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Paradigm Holdings Provides Business Update and Reports Financial Results for the Fourth Quarter of 2010

ROCKVILLE, Md., Mar 24, 2011 (BUSINESS WIRE) -- Paradigm Holdings, Inc. (OTCBB: PDHO) ("Paradigm" or the "Company"), a provider of comprehensive information technology and cybersecurity solutions for federal government enterprises, today provided an update for the fourth quarter and fiscal year ended December 31, 2010. Fourth Quarter 2010 Highlights: Revenues grew to $11.8 million and $35.0 million for the fourth quarter and full year of 2010, respectively Gross profit increased by 12.4% to $2.1 million for the fourth quarter of 2010, bringing the full year to gross margins of 21.5% of revenues EBITDA increased to $0.7 million, or 6% of revenues, for the fourth quarter of 2010 Net income for the fourth quarter of 2010 of $0.00 per diluted share driven in part by non-cash items Peter B. LaMontagne, Paradigm President and CEO, stated, "Our fourth quarter 2010 performance enables us to enter 2011 in a very positive position. We believe that our substantially more positive financial results indicate the continued success of our strategy to be a leading cybersecurity solution provider. For the second quarter in a row, we achieved both sequential and year-over-year revenue growth and increased profitability, along with our annualized revenue run-rate growing to more than $47 million. In addition, continued execution of our business development strategy has enabled us to add contract vehicles and new task orders which increase our distinct cyber-defense programs to nine. We believe that demand for cybersecurity services and sustained sharp focus on our strategy positions us well to grow over the longer-term." Richard Sawchak, Chief Financial Officer, stated, "Paradigm has emerged in 2011 in a much stronger position than where we started in 2010. Revenue growth, profitability and the fundamentals of our balance sheet have all improved. The 2010 year-over-year EBITDA trend is particularly noteworthy with more than a 50% increase over the full year of 2009. Also encouraging is that our growth is coming from markets, primarily cybersecurity and mission critical infrastructure, where we believe government spending trends appear to remain strong." The Company's EBITDA was $0.7 million during the quarter ended December 31, 2010, as compared to approximately $0.6 million for the same period of 2009. The Company defines EBITDA as earnings before interest, taxes, changes in the fair value of put warrants, depreciation and amortization, stock compensation and restructuring expenses which include the basket allowed under our senior credit facility and other actual restructuring costs. EBITDA is not a measure of performance calculated in accordance with accounting principles generally accepted in the United States ("GAAP"), and should not be considered in isolation of, or as a substitute for, earnings as an indicator of operating performance or cash flows from operating activities as a measure of liquidity. The Company believes the presentation of EBITDA is relevant and useful by enhancing the readers' ability to understand the Company's operating performance. The Company's management utilizes EBITDA as a means to measure performance. The Company's measurements of EBITDA may not be comparable to similarly titled measures reported by other companies. The table below reconciles EBITDA, a non-GAAP measure, to net income (loss) for the three and twelve months ended December 31, 2010 and 2009. Three Months Ended December 31 Twelve Months Ended December 31 2010 2009 2010 2009 Net Income (Loss) $ 130,564 $ (132,068 ) $ (792,010 ) $ (1,272,737 ) Adjustments: Interest Expense, net 771,562 549,956 2,712,231 1,935,646 Income Tax Expense (Benefit) 38,908 3,495 127,683 (85,127 ) Change in FV of Put Warrants (443,653 ) (18,006 ) (1,044,469 ) (481,092 ) Depreciation & Amortization 105,431 106,024 424,983 457,944 Stock Compensation 69,906 90,244 308,031 577,422 Restructuring Expense -- -- 493,816 325,000 EBITDA $ 672,718 $ 599,645 $ 2,230,265 $ 1,457,056 Revenue for the fourth quarter of 2010 was $11.8 million, compared to $7.8 million for the fourth quarter of 2009. The increase in revenue for the three months ended December 31, 2010 was attributable to an increase in our federal service contract revenue of $0.9 million driven by the expansion of existing service contracts and new contract wins in the cybersecurity practice area and an increase in new contract wins in the mission critical infrastructure practice area of $3.2 million, which was partially offset by a reduction in revenue on a federal repair and maintenance contract. Net income for the fourth quarter of 2010 was $0.1 million or $0.00 per diluted share versus net loss of $0.1 million or ($0.00) per diluted share in the fourth quarter of 2009. The increase in net income for the three months ended December 31, 2010 was mainly attributable to higher operating profit and change in fair value of put warrants which were partially offset by higher interest expenses. The Company had a $0.1 million working capital deficit and $3.1 million outstanding on its line of credit with Silicon Valley Bank and $0.1 million in cash as of December 31, 2010. For additional details, please refer to the Company's annual report on Form 10-K for the annual period ended December 31, 2010 as filed with the SEC. About Paradigm Holdings, Inc. Paradigm Holdings, Inc. (www.paradigmsolutions.com), is a provider of information technology (IT) and business solutions for U.S. Federal Government enterprises. Paradigm specializes in comprehensive information assurance solutions involving cyber security and forensics as well as continuity of operations and disaster recovery planning. The Company also provides systems engineering and IT infrastructure support solutions. Headquartered in Rockville, Maryland, the Company currently employs approximately 200 people. Safe Harbor Statement This press release may contain forward-looking information within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act") and Section 21E of the Securities Exchange Act of 1934, as amended, and is subject to the safe harbor created by those sections. Paradigm assumes no obligation to update the information contained in this press release. Future results for Paradigm may be affected by its ability to continue to implement its government technology solutions, its dependence on the federal government and state and local governments and other federal government contractors as its major customers, timely passage of components of the federal budget, timely obligations of funding by the federal and state governments, its dependence on procuring, pricing and performing short-term government contracts, its dependence on hiring and retaining qualified professionals, potential fluctuations in its quarterly operating results, including seasonal impacts, its dependence on certain key employees and its ability to timely and effectively integrate the businesses it may acquire. For further information about forward-looking statements and other Paradigm specific risks and uncertainties please refer to recent SEC filings for Paradigm, which are available at www.sec.gov. (tables follow) PARADIGM HOLDINGS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS December 31, 2010 December 31, 2009 ASSETS Current assets Cash and cash equivalents $ 94,746 $ 895,711 Accounts receivable -- contracts, net 5,333,319 5,519,150 Costs and earnings in excess of billings on uncompleted contracts 3,398,380 -- Restricted Cash 4,000,000 -- Prepaid expenses 1,214,542 873,934 Deferred income tax assets 50,837 24,114 Other current assets 842,717 473,670 Total current assets 14,934,541 7,786,579 Property and equipment, net 102,838 127,093 Goodwill 3,991,605 3,991,605 Intangible assets, net 550,045 897,318 Deferred financing costs, net 444,252 848,294 Deferred income tax assets, net of current portion 693,720 512,820 Other non-current assets 266,778 582,394 Total Assets $ 20,983,779 $ 14,746,103 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities Note payable -- line of credit $ 3,084,681 $ 3,643,653 Note payable -- promissory note, net of issuance discount 3,877,124 -- Accounts payable and accrued expenses 5,371,557 2,333,085 Accrued salaries and related liabilities 1,811,553 1,527,561 Corporate Income tax payable 114,294 98,686 Mandatorily redeemable preferred stock, current portion 600,000 500,000 Other current liabilities 176,669 178,333 Total current liabilities 15,035,878 8,281,318 Long-term liabilities Other non-current liabilities 67,365 126,348 Mandatorily redeemable preferred stock - $.01 par value, 10,000,000 shares authorized, 6,115 shares and 6,206 shares issued and outstanding as of December 31, 2010 and December 31, 2009, respectively 5,517,263 4,587,135 Put warrants 402,606 1,447,075 Total liabilities 21,023,112 14,441,876 Commitments and contingencies Common stock - $.01 par value, 250,000,000 shares authorized, 44,671,598 shares issued, of which 13,848,183 shares are held in the treasury as of December 31, 2010 and 50,000,000 shares authorized, 41,243,027 shares issued and outstanding as of December 31, 2009 308,236 412,431 Additional paid-in capital 3,987,536 3,434,891 Accumulated deficit (4,335,105 ) (3,543,095 ) Total stockholders' (deficit) equity (39,333 ) 304,227 Total liabilities and stockholders' equity $ 20,983,779 $ 14,746,103 PARADIGM HOLDINGS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Ended Twelve Months Ended Dec. 31, 2010 Dec. 31, 2009 Dec. 31, 2010 Dec. 31, 2009 Contract Revenue Service contracts $ 5,979,872 $ 5,124,292 $ 23,420,533 $ 21,329,633 Repair and maintenance contracts 5,859,054 2,635,818 11,540,584 10,846,501 Total contract revenue 11,838,926 7,760,110 34,961,117 32,176,134 Cost of revenue Service contracts 4,514,512 3,791,493 17,926,128 16,269,612 Repair and maintenance contracts 5,194,458 2,072,819 9,529,965 8,751,108 Total cost of revenue 9,708,970 5,864,312 27,456,093 25,020,720 Gross margin 2,129,956 1,895,798 7,505,024 7,155,414 Selling, general and administrative 1,632,575 1,492,421 6,501,589 7,058,724 Income from operations 497,381 403,377 1,003,435 96,690 Other income (expense) Interest income 11,234 7 18,608 15 Change in fair value of put warrants 443,653 18,006 1,044,469 481,092 Interest expense - mandatorily redeemable preferred stock (496,422 ) (436,785 ) (1,879,053 ) (1,387,008 ) Interest expense (286,374 ) (113,178 ) (851,786 ) (548,653 ) Total other expense (327,909 ) (531,950 ) (1,667,762 ) (1,454,554 ) Income (loss) from operations before income taxes 169,472 (128,573 ) (664,327 ) (1,357,864 ) Provision (benefit) for income taxes 38,908 3,495 127,683 (85,127 ) Net income (loss) 130,564 (132,068 ) (792,010 ) (1,272,737 ) Dividends on preferred stock -- -- -- 78,870 Net income (loss) attributable to common shareholders $ 130,564 $ (132,068 ) $ (792,010 ) $ (1,351,607 ) Weighted average number of common shares: Basic 40,055,537 41,243,027 42,089,012 37,535,548 Diluted 40,055,537 41,243,027 42,089,012 37,535,548 Net income (loss) per common share: Basic $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.04 ) Diluted $ 0.00 $ (0.00 ) $ (0.02 ) $ (0.04 ) SOURCE: Paradigm Holdings, Inc. Paradigm Solutions Corporation Richard Sawchak, 240-283-3404

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