Paradigm Holdings Provides Business Update and Reports Financial Results for the First Quarter of 2009

Business Wire, May 14, 2009

ROCKVILLE, Md. -- Paradigm Holdings, Inc. (OTCBB:PDHO) (“Paradigm” or the “Company”), a provider of comprehensive information technology and business solutions for federal government enterprises, today provided an update for the first quarter ended March 31, 2009.

First Quarter 2009 Highlights:

• Revenues of $7.7 million
• Gross profit of $1.5 million with gross margin expansion of 25 basis points to 20%
• EBITDA of $0.2 million
• Net loss of $0.03 per share

Peter B. LaMontagne, Paradigm President and CEO, stated, “We continue to focus on higher-margin national and homeland security contracts which has once again resulted in increases in our gross margin percentage. We are disappointed that we have not yet attained overall revenue growth, but we believe our new business development efforts are yielding results as our book-to-bill ratio for the quarter was 0.9x, allowing us to maintain our total backlog of approximately $68 million. While we strive for a book-to-bill over 1.0x, our recent performance is among the highest since Paradigm’s transition to Full and Open competition.”

We believe more strongly than ever that our vision of becoming a leading provider of specialized cyber security services is the right one, and we will continue to target our efforts toward expanding our capabilities within cyber initiative areas such as intrusion detection, cyber forensics, cyber policy development and critical infrastructure protection, concluded Mr. LaMontagne.“

Richard Sawchak, Chief Financial Officer, stated, “As we continue to implement our strategy and tighten our focus on specific agencies and contracts, we will continue to seek out further efficiencies to increase gross margins and streamline expenses in order to improve our profitability and increase positive cash flows.”

The Company’s EBITDA was $0.2 million during the quarter ended March 31, 2009, as compared to approximately $0.5 million for the same period of 2008. 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 similar titled measures reported by other companies. The table below reconciles EBITDA, a non-GAAP measure, to net loss for the three months ended March 31, 2009 and 2008.

[Table Omitted]

Revenue for the first quarter of 2009 was $7.7 million, compared to $10.8 million for the first quarter of 2008. 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. Net loss for the first quarter of 2009 was $627,679 or $0.03 per share versus a net loss of $237,488 or $0.01 per share in the first quarter of 2008. The increase in net loss for the three months is attributable to the decrease in revenue, certain one-time items, interest expenses and changes in the fair value of put warrants.

During the quarter ended March 31, 2009, 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., we paid fees and transaction costs of approximately $1.0 million and we used the remaining $3.1 million to pay down debt and for general working capital purposes. The Company had approximately $4.0 million outstanding on its line of credit with Silicon Valley Bank as of March 31, 2009.