Exhibit 99.1
Contact:
Richard Sawchak
Paradigm Solutions Corporation
Tel: (240) 283-3404
For Immediate Release
Paradigm Holdings Provides Business Update and
Reports Financial Results for the Second Quarter of 2010
Rockville, Maryland – August 11, 2010 – 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 second quarter ended June 30, 2010.
Second Quarter 2010 Highlights:
| Ø | Revenues of $7.5 million |
| Ø | Gross profit of $1.8 million with gross margin expansion of 196 basis points to 23.4% |
| Ø | EBITDA of $0.5 million |
| Ø | Net loss of $0.05 per share driven in part by non-cash charge to the fair value of put warrants |
Peter B. LaMontagne, Paradigm President and CEO, stated, “Despite revenue levels that are consistent with the prior three quarters, we are pleased with Q2 financial results, especially our new contract wins and backlog expansion, which we believe are key indicators of revenue growth. During the second quarter, contract wins with new customers in our cybersecurity and mission critical infrastructure practice areas led to new bookings of $27 million that increased our total backlog to approximately $88 million. We are also strongly encouraged by the continued increases in gross margin which confirm that we are executing our growth strategy without compromising profitability, both by maintaining cost controls and pursuing business which generally carries higher margins.”
Richard Sawchak, Chief Financial Officer, stated, “We continue to believe that a diligent focus on cost and working capital management will ultimately translate into higher operating margins, greater free cash flow and debt reduction. Our second quarter results continue to prove this thesis, and we believe we are poised to continue building on the momentum we have achieved this year.”
The Company’s EBITDA was $0.5 million during the quarter ended June 30, 2010, as compared to approximately $0.3 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 u seful 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 loss for the three and six months ended June 30, 2010 and 2009.
| Quarter Ended June 30 | Six Months Ended June 30 | |||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
| Net Loss | $ | (1,995,572 | ) | $ | (1,470,669 | ) | $ | (2,535,850 | ) | $ | (2,098,348 | ) | ||||
| Adjustments: | ||||||||||||||||
| Interest Expense, net | 623,799 | 498,928 | 1,178,998 | 848,747 | ||||||||||||
| Income Tax Benefit | 158,759 | (149,398 | ) | 201,634 | (223,692 | ) | ||||||||||
| Change in FV of Put Warrants | 1,371,746 | 957,934 | 1,358,554 | 1,000,825 | ||||||||||||
| Depreciation & Amortization | 107,717 | 129,824 | 212,273 | 242,203 | ||||||||||||
| Stock Compensation | 80,871 | 234,140 | 164,488 | 395,607 | ||||||||||||
| Restructuring Expense | 130,426 | 75,000 | 217,312 | 325,000 | ||||||||||||
| EBITDA | $ | 477,746 | $ | 275,759 | $ | 797,409 | $ | 490,342 | ||||||||
Revenue for the second quarter of 2010 was $7.5 million, compared to $8.7 million for the second quarter of 2009. The decline in revenue for the three months is attributable to a decrease in our federal repair and maintenance contract revenue of $1.6 million, which is partially offset by an increase in our federal service contract revenue of $0.4 million. The decrease in repair and maintenance revenue is attributable to a reduction in revenue on one federal contract due to a reduction in scope, and the increase in service contract revenue is mainly attributable to the expansion of existing service contracts and recent contract wins in the cyber security area. Net loss for the second quarter of 2010 was $2.0 million or $0.05 per share versus a net loss of $1.5 million or $0.04 per share in the second quarter of 2009. The increase in net loss for the three months is mainly attributable to changes in the fair value of put warrants and higher interest expenses which were partially offset by higher operating profit.
The Company had a $0.4 million working capital deficit and $3.6 million outstanding on its line of credit with Silicon Valley Bank as of June 30, 2010.
For additional details, please refer to the Company’s quarterly report on Form 10-Q as filed with the SEC.
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 contr acts, 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
| June 30, 2010 | December 31, 2009 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 11,052 | $ | 895,711 | ||||
| Accounts receivable — contracts, net | 5,859,952 | 5,519,150 | ||||||
| Restricted Cash | 4,000,000 | -- | ||||||
| Prepaid expenses | 888,482 | 873,934 | ||||||
| Deferred income tax assets | 77,453 | 24,114 | ||||||
| Other current assets | 627,282 | 473,670 | ||||||
| Total current assets | 11,464,221 | 7,786,579 | ||||||
| Property and equipment, net | 99,882 | 127,093 | ||||||
| Goodwill | 3,991,605 | 3,991,605 | ||||||
| Intangible assets, net | 723,682 | 897,318 | ||||||
| Deferred financing costs, net | 647,150 | 848,294 | ||||||
| Deferred income tax assets, net of current portion | 640,425 | 512,820 | ||||||
| Other non-current assets | 406,777 | 582,394 | ||||||
| Total Assets | $ | 17,973,742 | $ | 14,746,103 | ||||
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
| Current liabilities | ||||||||
| Note payable — line of credit | $ | $$3,614,184 | $ | $3,643,653 | ||||
| Note payable — promissory note, net of issuance discount | 3,732,208 | -- | ||||||
| Accounts payable and accrued expenses | 1,703,566 | 2,333,085 | ||||||
| Accrued salaries and related liabilities | 1,638,474 | 1,527,561 | ||||||
| Corporate Income tax payable | 253,265 | 98,686 | ||||||
| Mandatorily redeemable preferred stock, current portion | 650,000 | 500,000 | ||||||
| Other current liabilities | 293,294 | 178,333 | ||||||
| Total current liabilities | 11,884,991 | 8,281,318 | ||||||
| Long-term liabilities | ||||||||
| Other non-current liabilities | 98,558 | 126,348 | ||||||
| Mandatorily redeemable preferred stock - $.01 par value, 10,000,000 shares authorized, 6,206 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively | 4,966,592 | 4,587,135 | ||||||
| Put warrants | 2,805,629 | 1,447,075 | ||||||
| Total liabilities | 19,755,770 | 14,441,876 | ||||||
| Commitments and contingencies | ||||||||
| Common stock - $.01 par value, 50,000,000 shares authorized, 44,671,598 shares and 41,243,027 shares issued and outstanding as of June 30, 2010 and December 31, 2009, respectively | 446,718 | 412,431 | ||||||
| Additional paid-in capital | 3,850,199 | 3,434,891 | ||||||
| Accumulated deficit | (6,078,945 | ) | (3,543,095 | ) | ||||
| Total stockholders’ (deficit) equity | (1,782,028 | ) | 304,227 | |||||
| Total liabilities and stockholders’ (deficit) equity | $ | 17,973,742 | $ | 14,746,103 | ||||
PARADIGM HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||
| Contract Revenue | ||||||||||||||||
| Service contracts | $ | 5,852,058 | $ | 5,450,660 | $ | 11,324,918 | $ | 10,714,003 | ||||||||
| Repair and maintenance contracts | 1,665,583 | 3,220,812 | 3,715,427 | 5,665,093 | ||||||||||||
| Total contract revenue | 7,517,641 | 8,671,472 | 15,040,345 | 16,379,096 | ||||||||||||
| Cost of revenue | ||||||||||||||||
| Service contracts | 4,557,611 | 4,255,209 | 8,770,977 | 8,304,049 | ||||||||||||
| Repair and maintenance contracts | 1,199,338 | 2,555,332 | 2,856,149 | 4,693,062 | ||||||||||||
| Total cost of revenue | 5,756,949 | 6,810,541 | 11,627,126 | 12,997,111 | ||||||||||||
| Gross margin | 1,760,692 | 1,860,931 | 3,413,219 | 3,381,985 | ||||||||||||
| Selling, general and administrative | 1,601,960 | 2,024,136 | 3,209,883 | 3,854,453 | ||||||||||||
| Income (loss) from operations | 158,732 | (163,205 | ) | 203,336 | (472,468 | ) | ||||||||||
| Other (expense) income | ||||||||||||||||
| Interest income | 961 | 2 | 969 | 6 | ||||||||||||
| Change in fair value of put warrants | (1,371,746 | ) | (957,934 | ) | (1,358,554 | ) | (1,000,825 | ) | ||||||||
| Interest expense – mandatorily redeemable preferred stock | (453,474 | ) | (398,699 | ) | (899,517 | ) | (531,975 | ) | ||||||||
| Interest expense | (171,286 | ) | (100,231 | ) | (280,450 | ) | (316,778 | ) | ||||||||
| Total other expense | (1,995,545 | ) | (1,456,862 | ) | (2,537,552 | ) | (1,849,572 | ) | ||||||||
| Loss from operations before income taxes | (1,836,813 | ) | (1,620,067 | ) | (2,334,216 | ) | (2,322,040 | ) | ||||||||
| Provision (benefit) for income taxes | 158,759 | (149,398 | ) | 201,634 | (223,692 | ) | ||||||||||
| Net loss | (1,995,572 | ) | (1,470,669 | ) | (2,535,850 | ) | (2,098,348 | ) | ||||||||
| Dividends on preferred stock | -- | -- | -- | 78,870 | ||||||||||||
| Net loss attributable to common shareholders | $ | (1,995,572 | ) | $ | (1,470,669 | ) | $ | (2,535,850 | ) | $ | (2,177,218 | ) | ||||
| Weighted average number of common shares: | ||||||||||||||||
| Basic and diluted | 42,385,884 | 41,243,027 | 41,814,456 | 33,828,069 | ||||||||||||
| Basic and diluted net loss per common share | $ | (0.05 | ) | $ | (0.04 | ) | $ | (0.06 | ) | $ | (0.06 | ) | ||||