FILED PURSUANT TO RULE NO. 424(b)(3)
                                                     REGISTRATION NO. 333-122777


                            SUPPLEMENT TO PROSPECTUS
                               DATED APRIL 6, 2006

                             PARADIGM HOLDINGS, INC.

                     UP TO 5,662,350 SHARES OF COMMON STOCK


      Attached  hereto and hereby made part of the  prospectus  is the Company's
Annual  Report on Form 10-K for the year ended  December 31, 2005, as filed with
the U.S.  Securities  and Exchange  Commission  on March 31,  2006.  Prospective
investors in our common stock should  carefully read each of these documents and
the related financial information prior to making any investment decision.

                           --------------------------

      You should only rely on the information  provided in the prospectus,  this
prospectus  supplement  or any  additional  supplement.  We have not  authorized
anyone else to provide you with different  information.  The common stock is not
being  offered  in any state  where the offer is not  permitted.  You should not
assume that the information in the prospectus or this  prospectus  supplement or
any additional  supplement is accurate as of any date other than the date on the
front of those documents.

                           --------------------------

      Neither the  Securities and Exchange  Commission nor any state  securities
commission has approved or  disapproved  of these  securities or passed upon the
adequacy  or accuracy  of the  prospectus  or this  prospectus  supplement.  Any
representation to the contrary is a criminal offense.

                           --------------------------

             THE DATE OF THIS PROSPECTUS SUPPLEMENT IS APRIL 6, 2006



                                 UNITED STATES
                      SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                  FORM 10-K

            ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
                       SECURITIES EXCHANGE ACT OF 1934

                |X| Annual Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934

                   FOR THE FISCAL YEAR ENDED DECEMBER 31, 2005

     |_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
                             Exchange Act of 1934

                          Commission File No. 000-30271

                             PARADIGM HOLDINGS, INC.
             (Exact name of registrant as specified in its charter)


              Wyoming                                     83-0211506
    (State or other jurisdiction               (IRS Employer Identification No.)
 of incorporation or organization)

           2600 Tower Oaks Blvd. Suite 500, Rockville, Maryland 20852
               (Address of principal executive offices, zip code)

       Registrant's telephone number, including area code: (301) 468-1200

        SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE

           SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:

                          COMMON STOCK, $0.01 PAR VALUE
                              (Title of Each Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Security Act. Yes |_| No |X|

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes |_| No |X|

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Security Exchange Act of 1934 during
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. |X|

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the
Exchange Act). Large accelerated filer |_| Accelerated filer |_| Non-accelerated
filer |X|

Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes |_| No |X|





The aggregate market value of the voting stock held by non-affiliates was
approximately $11,458,715 based upon the closing price on March 6, 2006.

Number of shares of common stock outstanding as of March 6, 2006 was: 20,503,486
shares.





                           FORWARD-LOOKING STATEMENTS

This Form 10-K includes and incorporates by reference forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements relate to future events or our future financial
performance. These statements involve known and unknown risks, uncertainties and
other factors that may cause our or our industry's actual results, levels of
activity, performance or achievements to be materially different from any
results, levels of activity, performance or achievements expressed or implied by
these forward-looking statements.

These forward-looking statements are identified by their use of terms and
phrases such as "anticipate," "believe," "could," "estimate," "expect,"
"intend," "may," "plan," "predict," "project," "will" and similar terms and
phrases, and may also include references to assumptions. These statements are
contained in the sections entitled "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Business" and other sections of
this Form 10-K.

Such forward-looking statements include, but are not limited to:

o     funded backlog;

o     estimated remaining contract value;

o     our expectations regarding the U.S. federal government's procurement
      budgets and reliance on outsourcing of services; and

o     our financial condition and liquidity, as well as future cash flows and
      earnings.

Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of these statements.
These statements are only predictions. Actual events or results may differ
materially. In evaluating these statements, the reader should specifically
consider various factors, including the following:

o     changes in U.S. federal government procurement laws, regulations, policies
      and budgets;

o     the number and type of contracts and task orders awarded to us;

o     the integration of acquisitions without disruption to our other business
      activities;

o     changes in general economic and business conditions;

o     technological changes;

o     the ability to attract and retain qualified personnel;

o     competition;

o     our ability to retain our contracts during any rebidding process; and

o     the other factors outlined under "Risk Factors".

If one or more of these risks or uncertainties materialize, or if underlying
assumptions prove incorrect, actual results may vary materially from those
expected, estimated or projected. We do not undertake to update our
forward-looking statements or risk factors to reflect future events or
circumstances.


                                       i





                                TABLE OF CONTENTS

                                     PART I

ITEM 1.    BUSINESS ...........................................................1

ITEM 1A.   RISK FACTORS.......................................................12

ITEM 1B.   UNRESOLVED STAFF COMMENTS..........................................20

ITEM 2.    PROPERTIES ........................................................20

ITEM 3.    LEGAL PROCEEDINGS..................................................20

ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................20

                                     PART II

ITEM 5.    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
             MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES................21

ITEM 6.    SELECTED FINANCIAL DATA............................................23

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
             RESULTS OF OPERATIONS............................................24

ITEM 7A.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.........32

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA .......................32

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
             FINANCIAL DISCLOSURE.............................................32

ITEM 9A.   CONTROLS AND PROCEDURES............................................33

ITEM 9B.   OTHER INFORMATION..................................................34

                                    PART III

ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.................35

ITEM 11.   EXECUTIVE COMPENSATION.............................................38

ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
             AND RELATED STOCKHOLDER MATTERS..................................41

ITEM 13.   CERTAIN  RELATIONSHIPS AND RELATED TRANSACTIONS....................41

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES.............................42

                                     PART IV

ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES ...........................43

           Signatures

                                      ii



                                    PART I

ITEM 1. BUSINESS

COMPANY OVERVIEW

Paradigm Holdings, Inc. ("Paradigm" and/or "Company") (website:
www.paradigmsolutions.com) provides information technology and business
continuity solutions to government and commercial customers. Headquartered in
Rockville, Maryland, Paradigm was founded on the philosophy of high standards of
performance, honesty, integrity, customer satisfaction, and employee morale.

With an established core foundation of experienced executives, Paradigm has
rapidly grown from six employees in 1996 to the current level of more than 300
personnel. Revenues have grown from $51 million in 2003 to over $63 million by
the end of 2005.

Paradigm comprises two subsidiary companies: 1) Paradigm Solutions Corporation,
which was incorporated in 1996 to deliver information technology (IT) services
to federal agencies, and 2) Paradigm Solutions International, which was
incorporated in 2004 to deliver IT solutions (with a special focus in Business
Continuity Planning and Emergency Management) and software to commercial
clients.

o  PARADIGM SOLUTIONS CORPORATION ("PSC")--PSC is dedicated to providing premier
   IT expertise to Paradigm's federal clients. PSC's targeted agencies include
   the U.S. Department of the Treasury, U.S. Department of Homeland Security,
   U.S. Department of Justice, and the U.S. Department of Defense (including
   Secretary of Defense, Army, Navy/Marine Corps, Air Force, and Joint Forces
   Command). In addition, Paradigm serves other agency clients such as the
   Department of Housing and Urban Development and the Small Business
   Administration in cases where they offer profitable contract opportunities
   that significantly augment Paradigm's revenues.

o  PARADIGM SOLUTIONS INTERNATIONAL ("PSI")--PSI was established in 2004 to
   apply Paradigm's expertise quadrants to the commercial arena in a
   growth-oriented, profitable manner. In October of 2005, PSI acquired Blair
   Technology Group ("Blair"), a provider of business continuity and information
   technology security solutions primarily to commercial clients. Based in
   Altoona, PA, Blair has served over 300 commercial customers in a variety of
   industries including finance, healthcare and energy. In the commercial arena,
   Paradigm's targeted clients include pharmaceutical, financial services,
   manufacturing, distribution, and retail companies where our solutions can add
   significant value while augmenting the Sustained Operational Success of each
   client.

Paradigm augments the success of clients' mission-critical initiatives via four
expertise quadrants: Enterprise Risk Management, Systems Engineering,
Infrastructure Support, and Program Management. Our primary business growth
focus is in the law enforcement, homeland security, other civilian agencies, and
defense agencies of the federal government, as well as high-growth companies and
markets in the private sector; our aim is to support the mission-critical work
of these organizations where the opportunity for profitable business is greater.

Paradigm has achieved significant accomplishments over the past year, including
the launch of the Continuous Paradigm Process and Product Improvement (CP(3)I),
the continued evolution of Paradigm's ISO 9001:2000 Quality Management Office,
the adoption of CMMI-compliant methodologies by our federal business division
(among others) in 2005, and success in building a significant business backlog.

Paradigm's dedication to its customers is reflected in the numerous customer and
industry awards it has received, including:

o     Washington Technology's Top 100 Federal Prime Contractors - 2005

o     Input Federal IT Top 150 - 2005

o     Department of Treasury Small Business Partner of the Year - 2004

o     United States Secret Service Certificate of Appreciation - 2004



                                       1



o     VAR Business Top 500 National Solutions Provider - 2005, 2004 and 2003

o     Washington Technology Top 25 8(a) Contractors - 2004, 2003 and 2002

o     Government Computer News Industry Information Technology Award - 2003

In addition, Paradigm was named to Black Enterprise Magazine's list of Top 100
Black-Owned Businesses in 2005, 2004, 2003, and 2002.

Paradigm is steadfast in its commitment to best practices in meeting changing
requirements and providing cutting-edge innovations to advance our client's
mission. We focus on delivering high-quality information technology services
on-time and within budget through seamless transitions, program stability, and
effective contract implementation and administration.

CORPORATE ORGANIZATION

On November 3, 2004, Paradigm entered into an Agreement and Plan of
Reorganization with Paradigm Solutions Merger Corp., a Delaware corporation and
wholly-owned subsidiary of Paradigm (the "Merger Sub"), PSC, a Maryland
corporation and the shareholders of PSC. Pursuant to the Agreement and Plan of
Reorganization, the Merger Sub was merged with and into PSC, the surviving
corporation and continues its existence under the laws of the State of Maryland
and is a wholly-owned subsidiary of Paradigm. In consideration of the Merger,
the PSC shareholders exchanged 13,699 shares of common stock of PSC, which was
100% of the issued and outstanding capital stock of PSC, for 17,500,000 shares
of common stock of Paradigm.

Cheyenne Resources, Inc. ("Cheyenne Resources") was incorporated under the laws
of the State of Wyoming on November 17, 1970. Cheyenne Resources, prior to the
reverse merger with the Merger Sub, operated principally in one industry
segment, the exploration for and sale of oil and gas.

Cheyenne Resources held oil and gas interests and was involved with producing
and selling oil, gas and other mineral substances. Cheyenne Resources did not
engage in refining or retail marketing operations; rather its activities had
been restricted to acquiring and disposing of mineral properties, and to
producing and selling oil and gas from its wells.

Prior Principal activities of Cheyenne Resources involved buying leases, filing
on federal and state open land leases as well as acquiring and trading of oil,
gas, and other mineral properties, primarily in the Rocky mountain area and
Oklahoma.

Cheyenne Resources oil and gas activities included the acquisition of whole or
partial interests in oil and gas leases and the farming out or resale of all or
part of its interests in these leases. In connection with farmouts and resales,
Cheyenne Resources attempted to retain an overriding royalty or a working or
carried interest.

In 1999, Cheyenne Resources entered into a memorandum of understanding to obtain
a 25% interest in Cayenne Records, Inc., which has a 75% interest in NL Records
of Nashville, Tennessee. This transaction was rescinded in 2000 due to the
inability of the seller to produce records and data. No value was recorded in
the financial statements. Cheyenne Resources issued 11,473,711 shares of common
stock for this interest.

In 1999, Cheyenne Resources entered into an Agreement with Tiger Exploration to
acquire the Dixie Gas Field and interests in the Stephens and Lick Creeks Fields
for 12,000,000 shares of common stock. Title and production data could not be
verified or produced, and so no value of assets could be carried.

In June 2000, Cheyenne Resources rescinded its memorandum of understanding with
Cayenne Records, Inc. In June 2000, Cheyenne Resources also rescinded its
memorandums of understanding to acquire Dixie Gas Field and interests in
Stephens and Lick Creek Fields. No value was recorded in this financial
statement for these acquisitions. Of the 23,473,711 shares issued for the above
referenced transactions, all but 2,623,838 shares were returned.


                                       2



In January 2004, Skye Blue Ventures, an entity beneficially owned by Mr. Dennis
Iler, purchased a controlling interest in Paradigm Holdings, formerly Cheyenne
Resources, Inc. Skye Blue Ventures purchased 2,350,000 shares of common stock of
Cheyenne Resources, Inc. from the former directors of Cheyenne Resources, Inc.
for $75,000 and purchased 23,000,000 shares of common stock directly from
Cheyenne Resources, Inc. for $50,000. Cheyenne Resources issued 21,300,000
shares out of the 23,000,000 as it only had 21,300,000 available under its
then-current authorized common stock. Mr. Iler, former President and a Director
of Cheyenne Resources, Inc. and the then-beneficial owner of Skye Blue Ventures,
brought Cheyenne Resources current in its securities filings, settled its
outstanding debt, and assisted in having the company listed on the
Over-the-Counter Bulletin Board. In August 2004, J. Paul Consulting, Shortline
Equity Investments and Ultimate Investments purchased Skye Blue Ventures'
ownership interest in Cheyenne Resources, Inc. and subscribed for an aggregate
of 10,000,000 shares of common stock of Cheyenne Resources, Inc. for $200,000.

On October 14, 2005, Paradigm, PSI, Blair Management Services, Inc. t/d/b/a
Blair Technology Group, a Pennsylvania corporation ("Blair") and the
shareholders of Blair (collectively, the "Shareholders") consummated a merger
transaction pursuant to the terms of that certain Merger Agreement (the "Merger
Agreement"), whereby Blair was merged with and into PSI. PSI is the surviving
corporation and will continue its corporate existence under the laws of the
State of Maryland as a wholly-owned subsidiary of Paradigm. Pursuant to the
Merger Agreement, the Shareholders exchanged all of the issued and outstanding
capital stock of Blair in exchange for (i) One Million Dollars (US $1,000,000),
(ii) five hundred thousand shares of common stock, par value $0.01 per share, of
Paradigm (the "Shares") and (iii) $465,553 in cash to satisfy notes payable to
shareholders. Pursuant to the Merger Agreement and an Escrow Agreement entered
into by the parties, sixty thousand (60,000) of the Shares will be held in
escrow for a period of one (1) year from the date of closing subject to the
terms and conditions of the Merger Agreement. In addition, under the terms of
the Merger Agreement, Paradigm will issue to the Shareholders up to an
additional 350,000 shares of common stock of Paradigm pursuant to an earn-out
provision.

At the October 14, 2005 share price of $3.00, the transaction has a total
purchase price of $3,959,088 assuming all earn-out provisions are achieved. For
the year ended December 31, 2004, Blair generated $4.6 million in revenue and
$0.4 million in net income.

At the closing of the merger, PSI entered into employment agreements with
Messrs. Kristofco, Duffy and Fochler, former management of Blair.

OUR GROWTH STRATEGY

Paradigm has implemented a number of strategies to grow our business in the
federal information technology and business continuity markets. These include:

o  INCUMBENCY LEVERAGING--Paradigm emphasizes thoroughly analyzing our current
   customers and then systematically targeting and pursuing new opportunities
   based on this knowledge. The incumbency analysis/leveraging process involves:

      o     Convening focused meetings involving Operations & Business
            Development staff for all of our key incumbent contracts.
      o     Identifying related and non-related divisions, offices, and
            initiatives where Paradigm can add value.
      o     Identifying contracts (current and new) within these
            offices/initiatives where we can be competitive.
      o     Determining the key decision-makers within the office/initiative who
            will have greatest influence on contract awards.
      o     Analyzing the competition (especially the incumbent where there is a
            current contract) to determine relative strengths, weaknesses, and
            strategies.
      o     Meeting extensively with current/new clients.
      o     Becoming extremely knowledgeable in the goals, strategies, and
            idiosyncrasies of each client organization.
      o     Targeting and qualifying the highest-priority opportunities.
      o     Applying the resources necessary to win high-revenue, high-margin
            business.

      Leveraging the benefits of our incumbency is an efficient and effective
      means of growing our company based on where we are currently strongest. In
      particular, we emphasize strategies to learn of viable opportunities long
      before the expected RFP date--at least a year ahead whenever possible.



                                       3



o     STRATEGIC MARKET PENETRATION--To augment Paradigm's efforts in building
      profitable business within new client agencies and arenas, we have
      implemented a focused process of Strategic Market Penetration (SMP). This
      process involves the following:

      o     Conducting extensive research on the background, mission, and
            objectives of a new agency/division.
      o     Identifying primary contracts (current and projected) where Paradigm
            is viable.
      o     Identifying key decision-makers who influence contract awards.
      o     Researching incumbent and other competitors.
      o     Interviewing decision-makers in depth to understand their mission &
            requirements.
      o     Tracking and pursuing new and re-compete opportunities within the
            agency/division.

      The process is carried out in a systematic, highly organized manner based
      on the agencies and opportunities that appear to offer the greatest
      strategic fit with Paradigm's capabilities and objectives. The paragraphs
      below describe the SMP approach in more detail.

o     STRATEGIC ALLIANCES--Paradigm's strategic alliances with innovative
      software and hardware vendors. Our company is continually seeking
      innovative technologies that allow Paradigm to combine its systems
      integration and support expertise with the innovative technologies to
      produce a complete solution that can be sold in the federal, commercial,
      or defense markets.

      Depending on the alliance, Paradigm may partner with a company to provide
      integration services to support the company's sales, or Paradigm will
      establish a relationship as a value-added reseller (VAR) so Paradigm can
      sell the product in conjunction with its consulting services. VAR
      relationships are advantageous as they provide Paradigm with the
      opportunity to generate additional income through product sales, as well
      as create additional customer loyalty since they deal only with Paradigm
      and not the vendor.

o     PRODUCT ENHANCEMENT--Paradigm is dedicated to the continual enhancement of
      the product capabilities of the OpsPlanner (TM) software suite in
      delivering the most comprehensive, easy-to-use continuity preparedness
      tools and risk management services for both federal and commercial
      customers.

Furthermore, Paradigm's growth strategy emphasizes additional key elements,
which include:

      o     Recruit, train, and deploy a highly motivated, professional business
            development team.
      o     Selectively add sales and professional delivery resources, deployed
            in a broader geographic area.
      o     Achieve rapid expansion through organic growth and strategic
            acquisitions.
      o     Remain focused in our service offerings.
      o     Target vertical market prospects in a wider range of geographies.

KEY IT TRENDS: GOVERNMENT & COMMERCIAL

Key trends within the federal and commercial arenas that affect Paradigm's
growth and day-to-day success include:

GOVERNMENT REFORM DRIVES GROWTH IN TECHNOLOGY SPENDING--Paradigm believes that
political pressures and budgetary constraints are forcing government agencies at
all levels to improve their processes and services and to operate more like
commercial enterprises. Organizations throughout the federal, state and local
governments--like their counterparts in the private sector--are investing
heavily in information technology to improve effectiveness, enhance productivity
and extend new services in order to deliver increasingly responsive and
cost-effective public services.

Changes over the mid to late 1990's in federal government contract procurement
and compliance regulations have streamlined the government's buying practices,
resulting in a more commercial approach to the procurement and management of
technologies and services. As a result, procurement lead times have decreased
and government buyers now have greater flexibility to purchase services on the
basis of distinguishing corporate capabilities and successful past performance.


                                       4



INCREASED OUTSOURCING OF TECHNOLOGY PROGRAMS--Both government and commercial
organizations rely heavily on outside contractors to provide skilled resources
to accomplish technology programs. This reliance will continue to intensify due
to political and budgetary pressures in many government agencies and due to the
difficulties facing governments in recruiting and retaining highly skilled
technology professionals in a competitive labor market. In concert with its
transition to more commercial-like practices, government is increasingly
outsourcing technology programs as a means of simplifying the implementation and
management of technology, so that government workers can focus on their
functional mission.

ASCENDANCY OF ENTERPRISE RISK MANAGEMENT (ERM)--During the last year, several
factors have combined to greatly increase awareness of the need for good
information technology Risk and Business Continuity Management within the
federal government and commercial sectors. These factors include:

      o     Increased regulatory requirements (Sarbanes-Oxley, corporate
            governance).
      o     The continued threat of terrorism (including employee sabotage and
            cyber attacks).
      o     Homeland Security Commission 9/11 Report standardization on how to
            measure preparedness and NFPA 1600.
      o     Demands from large enterprises that their supply chain suppliers
            have business continuity plans in place as a prerequisite for doing
            business.

Furthermore, the increasing incidence of natural disasters such as hurricanes,
floods and tornados augments receptivity of current and prospective clients to
ERM offerings.

PRODUCT & SERVICE OFFERINGS

Paradigm provides information technology services through four broad areas
(quadrants) that address the needs and particular challenges of the government
and commercial marketplace. These quadrants include:

o     ENTERPRISE RISK MANAGEMENT--This quadrant involves services and products
      that help our clients achieve Sustained Operational Success by ensuring
      the uninterrupted day-to-day execution of network, data, and other IT
      operational functions. The quadrant encompasses:

      o     Business continuity processes & disaster recovery.
      o     Network/data security (including identity management solutions).
      o     Intrusion detection & computer incident response.
      o     Certification and accreditation support.

      Business continuity is a critical element of Paradigm's offerings because
      the quadrant: a) encompasses a gamut of mid-to-high margin product and
      services areas, b) allows for relatively long-term and full-time
      equivalent (FTE) intensive contracts, and c) enables Paradigm to connect
      with the operational infrastructure of commercial and federal
      organizations while building an "entrenched" role and position for our
      company.

o     SYSTEMS ENGINEERING--This quadrant involves the development of
      mission-critical, often enterprise-wide solutions (via skillsets such as
      enterprise Java development) that are central to the organization and
      management of information. The quadrant encompasses:

      o     System and software design, development, engineering, & integration.
      o     Legacy systems modernization.
      o     Systems management and lifecycle maintenance.
      o     Vertical market-specific solutions (e.g. data mining, workflow,
            collaboration, decision support).

      Software/systems engineering is a critical element of Paradigm's offerings
      because the quadrant: a) involves highly skilled technical expertise that
      can command higher margins, b) often requires security clearance levels
      that can yield greater profit, and c) enables Paradigm to connect with the
      operational infrastructure of commercial and federal organizations while
      building a key enterprise role and relationship for our company.


                                       5



o     INFRASTRUCTURE SUPPORT--This quadrant involves supporting the day-to-day
      IT infrastructure requirements of our client agencies, especially in
      mission-critical divisions or functions within each agency. The quadrant
      encompasses:

      o     Network (LAN/WAN) design, implementation, & administration.
      o     Storage solutions & data/call center design.
      o     Seat management.
      o     Operations & Maintenance (including network operations, data center,
            help desk/call center, and hardware/software support).

      Infrastructure support is a critical element of Paradigm's offerings
      because the quadrant: a) involves enterprise-wide involvement with a
      client's network, which can in itself yield additional areas of
      opportunity, b) allows for relatively long-term and FTE intensive
      contracts, and c) enables Paradigm to connect with the operational
      infrastructure of commercial and federal organizations while building an
      "entrenched" role and position for our company.

o     PROGRAM MANAGEMENT--This quadrant involves providing critical support to
      the high-level program functions of an agency or division--in areas
      central to the achievement of an agency's functional as well as its
      information technology mission. The quadrant encompasses:

      o     Acquisition support & portfolio/project management.
      o     Information technology strategic planning, program assessment & life
            cycle planning.
      o     Enterprise architecture and change management.
      o     Training, training design/development, and training center support.

      Program management is a critical element of Paradigm's offerings because
      the quadrant: a) "opens up" program areas within a client organization
      that can be different from the CIO or technology-focused divisions, b)
      allows for relatively long-term and FTE intensive contracts, and c)
      enables Paradigm to penetrate deep within the operational infrastructure
      of commercial and federal organizations while building a key enterprise
      role and relationship for our company.

The above competencies constitute the IT and management support strengths
targeted by Paradigm for emphasis within both the federal and commercial arenas.
Our seasoned project managers and experienced technical teams collaborate with
our clients to define the scope, deliverables, and milestones for every project
we undertake to ensure our clients' satisfaction.

In addition to service-focused expertise, Paradigm offers a proprietary software
tool, OpsPlanner (TM), as one of the first tool sets to encompass continuity
planning, emergency management, and automated notification in one easy-to-use
platform. From inception, this platform was developed as an integrated
application--unlike those of our competitors, which offer continuity planning,
emergency management and automated notification as separate software modules.
The OpsPlanner(TM) offering, when implemented with Paradigm's consulting
expertise, provides a superior solution for continuity of operations planning
and risk management challenges.

SUCCESS STORIES WITH EXISTING CUSTOMERS

HELP DESK SUPPORT

Challenge: Develop and implement a more efficient, responsive, and better
managed computer support system.

Results: As essential personnel, our staff operates the client Help Desk 24/7.
Computer support had been conducted originally by customer personnel without a
massive call center, tracking system, or call response procedures. Paradigm's
program manager reviewed the method in which computer support was being provided
and recommended a full-fledged Help Desk operated by highly technical contractor
support staff capable of providing onsite 24/7 support to all headquarters and
field office personnel. A year after implementation of the new Help Desk call
center with support being provided by both customer and Paradigm personnel, the
customer recognized Paradigm's success in operating the Help Desk by entrusting
the team with more high-level responsibility and reducing the original
contractor-to-federal employee ratio for operating the Help Desk. The Help Desk
is now fully staffed by Paradigm, and the support has expanded to include
mainframes, some accounting and human resource system support, and support for
other secret information. Using Front Range System's HEAT, Paradigm records an
average of 1,600 help desk specific calls per month. Many of


                                       6



these calls are resolved over the phone through providing step-by-step
instruction or through remote access to the user's workstation. Calls that
cannot be resolved over the phone are assigned to other support groups for
resolution or to outside contractors to resolve user issues. Our use of the
Front Range System has been so effective that Front Range describes our process
as part of their marketing promotion of best use of the system. Within the first
year, Paradigm's control of the Help Desk saved the customer more than $2
million.

DATA WAREHOUSING

Challenge: Develop and implement a data mart to replace the existing, but
limited, HR system.

Results: Paradigm maintains a centralized data warehouse that supports a
customer base extending to 2,800+ users. Overall, as a result of the procedures
and practices that Paradigm employees (staff of 4) have established, the daily
operation of the data warehouse has significantly improved data integrity and
availability. A specific task entailed developing a data mart to support the HR
department, one that needed to outperform existing, but limited, data marts.
Because Paradigm's time-tested methodology and carefully documented development
process ensured no steps would be omitted, we could guarantee the quality of the
finished product. The process included extensive requirements analysis, data
modeling, data collection, data mart construction, prototyping, testing, and
other carefully documented steps. Paradigm rolled out a solution so beneficial
to the customer's work environment that the customer requested a number of other
data marts to meet their information needs. We followed up by delivering a
personal benefits data mart, accessible through an intranet, that replaced the
customer's manual method, which had inherent security risks as well as other
problems. This follow-on project was accomplished in 1 1/2 months.

DISASTER RECOVERY - MAINFRAME SUPPORT

Challenge: Establish secure telecommunications from the customer's headquarters
and mirror the server and all headquarters services at an undisclosed location
to support continuity of operations in the case of a national disaster.

Results: The Paradigm team devised a mode of operation and established the
telecommunications lines for full control of the remote site. Within the context
of two sites, we control what is done at site A from site B, without human
hands-on intervention. The Paradigm Team transfers data daily and ensures that
if one server is shut down, the remote server will pick up and continue all
activity in a seamless manner. Paradigm saved the customer money and resources
by establishing secure telecommunications from headquarters without the need for
personnel to be positioned at both sites as had been the case previously.

EXISTING CONTRACT PROFILES

As of December 31, 2005, we had a portfolio of 19 active contracts with the
federal government and over 65 active commercial contracts. Our contract mix for
the year ended December 31, 2005 was 56% fixed price contracts, 29% time and
materials contracts, and 15% cost-plus contracts.

Under a fixed price contract, the contractor agrees to perform the specified
work for a firm fixed price. To the extent that actual costs vary from the price
negotiated we may generate more or less than the targeted amount of profit or
even incur a loss. We generally do not pursue fixed price software development
work that may create material financial risk. We do, however, execute some fixed
price labor hour and fixed price level of effort contracts which represent
similar levels of risk as time and materials contracts. The substantial majority
of these fixed price contracts involve a defined number of hours or a defined
category of personnel. We refer to such contracts as "level of effort"
contracts.

Under a time and materials contract, the contractor is paid a fixed hourly rate
for each direct labor hour expended and is reimbursed for direct costs. To the
extent that actual labor hour costs vary significantly from the negotiated rates
under a time and materials contract, we may generate more or less than the
targeted amount of profit.

Cost-plus contracts provide for reimbursement of allowable costs and the payment
of a fee which is the contractor's profit. Cost-plus fixed fee contracts specify
the contract fee in dollars or as a percentage of allowable costs. Cost-plus
incentive fee and cost-plus award fee contracts provide for increases or
decreases in the contract fee, within specified limits, based upon actual
results as compared to contractual targets for factors such as cost, quality,
schedule and performance.


                                       7



Our historical contract mix is summarized in the table below.

Contract Type                          2005          2004          2003
- ------------------                     ----          ----          ----

Fixed Price (FFP)                       56%           52%           57%
Time and Materials (T&M)                29%           29%           31%
Cost-Plus (CP)                          15%           19%           12%


Listed below are our top programs by 2005 revenue, including single award and
multiple award contracts. We are a prime contractor on each of these programs.

                     TOP PROGRAMS/CONTRACTS BY 2005 REVENUE
                                 ($ in millions)




                                                                                    Estimated
                                                                                    Remaining
                                                                                    Contract
Contract                                                Period of       2005       Value as of
Programs                      Customer                 Performance     Revenue      12/31/05      Type
- ---------------------------   ----------------------   -----------   -----------   -----------   ------
                                                                                  
Long Term Maintenance of      Department of
Computing Center              Treasury - IRS           6/01 - 3/06   $      13.7   $       3.2   FFP

Alcohol, Tobacco & Firearms   Department of Justice    2/02 - 2/07           9.3          11.9   CP

Community Planning &          Housing and Urban
Development                   Development              3/03 - 3/07           8.8          12.8   FFP

United States Secret Service  Department of Homeland
                              Security                 9/99 - 2/06           6.5           0.9   T&M


DESCRIPTION OF MAJOR PROGRAMS / CONTRACTS:

DEPARTMENT OF THE TREASURY - INTERNAL REVENUE SERVICE, LONG TERM MAINTENANCE
OF COMPUTING CENTERS (LTMCC)

Paradigm provides computing center hardware maintenance and software
administration support to the IRS main Tax Reporting Systems in Detroit,
Michigan and Martinsburg, West Virginia. At the IRS Detroit Computing Center
(DCC), Paradigm currently responds to hardware remedial and preventive
maintenance and we administer the software that resides on the IBM z990,
2084-302 mainframe. Paradigm's staff of technicians supports the Enterprise
Computing Center at Martinsburg more than 1425 IBM/IBM compatible peripherals
and higher maintenance items in place at the IRS that include sophisticated tape
drives, monitors, and printers. We have established a technical support center
to resolve problems on a 24x7x365 basis.

DEPARTMENT OF JUSTICE - ALCOHOL TOBACCO, FIREARMS AND EXPLOSIVES

Paradigm provides software development and corrective, perfective and adaptive
software maintenance services in support of the Tax and Trade Bureau tax
collection mission. Paradigm's staff utilizes JAVA J2EE and Swing technologies
along with the Oracle 9i suite consisting of Forms, Reports, Discoverer,
Designer application server and Database. Paradigm also maintains legacy
applications developed in PowerBuilder. The staff is responsible for supporting
the full Systems Development Life Cycle utilizing a variety of industry
best-of-breed tools including Caliber-RM Requirements Management, Serena PVCS
Configuration Management, JDeveloper and the Mercury Test suite.


                                       8



HOUSING AND URBAN DEVELOPMENT - COMMUNITY PLANNING AND DEVELOPMENT (CPD)

Paradigm provides Corrective, Adaptive and Re-engineering software development
services in support of CPD's Grants Management Systems. This includes upgrades,
minor enhancements and legacy system migration to HUD's enterprise architecture.
Software engineering services include J2EE, PowerBuilder, Cobol CICS II and
Visual Basic with SQL Server, DB2 and Oracle backends.

DEPARTMENT OF HOMELAND SECURITY - UNITED STATES SECRET SERVICE (USSS)

Paradigm provides a technically sound and cost-effective Facilities Management
environment with emphasis placed on quality services to support the USSS's
critical mission. Paradigm staff provides IBM 7060-H50 Mainframe, EMC disk
storage, and StorageTek tape silo Mainframe Hardware and Computer Operations
Support. The Paradigm Team also provides OS-390 Systems Programming, WAN/LAN
Administration, Database Administration of Oracle and CA-IDMS databases, Help
Desk support utilizing Front Range System's HEAT Help Desk Suite CA-IDMS
Software Development, and Business Continuity Planning services.

BACKLOG

Backlog is our estimate of the amount of revenue we expect to realize over the
remaining life of awarded contracts and task orders we have in hand as of the
measurement date. Our total backlog consists of funded and unfunded backlog. We
define funded backlog as estimated future revenue under government contracts and
task orders for which funding has been appropriated by Congress and authorized
for expenditure by the applicable agency, plus our estimate of the future
revenue we expect to realize from our commercial contracts. Unfunded backlog is
the difference between total backlog and funded backlog. Unfunded backlog
reflects our estimate of future revenue under awarded government contracts and
task orders for which either funding has not yet been appropriated or
expenditure has not yet been authorized. Our total backlog does not include
estimates of revenue from government-wide acquisition contracts, or GWAC
contracts, or General Services Administration, or GSA, schedules beyond awarded
or funded task orders, but our unfunded backlog does include estimates of
revenue beyond awarded or funded task orders for other types of indefinite
delivery, indefinite quantity, or ID/IQ, contracts.

Our total backlog as of December 31, 2005 was approximately $111 million, of
which approximately $30 million was funded. However, there can be no assurance
that we will receive the amounts we have included in our backlog or that we will
ultimately recognize the full amount of our funded backlog as of December 31,
2005. We estimate our funded backlog will be recognized as revenue during fiscal
2006 or thereafter.

We believe that backlog is not necessarily indicative of the future revenue that
we will actually receive from contract awards that are included in calculating
our backlog. We assess the potential value of contracts for purposes of backlog
based upon several subjective factors. These subjective factors include our
judgments regarding historical trends (e.g., how much revenue we have received
from similar contracts in the past), competition (e.g., how likely are we to
successfully keep all parts of the work to be performed under the contract) and
budget availability (e.g., how likely is it that the entire contract will
receive the necessary funding). If we do not accurately assess each of these
factors, or if we do not include all of the variables that affect the revenue
that we recognize from our contracts, the potential value of our contracts, and
accordingly, our backlog, will not reflect the actual revenue received from
contracts and task orders. As a result, there can be no assurance that we will
receive amounts included in our backlog or that monies will be appropriated by
Congress or otherwise made available to finance contracts and task orders
included in our backlog. Many factors that affect the scheduling of projects
could alter the actual timing of revenue on projects included in backlog. There
is always the possibility that the contracts could be adjusted or cancelled. We
adjust our backlog on a quarterly basis to reflect modifications to or renewals
of existing contracts.

COMPETITIVE ANALYSIS

Today Paradigm operates in an environment characterized by increased competition
and additional barriers to entry. Some of these barriers include:

o     Highly specialized areas (e.g., enterprise resource planning) where
      entrenched competitors have an advantage in terms of industry recognition
      or proprietary products/services.
o     "Economies of scale" offered by the very largest competitors, who at times
      can provide solutions cost-effectively due to their sheer size.


                                       9



o     Contract bundling scenarios where agencies render only the largest
      contractors competitive because of the size and scope of the requirement.

We compete with many companies, both large and small, for our contracts. We do
not have a consistent number of competitors against whom we repeatedly compete.
These and other companies in our market may compete more effectively than we can
because they are larger, have greater financial and other resources, have better
or more extensive relationships with governmental officials involved in the
procurement process and have greater brand or name recognition.

Paradigm has developed--and will continually refine--a multi-element approach to
ensure the Company competes effectively even in the presence of one or all of
the above factors. Paradigm's approach includes several integrated elements that
we will utilize to compete effectively in the full gamut of scenarios that
characterize today's "full and open" arena.

Paradigm's competitive edge is based on the following:

o     Increased emphasis on quality through ISO & CMM processes - This allows us
      to compete more effectively on procurements where quality processes
      signify a key evaluation criterion.
o     Proactive approach to identifying the latest technology and business
      trends - Paradigm works as a corporate-wide team to research, identify,
      and discuss technology and trends impacting our industry.
o     Large pool of resources to develop leading-edge technology and business
      solutions - In addition to our highly capable staff, we tap into a vast
      pool of resources to help customize solutions to meet client needs.
o     Outstanding management solutions through best practices and commercial
      processes - Paradigm's federal and commercial divisions interact routinely
      to share information on best commercial practices that can be applied to
      all business opportunities and contracts.
o     Highly responsive approach to achieving high customer satisfaction - A key
      distinguishing factor for Paradigm is the excellent reputation we have
      attained with our customers over the years.

Paradigm routinely applies these competitive strengths in bidding on new
procurements - as well as in performing work on our current contracts.

BUSINESS DEVELOPMENT SUMMARY

Paradigm's business development function is based on a team approach wherein our
development, operations, and practice director roles interact closely on a
day-to-day basis to build high-margin business in mission-critical areas. New
opportunities are identified and qualified by all three functions--this helps to
gain maximum leverage from all development dollars as well as to more quickly
and effectively penetrate our targeted client organizations.

Paradigm employs a formal methodology for identifying, pursuing, and capturing
new business. Our day-to-day business development efforts are based on the
following principles:

1.    Fully leverage our current client relationships to: (a) grow our current
      contracts, and (b) identify and win new opportunities within not only the
      current divisions/departments, but also across the client organization.
2.    Manage and communicate critical client and opportunity information
      effectively across our development and operations groups to help take
      advantage of all of our knowledge and insight--working fully as a team.
3.    Qualify opportunities according to a structured, systematic process that
      helps ensure that Paradigm devotes its resources to the highest priority
      leads.
4.    Measure and evaluate our achievements against a specific, quantifiable set
      of short and long-term objectives.

Furthermore, Paradigm employs a systematic approach to opportunity
identification, qualification, and capture. Our overarching goal is to
continually refine our development efforts, placing much greater emphasis on
opportunities that provide sufficient lead time for us to win. The company's
lead qualification and bid/no-bid processes support this structured approach,
helping to ensure that we devote the vast majority of our resources to the most
winnable bids.


                                       10



ICENTER

The Innovation Center of Excellence (iCenter) is a corporate initiative focused
on providing reliable, practical, and innovative technical solutions to Paradigm
and its clients. The iCenter is a leading-edge technology facility located at
Paradigm headquarters. It maintains an independent computing infrastructure
specifically designed to accommodate research and development activities for
current and future client needs, with emphasis on rapid prototyping and product
demonstrations.

The iCenter has identified Areas of Excellence in which to develop its core
competencies based on their strategic importance to Paradigm and its clients.
Our iCenter engineers keep current with technology trends and best practices
through advanced training, professional certifications, and cross-training.

TECHNICAL AREAS OF INTEREST INCLUDE:

o     Remote Systems Management
o     Network Architecture
o     Network Operations and Management
o     Project Management
o     Training and Seminars
o     Software Development Methodologies
o     Software Quality Assurance and Metrics
o     Help Desk Technology and Best Practices
o     Wireless Technologies
o     Information Security

CULTURE, PEOPLE AND RECRUITING

To ensure effective response to the key trends outlined in the previous section,
Paradigm has instituted a corporate culture that promotes excellence in job
performance, respect for the ideas and judgment of our colleagues, and
recognition of the value of the unique skills and capabilities of our
professional staff. We utilize a wide variety of methodologies and techniques to
attract and retain highly qualified and ambitious staff, helping to ensure
continuity of support and client satisfaction.

Furthermore, Paradigm strives to establish an environment in which all employees
can make their best personal contribution and have the satisfaction of being
part of a unique, forward-looking team. Paradigm successfully attracts and
retains highly skilled employees because of the quality of our work environment,
the professional challenge of our assignments, and the financial and career
advancement opportunities we make available to our staff.

We occupy state-of-the-art facilities that are conducive to highly technical and
collaborative work, while providing individual privacy. In our Innovation
Center, we configure leading-edge equipment and software, and provide our
engineers and developers with advanced tools to evaluate and apply new
technologies.

As of December 31, 2005, we had 362 personnel (full time, part time, and
consultants). Of our total personnel, 312 were Paradigm IT service delivery
professionals and consultants, and 50 were management and administrative
personnel performing corporate marketing, human resources, finance, accounting,
legal, internal information systems and administrative functions. None of our
personnel is represented by a collective bargaining unit. As of December 31,
2004, comparative numbers were 299, 261, and 38, respectively.

WEBSITE ACCESS TO REPORTS

Our filings with the U.S. Securities and Exchange Commission (the "SEC") and
other information, including our Ethics Policy, can be found on the Paradigm
website (www.paradigmsolutions.com). Information on our website does not
constitute part of this report. We make available free of charge, on or through
our Internet website, as soon as reasonably practicable after they are
electronically filed or furnished to the SEC, our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
those reports filed or furnished pursuant to Section 13(a) or 15(d) of the
Exchange Act of 1934.


                                       11



ITEM 1A. RISK FACTORS

WE MAY NEED TO RAISE ADDITIONAL CAPITAL TO FINANCE OPERATIONS

We have relied on significant external financing to fund our operations. As of
December 31, 2005 and December 31, 2004, we had $943,017 and $179,389,
respectively, in cash and our total current assets were $17,364,839 and
$16,603,970, respectively. We will need to raise additional capital to fund our
anticipated operating expenses and future expansion. Among other things,
external financing may be required to cover our operating costs. If we do not
maintain profitable operations, it is unlikely that we will be able to secure
additional financing from external sources. The sale of our common stock to
raise capital may cause dilution to our existing shareholders. Any of these
events would be materially harmful to our business and may result in a lower
stock price. Our inability to obtain adequate financing may result in the need
to curtail business operations and investors could lose their entire investment.
Our financial statements do not include any adjustments that might result from
the outcome of this uncertainty.

SUBSTANTIALLY ALL OF OUR ASSETS ARE PLEDGED TO SECURE CERTAIN DEBT
OBLIGATIONS, WHICH WE COULD FAIL TO REPAY

Pursuant to our Loan and Security Agreement, dated July 28, 2005, with Chevy
Chase Bank, we were required to secure our repayment obligations with a first
priority lien on substantially all of the assets of Paradigm, excluding
intellectual property and real estate. Under the Loan and Security Agreement,
our line of credit is due on demand and interest is payable monthly depending on
our leverage ratio at the LIBOR rate plus the applicable spread which ranges
from 2.25% and 3.00%. In the event we are unable to timely repay any amounts
owed under the Loan and Security Agreement, we could lose substantially all of
our assets and be forced to curtail or cease our business operations. In
addition, because our debt obligations with Chevy Chase Bank are secured with a
first priority lien, it may make it more difficult for us to obtain additional
debt financing from another lender, or obtain new debt financing on terms
favorable to us, because such new lender may have to be willing to be
subordinate to Chevy Chase Bank.

ALL OF OUR REVENUES WOULD BE SUBSTANTIALLY THREATENED IF OUR RELATIONSHIPS
WITH AGENCIES OF THE FEDERAL GOVERNMENT WERE HARMED

Our largest clients are agencies of the federal government. If the federal
government in general, or any significant government agency, uses less of our
services or terminates its relationship with us, our revenues could decline
substantially. We could be forced to curtail or cease our business operations.
During the twelve months ending December 31 2005, contracts with the federal
government and contracts with prime contractors of the federal government
accounted for approximately 98% of our revenues of which, 47% of the revenue was
U.S. Small Business Administration (SBA) 8(a) business. During that same period,
our five largest clients, all agencies within the federal government, generated
approximately 81% of our revenues. We believe that federal government contracts
are likely to continue to account for a significant portion of our revenues for
the foreseeable future. The volume of work that we perform for a specific
client, however, is likely to vary from year to year, and a significant client
in one year may not use our services as extensively, or at all, in a subsequent
year.

WE MAY ENCOUNTER RISK IN MAINTAINING OUR CURRENT U.S. SMALL BUSINESS
ADMINISTRATION (SBA) 8(A) REVENUE IN THE FUTURE

As of October 2004, Paradigm Solutions Corporation began competing solely in the
open marketplace for federal business. Due to our graduation from the Small
Business Administration 8(a) Business Development Program, we are no longer
classified as a small disadvantaged business by the federal government.
Accordingly, we will no longer have access to contract vehicles set aside for
8(a) businesses. The backlog of federal business under this program will
continue until the contracts end, after which we will pursue several avenues to
maintain the business we believe is important to our strategy in this
marketplace. This includes either migrating this work to other government
contract vehicles, if allowed by the customer, or taking on a subcontract role
when the business comes up for re-compete and teaming with a SBA business who
would be the prime contractor. SBA 8(a) contracts generated 38% of our revenue
for the three months ended December 31, 2005. As of December 31, 2005, SBA 8(a)
contracts which provide 62% and 38% of our current SBA 8(a) revenues will come
up for renewal in 2006 and 2007, respectively. Failure to migrate the 8(a)
backlog business to other government contract vehicles or take a subcontractor
role when the business comes up for re-compete could significantly impact our
future revenue.


                                       12



WE MAY LOSE MONEY OR GENERATE LESS THAN ANTICIPATED PROFITS IF WE DO NOT
ACCURATELY ESTIMATE THE COST OF AN ENGAGEMENT WHICH IS CONDUCTED ON A
FIXED-PRICE BASIS

We perform a significant portion of our engagements on a fixed-price basis. We
derived 56% of our total revenue in FY2005 and 52% of our total revenue in
FY2004 from fixed-price contracts. Fixed price contracts require us to price our
contracts by predicting our expenditures in advance. In addition, some of our
engagements obligate us to provide ongoing maintenance and other supporting or
ancillary services on a fixed-price basis or with limitations on our ability to
increase prices. Many of our engagements are also on a time-and-material basis.
While these types of contracts are generally subject to less uncertainty than
fixed-price contracts, to the extent that our actual labor costs are higher than
the contract rates, our actual results could differ materially from those
anticipated.

When making proposals for engagements on a fixed-price basis, we rely on our
estimates of costs and timing for completing the projects. These estimates
reflect our best judgment regarding our capability to complete the task
efficiently. Any increased or unexpected costs or unanticipated delays in
connection with the performance of fixed-price contracts, including delays
caused by factors outside our control, could make these contracts less
profitable or unprofitable. From time to time, unexpected costs and
unanticipated delays have caused us to incur losses on fixed-price contracts,
primarily in connection with state government clients. On rare occasions, these
losses have been significant. In the event that we encounter such problems in
the future, our actual results could differ materially from those anticipated.

THE CALCULATION OF OUR BACKLOG IS SUBJECT TO NUMEROUS UNCERTAINTIES AND WE MAY
NOT RECEIVE THE FULL AMOUNTS OF REVENUE ESTIMATED UNDER THE CONTRACTS INCLUDED
IN OUR BACKLOG, WHICH COULD REDUCE OUR REVENUE IN FUTURE PERIODS.

Backlog is our estimate of the amount of revenue we expect to realize over the
remaining life of the signed contracts and task orders we have in hand as of the
measurement date. Our total backlog consists of funded and unfunded backlog. In
the case of government contracts, we define funded backlog as estimated future
revenues under government contracts and task orders for which funding has been
appropriated by Congress and authorized for expenditure by the applicable agency
under our contracts. Unfunded backlog is the difference between total backlog
and funded backlog. Our total backlog does not include estimates of backlog from
GWAC or GSA schedules beyond signed, funded task orders, but does include
estimated backlog beyond signed, funded task orders for other types of ID/IQ
contracts. Backlog also includes an estimate of future revenues we expect to
realize from commercial contracts.

The calculation of backlog is highly subjective and is subject to numerous
uncertainties and estimates, and there can be no assurance that we will in fact
receive the amounts we have included in our backlog. Our assessment of a
contract's potential value is based upon factors such as historical trends,
competition and budget availability. In the case of contracts which may be
renewed at the option of the applicable agency, we generally calculate backlog
by assuming that the agency will exercise all of its renewal options; however,
the applicable agency may elect not to exercise its renewal options. In
addition, federal contracts typically are only partially funded at any point
during their term, and all or some of the work to be performed under a contract
may remain unfunded unless and until Congress makes subsequent appropriations
and the procuring agency allocates funding to the contact. Our estimate of the
portion of backlog from which we expect to recognize revenues in fiscal 2006 or
any future period is likely to be inaccurate because the receipt and timing of
any of these revenues is dependent upon subsequent appropriation and allocation
of funding and is subject to various contingencies, such as timing of task
orders, many of which are beyond our control. In addition, we may never receive
revenues from some of the engagements that are included in our backlog and this
risk is greater with respect to unfunded backlog. The actual receipt of revenues
on engagements included in backlog may never occur or may change because a
program schedule could change, the program could be canceled, the governmental
agency could elect not to exercise renewal options under a contract or could
select other contractors to perform services, or a contract could be reduced,
modified or terminated. Additionally, the maximum contract value specified under
a government contract or task order awarded to us is not necessarily indicative
of the revenues that we will realize under that contract. We also derive
revenues from ID/IQ contracts, which typically do not require the government to
purchase a specific amount of goods or services under the contract other than a
minimum quantity which is generally very small. If we fail to realize revenue
included in our backlog, our revenues and operating results for the then current
fiscal year as well as future reporting periods may be materially harmed.

OUR GOVERNMENT CONTRACTS MAY BE TERMINATED OR ADVERSELY MODIFIED PRIOR TO
COMPLETION, WHICH COULD ADVERSELY AFFECT OUR BUSINESS

We derive substantially all of our revenues from government contracts that
typically are awarded through competitive processes and span a one year base
period and one or more option years. The unexpected termination or non-renewal
of one or more of our significant contracts could result in significant revenue
shortfalls. Our clients generally have the right not to exercise the option


                                       13



periods. In addition, our contracts typically contain provisions permitting an
agency to terminate the contract on short notice, with or without cause.
Following termination, if the client requires further services of the type
provided in the contract, there is frequently a competitive re-bidding process.
We may not win any particular re-bid or be able to successfully bid on new
contracts to replace those that have been terminated. Even if we do win the
re-bid, we may experience revenue shortfalls in periods where we anticipated
revenues from the contract rather than its termination and subsequent
re-bidding. These revenue shortfalls could harm operating results for those
periods and have a material adverse effect on our business, prospects, financial
condition and results of operations.

WE MAY HAVE DIFFICULTY IDENTIFYING AND EXECUTING FUTURE ACQUISITIONS ON
FAVORABLE TERMS, WHICH MAY ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND STOCK
PRICE.

We cannot assure that we will be able to identify and execute acquisitions in
the future on terms that are favorable to us, or at all. One of our key growth
strategies will be to selectively pursue acquisitions. Through acquisitions, we
plan to expand our base of federal government and commercial clients, increase
the range of solutions we offer to our clients and deepen our penetration of
existing clients. Without acquisitions, we may not grow as rapidly as the market
expects, which could cause our actual results to differ materially from those
anticipated. We may encounter other risks in executing our acquisition strategy,
including:

o     increased competition for acquisitions which may increase the price of our
      acquisitions;

o     our failure to discover material liabilities during the due diligence
      process, including the failure of prior owners of any acquired businesses
      or their employees to comply with applicable laws, such as the Federal
      Acquisition Regulation and health, safety, employment and environmental
      laws, or their failure to fulfill their contractual obligations to the
      federal government or other clients; and

o     acquisition financing may not be available on reasonable terms, or at all.

In connection with any future acquisitions, we may decide to consolidate the
operations of any acquired business with our existing operations or to make
other changes with respect to the acquired business, which could result in
special charges or other expenses. Our results of operations also may be
adversely affected by expenses we incur in making acquisitions and, in the event
that any goodwill resulting from present or future acquisitions is found to be
impaired, by goodwill impairment charges.

In addition, our ability to make future acquisitions may require us to obtain
additional financing and we may be materially adversely affected if we cannot
obtain additional financing for any future acquisitions. To the extent that we
seek to acquire other businesses in exchange for our common stock, fluctuations
in our stock price could have a material adverse effect on our ability to
complete acquisitions and the issuance of common stock to acquire other
businesses could be dilutive to our stockholders. To the extent that we use
borrowings to acquire other businesses, our debt service obligations could
increase substantially and relevant debt instruments may, among other things,
impose additional restrictions on our operations, require us to comply with
additional financial covenants or require us to pledge additional assets to
secure our borrowings.

Any future acquisitions we make could disrupt our business and seriously harm
our financial condition. We intend to consider investments in complementary
companies, products and technologies. While we have no current agreements to do
so, we anticipate buying businesses, products and/or technologies in the future
in order to fully implement our business strategy. In the event of any future
acquisitions, we may:

o     issue stock that would dilute our current stockholders' percentage
      ownership;

o     incur debt;

o     assume liabilities;

o     incur amortization expenses related to goodwill and other intangible
      assets; or

o     incur large and immediate write-offs.

The use of debt or leverage to finance our future acquisitions should allow us
to make acquisitions with an amount of cash in excess of what may be currently
available to us. If we use debt to leverage up our assets, we may not be able to
meet our debt obligations if our


                                       14



internal projections are incorrect or if there is a market downturn. This may
result in a default and the loss in foreclosure proceedings of the acquired
business or the possible bankruptcy of our business.

Our operation of any acquired business will also involve numerous risks,
including:

o     integration of the operations of the acquired business and its
      technologies or products;

o     unanticipated costs;

o     diversion of management's attention from our core business;

o     adverse effects on existing business relationships with suppliers and
      customers;

o     risks associated with entering markets in which we have limited prior
      experience; and

o     potential loss of key employees, particularly those of the purchased
      organizations.

The success of our acquisition strategy will depend upon our ability to
successfully integrate any businesses we may acquire in the future. The
integration of these businesses into our operations may result in unforeseen
events or operating difficulties, absorb significant management attention and
require significant financial resources that would otherwise be available for
the ongoing development of our business. These integration difficulties could
include the integration of personnel with disparate business backgrounds, the
transition to new information systems, coordination of geographically dispersed
organizations, loss of key employees of acquired companies and reconciliation of
different corporate cultures. For these or other reasons, we may be unable to
retain key clients or to retain or renew contracts of acquired companies.
Moreover, any acquired business may fail to generate the revenue or net income
we expected or produce the efficiencies or cost-savings that we anticipated. Any
of these outcomes could materially adversely affect our operating results.

FAILING TO MAINTAIN STRONG RELATIONSHIPS WITH PRIME CONTRACTORS COULD RESULT
IN A DECLINE IN OUR REVENUES

We derived approximately 6% of our revenues during the twelve months ended
December 31, 2005 through our subcontractor relationships with prime
contractors, which, in turn, hold the prime contract with end-clients. We
project over the next few years the percentage of subcontractor revenue will
increase significantly. If any of these prime contractors eliminate or reduce
their engagements with us, or have their engagements eliminated or reduced by
their end-clients, we will lose this source of revenues, which, if not replaced,
could force us to curtail our business operations.

OUR RELATIVELY FIXED OPERATING EXPENSES EXPOSE US TO GREATER RISK OF
INCURRING LOSSES

We incur costs based on our expectations of future revenues. Our operating
expenses are relatively fixed and cannot be reduced on short notice to
compensate for unanticipated variations in the number or size of engagements in
progress. These factors make it difficult for us to predict our revenues and
operating results. If we fail to predict our revenues accurately, it may
seriously harm our financial condition and we could be forced to curtail or
cease our business operations.

A REDUCTION IN OR THE TERMINATION OF OUR SERVICES COULD LEAD TO UNDERUTILIZATION
OF OUR EMPLOYEES AND COULD HARM OUR OPERATING RESULTS

Our employee compensation expenses are relatively fixed. Therefore, if a client
defers, modifies or cancels an engagement or chooses not to retain us for
additional phases of a project, our operating results will be harmed unless we
can rapidly redeploy our employees to other engagements in order to minimize
underutilization. If we fail to redeploy our employees, we could be forced to
curtail or cease our business operations.

IF WE EXPERIENCE DIFFICULTIES COLLECTING RECEIVABLES IT COULD CAUSE OUR
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE ANTICIPATED

As of December 31, 2005, 73% of our total assets were in the form of accounts
receivable, thus, we depend on the collection of our receivables to generate
cash flow, provide working capital, pay debt and continue our business
operations. If the federal government, any of our other clients or any prime
contractor for whom we are a subcontractor fails to pay or delays the payment of
their


                                       15



outstanding invoices for any reason, our business and financial condition may be
materially adversely affected. The government may fail to pay outstanding
invoices for a number of reasons, including lack of appropriated funds or lack
of an approved budget.

WE COULD LOSE REVENUES AND CLIENTS AND EXPOSE OUR COMPANY TO LIABILITY IF WE
FAIL TO MEET CLIENT EXPECTATIONS

We create, implement and maintain technology solutions that are often critical
to our clients' operations. If our technology solutions or other applications
have significant defects or errors or fail to meet our clients' expectations, we
may:

o     lose revenues due to adverse client reaction;

o     be required to provide additional remediation services to a client at no
      charge;

o     receive negative publicity, which could damage our reputation and
      adversely affect our ability to attract or retain clients; or

o     suffer claims for substantial damages against us, regardless of our
      responsibility for the failure.

While many of our contracts limit our liability for damages that may arise from
negligent acts, errors, mistakes or omissions in rendering services to our
clients, we cannot be sure that these contractual provisions will protect us
from liability for damages if we are sued. Furthermore, our general liability
insurance coverage may not continue to be available on reasonable terms or in
sufficient amounts to cover one or more large claims or the insurer may disclaim
coverage as to any future claim. The successful assertion of any large claim
against us could force us to curtail or cease our business operations. Even if
not successful, such claims could result in significant legal and other costs
and may be a distraction to management.

SECURITY BREACHES IN SENSITIVE GOVERNMENT SYSTEMS COULD RESULT IN THE LOSS OF
CLIENTS AND NEGATIVE PUBLICITY

Some of the systems we develop involve managing and protecting information
involved in sensitive government functions. A security breach in one of these
systems could cause serious harm to our business, could result in negative
publicity and could prevent us from having further access to such critically
sensitive systems or other similarly sensitive areas for other government
clients, which could force us to curtail or cease our business operations.
Losses that we could incur from such a security breach could exceed the policy
limits under the "errors and omissions" liability insurance we are currently
evaluating.

IF WE CANNOT OBTAIN THE NECESSARY SECURITY CLEARANCES, WE MAY NOT BE ABLE TO
PERFORM CLASSIFIED WORK FOR THE GOVERNMENT AND WE COULD BE FORCED TO CURTAIL OR
CEASE OPERATIONS

Government contracts require us, and some of our employees, to maintain security
clearances. If we lose or are unable to obtain security clearances, the client
can terminate the contract or decide not to renew it upon its expiration. As a
result, if we cannot obtain the required security clearances for our employees
working on a particular engagement, we may not derive the revenue anticipated
from the engagement, which, if not replaced with revenue from other engagements,
could force us to curtail or cease our business operations.

WE MUST RECRUIT AND RETAIN QUALIFIED PROFESSIONALS TO SUCCEED IN OUR LABOR
INTENSIVE BUSINESS

Our future success depends in large part on our ability to recruit and retain
qualified professionals skilled in complex information technology services and
solutions. Such personnel as Java developers and other hard-to-find information
technology professionals are in great demand and are likely to remain a limited
resource in the foreseeable future. Competition for qualified professionals is
intense. Any inability to recruit and retain a sufficient number of these
professionals could hinder the growth of our business. The future success of
Paradigm will depend on our ability to attract, train, retain and motivate
direct sales, customer support and highly skilled management and technical
employees. We may not be able to successfully expand our direct sales force,
which would limit our ability to expand our customer base. Further, we may not
be able to hire highly trained consultants and support engineers which would
make it difficult to meet our clients' demands. If we cannot successfully
identify and integrate new employees into our business, we will not be able to
manage our growth effectively and we could be forced to curtail our business
operations. Because a significant component of our growth strategy relates to
increasing our revenue from sales of our services and software, our growth
strategy will be adversely affected if we are unable to develop and maintain an
effective sales force to market our services to our federal and commercial
customers. A key component of our growth strategy is the recruitment of
additional sales executives. Our effort to build an effective sales force may
not be successful and, therefore, we could be forced to curtail our business
operations.


                                       16



WE DEPEND ON OUR SENIOR MANAGEMENT TEAM, AND THE LOSS OF ANY MEMBER MAY
ADVERSELY AFFECT OUR ABILITY TO OBTAIN AND MAINTAIN CLIENTS

We believe that our success depends on the continued employment of our senior
management team of Raymond Huger, Chairman & CEO, Frank Jakovac, President & COO
and Richard Sawchak, Vice President & CFO. We have key executive life insurance
policies for Mr. Huger and Mr. Jakovac for up to $1 million. Their employment is
particularly important to our business because personal relationships are a
critical element of obtaining and maintaining client engagements. If one or more
members of our senior management team were unable or unwilling to continue in
their present positions, such persons would be difficult to replace and our
business could be seriously harmed. Furthermore, clients or other companies
seeking to develop in-house capabilities may attempt to hire some of our key
employees. Employee defections to clients or competitors would not only result
in the loss of key employees but could also result in the loss of a client
relationship or a new business opportunity. Any losses of client relationships
could seriously harm our business and force us to curtail or cease our business
operations.

AUDITS OF OUR GOVERNMENT CONTRACTS MAY RESULT IN A REDUCTION IN THE REVENUE WE
RECEIVE FROM THOSE CONTRACTS OR MAY RESULT IN CIVIL OR CRIMINAL PENALTIES THAT
COULD HARM OUR REPUTATION

Federal government agencies routinely audit government contracts. These agencies
review a contractor's performance on its contract, pricing practices, cost
structure and compliance with applicable laws, regulations and standards. An
audit could result in a substantial adjustment to our revenues because any costs
found to be improperly allocated to a specific contract will not be reimbursed,
while improper costs already reimbursed must be refunded. If a government audit
uncovers improper or illegal activities, we may be subject to civil and criminal
penalties and administrative sanctions, including termination of contracts,
forfeiture of profits, suspension of payments, fines and suspension or debarment
from doing business with federal government agencies. In addition, if
allegations of impropriety were made against us, we could be forced to curtail
or cease our business operations.

WE MAY BE LIABLE FOR PENALTIES UNDER A VARIETY OF PROCUREMENT RULES AND
REGULATIONS, AND CHANGES IN GOVERNMENT REGULATIONS COULD SLOW OUR GROWTH OR
REDUCE OUR PROFITABILITY

We must comply with and are affected by federal government regulations relating
to the formation, administration and performance of government contracts. These
regulations affect how we do business with our clients and may impose added
costs on our business. Any failure to comply with applicable laws and
regulations could result in contract termination, price or fee reductions or
suspension or debarment from contracting with the federal government, which
could force us to curtail or cease our business operations. Further, the federal
government may reform its procurement practices or adopt new contracting methods
relating to the GSA Schedule or other government-wide contract vehicles. If we
are unable to successfully adapt to those changes, our business could be
seriously harmed.

OUR FAILURE TO ADEQUATELY PROTECT OUR CONFIDENTIAL INFORMATION AND PROPRIETARY
RIGHTS MAY HARM OUR COMPETITIVE POSITION AND FORCE US TO CURTAIL OR CEASE OUR
BUSINESS OPERATIONS

While our employees execute confidentiality agreements, we cannot guarantee that
this will be adequate to deter misappropriation of our confidential information.
In addition, we may not be able to detect unauthorized use of our intellectual
property in order to take appropriate steps to enforce our rights. If third
parties infringe or misappropriate our copyrights, trademarks or other
proprietary information, our competitive position could be seriously harmed,
which could force us to curtail or cease our business operations. In addition,
other parties may assert infringement claims against us or claim that we have
violated their intellectual property rights. Such claims, even if not true,
could result in significant legal and other costs and may be a distraction to
management.

RISKS RELATED TO THE INFORMATION TECHNOLOGY SOLUTIONS AND SERVICES MARKET
COMPETITION COULD RESULT IN PRICE REDUCTIONS, REDUCED PROFITABILITY AND LOSS OF
MARKET SHARE

Competition in the federal marketplace for information technology solutions and
services is intense. If we are unable to differentiate our offerings from those
of our competitors, our revenue growth and operating margins may decline, which
could force us to curtail or cease our business operations. Many of our
competitors are larger and have greater financial, technical, marketing and
public relations resources, larger client bases and greater brand or name
recognition than Paradigm. Our larger competitors may be able to provide clients
with additional benefits, including reduced prices. We may be unable to offer
prices at those reduced rates, which may cause us to lose business and market
share. Alternatively, we could decide to offer the lower prices, which could
harm our profitability. If we fail to compete successfully, our business could
be seriously harmed, which could force us to curtail or cease our business
operations.


                                       17



Our current competitors include, and may in the future include, information
technology services providers and large government contractors such as QSS
Group, Pragmatics, Booz Allen & Hamilton, Computer Sciences Corporation, RSIS,
SRA, ATS, Electronic Data Systems, Science Applications International
Corporation, and Lockheed Martin.

Current and potential competitors have also established or may establish
cooperative relationships among themselves or with third parties to increase
their ability to address client needs. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. In addition, some of our competitors may develop
services that are superior to, or have greater market acceptance than the
services that we offer.

IF A VIABLE MARKET FOR GOVERNMENT INFORMATION TECHNOLOGY SERVICES IS NOT
SUSTAINED, WE COULD BE FORCED TO CURTAIL OR CEASE OUR BUSINESS OPERATIONS

We cannot be certain that a viable government market for technology services
will be sustainable. If this market is not sustained and we are unable to
refocus our services on the private sector market or other in-demand
technologies, our growth would be negatively affected.

Although government agencies have recently increased focus on and funding for
technology initiatives, we cannot be certain that these initiatives will
continue in the future. Budget cutbacks or political changes could result in a
change of focus or reductions in funding for technology initiatives, which could
force us to curtail or cease our business operations.

WE HAVE PREVIOUSLY REPORTED A MATERIAL WEAKNESS IN OUR INTERNAL CONTROL OVER
FINANCIAL REPORTING. ALTHOUGH WE BELIEVE THE WEAKNESS HAS BEEN REMEDIATED, THE
LEVEL OF ASSURANCE IS NOT ABSOLUTE.

We are responsible for establishing and maintaining adequate internal control
over financial reporting of our company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with generally accepted accounting
principles. Our internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and
expenditures of our company are being made only in accordance with
authorizations of management and directors of our company; and (iii) provide
reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of our company's assets that could have a
material effect on our financial statements.

We conducted an evaluation of the design and effectiveness of internal control
over financial reporting. Based on this evaluation, we concluded that our
internal control over financial reporting was not effective as of September 30,
2005. We identified an internal control deficiency that represented a material
weakness in internal control over the financial statement close process. The
control deficiency related to our limited resources and internal level of
technical accounting and reporting expertise. The material weakness affected our
ability to prepare and properly review interim and annual financial statements
and accompanying footnote disclosures in accordance with generally accepted
accounting principles and the rules and regulations of the SEC. A material
weakness in internal controls is a significant deficiency, or combination of
significant deficiencies, that results in more than a remote likelihood that a
material misstatement of the financial statements would not be prevented or
detected on a timely basis. The foregoing material weakness resulted in
restatements to our financial statements and related disclosures. As we have not
completed the testing of all aspects of our internal control over financial
reporting, it is possible that additional deficiencies could be determined to be
individually or in the aggregate a material weakness, which could lead to
inaccurate financial statements and further restatements of those financial
statements.

In order to address and correct the deficiency identified above, our corrective
actions included: (i) hired a Chief Financial Officer with the requisite
experience on September 19, 2005; (ii) hired a corporate controller with the
requisite experience and CPA designation on November 16, 2005; (iii) hired an
assistant controller with the requisite experience and CPA designation to assist
and work directly with our corporate controller on October 15, 2005; and (iv)
created an additional position to assist with the financial reporting process
and hired an individual for this position on May 16, 2005. We believe these
actions remediated our material weakness as of December 31, 2005. Because of the
inherent limitations in all control systems, controls can provide only
reasonable, not absolute, assurance that all control issues and instances of
fraud, if any, will be or have been detected. Additional deficiencies could lead
to inaccurate financial statements and further restatements of those financial
statements.


                                       18



OUR COMMON STOCK MAY BE AFFECTED BY LIMITED TRADING VOLUME AND MAY FLUCTUATE
SIGNIFICANTLY

Our common stock is traded on the Over-the-Counter Bulletin Board. There has
been a limited public market for our common stock and there can be no assurance
that an active trading market for our common stock will develop. As a result,
this could adversely affect our shareholders' ability to sell our common stock
in short time periods, or possibly at all. Our common stock is thinly traded
compared to larger, more widely known companies in the information technology
services industry. Thinly traded common stock can be more volatile than common
stock traded in an active public market. The average daily trading volume of our
common stock for the three months ended December 31, 2005 was 362 shares per
day. Our common stock has experienced, and is likely to experience in the
future, significant price and volume fluctuations, which could adversely affect
the market price of our common stock without regard to our operating
performance. In addition, we believe that factors such as quarterly fluctuations
in our financial results and changes in the overall economy or the condition of
the financial markets could cause the price of our common stock to fluctuate
substantially.

RISKS RELATED TO THE OWNERSHIP OF OUR COMMON STOCK, QUARTERLY REVENUES AND
OPERATING RESULTS COULD BE VOLATILE AND MAY CAUSE OUR STOCK PRICE TO FLUCTUATE

The rate at which the federal government procures technology may be negatively
affected following changes in Presidential Administrations and in Senior
Government officials. As a result, our operating results could be volatile and
difficult to predict, and period-to-period comparisons of our operating results
may not be a good indication of our future performance.

A significant portion of our operating expenses, such as personnel and
facilities costs, are fixed in the short term. Therefore, any failure to
generate revenues according to our expectations in a particular quarter could
result in reduced income in the quarter. In addition, our quarterly operating
results may not meet the expectations of securities analysts or investors, which
in turn may have an adverse affect on the market price of our common stock.

OUR COMMON STOCK IS DEEMED TO BE "PENNY STOCK," WHICH MAY MAKE IT MORE DIFFICULT
FOR INVESTORS TO SELL THEIR SHARES DUE TO SUITABILITY REQUIREMENTS

Our common stock is deemed to be "penny stock" as that term is defined in Rule
3a51-1 promulgated under the Securities Exchange Act of 1934. Penny stocks are
stock:

o     With a price of less than $5.00 per share

o     That are not traded on a "recognized" national exchange

o     Whose prices are not quoted on the NASDAQ automated quotation system
      (NASDAQ listed stock must still have a price of not less than $5.00 per
      share) or

o     In issuers with net tangible assets less than $2.0 million (if the issuer
      has been in continuous operation for at least three years) or $5.0 million
      (if in continuous operation for less than three years), or with average
      revenues of less than $6.0 million for the last three years.

Broker/dealers dealing in penny stocks are required to provide potential
investors with a document disclosing the risks of penny stocks. Moreover,
broker/dealers are required to determine whether an investment in a penny stock
is a suitable investment for a prospective investor. These requirements may
reduce the potential market for our common stock by reducing the number of
potential investors. This may make it more difficult for investors in our common
stock to sell shares to third parties or to otherwise dispose of them. This
could cause our stock price to decline.

INVESTORS SHOULD NOT RELY ON AN INVESTMENT IN OUR STOCK FOR THE PAYMENT OF CASH
DIVIDENDS

We have not paid any cash dividends on our capital stock and we do not
anticipate paying cash dividends in the future. Investors should not make an
investment in our common stock if they require dividend income. Any return on an
investment in our common stock will be as a result of any appreciation, if any,
in our stock price.


                                       19



ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal offices are located at two locations: Our headquarters is
located at 2600 Tower Oaks Boulevard, Suite 500, Rockville, Maryland 20852.
This principal office consists of 14,318 sq. feet with a monthly lease cost
of $35,100 and is leased until May 31, 2011. Our Washington D.C. office,
which is leased in support of our HUD customer, is located at: 15th and H
Streets, N.W. Washington, D.C. 20005. This principal office consists of
16,364 sq. feet with a monthly lease cost of $34,721 and is leased until
March 31, 2007.

ITEM 3. LEGAL PROCEEDINGS

Paradigm is involved in litigation, both potential and actual, arising from a
contractual agreement between Paradigm and Norvergence, Inc. (Norvergence).
Paradigm entered into an agreement with Norvergence for the provision of
telecommunication equipment and services in June, 2003. Under the agreement,
Norvergence promised to supply all of Paradigm's telecommunication needs for a
period of 60 months for the sum of $2,152 per month. Soon after executing the
agreement with Paradigm, Norvergence sold a portion of the rights to those
payments to a third party, CIT Technology Financial Services, Inc. (CIT). In
July, 2004, Norvergence was forced into bankruptcy by its creditors and, soon
thereafter, Paradigm's telecommunication services provided under the Norvergence
agreement were terminated. Paradigm has taken the position that Norvergence
utilized fraud and deception to obtain the agreement from Paradigm and has
ceased paying either Norvergence or CIT.

Paradigm has filed an unsecured claim in the Norvergence bankruptcy in the
amount of $314,573 plus interest and attorney's fees. The claim is based upon
claims under the N.J.S.A. 56:8-1 et. seq. (which provides for treble damages),
common law fraud and breach of contract. At this juncture of the bankruptcy
proceeding, it seems unlikely that Paradigm will recover a significant portion
of its claim or any interest or attorney's fees. Paradigm also has potential
exposure to a lawsuit from CIT. Paradigm has calculated that it may be liable to
CIT for the sum of $59,300 plus interest and attorney's under the agreement
assigned to CIT by Norvergence. CIT has not yet sued Paradigm, but has
threatened to do so. Paradigm intends to vigorously contest any suit against it
by CIT. This potential liability was accrued for in 2004.

On May 27, 2005, Paradigm received a settlement letter from the CIT Group
concerning this matter which is a fully executed release from this liability in
the amount of $3,948. On June 24, 2005, Paradigm finalized this settlement with
CIT in the amount of $3,948.

Paradigm has accrued $125,000 to settle a matter over disputed commissions that
a former employee claims are due at December 31, 2005. Paradigm believes the
claims are without merit and intends to vigorously defend its position. In the
opinion of management, the outcome of these matters will not have a material
adverse effect on these financial statements.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

None.


                                       20



                                     PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER
        MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock has been listed on the NASD OTC Electronic Bulletin Board
sponsored by the National Association of Securities Dealers, Inc. under the
symbol "PDHO" since September 14, 2004, following our name change and a 1 for 85
reverse stock split. The shares of Cheyenne Resources traded on the OTC BB under
the symbol "CHYN" from January 2002 to July 2004.

The following table sets forth the high and low market prices for the common
stock as reported on the Over-the-Counter Bulletin Board for each quarter since
January 2003 for the periods indicated. Such information reflects inter dealer
prices without retail mark-up, mark down or commissions and may not represent
actual transactions.

The following table sets forth, for the periods indicated, the market price
range of our common stock.


YEAR 2005                                               High Price     Low Price
- --------------------------------------------------------------------------------
Quarter Ended March 31, 2005                            $     4.25     $    2.40
Quarter Ended June 30, 2005                             $     4.25     $    2.75
Quarter Ended September 30, 2005                        $     4.00     $    2.50
Quarter Ended December 31, 2005                         $     3.00     $    1.30

YEAR 2004                                               High Price     Low Price
- --------------------------------------------------------------------------------
Quarter Ended March 31, 2004                            $    0.021     $   0.005
Quarter Ended June 30, 2004                             $    0.012     $   0.007
Quarter Ended September 30, 2004                        $     0.11     $   0.006
Quarter Ended December 31, 2004                         $     6.25     $    0.80

YEAR 2003                                               High Price     Low Price
- --------------------------------------------------------------------------------
Quarter Ended March 31, 2003                            $    0.005     $   0.001
Quarter Ended June 30, 2003                             $     0.01     $   0.005
Quarter Ended September 30, 2003                        $     0.01     $   0.002
Quarter Ended December 31, 2003                         $    0.005     $   0.002

On March 6, 2006, the closing price of our common stock as reported on the
Over-the-Counter Bulletin Board was $2.50 per share. As of March 6, 2006, we had
in excess of 2,750 holders of common stock and 20,503,486 shares of our common
stock were issued and outstanding. Many of our shares are held in brokers'
accounts, so we are unable to give an accurate statement of the number of
shareholders.

DIVIDENDS

We have not paid any dividends on our common stock and do not anticipate paying
any cash dividends in the foreseeable future. We intend to retain any earnings
to finance the growth of the business. We cannot assure investors that we will
ever pay cash dividends. Whether we pay any cash dividends in the future will
depend on the financial condition, results of operations and other factors that
the Board of Directors will consider.

RECENT SALES OF UNREGISTERED SECURITIES

Effective as of December 15, 2005, the Board of Directors of Paradigm granted
options (the "Options") to acquire shares of the Company's common stock, par
value $0.01 per share to the below listed individuals. The options were vested
as of


                                       21



December 15, 2005, have an exercise price equal to $1.70 per share, and expire
on December 14, 2015. The Options are not intended to be incentive stock Options
under Section 422 of the Internal Revenue Code of 1986, as amended and will be
interpreted accordingly.


    NAME                   TITLE                                         OPTIONS
    -----------------  ---------------------------------------------  ----------
    Francis Ryan       Director                                           40,000
    John Moore         Director                                           40,000
    Edwin Avery        Director                                           40,000
    Frank Jakovac      President, Chief Operating Officer and
                         Director                                        800,000
    Richard Sawchak    Chief Financial Officer                           200,000
    Harry Kaneshiro    Executive Vice-President                          100,000
    Stephen Murray     Senior Vice-President                             100,000
    Robert Valli       Vice-President, Business Development               75,000
    Russell Blackwell  Vice-President, Product and Professional
                         Services                                         75,000
    Lori Ermi          Vice-President                                     75,000


In addition, the Company granted an aggregate of 577,000 Options to 34 other
employees of the Company.


                                       22



ITEM 6. SELECTED FINANCIAL DATA

The following is a summary of the consolidated financial statements. The reader
should read the following data together with the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
consolidated financial statements and related notes therewith. Effective
November 5, 2004, Paradigm revoked our S-Corporation status and became a
C-Corporation. After the revocation of the S election, Paradigm is responsible
for income taxes generated as a result of reporting taxable income. The
consolidated financial statements as of December 31, 2004, 2003, 2002 and 2001
include both the audited consolidated financial statements and pro forma
adjustments to provide for an income tax provision (benefit) and a deferred
income tax liability for each year presented as if Paradigm had been a
C-Corporation during these periods of operation. Paradigm assumed an effective
tax rate of 38.6% which reflects Federal taxes at 34% and state taxes, net of
the Federal benefit. There are no significant permanent differences in any of
the periods presented.



                                                                     Years ended December 31,
(in thousands, except per share data)                   2005         2004        2003          2002        2001
                                                     ---------    ---------    ---------    ---------    ---------
                                                                                          
Statements of operations data:
Contract revenue .................................   $  63,515    $  61,756    $  51,206    $  37,673    $  27,188
Cost of revenue ..................................      52,960       54,545       45,810       32,420       23,389
                                                     ---------    ---------    ---------    ---------    ---------

Gross margin .....................................      10,555        7,211        5,396        5,253        3,799
Selling, General & Administrative ................       9,031        8,994        4,951        2,890        2,444

Income (loss) from operations ....................       1,524       (1,783)         445        2,363        1,355
Total other (expense) income .....................        (247)         (50)          22           32           39

Income (loss) before income taxes ................       1,277       (1,833)         467        2,395        1,394
Provision for income taxes .......................         454        1,934           35            7            5

Net income (loss) ................................         823       (3,767)         432        2,388        1,389

Net income (loss) per common share:
  Basic ..........................................   $    0.04    $   (0.21)   $    0.03    $    0.14    $    0.08
  Diluted ........................................   $    0.04    $   (0.21)   $    0.03    $    0.14    $    0.08

Weighted average number of common shares:
  Basic ..........................................      20,108       17,897       17,500       17,500       17,500
  Diluted ........................................      20,110       17,897       17,500       17,500       17,500

OTHER DATA:
Cash flow used in operating activities ...........   $    (298)   $    (117)   $  (1,623)   $     (74)   $     (75)
Cash flow used in investing activities ...........      (1,853)        (292)        (995)         (89)         (19)
Cash flow from financing activities ..............       2,915          570        2,006          742          116
Capital expenditures .............................        (444)        (292)      (1,043)        (109)         (37)

Balance sheet data (as of December 31):
Current assets ...................................   $  17,365    $  16,604    $  17,291    $  10,547    $   7,152
Total assets .....................................      21,383       17,688       18,382       10,748        7,309
Current liabilities ..............................      15,815       13,832       12,141        5,053        4,003
Capital leases payable, net of current portion ...          56         --           --           --           --
Stockholders' equity .............................       4,679        2,356        6,127        5,695        3,307



                                       23



PRO FORMA FINANCIAL DATA:

The unaudited pro forma information for the periods set forth below is based on
the operations of Paradigm and is prepared as if Paradigm had been a
C-Corporation at the beginning of each period assuming a tax provision of 38.6%.



(in thousands, except per share data)                              (Pro forma)  (Pro forma)  (Pro forma)  (Pro forma)
                                                            2005         2004         2003         2002         2001
                                                        --------    ---------    ---------    ---------    ---------
                                                                                            
STATEMENTS OF OPERATIONS DATA:
Contract revenue                                        $ 63,515    $  61,756    $  51,206    $  37,673    $  27,188
Income (loss) before income taxes                          1,277       (1,833)         467        2,395        1,394
Income tax provision (benefit)                               454         (708)         180          924          541
Net income (loss)                                            823       (1,125)         287        1,471          853

Net income (loss) per common share:
  Basic                                                 $   0.04    $   (0.06)   $    0.02    $    0.08    $    0.05
  Diluted                                               $   0.04    $   (0.06)   $    0.02    $    0.08    $    0.05

Weighted average number of common shares:
  Basic                                                   20,108       17,897       17,500       17,500       17,500
  Diluted                                                 20,110       17,897       17,500       17,500       17,500


ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
        RESULTS OF OPERATIONS

The reader should read the following discussion in conjunction with Item 6.
"Selected Financial Data" and our consolidated financial statements and related
notes included elsewhere in this filing. Some of the statements in the following
discussion are forward-looking statements. See "Forward-Looking Statements."

GENERAL

Paradigm provides information technology and business continuity solutions to
government and commercial customers. Headquartered in Rockville, Maryland, the
Company was founded on the philosophy of high standards of performance, honesty,
integrity, customer satisfaction, and employee morale.

With an established core foundation of experienced executives, the Company has
rapidly grown from six employees in 1996 to the current level of more than 300
personnel. Revenues have grown from $51 million in 2003 to over $63 million by
the end of 2005.

Paradigm comprises two subsidiary companies: 1) Paradigm Solutions Corporation
("PSC"), which was incorporated in 1996 to deliver information technology (IT)
services to federal agencies, and 2) Paradigm Solutions International ("PSI"),
which was incorporated in 2004 to deliver IT solutions (with a special focus in
Business Continuity Planning and Emergency Management) and software to
commercial clients.

We derive substantially all of our revenues from fees for information technology
solutions and services. We generate these fees from contracts with various
payment arrangements, including time and materials contracts, fixed-price
contracts and cost-reimbursable contracts. We typically issue invoices monthly
to manage outstanding accounts receivable balances. We recognize revenues on
time and materials contracts as the services are provided. At the end of
December 31, 2005, our business was comprised of 56% fixed price, 29% time and
material, and 15% cost-reimbursable contracts.

Our historical revenue growth is attributable to various factors, including an
increase in the size and number of projects for existing and new clients. At the
end of December 31, 2005, contracts with the federal government and contracts
with prime contractors of the federal government accounted for approximately 98%
of our revenues. During that same period, our five largest clients, all agencies
within the federal government, generated approximately 81% of our revenues. In
most of these engagements, we retain full responsibility for the end-client
relationship and direct and manage the activities of our contract staff.


                                       24



PSC utilized the Small Business Administration (SBA) 8(a) Business Development
Program to access the federal marketplace starting in October of 1995 and
graduated from the program in October of 2004. The term "graduate" is used to
refer to a Participant's exit from the 8(a) BD Program at the expiration of the
Participant's term, thus the business is no longer considered 8(a). This
program, allowed the business to build a base of business with various federal
civilian agencies. The backlog of federal business under this program will
continue until the contracts end, after which we will pursue several avenues to
maintain the business we believe is important to our strategy in this
marketplace. This includes either migrating this work to other government
contract vehicles, if allowed by the customer, or taking on a subcontract role
when the business comes up for re-compete and teaming with a SBA business who
would be the prime. As of December 31, 2005, SBA 8(a) contracts which provide
62% and 38% of our current SBA 8(a) revenues will come up for renewal in 2006
and 2007, respectively.

Due to our graduation from the Small Business Administration 8(a) Business
Development Program, we are no longer classified as a small disadvantaged
business by the federal government. Accordingly, we will no longer have access
to contract vehicles set aside for 8(a) businesses. As of October 2004, PSC
began competing solely in the open marketplace for federal business. We have a
history of winning contracts in "full and open" competitions, including
contracts at the Department of Housing and Urban Development, Department of
Treasury and the Department of Commerce. PSC will continue to aggressively
pursue opportunities in the federal and commercial marketplace. We believe we
can mitigate the impact of transitioning from the 8(a) program through the
acquisition of new contract vehicles and the expansion of work with current
customers.

Our most significant expense is direct costs, which consist primarily of direct
labor, subcontractors, materials, equipment, travel and an allocation of
indirect costs including fringe. The number of subcontract and consulting
employees assigned to a project will vary according to the size, complexity,
duration and demands of the project.

Selling, general and administrative expenses consist primarily of costs
associated with our executive management, finance and administrative groups,
human resources, marketing and business development resources, employee
training, occupancy costs, research and development expenses, depreciation and
amortization, travel, and all other corporate costs.

Other income and expense consists primarily of interest income earned on our
cash and cash equivalents and interest payable on our revolving credit facility.

DESCRIPTION OF CRITICAL ACCOUNTING POLICIES

Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these consolidated financial
statements requires management to make estimates and judgments that affect the
reported amount of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the consolidated financial statements and
the reported amounts of revenues and expenses during the reporting period. On an
ongoing basis, management evaluates its estimates including those related to
contingent liabilities, revenue recognition, and other intangible assets.
Management bases its estimates on historical experience and on various other
factors that are believed to be reasonable at the time the estimates are made.
Actual results may differ from these estimates under different assumptions or
conditions. Management believes that our critical accounting policies which
require more significant judgments and estimates in the preparation of our
consolidated financial statements are revenue recognition, costs of revenues,
and property and equipment.

REVENUE RECOGNITION

Services are performed under contracts that may be categorized into three
primary types: time and materials, cost-plus reimbursement and firm fixed price.
Revenue for time and materials contracts is recognized as labor is incurred at
fixed hourly rates, which are negotiated with the customer, plus the cost of any
allowable material costs and out-of-pocket expenses. Time and materials
contracts are typically more profitable than cost-plus contracts because of our
ability to negotiate rates and manage costs on those contracts. Revenue is
recognized under cost-plus contracts on the basis of direct and operating costs
and expenses incurred plus a negotiated profit calculated as a percentage of
costs or as performance-based award fee. Cost-plus type contracts provide
relatively less risk than other contract types because we are reimbursed for all
direct costs and certain operating costs and expenses, such as overhead and
general and administrative expenses, and are paid a fee for work performed. For
certain cost plus type contracts, which are referred to as cost-plus award fee
type contracts, we recognize the expected fee to be awarded by the customer at
the time such fee can be reasonably estimated, based on factors such as our
prior award experience, communications with the customer regarding our
performance, including any interim performance evaluations rendered by the
customer or our average historical award fee rate for the


                                       25



company. The Company has two basic categories of fixed price contract: fixed
unit price and fixed price-level of effort. Revenues on fixed unit price
contracts, where specific units of output under service agreements are
delivered, are recognized as units are delivered based on the specific price per
unit. Revenue on fixed price maintenance contracts is recognized on a pro-rata
basis over the length of the service period. Revenue for the fixed price level
of effort contacts is recognized based upon the number of units of labor
actually delivered multiplied by the agreed rate for each unit of labor.

Software revenue recognition is in accordance with AICPA Statement of Position
97-2, "Software Revenue Recognition." Since the Company has not established
vendor specific objective evidence (VSOE), recognition of revenue from the sale
of licenses is over the term of the contract.

Contract revenue recognition inherently involves estimation. Examples of such
estimates include the level of effort needed to accomplish the tasks under the
contract, the cost of those efforts, and a continual assessment of our progress
toward the completion of the contract. From time to time, circumstances may
arise which require us to revise our estimated total revenue or costs.
Typically, these revisions relate to contractual changes. To the extent that a
revised estimate affects contract revenue or profit previously recognized, we
record the cumulative effect of the revision in the period in which it becomes
known. In addition, the full amount of an anticipated loss on any type of
contract is recognized in the period in which it becomes known. We may be
exposed to variations in profitability if we encounter variances from estimated
fees earned under cost plus-award fee contracts and estimated costs under fixed
price contracts.

COST OF REVENUE

Our costs are categorized as direct or selling, general & administrative
expenses. Direct costs are those that can be identified with and allocated to
specific contracts and tasks. They include labor, subcontractor costs,
consultant fees, travel expenses, materials and an allocation of indirect costs.
Indirect costs consist primarily of fringe benefits (vacation time,
medical/dental, 401K plan matching contribution, tuition assistance, employee
welfare, worker's compensation and other benefits), intermediate management and
certain other non-direct costs which are necessary to provide direct labor.
Indirect costs, to the extent that they are allowable, are allocated to
contracts and tasks using appropriate government-approved methodologies. Costs
determined to be unallowable under the Federal Acquisition Regulations cannot be
allocated to projects. Our principal unallowable costs are interest expense and
certain general and administrative expenses. A key element to be successful in
our business is our ability to control indirect and unallowable costs, enabling
us to profitably execute our existing contracts and successfully bid for new
contracts. Cost of revenue is considered to be a critical accounting policy
because of the direct relationship to revenue recognized.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at the original cost to the Company and are
depreciated using straight-line methods over established useful lives of three
to seven years. Purchased software is recorded at original cost and depreciated
on the straight-line basis over three years. Leasehold improvements are recorded
at the original cost and are depreciated on the straight-line over the life of
the lease.

IMPAIRMENT OF LONG-LIVED ASSETS

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
periodically evaluates the recoverability of its long-lived assets. This
evaluation consists of a comparison of the carrying value of the assets with the
assets' expected future cash flows, undiscounted and without interest costs.
Estimates of expected future cash flows represent management's best estimate
based on reasonable and supportable assumptions and projections. If the expected
future cash flow, undiscounted and without interest charges, exceeds the
carrying value of the asset, no impairment is recognized. Impairment losses are
measured as the difference between the carrying value of long-lived assets and
their fair market value, based on discounted future cash flows of the related
assets. Management believes there were no impairment of long-lived assets at
December 31, 2005.

GOODWILL

The Company's acquisition has resulted in the recording of intangible assets and
goodwill. Pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets",
identifiable intangible assets associated with non-compete agreements and
customer relationships will be amortized over their economic lives of one and
ten years, respectively. Goodwill is subject to impairment to the extent the


                                       26



Company's operations experience significant negative results. These negative
results can be the result of the Company's individual operations or negative
trends in the Company's industry or in the general economy, which impact the
Company. To the extent the Company's goodwill is determined to be impaired then
these balances are written down to their estimated fair value on the date of the
impairment. The Company conducts an annual, or sooner if the situation warrants,
review for impairment. Determining when an impairment has occurred involves a
significant amount of judgment. Management bases its judgment on a number of
factors including viability of the businesses acquired, their integration into
the Company's operations, the market in which those businesses operate and their
projected future results, cash flow projections, and numerous other factors.
Management believes that goodwill was not impaired as of December 31, 2005 as no
circumstances or situations had arisen that would indicate potential impairment.
The Company will perform its initial annual review for impairment in fiscal year
2006.

STOCK-BASED COMPENSATION

The Company recognizes expense for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost is recognized for the excess of the estimated
fair value of the stock at the grant date over the exercise price, if any.

RECENT ACCOUNTING PRONOUNCEMENTS

New accounting pronouncements that have a current or future potential impact on
our consolidated financial statements are as follows:

        STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 123 (REVISED 2004)

                               SHARE-BASED PAYMENT

This statement is a revision of FASB Statement No. 123, "Accounting for
Stock-Based Compensation." This statement supersedes APB Opinion No. 25,
"Accounting for Stock Issued to Employees", and its related implementation
guidance.

                             SCOPE OF THIS STATEMENT

This statement establishes standards for the accounting for transactions in
which an entity exchanges its equity instruments for goods or services. It also
addresses transactions in which an entity incurs liabilities in exchange for
goods or services that are based on the fair value of the entity's equity
instruments or that may be settled by the issuance of those equity instruments.
This statement focuses primarily on accounting for transactions in which an
entity obtains employee services in share-based payment transactions. This
statement does not change the accounting guidance for share-based payment
transactions with parties other than employees provided in Statement 123 as
originally issued and EITF Issue No. 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services." This statement does not address the accounting for
employee share ownership plans, which are subject to AICPA Statement of Position
93-6, "Employers' Accounting for Employee Stock Ownership Plans." The Company
believes that FASB Statement No. 123R will have a material effect on its
consolidated financial statements to the extent that the Company grants stock
options in the future. The effect of this standard on the Company is
undeterminable.

               STATEMENT OF FINANCIAL ACCOUNTING STANDARD NO. 154

                    ACCOUNTING CHANGES AND ERROR CORRECTIONS

This statement supersedes APB Opinion No. 20, "Accounting Changes" and SFAS
No. 3, "Reporting Accounting Changes in Interim Financial Statements."

                             SCOPE OF THIS STATEMENT

This statement requires that all voluntary changes in accounting principles and
changes required by a new accounting pronouncement that do not include specific
transition provisions be applied retrospectively to prior periods' financial
statements, unless it is impracticable to determine either the period-specific
effects or the cumulative effect of the change. The Company does not believe
that FASB Statement No. 154 will have a material effect on its consolidated
financial statements.


                                       27



RESULTS OF OPERATIONS

The following table sets forth the relative percentages that certain items of
expense and earnings bear to revenue.

Consolidated Statements of Operations Years Ended December 31, 2005, 2004 and
2003

                (Dollars in thousands except for the percentages)



                                                          Twelve Months Ended December 31,
                                         2005         2004         2003       2005       2004       2003
                                    ---------    ---------    ---------     ------     ------     ------
                                                                                
Contract revenue                    $  63,515    $  61,756    $  51,206      100.0%     100.0%     100.0%
Cost of revenue                        52,960       54,545       45,810       83.4       88.3       89.5
                                    ---------    ---------    ---------     ------     ------     ------
Gross margin                           10,555        7,211        5,396       16.6       11.7       10.5
Selling, general & administrative       9,031        8,994        4,951       14.2       14.6        9.6
                                    ---------    ---------    ---------     ------     ------     ------
Income (loss) from operations           1,524       (1,783)         445        2.4       (2.9)       0.9
Total other (expense) income             (247)         (50)          22       (0.4)      (0.0)       0.0
Pro forma income tax (benefit)
  provision                               454         (708)         180        0.7       (1.1)       0.3
                                    ---------    ---------    ---------     ------     ------     ------
Pro forma net income (loss)         $     823    ($  1,125)   $     287        1.3%      (1.8%)      0.6%


The table below sets forth the service mix in revenue with related percentages
of total revenue.



                                                          Twelve Months Ended December 31,
                                       2005         2004         2003        2005          2004         2003
                                   --------     --------     --------    --------      --------     --------
                                                                                  
Federal service contracts          $ 44,226     $ 39,428     $ 36,082        69.6%         63.8%        70.5%

Federal repair &
  maintenance contracts              18,058       22,269       15,115        28.5%         36.1%        29.5%

Commercial service contracts          1,231           59            9         1.9%          0.1%         0.0%
                                   --------     --------     --------    --------      --------     --------
Total revenue                      $ 63,515     $ 61,756     $ 51,206       100.0%        100.0%       100.0%



YEAR ENDED DECEMBER 31, 2005 COMPARED WITH YEAR ENDED DECEMBER 31, 2004

Revenue. For the twelve months ended December 31, 2005, revenue increased 2.8%
to $63.5 million from $61.8 million for the same period in 2004. The increase in
revenue is attributable to growth in our federal and commercial service
contracts business of $4.8 million and $1.2 million, respectively. Revenue
growth in our service business was partially off-set by a decrease of $4.2
million in our federal repair and maintenance business. Federal service growth
was driven by increased task orders with our existing civilian agency customers.
Commercial service growth was a result of the acquisition of Blair Technology
Group (Blair) on October 14, 2005, which provided $0.7 million in growth, and
revenue growth generated by our OpsPlanner software and services of $0.5
million. The decrease in maintenance business is attributable to system upgrades
performed on behalf of our civilian agency customer during the twelve months
ended December 31, 2004, which was not repeated during the twelve months ended
December 31, 2005.

Cost of Revenue. Cost of revenue includes direct labor, materials,
subcontractors and an allocation for indirect costs. Generally, charges in cost
of revenue correlate to fluctuations in revenue as resources are consumed in the
production of that revenue. Cost of revenue for our maintenance business
decreased $4.0 million due to the decrease in revenue. The decrease in
maintenance cost of revenue was partially off-set by increases in the cost of
revenue for our service business of $2.5 million, which was associated with the
increase in revenue and improved operating efficiencies on our fixed price
contracts. For the twelve months ended December 31, 2005, cost of revenue
decreased 2.9% to $53.0 million from $54.5 million for the same period in 2004.
As a percentage of revenue, cost of revenue was 83.4% for the twelve months
ended December 31, 2005 as compared to 88.3% for the twelve months ended
December 31, 2004. The decrease in cost as a percentage of revenue was due to
the change in our mix of business.


                                       28



Gross Margin. For the twelve months ended December 31, 2005, gross margin
increased 46.4% to $10.6 million from $7.2 million for the same period in 2004.
Gross margin as a percentage of revenue increased to 16.6% for the twelve months
ended December 31, 2005 from 11.7% for the twelve months ended December 31,
2004. Gross margin as a percentage of revenue increased due to increased
services revenue, which has a higher gross margin than our maintenance business,
as a percentage of our overall business. Gross margin as it relates to our
service contracts increased 63.4% to $9.0 million from $5.5 million for the same
period in 2004. The increase in services gross margin is due to lower operating
expenses on our fixed price service contracts and the overall increase in
services revenue. Gross margin, as it relates to our maintenance contracts,
decreased 9.8% to $1.5 million from $1.7 million for the same period in 2004.
The decrease in maintenance gross margin is directly attributable to the
decrease in revenue.

Selling, General & Administrative. For the twelve months ended December 31,
2005, selling, general & administrative (SG&A) expenses remained flat at $9.0
million compared to the same period in 2004. As a percentage of revenue, SG&A
expenses decreased to 14.2% for the twelve months ended December 31, 2005 from
14.6% for the same period in 2004. Flat SG&A expenses were a result of favorable
variances attributable to lower research and development costs associated with
the design of our OpsPlanner software of $0.2 million, decreased legal and
professional expenses of $0.2 million and a one-time expense of $0.4 million
incurred in 2004 to acquire Cheyenne Resources, which were off-set by increased
compensation expenses of $0.8 million associated with increased SG&A employees.

Net Income. For the twelve months ended December 31, 2005, net income increased
to $0.8 million from pro forma net loss of $1.1 million for the same period in
2004. The increase was due to increased gross margin as discussed above, which
was partially off-set by an unfavorable variance in the tax provision of $1.2
million.

YEAR ENDED DECEMBER 31, 2004 COMPARED WITH YEAR ENDED DECEMBER 31, 2003

Revenue. Revenue increased 20.6% to $61.8 million for 2004 from $51.2 million
for 2003. The $3.3 million increase in federal services revenue was driven by a
full year of revenue on a four year Department of Housing and Urban Development
contract awarded in March of 2003. The $3.6 million increase attributable to
this project was partially off-set by a decrease in task-order work with another
civilian agency client. The 47.3% increase in federal repair and maintenance
contracts was a result of organic growth with our Department of Treasury
customer, which included a full year of revenue on a five year printer
maintenance contract with the IRS that was awarded in July of 2003. The entire
growth of commercial revenue came from business continuity services in the area
of risk assessment and business impact analysis with two new commercial
customers, Greenhill and Aventis.

Cost of Revenue. Cost of revenue increased 19.1% to $54.5 million for 2004 from
$45.8 million for 2003. The increase was due primarily to an increase in
hardware and software delivered to our Department of Treasury customer, which
was $5.5 million of the $8.7 million increase. In addition, our increase in
federal project personnel to 255 as of December 31, 2004, as compared to 237 as
of December 31, 2003 resulted in an additional $1.7 million in expense. The
Company also continued its investment in the launch of the commercial continuity
business, which resulted in $1.5 million in expense versus $0.6 million for the
same period in 2003. The remaining $0.6 million increase was a result of other
direct costs associated with our increased revenues.

Gross Margin. Gross margin increased 33.6% to $7.2 million for 2004 from $5.4
million in 2003. This $1.8 million in growth is associated with the $10.6
million growth in revenue. Overall gross margin as a percentage of revenues
increased to 11.7% in 2004 from 10.5% in 2003. Service contract gross margin
increased by 62.1% to 14.0% in 2004 from 9.5% in 2003 due to increased employee
utilization and operational cost efficiencies as our contracts awarded in 2003
graduated from the start-up phase. Repair and maintenance contract gross margin
decreased by 42.6% to 7.5% in 2004 from 13.1% in 2003 as a result of incremental
costs on the IRS LTMCC contract.

Selling, General & Administrative. SG&A expenses increased 80.2% to $9.0 million
from $5.0 million for the same period in 2003. As a percentage of revenue, SG&A
expenses increased to 14.6% for the twelve months ended December 31, 2004 from
9.6% for the same period in 2003. The increase was attributable to additional
compensation related expenses from increased staffing of $1.2 million, research
and development costs associated with the design and launch of our OpsPlanner
product of $1.0 million, additional bid and proposal expenses of $0.2 million,
additional facilities expenses of $0.4 million due to a full year of expense for
our Rockville headquarters, expenses of $0.4 million to acquire Cheyenne
Resources and an additional $0.4 million in third party fees including legal,
consulting and audit support.


                                       29



Net Income. Net income as reported in the pro forma table in the selected
financial data section, decreased to a loss of $1.1 million for 2004 from income
of $0.3 million in 2003. This decrease was associated with the incremental
selling, general and administrative expenses discussed above, which was off-set
by the income tax benefit of $0.7 million.

LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are financing the cost of operations, capital
expenditures and servicing our debt. Our sources of liquidity are our existing
cash, cash generated from operations, and cash available from borrowings under
our revolving credit facility. We have historically financed our operations
through our existing cash, cash generated from operations and cash available
from borrowings under our revolving credit facility. Based upon the current
level of operations, we believe that cash flow from operations, together with
borrowings available from our existing credit facility, are adequate to meet our
future liquidity needs for the next twelve months.

For the twelve months ended December 31, 2005, we generated $0.8 million in cash
and cash equivalents versus $0.2 million for the same period in 2004.

Cash used by operations was $0.3 million for the twelve months ended December
31, 2005 compared to $0.1 million for the same period in 2004. Cash usage
increased due to an increase in accounts receivable, which was partially off-set
by a reduction in prepaid expenses and the collection of a note receivable
related to the sale of inventory.

Net income increased to $0.8 million for the twelve months ended December 31,
2005 versus a loss of $3.8 million for the same period in 2004. The increase in
net income was partially off-set by a decrease in deferred income taxes of $0.7
million for the twelve months ended December 31, 2005 compared to an increase of
$1.9 million for the same period in 2004. The decrease in deferred income taxes
was primarily attributable to the payment of taxes associated with the Company's
conversion to a C-Corporation from an S-Corporation in November 2004.

Accounts receivable increased by $3.7 million for the twelve months ended
December 31, 2005, net of non-cash entries related to the Blair acquisition,
versus a decrease of $3.0 million for the same period in 2004. The increase in
the accounts receivable balance for 2005 is reflective of delays in the
collection of civilian agency customer invoices as compared to the speed at
which collections were made during 2004.

Prepaid expenses, which are primarily associated with our IRS LTMCC contract,
decreased by $3.7 million for the twelve months ended December 31, 2005 versus
an increase of $2.0 million for the same period in 2004 as the Company fulfilled
the obligations of the contract and a reduction in the term of the required
maintenance contracts from 12 months to 6 months. Deferred revenue for the
twelve months ended December 31, 2005 decreased by $1.6 million versus a
decrease of $0.6 million for the same period in 2004. The decrease is primarily
related to the Company's IRS LTMCC and Aventis contracts. The deferred revenue
for IRS LTMCC is associated with the amortization of software maintenance
revenue related to system upgrades and annual software maintenance contracts
purchased in October 2003 and 2004. Software maintenance contracts are purchased
annually by our client during the three months ending December 31 and amortized
over the contract period. The timing and amount of deferred revenue will be
dependent on the customer's installed base and the timing of additional
purchases related to system upgrades outside of the normal purchasing cycle. The
Company did not experience upgrade activity for the fiscal year ended December
31, 2005. For our commercial clients, it is the Company's practice to invoice
the full contract value at project inception. Our largest commercial contract,
which is with Sanofi, was invoiced during the twelve months ended December 31,
2005. Deferred revenue related to our commercial contracts has decreased due to
the fulfillment of service obligations during the fiscal year ended December 31,
2005.

Accounts payable decreased by $0.3 million for the twelve months ended December
31, 2005, net of non-cash entries related to the Blair acquisition, versus an
increase of $1.0 million for the same period in 2004. The decrease is due to
system upgrade and software maintenance related invoices associated with our IRS
LTMCC contract, which were accrued during the three months ending December 31,
2004 but paid during the fiscal year ended December 31, 2005.

The Company collected $0.8 million on a note receivable related to the sale of
inventory during the twelve months ended December 31, 2005.

Net cash used by investing activities was $1.9 million for the twelve months
ended December 31, 2005 versus $0.3 million for the same period in 2004. The
increase in the use of cash relates to payments for the purchase of Blair of
$1.4 million and an increase in capital purchases of $0.2 million.


                                       30



Net cash provided by financing activities was $2.9 million for the twelve months
ended December 31, 2005 compared to $0.6 million for the same period in 2004.
The increase in cash provided is due to proceeds from the line of credit to fund
operations and the acquisition of Blair.

For the year ended December 31, 2004, the Company generated an increase in net
cash flow of $161 thousand whereas, the prior year ended with a net decrease in
cash flow of $613 thousand. The main contributing factors were an overall
reduction of accounts receivable, as well as an increase in accounts payable and
accrued expenses. The Company's accounts receivable decreased $3.0 million to
$11.5 million for the year ended December 31, 2004, as compared to an increase
of $6.0 million for the year ended December 31, 2003. The decrease was primarily
a result of internal process enhancements related to collections. Accounts
receivable at the end of 2004 represented 64.9% of total assets, compared to
78.9% at the end of 2003. Prepaid expense increased to $4.2 million for year
ended December 31, 2004 versus $2.2 million for year ended December 31, 2003.
The $2.0 million increase was primarily due to year-end hardware and software
maintenance purchases associated with our IRS LTMCC contract. Although the
purchase of the maintenance contracts is an annual event, we anticipate prepaid
expenses will return to 2003 levels for year ending December 31, 2005 due to a
reduction in the term of the required maintenance contracts from 12 months to 6
months. The Company funded this incremental purchase with operating cash flow
and utilization of our existing credit facility. Effective November 5, 2004, PSC
revoked its S-Corporation status. At that date, the Company had net income which
has been recognized for financial reporting purposes, but not for income tax
purposes of approximately $6.6 million. This net deferred income will be
recognized for income tax purposes equally over four years beginning with the
year ending December 31, 2004. The revocation of the S-Corporation status
resulted in a deferred income tax liability that was recorded on the date of
revocation of approximately $2.6 million. Net income for the year ending
December 31, 2004 and retained earnings were reduced by this amount.

For the year ended December 31, 2004, net cash used by operations was $117
thousand, which was attributable to the decrease in accounts receivable off-set
by the net loss and increase in prepaid expenses. Cash used by operations was
$1.6 million for the year ended December 31, 2003, which was attributable to
increases in accounts receivable and prepaid expenses off-set by increases in
accounts payable and deferred revenue.

Cash used for investing was $292 thousand during 2004 and $995 thousand in 2003,
which was attributable to the purchase of property and equipment to support
operations. Equipment acquisition during 2003 was significantly higher than
2004, as a result of capital investments made by the Company relating to the
start-up of the HUD-CPD and IRS printer maintenance contracts, technology
refresh of computers, build-out of our internal innovation center at our
headquarter location, and the investment associated with a web-based
time-keeping system.

Cash provided by financing was $570 thousand for the year ended December 31,
2004, compared to $2.0 million as of December 31, 2003. Both were comprised of
transactions under the Company's existing line of credit and banking activity
with SunTrust Bank.

The Company had a line of credit arrangement with SunTrust Bank which expired on
June 30, 2005. Subsequently, on June 22, 2005 we received an extension of the
line of credit arrangement through September 30, 2005. Under the terms of the
latest agreement, the Company had to maintain: (1) minimum tangible net worth of
$2,650,000 beginning on and as of June 30, 2005; (2) debt coverage ratio of not
more than 5.0 to 1.0 beginning on and as of June 30, 2005; (3) minimum quarterly
net income of $1.00 for the quarters ending June 30 and September 30, 2005. The
Company was in compliance with the line of credit agreement covenants as of June
30, 2005. The Company terminated its line of credit agreement with SunTrust Bank
effective September 1, 2005.

On July 28, 2005, the Company entered into a two year Loan and Security
Agreement with Chevy Chase Bank that provides for a revolving line of credit
facility of up to $9 million. The agreement became effective August 4, 2005. The
revolving line of credit will be used to borrow funds for working capital and
general corporate purposes.

The revolving loans under the Chevy Chase Bank Loan and Security Agreement are
secured by a first priority lien on substantially all of the assets of the
Company, excluding intellectual property and real estate. Under the agreement,
the line is due on demand and interest is payable monthly depending on the
Company's leverage ratio at the LIBOR rate plus the applicable spread which
ranges from 2.25% to 3.00%. Under the terms of the agreement, the Company may
borrow up to the lesser of $9,000,000 or 90% of eligible U.S. Government
receivables plus 80% of eligible commercial receivables plus 75% of the
aggregate amount of billable but unbilled accounts to a maximum of $3,000,000.
Of the total borrowings, the Company may use up to $500,000 for letters of
credit. As of December 31, 2005, the Company had set aside $400,000 in total
letters of credit. The Loan and Security Agreement requires that the Company
maintain the following covenants and ratios: (1) minimum tangible net worth of
$2,000,000 plus 50% of Company's net


                                       31



income for each fiscal year beginning with fiscal year ending December 31, 2005;
(2) debt coverage ratio of not less than 1.500 to 1.000; (3) maximum leverage
ratio of 5.50 to 1.00, which will be decreased to 5.25 to 1.00 by December 31,
2005 and 4.00 to 1.00 by December 31, 2006 through the maturity date. As of
March 30, 2006, the Company amended its loan agreement with Chevy Chase Bank to
modify the tangible net worth, debt service coverage ratio and maximum leverage
ratio covenants as follows: (1) minimum tangible net worth of not less than
$1,800,000 for December 31, 2005 and March 31, 2006, which shall be increased to
$2,000,000 by June 30, 2006 and increased again by 50% of the Company's net
income for each fiscal year end beginning with December 31, 2006; (2) minimum
debt service coverage ratio as of December 31, 2005 of not less than 1.150 to
1.000, which shall be increased to 1.500 to 1.000 by September 30, 2006; (3)
maximum leverage ratio of 9.100 to 1.000 for December 31, 2005, which shall be
decreased to 7.500 to 1.000 by March 31, 2006, 5.500 to 1.000 by June 30, 2006,
5.250 to 1.000 by September 30, 2006 and 4.000 to 1.000 by December 31, 2006.
The Company was in compliance with the amended covenant requirements as of
December 31, 2005.

The Loan and Security Agreement contains events of default that include among
other things, non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties, cross default to
certain other indebtedness, bankruptcy and insolvency events, change of control
and material judgments. Upon occurrence of an event of default, Chevy Chase Bank
is entitled to, among other things, accelerate all obligations of the Company
and sell the Company's assets to satisfy the Company's obligations under the
Loan and Security Agreement.

In the event we require additional funds, whether for acquisitions or otherwise,
we may seek additional equity or debt financing. Such financing may not be
available to us on terms that are acceptable to us, if at all, and any equity
financing may be dilutive to our stockholders. To the extent that we obtain
additional debt financing, our debt service obligations will increase and the
relevant debt instruments may, among other things, impose additional
restrictions on our operations, require us to comply with additional financial
covenants or require us to pledge assets to secure our borrowings.

In the event cash flows are not sufficient to fund operations at the present
level and we are unable to obtain additional financing, we would attempt to take
appropriate actions to tailor our activities to our available financing,
including revising our business strategy and future growth plans to accommodate
the amount of financing available to us.

The following summarizes our obligations associated with leases and other
commitments at December 31, 2005, and the effect such obligations are expected
to have on our liquidity and cash flow in future periods:



(Amounts in Thousands)                                Less than           One to      Three to      More than
                                           Total       One Year      Three Years    Five Years     Five Years
                                     -----------     ----------     ------------   -----------    -----------
                                                                                   
Contractual Obligations:
Operating Leases                     $     3,137     $    $1,005    $      1,005   $       928    $       199
Equipment Leases                     $        99     $    $   35    $         63   $         1    $        --
Note Payable - Line of Credit        $     7,188     $    $7,188    $         --   $        --    $        --
                                     -----------     ----------     ------------   -----------    -----------
Total                                $    10,424     $    $8,228    $      1,068   $       929    $       199


ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our exposure to market risk relates to change in interest rates for borrowing
under our revolving credit facility. These borrowings bear interest at a fixed
rate plus LIBOR, a variable rate. We do not use derivative financial instruments
for speculative or trading purposes. We invest our excess cash in short-term,
investment grade, interest -bearing securities.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Our consolidated financial statements are provided in Part IV, Item 15 of this
filing.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
       FINANCIAL DISCLOSURE

None.


                                       32



ITEM 9A. CONTROLS AND PROCEDURES

As of the year ended December 31, 2005, an evaluation was carried out under the
supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, of the effectiveness of our
disclosure controls and procedures (as defined in Rule 13a-15(e) under the
Exchange Act). The Chief Executive Officer and Chief Financial Officer concluded
that, as of December 31, 2005, these disclosure controls and procedures were
effective.

For the quarter ending September 30, 2005, the Company had concluded that the
disclosure controls and procedures were not effective as a result of a material
weakness in internal controls as of September 30, 2005.

The board of directors of the Company, including the Chief Executive Officer and
President, identified the need to replace the Chief Financial Officer (CFO)
during May 2005 and began the search for a new CFO. Concurrent with the SEC
review of our Registration Statement on Form S-1, an evaluation was carried out
during December 2005 under the supervision and with the participation of our
management, including our Chief Executive Officer and new Chief Financial
Officer, of the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Exchange Act). The Chief Executive Officer
and new Chief Financial Officer concluded that these disclosure controls and
procedures were not effective for the quarter ended September 30, 2005 as a
result of a material weakness in internal controls as of September 30, 2005 as
discussed below.

Management is responsible for establishing and maintaining adequate internal
control over financial reporting of our company. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements
for external purposes in accordance with accounting principles generally
accepted in the United States of America.

Our company's internal control over financial reporting includes those policies
and procedures that (i) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (ii) provide reasonable assurance
that transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States of America, and that receipts and expenditures of our company are
being made only in accordance with authorizations of management and directors of
our company; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of our
company's assets that could have a material effect on the financial statements.

As defined by the Public Company Accounting Oversight Board's Auditing Standard
No. 2, a material weakness is defined as a significant deficiency or combination
of significant deficiencies, that results in more than a remote likelihood that
a material misstatement of the annual or interim financial statements will not
be prevented or detected. Management's reassessment in December 2005 concluded
that we did not maintain effective internal control over financial reporting as
of September 30, 2005. As a result of the assessment, we identified the
following material weakness:

o     identified insufficient resources of technical accounting and reporting
      expertise. This weakness relates to the oversight and review of financial
      transactions, which affects our ability to prepare and properly review
      financial statements and accompanying footnote disclosures in accordance
      with United States generally accepted accounting principles and the rules
      and regulations of the SEC.

As a result of the material weakness discussed above, the following occurred:

o     restated revenue and cost of revenue balances for our federal maintenance
      contracts and federal service contracts for the year ended December 31,
      2004 in our Form S-1, Amendment #6;

o     restated our previously filed Form 10-K to conform to the changes made
      within our Form S-1 filing. The restatement is further discussed in
      "Explanatory Note" in the forepart of our Form 10-K and in Note 16,
      "Restatement" in the Notes to the consolidated financial statements
      contained in Amendment No.2 to our Annual Report on Form 10-K for the year
      ended December 31, 2004;

o     restated our previously filed Forms 10-Q for the quarters ended March 31,
      2005 and June 30, 2005, to conform to the changes made in our Form S-1
      filing. The restatement is further discussed in "Explanatory Note" in the
      forepart of our Forms 10-Q/A, and in Note 5, "Restatement" in the Notes to
      the consolidated financial statements contained in Amendment No.2 to our
      Quarterly Reports on Form 10-Q for the quarters ended March 31 , 2005 and
      June 30, 2005; and


                                       33



o     restated our Form S-1 Amendment #6 and Forms 10-Q for the quarters ended
      March 31, 2005 and June 30, 2005, to reflect the decrease in revenue,
      gross margin and net income attributable to changing the Company's revenue
      recognition as it relates to software licenses. In accordance with SOP
      97-2, the Company will recognize software license revenue over the
      contract term until it establishes VSOE.

REMEDIATION PLAN

In addition to controls and procedures consistent with prior practices, we
developed and implemented a remediation plan. In order to remediate the
aforementioned material weakness, we have:

o     Hired a Chief Financial Officer with the requisite experience on September
      19, 2005;
o     Hired a corporate controller with the requisite experience and CPA
      designation on November 16, 2005;
o     Hired an assistant controller with the requisite experience and CPA
      designation to assist and work directly with our corporate controller on
      October 15, 2005;
o     Created an additional position to assist with the financial reporting
      process and hired an individual for this position on May 16, 2005;

We believe that, for the reasons described above, we were able to improve our
disclosure controls and procedures and remedy the identified material weakness.
Management of the Company believes the material weakness discussed above was
remediated as of December 31, 2005. Because of the inherent limitations in all
control systems, controls can provide only reasonable, not absolute, assurance
that all control issues and instances of fraud, if any, will be or have been
detected. These inherent limitations include the realities that judgments in
decision-making can be faulty, and that breakdowns can occur because of simple
error or mistake. Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of the control. The design of any system of controls also is based in
part upon certain assumptions about the likelihood of future conditions; over
time, control may become inadequate because of changes in conditions, or the
degree of compliance with the policies or procedures may deteriorate. Because of
the inherent limitation in a cost-effective control system, misstatements due to
error or fraud may occur and not be detected.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

During the three months ended December 31, 2005, the Company completed its
implementation of the remediation plan discussed above, which included hiring a
new corporate controller and assistant controller with the requisite experience
and CPA designation in connection with the evaluation required by paragraph (d)
of Securities Exchange Act Rules 13a-15(f) or 15d-15(f) that has materially
affected, or is reasonably likely to materially affect, the registrant's
internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.


                                       34



                                    PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The following table sets forth information with respect to the directors and
executive officers of the Company.


Name                    Age    Position with the Company
- ---------------------   ---    -------------------------------------------------
Raymond A. Huger        59     Chief Executive Officer and Chairman of the Board
                               of Directors

Frank J. Jakovac        56     President and Chief Operating Officer

Richard Sawchak         31     Vice President and Chief Financial Officer

Lori Ermi               42     Vice President and Chief Administration Officer

Francis X. Ryan         54     Director

John A. Moore           53     Director

Edwin M. Avery          58     Director

Raymond A. Huger, Chief Executive Officer Chairman of the Board - Mr. Huger has
more than 30 years of experience in business management, information technology,
and sales/marketing and technical support services. He established PSC in 1991
following a very successful 25-year career with IBM, beginning as a Field
Engineer and holding a variety of challenging technical support, sales/marketing
and executive management positions. Prior to his early retirement from IBM, he
was a Regional Manager, responsible for the successful operations of several IBM
Branch offices that generated over $500 million dollars in annual revenue. His
experience and understanding of technology allowed him to develop solid business
value propositions for PSC and its Paradigm Solutions International division.
Mr. Huger has a Bachelor's Degree (BA) from Bernard Baruch College and a
Master's Degree (MBA) from Fordham University.


Mr. Huger's Prior
Five Year History:       2004 - Present, Chairman & CEO, Paradigm Holdings, Inc.
                         1991 - 2004, President & CEO, Paradigm Solutions Corp.


Frank J. Jakovac, President and Chief Operating Officer - Mr. Jakovac has over
25 years experience leading organizations through every phase of their
lifecycle: from start-up to change and revitalization, to turnaround and
accelerated growth. His background includes cross-functional expertise and
experience in areas including business development, leadership, management,
corporate governance, and regulatory issues. Mr. Jakovac built a highly
successful entrepreneurial venture from start-up to $300 million in only four
years and built another privately held venture from start-up to $100 million in
assets within five years. In addition, he has participated in successful mergers
and restructuring ventures and has nurtured working relationships with Fortune
500 CEOs. His more recent successes include the founding of Adriatic Ventures in
1998 (which commercialized and managed projects ranging from information
technology to land development) and his tenure as president and CEO of Avid
Sportswear & Golf Corp. Mr. Jakovac graduated with a Bachelor of Science from
Edinboro University and completed the Executive Extended Master Program in
Business Administration, University of Pittsburgh.

Mr. Jakovac's Prior
Five Year History:       2004 - Present, Chairman & COO, Paradigm Holdings, Inc.
                         1998 - 2001, President & CEO, Adriatic Ventures, Inc.


                                       35



Richard P. Sawchak, Vice President and Chief Financial Officer - Mr. Sawchak has
extensive experience in financial management, corporate financing and executing
and integrating acquisitions in a public company environment. From September
2003 to September 2005, he served as Director of Global Financial Planning &
Analysis at GXS, Inc. At GXS, he was responsible for managing a global finance
organization focused on improving business performance. From August 2000 to
August 2003, he was the Director of Finance and Investor Relations at Multilink
Technology Corporation. He was instrumental in the company's successful IPO and
eventual sale at a premium. Mr. Sawchak has also held senior management
positions at Lucent Technologies, Inc. and graduated in the top of his class
from Lucent's financial leadership program. He holds a Master's Degree from
Babson College and a Bachelor's Degree in Finance from Boston College, where he
graduated summa cum laude.

     Mr. Sawchak's Prior
     Five Year History:       2005 - Present, Vice President & Chief Financial
                              Officer, Paradigm Holdings, Inc.
                              2003 - 2005, Director of Global Financial Planning
                              & Analysis, GXS, Inc.
                              2000 - 2003, Director of Finance and Investor
                              Relations, Multilink Technology Corporation


Lori Ermi ,Vice President and Chief Administration Officer - Ms. Ermi has over
20 years experience with Fortune 500 corporations leading Human Resources
Departments in employment engagement strategies, talent acquisition, performance
management and executive coaching. She has led major global human resources
functions and is a certified Senior Professional in Human Resources through the
Society of Human Resources Management. Ms. Ermi is the recipient of the
International Award of Merit through the Association of Psychological Type. Ms.
Ermi is a graduate of Lynchburg College.

     Ms. Ermi's Prior
     Five Year History:      2004 - Present, Vice President & Chief
                             Administration Officer, Paradigm Holdings, Inc.
                             2003 - 2004, Director of Human Resources, Qiagen,
                             Inc.
                             2002 - 2003, Human Resources Business Partner,
                             Celera Genomics Group 2001 - 2002, Director of
                             Human Resources, First Data Corporation 1989 -
                             2001, Senior Human Resources Manager, Procter and
                             Gamble, Inc.


Francis X. Ryan, Board Member - Mr. Ryan has over twenty years experience in
managing private and public companies at the Executive level. Currently he is
President of F. X. Ryan & Assoc. Management Consulting firm specializing in
turnarounds, workouts, crisis management, strategic planning, and working
capital management. He has extensive experience in business process redesign.
Prior to joining the Company's board, Mr. Ryan was the Central Command
Special Operations Officer for Operation Enduring Freedom. Mr. Ryan has also
been assigned to SOCCENT and served in Afghanistan. Mr. Ryan is a highly
regarded expert speaker in the fields of Corporate Governance and
Sarbanes-Oxley regulations. Mr. Ryan has held positions as Chief Operating
Officer and Executive Vice President, and Chief Financial Officer for
manufacturers and high technology companies. Mr. Ryan currently serves as a
board member for the following organizations: Spectrum Holdings, Inc. (also
Chairman, Audit Committee); St. Agnes Hospital (also Chairman, Audit
Committee), Baltimore, MD; Good Shepherd Center, Baltimore, MD, and Fawn
Industries. Mr. Ryan received his M. B. A. Finance, from the University of
Maryland, and holds a B.S. in Economics from Mt. St. Mary's College, where he
graduated summa cum laude. Mr. Ryan also holds a C. P. A. from the State of
Pennsylvania.

     Mr. Ryan's Prior
     Five Year History:      1991 - Present, President, F.X. Ryan & Associates


                                       36



John A. Moore, Board Member - Mr. Moore has more than 30 years experience in
private and public company management for information technology firms. He is
the former Executive Vice President and CFO of ManTech International and was
directly involved in taking ManTech public in 2002 as well as facilitating a
secondary offering. Mr. Moore has extensive experience in strategic planning,
corporate compliance, proposal preparation and pricing and SEC reporting. He
has a deep knowledge of federal government contracting and financial
management. Mr. Moore has served on the Boards of Directors for ManTech
International (MANT) and GSE Systems Inc. (GVP). Mr. Moore is a current
member of the Board of Advisors for the University of Maryland's Smith
School. Mr. Moore has an MBA from the University of Maryland and a B.S. in
accounting from LaSalle University.

     Mr. Moore's Prior
     Five Year History:       1994 - 2003, EVP & CFO, ManTech International
                              Corporation


Edwin Mac Avery, Board Member - Mr. Avery has 30 years of diverse experience
in leading organizations through every lifecycle phase: form start-up to
change and revitalization, to turnaround and accelerated growth. His
background includes expertise in business development, finance, capital
management and regulatory issues. As the Managing Partner of Avery and
Company, a client services firm specializing in project design, management,
funding and mergers and acquisitions in the energy and technology sectors, he
directed minerals leasing of over 50,000 acres of land in seven western
states. Mr. Avery initiated or participated in oil and gas operations in six
states with over 50 wells drilled. He also represented US energy companies,
from small area operators to majors, in
over $40 million of divestitures, and mergers and acquisitions activities.
Mr. Avery has served as a corporate member on the Boards of Directors of the
following corporations: TangibleData Inc., Duplication Technology Inc.,
Horizon Petroleum Corporation, Pioneer Resources, Inc. and Lincoln Investment
Corporation.


     Mr. Avery's Prior
     Five Year History:       2002 - 2004, Assistant to the Vice Chancellor,
                              University of Colorado
                              1999 - 2001, Corporate Development Officer,
                              TangibleData, Inc.
                              1991 - 1999, Managing Partner, Avery & Company

FAMILY RELATIONSHIPS

There is no family relationship between any of our officers or directors.

CODE OF ETHICS

We adopted a Code of Ethics applicable to our entire executive team, which is a
"code of ethics" as defined by applicable rules of the SEC. Our Code of Ethics
was filed as an Exhibit to a registration statement on Form SB-2 dated February
11, 2005. If we make any amendments to our Code of Ethics other than technical,
administrative, or other non-substantive amendments, or grant any waivers,
including implicit waivers, from a provision of our Code of Ethics to our chief
executive officer, chief financial officer, or certain other finance executives,
we will disclose the nature of the amendment or waiver, its effective date and
to whom it applies in a Current Report on Form 8-K filed with the SEC.

COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT

Section 16(a) of the Exchange Act of 1934 requires our executive officers and
directors, and persons who beneficially own more than ten percent of our equity
securities, to file reports of ownership and changes in ownership with the
Securities and Exchange Commission. Officers, directors and greater than ten
percent shareholders are required by SEC regulation to furnish us with copies of
all Section 16(a) forms they file. Based on information provided to the Company,
we believe that all of the Company's directors, executive officers and persons
who own more than 10% of our common stock were in compliance with Section 16(a)
of the Exchange act of 1934 during the last fiscal year except as follows: Form
3's for Messrs. Huger, Jakovac, Ryan, Moore and Avery have been filed with the
Commission but were not filed in a timely manner. The Form 3 for Mark Serway,
who resigned from the Company effective August 15, 2005, was not filed with the
Commission.


                                       37



ITEM 11. EXECUTIVE COMPENSATION

The following table shows all the cash compensation paid by the Company, as well
as certain other compensation paid or accrued, during the fiscal years ended
December 31, 2005, 2004 and 2003 to the Company's' named executive officers. No
restricted stock awards, long-term incentive plan payouts or other types of
compensation, other than the compensation identified in the chart below, were
paid to these executive officers during these fiscal years.

                           SUMMARY COMPENSATION TABLE


                                                             Annual Compensation                   Long-Term Compensation
                                                   ---------------------------------------------------------------------------------
                                                                                       (1)
                                                                                      Other                                   All
                                                                                      Annual   Restricted  Option     LTIP   Other
                                                                                      Compen-    Stock       #/*    Payouts  Compen-
Name                Title                          Year      Salary        Bonus      sation    Awarded    SARs (#)   ($)    sation
- ------------------------------------------------------------------------------------------------------------------------------------
                                                                                                    
Raymond Huger       Chief Executive Officer        2005    $  430,907    $   20,188  $  17,185        --        --      --        --
                    Chairman of the Board of       2004    $  384,243    $  231,679         --        --        --      --        --
                    Directors                      2003    $  404,641    $  405,476         --        --        --      --        --

Frank Jakovac(2)    President,                     2005    $  396,465    $   17,813  $   6,204        --   800,000      --        --
                    Chief Operating Officer        2004    $  181,365    $   70,417         --        --        --      --        --
                    and Director                   2003    $       --    $       --         --        --        --      --        --

Rich Sawchak(3)     Vice President,                2005    $   51,503    $       --         --        --   200,000      --        --
                    Chief Financial Officer        2004    $       --    $       --         --        --        --      --        --
                                                   2003    $       --    $       --         --        --        --      --        --

Lori Ermi (4)       Vice President,                2005    $  156,734    $       --         --        --    75,000      --        --
                    Chief Administration Officer   2004    $   13,361    $       --         --        --        --      --        --
                                                   2003    $       --    $       --         --        --        --      --        --

Mark Serway(5)      Former Senior Vice President,  2005    $  362,868    $   39,250  $   4,913        --        --      --        --
                    Chief Financial Officer        2004    $  196,150    $   39,700         --        --        --      --        --
                    and Director                   2003    $   43,578    $    5,600         --        --        --      --        --

Harry M. Kaneshiro  Executive Vice President,      2005    $  349,947    $   16,625  $  14,527        --   100,000      --        --
                    Paradigm Solutions Corp.       2004    $  403,367    $  181,995         --        --        --      --        --
                                                   2003    $  500,913    $  309,589         --        --        --      --        --

Samar Ghadry(6)     Former Senior Vice President,  2005    $  328,077    $   40,500  $  10,723        --        --      --        --
                    Paradigm Solutions Corp.       2004    $  497,929    $  104,693         --        --        --      --        --
                                                   2003    $  672,933    $  136,802         --        --        --      --        --


(1) Other annual compensation is primarily comprised of life insurance policy
    premiums.
(2) Frank Jakovac was hired on May 11, 2004.
(3) Richard Sawchak was hired on September 19, 2005
(4) Lori Ermi was hired on November 9, 2004
(5) Mark Serway resigned from the Company effective August 15, 2005.
(6) Samar Ghadry's employment with PSC ended effective as of April 1, 2005.


                                       38



The following table contains information regarding options granted during the
year ended December 31, 2005 to the Company's named executive officers.

                             OPTION/SAR GRANTS TABLE




                                                                    % Total
                                                                   Options/
                                                                      SARs
                                                       No. of       Granted
                                                     Securities   to Employees                                    Potential
                                                     Underlying     in year                                     Realized Value at
                                                      Options/       ended                                        Assumed Annual
                                                        SARs      December 31    Exercise or   Appreciation    Rates of Stock Price
                                                      Granted         2005       Base Price     Expiration       for Option Term
Name                 Title                              (#)           (%)       ($ per Share)      Date         5%($)       10%($)
- -------------------  ----------------------------   ------------   ----------   -------------   ----------   ----------   ----------
                                                                                                     
Raymond Huger        Chief Executive Officer,                 --           --              --           --           --           --
                     and Chairman of the Board
                     of Directors

Frank Jakovac        President,                          800,000         37.7%  $        1.70     12/14/15   $  855,297   $2,167,490
                     Chief Operating Officer
                     and Director

Richard Sawchak      Vice President,                     200,000          9.4%  $        1.70     12/14/15   $  213,824   $  541,872
                     Chief Financial Officer

Lori Ermi            Vice President,
                     Chief Administration Officer         75,000          3.5%  $        1.70     12/14/15   $   80,184   $  203,202

Mark Serway(1)       Former Senior Vice                       --           --              --           --           --           --
                     President, Chief Financial
                     Officer and Director

Harry M. Kaneshiro   Executive Vice President            100,000          4.7%  $        1.70     12/14/15   $  106,912   $  270,936
                     Paradigm Solutions Corp.

Samar Ghadry(2)      Former Senior Vice President             --           --              --           --           --           --
                     Paradigm Solutions Corp.


(1) Mark Serway resigned from the Company effective August 15, 2005.
(2) Samar Ghadry's employment with PSC ended effective as of April 1, 2005.


                                       39



The following table contains information regarding options exercised in the year
ended December 31, 2005, and the number of shares of common stock underlying
options held as of December 31, 2005, by the Company's named executive officer.

                        AGGREGATED OPTIONS/SAR EXERCISES
                             IN LAST FISCAL YEAR AND
                       FISCAL YEAR END OPTIONS/SAR VALUES



                                                                           Number of Securities        Value of Unexercised
                                                                          Underlying Unexercised           In-the-Money
                                                Shares                        Options/SARs                 Options/SARs
                                               Acquired                         at FY-End                   at FY-End
                                                  on          Value     --------------------------   --------------------------
                                               Exercise     Realized        (#)                          ($)
                                               --------     --------    -----------  -------------   -----------  -------------
Name                          Title               (#)          ($)      Exercisable  Unexercisable   Exercisable  Unexercisable
- ------------------   ------------------------  --------     --------    -----------  -------------   -----------  -------------
                                                                                             
Raymond Huger        Chief Executive Officer,        --           --             --             --            --             --
                     Chairman of the
                     Board of Directors

Frank Jakovac        President,                      --           --        800,000             --   $   160,000             --
                     Chief Operating
                     Officer And Director

Richard Sawchak      Vice President                  --           --        200,000             --   $    40,000             --
                     Chief Financial
                     Officer

Lori Ermi            Vice President                  --           --         75,000             --   $    15,000             --
                     Chief Administration
                     Officer

Mark Serway(1)       Former Senior Vice              --           --             --             --            --             --
                     President, Chief
                     Financial Officer
                     and Director

Harry M. Kaneshiro   Executive Vice                  --           --        100,000             --   $    20,000             --
                     President
                     Paradigm Solutions
                     Corp.

Samar Ghadry(2)      Former Senior                   --           --             --             --            --             --
                     Vice President
                     Paradigm Solutions
                     Corp.


(1) Mark Serway resigned from the Company effective August 15, 2005.
(2) Samar Ghadry's employment with PSC ended effective as of April 1, 2005.

COMPENSATION OF DIRECTORS

For the fiscal year ended December 31, 2005, non-employee directors received a
fee of $1,500 per meeting and received reimbursement for out-of-pocket expenses
incurred for attendance at meetings of the Board of Directors. Board members who
are in charge of the audit and compensation committee received $2,000 and
receive reimbursement for out-of-pocket expenses incurred for attendance at
meetings of the Committees of the Board of Directors.


                                       40



ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER MATTERS

The following table sets forth information about the beneficial ownership of our
common stock as of March 6, 2006 by (i) each person who we know is the
beneficial owner of more than 5% of the outstanding shares of common stock (ii)
each of our directors or those nominated to be directors, and executive
officers, and (iii) all of our directors and executive officers as a group.


                                                    Amount and
                                                     Nature          Percentage
                   Name and Address                of Beneficial      of Common
Title of Class     of Beneficial Owner (1)           Ownership        Stock (2)
- --------------     ----------------------------    -------------     -----------
Common Stock       Raymond Huger                      12,770,000          62.28%
Stock Options      Frank Jakovac                         800,000           3.76%
Stock Options      Richard Sawchak                       200,000           0.97%
Stock Options      Lori Ermi                              75,000           0.36%
Stock Options      Francis Ryan                           40,000           0.19%
Stock Options      John Moore                             40,000           0.19%
Stock Options      Edwin Avery                            40,000           0.19%
Common Stock /
 Stock Options     Harry Kaneshiro                     3,250,000          15.77%
                                                   -------------     -----------
                   All Directors and Executive
                     Officers as a Group              17,215,000          78.97%

Common Stock       Samar Ghadry                        1,569,000           7.65%
                   11140 Rockville Pike, #341
                   Rockville, MD 20852
Common Stock       J.P. Consulting                     1,054,411           5.14%
                   6590 East Lake Place
                   Centenial, CO 80111


(1) Unless otherwise indicated, the address of each person listed above is the
address of the Company, 2600 Tower Oaks Bvld, Suite 500, Rockville, Maryland,
20852.

(2) Applicable percentage of ownership is based on 20,503,486 shares of common
stock outstanding as of March 6, 2006 together with securities exercisable or
convertible into shares of common stock within 60 days of March 6, 2006 for each
stockholder. Beneficial ownership is determined in accordance with the rules of
the SEC and generally includes voting or investment power with respect to
securities. Shares of common stock subject to securities exercisable or
convertible into shares of common stock that are currently exercisable or
exercisable within 60 days of March 6, 2006 are deemed to be beneficially owned
by the person holding such options for the purpose of computing the percentage
of ownership of such person, but are not treated as outstanding for the purpose
of computing the percentage ownership of any other person.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Paradigm acquired Blair Technology Group on October 14, 2005 (see "Company
Overview" in Item1. Business). Blair's facility located at 3375 Lynnwood Drive,
Altoona, Pennsylvania was owned by two of the former Blair principals, Messrs.
Thomas Kristofco and Stephen Fochler. The facility consists of 4,000 square feet
and was leased to Blair at a rate of $4,500 per month. On January 16, 2006,
Messrs. Kristofco and Fochler sold their interests in the facility to an
independent third party. The square footage and monthly rent were not affected.


                                       41



ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

AUDIT AND NON-AUDIT FEES

The following table presents fees for professional services rendered by Aronson
& Company for the fiscal years ended December 31, 2005 and 2004.

                      YEARS ENDED DECEMBER 31,

                                     2005            2004
                                ---------       ---------
       Audit fees:              $ 131,475       $  43,645
       Audit related fees:         50,118          21,468
       Tax fees:                   41,443           9,832
       All other fees:              8,646              --
       Total                    $ 231,682       $  74,945


POLICY ON AUDIT COMMITTEE PRE-APPROVAL OF AUDIT AND PERMISSIBLE NON-AUDIT
SERVICES OF INDEPENDENT AUDITOR

Prior to engagement of the independent auditor for the next year's audit,
management will submit an aggregate of services expected to be rendered during
that year for each of four categories of services to the Audit Committee for
approval. Consistent with SEC policies regarding auditor independence, the Audit
Committee has responsibility for appointing, setting compensation and overseeing
the work of the independent auditor. In recognition of this responsibility, the
Audit Committee established a policy in 2005 to pre-approve all audit and
permissible non-audit services provided by the independent auditor. The Audit
Committee will approve of all permissible non-audit services consistent with SEC
requirements.

1. Audit services include audit work performed in the preparation of the
consolidated financial statements, as well as work that generally only the
independent auditor can reasonably be expected to provide, including comfort
letters, statutory audits, and attest services and consultation regarding
financial accounting and/or reporting standards.

2. Audit related services are for assurance and related services that are
traditionally performed by the independent auditor, including due diligence
related to mergers and acquisitions, employee benefit plan audits, and special
procedures required to meet certain regulatory requirements.

3. Tax services include all services performed by the independent auditor's tax
personnel except those services specifically related to the audit of the
consolidated financial statements, and includes fees in the areas of tax
compliance, tax planning, and tax advice.

4. Other fees are those associated with services not captured in the other
categories.

Prior to future engagements, the Audit Committee will pre-approve these services
by category of service. During the year, circumstances may arise when it may
become necessary to engage the independent auditor for additional services not
contemplated in the original pre-approval. In those instances, the Audit
Committee requires specific pre-approval before engaging the independent
auditor. The Audit Committee may delegate pre-approval authority to one or more
of its members. The member to whom such authority is delegated must report, for
informational purposes only, any pre-approval decisions to the Audit Committee
at its next scheduled meeting.


                                       42



                                     PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

                              FINANCIAL STATEMENTS

                             PARADIGM HOLDINGS, INC.
                    (FORMERLY PARADIGM SOLUTIONS CORPORATION)

                                TABLE OF CONTENTS

                                                                   Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM             F-1
AUDITED FINANCIAL STATEMENTS
  Consolidated Balance Sheets                                F-2 -  F-3
  Consolidated Statements of Operations                      F-4 -  F-5
  Consolidated Statements of Stockholders' Equity                   F-6
  Consolidated Statements of Cash Flows                      F-7 -  F-8
  Notes to Consolidated Financial Statements                 F-9 - F-26


                                       43



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

BOARD OF DIRECTORS
PARADIGM HOLDINGS, INC.
Rockville, Maryland

We have audited the accompanying Consolidated Balance Sheets of PARADIGM
HOLDINGS, INC. AND SUBSIDIARIES as of December 31, 2005 and 2004 and the related
Consolidated Statements of Operations, Stockholders' Equity and Cash Flows for
each of the three years in the period ended December 31, 2005. Our audits also
included the financial statement schedules for each of the three years in the
period ended December 31, 2005. These financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of PARADIGM HOLDINGS,
INC. AND SUBSIDIARIES as of December 31, 2005 and 2004, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 2005 in conformity with accounting principles generally accepted in
the United States of America. Also, in our opinion, the related financial
statement schedules for each of the three years in the period ended December 31,
2005, when considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set forth
therein.



/s/ Aronson & Company
- ----------------------------
Rockville, Maryland
March 28, 2006


                                       F-1



                             PARADIGM HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS


December 31,                                             2005              2004
- --------------------------------------           ------------      ------------
ASSETS
CURRENT ASSETS
  Cash and cash equivalents                      $    943,017      $    179,389
  Accounts receivable - contracts                  15,641,424        11,478,901
  Inventory, net                                           --           616,020
  Prepaid expenses                                    622,594         4,239,770
  Other current assets                                157,804            89,890
                                                 ------------      ------------
    TOTAL CURRENT ASSETS                           17,364,839        16,603,970
                                                 ------------      ------------

PROPERTY AND EQUIPMENT, AT COST
  Furniture and fixtures                              147,896           124,845
  Software                                            573,612           221,965
  Leasehold improvements                              119,981           121,000
  Automobiles                                          66,737                --
  Equipment                                         1,002,538         1,043,725
                                                 ------------      ------------
    TOTAL PROPERTY AND EQUIPMENT                    1,910,764         1,511,535
      Less:  Accumulated depreciation                (796,857)         (504,348)
                                                 ------------      ------------
    NET PROPERTY AND EQUIPMENT                      1,113,907         1,007,187
                                                 ------------      ------------

OTHER ASSETS
  Intangible assets, net of amortization              420,589                --
  Goodwill                                          2,387,372                --
  Deposits                                             85,884            77,182
  Other long-term assets                               10,266                --
                                                 ------------      ------------
    TOTAL ASSETS                                 $ 21,382,857      $ 17,688,339
                                                 ============      ============


The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                     F-2



                             PARADIGM HOLDINGS, INC.
                           CONSOLIDATED BALANCE SHEETS


December 31,                                                2005            2004
- -------------------------------------------------  -------------   -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
  Bank overdraft                                   $   2,305,486   $   1,046,160
  Note payable - line of credit                        4,882,871       3,220,072
  Capital leases payable, current portion                 25,953            --
  Accounts payable and accrued expenses                5,322,234       5,476,967
  Accrued salaries and related liabilities             2,260,410       1,812,545
  Income taxes payable                                     3,595            --
  Deferred income taxes, current portion                 781,813         527,000
  Deferred revenue                                       232,433       1,749,410
                                                   -------------   -------------
    TOTAL CURRENT LIABILITIES                         15,814,795      13,832,154
                                                   -------------   -------------
LONG-TERM LIABILITIES
  Deferred rent                                          151,683         144,435
  Capital leases payable, net of current portion          56,370            --
  Deferred income taxes, net of current portion          681,085       1,356,000
                                                   -------------   -------------
    TOTAL LIABILITIES                                 16,703,933      15,332,589
                                                   -------------   -------------

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS' EQUITY (AS RESTATED, NOTE 14)
  Common stock - $.01 par value, 50,000,000
    shares authorized, 20,503,486 and 20,003,486
    shares issued  and outstanding as of 2005
    and 2004, respectively                               205,034         200,034
  Additional paid-in capital                           1,495,000            --
  Retained earnings                                    2,978,890       2,155,716
                                                   -------------   -------------
    TOTAL STOCKHOLDERS' EQUITY                         4,678,924       2,355,750
                                                   -------------   -------------

    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY     $  21,382,857   $  17,688,339
                                                   =============   =============


The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                     F-3



                             PARADIGM HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS




Years Ended December 31,                                        2005            2004            2003
- ----------------------------------------------------    ------------    ------------    ------------
                                                                               
Contract revenue
  Service contracts                                     $ 45,456,391    $ 39,487,603    $ 36,091,375
  Repair and maintenance contracts                        18,058,428      22,268,698      15,114,617
                                                        ------------    ------------    ------------
    Total contract revenue                                63,514,819      61,756,301      51,205,992
                                                        ------------    ------------    ------------
Cost of revenue
  Service contracts                                       36,411,343      33,950,665      32,675,562
  Repair and maintenance contracts                        16,548,712      20,594,289      13,134,103
                                                        ------------    ------------    ------------
    Total cost of revenue                                 52,960,055      54,544,954      45,809,665
                                                        ------------    ------------    ------------

Gross margin                                              10,554,764       7,211,347       5,396,327

Selling, General & Administrative                          9,031,283       8,994,477       4,950,853
                                                        ------------    ------------    ------------
Income (loss) from operations                              1,523,481      (1,783,130)        445,474
                                                        ------------    ------------    ------------
Other (expense) income
  Interest income - stockholder                                   --              --           1,607
  Interest and other income                                   27,250          12,529          20,085
  Interest expense                                          (273,801)        (61,920)           (290)
                                                        ------------    ------------    ------------
    Total other (expense) income                            (246,551)        (49,391)         21,402
                                                        ------------    ------------    ------------

Income (loss) before income taxes                       $  1,276,930    $ (1,832,521)   $    466,876
                                                        ------------    ------------    ------------

Provision for income taxes                                   453,756       1,934,380          35,125
                                                        ------------    ------------    ------------

Net income (loss)                                       $    823,174    $ (3,766,901)   $    431,751
                                                        ------------    ------------    ------------

Weighted average number of common shares:
  Basic                                                   20,107,653      17,896,727      17,500,000
  Diluted                                                 20,110,081      17,896,727      17,500,000


Net income (loss) per common share:
  Basic                                                 $       0.04    $      (0.21)   $       0.03
  Diluted                                               $       0.04    $      (0.21)   $       0.03
                                                        ------------    ------------    ------------


The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                       F-4



Years Ended December 31,                                    2004            2003
- ------------------------------------------------    ------------    ------------

Pro forma provision (benefit) for income
  taxes (Note 16)                                       (707,353)        180,214
                                                    ------------    ------------

Pro forma net income (loss)                           (1,125,168)        286,662
                                                    ------------    ------------

Pro forma weighted average number of common
  shares:
  Basic                                               17,896,727      17,500,000
  Diluted                                             17,896,727      17,500,000


Pro forma net income (loss) per common share:
  Basic                                             $      (0.06)   $       0.02
  Diluted                                           $      (0.06)   $       0.02
                                                    ------------    ------------


The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                       F-5



                             PARADIGM HOLDINGS, INC.
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY




                                                      Common Stock
                                         ---------------------------------------
                                                                      Additional
                                                                       Paid-in       Retained
                                            Share         Amount       Capital       Earnings       Total
                                         ----------   -----------    -----------   -----------    -----------
                                                                                   
Balance, December 31, 2002               17,500,000   $   175,000    $        --   $ 5,519,758    $ 5,694,758

Net income                                       --            --             --       431,751        431,751
                                         ----------   -----------    -----------   -----------    -----------
Balance, December 31, 2003               17,500,000       175,000             --     5,951,509      6,126,509

Recapitalization and net liabilities
  assumed as a result of reverse merger   2,503,486        25,034             --       (28,892)        (3,858)

Net loss                                         --            --             --    (3,766,901)    (3,766,901)
                                         ----------   -----------    -----------   -----------    -----------

Balance, December 31, 2004               20,003,486       200,034             --     2,155,716      2,355,750

Issuance of common stock related
  to acquisition                            500,000         5,000      1,495,000            --      1,500,000

Net income                                       --            --             --       823,174        823,174
                                         ----------   -----------    -----------   -----------    -----------

Balance, December 31, 2005               20,503,486   $   205,034    $ 1,495,000   $ 2,978,890    $ 4,678,924
                                         ==========   ===========    ===========   ===========    ===========



The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                       F-6



                             PARADIGM HOLDINGS, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS




Years Ended December 31,                                              2005            2004            2003
                                                              ------------    ------------    ------------
                                                                                     
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income (loss)                                           $    823,174    $ (3,766,901)   $    431,751

ADJUSTMENTS TO RECONCILE NET INCOME (LOSS) TO NET
  CASH USED BY OPERATING ACTIVITIES:
  Depreciation and amortization                                    412,603         299,658         159,292
  Loss on sale and disposal of assets                               38,343              --          24,315
  Deferred income taxes                                           (668,140)      1,883,000              --

    (INCREASE) DECREASE IN
      Accounts receivable - contracts                           (3,730,569)      3,016,067      (5,983,859)
      Inventory, net                                               (32,914)        (76,015)       (540,005)
      Notes receivable - inventory                                 750,000              --              --
      Prepaid expenses                                           3,680,428      (2,018,779)       (839,719)
      Other current assets                                         (13,435)        (72,476)        (14,724)
      Deposits                                                      (2,362)           (975)        (57,139)
    (DECREASE) INCREASE IN
      Accounts payable and accrued expenses                       (338,532)        958,387       1,964,129
      Accrued salaries and related liabilities                     358,059         211,248         788,853
      Income taxes payable                                           3,595              --              --
      Deferred revenue                                          (1,585,936)       (579,280)      2,328,690
      Deferred rent                                                  7,248          29,423         115,012
                                                              ------------    ------------    ------------
    NET CASH USED BY OPERATING ACTIVITIES                         (298,438)       (116,643)     (1,623,404)
                                                              ------------    ------------    ------------
CASH FLOWS FROM INVESTING ACTIVITIES
  Payments for business purchased, net of cash acquired         (1,409,088)             --              --
  Purchase of property and equipment                              (443,797)       (292,110)     (1,042,859)
  Repayment of notes receivable - stockholder                           --              --          47,510
                                                              ------------    ------------    ------------
    NET CASH USED BY INVESTING ACTIVITIES                       (1,852,885)       (292,110)       (995,349)
                                                              ------------    ------------    ------------
CASH FLOWS FROM FINANCING ACTIVITIES
  Bank overdraft                                                 1,259,326         350,180        (635,385)
  Payments on capital leases                                        (7,174)             --              --
  Proceeds from line of credit                                  48,950,630      37,673,041       7,214,629
  Payments on line of credit                                   (47,287,831)    (37,452,969)     (4,573,448)
                                                              ------------    ------------    ------------
    NET CASH PROVIDED BY FINANCING ACTIVITIES                    2,914,951         570,252       2,005,796
                                                              ------------    ------------    ------------

    NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS           763,628         161,499        (612,957)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                       179,389          17,890         630,847
                                                              ------------    ------------    ------------

CASH AND CASH EQUIVALENTS, END OF YEAR                        $    943,017    $    179,389    $     17,890
                                                              ============    ============    ============



The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                       F-7





Years Ended December 31,                                              2005            2004            2003
                                                              ------------    ------------    ------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
                                                                                     
Non-cash investing activities:
  Assets sold in exchange for a note receivable               $    750,000    $         --    $         --
                                                              ============    ============    ============
Non-cash financing activities:
  Equipment acquired under capital leases                     $     89,497    $         --    $         --
                                                              ============    ============    ============

Cash paid for income taxes                                    $    447,248    $    747,486    $     35,125
                                                              ============    ============    ============
Cash paid for interest                                        $    239,741    $     61,920    $        290
                                                              ============    ============    ============



The accompanying Notes to Consolidated Financial Statements are an integral part
of these financial statements.


                                     F-8



                           PARADIGM HOLDINGS, INC.
                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES

NATURE OF BUSINESS

Paradigm Holdings, Inc. (Paradigm Holdings), formerly Cheyenne Resources, Inc.,
was incorporated in the state of Wyoming on November 17, 1970. On November 3,
2004, Paradigm Holdings, Inc. entered into an Agreement and Plan of
Reorganization with Paradigm Solutions Merger Corp. (Merger Sub), Paradigm
Solutions Corporation (PSC), and the shareholders of PSC. Pursuant to the
Agreement and Plan of Reorganization, the Merger Sub was merged with and into
PSC, which was the surviving corporation, and became a wholly owned subsidiary
of Paradigm Holdings. In consideration of the merger, the PSC shareholders
exchanged 13,699, or 100%, of their common stock for 17,500,000 shares of common
stock of Paradigm Holdings.

Although Paradigm Holdings is the legal acquirer in the acquisition, and remains
the registrant with the SEC, under generally accepted accounting principles, the
acquisition was accounted for as a reverse acquisition, whereby PSC is
considered the "acquirer" of Paradigm Holdings for financial reporting purposes.
The following factors were considered: 1) PSC's shareholders controlled more
than 50% of the post acquisition combined entity, 2) management, after the
acquisition, is that of PSC, 3) Paradigm Holdings had no assets and an
immaterial amount of liabilities as of the acquisition date, and 4) continuing
operations of the business are that of PSC.

Effective November 3, 2004, Paradigm Holdings conducts business through its
wholly owned subsidiary PSC. On December 17, 2004, Paradigm Holdings formed a
wholly-owned subsidiary, Paradigm Solutions International, Inc. (PSI)
(collectively, PDHO and/or the Company).

PDHO (website: www.paradigmsolutions.com) provides information technology and
business continuity solutions to government and commercial customers.
Headquartered in Rockville, Maryland, the Company was founded on the philosophy
of high standards of performance, honesty, integrity, customer satisfaction, and
employee morale.

On October 14, 2005, PDHO acquired Blair Management Services, Inc. (Blair)
t/d/b/a Blair Technology Group to allow PDHO to expand its presence in the
commercial marketplace. The acquisition has been accounted for using purchase
accounting.

Blair has provided business continuity and information technology security
solutions to over 300 commercial customers in a variety of industries including
finance, healthcare and energy. The acquisition of Blair allows PDHO to combine
the OpsPlanner software suite with Blair's extensive credentials in the business
continuity arena. PDHO can now offer our customers a comprehensive business
continuity solution. See Note 2 of the Notes to the Consolidated Financial
Statements included elsewhere herein for more information.

PRINCIPLES OF CONSOLIDATION

The accompanying consolidated financial statements include the accounts of PDHO
and its wholly owned subsidiaries, PSC, PSI and Blair since October 14, 2005
(collectively, the Company). All significant intercompany transactions have been
eliminated in consolidation.

USE OF ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

CASH AND CASH EQUIVALENTS

For purposes of financial statement presentation, the Company considers all
highly liquid debt instruments with initial maturities of ninety days or less to
be cash equivalents. The Company maintains cash balances which may exceed
federally insured limits. Management does not believe that this results in any
significant credit risk.


                                     F-9



FAIR VALUE OF FINANCIAL INSTRUMENTS

At December 31, 2005 and 2004, the carrying value of current financial
instruments such as cash, accounts receivable, accounts payable, and accrued
liabilities approximated their market values, based on the short-term maturities
of these instruments. Fair value is determined based on expected cash flows,
discounted at market rates, and other appropriate valuation methodologies.

REVENUE RECOGNITION

Revenue from time and materials contracts is recognized as costs are incurred at
amounts represented by the agreed-upon billing amounts.

Fixed price labor hour and level of effort contracts involve defined numbers of
hours or categories of personnel. Revenue on fixed unit price contracts, where
specific units of output under service agreements are delivered, is recognized
as units are delivered based on the specific price per unit. Fixed price
maintenance contracts are recognized as revenue on a pro-rata basis over the
life of the contract.

In certain arrangements, the Company enters into contracts that include the
delivery of a combination of two or more of its service offerings. Such
contracts are divided into separate units of accounting and revenue is
recognized separately, and in accordance with, the Company's revenue recognition
policy for each element.

Software revenue recognition is in accordance with AICPA Statement of Position
97-2, "Software Revenue Recognition." Since the Company has not established
vendor specific objective evidence (VSOE), recognition of revenue from the sale
of licenses is over the term of the contract.

Revenue from cost-type contracts is recognized as costs are incurred on the
basis of direct costs plus allowable operating costs and expenses and an
allocable portion of the fixed fee.

The Company is subject to audits from federal government agencies. The Company
has reviewed its contracts and determined there is no material risk of financial
adjustments due to government audit. To date, we have not had any adjustments as
a result of a government audit of our contracts.

Revenue recognized on contracts for which billings have not yet been presented
to customers is included in the accounts receivable - contracts classification
on the accompanying consolidated balance sheets.

Deferred revenue relates to contracts for which customers pay in advance for
services to be performed at a future date. The Company recognizes deferred
revenue attributable to our maintenance contracts over the related service
periods, which run through 2006. Revenue related to our OpsPlanner offering,
including consulting, software subscriptions and technical support, is deferred
and recognized over the appropriate contract service period. These payments are
nonrefundable.

COST OF REVENUE

Cost of revenue for service contracts consist primarily of labor, consultant,
subcontract, materials, travel expenses and an allocation of indirect costs
attributable to the performance of the contract.

Cost of revenue for repair and maintenance contracts consist primarily of labor,
consultant, subcontract, materials, travel expenses and an allocation of
indirect costs attributable to the performance of the contract.

IMPAIRMENT OF LONG-LIVED ASSETS

Pursuant to Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets", the Company
periodically evaluates the recoverability of its long-lived assets. This
evaluation consists of a comparison of the carrying value of the assets with the
assets' expected future cash flows, undiscounted and without interest costs.
Estimates of expected future cash flows represent management's best estimate
based on reasonable and supportable assumptions and projections. If the expected
future cash flow, undiscounted and without interest charges, exceeds the
carrying value of the asset, no impairment is


                                     F-10



recognized. Impairment losses are measured as the difference between the
carrying value of long-lived assets and their fair market value, based on
discounted future cash flows of the related assets. Management believes there
were no impairment of long-lived assets at December 31, 2005.

MAJOR CUSTOMERS

During the years ended December 31, 2005, 2004 and 2003, the Company's revenues
generated from five major customers, totaled 81%, 85% and 86% of total revenue,
respectively. The Company's accounts receivable related to these five major
customers was 80%, 84% and 88% of total accounts receivable at the end of the
respective years. The Company defines major customer by agencies within federal
government.

GOODWILL

The Company's acquisition has resulted in the recording of intangible assets and
goodwill. Pursuant to SFAS No. 142, "Goodwill and Other Intangible Assets",
identifiable intangible assets associated with non-compete agreements and
customer relationships will be amortized over their economic lives of one and
ten years, respectively. Goodwill is subject to impairment to the extent the
Company's operations experience significant negative results. These negative
results can be the result of the Company's individual operations or negative
trends in the Company's industry or in the general economy, which impact the
Company. To the extent the Company's goodwill is determined to be impaired then
these balances are written down to their estimated fair value on the date of the
impairment. The Company conducts an annual, or sooner if the situation warrants,
review for impairment. Determining when an impairment has occurred involves a
significant amount of judgment. Management bases its judgment on a number of
factors including viability of the businesses acquired, their integration into
the Company's operations, the market in which those businesses operate and their
projected future results, cash flow projections, and numerous other factors.
Management believes that goodwill was not impaired as of December 31, 2005 as no
circumstances or situations had arisen that would indicate potential impairment.
The Company will perform its initial annual review for impairment in fiscal year
2006.

ACCOUNTS RECEIVABLE

Accounts receivable are attributable to trade receivables in the ordinary course
of business. Estimates relating to allowance for doubtful accounts are based on
historical experience, troubled account information and other available
information.

INVENTORY

Inventory consisted of replacement printer parts and was stated at the lower of
cost or market using the first in, first-out (FIFO) method of accounting, prior
to its sale in August 2005 as discussed in Note 5.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at the original cost to the Company and are
depreciated using straight-line methods over established useful lives of three
to seven years. Purchased software is recorded at original cost and depreciated
on the straight-line basis over three years. Leasehold improvements are recorded
at original cost and are depreciated on the straight-line basis over the life of
the lease.

ADVERTISING COSTS

Advertising costs are expensed as incurred. Expenses for fiscal years ending
December 31, 2005, 2004 and 2003 were immaterial.

RESEARCH AND DEVELOPMENT COSTS

All research and development costs are expensed as incurred. For the years ended
December 31, 2005, 2004 and 2003, the Company's research and development
expenses totaled $828,677, $1,078,058 and $559,073, respectively.


                                     F-11



INCOME TAXES

Prior to November 5, 2004, PSC was treated as an S-Corporation, and therefore,
did not pay Federal and state corporate income taxes since the tax attributes of
the entity were reported on the stockholders' tax returns. PSC filed its income
tax returns on the cash basis of accounting, whereby revenue was recognized when
received and expenses were recognized when paid.

Effective November 5, 2004, PSC revoked its S-Corporation status and therefore
is subject to income taxes at the corporate level. At of the date of revocation,
PSC recorded a deferred income tax liability of approximately $2,576,000 which
relates to the timing differences between book basis and income tax basis at the
date of the revocation.

Deferred income taxes are recognized for the tax consequences in future years of
differences between the tax bases of assets and liabilities and their financial
reporting amounts at each year end based on enacted tax laws and statutory tax
rates applicable to the periods in which the differences are expected to affect
taxable earnings. Valuation allowances are established when necessary to reduce
deferred tax assets to the amount more likely than not to be realized.

NET INCOME PER COMMON SHARE

Basic net income per common share is calculated by dividing the net income by
the weighted average number of common shares outstanding during the period.
Diluted net income per common share is calculated using the weighted average
number of common shares plus dilutive common stock equivalents outstanding
during the period. Anti-dilutive common stock equivalents are excluded. For the
year ended December 31, 2005, the only reconciling item between the shares used
for basic and diluted net income per common share relates to outstanding stock
options. No reconciling items existed between the net income used for basic and
diluted net income per common share. There were no dilutive common stock
equivalents outstanding during the years ended December 31, 2004 and 2003.

STOCK-BASED COMPENSATION

The Company recognizes expense for stock-based compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations.
Accordingly, compensation cost is recognized for the excess of the estimated
fair value of the stock at the grant date over the exercise price, if any.

The effect on net income per common share if the Company had applied the fair
value recognition provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation", to stock-based employee compensation for the years ended December
31, 2005, 2004 and 2003 is as follows:


                                     F-12



                                              2005           2004           2003
                                       -----------    -----------    -----------
Net income (loss), as reported         $   823,174    $(3,766,901)   $   431,751
Deduct: Total stock-based employee
 compensation expense determined
 under fair value-based method for
 all awards, net of related taxes        2,162,050             --             --
Add: stock-based employee
 compensation included in net
 income, net of related taxes                   --             --             --
                                       -----------    -----------    -----------
Pro forma net (loss) income            $(1,338,876)   $(3,766,901)   $   431,751

Net income (loss) per common share:
 As reported - basic                   $      0.04    $     (0.21)   $      0.03
             - diluted                 $      0.04    $     (0.21)   $      0.03
 Pro forma   - basic                   $     (0.07)   $     (0.21)   $      0.03
             - diluted                 $     (0.07)   $     (0.21)   $      0.03

These pro forma amounts are not necessarily indicative of future effects of
applying the fair value-based method due to, among other things, the vesting
period of the stock options and the fair value of additional stock options which
may be issued in future years.

RECENT ACCOUNTING PRONOUNCEMENTS

In December 2004, the Financial Accounting Standard Board (FASB) issued SFAS No.
123 (Revised 2004) (SFAS 123R), "Share-Based Payment." SFAS 123R addresses the
requirements of an entity to measure the cost of employee services received in
exchange for an award of equity instruments based on the grant-date fair value
of the award. The cost of such award will be recognized over the period during
which an employee is required to provide services in exchange for the award. The
Company will be required to adopt this statement effective January 1, 2006. As
of December 31, 2005, the Company had no unvested share-based payments
outstanding. The Company believes that the adoption of SFAS 123R will have a
material impact on its future operations and financial reporting to the extent
that the Company grants stock options in the future. The effect of this standard
on the Company is not determinable.

In May 2005, the FASB issued SFAS No. 154, "Accounting Changes and Error
Corrections." SFAS 154 requires that all voluntary changes in accounting
principles and changes required by a new accounting pronouncement that do not
include specific transition provisions be applied retrospectively to prior
periods' financial statements, unless it is impracticable to determine either
the period-specific effects or the cumulative effect of the change. SFAS 154 is
effective prospectively for accounting changes and corrections of errors made in
fiscal years beginning after December 15, 2005. Earlier application is permitted
for fiscal years beginning after the date the statement was issued (May 2005).
The Company believes that the implementation of the guidance contained in SFAS
154 will not have a material effect on its financial condition, results of
operations, or liquidity.

2. ACQUISITION

On October 14, 2005, PDHO, PSI, a Maryland corporation and wholly-owned
subsidiary of PDHO, Blair Management Services, Inc. t/d/b/a Blair Technology
Group, a Pennsylvania corporation and the shareholders of Blair (collectively,
the "Shareholders") consummated a merger transaction pursuant to the terms of
that certain Merger Agreement (the "Merger Agreement"), whereby Blair was merged
with and into PSI. PSI is the surviving corporation and will continue its
corporate existence under the laws of the State of Maryland as a wholly-owned
subsidiary of Paradigm Holdings. Pursuant to the Merger Agreement, the
Shareholders exchanged all of the issued and outstanding capital stock of Blair
in exchange for (i) One Million Dollars (US $1,000,000), (ii) five hundred
thousand shares of common stock, par value $0.01 per share, of PDHO (the
"Shares") and (iii) $465,553 in cash to satisfy notes payable to shareholders.
Pursuant to the Merger Agreement and an Escrow Agreement entered into by the
parties, sixty thousand (60,000) of the Shares will be held in escrow for a
period of one (1) year from the date of closing subject to the terms and
conditions of the Merger Agreement. In addition, under the terms of the Merger
Agreement, PDHO could issue to the Shareholders up to an additional 350,000


                                     F-13



shares of common stock of PDHO pursuant to an earn-out provision which is
contingent on Blair achieving certain earnings levels for the period from
November 1, 2005 through October 31, 2006. Assuming a share price of $3.00, the
transaction has a total purchase price of $3,959,088 assuming all earn-out
provisions are achieved. Payment of any earnout will result in an increase to
goodwill.

Blair was founded in 1992. Blair has provided business continuity and
information technology security solutions to over 300 commercial customers in a
variety of industries including finance, healthcare and energy.

The acquisition of Blair Technology Group allows PDHO to combine the OpsPlanner
software suite with Blair's extensive credentials in the business continuity
arena. PDHO can now offer our customers a comprehensive business continuity
solution. The acquisition also allows PDHO to expand its presence in the
commercial marketplace.

The acquisition was accounted for using the purchase method of accounting
prescribed by SFAS No. 141"Business Combinations". The excess of the purchase
price over assets acquired and liabilities assumed was allocated to goodwill
which is not deductible for income tax purposes. Identifiable intangible assets
associated with non-compete agreements with the Blair shareholders and customer
relationships totaling $448,285 are being amortized over their estimated
economic lives of one and ten years, respectively. Amortization of intangible
assets was $27,696 for the year ended December 31, 2005. A summary of the net
cash consideration paid based on the purchase price allocation as of October 14,
2005 is as follows:

     Current assets                          $      544,857
     Property, plant & equipment                     97,740
     Other assets                                    21,434
     Intangible assets                              448,285
     Goodwill                                     2,387,372
     Deferred income tax liability                 (248,038)
     Current liabilities                           (342,562)
     Fair value of common stock                  (1,500,000)
                                             --------------
     Net cash consideration                  $    1,409,088
                                             ==============

The total initial purchase price of $2,909,088 includes $465,553 in cash paid to
satisfy notes payable to shareholders and $157,252 of direct acquisition costs.

The Company makes an initial allocation of the purchase price at the date of
acquisition based upon its understanding of the fair value of the acquired
assets and liabilities. After closing, the Company obtains additional
information which will enable it to refine the estimates of fair value and more
accurately allocate the purchase price.

The unaudited pro forma information provided below has been prepared to reflect
the acquisition of Blair by PDHO as if the acquisition occurred on January 1,
2005 and 2004.

                                                    Years Ended December 31,
                                                   (Unaudited)      (Unaudited)
                                                         2005             2004
                                                 ------------     ------------
     Contract revenue                            $ 65,888,707     $ 66,227,295
     Net income (loss)                           $    498,045     $   (919,977)
     Net income (loss) per share - basic         $       0.02     $      (0.05)
     Net income (loss) per common share -
      diluted                                    $       0.02     $      (0.05)


                                     F-14



3. ACCOUNTS RECEIVABLE

The accounts receivable consist of billed and unbilled amounts under contracts
in progress with governmental units, principally the Department of Housing and
Urban Development, Bureau of Alcohol, Tobacco, and Firearms, the Office of the
Comptroller of the Currency, the U.S. Secret Service, and the Internal Revenue
Service. The components of accounts receivable at December 31, 2005 and 2004
are:


                                                        2005              2004
                                               -------------     -------------
     Billed receivables                        $   7,466,935     $   6,821,859
     Unbilled receivables                          8,174,489         4,657,042
                                               -------------     -------------
      Total                                    $  15,641,424     $  11,478,901
                                               =============     =============

All receivables are expected to be collected during the next fiscal year and are
pledged to the bank as collateral for the line of credit. The Company's unbilled
receivables are comprised of contract costs that cover the current service
period and are normally billed in the following month. The Company's unbilled at
December 31, 2005 does not contain retainage.

4. PREPAID EXPENSES

Prepaid expenses at December 31, 2005 and 2004, consist of the following:

                                                          2005             2004
                                                  ------------     ------------
     Prepaid insurance, rent and software
       maintenance agreements                     $    163,068     $    104,370
     Prepaid corporate income taxes                     20,120          696,106
     Employee advances and prepaid travel               41,444          125,014
     Contract-related prepaid expenses                 299,132        3,159,803
     Other prepaid expenses                             98,830          154,477
                                                  ------------     ------------
     Total prepaid expenses                       $    622,594     $  4,239,770
                                                  ============     ============

5. INVENTORY

Inventory consists of the following at December 31:

                                                      2005              2004
                                              ------------      ------------
     Inventory of
       replacement printer parts              $          -      $    683,026
     Inventory valuation allowance                       -           (67,006)
                                              ------------      ------------
     Total                                    $          -      $    616,020
                                              ============      ============

During August 2005, the Company sold its inventory and fixed assets related to
one of its contracts to one of its suppliers for $750,000 to be paid in five
monthly installments with the final payment due on December 15, 2005. All
payments on the note had been received as of December 31, 2005. In addition, the
supplier agreed to pay the Company for all outstanding purchase orders of
inventory at June 30, 2005. This amount of approximately $25,000 was paid in
February 2006.


                                     F-15


6. INTANGIBLE ASSETS

Intangible assets consisted of the following at December 31, 2005

                                                   Accumulated        Weighted
                                         Cost     Amortization    Average Life
                                   ----------     ------------    ------------

       Non-compete agreements      $   97,903     $     20,396               1
       Customer relationships         350,382            7,300              10
       Total                       $  448,285     $     27,696               8

The intangible assets have no residual value at the end of their useful lives.
Amortization expense for the year ended December 31, 2005 was $27,696. Estimated
amortization expense for the next ten years is as follows:

            Year Ending  December 31,                            Amount
            -------------------------                         ---------
            2006                                              $ 112,544
            2007                                                 35,038
            2008                                                 35,038
            2009                                                 35,038
            2010                                                 35,038
            2011 and Beyond                                     167,893
                                                              ---------
            Total                                             $ 420,589

7. NOTE PAYABLE  - LINE OF CREDIT

The Company had a line of credit arrangement with SunTrust Bank which expired on
September 30, 2005. On July 28, 2005, the Company entered into a two year Loan
and Security Agreement with Chevy Chase Bank that provides for a revolving line
of credit facility of up to $9 million. The agreement became effective August 4,
2005. The revolving line of credit will be used to borrow revolving loans for
working capital and general corporate purposes. The Company terminated its
revolving line of credit facility with SunTrust Bank once this agreement was
activated.

The revolving loans under the Chevy Chase Bank Loan and Security Agreement are
secured by a first priority lien on substantially all of the assets of the
Company, excluding intellectual property and real estate. Under the agreement,
the line is due on demand and interest is payable monthly depending on the
Company's leverage ratio at the LIBOR rate plus the applicable spread which
ranges from 2.25% to 3.00%. Under the terms of the agreement, the Company may
borrow up to the lesser of $9,000,000 or 90% of eligible U.S. Government
receivables plus 80% of eligible commercial receivables plus 75% of the
aggregate amount of billable but unbilled accounts to a maximum of $3,000,000.
Of the total borrowings, the Company may use up to $500,000 for letters of
credit. As of December 31, 2005, the Company had set aside $400,000 in total
letters of credit. The Loan and Security Agreement requires that the Company
maintain the following covenants and ratios: (1) minimum tangible net worth of
$2,000,000 plus 50% of Company's net income for each fiscal year beginning with
fiscal year ending December 31, 2005; (2) debt coverage ratio of not less than
1.500 to 1.000; (3) maximum leverage ratio of 5.50 to 1.00, which will be
decreased to 5.25 to 1.00 by December 31, 2005 and 4.00 to 1.00 by December 31,
2006 through the maturity date. As of March 30, 2006, the Company amended its
loan agreement with Chevy Chase Bank to modify the tangible net worth, debt
service coverage ratio and maximum leverage ratio covenants as follows: (1)
minimum tangible net worth of not less than $1,800,000 for December 31, 2005 and
March 31, 2006, which shall be increased to $2,000,000 by June 30, 2006 and
increased again by 50% of the Company's net income for each fiscal year end
beginning with December 31, 2006; (2) minimum debt service coverage ratio as of
December 31, 2005 of not less than 1.150 to 1.000, which shall be increased to
1.500 to 1.000 by September 30, 2006; (3) maximum leverage ratio of 9.100 to
1.000 for December 31, 2005, which shall be decreased to 7.500 to 1.000 by March
31, 2006, 5.500 to 1.000 by June 30, 2006, 5.250 to 1.000 by September 30, 2006
and 4.000 to 1.000 by December 31, 2006. The Company was in compliance with the
amended covenant requirements as of December 31, 2005.

The Loan and Security Agreement contains events of default that include among
other things, non-payment of principal, interest or fees, violation of
covenants, inaccuracy of representations and warranties, cross default to
certain other indebtedness, bankruptcy and insolvency events, change of control
and material judgments. Upon occurrence of an event of default, Chevy Chase Bank
is entitled to, among other things, accelerate all obligations of the Company
and sell the Company's assets to satisfy the Company's obligations under the
Loan and Security Agreement.

Blair has a revolving line of credit with First National Bank of Pennsylvania of
$250,000. The line of credit bears interest at prime plus 0.25% and is secured
by all assets of Blair. There was no outstanding balance on this line at
December 31, 2005.

8. INCOME TAXES

For the years ended December 31, 2005, 2004 and 2003, the components of the
provision for income taxes consisted of:

                                                2005          2004         2003
                                          ----------    ----------   ----------
Current
    Federal                               $  910,768    $       --   $       --
    State                                    211,128        51,380       35,125
Deferred
    Federal                                 (129,556)    1,542,000           --
    State                                   (538,584)      341,000           --
- ---------------------------------         ----------    ----------   ----------
Total                                     $  453,756    $1,934,380   $   35,125
                                          ==========    ==========   ==========


                                     F-16



The provision for income taxes for the years ended December 31, 2005, 2004 and
2003 reflected in the accompanying financial statements varies from the amount
which would have been computed using statutory rates as follows:



                                                                   2005          2004          2003
                                                           ------------   -----------   -----------
                                                                                
Tax computed at the maximum Federal statutory rate         $    434,156   $  (623,057)   $  158,738
State income tax, net of Federal benefit                         18,132       (84,662)       21,570
Merger related expenses                                              --        62,441            --
Other permanent differences                                       1,468         3,400        17,111
Reduction in income taxes due to S-Corporation status                --            --      (162,294)
Income tax expense attributable to revocation of
    S-Corporation election                                           --     2,576,258            --
- -----------------------------------------------------      ------------   -----------   -----------

Provision for income taxes                                 $    453,756   $ 1,934,380   $    35,125
                                                           ============   ===========   ===========


A net deferred income tax liability of $1,462,898 and $1,883,000 at December 31,
2005 and 2004 resulted from financial statement income and expenses that are
recognized in different periods for income tax purposes. The components of such
temporary differences are as follows:

                                                            2005           2004
                                                    ------------     ----------
Section 481 adjustment due to conversion from
   cash basis to accrual basis for income tax
   reporting                                        $ (1,436,551)   $(2,122,000)
Inventory valuation allowance                                 --         26,000
Identifiable intangible assets                          (162,347)            --
Accrued vacation and officers' compensation
   deducted for financial statement reporting
   purposes but not for income tax reporting
   purposes                                              165,000        173,000
Depreciation and amortization expense reported
   for income tax purposes different from
   financial statement amounts                           (87,000)       (73,000)
Deferred rent                                             58,000         56,000
Net operating loss carryforward                               --         57,000
Net operating loss carryforward - PDHO                        --      1,502,000
- ----------------------------------------------      ------------    -----------
Net                                                 $ (1,462,898)   $  (381,000)
Less: valuation allowance                                     --     (1,502,000)
- ----------------------------------------------      ------------    -----------
Net deferred tax liability                          $ (1,462,898)   $(1,883,000)
                                                    ============    ===========


For income tax purposes, PSC had no remaining net operating loss carryforward at
December 31, 2005.

In addition, Paradigm Holdings has operating loss carryforwards of approximately
$3,891,000 related to pre-merger activities. The Internal Revenue Code places
certain limitations on the annual amount of net operating loss carryforward
which can be utilized when certain changes in the Company's ownership occur.
During 2005, the Company determined that changes in the Company's line of
business would limit the use of such carryforward benefits. Therefore, the
Company wrote-off the deferred tax assets in the amount of $1,502,000 against
the valuation allowance. There was no effect on the consolidated statement of
operations from this action.


                                     F-17



Prior to November 5, 2004, PSC was taxed as an S-Corporation. The timing
differences between book basis and income tax basis and the related deferred
income tax liability that existed as of the date of the revocation of the S
election was as follows:

                                                           2004
                                                   ------------

     Accounts receivable                           $ 11,147,000
     Prepaid expenses                                 4,374,000
     Depreciation                                       191,000
     Accounts payable and account expenses           (6,923,000)
     Accrued salaries and related liabilities        (1,980,000)
     Deferred rent                                     (135,000)
                                                   ------------
     Total timing differences                      $  6,674,000
                                                   ============
     Deferred income tax liability                 $  2,576,258
                                                   ============

9. LEASES

CAPITAL LEASES

The Company entered into capital lease obligations when it leased computer
equipment in 2005. Future payments under the capital lease obligations are as
follows:

     Years ending December 31, 2006                               $  35,026
                               2007                                  35,024
                               2008                                  28,052
                               2009                                     546
                                                                  ---------
     Total Payments                                               $  98,648
     Less amount representing interest                              (16,325)
                                                                  ---------
     Present value of future lease payments                       $  82,323
                                                                  =========

OPERATING LEASES

The Company is obligated under an operating lease, as lessee, for its office
space which expires in 2011. This lease contains an escalation clause for 2.5%
annual increases in the base monthly rent. In addition, the Company has three
other office leases which expire at various dates in 2006 and 2007. The leases
expiring June 30, 2006 and March 31, 2007 contain escalation clauses of 3% in
the base monthly rent on an annual basis plus a pro rata share of annual
operating expenses. The lease expiring November 30, 2006 for Blair's headquarter
is a fixed monthly rent of $4,500 (see Note 15).

In addition, the Company leases an automobile, as lessee, under a non-cancelable
operating lease which expires in November 2006.


                                     F-18



The following is a schedule, by year, of future minimum rental payments required
under the operating leases:


     Year Ending
     December 31,                 Office Space     Automobile        Total
     ----------------             ------------   ------------   ------------
           2006                     $  997,487     $    7,000     $1,004,487
           2007                        557,845             --        557,845
           2008                        447,134             --        447,134
           2009                        458,313             --        458,313
           2010                        469,768             --        469,768
     Thereafter                        198,560             --        198,560
                                  ------------     ----------     ----------
     Total                          $3,129,107     $    7,000     $3,136,107
                                  ============     ==========     ==========


Total rent expense for the years ended December 31, 2005, 2004 and 2003 was
$978,346, $945,878 and $613,202, respectively.

10. NET INCOME PER COMMON SHARE

Net income per common share is presented in accordance with SFAS No. 128,
"Earnings Per Share." This statement requires dual presentation of basic and net
income per common share on the face of the income statement. Basic net income
per common share excludes dilution and is computed by dividing income available
to common shareholders by the weighted-average number of shares outstanding for
the period. Diluted net income per common share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock, except for periods when the Company
reports a net loss because the inclusion of such items would be antidilutive.


                                     F-19



The following is a reconciliation of the amounts used in calculating basic and
diluted net income per common share.

                                                   Net                Per Share
                                                Income       Shares      Amount
                                           -----------   ----------   ---------
Basic net income per common share for
  the year ended December 31, 2005:
Income available to common stockholders    $   823,174   20,107,653   $    0.04
Effect of dilutive stock options                    --        2,428          --
                                           -----------   ----------   ---------
Diluted net income per common share for
  the year ended December 31, 2005:        $   823,174   20,110,081   $    0.04
                                           ===========   ==========   =========

Basic net income per common share for
  the year ended December 31, 2004:
Income available to common stockholders    $(3,766,901)  17,896,727   $   (0.21)
Effect of dilutive stock options                    --           --          --
                                           -----------   ----------   ---------
Diluted net income per common share for
  the year ended December 31, 2004:        $(3,766,901)  17,896,727   $   (0.21)
                                           ===========   ==========   =========

Basic net income per common share for
  the year ended December 31, 2003:
Income available to common stockholders    $   431,751   17,500,000   $    0.03
Effect of dilutive stock options                    --           --          --
                                           -----------   ----------   ---------
Diluted net income per common share for
  the year ended December 31, 2003:        $   431,751   17,500,000   $    0.03
                                           ===========   ==========   =========


11. RETIREMENT PLANS

The Company maintains a 401(k) profit sharing retirement plan for all eligible
employees of PSC and PSI. Under the plan, employees become eligible to
participate after one month of employment. The annual contribution under this
plan is based on employee participation. The participants may elect to
contribute up to 100% of their gross annual earnings limited to amounts
specified in Internal Revenue Service Regulations as indexed for inflation. The
Company's matching contribution to the Plan is determined annually by the Board
of Directors. For the years ended December 31, 2005, 2004 and 2003, the Company
contributed an amount equal to 100% of the first 3% of the employees'
contributions as a match. Employees vest 100% in all salary reduction
contributions. Rights to benefits provided by the Company's matching
contributions vest over a five year period. The Company's contributions were
$324,432, $289,681 and $224,684 for the years ended December 31, 2005, 2004 and
2003, respectively.

Blair sponsors a profit-sharing 401(k) retirement plan covering substantially
all employees. Blair's expense related to this plan totaled $2,960 for the
period from October 15, 2005 through December 31, 2005. Under Blair's plan,
Blair contributed 25% up to 5% of employees' gross pay at the end of the year.

12. STOCK OPTIONS

The Company periodically provides compensation in the form of common stock to
certain employees and Company's directors. As permitted by SFAS No. 123, as
amended by SFAS No. 148, the Company applies APB No. 25, and related
interpretations in accounting for its stock-based compensation arrangement.


                                     F-20



Effective December 15, 2005, the Board of Directors of the Company granted
options to acquire shares of the Company's common stock to certain individuals.
These options were vested as of December 15, 2005, have an exercise price equal
to $1.70 per share, and expire on December 14, 2015. The options were issued
with immediate vesting in anticipation of the adoption of the Statement No. 123R
as the company did not believe compensation expense should be associated with
these grants. The Company has not determined the impact of the issuance of
future stock options after the adoption of FAS 123R, but does not intend to
further modify the options granted in December 2005. The options are not
intended to be incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended and will be interpreted accordingly. The Company did
not grant any options in 2004 and 2003.

The fair value of the options granted in 2005 was estimated on the date of the
grant using the Black-Scholes options-pricing model, with the following
assumptions:



            Dividend yield                     None
            Risk-free interest rate            4.50%
            Expected volatility                67.6%
            Expected term of options        5 years

The following table summarizes information regarding the 2005 option activity.

                                                            Weighted Average
                                     Number of Options        Exercise Price
                                    ------------------      ----------------
   Outstanding, beginning of year                   --              $     --
   Granted                                   2,122,000                  1.70
   Exercised                                        --                    --
   Canceled                                         --                    --

   Outstanding, end of year                  2,122,000              $   1.70
                                            ----------              --------

   Exercisable, end of year                  2,122,000              $   1.70
                                            ==========              ========

The following summarizes the stock options outstanding and exercisable at
December 31, 2005.

                           Options Outstanding             Options Exercisable

                                             Weighted
                                 Weighted     Average                   Weighted
                                  Average    Remaining                   Average
                    Options      Exercise   Contractual     Options     Exercise
 Exercise Price   Outstanding      Price        Life      Exercisable     Price
                 ---------------------------------------------------------------
 $1.70              2,122,000   $    1.70      10 years     2,122,000   $   1.70
                 ============   =========   ===========   ===========   ========

13. COMPENSATION AND EMPLOYMENT AGREEMENTS

During 1999, the Company entered into a Section 162 Bonus Plan for the benefit
of its executives. This plan is a nonqualified employee benefit arrangement. The
Company pays a bonus to its executives who use the bonus to pay the premiums on
life insurance policies insuring his/her life. The policies are owned personally
by the executives. The bonus payments are treated as additional compensation to
the executives. The Company's bonus payments under this plan were $52,000,
$88,747 and $86,628 for the years ended December 31, 2005, 2004 and 2003
respectively.


                                     F-21



Effective October 16, 2005, Thomas J. Kristofco, Robert J. Duffy and Stephen M.
Fochler and PSI, a wholly owned subsidiary of the Company, entered into an
Employment Agreement. The agreement has a term of three years and is renewable
for additional terms of one (1) year unless either party provides the other with
notice at least ninety (90) days prior to the date the employment term would
otherwise renew. PSI can terminate the agreement by providing at least thirty
(30) days' advance written notice any of the three employees. In the event that
PSI terminates the agreement, other than in connection with a change of control
of PSI and other than for cause, PSI is obligated to continue to pay their base
salary and benefits for a period that is the greater of: (i) the remainder of
the initial employment term or (ii) twelve (12) months from the date of
termination. Under the agreement, Mr. Kristofco receives $200,000 for the period
of October 16, 2005 through October 15, 2006, $220,000 for the period of October
16, 2006 through October 15, 2007, and $242,000 for the period of October 16,
2007 through October 15, 2008, Mr. Duffy receives $180,000 for the period of
October 16, 2005 through October 15, 2006, $198,000 for the period of October
16, 2006 through October 15, 2007, and $218,000 for the period of October 16,
2007 through October 15, 2008, Mr. Fochler receives $120,000 for the period of
October 16, 2005 through October 15, 2006, $132,000 for the period of October
16, 2006 through October 15, 2007, and $145,000 for the period of October 16,
2007 through October 15, 2008 and all are entitled to participate in any benefit
plans provided by the Company to its executives or employees generally.
Additionally, Mr. Kristofco, Mr. Duffy and Mr. Fochler are eligible for bonus
compensation as a result of the business unit's operations.

Effective September 28, 2005, Richard Sawchak and the Company entered into an
Employment Agreement. Pursuant to the agreement, Mr. Sawchak serves as Vice
President and Chief Financial Officer. The agreement has a term of two years and
is renewable for additional terms of one (1) year unless either party provides
the other with notice at least ninety (90) days prior to the date the employment
term would otherwise renew. The Company can terminate the agreement by providing
at least thirty (30) days' advance written notice to Mr. Sawchak. In the event
that the Company terminates the agreement, other than in connection with a
change of control of the Company and other than for cause, the Company is
obligated to continue to pay their base salary and benefits for a period that is
the greater of: (i) the remainder of the initial employment term or (ii) twelve
(12) months from the date of termination. Under the agreement, Mr. Sawchak
receives $200,000 in annual salary and all is entitled to participate in any
benefit plans provided by the Company to its executives or employees generally.

Effective April 1, 2005, Samar Ghadry and PSC, a wholly-owned subsidiary of the
Company, entered into a Letter Agreement pursuant to which Ms. Ghadry and PSC
agreed and acknowledged that Ms. Ghadry's employment with PSC ended effective
April 1, 2005. Pursuant to the terms of the Letter Agreement, PSC agreed to pay
Ms. Ghadry severance pay in an amount equal to Ms. Ghadry's base pay for nine
months in accordance with PSC's normal payroll practices. PSC agreed to pay Ms.
Ghadry a bonus for the first quarter of 2005 equal to $20,250. In addition, the
Company agreed to register 1,575,000 shares of commons tock owned by Ms. Ghadry
in the accompanying registration statement. Further, Ms. Ghadry agreed that she
will not, except with the prior written approval of the Company, engage in a
disposition with respect to 100% of these shares until the earlier to occur of:
(i) the date of the closing of a financing through the sale of debt or equity
securities in which the Company receives in one or a series of transactions
gross proceeds in an amount equal to at least $3 million or (ii) September 30,
2005. Ms. Ghadry also agreed that, when she is able to sell her shares of common
stock, that she will not sell more than 2,000 shares in any single business day;
however, in the event the average daily volume of the shares of the Company'
common stock exceeds 10,000 shares for a period of 5 consecutive business days,
Ms. Ghadry may sell up to an aggregate of 4,000 shares per day, commencing on
the first business day thereafter and continuing so long as the average 5-day
daily volume continues to exceed 10,000 shares. Ms. Ghadry and the Company
agreed that, to the extent allowed by law and with the express written approval
of the President and Chief Operating Officer of the Company,

Ms. Ghadry may sell her shares to a bona fide purchaser in a private placement
provided such purchaser agrees to be subject to the terms of the Letter
Agreement. Ms. Ghadry was not employed by PSC pursuant to a written employment
agreement.

Effective November 4, 2004, Raymond Huger, Frank Jakovac and Mark Serway and the
Company entered into an Employment Agreement. Pursuant to the agreement, Mr.
Huger serves as Chief Executive Officer, Mr. Jakovac serves as Chief Operating
Officer and Mr. Serway serves as Chief Financial Officer. The agreement has a
term of three years and is renewable for additional terms of one (1) year unless
either party provides the other with notice at least ninety (90) days prior to
the date the employment term would otherwise renew. The Company can terminate
the agreement by providing at least thirty (30) days' advance written notice to
any of the three executives. In the event that the Company terminates the
agreement, other than in connection with a change of control of the Company and
other than for cause, the Company is obligated to continue to pay their base
salary and benefits for a period that is the greater of: (i) the remainder of
the initial employment term or (ii) twelve (12) months from the date of
termination. Under the agreement, Mr. Huger received $395,200 in annual salary,
Mr. Jakovac received $365,250 in annual salary, Mr. Serway received $315,175 in
annual salary and all are entitled to participate in any benefit plans provided
by the Company to its executives or employees generally.


                                      F-22



Mark Serway resigned from the Company effective August 15, 2005. Mr. Serway
received three months of severance as part of his resignation agreement.

14. CONTRACT STATUS

PROVISIONAL INDIRECT COST RATES

Billings under cost-type government contracts are calculated using provisional
rates which permit recovery of indirect costs. These rates are subject to audit
on an annual basis by the government agencies' cognizant audit agency. The cost
audits will result in the negotiation and determination of the final indirect
cost rates which the Company may use for the period(s) audited. The final rates,
if different from the provisionals, may create an additional receivable or
liability.

As of December 31, 2005, the Company has had no final settlements on indirect
rates. The Company periodically reviews its cost estimates and experience rates
and adjustments, if needed, are made and reflected in the period in which the
estimates are revised. In the opinion of management, redetermination of any
cost-based contracts for the open years will not have any material effect on the
Company's financial position or results of operations.

The Company has authorized but uncompleted contracts on which work is in
progress at December 31, 2005 approximately, as follows:

Total contract prices of initial contract awards,including
  exercised options  and approved change orders (modifications)   $ 194,067,799
Completed to date                                                   164,013,580
- -------------------------------------------------------------------------------
  Authorized backlog                                              $  30,054,219
                                                                  =============

The foregoing contracts contain unfunded and unexercised options not reflected
in the above amounts of approximately $80,736,000.

15. STOCKHOLDERS EQUITY

Stockholders' equity of the Company had been restated retroactively to reflect
the equivalent number of shares of common stock received in the reverse
acquisition with Paradigm Holdings, Inc. which occurred on November 3, 2004.

16. RELATED PARTY TRANSACTIONS

PDHO acquired Blair on October 14, 2005. Blair's facility, located at 3375
Lynnwood Drive, Altoona, Pennsylvania, was owned by two of the former Blair
principals, Messrs. Thomas Kristofco and Stephen Fochler. The facility consists
of 4,000 square feet and was leased to Blair at a rate of $4,500 per month. On
January 16, 2006, Messrs. Kristofco and Fochler sold their interests in the
facility to an independent third party. The square footage and monthly rent was
not affected.


                                     F-23



17. PRO FORMA FINANCIAL STATEMENTS

As the reverse merger was on November 3, 2004, the full results of the
operations have been included in the Company's statements of operations for the
year ended December 31, 2005. The unaudited pro forma information for the period
set forth below gives effect to the above noted reverse merger as if it had
occurred on January 1, 2004. The pro forma information is presented for
informational purposes only and is not necessarily indicative of the results of
operations that actually would have been achieved had the acquisitions been
consummated as of that time (unaudited):

                                                         2004             2003
                                                -------------   --------------
     Contract Revenue                           $  61,756,301   $   51,216,189
     Net (loss) income                             (1,125,168)         286,662
     Net (loss) income per common
       share, basic and diluted                 $        (.06)  $          .02

The unaudited pro forma information for the periods set forth below is based on
the operations of PSC and is prepared as if the Company had been a C-Corporation
at the beginning of each period. The effective tax rate of 38.6% reflects
Federal taxes at 34% and state taxes, net of the Federal benefit. There are no
significant permanent differences in any of the periods presented.

                                                     2004            2003
                                             ------------    ------------
STATEMENTS OF OPERATIONS DATA:                 (Pro forma)     (Pro forma)
                                             ------------    ------------
Contract revenue                             $ 61,756,301    $ 51,205,992
Net (loss) income before income taxes          (1,832,521)        466,876
Income tax (benefit) provision                   (707,353)        180,214
Net (loss) income                            $ (1,125,168)   $    286,662
Basic and diluted net (loss) income per
  common share                               $      (0.06)   $       0.02

Weighted average common shares outstanding     17,896,727      17,500,000


                                     F-24



18. SELECTED QUARTERLY FINANCIAL DATA-UNAUDITED

The following table presents the quarterly results for the Company for the years
ended December 31, 2005 and 2004:



                                       1st               2nd                3rd                4th
       2005                          QUARTER           QUARTER            QUARTER            QUARTER
- --------------------------------  ------------       ------------       ------------       ------------
                                                                               
Contract revenue                  $ 15,046,187       $ 15,629,635       $ 15,543,333       $ 17,295,664
Gross margin                         2,235,943          2,425,887          2,425,677          3,467,257
Net income                        $    158,215       $    297,903       $    247,387       $    119,669

Net income per common share: (a)
   basic                          $       0.01       $       0.01       $       0.01       $       0.01
   diluted                        $       0.01       $       0.01       $       0.01       $       0.01







                                       1st               2nd                3rd                4th
       2004                          QUARTER           QUARTER            QUARTER            QUARTER
- --------------------------------  ------------       ------------       ------------       ------------
                                                                               
Contract revenue                  $ 14,111,171       $ 15,271,579       $ 16,592,604       $ 15,780,947
Gross margin                         1,584,143          2,039,410          1,995,767          1,592,027
Net loss                          $   (153,321)      $   (143,415)      $   (255,237)      $ (3,214,928)

Net loss per common share: (a)
   basic                          $      (0.01)      $      (0.01)      $      (0.01)      $      (0.18)
   diluted                        $      (0.01)      $      (0.01)      $      (0.01)      $      (0.18)


(a) The sum of the quarterly per share amounts may not equal annual per share
amounts, as the quarterly calculations are based on varying numbers of weighted
average common shares.

19. REGULATIONS

Paradigm Holdings, Inc. owned producing oil and gas properties. The
development and operation of oil, gas and other mineral properties are
subject to numerous and extensive regulations by federal and state agencies
dealing with, among other subjects, protection of the environment.

Management is not aware of any potential environmental liabilities.

20. LITIGATION

The Company is involved in legal actions arising in the normal course of
business. The Company believes the claims are without merit and intends to
vigorously defend its position; however, the Company has accrued $125,000 to
settle a matter over disputed commissions that a former employee claims are due
at December 31, 2005. In the opinion of management, the outcome of these matters
will not have a material adverse effect on these financial statements.


                                     F-25


                             PARADIGM HOLDINGS, INC.

                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For the years ended December 31, 2005, 2004 and 2003:





                                               Balance at       Additional
                                              Beginning of   Charged to Costs                     Balance at End
Description                                      Period        and Expenses       Deductions        of Period
- --------------------------------------        ------------   ----------------   ------------      --------------
                                                                                        
Deferred tax asset valuation allowance
December 31, 2003                             $         --   $             --   $         --      $           --
December 31, 2004 (1)                                   --          1,502,000             --           1,502,000
December 31, 2005                                1,502,000                 --     (1,502,000)                 --

Allowance for non-salable inventory
December 31, 2003                             $         --   $        67,006    $         --      $       67,006
December 31, 2004                                   67,006                --              --              67,006
December 31, 2005 (2)                               67,006                --         (67,006)                 --




(1) as a result of merger with Paradigm Holdings, Inc.
(2) the Company had an inventory balance of $0 as of December 31, 2005




                                      F-26



                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                             PARADIGM HOLDINGS, INC.




Date: March 30, 2006              By: /s/ Raymond A. Huger
                                  ----------------------------------------------
                                  Raymond A. Huger
                                  Chairman, Chief Executive Officer and
                                  Principal Executive Officer

                                  By: /s/ Richard Sawchak
                                  ----------------------------------------------
                                  Richard Sawchak
                                  Vice President, Chief Financial Officer and
                                  Principal Accounting Officer


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacities and on the dates indicated.


Signature                        Title                                Date
- -------------------------        ----------------------------     --------------

/s/ Richard Sawchak              Vice President, Chief            March 30, 2006
- -------------------------        Financial Officer and
Richard Sawchak                  Principal Accounting Officer

/s/ Frank J. Jakovac             President and COO                March 30, 2006
- -------------------------        and Director
Frank J. Jakovac

/s/ Francis Ryan                 Director                         March 30, 2006
- -------------------------
Francis Ryan

/s/ John A. Moore                Director                         March 30, 2006
- -------------------------
John A. Moore

/s/ Edwin Mac Avery              Director                         March 30, 2006
- -------------------------
Edwin Mac Avery


                                       44





EXHIBIT NO.   DESCRIPTION                                          LOCATION
- -----------   --------------------------------------------------   -------------------------------------------------
                                                             
2.1           Agreement and Plan of Reorganization, dated          Incorporated by reference to Exhibit 99.1 to the
              November 3, 2004, by and among Paradigm              Registrant's Current Report on Form 8-K filed
              Holdings, Inc., a Wyoming corporation, Paradigm      with the Commission on November 10, 2004
              Solutions Merger Corp., a Delaware corporation
              and wholly-owned subsidiary of Paradigm Holdings,
              Inc., Paradigm Solutions Corporation, a Maryland
              corporation and the shareholders of Paradigm
              Solutions Corporation

10.1          Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.1 to the
              by and between Paradigm Holdings, Inc. and Raymond   Registrant's Form S-B2 Registration Statement
              Huger                                                filed with the Commission on February 11, 2005

10.2          Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.2 to the
              by and between Paradigm Holdings, Inc. and Frank     Registrant's Form S-B2 Registration Statement
              Jakovac                                              filed with the Commission on February 11, 2005

10.3          Employment Agreement, effective November 4, 2004     Incorporated by reference to Exhibit 10.3 to the
              by and between Paradigm Holdings, Inc. and Mark      Registrant's Form S-B2 Registration Statement
              Serway                                               filed with the Commission on February 11, 2005

10.4          Amended SunTrust Line of Credit Agreement, dated     Incorporated by reference to Exhibit 10.4 to the
              March 9, 2005                                        Registrant's Annual Report on Form 10-K as filed
                                                                   with the Commission on April 11, 2005

10.5          Material Contract - Department of Treasury- IRS      Incorporated by reference to Exhibit 10.5 to the
              LTMCC                                                Registrant's Annual Report on Form 10-K as filed
                                                                   with the Commission on April 11, 2005

10.6          Material Contract - Department of Justice -          Incorporated by reference to Exhibit 10.6 to the
              Alcohol, Tobacco, Firearms and Explosives            Registrant's Annual Report on Form 10-K as filed
                                                                   with the Commission on April 11, 2005

10.7          Material Contract - Housing and Urban Development    Incorporated by reference to Exhibit 10.7 to the
              - Community Planning and Explosives                  Registrant's Annual Report on Form 10-K as filed
                                                                   with the Commission on April 11, 2005

10.8          Material Contract - Department of Homeland           Incorporated by reference to Exhibit 10.8 to the
              Security - US Secret Service                         Registrant's Annual Report on Form 10-K as filed
                                                                   with the Commission on April 11, 2005

10.9          Line of Credit Agreement, dated November 15, 2004    Incorporated by reference to Exhibit 10.4 to the
              by and between SunTrust Bank and Paradigm            Registrant's Annual Report on Form 10-K as filed
              Solutions Corporation.                               with the Commission on April 11, 2005

10.10         Loan and Security Agreement, dated July 28, 2005,    Incorporated by reference to Exhibit 10.1 to the
              entered into between Paradigm Holdings, Inc. and     Registrant's Current Report on Form 8-K as filed
              Chevy Chase Bank, effective on August 8, 2005.       with the Commission on August 8, 2005

10.11         Employment Agreement, effective September 19, 2005   Incorporated by reference to Exhibit 10.1 to the
              by and between Paradigm Holdings, Inc. and Richard   Registrant's Current Report on Form 8-K as filed
              Sawchak                                              with the Commission on September 30, 2005

10.12         Merger Agreement, dated October 12, 2005, by and     Incorporated by reference to Exhibit 99.1 to the
              among Paradigm Holdings, Inc., Paradigm Solutions    Registrant's Current Report on Form 8-K as filed
              International, Inc. (PSI), Blair Management          with the Commission on October 20, 2005 and
              Services, Inc. t/d/b/a Blair Technology Group        amended on December 30, 2005
              (Blair) and the Shareholders of Blair

10.13         Escrow Agreement, dated October 12, 2005, by and     Incorporated by reference to Exhibit 99.2 to the
              among Paradigm Holdings, Inc., PSI, the              Registrant's Current Report on Form 8-K as filed
              Shareholdersof Blair and Kirkpatrick & Lockhart      with the Commission on October 20, 2005
              Nicholson Graham LLP



                                       45





EXHIBIT NO.   DESCRIPTION                                          LOCATION
- -----------   --------------------------------------------------   -------------------------------------------------
                                                             
10.14         Employment Agreement, dated October 12, 2005, by     Incorporated by reference to Exhibit 99.3 of the
              and between PSI and Tom Kristofco                    Registrant's Current Report on Form 8-K as filed with
                                                                   the Commission on October 20, 2005

10.15         Employment Agreement, dated October 12, 2005, by     Incorporated by reference to Exhibit 99.4 of the
              and between PSI and Robert Duffy                     Registrant's Current Report on Form 8-K as filed with
                                                                   the Commission on October 20, 2005

10.16         Employment Agreement, dated October 12, 2005, by     Incorporated by reference to Exhibit 99.5 of the
              and between PSI and Steve Fochler                    Registrant's Current Report on Form 8-K as filed with
                                                                   the Commission on October 20, 2005

10.17         Change in Terms Agreement to Loan and Security       Incorporated by reference to Exhibit 10.1 of the
              Agreement, dated March 16, 2006, entered into        Registrant's Current Report on Form 8-K as filed with
              between Paradigm Holdings, Inc. and Chevy Chase      the Commission on March 24, 2006.
              Bank on March 20, 2006

10.18         Change in Terms Agreement to Loan and Security       Provided herewith
              Agreement, dated March 30, 2006, between Paradigm
              Holdings, Inc. and Chevy Chase Bank

14.1          Code of Ethics                                       Incorporated by reference to Exhibit 14.1 to the
                                                                   Registrant's Form S-B2 Registration Statement
                                                                   filed with the Commission on February 11, 2005

21.0          List of Subsidiaries                                 Provided herewith

31.1          Section 302 Certification                            Provided herewith

31.2          Section 302 Certification                            Provided herewith

32.1          Section 906 Certification                            Provided herewith

32.2          Section 906 Certification                            Provided herewith



                                       46


EXHIBIT 21.0

                              LIST OF SUBSIDIARIES

PARADIGM SOLUTIONS CORPORATION

PARADIGM SOLUTIONS INTERNATIONAL

BLAIR MANAGEMENT SERVICES


EXHIBIT 31.1

SECTION 302 CERTIFICATION

I, Raymond Huger, certify that:

I have reviewed this Annual Report on Form 10-K of Paradigm Holdings, Inc. (the
Registrant);

Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and
for, the periods presented in this report;

The Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting; and

The Registrant's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.


                                                /s/ Raymond A. Huger
                                                --------------------------------
Date:  March 30, 2006                           Raymond A. Huger
                                                Chief Executive Officer



EXHIBIT 31.2

SECTION 302 CERTIFICATION

I, Richard Sawchak, certify that:

I have reviewed this Annual Report on Form 10-K of Paradigm Holdings, Inc. (the
Registrant);

Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;

Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the Registrant as of, and
for, the periods presented in this report;

The Registrant's other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial
reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the
Registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the Registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our supervision,
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles;

(c) Evaluated the effectiveness of the Registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and

(d) Disclosed in this report any change in the Registrant's internal control
over financial reporting that occurred during the Registrant's most recent
fiscal quarter (the Registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the Registrant's internal control over financial reporting; and

The Registrant's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
Registrant's auditors and the audit committee of the Registrant's board of
directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the Registrant's ability to record, process,
summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the Registrant's internal control over
financial reporting.





                                                /s/ Richard Sawchak
                                                --------------------------------
Date:  March 30, 2006                           Richard Sawchak
                                                Chief Financial Officer

EXHIBIT 32.1

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Paradigm Holdings, Inc. (the Company) on
Form 10-K for the fiscal year ended December 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the Report), the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.


                                            By: /s/ Raymond A. Huger
                                                --------------------------------
Date:  March 30, 2006                           Name:  Raymond A. Huger
                                                Title: Chief Executive Officer



A signed original of this written statement required by Section 906, or other
document authentications, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Paradigm Holdings, Inc.
and will be retained by Paradigm Holdings, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.


EXHIBIT 32.2

                            CERTIFICATION PURSUANT TO
                             18 U.S.C. SECTION 1350
                             AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Paradigm Holdings, Inc. (the Company) on
Form 10-K for the fiscal year ended December 31, 2005 as filed with the
Securities and Exchange Commission on the date hereof (the Report), the
undersigned, in the capacities and on the dates indicated below, hereby
certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to his knowledge:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.





                                            By: /s/ Richard Sawchak
                                                --------------------------------
Date:  March 30, 2006                           Name:  Richard Sawchak
                                                Title: Chief Financial Officer


A signed original of this written statement required by Section 906, or other
document authentications, acknowledging, or otherwise adopting the signature
that appears in typed form within the electronic version of this written
statement required by Section 906, has been provided to Paradigm Holdings, Inc.
and will be retained by Paradigm Holdings, Inc. and furnished to the Securities
and Exchange Commission or its staff upon request.