market
acceptance. The degree of market acceptance of any of our products will depend
on a number of factors, including:


- the establishment and
  demonstration in the medical community of the clinical efficacy and safety of
  such products;
- the potential advantage of such
  products over existing treatment methods;
- the cost of our products relative
  to their perceived benefits; and
- reimbursement policies of
  government and third-party payors.

Physicians, patients or the medical community
in general may not accept or utilize any product we may develop. Our ability to
generate revenues and income with respect to drugs, if any, developed through
the use of our technology will depend, in part, upon the extent to which
reimbursement for the cost of such drugs will be available from third-party
payors, such as government health administration authorities, private healthcare
insurers, health maintenance organizations, pharmacy benefits management
companies and other organizations. Third-party payors are increasingly disputing
the prices charged for pharmaceutical products. If third-party reimbursement was
not available or sufficient to allow profitable price levels to be maintained
for drugs we develop, it could adversely affect our business.




If our products harm people, we may experience product liability claims
that may not be covered by insurance.




We face an inherent business risk of
exposure to potential product liability claims in the event that drugs we
develop are alleged to cause adverse effects on patients. Such risk exists for
products being tested in human clinical trials, as well as products that receive
regulatory approval for commercial sale. We have obtained and intend to keep in
place product liability insurance with respect to drugs we develop. However, we
may not be able to obtain such insurance. Even if such insurance is obtainable,
it may not be available at a reasonable cost or in a sufficient amount to
protect us against liability.




19




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We may be required to perform additional clinical trials or change the
labeling of our products if we or others identify side effects after our
products are on the market, which could harm sales of the affected
products.




If we or others identify side effects after
any of our products are on the market, or if manufacturing problems
occur:


- regulatory approval may be
  withdrawn;
- reformulation of our products,
  additional clinical trials, changes in labeling of our products may be
  required;
- changes to or re-approvals of our
  manufacturing facilities may be required;
- sales of the affected products may
  drop significantly;
- our reputation in the marketplace
  may suffer; and
- lawsuits, including class action
  suits, may be brought against us.

Any of the above occurrences could harm or
prevent sales of the affected products or could increase the costs and expenses
of commercializing and marketing these products.




Healthcare reform and controls on healthcare spending may limit the price
we charge for any products and the amounts that we can
sell.




The U.S. government and private insurers have
considered ways to change, and have changed, the manner in which healthcare
services are provided in the U.S. Potential approaches and changes in recent
years include controls on healthcare spending and the creation of large
purchasing groups. In the future, the U.S. government may institute further
controls and limits on healthcare spending, including through the Medicare and
Medicaid programs. These controls and limits might affect the payments we could
collect from sales of any products. Uncertainties regarding future healthcare
reform and private market practices could adversely affect our ability to sell
any of our products profitably in the U.S. At present, we do not foresee any
change in FDA regulatory policies that would adversely affect our development
programs.




Laws and regulations governing international operations may preclude us
from developing, manufacturing and selling certain product candidates outside of
the United States and require us to develop and implement costly compliance
programs.




As we continue to expand our operations
outside of the United States, we must comply with numerous laws and regulations
relating to international business operations. The creation and implementation
of international business practices compliance programs is costly and such
programs are difficult to enforce, particularly where reliance on third parties
is required.




The Foreign Corrupt Practices Act, or FCPA,
prohibits any U.S. individual or business from paying, offering, or authorizing
payment or offering of anything of value, directly or indirectly, to any foreign
official, political party or candidate for the purpose of influencing any act or
decision of the foreign entity in order to assist the individual or business in
obtaining or retaining business. The FCPA also obligates companies whose
securities are listed in the United States to comply with certain accounting
provisions requiring the company to maintain books and records that accurately
and fairly reflect all transactions of the corporation, including international
subsidiaries, and to devise and maintain an adequate system of internal
accounting controls for international operations. The anti-bribery provisions of
the FCPA are enforced primarily by the U.S. Department of Justice. The SEC is
involved with enforcement of the books and records provisions of the
FCPA.




Compliance with the FCPA is expensive and
difficult, particularly in countries in which corruption is a recognized
problem. In addition, the FCPA presents particular challenges in the
pharmaceutical industry, because, in many countries, hospitals are operated by
the government, and doctors and other hospital employees are considered foreign
officials. Certain payments to hospitals in connection with clinical studies and
other work have been deemed to be improper payments to government officials and
have led to FCPA enforcement actions.




20




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Various laws, regulations and executive orders
also restrict the use and dissemination outside of the United States, or the
sharing with certain non-U.S. nationals, of information classified for national
security purposes, as well as certain products and technical data relating to
those products. Our expanding presence outside of the United States will require
us to dedicate additional resources to compliance with these laws, and these
laws may preclude us from developing, manufacturing, or selling certain products
and product candidates outside of the United States, which could limit our
growth potential and increase our development costs.




The failure to comply with laws governing
international business practices may result in substantial penalties, including
suspension or debarment from government contracting. Violation of the FCPA can
result in significant civil and criminal penalties. Indictment alone under the
FCPA can lead to suspension of the right to do business with the U.S. government
until the pending claims are resolved. Conviction of a violation of the FCPA can
result in long term disqualification as a government contractor. The termination
of a government contract or relationship as a result of our failure to satisfy
any of our obligations under laws governing international business practices
would have a negative impact on our operations and harm our reputation and
ability to procure government contracts. The SEC also may suspend or bar issuers
from trading securities on United States exchanges for violations of the FCPA’s
accounting provisions.




Risks Related to Manufacturing and
Manufacturing Facilities




Problems related to large-scale commercial manufacturing could cause us
to delay product launches or experience shortages of
products.




Our drug candidates require several
manufacturing steps, and may involve complex techniques to assure quality and
sufficient quantity, especially as the manufacturing scale increases. Our
products must be made consistently and in compliance with a clearly defined
manufacturing process. Accordingly, it is essential to be able to validate and
control the manufacturing process to assure that it is reproducible. Slight
deviations anywhere in the manufacturing process, including obtaining materials,
filling, labeling, packaging, storage and shipping and quality control and
testing, some of which all pharmaceutical companies, including SIGA, experience
from time to time, may result in lot failures, delay in the release of lots,
product recalls or spoilage. We will not be able to sell any lot that fails to
satisfy release testing specifications.




If third parties do not manufacture our drug candidates or products in
sufficient quantities and at an acceptable cost or in compliance with regulatory
requirements and specifications, the development and commercialization of our
drug candidates could be delayed, prevented or
impaired.




We currently rely on third parties to
manufacture drug candidates that we require for pre-clinical and clinical
development. In addition, we indicated in our response to the BARDA Smallpox RFP
that we intend to manufacture ST-246® using contract manufacturers. Any
significant delay in obtaining adequate supplies of our drug candidates could
adversely affect our ability to develop or commercialize these drug candidates.
We expect that we will rely on third parties for a portion of the manufacturing
process for commercial supplies of drug candidates that we successfully develop.
If our contract manufacturers are unable to scale-up production to generate
enough materials for commercial launch, the success of those products may be
jeopardized. Our current and anticipated future dependence upon others for the
manufacture of our drug candidates may adversely affect our ability to develop
drug candidates and commercialize any product that receives regulatory approval
on a timely and competitive basis.




We currently rely on third parties to
demonstrate regulatory compliance and for quality assurance with respect to the
drug candidates manufactured for us. We intend to continue to rely on these
third parties for these purposes with respect to production of commercial
supplies of drugs that we successfully develop. Manufacturers are subject to
ongoing, periodic, unannounced inspection by the FDA and corresponding state and
foreign agencies or their designees to ensure strict compliance with applicable
regulations.




21




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We cannot be certain that our present or
future manufacturers will be able to comply with these regulations and other FDA
regulatory requirements or similar regulatory requirements outside the U.S.
While our contracts call for compliance with all applicable regulatory
requirements, we do not control compliance by these manufacturers with these
regulations and standards. If we or these third parties fail to comply with
applicable regulations, sanctions could be imposed on us, which could
significantly and adversely affect supplies of our drug candidates.




Our activities may involve hazardous materials, use of which may subject
us to environmental regulatory liabilities.




Our biopharmaceutical research and development
sometimes involves the controlled use of hazardous and radioactive materials and
biological waste. We are subject to federal, state and local laws and
regulations governing the use, manufacture, storage, handling and disposal of
these materials and certain waste products. Although we believe that our safety
procedures for handling and disposing of these materials comply with legally
prescribed standards, the risk of accidental contamination or injury from these
materials cannot be completely eliminated. In the event of an accident, we could
be held liable for damages, and this liability could exceed our resources. The
research and development activities of our company do not produce any unusual
hazardous products. We do use small amounts of radioactive isotopes commonly
used in pharmaceutical research, which are stored, used and disposed of in
accordance with Nuclear Regulatory Commission regulations. We maintain liability
insurance in the amount of approximately $5,000,000 and we believe this should
be sufficient to cover any contingent loss.




We believe that we are in compliance in all
material respects with applicable environmental laws and regulations and
currently do not expect to make material additional capital expenditures for
environmental control facilities in the near term. However, we may have to incur
significant costs to comply with current or future environmental laws and
regulations.




Risks Related to Sales of Biodefense Products
to the U.S. Government




Our business could be adversely affected by a negative audit by the U.S.
government.




U.S. government agencies such as the Defense
Contract Audit Agency (the “DCAA”), routinely audit and investigate government
contractors. These agencies review a contractor’s performance under its
contracts, cost structure and compliance with applicable laws, regulations and
standards.




The DCAA also reviews the adequacy of, and a
contractor’s compliance with, its internal control systems and policies,
including the contractor’s purchasing, property, estimating, compensation and
management information systems. Any costs found to be improperly allocated to a
specific contract will not be reimbursed, while such costs already reimbursed
must be refunded. If an audit uncovers improper or illegal activities, we may be
subject to civil and criminal penalties and administrative sanctions,
including:


- termination of
  contracts;
- forfeiture of
  profits;
- suspension of
  payments;
- fines; and
- suspension of prohibition from
  doing business with the U.S. government.

In addition, we could suffer serious reputational harm if allegations of
impropriety were made against us.




We may be subject to sanction for past non-compliance with certain
regulatory audit requirements.




In June 2009 we became aware that we did not
comply with certain Department of Health and Human Services (“DHHS”) regulations
requiring the submission of yearly audited statements to the Office of the
Inspector General (“OIG”) Office of Audit Services. On September 30, 2009, we
submitted the required audits and related statements to the OIG Office of Audit
Services. We have asked that the OIG not take any enforcement action in this
matter. There can be no assurance that no enforcement action will be taken in
this matter and, if taken, whether such enforcement action would have a material
adverse impact on our operations.




22




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Laws and regulations affecting government contracts might make it more
costly and difficult for us to successfully conduct our
business.




We must comply with numerous laws and
regulations relating to the formation, administration and performance of
government contracts, which can make it more difficult for us to retain our
rights under these contracts. These laws and regulations affect how we do
business with federal, state and local government agencies. Among the most
significant government contracting regulations that affect our business
are:


- the Federal Acquisition
  Regulations, and agency-specific regulations supplemental to the Federal
  Acquisition Regulations, which comprehensively regulate the procurement,
  formation, administration and performance of government
  contracts;
- the business ethics and public
  integrity obligations, which govern conflicts of interest and the hiring of
  former government employees, restrict the granting of gratuities and funding
  of lobbying activities and incorporate other requirements such as the
  Anti-Kickback Act and Foreign Corrupt Practices Act;
- export and import control laws and
  regulations; and
- laws, regulations and executive
  orders restricting the use and dissemination of information classified for
  national security purposes and the exportation of certain products and
  technical data.

Risks Related to Regulatory
Approvals




If we are not able to obtain required regulatory approvals, we will not
be able to commercialize our drug candidates, and our ability to generate
revenue will be materially impaired.




Our drug candidates and the activities
associated with their development and commercialization, including their
testing, manufacture, safety, efficacy, recordkeeping, labeling, storage,
approval, advertising, promotion, sale and distribution, are subject to
comprehensive regulation by the FDA and other regulatory agencies in the United
States and by comparable authorities in other countries. Failure to obtain
regulatory approval for a drug candidate will prevent us from commercializing
the drug candidate. We have limited experience in preparing, filing and
prosecuting the applications necessary to gain regulatory approvals and expect
to rely on third party contract research organizations and consultants to assist
us in this process. Securing FDA approval requires the submission to the FDA of
extensive pre-clinical and clinical data, information about product
manufacturing processes and inspection of facilities and supporting information
in order to establish the drug candidate’s safety and efficacy. Our future
products may not be effective, may be only moderately effective, or may prove to
have significant side effects, toxicities, or other characteristics that may
preclude our obtaining regulatory approval or prevent or limit commercial
use.




Failure to obtain regulatory approval in international jurisdictions
could prevent us from marketing our products abroad.




We intend to have our products marketed
outside the United States. To market our products in the European Union and many
other foreign jurisdictions, we may need to obtain separate regulatory approvals
and comply with numerous and varying regulatory requirements. The approval
procedure varies among countries and can involve additional testing. The time
required to obtain approval may differ from that required to obtain FDA
approval.




23




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The foreign regulatory approval process may
include all of the risks associated with obtaining FDA approval. We may not
obtain foreign regulatory approvals on a timely basis, if at all. Approval by
the FDA does not ensure approval by regulatory authorities in other countries or
jurisdictions, and approval by one foreign regulatory authority does not ensure
approval by regulatory authorities in other foreign countries or jurisdictions
or by the FDA. We and our potential future collaborators may not be able to file
for regulatory approvals and may not receive necessary approvals to
commercialize our products in any market.




The Fast Track designation for ST-246® may not actually lead to a faster
development or regulatory review or approval process.




We have obtained a “Fast Track” designation
from the FDA for ST-246®. However, we may not experience a faster development
process, review or approval compared to conventional FDA procedures. The FDA may
withdraw our Fast Track designation if the FDA believes that the designation is
no longer supported by data from our clinical development program. Our Fast
Track designation does not guarantee that we will qualify for or be able to take
advantage of the FDA’s expedited review procedures or that any application that
we may submit to the FDA for regulatory approval will be accepted for filing or
ultimately approved.




Risks Related to Our Dependence on Third
Parties




If third parties on whom we rely for clinical trials or certain animal
trials do not perform as contractually required or as we expect, we may not be
able to obtain regulatory approval for or commercialize our drug candidates and
our business may suffer.




We do not have the ability to independently
conduct the clinical trials, and certain animal trials, required to obtain
regulatory approval for our products. We depend on independent investigators,
contract research organizations and other third party service providers to
conduct trials of our drug candidates and expect to continue to do so. We rely
heavily on these third parties for successful execution of our trials, but do
not exercise day-to-day control over their activities. We are responsible for
ensuring that each of our trials is conducted in accordance with the general
investigational plan and protocols for the trial. Moreover, the FDA requires us
to comply with standards, commonly referred to as Good Clinical Practices, for
conducting and recording and reporting the results of clinical trials to assure
that data and reported results are credible and accurate and that the rights,
integrity and confidentiality of trial participants are protected.




Our reliance on third parties that we do not
control does not relieve us of these responsibilities and requirements. Third
parties may not complete activities on schedule, or may not conduct our trials
in accordance with regulatory requirements or our stated protocols. The failure
of these third parties to carry out their obligations could delay or prevent the
development, approval and commercialization of our drug candidates.




Risks Related to Our Intellectual
Property




Our ability to compete may decrease if we do not adequately protect our
intellectual property rights.




Our commercial success will depend in part on
our ability to obtain and maintain patent protection for our proprietary
technologies, drug targets and potential products and to effectively preserve
our trade secrets. Because of the substantial length of time and expense
associated with bringing potential products through the development and
regulatory clearance processes to reach the marketplace, the pharmaceutical
industry places considerable importance on obtaining patent and trade secret
protection. The patent positions of pharmaceutical and biotechnology companies
can be highly uncertain and involve complex legal and factual questions. No
consistent policy regarding the breadth of claims allowed in biotechnology
patents has emerged to date. Accordingly, we cannot predict the type and breadth
of claims allowed in these patents.




We have a nonexclusive license from Washington
University with respect to one issued U.S. patent. We are also exclusive
owner of six U.S. patents and eleven U.S. patent applications. We are also the
exclusive owner of two U.S. provisional patent applications. The issued patents
have varying lives.




24




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We included a summary of our patent
positions as of December 31, 2009 in Part I, Item 1 of this
document.




We also rely on trade secrets, know-how,
continuing technological innovation and licensing opportunities. In an effort to
maintain the confidentiality and ownership of trade secrets and proprietary
information, we require our employees, consultants and some collaborators to
execute confidentiality and invention assignment agreements upon commencement of
a relationship with us. These agreements may not provide meaningful protection
for our trade secrets, confidential information or inventions in the event of
unauthorized use or disclosure of such information, and adequate remedies may
not exist in the event of such unauthorized use or disclosure.




If our technologies are alleged or found to infringe the patents or
proprietary rights of others, we may be sued, we may have to pay damages or be
barred from pursuing a technology, or we may have to license those rights to or
from others on unfavorable terms. Even if we prevail, such litigation may be
costly.




Our commercial success will depend
significantly on our ability to operate without infringing the patents or
proprietary rights of third parties. Our technologies, or the technologies of
third parties on which we may depend, may infringe the patents or proprietary
rights of others. If there is an adverse outcome in any dispute concerning
rights to these technologies, then we could be subject to significant liability,
required to license disputed rights from or to other parties and/or required to
cease using a technology necessary to carry out our research, development and
commercialization activities. At present, we are unaware of any patent
infringement claim relating to any of our products that is likely to be
asserted.




The costs to establish or defend against
claims of infringement or interference with patents or other proprietary rights
can be expensive and time-consuming, even if the outcome is favorable. An
outcome of any patent or proprietary rights administrative proceeding or
litigation that is unfavorable to us may have a material adverse effect on us.
We could incur substantial costs if we are required to defend ourselves in suits
brought by third parties or if we initiate such suits. We may not have
sufficient funds or resources in the event of litigation. Additionally, we may
not prevail in any such action.




Any dispute resulting from claims based on
patents and proprietary rights could result in a significant reduction in the
coverage of the patents or proprietary rights owned, optioned by or licensed to
us and limit our ability to obtain meaningful protection for our rights. If
patents are issued to third parties that contain competitive or conflicting
claims, we may be legally prohibited from researching, developing or
commercializing potential products or be required to obtain licenses to these
patents or to develop or obtain alternative technology. We may be legally
prohibited from using technology owned by others, may not be able to obtain any
license to the patents or technologies of third parties on acceptable terms, if
at all, or may not be able to obtain or develop alternative technologies.




In December 2006, PharmAthene, Inc.
(“PharmAthene”) filed an action against us in the Delaware Court of Chancery
captioned PharmAthene, Inc. v. SIGA Technologies, Inc., C.A. No. 2627-N. In its
amended complaint, PharmAthene asks the Court to order us to enter into a
license agreement with PharmAthene with respect to ST-246®, as well as issue a
declaration that we are obliged to execute such a license agreement, and award
damages resulting from our supposed breach of that obligation. PharmAthene also
alleges that we breached an obligation to negotiate such a license agreement in
good faith, as well as seeks damages for promissory estoppel and unjust
enrichment based on supposed information, capital and assistance that
PharmAthene allegedly provided to us during the negotiation process. In January
2008, the Court of Chancery denied our motion to dismiss the original complaint,
and discovery proceeded. In May 2009, PharmAthene amended its complaint with
respect to its claim for breach of an obligation to negotiate in good faith, and
we filed our answer to the amended complaint and counterclaim denying the new
claim and asserting defenses.




PharmAthene has submitted an expert report
asserting several alternative theories of damages, including amounts in a wide
range of up to one billion dollars. We believe that the expert’s damages
analyses are flawed and methodologically unsound. We also continue to believe
that we have meritorious defenses to the claims. No trial date has been set. It
is not currently possible to estimate a range of loss, if any.




25




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In addition, like many biopharmaceutical
companies, we may from time to time hire scientific personnel formerly employed
by other companies involved in one or more areas similar to the activities
conducted by us. It is possible that we and/or these individuals may
be subject to allegations of trade secret misappropriation or other similar
claims as a result of their prior affiliations.




Other Risks




We may have difficulty managing our growth.




We might experience growth in the number of
our employees and the scope of our operations. This potential future growth
could place a significant strain on our management and operations. Our ability
to manage this potential growth will depend upon our ability to broaden our
management team and our ability to attract, hire and retain skilled employees.
Our success will also depend on the ability of our officers and key employees to
continue to implement and improve our operational and other systems and to hire,
train and manage our employees.




26




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Item 1B. Unresolved Staff
Comments




None.




Item 2.  Properties




Our headquarters are located in New York City
and our research and development facilities are located in Corvallis, Oregon. In
New York, we occupy approximately 1,800 square feet under an Office Service
Agreement with an affiliate of a shareholder, that is cancelable upon 60
days notice. In Corvallis, we lease approximately 18,100 square feet under an
amended lease agreement signed in January 2007, which expires in December 2011.
Our facility in Oregon has been improved to meet the special requirements
necessary for the operation of our research and development activities. In
January 2010 we entered into a sublease agreement for 5,700 square feet of
additional research facility in Corvallis, Oregon. In the opinion of the
management, these facilities are sufficient to meet the current and anticipated
future requirements of SIGA.




Item 3.  Legal Proceedings




In December 2006, PharmAthene, Inc.
(“PharmAthene”) filed an action against us in the Delaware Court of Chancery
captioned PharmAthene, Inc. v. SIGA Technologies,
Inc ., C.A. No. 2627-N. In
its amended complaint, PharmAthene asks the Court to order us to enter into a
license agreement with PharmAthene with respect to ST-246®, as well as issue a
declaration that we are obliged to execute such a license agreement, and award
damages resulting from our supposed breach of that obligation. PharmAthene also
alleges that we breached an obligation to negotiate such a license agreement in
good faith, as well as seeks damages for promissory estoppel and unjust
enrichment based on supposed information, capital and assistance that
PharmAthene allegedly provided to us during the negotiation process. In January
2008, the Court of Chancery denied our motion to dismiss the original complaint,
and discovery proceeded. In May 2009, PharmAthene amended its complaint with
respect to its claim for breach of an obligation to negotiate in good faith, and
we filed our answer to the amended complaint and counterclaim denying the new
claim and asserting defenses.




PharmAthene has submitted an expert report
asserting several alternative theories of damages, including amounts in a wide
range of up to one billion dollars. We believe that the expert’s damages
analyses are flawed and methodologically unsound. We also continue to believe
that we have meritorious defenses to the claims. No trial date has been set. It
is not currently possible to estimate a range of loss, if any.




Item 4.  Reserved




27




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PART II




Item 5.
            Market for Registrant’s Common Equity,
      Related Stockholder Matters and Issuer Purchases of Equity
      Securities





Price Range of Common Stock




Our common stock trades under the symbol
“SIGA”. Our common stock has been traded on the Nasdaq Global Market since
September 3, 2009 and, prior to such date, had been traded on the Nasdaq Capital
Market since September 9, 1997. Prior to that time there was no public market
for our common stock. The following table sets forth, for the periods indicated,
the high and low sales prices for the common stock, as reported on the Nasdaq
Capital Market or Nasdaq Global Market, as applicable.




Price Range2008
            High
            
            LowFirst Quarter
            $
            3.27
            
            $
            1.78Second Quarter
            $
            3.91
            
            $
            2.12Third Quarter
            $
            4.19
            
            $
            2.29Fourth Quarter
            $
            3.80
            
            $
            1.942009
            High
            
            LowFirst Quarter
            $
            5.86
            
            $
            3.15Second Quarter
            $
            8.88
            
            $
            4.73Third Quarter
            $
            8.63
            
            $
            6.25Fourth Quarter
            $
            10.09
            
            $
            4.83


The following line graph compares the
cumulative total stockholder return through December 31, 2009, assuming
reinvestment of dividends, by an investor who invested $100 on December 31, 2004
in each of (i) our common stock, (ii) the Nasdaq National Market-US; and (iii)
the Nasdaq Pharmaceutical Index.









Value of Initial
      Investment
            
            12/31/04
            
            12/31/05
            
            12/31/06
            
            12/31/07
            
            12/31/08
            
            12/31/09SIGA Technologies, Inc.
            
            $
            100.00
            
            $
            57.23
            
            $
            225.90
            
            $
            185.54
            
            $
            196.99
            
            $
            349.40NASDAQ Composite Index
            
            $
            100.00
            
            $
            101.37
            
            $
            111.03
            
            $
            121.92
            
            $
            72.49
            
            $
            104.31NASDAQ Biotech Composite Index
            
            $
            100.00
            
            $
            102.84
            
            $
            103.89
            
            $
            108.65
            
            $
            94.93
            
            $
            109.77


28




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As of February 23, 2010, the closing
bid price of our common stock was $6.36  per share. There
were 54 holders of record as of February 23, 2010. We believe that the number of
beneficial owners of our common stock is substantially greater than the number
of record holders, because a large portion of common stock is held in broker
“street names”.




We have paid no dividends on our
common stock and do not expect to pay cash dividends in the foreseeable future.
We are not under any restriction as to our present or future ability to pay
dividends. We currently intend to retain any future earnings to finance the
growth and development of our business.




Securities Authorized for Issuance Under Equity Compensation
Plans




The information required by this
item concerning securities authorized for issuance under equity compensation
plans is set forth in Item 12, “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters”.




Item 6.  Selected Financial Data (in thousands, except
share and per share data)




The following table sets forth
selected financial information derived from our audited consolidated financial
statements as of and for the years ended December 31, 2009, 2008, 2007, 2006,
and 2005.




The yearended
            
            
            
            Selling, general
            
            Research and
            
            PatentDecember 31,
            
            Revenues
            
            & administrative
            
            development
            
            preparation fees2009
            
            $
            13,812
            
            $
            7,533
            
            $
            17,423
            
            $
            7342008
            
            $
            8,066
            
            $
            4,608
            
            $
            11,613
            
            $
            5822007
            
            $
            6,699
            
            $
            3,704
            
            $
            9,943
            
            $
            5152006
            
            $
            7,258
            
            $
            4,624
            
            $
            9,149
            
            $
            2952005
            
            $
            8,477
            
            $
            2,481
            
            $
            8,295
            
            $
            232


The year
            
            
            
            
            
            
            
            Weighted averageended
            
            
            
            
            
            Net loss per share:
            
            shares outstanding:December 31,
            
            Operating loss
            
            Net loss
            
            basic & diluted
            
            basic and diluted2009
            
            $
            (11,879
            )
            
            $
            (17,618
            )
            
            $
            (0.47
            )
            
            37,463,2552008
            
            $
            (8,737
            )
            
            $
            (8,599
            )
            
            $
            (0.25
            )
            
            34,732,6252007
            
            $
            (7,463
            )
            
            $
            (5,639
            )
            
            $
            (0.17
            )
            
            33,330,8142006
            
            $
            (6,810
            )
            
            $
            (9,899
            )
            
            $
            (0.35
            )
            
            28,200,1302005
            
            $
            (2,532
            )
            
            $
            (2,288
            )
            
            $
            (0.09
            )
            
            24,824,824


As of and for
            
            
            
            
            
            
            
            
            Totalthe year ended
            
            
            
            
            Cash & cash
            
            Long term
            
            stockholders'
            
            Net cash used inDecember 31,
            
            Total assets
            
            equivalents
            
            obligations
            
            equity
            
            operating activities2009
            
            $
            25,915
            
            $
            14,496
            
            $
            6,398
            
            $
            10,488
            
            $
            (8,471
            )2008
            
            $
            8,797
            
            $
            2,322
            
            $
            2,924
            
            $
            1,555
            
            $
            (7,198
            )2007
            
            $
            10,589
            
            $
            6,832
            
            $
            3,243
            
            $
            5,228
            
            $
            (5,448
            )2006
            
            $
            14,028
            
            $
            10,640
            
            $
            4,696
            
            $
            7,282
            
            $
            (4,438
            )2005
            
            $
            6,132
            
            $
            1,772
            
            $
            642
            
            $
            3,231
            
            $
            (1,392
            )


29




---



Item 7.  Management’s Discussion and Analysis of
Financial Condition and Results of Operations




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




Overview




Since our inception on December 28, 1995, SIGA
has pursued the research, development and commercialization of novel products
for the prevention and treatment of serious infectious diseases, including
products for use in defense against biological warfare agents such as smallpox
and Arenaviruses. Our lead product, ST-246®, is an orally administered antiviral
drug that targets orthopox viruses. In December 2006 the FDA granted Orphan Drug
designation to ST-246® for the prevention and treatment of smallpox. In
September 1, 2008, we were awarded a five-year, $55.0 million contract from the
NIAID, to support the development of additional formulations and
orthopox-related indications for ST-246, our lead orthopox drug candidate. In
September 2008, we were awarded $20.0 million from the NIAID in supplemental
funding to our existing $16.5 million contract, to accelerate process
development related to large-scale manufacturing and packaging of ST-246® and
commercial-scale validation. The term of the contract was extended through
September 28, 2011. In May 2009, we submitted the BARDA Smallpox RFP, and, in
June 2009, BARDA informed us that our response to the BARDA Smallpox RFP was
deemed technically acceptable and in the competitive range. There can be no
assurance that SIGA or any other company will receive an award pursuant to this
RFP. Further, any award on this RFP would be subject to negotiation of final
contract terms and specifications; thus, the final terms under any contract with
BARDA may be materially different than those indicated in the RFP.




Our anti-viral programs are designed to
prevent or limit the replication of the viral pathogen. As a result of the
success of our efforts to develop products for use against agents of biological
warfare, we have not spent significant resources to further the development of
our anti-infective technologies.




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 consolidated financial statements, which we discuss under the
heading “Results of Operations” following this section of our Management’s
Discussion and Analysis. Some of our accounting policies require us to make
difficult and subjective judgments, often as a result of the need to make
estimates of matters that are inherently uncertain. Our most critical accounting
estimates include the assessment of recoverability of goodwill, which
could affect goodwill impairments; and the assessment of recoverability of
long-lived assets, which primarily would affect operating income
if  an 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 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 consolidated financial statements. Note 2 of the Notes to the
Consolidated Financial Statements includes a summary of all of the significant
accounting policies.




Share-based
Compensation The Company accounts for its stock-based
compensation programs under the provisions Financial Accounting Standards Board
Accounting Standards Codification (“FASB ASC”) 718 Compensation – Stock Compensation (“ASC 718”), 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. ASC 718 requires companies to
estimate the fair value of share-based awards on the grant date using an option
pricing model. The value of the portion of the award that is ultimately expected
to vest is recorded as expense over the requisite periods in the Company’s
consolidated statement of operations. SIGA calculates the fair value of options
awarded under its Employee Stock Purchase Plan using the Black-Scholes model
with weighted average assumptions for the expected volatility, risk-free
interest rate, expected holding period, and dividend yield. It is reasonably
likely that future assumptions may change, in which case the fair value of
future option awards may exceed or fall short of historical calculated fair
values.




30




---



Fair value of financial instruments The carrying value of cash and cash
equivalents, accounts receivables, short-term investments, accounts payable and
accrued expenses approximates fair value due to the relatively short maturity of
these instruments. Common stock warrants which are classified as liabilities
under the provisions of FASB ASC 815 Derivatives and Hedging (“ASC 815”) , are recorded at their fair market value as
of each reporting period.




The Company applies FASB ASC 820 Fair value Measurements and Disclosures (“ASC
820”) for financial assets
and liabilities that are required to be measured at fair value, and
non-financial assets and liabilities that are not required to be measured at
fair value on a recurring basis.




ASC 820 provides that the
measurement of fair value requires the use of techniques based on observable and
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect our market assumptions.
The inputs create the following fair value hierarchy:


- Level 1 – Quoted prices for
  identical instruments in active markets.
- Level 2 – Quoted prices for
  similar instruments in active markets; quoted prices for identical or similar
  instruments in markets that are not active; and model-derived valuations where
  inputs are observable or where significant value drivers are
  observable.
- Level 3 – Instruments where
  significant value drivers are unobservable to third parties.

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




December 31,
            
            December 31,2009
            
            2008Common stock warrants classified as
      current liabilities
            
            $
            3,260,000
            
            $
            -Common stock warrants classified as long term liabilities
            
            
            6,398,216
            
            
            2,923,532Total
            
            $
            9,658,216
            
            $
            2,923,532


ASC 820-10 applies to non-financial
assets and non-financial liabilities measured on a nonrecurring basis and was
effective January 1, 2009. The adoption of this standard had no impact on the
Company in 2009.




As of December 31, 2009 the Company
held approximately $5.0 million in United States Treasury Bills, classified as a
Level 1 security.  SIGA does not hold any Level 3
securities.




Revenue Recognition The Company recognizes revenue from
contract research and development and research progress payments in accordance FASB ASC605Revenue
Recognition, (“ASC
605”) . In
accordance with ASC 605, revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed and determinable,
collectability 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.




31




---



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 FASB ASC
350-20 Intangibles - Goodwill and Other –
Goodwill . The impairment
review process compares the fair value of the reporting unit in which goodwill
resides to its carrying value. In 2009, 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 will
possibly produce different results than the Company’s market
capitalization.




Cumulative Effect of Changes in Accounting Principles On January 1, 2009, the Company adopted the
provisions of Financial Accounting Standards Board (“FASB”) ASC 815-40, Derivatives and Hedging – Contracts in
Entity’s Own Equity (“ASC
815-40”). In accordance with ASC 815-40, the cumulative effect of the change in
accounting principle recorded by SIGA in connection with certain warrants to
acquire shares of the Company’s common stock (see Note 3), was recognized by
SIGA as an adjustment to the opening balance of retained earnings as summarized
in the following table:




As reported on
            
            As adjusted on
            
            Effect of change inDecember 31, 2008
            
            January 1, 2009
            
            accounting principleCommon stock warrants
            
            $
            -
            
            
            $
            2,710,000
            
            
            $
            2,710,000Accumulated deficit
            
            $
            (70,605,553
            )
            
            $
            (73,315,553
            )
            
            $
            (2,710,000
            )


Recent accounting
pronouncements In September 2009, the FASB issued ASU
2009-13, Multiple Element Arrangements (“ASU 2009-13”). ASU 2009-13 addresses
the determination of when the individual deliverables included in a multiple
arrangement may be treated as separate units of accounting. ASU 2009-13 also
modifies the manner in which the transaction consideration is allocated across
separately identified deliverables and establishes definitions for determining
fair value of elements in an arrangement. This standard must be adopted by us
for new arrangements and material modifications to existing arrangements no
later than January 1, 2011 with earlier adoption permitted. We are currently
evaluating the impact, if any, that this standard update will have on our
consolidated financial statements.




32








---



Results of Operations




The following table sets forth
certain consolidated statements of income data as a percentage of net revenue
for the periods indicated:




2009
            
            2008
            
            2007Revenue
            
            100%
            
            100%
            
            100%Selling, general and administrative
            
            55%
            
            57%
            
            55%Research and development
            
            126%
            
            144%
            
            148%Patent preparation fees
            
            5%
            
            7%
            
            8%Operating loss
            
            86%
            
            108%
            
            111%


Years ended December 31, 2009, 2008, and 2007.




Revenues from research and development
contracts and grants for the years ended December 31, 2009 and 2008, were $13.8
million and $8.1 million, respectively. The increase of $5.7 million, or 71.2%,
is mainly due to an increase of $4.2 million in revenue recognized from our
existing program for the large-scale manufacturing and packaging of ST-246®.
Revenue recognized from our $55 million contract with the NIH to support the
development of additional formulations and orthopox-related indications of
ST-246® increased by $1.5 million.




Revenues from research and development
contracts and grants for the years ended December 31, 2008 and 2007, were $8.1
million and $6.7 million, respectively. The increase of $1.4 million or 20.4% in
revenue recorded for the year ended December 31, 2008 reflects an increase of
$3.0 million in revenues recognized from grants and contracts with the NIH
supporting our lead programs. Revenue recognized from our programs with the USAF
was $38,000 and $1.9 million for the years ended December 31, 2008 and 2007,
respectively. In 2008, we completed our two, one-year programs with the
USAF.




Selling, General and Administrative expenses
(“SG&A”) for the years ended December 31, 2009 and 2008 were $7.5 million
and $4.6 million, respectively, reflecting an increase of approximately $2.9
million or 63.5%. Higher SG&A expenses were mainly due to an increase of
$204,000 in accounting services resulting from additional governmental audits,
an increase of $998,000 in stock based compensation charges, a $71,000 increase
in insurance premiums, an increase of $133,000 in foreign and public relations
consulting, and an increase of $1.3 million in general corporate and litigation
legal support.




Selling, General and Administrative expenses
for the years ended December 31, 2008 and 2007 were $4.6 million and $3.7
million, respectively. The increase of $900,000 or 24% is due to an increase of
$456,000 in legal fees attributed to litigation support, an increase of $83,000
in insurance costs, an increase of $230,000 in non-cash compensation recorded in
accordance with ASC 718, and an increase of $71,000 in business development
costs incurred in the current period.




Research and development (“R&D”) expenses
were $17.4 million for the year ended December 31, 2009, an increase of $5.8
million or 50% from the $11.6 million incurred during the year ended December
31, 2008. Expenditures related to the manufacturing, packaging, and stability of
ST-246® increased $3.3 million. Other costs related ST-246® as well as the
development of our other lead drug candidates increased $1.2 million from the
prior year. Employee compensation expenses increased $978,000 mainly due to the
hiring of additional expert R&D and support personnel. As of December 31,
2009 and 2008, the Company had 49 and 36 full time R&D employees,
respectively.




Research and development (“R&D”) expenses
for the years ended December 31, 2008 and 2007 were $11.6 million and $9.9
million, respectively. The increase of $1.7 million or 17% is mainly due to
higher expenditures related to clinical and pre-clinical testing of our lead
drug candidates, which increased $1.7 million from the prior year. Employee
related expenses for the year ended December 31, 2008 increased $674,000 from
the prior year, reflecting a transition to highly specialized workforce and an
increase in non-cash stock based compensation expense. Travel expenses for the
year ended December 31, 2008 increased $148,000 from the prior year. These
increases were offset by a decline of $790,000 in depreciation and amortization
mainly related to fully depreciated leasehold improvements and fully amortized
intangible assets; and a decline of $324,000 in expenditures related to our
agreements with the USAF, which were completed during 2008.




33




---



During the years ended December 31, 2009,
2008, and 2007, we spent $10.9 million, $5.4 million, and $3.2 million,
respectively, on the development of ST-246®. During the year ended December 31,
2009, we spent $1.5 million on internal human resources dedicated to the drug’s
development and $9.4 million mainly on packaging and manufacturing. During the
year ended December 31, 2008, we spent $1.2 million on internal human resources
dedicated to the drug’s development and $4.2 million mainly on clinical trials
and manufacturing. For the year ended December 31, 2007, we spent $924,000 on
internal human resources and $2.24 million mainly on manufacturing and clinical
testing. From inception of the ST-246® development program to-date, we invested
a total of $26.0 million in the program, of which $5.2 million supported
internal human resources, and $20.8 million were used mainly for manufacturing,
clinical and pre-clinical work. 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.




During the years ended December 31,
2009, 2008, and 2007, we spent $384,000, $930,000, and $1.3 million,
respectively, to support the development of ST-193, a drug candidate for Lassa
fever virus, ST-294, a drug candidate for certain arenavirus pathogens, and
other drug candidates for hemorrhagic fevers. During the year ended December 31,
2009, we invested $155,000 in internal human resources dedicated to the
development of these drugs, and $228,000 mainly to support the testing of
chemical compounds. During the year ended December 31, 2008, we invested
$254,000 in internal human resources dedicated to the development of these
drugs, and $676,000 mainly to support pre-clinical testing. For the year ended
December 31, 2007, we spent $227,000 on internal human resources and $1.1
million mainly on pre-clinical testing. From inception of our programs to
develop ST-193, ST-294, and other drug candidates for hemorrhagic fevers,
to-date, we spent a total of $5.9 million related to the programs, of which $2.2
million and $3.7 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 programs. They exclude additional
expenditures such as the cost to acquire the programs, patent costs, allocation
of indirect expenses, and the value of other services received from the NIH and
the DoD.




The agreements with the USAF and US Army ended
in the second quarter of 2008. For the years ended December 31, 2008, and 2007,
we spent $102,000, and $1.3 million, respectively, in expenses related to our
USAF and US Army Agreements. For the year ended December 31, 2008, we spent
$77,000 on internal human resources and $26,000 for external R&D services.
During the year ended December 31, 2007, we spent $910,000 on internal human
resources and $372,000 for external R&D services. Costs related to our work
on the USAF Agreements from September 2005 to date were $3.4 million, of which
we spent $1.8 million and $1.6 million on internal human resources and external
R&D services, respectively. These resources reflect SIGA’s research and
development expenses directly related to these agreements. They exclude
additional expenditures such as patent costs and allocation of indirect
expenses.




The majority of our product programs are in
the early stage of development. As a result, 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 programs. Our lead product, ST-246, is an orally
administered anti-viral drug that targets the smallpox virus. In December 2005,
the FDA accepted our IND application for ST-246® and granted it Fast-Track
status. In December 2006, the FDA granted Orphan Drug designation to ST-246, for
the prevention as well as the treatment of smallpox. We expect that costs to
complete the development of ST-246® for adult therapeutic use will approximate
$20 million to $25 million, that the development could be completed in 18 months
to 36 months, and that a New Drug Application could be filed as the development
process is completed. There is a high risk of non-completion of any program,
including ST-246, because of the lead time to program completion, scientific
issues that may arise and uncertainty of the costs. Net cash inflow from
any product developed from our programs is 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, is in the relatively early stage
of development. Products for the biological warfare defense market, such as the
ST-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 potential products enter animal studies and safety testing,
including human safety trials. Funds for future development will be partially
paid for by NIH contracts and grants, 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.




34




---



Patent preparation expenses for the years
ended December 31, 2009 and 2008 were $734,000 and $582,000, respectively. The
increase of $153,000 or 26.2% is mainly related to our efforts to protect our
lead drug candidates in expanded geographic territories.




Patent preparation expenses for the years
ended December 31, 2008 and 2007 were $582,000 and $515,000, respectively. The
increase of $66,000 or $12.9% is mainly due to additional filings related to our
lead drug candidates.




Total operating loss for the years ended
December 31, 2009 and 2008 was $11.9 million and $8.7 million, respectively. The
increase of $3.2 million or 36.0% in net operating loss is a result of the
continued expansion of SIGA’s R&D and specialized personnel, the increase of
$1.1 million in non-cash stock based compensation, and an increase of $1.3
million in general corporate and litigation related legal fees.




Total operating loss for the years ended
December 31, 2008 and 2007 was $8.7 million and $7.5 million, respectively. The
increase of $1.2 million or 17% in net operating loss relates mainly to the
growth in SIGA’s operations, including the transition to highly specialized
R&D workforce, manufacturing of our lead drug candidate for testing, and
clinical and pre-clinical testing of our leading programs. Our net operating
loss also increased as a result of additional general corporate and litigation
related legal fees.




Changes in the fair value of certain warrants
to acquire common stock are recorded as gains or losses. For the years ended
December 31, 2009, 2008, and 2007, we recorded a loss of $5.7 million, a gain of
$43,000, and a gain of $1.4 million, respectively, reflecting changes in the
fair market value of warrants and rights to purchase common stock during the
respective years. The warrants and rights to purchase common stock of SIGA were
recorded at fair market value and classified as liabilities.




Other income for the years ended December 31,
2009, 2008, and 2007, was $1,000, $94,000, and $394,000, respectively. Other
income in 2009, 2008, and 2007 represented interest income on our cash and cash
equivalents. Interest income declined as a result of lower cash balances and a
decline in interest rates.




Liquidity and Capital Resources




On December 31, 2009, we had $14.5 million in
cash and cash equivalents and $5.0 million in short-term investments. During the
year ended December 31, 2009, we received net proceeds of $7.4 million from
exercises of warrants and options to purchase shares of the Company’s Common
stock and net proceeds of $18.6 million, after offering related
expenses, from the sale of 2,725,339 shares of common stock at $7.35 per
share.




On September 23, 2009, the Company was awarded
a two-year, $1.7 million grant from the NIAID of the NIH, to support the
development of broad spectrum, small-molecule inhibitors of bunyaviruses. The
grant was awarded under the Recovery Act.




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




Operating
activities Net cash used in operations during the years
ended December 31, 2009, 2008, and 2007 was $8.5 million, $7.2 million and $5.4
million, respectively. The increase in net cash used in operations is mainly due
to the use of additional cash to support the growth in SIGA’s operations,
including the transition to a highly specialized R&D workforce, funds used
to support general corporate and litigation related legal fees, the stability,
packaging, and manufacturing of ST-246®, and clinical and pre-clinical testing
of our leading programs.




35




---



On December 31, 2009 and 2008, our accounts
receivable balance was $2.4 million and $2.0 million, respectively. The increase
in our account receivable balances reflects the expanded work performed during
November and December of 2009 under our two contracts with the NIAID. Funds
outstanding under these contracts were collected during January and February,
2010. Our accounts payable and accrued expenses balance was $4.2 million and
$3.0 million on December 31, 2009 and 2008, respectively. The increase of $1.2
million in our accounts payable and accrued expenses balance mainly reflects the
expanded work performed under our two contracts with the NIAID in November and
December, 2009.




Investing
activities Capital expenditures during the years ended
December 31, 2009, 2008, and 2007 were approximately $340,000 for each of
2009 and 2008, and $1.2 million in 2007. During the year ended December 31,
2009, we invested $5.0 million in U.S. Treasury bills that mature in April
2010.




Financing
activities Cash provided by financing activities was
$26.0 million, $3.0 million, and $2.9 million during the years ended December
31, 2009, 2008, and 2007, respectively. During the years ended December 31, 2009
and 2008, we received net proceeds of $7.4 and $3.2 million, respectively, from
exercises of options and warrants to purchase common stock.




In December 2009 we received net proceeds of
$18.6 million from the sale of 2,725,339 shares of common stock, par value
$0.0001 per share, for $7.35 per share, pursuant to subscription agreements with
the investors who participated in the offering.




Other On June 19, 2008, we entered into a letter
agreement (the “Letter Agreement”), with MacAndrews & Forbes, LLC
(“M&F”), a related party, for M&F’s commitment to invest (“the
Investment Commitment”), at SIGA’s discretion, up to $8 million over a one-year
period (the “Investment Period”) in exchange for (i) SIGA common stock at per
share price equal to the lesser of (A) $3.06 or (B) the average of the
volume-weighted average price per share for the 5 trading days immediately
preceding each funding date, and (ii) warrants to purchase 40% of the number of
SIGA shares acquired by M&F, exercisable at 115% of the common stock
purchase price on such funding date (the “Consideration Warrants”). The
Consideration Warrants will be exercisable for up to four years following the
issuance of such warrants. M&F has the option, during the Investment Period,
to invest in the Company under the same investment terms (the “Investment
Option”).




On April 29, 2009, SIGA and M&F entered
into a letter agreement (the "Extension Agreement") extending the Investment
Period of the Company’s Letter Agreement with M&F through June 19, 2010 and
increasing the number of draws pursuant to the Investment Commitment and the
Investment Option to no more than six. On April 30, 2009, we issued M&F
490,196 shares of common stock and 196,078 warrants to acquire common stock in
exchange for total proceeds of $1.5 million. The warrants are exercisable until
April 30, 2013, for an exercise price of $3.519 per share. On September 17, 2009
the Company issued M&F 326,797 shares of common stock and 130,719 warrants
to acquire common stock in exchange for total proceeds of $1.0 million. The
warrants are exercisable until September 17, 2013, for an exercise price of
$3.519 per share. As of December 31, 2009, $5.5 million of the commitment
remains outstanding.




We have incurred cumulative net losses and
expect to incur additional losses to perform further research and development
activities. We do not have commercial products and have limited capital
resources. We will need additional funds to complete the development of our
products. Our plans with regard to these matters include continued development
of our products as well as seeking additional capital through a combination of
collaborative agreements, strategic alliances, research grants, and future
equity and debt financing. Although we continue to pursue these plans, there is
no assurance that we will be successful in obtaining future financing on
commercially reasonable terms or that we will be able to secure funding from
anticipated government contracts and grants.




36




---



We believe that our existing funds combined
with cash flows primarily from continuing government grants and contracts will
be sufficient to support our operations for at least the next 12 months. The
success of the Company is dependent upon commercializing its research and
development programs and the Company’s ability to obtain adequate future
financing. If the Company is unable to raise adequate capital and/or achieve
profitable operations, future operations might need to be scaled back or
discontinued. The financial statements do not include any adjustments relating
to the recoverability of the carrying amount of recorded assets and liabilities
that might result from the outcome of these uncertainties.




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




37




---



Contractual Obligations, Commercial
Commitments and Purchase Obligations




As of December 31, 2009, our purchase
obligations are not material. We lease certain facilities and office space under
operating leases. Our obligations under such leases do not extend past December
31, 2011. Minimum future rental commitments under operating leases having
non-cancelable lease terms in excess of one year are as follows:




Year ended December 31,
            
            Lease obligations2010
            
            
            562,8082011
            
            
            573,077Total
            
            $
            1,135,885


Off-Balance Sheet Arrangements




SIGA does not have any off-balance
sheet arrangements.




Subsequent Events




The Company implemented FASB ASC 855 Subsequent Events (“ASC 855”) on June 15, 2009. This standard
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued.
The adoption of ASC 855 did not impact the Company’s financial position or
results of operations. The Company evaluated all events and transactions that
occurred after December 31, 2009. During this period, the Company did not have
any material recognizable or reportable subsequent events.




Item 7A. Quantitative and Qualitative
Disclosures About Market Risk




Our investment portfolio includes cash, cash
equivalents and short-term investments. Our main investment objectives are the
preservation of investment capital and the maximization of after-tax returns on
our investment portfolio. We believe that our investment policy is conservative,
both in the duration of our investments and the credit quality of the
investments we hold. We do not utilize derivative financial instruments,
derivative commodity instruments or other market risk sensitive instruments,
positions or transactions to manage exposure to interest rate changes.
Accordingly, we believe that, while the securities we hold are subject to
changes in the financial standing of the issuer of such securities and our
interest income is sensitive to changes in the general level of U.S. interest
rates, we are not subject to any material risks arising from changes in interest
rates, foreign currency exchange rates, commodity prices, equity prices or other
market changes that affect market risk sensitive instruments.




38




---



Item 8.  Financial Statements and Supplementary Data




Index to the Consolidated Financial Statements




Report of Independent Registered Public
      Accounting Firm
            
            40Consolidated Balance Sheets as of
      December 31, 2009 and 2008
            
            41Consolidated Statements of Operations
      for the years ended December 31, 2009, 2008, and 2007
            
            42Consolidated Statements of Changes in Stockholders’ Equity for the
      years ended December 31, 2009, 2008 and
      2007
            
            43Consolidated Statements of Cash Flows
      for the years ended December 31, 2009, 2008, and 2007
            
            44Notes to Consolidated Financial
      Statements
            
            45


39




---



Report of Independent Registered Public
Accounting Firm




To the Board of
Directors and Stockholders of SIGA Technologies, Inc.:




In our opinion, the
accompanying consolidated balance sheets and the related consolidated statements
of operations, of changes in stockholders' equity and of cash flows present
fairly, in all material respects, the financial position of SIGA Technologies,
Inc. and its subsidiary  at December 31,
2009 and December 31, 2008, and the results of their operations and their cash
flows for each of the three years in the period ended December 31,
2009  in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the
Company maintained, in all material respects, effective internal control over
financial reporting as of December 31, 2009, based on criteria established in Internal Control - Integrated
Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (COSO). The
Company's management is responsible for these financial statements, for
maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting,
included in Management's Report on Internal Control over Financial Reporting
appearing under Item 9A. Our responsibility is to express opinions on these
financial statements and on the Company's internal control over financial
reporting based on our integrated audits. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United
States). Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was
maintained in all material respects. Our audits of the financial statements
included examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. Our audit of internal control over financial
reporting included obtaining an understanding of internal control over financial
reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audits also included performing such other procedures as
we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.




As discussed in Note
2 to the consolidated financial statements, effective January 1, 2009, the
Company changed the way certain financial instruments that are settled in the
Company's common stock are accounted for.




A company’s internal
control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial
reporting includes those policies and procedures that (i) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect
the transactions and dispositions of the assets of the company; (ii) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use, or disposition of the
company’s assets that could have a material effect on the financial statements.




Because of its
inherent limitations, internal control over financial reporting may not prevent
or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.




/s/PRICEWATERHOUSECOOPERS LLP




New York, New
YorkMarch 09, 2010




40




---



SIGA TECHNOLOGIES, INC.


CONSOLIDATED BALANCE SHEETS


As of December 31, 2009 and 2008




December 31,
            
            December 31,2009
            
            2008ASSETSCurrent assetsCash and cash equivalents
            
            $
            14,496,313
            
            
            $
            2,321,519Short term
    investments
            
            
            4,999,300
            
            
            
            -Accounts receivable
            
            
            2,405,861
            
            
            
            1,959,608Deferred transaction
      costs
            
            
            -
            
            
            
            581,358Prepaid expenses
            
            
            1,585,072
            
            
            
            1,392,607Total current
      assets
            
            
            23,486,546
            
            
            
            6,255,092Property, plant and equipment, net
            
            
            1,225,656
            
            
            
            1,360,018Goodwill
            
            
            898,334
            
            
            
            898,334Other assets
            
            
            304,751
            
            
            
            283,856Total assets
            
            $
            25,915,287
            
            
            $
            8,797,300LIABILITIES AND STOCKHOLDERS'
      EQUITYCurrent
      liabilitiesAccounts payable
            
            $
            3,458,013
            
            
            $
            1,806,073Accrued expenses and
      other
            
            
            740,333
            
            
            
            1,210,496Deferred revenue
            
            
            1,570,234
            
            
            
            1,302,600Common stock
warrants
            
            
            3,260,000
            
            
            
            -Total current
      liabilities
            
            
            9,028,580
            
            
            
            4,319,169Common stock warrants
            
            
            6,398,216
            
            
            
            2,923,532Total
      liabilities
            
            
            15,426,796
            
            
            
            7,242,701Stockholders' equityCommon stock ($.0001 par
      value, 100,000,000 shares authorized,43,061,635 and 35,383,720
      issued and outstanding at December 31, 2009and December 31, 2008, respectively)
            
            
            4,306
            
            
            
            3,538Additional paid-in capital
            
            
            101,417,677
            
            
            
            72,156,614Accumulated deficit (See Note
      2)
            
            
            (90,933,492
            )
            
            
            (70,605,553
            )Total stockholders'
      equity
            
            
            10,488,491
            
            
            
            1,554,599Total liabilities and
      stockholders' equity
            
            $
            25,915,287
            
            
            $
            8,797,300


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




41




---



SIGA TECHNOLOGIES, INC.


CONSOLIDATED STATEMENTS OF
OPERATIONS


For the Years Ended December 31, 2009, 2008
and 2007




2009
            
            2008
            
            2007RevenuesResearch and
    development
            
            $
            13,811,858
            
            
            $
            8,065,618
            
            
            $
            6,698,717Operating expensesSelling, general and
      administrative
            
            
            7,533,167
            
            
            
            4,608,089
            
            
            
            3,704,058Research and development
            
            
            17,423,453
            
            
            
            11,612,892
            
            
            
            9,942,503Patent preparation
    fees
            
            
            734,165
            
            
            
            581,548
            
            
            
            515,263Total operating expenses
            
            
            25,690,785
            
            
            
            16,802,529
            
            
            
            14,161,824Operating loss
            
            
            (11,878,927
            )
            
            
            (8,736,911
            )
            
            
            (7,463,107
            )Decrease (increase) in fair value of
      commonstock rights and common stock warrants
            
            
            (5,740,449
            )
            
            
            43,482
            
            
            
            1,430,301Other income (expense), net
            
            
            1,437
            
            
            
            94,052
            
            
            
            394,249Net loss
            
            $
            (17,617,939
            )
            
            $
            (8,599,377
            )
            
            $
            (5,638,557
            )Weighted average shares outstanding:
      basic and diluted
            
            
            37,463,255
            
            
            
            34,732,625
            
            
            
            33,330,814Net loss per share: basic and diluted
            
            $
            (0.47
            )
            
            $
            (0.25
            )
            
            $
            (0.17
            )


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




42




---



SIGA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITYFor the
Years Ended December 31, 2009, 2008 and 2007




TotalCommon Stock
            
            Additional
            
            Accumulated
            
            Stockholders'Shares
            
            Amount
            
            Paid-in
      Capital
            
            Deficit
            
            EquityBalance at January 1, 2007
            
            32,452,210
            
            $
            3,245
            
            $
            63,646,224
            
            
            $
            (56,367,619
            )
            
            $
            7,281,850Issuance of common stock upon exercise
      of stockoptions and warrants
            
            1,485,339
            
            
            149
            
            
            3,013,841
            
            
            
            
            
            
            
            3,013,990Stock based compensation
            
            
            
            
            
            
            
            570,922
            
            
            
            
            
            
            
            570,922Net loss
            
            
            
            
            
            
            
            
            
            
            
            (5,638,557
            )
            
            
            (5,638,557
            )Balance at December 31, 2007
            
            33,937,549
            
            $
            3,394
            
            $
            67,230,987
            
            
            $
            (62,006,176
            )
            
            $
            5,228,205Issuance of common stock upon exercise of stockoptions and warrants
            
            1,446,171
            
            
            144
            
            
            3,186,220
            
            
            
            
            
            
            
            3,186,364Stock based compensation
            
            
            
            
            
            
            
            1,041,293
            
            
            
            
            
            
            
            1,041,293Fair value of warrants issued for financing commitment
            
            
            
            
            
            
            
            422,331
            
            
            
            
            
            
            
            422,331Fair value of exercised common stock warrants
            
            
            
            
            
            
            
            275,783
            
            
            
            
            
            
            
            275,783Net loss
            
            
            
            
            
            
            
            
            
            
            
            (8,599,377
            )
            
            
            (8,599,377
            )Balance at December 31, 2008
            
            35,383,720
            
            $
            3,538
            
            $
            72,156,614
            
            
            $
            (70,605,553
            )
            
            $
            1,554,599Issuance of common stock upon exercise of stockoptions and warrants
            
            4,952,576
            
            
            495
            
            
            7,419,737
            
            
            
            
            
            
            
            7,420,232Net proceeds from the issuance of 2,725,339 shares
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            -of common stock ($7.35 per share)
            
            2,725,339
            
            
            273
            
            
            18,565,147
            
            
            
            
            
            
            
            18,565,420Stock based compensation
            
            
            
            
            
            
            
            2,141,772
            
            
            
            
            
            
            
            2,141,772Fair value of exercised common stock warrants
            
            
            
            
            
            
            
            1,715,765
            
            
            
            
            
            
            
            1,715,765Recognition of deferred transaction costs
            
            
            
            
            
            
            
            (581,358
            )
            
            
            
            
            
            
            (581,358
            )Cumulative Effect of Accounting Change
            
            
            
            
            
            
            
            
            
            
            
            (2,710,000
            )
            
            
            (2,710,000
            )Net loss
            
            
            
            
            
            
            
            
            
            
            
            (17,617,939
            )
            
            
            (17,617,939
            )Balance at December 31, 2009
            
            43,061,635
            
            
            4,306
            
            
            101,417,677
            
            
            
            (90,933,492
            )
            
            
            10,488,491


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




43




---



SIGA TECHNOLOGIES, INC. CONSOLIDATED STATEMENTS OF CASH FLOWSFor
the Years Ended December 31, 2009, 2008 and 2007




2009
            
            2008
            
            2007Cash flows from operating
      activities:Net loss
            $
            (17,617,939
            )
            
            $
            (8,599,377
            )
            
            $
            (5,638,557
            )Adjustments to reconcile net loss to
      netcash used in operating
    activities:Depreciation
            
            475,091
            
            
            
            459,882
            
            
            
            1,083,705Amortization of intangible assets
            
            -
            
            
            
            -
            
            
            
            165,243(Increase) decrease in fair value of rights and warrants
            
            5,740,449
            
            
            
            (43,482
            )
            
            
            (1,430,301
            )Stock based compensation
            
            2,141,772
            
            
            
            1,041,293
            
            
            
            570,922Changes in assets and liabilities:Accounts receivable
            
            (446,253
            )
            
            
            (973,119
            )
            
            
            (369,457
            )Prepaid expenses
            
            (192,465
            )
            
            
            (1,262,492
            )
            
            
            10,917Other assets
            
            (20,895
            )
            
            
            (22,090
            )
            
            
            (15,565
            )Deferred revenue
            
            267,634
            
            
            
            1,302,600
            
            
            
            -Accounts payable and accrued expenses
            
            1,181,777
            
            
            
            898,899
            
            
            
            175,260Net cash used in operating activities
            
            (8,470,829
            )
            
            
            (7,197,886
            )
            
            
            (5,447,833
            )Cash flows from investing
      activities:Capital expenditures
            
            (340,729
            )
            
            
            (340,222
            )
            
            
            (1,243,068
            )Purchases of short term investments
            
            (4,999,300
            )
            
            
            -
            
            
            
            -Net cash used in investing activities
            
            (5,340,029
            )
            
            
            (340,222
            )
            
            
            (1,243,068
            )Cash flows from financing
      activities:Net proceeds from exercise of warrants and options
            
            7,420,232
            
            
            
            3,186,364
            
            
            
            3,013,990Net proceeds from the sale of 2,725,339 sharesof common stock ($7.35 per share)
            
            18,565,420
            
            
            
            -
            
            
            
            -Deferred transaction
      costs
            
            -
            
            
            
            (159,027
            )
            
            
            -Repayment of notes payable
            
            -
            
            
            
            -
            
            
            
            (130,329
            )Net cash provided by financing activities
            
            25,985,652
            
            
            
            3,027,337
            
            
            
            2,883,661Net (decrease) increase in cash and cash
      equivalents
            
            12,174,794
            
            
            
            (4,510,771
            )
            
            
            (3,807,240
            )Cash and cash equivalents at beginning of period
            
            2,321,519
            
            
            
            6,832,290
            
            
            
            10,639,530Cash and cash equivalents at end of
      period
            $
            14,496,313
            
            
            $
            2,321,519
            
            
            $
            6,832,290Cash paid for interest on notes
      payable
            $
            -
            
            
            $
            -
            
            
            $
            10,192


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




44




---



SIGA TECHNOLOGIES, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS




1. Organization and Basis of Presentation




Organization 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.




Basis of presentation The accompanying consolidated
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 capital
through a combination of collaborative agreements, strategic alliances, research
grants, and future equity and debt financing. Although management will continue
to pursue these plans, there is no assurance that the Company will be successful
in obtaining 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 funds
combined with cash flows primarily from continuing government grants and
contracts will be sufficient to support its operations for at least 12 months.
The success of the Company is dependent upon commercializing its research and
development programs and the Company’s ability to obtain adequate future
financing. If the Company is unable to raise adequate capital and/or achieve
profitable operations, future operations might need to be scaled back or
discontinued. The financial statements do not include any adjustments relating
to the recoverability of the carrying amount of recorded assets and liabilities
that might result from the outcome of these uncertainties.




2. Summary of Significant Accounting Policies




Use of Estimates The consolidated 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 goodwill, and tangible and intangible assets, and the
value of options and warrants granted or issued 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.




Cumulative Effect of Changes in Accounting
Principles On January 1, 2009, the
Company adopted the provisions of Financial Accounting Standards Board (“FASB”)
ASC 815-40, Derivatives and Hedging – Contracts in
Entity’s Own Equity (“ASC
815-40”). In accordance with ASC 815-40, the cumulative effect of the change in
accounting principle recorded by SIGA in connection with certain warrants to
acquire shares of the Company’s common stock (see Note 3), was recognized by
SIGA as an adjustment to the opening balance of accumulated deficit as
summarized in the following table:






As reported on
            
            As adjusted on
            
            Effect of change inDecember 31, 2008
            
            January 1, 2009
            
            accounting principleCommon stock warrants
            $
            -
            
            
            $
            2,710,000
            
            
            $
            2,710,000Accumulated deficit
            $
            (70,605,553
            )
            
            $
            (73,315,553
            )
            
            $
            (2,710,000
            )





45




---



Cash equivalents and short-term investments Cash and cash equivalents consist
primarily of cash in banks and highly liquid investments with original
maturities of 90 days or less.




Highly liquid investments with
maturities greater than 90 days and less than one year are classified as
short-term investments. Such investments are generally money market funds, bank
certificates of deposit, and U.S. Treasury bills.




As of December 31, 2009 the
Company’s short-term investments consisted of approximately $5.0 million
invested in United States Treasury Bills with a maturity date of April 1, 2010.
The Company classified this investment as available for sale. As of December 31,
2009 the unrealized gain relating to this investment was
immaterial.




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. The Company’s accounts payable consist of
trade payables due to creditors.




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 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. For the years
ended December 31, 2009 and 2008 accumulated depreciation was $4.5 million and
$4.1 million, respectively.




Revenue Recognition The Company recognizes revenue from
contract research and development and research payments in accordance with FASB
ASC 605 Revenue Recognition  (“ASC 605”) . In
accordance with ASC 605, revenue is recognized when persuasive evidence of an
arrangement exists, delivery has occurred, the fee is fixed or determinable,
collectability 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 in which 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 years ended December 31,
2009, 2008, and 2007, revenues from National Institutes of Health (“NIH”)
contracts and grants was 100%, 99.5%, and 71%, respectively, of total revenues
recognized by the Company.




Accounts Receivable Accounts receivable are recorded net
of provisions for doubtful accounts. At December 31, 2009 and 2008, 100% and
92%, respectively, of accounts receivables represented receivables from NIH. An
allowance for doubtful accounts is based on specific analysis of the
receivables. At December 31, 2009, 2008, and 2007, the Company had no allowance
for doubtful accounts.




46




---



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




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




The Company 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 FASB ASC 350-20 Intangibles - Goodwill and Other – Goodwill . The impairment review process compares the
fair value of the reporting unit in which goodwill resides to its carrying
value. The Company operates 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.




Income taxes Income taxes are
accounted for under the asset and liability method prescribed by FASB ASC 740 Income Taxes (“ASC 740”). 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.




The Company applies the provisions
of ASC 740 which prescribes a comprehensive model for the manner in which a
company should recognize, measure, present and disclose in its financial
statements all material uncertain tax positions that the Company has taken or
expects to take on a tax return.




The Company has no tax positions for
which it is reasonably possible that the total amounts of unrecognized tax
benefits will significantly increase or decrease within twelve months from
December 31, 2009. As of December 31, 2009, the only tax jurisdiction to which
the Company is subject is the United States. Open tax years relate to years in
which unused net operating losses were generated. Thus, the Company’s open tax
years extend back to 1995. In the event that the Company concludes that it is
subject to interest and/or penalties arising from uncertain tax positions, the
Company will present interest and penalties as a component of income taxes. No
amounts of interest or penalties were recognized in the Company’s Consolidated
Financial Statements as of December 31, 2009 and 2008, and for each of the years
in the three year period ended December 31, 2009.




Net loss per common share The Company computes, presents and
discloses earnings per share in accordance with ASC 260 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 unless the impact of such common shares is
anti-dilutive.




47




---



The Company incurred losses for the
years ended December 31, 2009, 2008, and 2007, and as a result, certain equity
instruments are excluded from the calculation of diluted loss per share. At
December 31, 2009, 2008, and 2007, outstanding options to purchase 6,249,917,
7,696,054, and 8,159,768, shares, respectively, of the Company’s common stock
with exercise prices ranging from $0.94 to $9.32 have been excluded from the
computation of diluted loss per share as the effect of such shares is
anti-dilutive. At December 31, 2009, 2008, and 2007, outstanding warrants to
purchase 4,301,752, 6,825,567, and 8,262,377, shares, respectively, of the
Company’s common stock, with exercise prices ranging from $1.18 to $4.99 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. Common stock warrants
which are classified as liabilities under the provisions of FASB ASC 815 Derivatives and Hedging (“ASC
815”) , are recorded at
their fair market value as of each reporting period.




The Company applies FASB ASC 820 Fair value Measurements and Disclosures (“ASC
820”) for financial assets
and liabilities that are required to be measured at fair value, and
non-financial assets and liabilities that are not required to be measured at
fair value on a recurring basis.




ASC 820 provides that the
measurement of fair value requires the use of techniques based on observable and
unobservable inputs. Observable inputs reflect market data obtained from
independent sources, while unobservable inputs reflect our market assumptions.
The inputs create the following fair value hierarchy:


- Level 1 – Quoted
  prices for identical instruments in active markets.
- Level 2 – Quoted prices for similar
  instruments in active markets; quoted prices for identical or similar
  instruments in markets that are not active; and model-derived valuations where
  inputs are observable or where significant value drivers are
  observable.
- Level 3 – Instruments where significant value
  drivers are unobservable to third parties.

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




December 31,
            
            December 31,2009
            
            2008Common stock warrants classified as
      current liabilities
            $
            3,260,000
            
            $
            -Common stock warrants classified as long term liabilities
            
            6,398,216
            
            
            2,923,532Total
            $
            9,658,216
            
            $
            2,923,532


ASC 820 applies to non-financial
assets and non-financial liabilities measured on a nonrecurring basis and was
effective January 1, 2009. The adoption of this standard had no impact on the
Company in 2009.




As of December 31, 2009, the Company
held approximately $5.0 million in United States Treasury Bills, classified as a
Level 1 security.  SIGA does not hold any Level 3 securities.




Share-based Compensation The Company accounts for its
stock-based compensation programs under the provisions of FASB ASC 718 Compensation – Stock
Compensation (“ASC 718”),
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. ASC
718 requires companies to estimate the fair value of share-based awards on the
grant date using an option pricing model. The value of the portion of the award
that is ultimately expected to vest is recorded as expense over the requisite
service periods in the Company’s consolidated statement of operations.




48




---



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 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 ASC 280 - Segment Reporting.




Recent accounting pronouncements In September 2009, the FASB issued
ASU 2009-13, Multiple Element Arrangements (“ASU 2009-13”). ASU 2009-13
addresses the determination of when the individual deliverables included in a
multiple arrangement may be treated as separate units of accounting. ASU 2009-13
also modifies the manner in which the transaction consideration is allocated
across separately identified deliverables and establishes definitions for
determining fair value of elements in an arrangement. This standard must be
adopted by us for new arrangements and material modifications to existing
arrangements no later than January 1, 2011 with earlier adoption permitted. We
are currently evaluating the impact, if any, that this standard update will have
on our consolidated financial statements.




3. Research Agreements




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




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




Effective September 1, 2008, the
Company was awarded a five-year, $55.0 million contract from the NIAID to
support the development of additional formulations and smallpox-related
indications for ST-246, the Company’s lead smallpox drug candidate.




In September 2008, SIGA was awarded
$20.0 million from the NIAID in supplemental funding to the Company’s existing
$16.5 million contract, to accelerate process development related to large-scale
manufacturing and packaging of ST-246® and commercial-scale validation. The term
of the contract was extended through September 28, 2011. On December 31, 2008,
the Company’s prepaid expenses included a deposit of $1.25 million paid to a
third party for the manufacturing of ST-246® for testing. In connection with the
deposit, and the receipt of reimbursement from the NIAID for such deposit, the
Company also recorded the corresponding deferred revenue. The amount recorded as
prepaid expense will be recognized as operating expense as the related
manufacturing takes place, and revenue will be recognized over the same period.




In September 2008, SIGA received a
two-year, $1.0 million Phase I grant from the NIH to fund lead optimization and
animal efficacy trials for the Company’s Dengue antiviral program.




In September 2007, we received a
two-year grant for a total of approximately $600,000 supporting our development
of ST-246® treatment of smallpox vaccine-related adverse events. In July 2007,
we were awarded a two-year grant for a total of $530,000 to support our Strep
program.




4. Stockholders’ Equity




On December 31, 2009, the Company's
authorized share capital consisted of 110,000,000 shares, of which 100,000,000
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.




49




---



2009
Financing On December 9, 2009, the Company
entered into Subscription Agreements for the sale of 2,725,339 shares of the
Company’s common stock, par value $0.0001 per share, at a purchase price of
$7.35 per share. Net proceeds to the Company were approximately $18.6 million.




2008 Financing On June 19, 2008, SIGA entered into
a letter agreement (the “Letter Agreement”), with MacAndrews & Forbes, LLC
(“M&F”), a related party, for M&F’s commitment to invest (the
“Investment Commitment”), at SIGA’s discretion, up to $8 million over a one-year
period (the “Investment Period”) in exchange for (i) SIGA common stock at per
share price equal to the lesser of (A) $3.06 or (B) the average of the
volume-weighted average price per share for the 5 trading days immediately
preceding each funding date, and (ii) warrants to purchase 40% of the number of
SIGA shares acquired by M&F, exercisable at 115% of the common stock
purchase price on such funding date (the “Consideration Warrants”). The
Consideration Warrants will be exercisable for up to 4 years following the
issuance of such warrants. M&F has the option, during the Investment Period,
to invest in the Company under the same investment terms (the “Investment
Option”).




On April 29, 2009, SIGA and M&F
entered into a letter agreement (the “Extension Agreement”) extending the
Investment Period of the Company’s Letter Agreement with M&F through June
19, 2010 and increasing the number of draws pursuant to the Investment
Commitment and the Investment Option to no more than six. On April 30, 2009 the
Company issued M&F 490,196 shares of common stock and 196,078 warrants to
acquire common stock in exchange for total proceeds of $1.5 million. The
warrants are exercisable until April 30, 2013, for an exercise price of $3.519
per share. On September 17, 2009 the Company issued M&F 326,797 shares of
common stock and 130,719 warrants to acquire common stock in exchange for total
proceeds of $1.0 million. The warrants are exercisable until September 17, 2013,
for an exercise price of $3.519 per share. As of December 31, 2009, $5.5 million
of the commitment remains outstanding.




In addition and in consideration for
the commitment of M&F, on June 19, 2008, M&F received warrants to
purchase 238,000 shares of SIGA common stock, exercisable at $3.06 (the
“Commitment Warrants”). The Commitment Warrants are exercisable until June 19,
2012. The Company initially recorded all costs related to the Letter Agreement,
including the fair value of the Commitment Warrants, as deferred transaction
costs. Upon the issuance of common stock and warrants to purchase shares of
common stock on April 30, 2009, the Company recorded a reduction in its
additional paid-in capital for the effect of the related transaction
costs.




On January 1, 2009, the Company
adopted ASC 815. In accordance with the provisions ASC 815, the warrants
issuable to M&F under the Letter Agreement, which if issued, could be
exercised either by payment of cash or cashless exercise, would no longer be
considered “indexed to the Company’s own stock” and therefore would be subject
to the scope of ASC 815. As a result, such warrants meet the definition of a
derivative and must be recorded on the Company's balance sheet. The Company
applied the Black-Scholes model to calculate the fair value of the respective
derivative instruments using the Monte Carlo simulation to estimate the price of
the Company’s common stock on the derivative’s expiration date. The expected
volatility was estimated using the Company’s historical volatility. On January
1, 2009, the Company recorded the fair value of the warrants, or $2.7 million,
as an adjustment to the opening balance of accumulated deficit. The Company
recorded a loss of $2.3 million, or $.05 per share, for the year ended December
31, 2009 representing the increase in the fair value of the warrants from
January 1, 2009 through December 31, 2009.




50




---



The following table summarizes the
changes in the warrant liability:




Balance on December 31, 2008
            $
            -Cumulative effect of the
      change in accounting principle recorded on January 1, 2009
            
            2,710,000The
      fair value of warrants issued to M&F in the fiscal year 2009
            
            (1,715,765
            )Increase in the fair value of
      the common stock warrants
            
            2,265,765Balance on
      December 31, 2009
            $
            3,260,000


2006
and 2005 Placements


In 2006 and 2005 the Company sold
shares of SIGA common stock and warrants to purchase shares of common stock. As
of December 31, 2009, 1,000,000 warrants issued in 2006 with an initial exercise
price of $4.99 per share and 579,192 warrants issued in 2005 with an initial
exercise price of $1.18 per share were outstanding. These warrants may be
exercised through and including the seventh anniversary of their respective
closing date.





The Company accounted for the
transactions under the provisions of ASC 815 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. ASC 815 also requires that any changes in the fair value of the
derivative instruments be reported in earnings or loss as long as the derivative
contracts are classified as assets or liabilities. At December 31, 2009, the
fair market value of the warrants issued in 2006 and 2005 was $3.6 million and
$2.8 million, respectively. The Company applied the Black-Scholes model to
calculate the fair values of the respective derivative instruments using the
contracted term of the warrants. 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 year ended December 31, 2009, SIGA
recorded a loss of $3.4 million as a result of a net increase in the 2005 and
2006 placement warrants’ fair value.




5. Stock option plan and warrants




Amended and Restated 1996 Incentive and
Non-Qualified Stock Option Plan 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.




51




---



For the years ended December 31,
2009, 2008, and 2007 the Company recorded compensation expense of $2.1 million,
$1.0 million, and $571,000 respectively, related to stock options. The total
fair value of options vested during each year was $1.4 million, $595,000, and
$315,000 for 2009, 2008, and 2007, respectively. The total compensation cost not
yet recognized related to non-vested awards at December 31, 2009 is $1.9
million. The weighted average period over which total compensation cost is
expected to be recognized is 1.67 years.




SIGA calculated the fair value of
options awarded during the three years ended December 31, 2009, 2008, and 2007
using the Black-Scholes model with the following weighted average assumptions:




Weighted Average Assumptions
            
            2009
            
            2008
            
            2007Expected volatility
            
            81.40%
            
            68.50%
            
            66.00%Dividend Yield
            
            0.00%
            
            0.00%
            
            0.00%Risk-free interest rate
            
            2.21%
            
            2.79%
            
            4.61% - 4.83%Expected holding
    period
            
            5 Yrs
            
            5 Yrs
            
            5 Yrs


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 and
expectation of employee exercise behavior in the future giving consideration to
the contractual terms of the award.




Stock options activity under the
Plan is summarized as follows:




Options outstanding at January 1,
      2007
            
            7,546,145
            
            
            
            2.07Granted
            
            935,000
            
            
            
            3.17Forfeited
            
            (92,086
            )
            
            
            2.29Expired
            
            (50,393
            )
            
            
            5.04Exercised
            
            (368,898
            )
            
            
            1.71Options outstanding at December 31, 2007
            
            7,969,768
            
            
            $
            2.28Granted
            
            900,000
            
            
            
            2.93Forfeited
            
            (26,167
            )
            
            
            3.20Expired
            
            (190,834
            )
            
            
            4.34Exercised
            
            (1,146,713
            )
            
            
            2.45Options outstanding at December 31,
      2008
            
            7,506,054
            
            
            $
            2.28Granted
            
            568,500
            
            
            
            6.48Forfeited
            
            (290,001
            )
            
            
            3.25Expired
            
            -
            
            
            
            -Exercised
            
            (1,659,636
            )
            
            
            1.76Options outstanding at December 31, 2009
            
            6,124,917
            
            
            $
            2.76


As of December 31, 2009, options
awarded outside of the plan included 125,000 options granted in May 2000 to the
Company’s Chief Scientific Officer, with an exercise price of $2.00 per share.
These options expire on June 16, 2010. 65,000 options that were awarded outside
of the plan to a consultant in July 2000, were exercised in 2009 for total
proceeds of $107,000 to the Company.




52




---



WeightedAverageNumber of
            
            Intrinsic
  ValueShares
            
            ($)Nonvested options at December 31,
      2008
            
            1,452,291
            
            0.41Nonvested options at December 31, 2009
            
            1,180,165
            
            2.22Options vested during 2009
            
            340,627
            
            2.88Options available for future grant at December 31, 2009
            
            584,464Weighted average fair value of options
      granted during 2009
            $
            4.29Weighted average fair value of options granted during
2008
            $
            1.72Weighted average fair value of options
      granted during 2007
            $
            1.87Weighted average fair value of options forfeited during
    2009
            $
            3.25Weighted average fair value of options
      forfeited during 2008
            $
            1.70Weighted average fair value of options forfeited during
    2007
            $
            1.33Total intrinsic value of options
      exercised during 2009
            $
            6,959,180Total intrinsic value of options exercised during 2008
            $
            937,630Total intrinsic value of options
      exercised during 2007
            $
            506,000


The following table summarizes
information about options outstanding at December 31, 2009:




Number of
            
            Weighted
            
            
            
            Number Fully
            
            Number ofOptions
            
            Average
            
            
            
            Vested &
            
            Options
            
            Weighted
            
            AggregateRange of
            
            Outstanding at
            
            Remaining
            
            Weighted
            
            Exercisable at
            
            Expected to Vest
            
            Average
            
            Intrinsic Value
    atExercise
            
            December 31,
            
            Contractual
            
            Average Exercise
            
            December 31,
            
            at December 31,
            
            Exercise
            
            December 31,Price($)
            
            2009
            
            Life (Years)
            
            Price ($)
            
            2009
            
            2009
            
            Price ($)
            
            20090.94 - 1.85
            
            1,298,750
            
            4.59
            
            1.36
            
            1,298,750
            
            -
            
            1.36
            
            $
            5,764,7402.00 - 2.73
            
            3,181,000
            
            2.75
            
            2.47
            
            2,747,667
            
            414,894
            
            2.47
            
            
            9,146,9523.10 - 5.95
            
            1,311,667
            
            7.84
            
            3.66
            
            788,336
            
            501,063
            
            3.74
            
            
            1,635,5776.10 - 9.32
            
            333,500
            
            9.52
            
            7.35
            
            110,000
            
            213,990
            
            6.17
            
            
            -6,124,917
            
            
            
            
            
            4,944,753
            
            1,129,947
            
            
            
            $
            16,547,269


On December 31, 2009 and 2008,
500,000 and 600,000 of the Company’s outstanding options, respectively, were
subject to specific performance conditions which included revenue thresholds and
regulatory approval of our lead drug candidate. None of these options were
vested on December 31, 2009.




53




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The following tables summarize
information about warrants outstanding at December 31, 2009:




Weighted AverageNumber of Warrants
            
            Exercise PriceOutstanding at January 1, 2007
            9,441,915
            
            
            $
            2.52Granted
            -
            
            
            
            -Exercised
            (1,179,538
            )
            
            
            2.26Canceled / Expired
            -
            
            
            
            -Outstanding at December 31,
    2007
            8,262,377
            
            
            $
            2.55Granted
            238,000
            
            
            
            3.06Exercised
            (595,624
            )
            
            
            2.62Canceled / Expired
            (1,079,186
            )
            
            
            3.34Outstanding at December 31,
    2008
            6,825,567
            
            
            $
            2.44Granted
            326,797
            
            
            
            3.52Exercised
            (2,850,612
            )
            
            
            1.87Canceled / Expired
            -
            
            
            
            -Outstanding at December 31,
    2009
            4,301,752
            
            
            $
            2.59


Number ofWarrants
            
            Exercise PriceOutstanding
            
            $2,469,554
            
            1.18 - 1.90564,797
            
            3.06 - 3.521,267,401
            
            4.994,301,752


In November 2009, a holder exercised
warrants to acquire 1,824,412 shares of the Company’s common stock that were
settled in a cashless transaction in exchange for 1,379,747 shares of SIGA
common stock. This exercise is included in the summary above.




6. Related Parties




On June 19, 2008, SIGA entered into
a Letter Agreement with M&F, a related party investor, for M&F’s
commitment to invest, at SIGA’s discretion, up to $8 million over a one-year
period in exchange for (i) SIGA common stock, and (ii) warrants to purchase 40%
of the number of SIGA shares acquired by the Investor. M&F has the option,
during the Investment Period, to invest in the Company under the same investment
terms (see Note 4).




On December 1, 2009 the Company
entered into an Office Service Agreement with an affiliate of M&F to occupy
office space for approximately $8,000 per month. The agreement is cancelable
upon 60 days notice by SIGA or the affiliate.




Additionally, a member of the
Company’s Board of Directors is a member of the Company’s outside counsel.
During the years ended December 31, 2009, 2008, and 2007, the Company incurred
costs of $1.8 million, $1.0 million, and $409,000, respectively, related to
services provided by the outside counsel. On December 31, 2009, the Company’s
outstanding payables included $612,000 payable to the outside
counsel.




54




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7. Property, Plant and Equipment




Property, plant and equipment
consisted of the following at December 31, 2009 and 2008:




2009
            
            2008Laboratory equipment
            $
            2,301,312
            
            
            $
            2,104,673Leasehold improvements
            
            2,868,849
            
            
            
            2,868,848Computer equipment
            
            229,209
            
            
            
            136,540Furniture and fixtures
            
            310,898
            
            
            
            310,8995,710,268
            
            
            
            5,420,960Less - accumulated
      depreciation
            
            (4,484,612
            )
            
            
            (4,060,942
            )Property, plant and equipment,
    net
            $
            1,225,656
            
            
            $
            1,360,018


8. Accrued Expenses and Other




Accrued expenses and other consisted
of the following at December 31, 2009 and 2008:




2009
            
            2008Vacation
            $
            159,591
            
            $
            158,000Bonuses
            
            194,700
            
            
            292,000Legal
            
            55,000
            
            
            360,000Other
            
            331,042
            
            
            400,496Total Accrued Expenses and
    Other
            $
            740,333
            
            $
            1,210,496


9. Income Taxes




The Company has incurred losses
since inception, which have generated net operating loss carryforwards of
approximately $52.0 million at December 31, 2009 for federal and state income
tax purposes. These carryforwards are available to offset future taxable income
and begin expiring in 2010 for federal income tax purposes. As a result of a
previous change in stock ownership, the annual utilization of the net operating
loss carryforwards is subject to limitation. The net operating loss
carryforwards and temporary differences, arising primarily from deferred
research and development expenses and differences in the treatment of intangible
assets, result in a noncurrent deferred tax asset at December 31, 2009 and 2008
of approximately $28.3 and $24.5 million, respectively. In consideration of the
Company’s accumulated losses and the uncertainty of its ability to utilize this
deferred tax asset in the future, the Company has recorded a valuation allowance
of an equal amount on such date to fully offset the deferred tax asset.




At December 31, 2009 and 2008, the
Company’s deferred tax assets (in thousands) are comprised of the following:




2009
            
            2008Net Operating Losses
            
            20,286
            
            
            
            17,271Deferred Research and Development Costs
            
            6,613
            
            
            
            5,607Amortization of Acquired
Assets
            
            571
            
            
            
            683Stock Based Compensation
            
            -
            
            
            
            -Depreciation of Property Plant and
      Equipment
            
            866
            
            
            
            984Total Deferred Tax Asset
            
            28,336
            
            
            
            24,545Valuation Allowance
            
            (28,336
            )
            
            
            (24,545
            )Net Deferred Tax Assets
            $
            -
            
            
            $
            -


55




---



Following is a summary of changes in
our valuation allowance for deferred tax assets as of and for the years ended
December 31, 2009, 2008, and 2007 (in thousands):




Additions ChargedBalance at
            
            to Costs and
            
            
            
            
            Balance at End ofDecember 31,
            
            Beginning of
      Year
            
            Expenses
            
            Deductions
            
            Year2009
            
            $
            24,545
            
            $
            3,903
            
            $
            112
            
            $
            28,3362008
            
            $
            21,621
            
            $
            3,020
            
            $
            96
            
            $
            24,5452007
            
            $
            19,057
            
            $
            2,603
            
            $
            39
            
            $
            21,621


For the years ended December 31,
2009 and 2008, the Company’s effective tax rate differs from the federal
statutory rate principally due to net operating losses and other temporary
differences for which no benefit was recorded, state taxes and other permanent
differences.




The Company’s effective tax rate
differs from the U.S. Federal Statutory income tax rate of 34% as follows:




2009
            
            2008Statutory federal income tax
    rate
            -34.00
            %
            
            -34.00
            %State tax benefit, net of federal taxes
            -2.77
            %
            
            -4.84
            %Other
            15.21
            %
            
            3.95
            %Valuation allowance on deferred tax assets
            21.56
            %
            
            34.89
            %Effective tax rate
            0.00
            %
            
            0.00
            %


10. Commitments and Contingencies




Operating lease
commitments As of December 31, 2009, 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:




Year ended December 31,
            
            Lease obligations2010
            
            
            562,8082011
            
            
            573,077Total
            
            $
            1,135,885


Other In December 2006, PharmAthene, Inc.
(“PharmAthene”) filed an action against us in the Delaware Court of Chancery,
captioned PharmAthene, Inc. v. SIGA Technologies,
Inc ., C.A. No. 2627-N. In
its amended complaint, PharmAthene asks the Court to order us to enter into a
license agreement with PharmAthene with respect to ST-246®, as well as issue a
declaration that we are obliged to execute such a license agreement, and award
damages resulting from our supposed breach of that obligation. PharmAthene also
alleges that we breached an obligation to negotiate such a license agreement in
good faith, as well as seeks damages for promissory estoppel and unjust
enrichment based on supposed information, capital and assistance that
PharmAthene allegedly provided to us during the negotiation process. In January
2008, the Court of Chancery denied our motion to dismiss the original complaint
and discovery proceeded. In May 2009, PharmAthene amended its complaint with
respect to its claim for breach of an obligation to negotiate in good faith, and
we filed our answer to the amended complaint and counterclaim denying the new
claim and asserting defenses.




PharmAthene has submitted an expert report
asserting several alternative theories of damages, including amounts in a wide
range of up to one billion dollars. We believe that the expert’s damages
analyses are flawed and methodologically unsound. We also continue to believe
that we have meritorious defenses to the claims. No trial date has been set. It
is not currently possible to estimate a range of loss, if any.




56




---



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 other 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.




11. Financial Information By Quarter (Unaudited) (in thousands, except for
per share data)




2009 For The Quarter
    Ended
            
            March 31,
            
            June 30,
            
            September 30,
            
            December 31,
            
            TotalRevenues
            
            $
            1,926
            
            
            $
            4,009
            
            
            $
            3,922
            
            
            $
            3,955
            
            
            $
            13,812Selling, general & administrative
            
            $
            2,060
            
            
            $
            1,802
            
            
            $
            1,522
            
            
            $
            2,149
            
            
            $
            7,533Research and development
            
            $
            2,697
            
            
            $
            4,713
            
            
            $
            4,828
            
            
            $
            5,185
            
            
            $
            17,423Patent preparation fees
            
            $
            109
            
            
            $
            84
            
            
            $
            191
            
            
            $
            350
            
            
            $
            734Operating loss
            
            $
            (2,940
            )
            
            $
            (2,590
            )
            
            $
            (2,619
            )
            
            $
            (3,730
            )
            
            $
            (11,879
            )Net income (loss)
            
            $
            (6,885
            )
            
            $
            (10,353
            )
            
            $
            (1,429
            )
            
            $
            1,049
            
            
            $
            (17,618
            )Net loss per share: basic and
      diluted
            
            $
            (0.19
            )
            
            $
            (0.28
            )
            
            $
            (0.04
            )
            
            $
            0.02
            
            
            $
            (0.47
            )Market price range for common stockHigh
            
            $
            5.86
            
            
            $
            8.88
            
            
            $
            8.63
            
            
            $
            10.09
            
            
            $
            10.09Low
            
            $
            3.15
            
            
            $
            4.73
            
            
            $
            6.25
            
            
            $
            4.83
            
            
            $
            3.152008 For The Quarter
    Ended
            
            March 31,
            
            June 30,
            
            September 30,
            
            December 31,
            
            TotalRevenues
            
            $
            1,983
            
            
            $
            1,732
            
            
            $
            1,863
            
            
            $
            2,488
            
            
            $
            8,066Selling, general & administrative
            
            $
            1,005
            
            
            $
            1,165
            
            
            $
            945
            
            
            $
            1,493
            
            
            $
            4,608Research and development
            
            $
            2,836
            
            
            $
            2,500
            
            
            $
            2,853
            
            
            $
            3,424
            
            
            $
            11,613Patent preparation fees
            
            $
            130
            
            
            $
            134
            
            
            $
            198
            
            
            $
            120
            
            
            $
            582Operating loss
            
            $
            (1,988
            )
            
            $
            (2,067
            )
            
            $
            (2,134
            )
            
            $
            (2,548
            )
            
            $
            (8,737
            )Net income (loss)
            
            $
            (858
            )
            
            $
            (3,141
            )
            
            $
            (3,029
            )
            
            $
            (1,571
            )
            
            $
            (8,599
            )Net loss per share: basic and
      diluted
            
            $
            (0.03
            )
            
            $
            (0.09
            )
            
            $
            (0.09
            )
            
            $
            (0.04
            )
            
            $
            (0.25
            )Market price range for common stockHigh
            
            $
            3.06
            
            
            $
            3.80
            
            
            $
            4.00
            
            
            $
            3.57
            
            
            $
            4.00Low
            
            $
            1.93
            
            
            $
            2.18
            
            
            $
            2.36
            
            
            $
            2.19
            
            
            $
            1.93


57




---



Item 9.  Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure




None.




Item 9A. Controls and Procedures




Management’s Responsibility for
Financial Statements Our management is responsible for the
integrity and objectivity of all information presented in this annual report.
The consolidated financial statements were prepared in conformity with
accounting principles generally accepted in the United States of America and
include amounts based on management’s best estimates and judgments. Management
believes the consolidated financial statements fairly reflect the form and
substance of transactions and that the financial statements fairly represent the
Company’s financial position and results of operations.




Disclosure Controls and
Procedures We have established disclosure controls and
procedures to ensure that material information relating to the Company,
including its consolidated subsidiaries, is made known to the officers who
certify the Company’s financial reports and to other members of senior
management and the Board of Directors. Based on their evaluation as of December
31, 2009, our chief executive officer and chief financial officer have concluded
that the Company’s disclosure controls and procedures (as defined in Rules
13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended)
are effective to ensure that the information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized and reported within
the time periods specified in Securities and Exchange Commission rules and
forms, and that such information is accumulated and communicated to the
Company’s management, including its chief executive office and chief financial
officer, as appropriate to allow timely decisions regarding required disclosure.




Management’s Report on Internal
Control over Financial
Reporting Management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is
defined in Rule 13a-15(f) or Rule 15d-15(f) of the Exchange Act. Our internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements prepared for external purposes in accordance with generally
accepted accounting principles. Our internal control over financial reporting
includes those policies and procedures that (a) pertain to the maintenance of
records that, in reasonable detail, accurately and fairly reflect the
transactions and disposition of the Company’s assets; (b) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures are being made only in accordance
with authorizations of management and the directors of the Company; and (c)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company's assets that could
have a material effect on the financial statements.




Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.




Management conducted an evaluation of the
effectiveness of the Company's internal control over financial reporting as of
December 31, 2009 based on the framework set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this evaluation, management
concluded that the Company's internal control over financial reporting was
effective as of December 31, 2009.




The effectiveness of our internal control over
financial reporting as of December 31, 2009 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as
stated in their report which is included in this Form 10-K.




58




---



Changes in Internal Control over
Financial Reporting There were no changes in our internal control
over financial reporting during the quarter ended December 31, 2009 that have
materially affected, or are reasonably likely to materially affect our internal
control over financial reporting.




Item 9B. Other Information




None.




59




---



PART III




Item 10.  Directors, Executive Officers, and Corporate
Governance of the Registrant




Information required by this item is
incorporated by reference from our Proxy Statement for the 2010 Annual Meeting
of Shareholders.




Item 11.  Executive Compensation




Information required by this item is
incorporated by reference from our Proxy Statement for the 2010 Annual Meeting
of Shareholders.




Item 12.  Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters




Information required by this item is
incorporated by reference from our Proxy Statement for the 2010 Annual Meeting
of Shareholders.




Equity Compensation Plan
Information The following table sets forth certain
compensation plan information with respect to both equity compensation plans
approved by security holders and equity compensation plans not approved by
security holders as of December 31, 2009:




Number of securitiesremaining available forNumber of securities
            
            
            
            
            future issuance underto be issued upon
            
            Weighted-average
            
            equity compensationexercise of
            
            exercise price of
            
            plans (excludingoutstanding options,
            
            outstanding options,
            
            securities reflected inPlan Category
            
            warrants and rights
            
            warrants and rights
            
            column (a))(a)
            
            (b)
            
            (c)Equity compensation plansapproved by security holders
    (1)
            
            6,124,917
            
            $
            2.76
            
            584,464Equity compensation plans notapproved by security holders
            
            125,000
            
            $
            2.00
            
            -Total
            
            6,249,917
            
            $
            2.74
            
            584,464


(1)
            
            SIGA
      Technologies, Inc., Amended and Restated 1996 Incentive and Non-Qualified
      Stock Option Plan.




As of December 31, 2009, options
awarded outside of the Company’s equity compensation plan included 125,000
options awarded to an employee. In May 2000, the Company awarded its Chief
Scientific Officer options to acquire 125,000 shares of the Company’s common
stock at an exercise price of $2.00 per share. In July 2000, the Company entered
into an agreement with a consultant to serve as the Company’s public relations
agent and awarded the consultant options to acquire 65,000 shares of the
Company’s common stock. All of the 65,000 consultant options were exercised in
2009.




60




---



Item 13.  Certain Relationships and Related
Transactions, and Director Independence




Information required by this item is
incorporated by reference from our Proxy Statement for the 2010 Annual Meeting
of Shareholders.




Item 14.  Principal Accountant Fees and
Services




Information required by this item is
incorporated by reference from our Proxy Statement for the 2010 Annual Meeting
of Shareholders.




61




---



PART IV




Item 15. Exhibits and Financial
Statement Schedules




(a) (1) and (2). Financial Statements and
Financial Statements Schedule.




See Index to Financial Statements
under Item 8 in Part II hereof where these documents are listed.




(a) (3). Exhibits.




The following is a list of
exhibits:




ExhibitNo.
            
            Description3(a)
            
            Restated Articles of
      Incorporation of the Company (incorporated by reference to the Form S-3
      Registration Statement of the Company dated May 10, 2000 (No.
      333-36682)).3(b)
            
            Form of Certificate of
      Amendment of the Restated Certificate of Incorporation of SIGA
      Technologies, Inc. (incorporated by reference to the Proxy Statement on
      Schedule 14A of the Company dated June 15, 2007).3(c)
            
            Amended and Restated
      Bylaws of the Company (incorporated by reference to the Annual Report on
      Form 10-K of the Company for the year ended December 31, 2008), as amended
      by the Amendment to the Bylaws of the Company (incorporated by reference
      to the Current Report on Form 8-K of the Company filed March 12,
      2009).4(a)
            
            Form of Common Stock
      Certificate (incorporated by reference to the Form SB-2 Registration
      Statement of the Company dated March 10, 1997 (No.
  333-23037)).4(b)
            
            Warrant Agreement dated
      as of September 15, 1996 between the Company and Vincent A. Fischetti (1)
      (incorporated by reference to the Form SB-2 Registration Statement of the
      Company dated March 10, 1997 (No. 333-23037)).4(c)
            
            Warrant Agreement dated
      as of November 18, 1996 between the Company and David de Weese (1)
      (incorporated by reference to the Form SB-2 Registration Statement of the
      Company dated March 10, 1997 (No. 333-23037)).4(d)
            
            Warrant Agreement
      between the Company and Stefan Capital, dated September 9, 1999
      (incorporated by reference to the Annual Report on Form 10-KSB of the
      Company for the year ended December 31, 1999).4(e)
            
            Registration Rights
      Agreement, dated as of May 23, 2003, between the Company and Plexus
      Vaccine Inc. (incorporated by reference to the Current Report on Form 8-K
      of the Company filed on June 9, 2003).4(f)
            
            Registration Rights
      Agreement, dated as of August 13, 2003, between the Company and MacAndrews
      & Forbes Holdings Inc. (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on August 18, 2003).4(g)
            
            Form of Warrant to
      purchase shares of common stock of the Company, issued to MacAndrews &
      Forbes, LLC on June 19, 2008 (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on June 23,
  2008).


62




---



10(a)
            
            License and
      Research Support Agreement between the Company and The Rockefeller
      University, dated as of January 31, 1996; and Amendment to License and
      Research Support Agreement between the Company and The Rockefeller
      University, dated as of October 1, 1996(2) (incorporated by reference to
      the Form SB-2 Registration Statement of the Company dated March 10, 1997
      (No. 333-23037)).10(b)
            
            Research Agreement
      between the Company and Emory University, dated as of January 31, 1996(2)
      (incorporated by reference to the Form SB-2 Registration Statement of the
      Company dated March 10, 1997 (No. 333-23037)).10(c)
            
            Research Support
      Agreement between the Company and Oregon State University, dated as of
      January 31, 1996(2) (incorporated by reference to the Form SB-2
      Registration Statement of the Company dated March 10, 1997 (No.
      333-23037)).10(d)
            
            Letter Agreement
      dated as of March 5, 1999 to continue the Research Support Agreement
      (incorporated by reference to the Annual Report on Form 10-KSB of the
      Company for the year ended December 31, 1999).10(e)
            
            Option Agreement
      between the Company and Oregon State University, dated as of November 30,
      1999 and related Amendments to the Agreement (incorporated by reference to
      the Annual Report on Form 10-KSB of the Company for the year ended
      December 31, 1999).10(f)
            
            Clinical Trials
      Agreement between the Company and National Institute of Allergy and
      Infectious Diseases, dated as of July 1, 1997 (incorporated by reference
      to Amendment No. 1 to the Form SB-2 Registration Statement of the Company
      dated July 11, 1997 (No. 333-23037)).10(g)
            
            Research Agreement
      between the Company and The Research Foundation of State University of New
      York, dated as of July 1, 1997(2) (incorporated by reference to Amendment
      No. 1 to the Form SB-2 Registration Statement of the Company dated July
      11, 1997 (No. 333-23037)).10(h)
            
            Collaborative
      Research and License Agreement between the Company and Wyeth, dated as of
      July 1, 1997(2) (incorporated by reference to Amendment No. 3 to the Form
      SB-2 Registration Statement of the Company dated September 2, 1997 (No.
      333-23037)).10(i)
            
            Research
      Collaboration and License Agreement between the Company and The Washington
      University, dated as of February 6, 1998 (2) (incorporated by reference to
      the Annual Report on Form 10-KSB of the Company for the year ended
      December 31, 1997).10(j)
            
            Settlement
      Agreement and Mutual Release between the Company and The Washington
      University, dated as of February 17, 2000 (incorporated by reference to
      the Annual Report on Form 10-KSB of the Company for the year ended
      December 31, 1999).10(k)
            
            Technology
      Transfer Agreement between the Company and MedImmune, Inc., dated as of
      February 10, 1998 (incorporated by reference to the Annual Report on Form
      10-KSB of the Company for the year ended December 31, 1997).10(l)
            
            Option Agreement
      between the Company and Ross Products Division of Abbott Laboratories,
      dated February 28, 2000 (incorporated by reference to the Annual Report on
      Form 10-KSB of the Company for the year ended December 31,
  1999).10(m)
            
            Agreement between
      the Company and Oregon State University for the Company to provide
      contract research services to the University dated September 24, 2000
      (incorporated by reference to the Annual Report on Form 10-KSB of the
      Company for the year ended December 31,
2000).


63




---



10(n)
            
            License and
      Research Agreements between the Company and the Regents of the University
      of California dated December 6, 2000 (incorporated by reference to the
      Annual Report on Form 10-KSB of the Company for the year ended December
      31, 2000).10(o)
            
            Amended and
      Restated 1996 Incentive and Non-Qualified Stock Option Plan dated August
      15, 2001 (incorporated by reference to the Annual Report on Form 10-KSB of
      the Company for the year ended December 31, 2001), as amended (as set
      forth in the Current Report on Form 8-K of the Company filed on May 27,
      2005).10(p)
            
            Research and
      License Agreement between the Company and TransTech Pharma, Inc. dated
      October 1, 2002 (incorporated by reference to the Annual Report on Form
      10-KSB of the Company for the year ended December 31, 2002).10(q)
            
            Contract between
      the Company and the Department of the United States Army dated December
      12, 2002 (incorporated by reference to the Annual Report on Form 10-KSB of
      the Company for the year ended December 31, 2002).10(r)
            
            Contract between
      the Company and Four Star Group dated February 5, 2003 (incorporated by
      reference to the Annual Report on Form 10-KSB of the Company for the year
      ended December 31, 2002).10(s)
            
            Securities
      Purchase Agreement, dated as of August 13, 2003, between the Company and
      MacAndrews & Forbes Holdings Inc. (incorporated by reference to the
      Current Report on Form 8-K of the Company filed on August 18,
    2003).10(t)
            
            Letter Agreement
      dated October 8, 2003 among the Company, MacAndrews & Forbes Holdings
      Inc. and TransTech Pharma, Inc. (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on August 18, 2003).10(u)
            
            Non-Employee
      Director Compensation Summary Sheet (incorporated by reference to the
      Quarterly Report on Form 10-Q of the Company for the quarter ending March
      31, 2005).10(v)
            
            Director
      Compensation Program, effective April 21, 2005 (incorporated by reference
      to the Current Report on Form 8-K of the Company filed on April 26,
      2005).10(w)
            
            Service Agreement,
      dated as of April 27, 2005, between the Company and TransTech Pharma, Inc.
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on May 3, 2005).10(x)
            
            Master Security
      Agreement, dated as of April 29, 2005, between General Electric Capital
      Corporation and the Company (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on May 3, 2005).10(y)
            
            Agreement, dated
      as of September 14, 2005, between Saint Louis University and the Company
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on September 20, 2005).10(z)
            
            Agreement, dated
      as of September 22, 2005, between the United States Army Medical Research
      and Material Command and the Company (incorporated by reference to the
      Current Report on Form 8-K of the Company filed on September 27,
      2005).


64




---



10(aa)
            
            Securities
      Purchase Agreement, dated as of November 2, 2005, between Iroquois Master
      Fund Ltd., Cranshire Capital, L.P., Omicron Master Trust, Smithfield
      Fiduciary LLC and the Company (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on November 4, 2005).10(bb)
            
            Exclusive Finder’s
      Agreement, dated as of November 1, 2005, between the Shemano Group, Inc.
      and the Company (incorporated by reference to the Current Report on Form
      8-K of the Company filed on November 4, 2005).10(cc)
            
            Bridge Note
      Purchase Agreement, dated as of March 20, 2006, between the Company and
      PharmAthene, Inc. (incorporated by reference to the Current Report on Form
      8-K of the Company filed on March 22, 2006).10(dd)
            
            Security
      Agreement, dated as of March 20, 2006, between the Company and
      PharmAthene, Inc. (incorporated by reference to the Current Report on Form
      8-K of the Company filed on March 22, 2006).10(ee)
            
            Voting Agreement,
      dated as of June 8, 2006, among the Company, TransTech Pharma, Inc.,
      MacAndrews & Forbes, Inc., Howard Gittis, Donald G. Drapkin, James J.
      Antal, Thomas E. Constance, Mehmet C. Oz, Eric A. Rose and Paul G. Savas
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on June 13, 2006).10(ff)
            
            Agreement and Plan
      of Merger, dated as of June 8, 2006, among the Company, SIGA Acquisition
      Corp. and PharmAthene, Inc. (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on June 13, 2006).10(gg)
            
            8% Note, dated as
      of June 19, 2006, between the Company and PharmAthene, Inc. (incorporated
      by reference to the Current Report on Form 8-K of the Company filed on
      June 20, 2006).10(hh)
            
            Agreement, dated
      as of September 29, 2006, between SIGA Technologies, Inc. and the National
      Institute of Allergy and Infectious Diseases of the National Institutes
      for Health (incorporated by reference to the Quarterly Report on Form
      10-Q/A for the quarter ending September 30, 2006).10(ii)
            
            Securities
      Purchase Agreement, dated as of October 18, 2006, between the Company,
      Iroquois Master Fund Ltd., Cranshire Capital, L.P., Omicron Master Trust,
      Rockmore Investment Master Fund, Ltd., and Smithfield Fiduciary LLC
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on October 20, 2006).10(jj)
            
            Amended and
      Restated Employment Agreement, dated as of January 22, 2007, between the
      Company and Dennis E. Hruby (incorporated by reference to the Current
      Report on Form 8-K of the Company filed on January 22, 2007).10(kk)
            
            Letter Agreement,
      dated as of June 19, 2008, between the Company and MacAndrews &
      Forbes, LLC (incorporated by reference to the Current Report on Form 8-K
      of the Company filed on June 23, 2008).10(ll)
            
            Contract, dated
      September 1, 2008, between the Company and the National Institutes of
      Health, DHHS (incorporated by reference to the Quarterly Report on Form
      10-Q of the Company for the quarter ending September 30,
  2008).


65




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10(mm)
            
            Modification of
      Contract, dated September 17, 2008, between the Company and the National
      Institute of Allergy and Infectious Diseases of the National Institutes of
      Health (incorporated by reference to the Quarterly Report on Form 10-Q of
      the Company for the quarter ending September 30, 2008).10(nn)
            
            Employment
      Agreement, dated as of January 31, 2007, between the Company and Eric A.
      Rose (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on January 31, 2007), as amended and restated (as set forth
      in the Current Report on Form 8-K of the Company filed on November 17,
      2008).10(oo)
            
            Employment
      Agreement, dated January 22, 2007, between the Company and Ayelet Dugary
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on March 12, 2009).10(pp)
            
            Amendment to
      Employment Agreement, dated March 11, 2009, between the Company and Ayelet
      Dugary (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on March 12, 2009).10(qq)
            
            Letter Agreement,
      dated as of April 29, 2009, between the Company and Ayelet Dugary
      (incorporated by reference to the Current Report on Form 8-K of the
      Company filed on April 30, 2009).10(rr)
            
            Amendment to
      Employment Agreement, dated March 11, 2009, between the Company and Dennis
      E. Hruby (incorporated by reference to the Current Report on Form 8-K of
      the Company filed on March 12, 2009).10(ss)
            
            Extension Letter
      Agreement, dated April 29, 2009, between MacAndrews & Forbes LLC and
      the Company (incorporated by reference to the Current Report on Form 8-K
      of the Company filed on April 30, 2009).10(tt)
            
            Form of
      Consideration Warrants (incorporated by reference to the Current Report on
      Form 8-K of the Company filed on April 30, 2009).10(uu)
            
            Form of
      Subscription Agreement (incorporated by reference to the Current Report on
      Form 8-K of the Company filed on December 10, 2009).14
            
            The Company’s Code
      of Ethics and Business Conduct (incorporated by reference to the Annual
      Report on Form 10-KSB of the Company for the year ended December 31,
      2003).21
            
            Subsidiaries of
      the Registrant.23.1
            
            Consent of
      Independent Registered Public Accounting Firm.31.1
            
            Certification
      pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act
      of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002 – Chief Executive Officer.31.2
            
            Certification
      pursuant to Rules 13a-15(e) or 15d-15(e) under the Securities Exchange Act
      of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      2002 – Chief Financial Officer.32.1
            
            Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 – Chief Executive
  Officer.


66




---



32.2
            
            Certification
      Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002 – Chief Financial
  Officer.


(1)
            
            These
      agreements were entered into prior to the reverse split of the Company’s
      common stock and, therefore, do not reflect such reverse
  split.(2)
            
            Confidential information is omitted and identified by an * and
      filed separately with the SEC with a request for Confidential
      Treatment.




67




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SIGNATURES




Pursuant to the requirements of Section 13 or
15(d) 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: March 10, 2010
            By:
            
            /s/ Eric A. RoseEric A. Rose, M.D.Chief Executive
  Officer


Pursuant to the requirements of the Securities
Exchange Act of 1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.




Signature
            
            Title of Capacities
            
            Date/s/ Eric A. Rose, M.D.
            
            Chief Executive Officer and
            
            March 10, 2010Eric A. Rose, M.D.
            
            Chairman of the Board(Principal Executive Officer)/s/ Ayelet Dugary
            
            Chief Financial Officer
            
            March 10, 2010Ayelet Dugary
            
            (Principal Financial Officer andPrincipal Accounting Officer)/s/Steven L. Fasman
            
            Director
            
            March 10, 2010Steven L. Fasman/s/James J. Antal
            
            Director
            
            March 10, 2010James J. Antal/s/Thomas E. Constance
            
            Director
            
            March 10, 2010Thomas E. Constance/s/Scott Hammer, M.D.
            
            Director
            
            March 10, 2010Scott Hammer, M.D./s/Paul G. Savas
            
            Director
            
            March 10, 2010Paul G. Savas/s/Michael Weiner, M.D.
            
            Director
            
            March 10, 2010Michael Weiner, M.D./s/Michael J. Bayer
            
            Director
            
            March 10, 2010Michael J. Bayer/s/Bruce Slovin
            
            Director
            
            March 10, 2010Bruce Slovin/s/ Joseph Marshall
            
            Director
            
            March 10, 2010Joseph Marshall


68




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