ROCKVILLE, Md., Nov. 17 /PRNewswire-FirstCall/ -- Paradigm Holdings, Inc. (OTC Bulletin Board: PDHO) ("Paradigm"), a provider of comprehensive information technology and business solutions for federal government enterprises, today provided a business update for the third quarter ended September 30, 2008.



    Third Quarter 2008 Highlights:

    -- Revenues of $9.6 million for the quarter ended September 30, 2008
    -- Net loss of $0.01 per share
    -- Gross profit of $2.0 million
    -- Gross margin increased 220 basis points to 21.1%
    -- EBITDA of $0.3 million

Peter B. LaMontagne, President and CEO, stated, "With the transition to a pure-play federal government IT services provider now behind us, we have begun to focus on the growth of our existing federal government agency client base through our newly expanded business development team in addition to recent acquisitions. The founding of an internal cyber forensics training academy has provided us with new opportunities to capitalize on the mounting needs of the U.S. government to protect against cyber threats while also providing employees incentive to grow within our company."

Mr. LaMontagne continued, "Excluding the small business set-aside program we had been historically active in, our core revenues have increased over the past two years. At the end of the third quarter, small business set-aside revenues were at an all-time low for Paradigm. Although this trend toward full and open business has manifested itself in lower total revenue levels, the transition out of these small business programs is an important milestone. At the same time, we remain focused on keeping our expenses in line as we increase our higher margin national and homeland security focus. As a result, we achieved a 220 basis point increase in gross margins and positive cash flow for the quarter."

Richard Sawchak, Chief Financial Officer, stated, "Revenue for the third quarter was $9.6 million compared to $11.1 million in the prior year, resulting from the transition away from our small business set-aside contracts. At the same time, our gross margin increased 220 basis points, reflecting our focus on higher margin, recurring contracts. Moreover, we have maintained our financial discipline, which is reflected in a 26% increase in our EBITDA for the nine months ended September 30, 2008 compared with the same period of 2007. As a result, we believe we are well positioned for profitability as we resume organic revenue growth in 2009."

The Company's EBITDA was $0.3 million during the quarter ended September 30, 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 income for the three and nine months ended September 30, 2008 and 2007.




                               Quarter Ended Sept. 30     Nine Months Ended
                                      Sept. 30                 Sept. 30
                                  2008       2007         2008        2007

    Net Loss                  $(224,147)  $(252,965)   $(627,313) $(785,214)
    Adjustments:
      Interest Expense, net     230,593     401,672      733,877    964,052
      Income Tax Benefit       (105,263)    (22,406)    (255,505)  (277,296)
      Depreciation &
       Amortization             142,844     140,250      468,824    355,388
      Stock Compensation        140,032     136,210      420,095    311,640
      Restructuring Expense      67,390     105,000      431,978    358,588

    EBITDA                     $251,449    $507,761   $1,171,956   $927,158

Revenue for the third quarter of 2008 was $9.6 million, compared to $11.1 million for the third quarter of 2007. The decline in revenue for the three months occurred within the repair and maintenance area of the business and resulted from the Company's transition from the prime contractor role to the subcontractor role on one of its projects in the fourth quarter of 2007 which was partially off-set by an increase in the service business. Net loss for the third quarter of 2008 was $224 thousand or $0.01 per share versus a net loss of $253 thousand or $0.01 per share in the third quarter of 2007.

The Company had approximately $5.7 million outstanding on its line of credit with Silicon Valley Bank as of September 30, 2008. The Company had an accumulated deficit of approximately $2.1 million and working capital deficit of $4.5 million as of September 30, 2008.

For additional details, please refer to the Company's quarterly report on Form 10-Q as filed with the SEC.

About Paradigm Holdings, Inc.

Paradigm Holdings, Inc., (www.paradigmsolutions.com) is a comprehensive information technology and business solutions provider for government enterprises. Paradigm specializes in Enterprise Risk Management, Systems Engineering, Infrastructure Support, and Information Assurance and Cyber Forensics solutions for government customers. Paradigm also provides intelligence analyst and linguistic support for National Security programs. Headquartered in Rockville, Maryland, the Company currently employs approximately 200 people across 12 states.

Safe Harbor Statement

This press release may contain forward-looking information within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, and is subject to the safe harbor created by those sections. Paradigm Holdings, Inc. assumes no obligation to update the information contained in this press release. Future results for Paradigm Holdings, Inc. 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 Holdings, Inc. specific risks and uncertainties please refer to recent SEC filings for Paradigm Holdings, Inc., which are available from the Edgar Web site at www.edgar.org.



                               (tables follow)


                           PARADIGM HOLDINGS, INC.
                    CONDENSED CONSOLIDATED BALANCE SHEETS

                                                  September 30,   December 31,
                                                      2008           2007
    ASSETS                                         (unaudited)
    Current assets
      Cash and cash equivalents                       $2,012         $7,771
      Accounts receivable - contracts, net         8,290,857      8,982,638
      Prepaid expense                                821,716      1,078,529
      Prepaid corporate income taxes                  90,449         74,207
      Deferred income tax assets                      38,660         68,567
      Other current assets                           341,009        346,785
    Total current assets                           9,584,703     10,558,497
    Property and equipment, net                      226,919        407,320
    Deferred income tax assets, net of
     current portion                                 100,305             --
    Goodwill                                       3,991,605      3,969,249
    Intangible assets, net                         1,331,409      1,591,864
    Other non-current assets                         177,326        193,218
    Total assets                                 $15,412,267    $16,720,148

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities
      Bank overdraft                                $505,494     $1,687,491
      Note payable - line of credit                5,688,373      5,268,698
      Note payable - promissory note               2,000,000      2,000,000
      Capital leases payable, current portion          8,357         30,436
      Accounts payable and accrued expenses        3,775,623      4,020,669
      Accrued salaries and related liabilities     1,551,915      1,550,962
      Other current liabilities                      556,872        177,844
    Total current liabilities                     14,086,634     14,736,100
    Long-term liabilities
      Capital leases payable, net of
       current portion                                    --          1,889
      Deferred income taxes                               --        220,802
      Other non-current liabilities                  196,112        289,593
    Total liabilities                             14,282,746     15,248,384

      Convertible preferred stock - $.01
       par value, 10,000,000 shares
       authorized, 1,800 shares
       issued and outstanding as
       of September 30, 2008 and
       December 31, 2007, respectively.
       Each share of convertible preferred
       stock has 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 September 30,
       2008 and December 31, 2007,
       respectively                                  191,482        191,482
      Additional paid-in capital                   3,058,617      2,773,547
      Accumulated deficit                         (2,120,596)    (1,493,283)
    Total stockholders' equity                     1,129,521      1,471,764
    Total liabilities and stockholders' equity   $15,412,267    $16,720,148



                           PARADIGM HOLDINGS, INC.
               CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (Unaudited)

                             Three Months Ended      Nine Months Ended
                            Sept. 30,  Sept. 30,   Sept. 30,   Sept. 30,
                              2008       2007        2008         2007

    Contract Revenue
      Service contracts    $7,079,396 $6,507,413 $21,388,614  $19,388,586
      Repair and
       maintenance
       contracts            2,485,063  4,607,003   9,593,523   13,955,470
        Total contract
         revenue            9,564,459 11,114,416  30,982,137   33,344,056
    Cost of revenue
      Service contracts     5,324,087  5,241,905  16,394,569   17,067,606
      Repair and
       maintenance
       contracts            2,223,919  3,775,008   8,417,479   11,173,179
        Total cost of
         revenue            7,548,006  9,016,913  24,812,048   28,240,785
    Gross margin            2,016,453  2,097,503   6,170,089    5,103,271
    Selling, general
     and administrative     2,115,270  1,971,250   6,319,257    5,086,271
    (Loss) income from
     operations               (98,817)   126,253    (149,168)      17,000
    Other (expense) income
      Interest income              65         --       2,772        1,907
      Interest expense       (230,658)  (401,672)   (736,649)    (965,959)
      Other income (expense)       --         48         227       (6,870)
        Total other expense  (230,593)  (401,624)   (733,650)    (970,922)
    Loss from continuing
     operations before
     income taxes            (329,410)  (275,371)   (882,818)    (953,922)
    Benefit for income
     taxes                   (105,263)   (22,406)   (255,505)    (277,296)
    Loss from continuing
     operations              (224,147)  (252,965)   (627,313)    (676,626)
    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                $(224,147) $(252,965)  $(627,313)   $(785,214)
    Dividends on
     preferred stock           45,000     30,000     135,000       30,000
    Net loss attributable
     to common
     shareholders           $(269,147) $(282,965)  $(762,313)   $(815,214)

    Weighted average
     number of common
     shares:
      Basic                19,148,153 19,019,871  19,148,153   19,414,378
      Diluted              19,148,153 19,019,871  19,148,153   19,414,378

    Basic and diluted
     net loss per common
     share:
      Loss from continuing
       operations              $(0.01)    $(0.01)     $(0.04)      $(0.03)
      Loss from
       discontinued
       operations                 $--        $--         $--       $(0.01)
      Net loss                 $(0.01)    $(0.01)     $(0.04)      $(0.04)

SOURCE Paradigm Holdings, Inc.