Contact:
Richard Sawchak
Paradigm Solutions Corporation
Tel: (240) 283-3404
For Immediate Release
Paradigm Holdings Provides Business Update and
Reports Financial Results for the First Quarter of 2010
Rockville, Maryland – May 12, 2010 – Paradigm Holdings, Inc. (OTCBB: PDHO) (“Paradigm” or the “Company”), a provider of comprehensive information technology and cyber security solutions for federal government enterprises, today provided an update for the first quarter ended March 31, 2010.
First Quarter 2010 Highlights:
| | Ø | Revenues of $7.5 million |
| | Ø | Gross profit of $1.7 million with gross margin expansion of 223 basis points to 22% |
| | Ø | Net loss of $0.01 per share |
Peter B. LaMontagne, Paradigm President and CEO, stated, “Our first quarter of 2010 was characterized by stability on all fronts, with results in line with previous periods both sequentially and year over year. Despite flat revenues, we again expanded our gross margins which enabled us to increase EBITDA and operating cash flows, a reflection of management discipline and a better mix of business. Our strategic focus on cyber security solutions and mission critical infrastructure support is gaining momentum as we completed a particularly busy quarter of bid and proposal activity which, if successful, we believe will translate into a improved performance as the year progresses.”
Richard Sawchak, Chief Financial Officer, stated, “We are pleased that both income and cash flow from operations were positive for the first quarter driven by working capital and expense management. We once again reduced our debt balance, which stood at $2.3 million (line of credit, net of cash) on March 31. As we continue to focus on operating profitability and positive cash flow during 2010, we intend to continue to take the necessary steps to expand margins, manage expenses and closely monitor our working capital position.”
The Company’s EBITDA was $0.3 million during the quarter ended March 31, 2010, as compared to approximately $0.2 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 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, 2010 and 2009.
| | | Quarter Ended March 31 | |
| | | 2010 | | | 2009 | |
| Net Loss | | $ | (540,278 | ) | | $ | (627,679 | ) |
| | | | | | | | | |
| Adjustments: | | | | | | | | |
| Income Tax Expense (Benefit) | | | 42,876 | | | | (74,294 | ) |
| Interest Expense, net | | | 555,199 | | | | 349,819 | |
| Change in Fair Value of Put Warrants | | | (13,193 | ) | | | 42,891 | |
| Depreciation & Amortization | | | 104,557 | | | | 112,379 | |
| Stock Compensation | | | 83,617 | | | | 161,468 | |
| Restructuring Expenses | | | 86,886 | | | | 250,000 | |
| | | | | | | | | |
| EBITDA | | $ | 319,664 | | | $ | 214,584 | |
Revenue for the first quarter of 2010 was $7.5 million, compared to $7.7 million for the first quarter of 2009. The decline in revenue for the three months is attributable to a decrease in our federal repair and maintenance services. Net loss for the first quarter of 2010 was $540,278 or $0.01 per share versus a net loss of $627,679 or $0.03 per share in the first quarter of 2009. The decrease in net loss for the three months is attributable to better gross margin and lower SG&A expenses which was partially offset by higher interest expenses.
The Company had a $0.6 million working capital deficit and approximately $2.3 million outstanding on its line of credit with Silicon Valley Bank as of March 31, 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 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.
PARADIGM HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
| | March 31, 2010 | | December 31, 2009 | |
| ASSETS | (unaudited) | | | |
| Current assets | | | | |
| Cash and cash equivalents | | $ | 2,339 | | | $ | 895,711 | |
| Accounts receivable — contracts, net | | | 4,572,312 | | | | 5,519,150 | |
| Prepaid expenses | | | 934,656 | | | | 873,934 | |
| Deferred income tax assets | | | 49,440 | | | | 24,114 | |
| Other current assets | | | 379,245 | | | | 473,670 | |
| Total current assets | | | 5,937,992 | | | | 7,786,579 | |
| Property and equipment, net | | | 119,246 | | | | 127,093 | |
| Goodwill | | | 3,991,605 | | | | 3,991,605 | |
| Intangible assets, net | | | 810,500 | | | | 897,318 | |
| Deferred financing costs, net | | | 748,471 | | | | 848,294 | |
| Deferred income tax assets, net of current portion | | | 589,030 | | | | 512,820 | |
| Other non-current assets | | | 498,755 | | | | 582,394 | |
| Total Assets | | $ | 12,695,599 | | | $ | 14,746,103 | |
| LIABILITIES AND STOCKHOLDERS' EQUITY | | | | | | | | |
| Current liabilities | | | | | | | | |
| Note payable — line of credit | | $ | 2,339,513 | | | $ | $3,643,653 | |
| Accounts payable and accrued expenses | | | 1,895,588 | | | | 2,333,085 | |
| Accrued salaries and related liabilities | | | 1,479,627 | | | | 1,527,561 | |
| Corporate income tax payable | | | 98,097 | | | | 98,686 | |
| Mandatorily redeemable preferred stock, current portion | | | 600,000 | | | | 500,000 | |
| Other current liabilities | | | 138,417 | | | | 178,333 | |
| Total current liabilities | | | 6,551,242 | | | | 8,281,318 | |
| Long-term liabilities | | | | | | | | |
| Other non-current liabilities | | | 112,453 | | | | 126,348 | |
| Mandatorily redeemable preferred stock - $.01 par value, 10,000,000 shares authorized, 6,206 shares issued and outstanding as of March 31, 2010 and December 31, 2009 | | | 4,750,456 | | | | 4,587,135 | |
| Put warrants | | | 1,433,882 | | | | 1,447,075 | |
| Total liabilities | | | 12,848,033 | | | | 14,441,876 | |
| Commitments and contingencies | | | | | | | | |
| Common stock - $.01 par value, 50,000,000 shares authorized, 41,243,027 shares issued and outstanding as of March 31, 2010 and December 31, 2009, respectively | | | 412,431 | | | | 412,431 | |
| Additional paid-in capital | | | 3,518,508 | | | | 3,434,891 | |
| Accumulated deficit | | | (4,083,373 | ) | | | (3,543,095 | ) |
| Total stockholders’ (deficit) equity | | | (152,434 | ) | | | 304,227 | |
| Total liabilities and stockholders’ equity | | $ | 12,695,599 | | | $ | 14,746,103 | |
PARADIGM HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
| | | Three Months Ended | |
| | | March 31, | | | March 31, | |
| | | 2010 | | | 2009 | |
| Contract Revenue | | | | | | |
| Service contracts | | $ | 5,537,505 | | | $ | 5,578,538 | |
| Repair and maintenance contracts | | | 1,985,200 | | | | 2,129,087 | |
| Total contract revenue | | | 7,522,705 | | | | 7,707,625 | |
| Cost of revenue | | | | | | | | |
| Service contracts | | | 4,269,702 | | | | 4,318,086 | |
| Repair and maintenance contracts | | | 1,600,475 | | | | 1,868,484 | |
| Total cost of revenue | | | 5,870,177 | | | | 6,186,570 | |
| Gross margin | | | 1,652,528 | | | | 1,521,055 | |
| Selling, general and administrative | | | 1,607,924 | | | | 1,830,318 | |
| Income (loss) from operations | | | 44,604 | | | | (309,263 | ) |
| Other income (expense) | | | | | | | | |
| Interest income | | | 8 | | | | 4 | |
| Change in fair value of put warrants | | | 13,193 | | | | (42,891 | ) |
| Interest expense – mandatorily redeemable preferred stock | | | (446,343 | ) | | | (133,276 | ) |
| Interest expense | | | (108,864 | ) | | | (216,547 | ) |
| Total other expense | | | (542,006 | ) | | | (392,710 | ) |
| Loss from operations before income taxes | | | (497,402 | ) | | | (701,973 | ) |
| Provision (benefit) for income taxes | | | 42,876 | | | | (74,294 | ) |
| Net loss | | | (540,278 | ) | | | (627,679 | ) |
| Dividends on preferred stock | | | — | | | | 78,870 | |
| Net loss attributable to common shareholders | | $ | (540,278 | ) | | $ | (706,549 | ) |
| | | | | | | | | |
| Weighted average number of common shares: | | | | | | | | |
| Basic | | | 41,243,027 | | | | 26,413,111 | |
| Diluted | | | 41,243,027 | | | | 26,413,111 | |
| | | | | | | | | |
| Basic and diluted net loss per common share | | $ | (0.01 | ) | | $ | (0.03 | ) |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| | | | | | | | | |
