ROCKVILLE, Md., March 31 /PRNewswire-FirstCall/ -- Paradigm Holdings, Inc. (OTC Bulletin Board: PDHO) ("Paradigm" or the "Company"), a provider of comprehensive information technology and business solutions for federal government enterprises, today provided an update for the fourth quarter ended December 31, 2008.

Fourth Quarter 2008 Highlights:

    --  Revenue of $8.2 million for the quarter ended December 31, 2008
    --  Gross profit of $1.9 million with gross margin expansion of 762 basis
        points to 23%
    --  EBITDA of $0.5 million


    --  Net loss of $0.01 per share

Peter B. LaMontagne, Paradigm President and CEO, commented, "We have been successful in our ongoing initiative to move away from small business set-aside contracts, in favor of higher-margin national and homeland security contracts."

Mr. LaMontagne continued, "Our focus on margin improvement in 2008 also resulted in sequential increases in Paradigm's gross margin percentages in each of the past three quarters. The 762 basis point improvement in gross margin for the fourth quarter of 2008, versus the same period last year, was achieved through the elimination of non-core business and lower margin contracts combined with our expanding focus on the national security sector. While this process of focusing on core growth markets resulted in a revenue decline in recent quarters, we are entering 2009 in a strong position to attempt to win new, higher margin business, and increase profitability."

Mr. LaMontagne concluded, "Paradigm remains focused on the core service areas where we see the most promising growth prospects across all of our customers: cyber forensics, information assurance and continuity of operations consulting. In 2008, we expanded in all three of these solution areas. In December 2008, we were selected as a sub-contractor for the Drug Enforcement Administration (DEA) to help combat the war on drugs through our technical and administrative support to SAVA, the prime contractor for these projects. More recently, Paradigm expanded its presence at the State Department on key information technology and information assurance programs as well as adding work involving infrastructure protection for the Washington Metropolitan Area Transit Authority. Despite the economic challenges the US faces, we believe that the need for cyber security and infrastructure protection support services remains strong."

Richard Sawchak, Chief Financial Officer, stated, "Revenue for the fourth quarter was $8.2 million compared to $13.3 million in the prior year. The decrease was due to the deliberate shift in our revenue mix towards higher margin services, as evidenced by a 762 basis point increase in our gross margin. Earlier this quarter, we secured $6.2 million through a private placement of preferred stock and warrants. This infusion of cash will be used to pay down debt and for general working capital purposes. With an enhanced balance sheet and a strong foothold within the national and homeland security sectors, we look forward to an active and successful year for the Company."

The Company's EBITDA was $0.5 million during the quarter ended December 31, 2008, as compared to approximately $0.5 million for the same period of 2007. The Company defines EBITDA as earnings before interest, taxes, depreciation and amortization, stock compensation and restructuring expense which includes 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 similar titled measures reported by other companies. The table below reconciles EBITDA, a non-GAAP measure, to net loss for the three and twelve months ended December 31, 2008 and 2007.


                                 Quarter Ended Dec. 31        Twelve Months
                                                              Ended Dec. 31
    (In thousands)                  2008       2007          2008        2007
    Net Loss                      $ (150)     $ (49)       $ (777)     $ (834)

    Adjustments:
       Income Tax (Benefit)
        Expense                      (87)        33          (342)       (245)
       Interest Expense, Net         308        220         1,042       1,184
       Depreciation & Amortization   120        173           588         530
       Stock Compensation            202        140           622         452
       Severance & Restructure       104         --           603         359

    EBITDA                          $497       $517       $ 1,736     $ 1,446

Revenue for the fourth quarter of 2008 was $8.2 million, compared to $13.3 million for the fourth quarter of 2007. The decline in revenue for the three months is attributable to a decrease in federal repair and maintenance services and the completion of certain small business set-aside programs in the second quarter of 2008, which was partially off-set by an increase in the higher margin federal service business. Net loss for the fourth quarter of 2008 was $149,763 or $0.01 per share versus a net loss of $48,708 or $0.00 per share in the fourth quarter of 2007.

The Company had approximately $5.9 million outstanding on its line of credit with Silicon Valley Bank as of December 31, 2008. The Company had an accumulated deficit of approximately $2.3 million and working capital deficit of $4.5 million as of December 31, 2008.

Subsequent to the end of the fourth quarter of 2008, Paradigm completed a $6.2 million private placement of preferred stock and warrants. The private placement consisted of 6,206 shares of Series A-1 Senior Preferred Stock, Class A Warrants to purchase up to an aggregate of approximately 79.6 million shares of common stock with an exercise price equal to $0.0780 per share, and Class B Warrants to purchase up to an aggregate of approximately 69.1 million shares of common stock at an exercise price of $0.0858 per share to a group of investors led by Hale Capital Partners LP. Among the use of proceeds, $2.1 million was used to pay off the promissory note issued in connection with the Company's acquisition of Trinity IMS, Inc., the Company paid fees and transaction costs of approximately $0.7 million and the remaining $3.4 million will be used to pay down debt and for general working capital purposes.

For additional details, please refer to the Company's annual report on Form 10-K 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.

The securities sold in the private placement have not yet been registered under the Securities Act, and may not be offered or sold in the United States in the absence of an effective registration statement or exemption from registration requirements. This news release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state.

(tables follow)





                             PARADIGM HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS


                                                 12/31/2008     12/31/2007
    ASSETS
    Current assets
       Cash and cash equivalents               $    52,257    $     7,771
       Accounts receivable - contracts, net      6,920,768      8,982,638
       Prepaid expenses                          1,033,837      1,078,529
       Prepaid corporate income taxes               47,092         74,207
       Deferred income tax assets                   60,269         68,567
       Other current assets                        554,610        346,785
    Total current assets                         8,668,833     10,558,497
    Property and equipment, net                    183,612        407,320
    Goodwill                                     3,991,605      3,969,249
    Intangible assets, net                       1,244,591      1,591,864
    Deferred income tax assets, net of
        current portion                            211,326             --
    Other non-current assets                       172,029        193,218
    Total Assets                               $14,471,996    $16,720,148
    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
       Bank overdraft                          $        --    $ 1,687,491
       Note payable - line of credit             5,949,983      5,268,698
       Note payable - promissory note            2,000,000      2,000,000
       Capital leases payable, current
        portion                                      1,578         30,436
       Accounts payable and accrued expenses     3,498,690      4,020,669
       Accrued salaries and related
        liabilities                              1,474,133      1,550,962
       Other current liabilities                   227,200        177,844
    Total current liabilities                   13,151,584     14,736,100
    Long-term liabilities
       Capital leases payable, net of
        current portion                                 --          1,889
       Deferred income taxes, net of current
        portion                                         --        220,802
       Other non-current liabilities               183,870        289,593
    Total liabilities                           13,335,454     15,248,384
    Commitments and contingencies
    Stockholders' equity
       Convertible preferred stock - $.01
        par value, 10,000,000 shares
        authorized, 1,800 shares
        issued and outstanding as of December
        31, 2008. Each share of convertible
        preferred stock will have a
        liquidation preference of $0.01 per
        share plus all accrued but unpaid
        dividends                                       18             18
       Common stock - $.01 par value,
        50,000,000 shares authorized,
        19,148,153 shares issued and
        outstanding as of December 31, 2008
        and 2007, respectively                     191,482        191,482
       Additional paid-in capital                3,215,400      2,773,547
       Accumulated deficit                      (2,270,358)    (1,493,283)
    Total stockholders' equity                   1,136,542      1,471,764
    Total liabilities and stockholders'
     equity                                    $14,471,996    $16,720,148




                              PARADIGM HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS


    Years Ended December 31,                        2008          2007

    Contract Revenue
       Service contracts                        $27,686,076   $26,779,136
       Repair and maintenance contracts          11,454,523    19,898,516
         Total contract revenue                  39,140,599    46,677,652
    Cost of revenue
       Service contracts                         21,144,744    23,034,607
       Repair and maintenance contracts           9,950,612    16,490,678
         Total cost of revenue                   31,095,356    39,525,285
    Gross margin                                  8,045,243     7,152,367
    Selling, general and administrative           8,125,585     6,940,483
    (Loss) income from operations                   (80,342)      211,884
    Other (expense) income
       Interest income                                2,793         1,975
       Interest expense                          (1,044,892)   (1,186,027)
       Other income                                   3,227         2,085
         Total other expense                     (1,038,872)   (1,181,967)

    Loss from continuing operations before
     income taxes                                (1,119,214)     (970,083)
    Benefit for income taxes                       (342,139)     (244,748)
    Loss from continuing operations                (777,075)     (725,335)
    Loss from operations of discontinued
     component, net of income tax benefits               --      (186,804)

    Gain on sale of discontinued
     operations, net of income taxes                     --        78,216
    Loss from discontinued operations, net
     of income taxes                                     --      (108,588)
    Net loss                                       (777,075)     (833,923)
    Dividends on preferred stock                    180,000        75,000
    Net loss attributable to common
       shareholders                              $ (957,075)   $ (908,923)

    Weighted average number of common
     shares:
       Basic                                     19,148,153    19,315,751
       Diluted                                   19,148,153    19,315,751

    Basic and diluted net loss per common
     share:
       Loss from continuing operations           $    (0.05)   $    (0.04)
       Loss from discontinued operations         $       --    $    (0.01)
       Net loss                                  $    (0.05)   $    (0.05)

SOURCE Paradigm Holdings, Inc.