BTG INC /VA/, S-1/A, 1996-10-30

BTG INC /VA/
S-1/A, 1996-10-30
COMPUTER INTEGRATED SYSTEMS DESIGN

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<PAGE> 1

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996

REGISTRATION NO. 333-14767

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------

AMENDMENT NO. 1
TO

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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BTG, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

VIRGINIA
(STATE OR OTHER JURISDICTION OF
INCORPORATION OR ORGANIZATION)

7373
(PRIMARY STANDARD INDUSTRIAL
CLASSIFICATION CODE NUMBER)

54-1194161
(I.R.S. EMPLOYER
IDENTIFICATION NUMBER)

1945 OLD GALLOWS ROAD
VIENNA, VIRGINIA 22182
(703) 556-6518

(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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EDWARD H. BERSOFF
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF EXECUTIVE OFFICER
BTG, INC.
1945 OLD GALLOWS ROAD
VIENNA, VIRGINIA 22182
(703) 556-6518

(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

------------------
Copies to:

DAVID B. H. MARTIN, JR., ESQUIRE
HOGAN & HARTSON L.L.P.
555 THIRTEENTH STREET, N.W.
WASHINGTON, D.C. 20004
(202) 637-6858
WILLIAM J. GRANT, JR., ESQUIRE
WILLKIE FARR & GALLAGHER
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022
(212) 821-8000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
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If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act of 1933 registration statement number of the earlier
effective registration statement for the same offering. / /
------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act of 1933, check the following box and list the
Securities Act of 1933 registration statement number of the earlier effective
registration statement for the same offering. / /
------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.

SUBJECT TO COMPLETION -- DATED OCTOBER 30, 1996

PROSPECTUS
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1,750,000 Shares

[BTG LOGO]

Common Stock
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Of the 1,750,000 shares of common stock, no par value per share (the "Common
Stock"), offered hereby, 1,670,000 shares are being sold by BTG, Inc. ("BTG" or
the "Company") and 80,000 shares are being sold by a selling shareholder of the
Company (the "Selling Shareholder"). The Company will not receive any of the
proceeds from the sale of shares of Common Stock by the Selling Shareholder. See
"Principal and Selling Shareholders."

The Common Stock is included in The Nasdaq Stock Market's National Market (the
"Nasdaq National Market") under the symbol "BTGI." On October 29, 1996, the last
reported sales price of the Common Stock on the Nasdaq National Market was
$16.625 per share. See "Price Range of Common Stock."

SEE "RISK FACTORS" ON PAGES 7 TO 11 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS
THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK
OFFERED HEREBY.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------
Underwriting Proceeds to
Price to Discounts and Proceeds to Selling
Public Commissions(1) Company(2) Shareholder
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<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
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Total(3)................ $ $ $ $
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</TABLE>

(1) The Company and the Selling Shareholder have agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."

(2) Before deducting expenses payable by the Company estimated to be $500,000.

(3) The Company and the Selling Shareholder have granted the several
Underwriters 30-day over-allotment options to purchase, in the aggregate, up
to 262,500 additional shares of Common Stock on the same terms and
conditions as set forth above. If all such additional shares are purchased
by the Underwriters, the total Price to Public will be $ , the
total Underwriting Discounts and Commissions will be $ , the total
Proceeds to Company will be $ and the total Proceeds to Selling
Shareholder will be $ . See "Underwriting."

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The shares of Common Stock are offered by the several Underwriters subject to
delivery by the Company and the Selling Shareholder and acceptance by the
Underwriters, to prior sale and to withdrawal, cancellation or modification of
the offer without notice. Delivery of the shares to the Underwriters is expected
to be made at the office of Prudential Securities Incorporated, One New York
Plaza, New York, New York on or about , 1996.

PRUDENTIAL SECURITIES INCORPORATED

JANNEY MONTGOMERY SCOTT INC.

FERRIS, BAKER WATTS
Incorporated
November , 1996
<PAGE> 3

IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OFFERED HEREBY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET
MAKING TRANSACTIONS IN THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE
"UNDERWRITING."

AVAILABLE INFORMATION

A Registration Statement on Form S-1 (together with any amendments thereto,
the "Registration Statement"), of which this Prospectus forms a part, under the
Securities Act, has been filed by the Company with the Securities and Exchange
Commission with respect to the shares of Common Stock offered hereby. As
permitted by the rules and regulations of the Commission, this Prospectus omits
certain information contained in the Registration Statement on file with the
Commission. For further information pertaining to the securities offered hereby,
reference is made to the Registration Statement, including the exhibits filed as
a part thereof. The Registration Statement and any amendments thereto, including
exhibits filed or incorporated by reference as a part thereof, are available for
inspection and copying at the Commission's offices as described in the following
paragraph.

The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, is required to files reports, proxy
statements and other information with the Commission. Such reports, proxy
statements and other information can be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of the reports,
proxy statements and other information can be obtained from the Public Reference
Section of the Commission, Washington D.C. 20549, upon payment of prescribed
rates or in certain cases by accessing the Commission's World Wide Web site at
http://www.sec.gov. The Common Stock of the Company is traded on the Nasdaq
National Market under the symbol "BTGI," and such reports, proxy statements and
other information concerning the Company also can be inspected at the offices of
Nasdaq Operations, 1735 K Street, N.W., Washington, D.C. 20006.

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<PAGE> 4

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and Consolidated Financial Statements and Notes thereto appearing
elsewhere in this Prospectus, including information under "Risk Factors." Unless
otherwise specified, all information contained in this Prospectus assumes that
the Underwriters' over-allotment options and outstanding options and warrants to
purchase in the aggregate 648,068 shares of Common Stock will not be exercised.
Unless the context indicates otherwise, BTG, Inc. and its subsidiaries are
collectively referred to as "BTG" or the "Company." References herein to the
"Government" are to the Federal Government of the United States and its
departments, agencies and offices, including the U.S. Mission to the North
Atlantic Treaty Organization ("NATO") Consultation, Command and Control Agency.

THE COMPANY

BTG is an information technology company providing complete solutions to a
broad range of complex systems and product needs of the Government, state and
local governments and commercial clients. The Company provides systems
development, integration, engineering and network design, implementation and
security expertise services (its "Systems Business"). The Company also resells
computer hardware, software and integrated systems (its "Product Reselling
Business"). According to Federal Sources, Inc., an independent market research
firm specializing in the federal market, the Government is expected to spend
over $26 billion in its fiscal 1997 on information technology services and
products. In addition, the Electronic Industries Association, a major industry
trade association, estimates that Government agencies that are not required to
report their information technology expenditures, including the intelligence
community, will spend an additional $20 billion in the Government's fiscal 1997
on such technology. Through acquisitions, internal growth and successful
contract awards, the Company has increased its participation as a significant
provider of information technology solutions to the Government. The Company
intends to continue to expand and diversify its Government client base and to
pursue other opportunities for commercial application of its expertise. For
fiscal 1996 and the six months ended September 30, 1996, the Company's revenues
were $213.6 million and $190.6 million, respectively, and its net income was
$3.0 million and $2.8 million, respectively.

The Company's Systems Business specializes in network planning, design,
implementation, and support; client/server architecture for platform migration;
design and development of Internet/intranet applications; and large volume
document management and imaging applications for search and retrieval for a
variety of Government and commercial clients. Using leading edge technologies,
the Company designs, develops and integrates command, control, communications
and intelligence systems that provide open, modular computer-based solutions for
specific military applications, including information warfare. The Company uses
either commercial, off-the-shelf ("COTS") software and hardware from multiple
providers or custom-built systems to service its clients. BTG provides data
fusion systems that accept, analyze and display electronic data from land-,
sea-, air- and space-based sensors. The Company also designs proprietary
products for environmental management, cost modeling and project planning, and
furnishes a variety of services to accomplish the integration and continuing
support of its systems. In fiscal 1996 and for the six months ended September
30, 1996, revenues from Systems Business activities were 31.4% and 26.0%,
respectively, of the Company's total revenues.

The Company's Product Reselling Business provides clients with advanced
technology products in the areas of enterprise networking, the UNIX operating
system environment, data storage, image processing and high-performance
client/servers. The Company has established relationships with over 200
providers of information technology products, including Compaq Computer
Corporation ("Compaq"), Dell Computer Corp. ("Dell"), Digital Equipment Corp.
("Digital"), Ingram Micro, Inc. ("Ingram") and Toshiba America Information
Systems, Inc. ("Toshiba"). These relationships provide access, at favorable
prices, to a wide variety of advanced technological products. The Company
maintains a number of contract vehicles, including a variety of large,
agency-specific contracts and four General Services Administration ("GSA")
Schedule contracts to facilitate its sales to the Government. In fiscal 1996 and
the six months ended September 30,

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1996, revenues from Product Reselling Business activities were 68.6% and 74.0%,
respectively, of the Company's total revenues.

The Company's key strategies are the following:

- LEVERAGE COMPLEMENTARY BUSINESSES. The Company will continue to leverage
the core competencies of its Systems Business, including its expertise in
the areas of information warfare, intelligence systems, cost modeling and
simulation and local and wide area network design, implementation and
management, with the procurement capabilities of its Product Reselling
Business to provide complete information technology solutions.

- PURSUE STRATEGIC ACQUISITIONS. The Company will seek additional
opportunities to acquire companies with complementary technical
capabilities, new geographic locations, or clients in new markets. During
the last four years, the Company has made four such acquisitions. The
Company believes that continued consolidation within the information
technology industry will provide further opportunities to expand through
acquisitions.

- USE TEAMING RELATIONSHIPS. The Company is building teaming relationships
with other major participants in the information technology industry that
will enhance its ability to participate in increasingly large and complex
procurement programs. The Company seeks to generate increased revenue and
profitability from these relationships.

- DIVERSIFY SYSTEMS BUSINESS TOWARDS NON-DEFENSE CLIENTS. The Company will
seek to extend its expertise in systems integration and networking beyond
its traditional defense intelligence client base. The Company will use
its capabilities in open systems development, networking, client-server
architecture, and document imaging and management, together with its
access to COTS hardware/software products, to expand its growing civilian
government and commercial business bases.

- LEVERAGE EXPERTISE WITH LEADING EDGE TECHNOLOGIES. The Company will
leverage its expertise with leading edge technologies to provide creative
solutions for complex systems integration and networking requirements.
The Company will use its skills in large scale document imaging,
information management and data retrieval, Internet/intranet applications
and network security and encryption technology to expand the solutions it
offers. In order to maximize its ability to offer complete solutions, the
Company will also continue to develop strategic alliances with leading
edge information technology suppliers and to assemble custom,
high-performance microcomputers and servers under its own trade name.

The Company believes that through these strategies it will meet its
objective of providing responsive and high-quality products, services and
solutions that meet the complete information technology needs of a growing and
increasingly diversified client base.

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<PAGE> 6

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company..................... 1,670,000 shares
Common Stock offered by the Selling Shareholder......... 80,000 shares
Common Stock to be Outstanding after the Offering(1).... 7,843,782 shares
Use of Proceeds......................................... Reduction of bank borrowings. See
"Use of Proceeds."
Nasdaq National Market symbol........................... BTGI
</TABLE>

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(1) Does not include 648,068 shares subject to options or warrants outstanding
as of September 30, 1996, at a weighted average exercise price of $7.80, of
which options or warrants to purchase 427,943 shares are currently
exercisable at a weighted average exercise price of $7.97. See Notes 8 and 9
of Notes to Consolidated Financial Statements.

SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
--------------------------
ACTUAL AS ADJUSTED(7)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital................................................................. $ 71,354 $ 71,354
Total assets.................................................................... 167,635 167,635
Line of credit.................................................................. 50,506 24,908
Other long term debt, including current maturities.............................. 14,625 14,625
Shareholders' equity............................................................ $ 30,839 $ 56,437
</TABLE>

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(1) In June 1992, the Company acquired all the outstanding common stock of BDS,
Inc. ("BDS"). In July and November 1994, the Company acquired all of the
outstanding common stock of Advanced Computer Technology, Inc. ("ACTech")
and Delta Research Corporation ("Delta"), respectively. The acquisitions
were accounted for as purchases and, accordingly, the results of their
operations have been included in the Company's consolidated financial
statements from the dates of acquisition. See Note 11 of Notes to
Consolidated Financial Statements.
(2) In October 1995, the Company acquired all of the outstanding common stock of
Concept Automation, Inc. of America ("CAI"). This acquisition was accounted
for as a purchase and, accordingly, the results of operations of CAI have
been included in the Company's consolidated financial statements from the
date of acquisition. See Note 11 of Notes to Consolidated Financial
Statements.

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SUMMARY CONSOLIDATED FINANCIAL DATA -- CONTINUED

(3) These results assume (i) the acquisition of CAI, (ii) the sale by the
Company of 1,670,000 shares of Common Stock offered hereby at an assumed
offering price of $16.625 per share, and (iii) the elimination of interest
expense on Company borrowings to be repaid with the net proceeds of this
offering, occurred at the beginning of the period. See Unaudited Pro Forma
Condensed Consolidated Financial Statements.

(4) Assumes the sale by the Company of 1,670,000 shares of Common Stock offered
hereby at an assumed offering price of $16.625 per share and the elimination
of interest expense on Company borrowings to be repaid with the net proceeds
of this offering occurred at the beginning of the period. See Unaudited Pro
Forma Condensed Consolidated Financial Statements.

(5) The Company's revenues are derived from contract activities of the Systems
Business and from product sales of the Product Reselling Business.

(6) Total contract backlog represents management's estimate of the aggregate
contract revenues that will be earned by the Company over the life of its
contracts, including option periods. Funded contract backlog consists of the
aggregate dollar portion of contracts that is currently appropriated by
Government clients and allocated to contracts by the purchasing Government
agencies or otherwise allocated for payment by clients upon completion of
specified work. See "Business -- Backlog."

(7) Adjusted to reflect the sale by the Company of 1,670,000 shares of Common
Stock offered hereby at an assumed offering price of $16.625 per share and
the application of the estimated net proceeds therefrom as described under
"Use of Proceeds."

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RISK FACTORS

Prospective investors should carefully consider the following factors, in
addition to the other information contained in this Prospectus, in connection
with investments in the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements within the meaning of Section 27A of
the Securities Act of 1933 and Section 21E of the Securities Exchange Act of
1934. These statements include, among others, statements regarding trends,
opportunities and growth projections in the information technology industry (see
"Prospectus Summary -- The Company," "Business -- Industry Background" and
"Business -- Strategy"), statements regarding the Company's ability to continue
to acquire and maintain government contracts (see "Business -- Government
Contracts"), statements regarding the availability and exclusivity of suppliers
(see "Business -- Suppliers"), statements regarding contract backlogs (see
"Business -- Backlog"), statements regarding the Company's ability to team with
major Government contractors (see "Business -- Teaming Relationships"),
statements regarding the availability of additional financing (see "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources"), statements regarding future
competition (see "Business -- Competition"), statements concerning the nature of
applicable regulatory restrictions and limitations (see "Business -- Certain
Regulatory Matters"), and statements regarding the ability of the Company to
retain key employees (see "Business -- Employees" and "-- Sales and Marketing").
Actual results could differ materially from those projected in the
forward-looking statements as a result of certain uncertainties set forth below
and elsewhere in this Prospectus. An investment in the securities offered hereby
involves a high degree of risk.

DEPENDENCE ON THE GOVERNMENT MARKET. Approximately 86%, 91%, 90% and 90%
of the Company's total revenues in fiscal 1994, 1995, 1996 and in the six months
ended September 30, 1996, respectively, were derived from contracts or
subcontracts with the Government. The Company believes that the success and
development of its business will continue to be dependent upon its ability to
participate in Government contract programs. Accordingly, the Company's
financial performance may be directly affected by changes in Government
contracting policies. Among the factors that could materially adversely affect
the Company's Government contracting business are budgetary constraints, changes
in fiscal policies or available funding, changes in government programs or
requirements, including curtailment of the Government's use of technology
services firms, the adoption of new laws or regulations, technological
developments and general economic conditions. For example, the partial shutdown
of certain Government departments and agencies in the quarter ended December 31,
1995, as a result of budget negotiations between Congress and the
Administration, had an adverse effect on the Company's revenues and earnings for
that quarter and fiscal 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Fiscal 1996 Compared with
Fiscal 1995."

Approximately 65%, 66%, 55% and 31% of the Company's total revenues in
fiscal 1994, 1995 and 1996 and in the six months ended September 30, 1996,
respectively, were derived from contracts with the Department of Defense ("DoD")
and other national security and defense agencies (including NATO). Total
Government defense expenditures have been decreasing and are expected to
continue to decrease primarily as a result of the reordering of budget
priorities due to the perception of a reduced military threat. These reductions
could cause U.S. defense agencies to exercise their right to terminate existing
contracts for convenience or not to exercise options to renew.

The Company derives significant revenues from sales made pursuant to
certain major procurement programs awarded in the ordinary course of business.
These include its GSA Schedule and related contracts, such as the Company's
electronic computer store contract with the National Institutes of Health
("NIH"). The Company's inability to renew or replace its GSA Schedule or other
contracts could have a material adverse effect on the Company. Many Government
contracts specify maximum amounts that Government clients can purchase under the
contract ("total contract capacity"). Such total contract capacity is not
indicative of revenues which will be realized under the contract.

GOVERNMENT CONTRACTING RISKS. Government contracts, by their terms,
generally can be terminated at any time by the Government, without cause, for
the convenience of the Government. If a Government contract is so terminated,
the Company would be entitled to receive compensation for the services provided
or

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<PAGE> 9

costs incurred at the time of termination and a negotiated amount of the profit
on the contract to the date of termination. In addition, all Government
contracts require compliance with various contract provisions and procurement
regulations. The adoption of new or modified procurement regulations could
materially adversely affect the Company or increase its costs of competing for
or performing Government contracts. Any violation of these regulations could
result in the termination of the contracts, imposition of fines, and/or
debarment from award of additional Government contracts. The termination of any
of the Company's significant contracts or the imposition of fines, damages, or
suspension from bidding on additional contracts could have a material adverse
effect on the Company. Most Government contracts are also subject to
modification or termination in the event of changes in funding, and the
Company's contractual costs and revenue are subject to adjustment as a result of
audits by the Defense Contract Audit Agency ("DCAA") and other Government
auditors. The DCAA routinely audits cost-reimbursement contracts to verify that
costs have been properly charged to the Government. Further, all Government
contract awards are subject to protest by competitors. See
"Business -- Government Contracts."

Approximately 70% and 82% of the Company's revenues in fiscal 1996 and in
the six months ended September 30, 1996, respectively, were derived from
Government contracts awarded through formal competitive bids. Upon expiration,
such contracts may be subjected to the competitive rebidding process. There can
be no assurance that the Company will win on any particular bid or prevail in
any ensuing legal protest. Furthermore, with respect to GSA Schedule and
indefinite delivery, indefinite quantity ("IDIQ") contracts, there can be no
assurance that price levels will not be reduced. BTG's failure to win a
significant dollar volume of such contracts could materially adversely affect
the Company.

Total contract capacity is not indicative of revenues which will be
realized under a contract, since Congress usually appropriates funds for a given
program on a fiscal year basis, even though actual contract performance may take
many years. As a result, contracts typically are only partially funded at the
time of award, and additional monies are normally committed to the contract by
the procuring agency as appropriations are made by Congress in subsequent fiscal
years. In addition, certain contracts span a base year and a number of option
years. There can be no assurance that the Government will extend a contract
through its option years.

The Company, in the ordinary course of its business, occasionally performs
services under contracts for which funding authorization from the Government has
either expired or not been obtained, although it does so with the expectation
that such authorization will be obtained. If authorization for additional
funding is not ultimately obtained, there is a risk that the Company would not
be fully compensated for services it had performed in anticipation of contract
authorization. The Company has not experienced material losses relating to this
practice. See "Business -- Company Operations" and "-- Backlog" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

The Company's Product Reselling Business activities are generally conducted
under GSA Schedule contracts and negotiated procurement contracts with IDIQ
requirements, such as the New Technologies for Office and Portable Systems
("NTOPS") contract for the United States Navy. These are unfunded procurement
vehicles, and the Government generally has no obligation to purchase other than
a minimal amount of goods or services. There can be no assurances as to the
actual level of sales that will result from such unfunded contracts. In
addition, as a percentage of contract revenue in fiscal 1996 and in the six
months ended September 30, 1996, approximately 38% and 33%, respectively, of the
Company's contracts were fixed-price or time-and-materials contracts (i.e., at
the time of initial award, the price to the end-user and/or hourly rates for
time billed are set for the duration of the contract). In the event costs for
future performance of these contracts rise unexpectedly, this could have an
adverse effect on profits from such contracts. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."

REVENUE FLUCTUATIONS BASED ON GOVERNMENT SPENDING CYCLE. The Company's
product sales tend to be seasonal, with the Company's second and third fiscal
quarters generally accounting for the greatest proportion of revenues each year.
Revenues can fluctuate significantly based on uneven purchasing patterns under
Government GSA Schedule and IDIQ contracts as well as changes in policy or
budgetary measures that adversely affect Government contracts in general. Such
fluctuations could cause the market price for the

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<PAGE> 10

Common Stock to be volatile. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- General" and "-- Quarterly
Results."

POSSIBLE STOCK PRICE VOLATILITY. The Common Stock has been trading only
since the Company's initial public offering in December 1994. The market price
of the Common Stock could be subject to significant fluctuations in response to
variations of financial results or announcements of material events by the
Company or its competitors. Developments in the Company's industry or changes in
general conditions in the economy or in the financial markets could also
materially affect the market price of the Common Stock.

DEPENDENCE ON BANK CREDIT AND LIMITATIONS ON ADDITIONAL FINANCING. The
Company is highly dependent for working capital on its revolving credit facility
(the "Credit Facility"), interest under which is at a floating rate. Loss of the
Credit Facility or significant interest rate increases could have a material
adverse effect on the Company's business. In addition, the Company's acquisition
strategy may require substantial additional financing. The Credit Facility
contains certain covenants that restrict the ability of the Company to complete
certain acquisitions or to obtain additional financing without prior approval of
the bank lender. In addition, the purchase agreement for the Company's 12.875%
Senior Subordinated Notes due 2001 (the "Subordinated Notes") contains similar
restrictions which restrict the Company's ability to complete acquisitions or
obtain additional financing without the consent of the holders of the
Subordinated Notes. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Credit
Facility" and "-- Subordinated Notes."

MANAGEMENT OF GROWTH AND ACQUISITIONS. The Company's revenues have
increased in each fiscal year since its inception and in the first six months of
fiscal 1997 compared to the first six months of fiscal 1996. Continued growth
will require the Company to improve its operational, financial and management
information systems and to train and manage its employees effectively. The
Company's failure to manage growth effectively could have a material adverse
effect on the Company's results of operations. In addition, the Company's future
growth may depend upon its success in identifying suitable new businesses to be
acquired. The integration of such acquired businesses into the Company's
operations may require a disproportionate amount of management's attention and
the Company's resources. There can be no assurances that suitable acquisitions
will be available, that any new businesses will generate revenues or net income
comparable to the Company's existing businesses or that such businesses will be
integrated successfully. In addition, the Credit Facility and the Subordinated
Notes contain certain covenants restricting, among other things, acquisitions,
capital expenditures and the incurrence of additional indebtedness. Such
covenants may limit the ability of the Company to complete certain acquisitions.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources -- Credit Facility" and
"-- Subordinated Notes."

COMPETITION. The markets for the Company's services and products are
highly competitive. The Company competes with many other firms engaged in each
of the Company's functional business areas, ranging from small firms to large
multinational firms, many of which have substantially greater financial,
management and marketing resources than the Company. Other competitive factors
include quality of services, technical qualifications, past contract
performance, geographic presence, price and the availability of key professional
personnel. In addition, with Government expenditures for defense contracts
expected to continue to decline, the overall market is likely to become more
competitive. The inability to procure new contracts and retain existing
contracts would result in a reduction of Company revenue and could have a
material adverse effect on the Company's results of operations. In addition,
because the markets for the Company's products and services are competitive, the
Company has experienced downward pressure on gross and operating profits as a
percentage of revenues. The Company believes that it is likely that these
competitive conditions and the commensurate pressure on margins will continue in
the future.

As a non-manufacturing reseller, the Company must continue to obtain
products at competitive prices from leading suppliers in order to provide a
centralized source of price-competitive products for its clients and to be
awarded Government contracts. Although the Company believes its relationships
with its key suppliers are good, a decision by one or more to sell directly to
the Government (especially if at significantly lower prices than those of the
Company), to sell their products to the Company's competitors on more favorable

9
<PAGE> 11

terms than to the Company, to allow additional resellers to represent their
products on GSA Schedule or IDIQ contracts, to restrict or terminate the
Company's rights to sell their products or to restrict their products from being
carried on GSA Schedule or IDIQ contracts could materially adversely affect the
Company's results of operations. See "Business -- Suppliers" and
"-- Competition."

DEPENDENCE ON CO-CONTRACTORS. In recent years, the Government has made use
of fewer, but larger-scale procurements to meet its information technology
requirements. This has led to an increase of teaming agreements among providers
of information technology services and products in order to make use of the
greater resources of such co-contractors to fulfill the requirements of the
larger procurements. The inability of the Company to enter into successful
teaming agreements with other Government contractors could materially adversely
affect the Company's ability to compete successfully for future Government
procurements. In addition, approximately 21% of contract revenue in fiscal 1996
and 8% of contract revenue in the six months ended September 30, 1996 was
derived from subcontracts with prime contractors on Government contracts. Under
these subcontracts, the Company may be adversely affected if the prime
contractor fails to perform satisfactorily or is unable or unwilling to meet its
obligations to the Company.

PROPRIETARY INFORMATION AND TECHNOLOGICAL CHANGE. The Company believes
that its business is dependent on its technical and organizational knowledge,
practices and procedures, and that the future success of the Company is based,
in part, on its ability to keep up to date with new technological breakthroughs
and incorporate such changes in its products and services. Also, the Company has
a proprietary interest in certain of its work products, software programs,
methodologies and know-how. Although the Company seeks to protect its
proprietary information by confidentiality agreements, there can be no assurance
that these measures will prevent the unauthorized disclosure or use of the
Company's technical knowledge, practices or procedures or that others may not
independently develop similar knowledge, practices or procedures. In addition,
the Government acquires certain proprietary rights to software programs and
other products that result from the Company's services under Government
contracts or subcontracts. The Government may disclose such information to third
parties, including competitors of the Company. In the case of subcontracts, the
prime contractors also may have certain rights to such programs and products.
Any of these factors could reduce the Company's ability to maximize the
competitive value of its proprietary information.

CONTROL BY EXECUTIVE OFFICERS AND DIRECTORS; ANTI-TAKEOVER PROVISIONS. As
of September 30, 1996 and after giving effect to this offering, the Company's
executive officers and directors will own beneficially approximately 24.4% of
the outstanding Common Stock (approximately 23.7% if the Underwriters' over-
allotment options are exercised in full). In addition, Dr. Edward H. Bersoff and
his wife, Ms. Marilynn D. Bersoff, will own approximately 17.2% of the
outstanding Common Stock (approximately 16.8% if the Underwriters'
over-allotment options are exercised in full). Consequently, Dr. Bersoff alone
and the executive officers and directors as a group will be able to exert
significant influence over corporate matters requiring shareholder approval,
including the election of directors. This influence, together with applicable
statutory provisions under Virginia law and certain measures included in the
Company's Amended and Restated Articles of Incorporation, including the ability
of the Board of Directors to issue one or more series of preferred stock without
shareholder approval, the election of directors in three classes on a staggered
basis and the requirement of super-majority shareholder approval to remove
directors, could deter or delay unsolicited changes in control of the Company.
See "Principal and Selling Shareholders" and "Description of Capital
Stock -- Virginia Anti-Takeover Provisions" and "-- Certain Provisions of the
Amended and Restated Articles of Incorporation." In addition the Credit Facility
and the Subordinated Notes contain covenants restricting changes of control of
the Company without the holders consent. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Credit Facility" and "-- Subordinated Notes."

DEPENDENCE ON KEY MANAGEMENT PERSONNEL. The Company's success depends to a
significant extent on its key management personnel. The only member of executive
management who is subject to an employment agreement is Dr. Bersoff, the
President and Chief Executive Officer of the Company. The Company has obtained
"key-man" insurance with respect to Dr. Bersoff in the amount of $1.5 million.
The loss of any of the Company's existing key executive personnel, including Dr.
Bersoff, could have a material adverse effect on the Company's financial
position and results of operations. See "Business -- Employees" and
"Management."

10
<PAGE> 12

RECRUITMENT AND RETENTION OF KEY TECHNICAL PERSONNEL. The Company's
success depends to a significant extent on its ability to recruit and retain key
technical personnel. Competition for technical personnel in the information
technology services industry is intense, and the Company must often comply with
provisions in Government contracts which require employment of persons with
specified levels of education, work experience and security clearances. The loss
of the Company's existing key technical personnel or the inability to attract
and retain key employees in the future or to relocate such personnel on certain
contracts performed at remote locations could have a material adverse effect on
the Company's results of operations. See "Business -- Employees" and
"Management."

REQUIREMENT TO MAINTAIN SECURITY CLEARANCES. As of September 30, 1996,
37.0% of the Company's employees have security clearances that permit the
Company to obtain and perform classified work under certain Government
contracts. In addition, many of the Company's Government contracts require the
Company to maintain facility security clearances complying with DoD and other
requirements. If the Company were to lose these clearances, the Company might
not be able to retain such contracts, and, if present clearances were
invalidated, it might not be able to obtain new contracts requiring security
clearances.

NO DIVIDENDS. The Company intends to retain future earnings, if any, for
use in its business and does not anticipate declaring or paying any cash
dividends on shares of its Common Stock in the foreseeable future. In addition,
the Company is restricted under the terms of the Credit Facility and the
Subordinated Notes from declaring or paying cash dividends on its Common Stock.
See "Dividend Policy" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources -- Credit
Facility" and "-- Subordinated Notes."

SHARES ELIGIBLE FOR FUTURE SALE. Sales of substantial amounts of Common
Stock in the public market after this offering may have an adverse effect on the
market price of the Common Stock. The Company, its directors, its executive
officers and the Selling Shareholder have agreed not to sell or otherwise
dispose of any shares of Common Stock held by them, other than the shares being
sold hereunder by the Selling Shareholder, for a period of 120 days after the
date of this Prospectus without the consent of Prudential Securities
Incorporated on behalf of the Underwriters, subject to certain limited
exceptions. Upon expiration of this period, of the 7,843,782 shares outstanding,
4,741,895 shares will be freely tradeable. In addition, 1,335,081 shares will be
held by "affiliates" as that term is defined in Rule 144 under the Securities
Act of 1933, as amended (the "Securities Act"). An additional 1,766,806 shares
of the Common Stock will be deemed to be "restricted securities" pursuant to
Rule 144 under the Securities Act. Upon the expiration of the 120-day lock-up
period, all of these "restricted securities" and shares held by "affiliates"
will be immediately eligible for sale in the public market in reliance upon Rule
144, subject to volume and other restrictions contained therein. See "Shares
Eligible for Future Sale."

11
<PAGE> 13

USE OF PROCEEDS

The net proceeds from the sale by the Company of 1,670,000 shares of Common
Stock offered hereby are estimated to be approximately $25.6 million ($29.4
million if the Underwriters' over-allotment options are exercised in full),
after deducting underwriting discounts and commissions and estimated offering
expenses payable by the Company, at an assumed offering price of $16.625 per
share (the last reported sales price of the Common Stock on the Nasdaq National
Market on October 29, 1996). The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Shareholder.

The Company plans to use all of the net proceeds to reduce borrowings
outstanding under the Credit Facility as of the consummation of this offering.
The Credit Facility has been used to fund the acquisition of Concept Automation,
Inc. of America ("CAI") (approximately $14.7 million) and for general working
capital purposes. As of September 30, 1996, borrowings under the Credit Facility
were $50.5 million. Following the application of the net proceeds of the
offering, the Company will have an outstanding balance under the Credit Facility
of approximately $24.5 million. The Credit Facility expires on August 31, 1998
and bears interest, at the option of the Company (with certain limitations), at
either (i) the NationsBank, N.A. prime rate or (ii) LIBOR plus (A) 2.00% if, at
the time of election, the Company has in place at least $15.0 million of fully
funded subordinated debt, or (B) 2.25% if, at the time of election, such
subordinated debt is not in place. The weighted average interest rate under the
Credit Facility was approximately 7.49% during the six months ended September
30, 1996. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources -- Credit Facility."

12
<PAGE> 14

PRICE RANGE OF COMMON STOCK

The Common Stock has been included in the Nasdaq National Market under the
symbol "BTGI" since December 16, 1994 when the Company conducted its initial
public offering. The following table sets forth, for the periods indicated, the
high and low sale prices per share of Common Stock as reported by the Nasdaq
National Market. The prices shown represent quotations among securities dealers,
do not include retail markups, markdowns or commissions and may not represent
actual transactions.

<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
FISCAL 1995
Third Quarter*................................................ $ 8 1/2 $ 8
Fourth Quarter................................................ 8 1/4 6 1/8
FISCAL 1996
First Quarter................................................. 10 7 3/4
Second Quarter................................................ 11 3/4 8 3/8
Third Quarter................................................. 15 8 7/8
Fourth Quarter................................................ 11 7/8 8 3/4
FISCAL 1997
First Quarter................................................. 15 1/4 9 1/4
Second Quarter................................................ 15 3/4 11 1/2
Third Quarter (through October 29, 1996)...................... 19 14 1/4
</TABLE>

-----------------------
* From December 16, 1994.

On October 29, 1996, the last sales price of the Common Stock as reported
by the Nasdaq National Market was $16.625 per share. The number of shareholders
of record on September 30, 1996 was approximately 833.

DIVIDEND POLICY

The Company intends to retain future earnings for use in its business and
does not anticipate declaring or paying any cash dividends on shares of its
Common Stock in the foreseeable future. The declaration or payment of dividends
is subject to the discretion of the Board of Directors of the Company. The
Company is prohibited by the terms of the Credit Facility and the Subordinated
Notes from declaring or paying dividends on its Common Stock without the consent
of the bank or the holders of the Subordinated Notes, respectively. See
"Management's Discussion and Analysis of Financial Position and Results of
Operations -- Liquidity and Capital Resources -- Credit Facility" and
"-- Subordinated Notes."

13
<PAGE> 15

CAPITALIZATION

The following table sets forth, as of September 30, 1996, the actual and as
adjusted capitalization of the Company after giving effect to the sale by the
Company of the 1,670,000 shares of Common Stock offered hereby at an assumed
offering price of $16.625 per share and the application of the estimated net
proceeds therefrom as described under "Use of Proceeds." The information set
forth below should be read in conjunction with the Company's Consolidated
Financial Statements, and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Line of credit(1)....................................................... $50,506 $24,908
Other long-term debt, including current maturities...................... 14,625 14,625
------- ---------
Total debt....................................................... $65,131 $39,533
------- ---------
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares
issued or outstanding
Common Stock, 10,000,000 shares authorized; 6,173,782 and 7,843,782
actual and as adjusted outstanding, respectively(2)................ 18,224 43,822
Retained earnings..................................................... 13,173 13,173
Treasury stock, at cost, 50,057 shares................................ (527) (527)
Unrealized losses on investments, net of related tax effects.......... (31) (31)
------- ---------
Total shareholders' equity......................................... 30,839 56,437
------- ---------
Total capitalization............................................. $95,970 $95,970
======= =========
</TABLE>

- ---------------
(1) For a description of the Credit Facility see "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources -- Credit Facility" and Note 7 of Notes to Consolidated
Financial Statements.
(2) Does not include 648,068 shares subject to options or warrants outstanding
as of September 30, 1996, at a weighted average exercise price of $7.80, of
which options or warrants to purchase 427,943 shares are currently
exercisable at a weighted average exercise price of $7.97. See Notes 8 and 9
of Notes to Consolidated Financial Statements.

14
<PAGE> 16

SELECTED CONSOLIDATED FINANCIAL DATA

The selected consolidated financial data presented below for, and as of the
end of, each of the years in the five-year period ended March 31, 1996, are
derived from the Consolidated Financial Statements, which financial statements
have been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The consolidated financial statements for each of the years in the
three-year period ended March 31, 1996, and as of March 31, 1995 and 1996, and
the report thereon, are included elsewhere in this Prospectus. The selected
consolidated financial data presented below for the six months ended September
30, 1995 and 1996 and as of September 30, 1996, are derived from the unaudited
Condensed Consolidated Financial Statements included elsewhere in this
Prospectus, which consolidated financial statements include, in the opinion of
the Company, all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation thereof. The consolidated results of
operations for prior periods, including the six months ended September 30, 1995
and 1996, are not necessarily indicative of the results expected for fiscal 1997
or future years. The selected consolidated financial data should be read in
conjunction with the Consolidated Financial Statements as of March 31, 1996, the
related notes and the audit report, the Unaudited Pro Forma Condensed
Consolidated Financial Statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31, SIX MONTHS ENDED SEPTEMBER 30,
-------------------------------------------------------------- -----------------------------------------
PRO FORMA PRO FORMA
1992 1993(1) 1994 1995(1) 1996(2) 1996(3) 1995 1996 1996(4)
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Revenue:
Contract revenue... $28,758 $ 32,071 $35,509 $ 46,130 $ 67,014 $ 74,985 $ 28,556 $ 49,504 $ 49,504
Product sales...... -- 24,436 68,045 109,859 146,544 172,847 61,763 141,063 141,063
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Total revenue.... 28,758 56,507 103,554 155,989 213,558 247,832 90,319 190,567 190,567
Direct costs:
Contract costs..... 14,563 15,838 17,287 23,046 35,577 41,836 14,375 30,073 30,073
Cost of product
sales............ -- 20,978 60,276 95,585 128,070 152,467 53,143 123,332 123,332
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Total direct
costs.......... 14,563 36,816 77,563 118,631 163,647 194,303 67,518 153,405 153,405
Indirect, general and
administrative
expenses........... 12,216 16,864 20,858 29,388 40,827 45,425 17,692 29,437 29,437
Amortization and
other operating
costs, net(5)...... 926 342 905 1,070 1,595 2,196 584 949 949
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Total operating
expenses....... 27,705 54,022 99,326 149,089 206,069 241,924 85,794 183,791 183,791
Operating income..... 1,053 2,485 4,228 6,900 7,489 5,908 4,525 6,776 6,776
Interest expense..... (489) (555) (817) (1,362) (3,045) (1,622) (1,151) (2,909) (1,950)
Equity in earnings of
affiliate(6)....... -- -- -- -- 792 1,113 -- 1,060 1,060
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Income from
continuing
operations before
income
taxes.............. 564 1,930 3,411 5,538 5,236 5,399 3,374 4,927 5,886
Provision for income
taxes.............. 446 737 1,593 2,406 2,282 2,718 1,408 2,176 2,550
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Income from
continuing
operations......... 118 1,193 1,818 3,132 2,954 2,681 1,966 2,751 3,336
Discontinued
operations(7)...... (596) -- -- -- -- -- -- -- --
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Net income (loss).... $ (478) $ 1,193 $ 1,818 $ 3,132 $ 2,954 $ 2,681 $ 1,966 $ 2,751 $ 3,336
======= ======== ======= ======== ======== ======== ========= ======== ========
Earnings (loss) per
share (8):
Income from
continuing
operations....... $ 0.05 $ 0.25 $ 0.38 $ 0.60 $ 0.47 $ 0.34 $ 0.32 $ 0.43 $ 0.42
Discontinued
operations(7).... (0.24) -- -- -- -- -- -- -- --
------- -------- ------- -------- -------- --------- ------------- ------------- ---------
Net income (loss)
per share........ $ (0.19) $ 0.25 $ 0.38 $ 0.60 $ 0.47 $ 0.34 $ 0.32 $ 0.43 $ 0.42
======= ======== ======= ======== ======== ======== ========= ======== ========
Weighted average
common shares
outstanding........ 2,526 4,756 4,774 5,196 6,233 7,927 6,196 6,371 8,041
</TABLE>

15
<PAGE> 17

SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER
-------------------------------------------------- 30,
1992 1993(1) 1994 1995 1996 1996
------- -------- ------- -------- -------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and equivalents......................... $ 336 $ 454 $ 1,182 $ 1,267 $ 47 $ --
Working capital(9)........................... 538 2,393 4,441 13,125 47,949 71,354
Total assets................................. 10,150 27,271 48,142 72,309 109,460 167,635
Line of credit............................... 3,538 5,843 11,993 23,419 30,453 50,506
Other long-term debt, including current
maturities................................. 1,021 1,113 1,039 1,124 14,571 14,625
Shareholders' equity......................... $ 1,454 $ 9,518 $10,877 $ 23,039 $ 27,745 $ 30,839
</TABLE>

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

(1) In June 1992, the Company acquired all the outstanding common stock of BDS.
In July and November 1994, the Company acquired all of the outstanding
common stock of ACTech and Delta, respectively. The acquisitions were
accounted for as purchases and, accordingly, the results of their operations
have been included in the Company's consolidated financial statements from
the dates of acquisition. See Note 11 of Notes to Consolidated Financial
Statements.
(2) In October 1995, the Company acquired all of the outstanding common stock of
CAI. This acquisition was accounted for as a purchase and, accordingly, the
results of operations for CAI have been included in the Company's
consolidated financial statements from the date of acquisition. See Note 11
of Notes to Consolidated Financial Statements.

(3) These results assume that (i) the acquisition of CAI, (ii) the sale by the
Company of 1,670,000 shares of Common Stock offered hereby at an assumed
offering price of $16.625 per share, and (iii) the elimination of interest
expense on Company borrowings to be repaid with the net proceeds of this
offering had occurred at the beginning of the period. See Unaudited Pro
Forma Condensed Consolidated Financial Statements.

(4) Assumes the sale by the Company of 1,670,000 shares of Common Stock offered
hereby at an assumed offering price of $16.625 per share and the elimination
of interest expense on Company borrowings to be repaid with the net proceeds
of this offering had occurred at the beginning of the period. See Unaudited
Pro Forma Condensed Consolidated Financial Statements.

(5) In fiscal 1994, amortization and other operating costs included a write off
of $397,000 for goodwill relating to a previously acquired subsidiary which
has ceased operations. See Note 10 of Notes to Consolidated Financial
Statements of BTG.
(6) Equity in earnings of affiliates in fiscal 1996 and the six months ended
September 30, 1996 relates to the Company's 49% interest in an
unincorporated joint venture which is accounted for using the equity method.
See Note 10 of Notes to Consolidated Financial Statements.
(7) Discontinued operations in fiscal 1992 relates to the discontinued
operations of an 80%-owned subsidiary engaged in the development of an
imaging and document management product.
(8) Fully diluted earnings per share are substantially the same as primary
earnings per share for the years presented. The Company has never declared
or paid cash dividends on its capital stock and no cash dividends are
presently contemplated.
(9) The significant increase in working capital from March 31, 1995 to March 31,
1996 is primarily attributable to the Company's new Credit Facility, which
was entered into in November 1995 and to the Subordinated Notes, both of
which represent noncurrent debt. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Credit Facility" and
"-- Subordinated Notes." Borrowings under the Company's previous line of
credit facility were of a short-term nature, and all such borrowings have
been repaid.

16
<PAGE> 18

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

BTG is an information technology company providing complete solutions to a
broad range of complex systems and product needs of the Government, state and
local governments and commercial clients. The Company has grown significantly
during the last four years in part through the acquisition of four companies:
BDS, Inc. ("BDS") (June 1992), Advanced Computer Technology, Inc. ("ACTech")
(July 1994), Delta Research Corporation ("Delta") (November 1994), and CAI
(October 1995).

The Company's revenues are derived from contract activities of the Systems
Business and from product sales of the Product Reselling Business. Contract
revenue is typically less seasonal than product sales but fluctuates
month-to-month based on contract delivery schedules. Contract revenue is
characterized by lower direct costs than product sales, yet generally requires a
higher relative level of infrastructure support. Year-to-year increases in
contract revenue have generally resulted from increases in volume, driven by
additional work requirements under Government contracts, rather than price
increases, which are generally limited to escalation factors of 3% to 4% on
direct labor costs. Product sales tend to be seasonal, with the Company's second
and third fiscal quarters typically accounting for the greatest proportion of
revenue each year. Product sales are characterized by higher direct costs than
contract revenue; however, indirect expenses associated with product sales are
generally lower in comparison. Year-to-year increases in product sales have
generally been driven by higher volumes as opposed to price increases, because
hardware and software product prices tend to decline over time as the technology
matures and some segments of the Company's products business are subject to
intense price competition.

During fiscal 1996, the Company's operations were adversely affected by the
Government's budget impasse, which resulted in partial shutdowns of the
Government for several weeks during the Company's third and fourth fiscal
quarters. These shutdowns had a negative impact on fiscal third quarter
operations. In addition, the processing of payments under Government contracts
and purchases was delayed by the shutdowns. This required the Company to carry
higher receivable balances, which, in turn, resulted in higher interest costs.
The extent of any impact on the Company's results of operations, financial
position or liquidity resulting from possible future shutdowns cannot be
determined at this time.

In October 1995, the Company acquired all of the outstanding capital stock
of CAI for approximately $14.7 million. CAI was primarily involved in the
integration, sale and maintenance of electronic data processing equipment and
related support services, principally to civilian agencies of the Government.
The acquisition was accounted for using the purchase method of accounting, and
accordingly, the results of operations of CAI have been included in the
Company's consolidated statement of operations since the date of acquisition.
The excess of the purchase price over the fair value of the net tangible and
identifiable intangible assets acquired, or approximately $11.5 million, has
been recorded as goodwill and is being amortized on a straight-line basis over
the expected period of benefit, 20 years. In connection with the acquisition,
the Company also entered into both non-compete and employment agreements with
several members of CAI's senior management. In connection with the acquisition,
the Company agreed to pay the former shareholders of CAI a percentage of the
Company's gross profits realized from the NTOPS contract.

17
<PAGE> 19

RESULTS OF OPERATIONS

The following table sets forth certain financial data as a percentage of
revenue for the periods indicated as well as the percentage period-to-period
increase (decrease) in such data:

<TABLE>
<CAPTION>
% PERIOD-TO-PERIOD
PERCENTAGE OF REVENUE INCREASE (DECREASE) OF DOLLARS
----------------------------------------- ----------------------------------------
SIX MONTHS SIX MONTHS ENDED
FISCAL YEAR ENDED ENDED SEPT. 30, 1996
MARCH 31, SEPTEMBER 30, 1995 1996 COMPARED TO
----------------------- -------------- COMPARED COMPARED SIX MONTHS ENDED
1994 1995 1996 1995 1996 TO 1994 TO 1995 SEPT. 30, 1995
----- ----- ----- ----- ----- -------- -------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue............... 34.3% 29.6% 31.4% 31.6% 26.0% 29.9% 45.3% 73.4%
Product sales.................. 65.7 70.4 68.6 68.4 74.0 61.5 33.4 128.4
----- ----- ----- ----- ----- ------- ----- ------
Total revenue.................. 100.0 100.0 100.0 100.0 100.0 50.6 36.9 111.0
Direct costs:
Contract costs (as a % of
contract revenue)............ 48.7 50.0 53.1 50.3 60.7 33.3 54.4 109.2
Cost of product sales (as a %
of product sales)............ 88.6 87.0 87.4 86.0 87.4 58.6 34.0 132.1
----- ----- ----- ----- ----- ------- ----- ------
Total direct costs (as a % of
total revenue)............... 74.9 76.1 76.6 74.8 80.5 53.0 37.9 127.2
Indirect, general and
administrative expenses........ 20.1 18.8 19.1 19.6 15.4 40.9 38.9 66.4
Amortization and other operating
costs, net..................... 0.9 0.7 0.7 0.6 0.5 18.2 49.1 62.5
----- ----- ----- ----- ----- ------- ----- ------
Operating income................. 4.1 4.4 3.5 5.0 3.6 63.2 8.5 49.7
Interest expense................. (0.8) (0.9) (1.4) (1.3) (1.5) 66.7 123.6 152.7
Equity in earnings of
affiliate...................... -- -- 0.4 -- 0.6 -- 100.0 100.0
----- ----- ----- ----- ----- ------- ----- ------
Income before income taxes....... 3.3 3.5 2.5 3.7 2.6 62.4 (5.5) 46.0
Provision for income taxes....... 1.5 1.5 1.1 1.5 1.2 51.0 (5.2) 54.5
----- ----- ----- ----- ----- ------- ----- ------
Net income 1.8% 2.0% 1.4% 2.2% 1.4% 72.3% (5.7)% 39.9%
===== ===== ===== ===== ===== ======= ===== ======
</TABLE>

SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED WITH SIX MONTHS ENDED SEPTEMBER
30, 1995

Revenues for the six months ended September 30, 1996 increased by $100.2
million, or 111.0%, from the six months ended September 30, 1995. Of this
increase, $20.9 million was attributable to contract revenue, and $79.3 million
was attributable to product sales. The increase in contract revenue in the six
months ended September 30, 1996 was primarily due to $10.3 million of revenue
recognized under contracts acquired in connection with the acquisition of CAI in
October 1995; $7.9 million of revenue recognized under the Company's Integration
for Command, Control, Communications, Computers and Intelligence ("IC4I")
contract which was awarded to the Company in November 1995; and an aggregate
$2.7 million in net increases under a variety of other contracts. The increase
in product sales was primarily due to approximately $44.4 million of revenue
generated under a variety of sales vehicles acquired in connection with the
acquisition of CAI; $47.1 million of revenue resulting from sales under the
Company's electronic computer store contract with the NIH; $11.8 million in
increased sales under GSA Schedule contracts, either directly from the Company's
GSA Schedule contracts or from sales to other prime contractors with GSA
Schedule contracts; and $200,000 in net increased revenues under a variety of
other sales vehicles. These increases were offset by a decrease of approximately
$23.3 million in sales from purchase contracts under the Company's NATO Basic
Ordering Agreement ("BOA") and a decrease of approximately $900,000 in orders
fulfilled under the Systems Acquisition Support Services ("SASS") contract. In
the six months ended September 30, 1996, approximately 89.6% of the Company's
revenues were derived from contracts or subcontracts with and product sales to
the Government as compared with 89.4% in the six months ended September 30,
1995.

Direct costs, expressed as a percentage of total revenue, increased to
80.5% in the six months ended September 30, 1996 from 74.8% in the six months
ended September 30, 1995, reflecting the increased proportion of total revenues
derived from product sales, which typically have higher direct costs than do

18
<PAGE> 20

revenues generated from service contracts. Contract costs as a percentage of
contract revenue increased to 60.7% in the six months ended September 30, 1996
from 50.3% in the six months ended September 30, 1995, primarily as a result of
revenues generated from the IC4I contract and from contracts acquired in
connection with the acquisition of CAI. Both the IC4I contract and the contracts
acquired from the acquisition of CAI require higher levels of material purchases
and/or subcontractor involvement than does BTG's historical contract base, which
has a more labor intensive, higher gross margin profile. Contract costs include
labor costs, subcontract costs, material costs and other costs directly related
to contract revenue. Cost of product sales as a percentage of product sales
increased to 87.4% in the six months ended September 30, 1996 from 86.0% in the
six months ended September 30, 1995. This reflects the different mix of products
sold during the six months ended September 30, 1996 as compared to the
comparable period of the prior year.

Indirect, general and administrative expenses include the costs of indirect
labor, fringe benefits, overhead, sales and administration, bid and proposal,
and research and development. Indirect, general and administrative expenses
increased by $11.7 million, or 66.4%, for the six months ended September 30,
1996 as compared with the same period in the previous year. The increase was due
primarily to indirect expenses incurred by CAI, which were not included in the
six months ended September 30, 1995 since CAI was not acquired until October
1995, as well as from an increase in the overall volume of business as compared
to the comparable period of the prior year. Expressed as a percentage of total
revenues, indirect, general and administrative expenses decreased for the six
months ended September 30, 1996 to 15.4% from 19.6% in the six months ended
September 30, 1995. This decrease reflects both the significant growth in
revenue generated from product sales, which typically requires less
infrastructure support than does contract revenue, and the acquisition of CAI,
which has historically required a relatively lower level of indirect costs to
support its revenues.

Amortization and other operating costs, which include amortization expense
associated with goodwill and other intangible assets and other operating
expenses which are non-reimbursable under Government contracts, increased by
$365,000, or 62.5%, for the six months ended September 30, 1996 as compared with
the same period in the previous year. This increase is primarily attributable to
the amortization expense associated with the goodwill and other intangible
assets created as a result of the acquisition of CAI in October 1995.

Interest expense increased by $1.8 million, or 152.7%, for the six months
ended September 30, 1996 as compared with the same period in the previous year.
This increase was due in large part to the significant growth in revenue during
the six months ended September 30, 1996 as compared with the comparable period
of the prior year, as well as the higher volume of product orders projected for
the quarterly period ending December 31, 1996, both of which have resulted in
higher receivable, inventory and prepaid expense balances, thereby resulting in
higher levels of required financing under the Company's line of credit. In
addition, higher interest costs were incurred during the six months ended
September 30, 1996 due to interest paid on borrowings related to the Company's
acquisition of CAI in October 1995, and the higher interest rate associated with
the Subordinated Notes.

Equity in earnings of affiliate was $1.1 million during the six months
ended September 30, 1996, and resulted from the Company's interest in an
unincorporated joint venture. The joint venture entity, which is with an
unrelated company, was created for the purpose of performing under a specific
contract and was acquired by the Company in connection with its acquisition of
CAI.

The Company's effective tax rate increased to 44.2% for the six months
ended September 30, 1996 from 41.7% for the six months ended September 30, 1995.
This increase is primarily attributable to the additional goodwill and
intangible asset amortization expense associated with the acquisition of CAI,
which is not deductible for income tax purposes.

Net income for the six months ended September 30, 1996 increased by
$785,000, or 39.9%, from the six months ended September 30, 1995, due to the
reasons discussed above.

19
<PAGE> 21

FISCAL 1996 COMPARED WITH FISCAL 1995

Revenues for fiscal 1996 increased by $57.6 million, or 36.9%, from fiscal
1995. Of this increase, $20.9 million was attributable to contract revenue,
which increased by 45.3%, and $36.7 million was attributable to product sales,
which increased by 33.4%. The increase in contract revenue was primarily due to
revenue of $7.7 million recognized by CAI, which was acquired in October 1995;
an increase of $7.5 million in revenue recognized from a full year's operations
of Delta, which was acquired in November 1994; and $4.9 million in sales of
Internet-related services. The increase in product sales was primarily due to
sales of $17.6 million recognized by CAI; $20.0 million in sales to prime
contractors of the Government under a variety of contract vehicles; $9.7 million
in increased sales from direct DoD orders; $4.8 million in orders fulfilled
under the SASS contract for the defense intelligence community; and $900,000 in
increased sales to the commercial market. These increases were offset by
decreases of $10.7 million in sales from purchase contracts under the NATO BOA
and $6.3 million in decreased sales under the Company's GSA Schedule contracts,
the latter of which the Company believes was in large part attributable to the
Government's budget impasse during fiscal 1996. In fiscal 1996, approximately
89.8% of the Company's revenue was derived from contracts or subcontracts with
and product sales to the Government, as compared with 91.2% for fiscal 1995.

Direct costs, expressed as a percentage of total revenue, increased to
76.6% in fiscal 1996 from 76.1% in fiscal 1995. Contract costs as a percentage
of contract revenue increased to 53.1% in fiscal 1996 from 50.0% in fiscal 1995,
primarily as a result of revenue generated from CAI's contracts, which typically
required higher levels of material purchases than BTG's historical contract
base, which has a more labor intensive, higher gross margin profile. Contract
costs include labor costs, subcontract costs, material costs, and other costs
directly related to contract revenue. Cost of product sales as a percentage of
product sales increased slightly to 87.4% in fiscal 1996 from 87.0% in fiscal
1995. This increase was primarily attributable to the inclusion of CAI's product
sales, which generated lower gross margins for the year than the Company has
typically experienced in its other product sales business.

Indirect, general and administrative expenses include the cost of indirect
labor, fringe benefits, overhead, sales and administration, bid and proposal,
and research and development expenses. Indirect, general and administrative
expenses increased by $11.4 million, or 38.9%, in fiscal 1996 as compared with
fiscal 1995. Expressed as a percentage of total revenue, indirect general and
administrative expenses increased slightly in fiscal 1996 to 19.1%, from 18.8%
in fiscal 1995. This increase was due primarily to indirect expenses of $5.3
million at CAI and a net increase in indirect expenses of $3.6 million at Delta,
which was acquired during the latter half of fiscal 1995. These increases were
offset by decreased bid and proposal costs of $1.2 million in fiscal 1996 as
compared with fiscal 1995. The remainder of the increase is primarily
attributable to an increase in the overall volume of business and to higher
indirect costs resulting from compensation paid to a number of employees who
could not be charged as direct labor costs to federal contracts affected by the
Government shutdowns.

Amortization and other operating costs, which include the amortization of
goodwill and other intangible assets as well as other operating expenses which
are non-reimbursable under Government contracts, increased by $525,000, or
49.1%, in fiscal 1996 as compared with fiscal 1995. This increase was largely
attributable to $394,000 of additional amortization expense associated with
goodwill and other intangible assets arising from the business combinations made
by the Company in fiscal 1996 and the latter half of fiscal 1995. The remaining
increase is attributable to additional non-reimbursable operating costs incurred
principally as a result of the overall increase in the Company's business and
from unconsummated merger and acquisition transactions.

Interest expense increased by $1.7 million, or 123.6%, in fiscal 1996 as
compared with fiscal 1995. This increase was due in large part to interest paid
on borrowings related to the Company's acquisition of ACTech, Delta, and CAI in
fiscal 1995 and 1996. In addition, the growth in revenue in fiscal 1996
generated an increase in receivable balances, thereby resulting in a higher
level of interest expense related to receivable financing. Further, the
Government shutdowns during the third and fourth quarters of fiscal 1996 delayed
the processing of payments under Government contracts and purchases. This
required the Company to carry its outstanding receivable accounts for longer
periods of time than would otherwise have been the case, which, in turn,
resulted in higher interest costs to the Company. In November 1995, the Company
entered into the Credit

20
<PAGE> 22

Facility, a revolving line which is primarily used to fund ongoing operations of
the Company. Interest paid under the Credit Facility is based on current market
rates adjusted monthly. The average interest rate incurred under the Credit
Facility during fiscal 1996 was 8.1%, as compared with 7.9% in fiscal 1995. The
increase in the average interest rate paid reflects the higher rate payable
under the formula set forth in the Credit Facility as compared with the
Company's former credit facility, partially offset by a decline in prevailing
market rates during fiscal 1996.

The Company's effective tax rate for fiscal 1996 was 43.6% compared to
43.4% in fiscal year 1995. The increase is due to the additional goodwill and
intangible asset amortization expense, which typically is not deductible for
income tax purposes, offset in part by a reduction in the deferred tax asset
valuation allowance.

Net income for fiscal 1996 decreased by $178,000, or 5.7%, from fiscal
1995, due to the reasons discussed above.

FISCAL 1995 COMPARED WITH FISCAL 1994

Revenues for fiscal 1995 increased by $52.4 million, or 50.6%, from fiscal
1994. Of this increase, $10.6 million was attributable to contract revenue, and
$41.8 million was attributable to product sales. The increase in contract
revenue was primarily due to revenue of $4.7 million recorded by Delta, which
was acquired in November 1994; $3.9 million in increased revenue recognized on
the Joint Defense Intelligence Support Services ("JDISS") contract (all of which
related to an emergency buy contract which is not expected to recur); and
approximately $1.1 million and $900,000 in increased revenue recognized on the
Constant Source Operator's Terminal ("CSOT") and Tactical Advanced Computer
Program-3 ("TAC-3") contracts, respectively. The increase in product sales in
fiscal 1995 was primarily due to an increase of $17.6 million in sales under
BTG's GSA Schedule contracts, as well as $13.1 million in orders fulfilled on
the SASS contract for the defense intelligence community, which was awarded in
July 1994. In addition, product sales increased in fiscal 1995 due to $7.2
million in revenues related to orders under the NATO BOA; $2.8 million in
product sales of ACTech, which was acquired in July 1994; and an increase of
$3.4 million in product sales to the DoD and other civilian agencies. These
increases in product sales were partially offset by a reduction of $2.3 million
in product sales to non-Government clients. In fiscal 1995, approximately 91% of
BTG's revenues were derived from contracts or subcontracts with and product
sales to the Government, as compared with 86% for fiscal 1994.

Direct costs, expressed as a percentage of total revenues, increased to
76.1% in fiscal 1995 from 74.9% in fiscal 1994, reflecting the increased
proportion of total revenues accounted for by product sales, which generally
involve relatively higher direct costs, as compared to contract revenue.
Contract costs include labor, subcontract, materials and other costs directly
related to contract revenues. Contract costs as a percentage of contract revenue
increased from 48.7% in fiscal 1994 to 50.0% in fiscal 1995, primarily due to
the increased costs of materials in fulfilling the JDISS emergency buy contract,
which included significant equipment deliveries. Cost of product sales as a
percentage of product sales decreased from 88.6% in fiscal 1994 to 87.0% in
fiscal 1995, reflecting relatively higher gross margins earned on ACTech's sales
of its high-performance personal computers and sales of COTS software products
under the SASS contract.

Indirect, general and administrative expenses include the cost of indirect
labor, fringe benefits, overhead, sales and administration, bid and proposal,
and research and development expenses. Indirect, general and administrative
expenses increased by $8.5 million, or 40.9%, in fiscal 1995 as compared with
fiscal 1994. The increase was due primarily to indirect expenses of $1.9 million
at Delta, indirect expenses of $2.1 million at ACTech, $848,000 for indirect
expenses related to the SASS program, and increased bid and proposal costs of
$929,000. The remainder of the increase is due to an increase in the overall
volume of business. Expressed as a percentage of total revenues, indirect,
general and administrative expenses decreased for fiscal 1995 to 18.8% from
20.1% in fiscal 1994, due principally to the increase in revenues derived from
product sales in fiscal 1995 which, compared with contract revenue, generate a
relatively lower level of indirect, general and administrative expenses.

Amortization and other operating costs, which include amortization of
goodwill and other intangible assets and other expenses which are
non-reimbursable under Government contracts, increased by $165,000, or 18.2%, in
fiscal 1995 as compared with fiscal 1994. The amount for fiscal 1994 includes
$397,000 of goodwill

21
<PAGE> 23

related to a previously acquired subsidiary. Excluding the goodwill written off
in fiscal 1994, amortization and other operating costs in fiscal 1995 increased
by $562,000, or 110.6%, compared to fiscal 1994. The net increase in fiscal 1995
was largely attributable to the additional amortization of goodwill and other
intangible assets arising from the purchases of ACTech and Delta, financial
consulting expenses of $165,000 associated with the Company's then-existing
credit facility, and other internal and miscellaneous acquisition expenses of
approximately $90,000.

Interest expense increased by $545,000, or 66.7%, in fiscal 1995 as
compared with fiscal 1994. This increase was due in part to interest paid on
borrowings related to the acquisitions of ACTech and Delta and advances under
the Company's then-existing credit facility to fund growth in all business
areas. In addition, the growth in revenues in fiscal 1995 generated an increase
in receivable balances, thereby resulting in a higher level of interest expense
related to receivable financing. The former credit facility was used primarily
for accounts receivable and inventory financing with borrowing capacity governed
by a borrowing base formula primarily composed of eligible receivables and
inventory as defined in the former credit facility. See Note 7 of Notes to
Consolidated Financial Statements.

BTG's effective tax rate for fiscal 1995 was 43.4% compared to 46.7% in
fiscal year 1994. The decrease is due to the additional goodwill write-off of
$397,000 in fiscal 1994 (see discussion above), which typically is not
deductible for income tax purposes.

Net income for fiscal 1995 increased by $1.3 million, or 72.3%, from fiscal
1994, due to the reasons discussed above.

QUARTERLY RESULTS

The quarterly operating results for BTG's Product Reselling Business vary
depending upon such factors as the Government's purchasing schedules and the
timing of new product releases by BTG's suppliers, with BTG's second and third
fiscal quarters generally accounting for the greatest proportion of revenues
each year. Quarterly operating results for BTG's Systems Business generally
fluctuate to a lesser extent, but will vary depending upon such factors as the
Government's work requirements and changes in funding.

The following table represents unaudited operating results for BTG for the
10 quarters ended September 30, 1996. This information has been prepared by BTG
on a basis consistent with its audited Consolidated Financial Statements and
includes all adjustments (consisting only of normal recurring adjustments) that
BTG considers necessary for a fair presentation in accordance with generally
accepted accounting principles. Such quarterly results are not necessarily
indicative of future results of operations.

<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30, SEPT. 30, DEC. 31,
1994 1994 1994 1995 1995 1995 1995
-------- --------- -------- -------- -------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue:
Contract revenue.................... $ 12,037 $ 9,033 $ 11,261 $ 13,799 $ 14,473 $ 14,083 $ 16,496
Product sales....................... 15,363 34,584 34,293 25,619 25,116 36,647 46,991
-------- --------- -------- -------- -------- --------- --------
Total revenue..................... 27,400 43,617 45,554 39,418 39,589 50,730 63,487
Direct costs:
Contract costs...................... 7,364 4,137 4,981 6,564 7,570 6,805 10,288
Cost of product sales............... 12,779 30,136 30,086 22,584 21,063 32,080 41,507
-------- --------- -------- -------- -------- --------- --------
Total direct costs................ 20,143 34,273 35,067 29,148 28,633 38,885 51,795
Indirect, general and administrative
expenses............................ 5,940 6,959 7,563 8,926 9,027 8,665 9,974
Amortization and other operating
costs, net.......................... 104 352 382 232 211 373 317
-------- --------- -------- -------- -------- --------- --------
Operating income..................... 1,213 2,033 2,542 1,112 1,718 2,807 1,401
Interest expense..................... (271) (287) (413) (391) (553) (598) (939)
Equity earnings of affiliate......... -- -- -- -- -- -- 135
-------- --------- -------- -------- -------- --------- --------
Income before income taxes........... 942 1,746 2,129 721 1,165 2,209 597
Provision for income taxes........... 393 763 1,135 115 494 914 309
-------- --------- -------- -------- -------- --------- --------
Net income........................... $ 549 $ 983 $ 994 $ 606 $ 671 $ 1,295 $ 288
======== ======== ======== ======== ======== ======== ========
Net income per share................. $ 0.11 $ 0.20 $ 0.20 $ 0.10 $ 0.11 $ 0.21 $ 0.05
Weighted average common shares
outstanding......................... 4,814 4,814 5,046 6,128 6,191 6,208 6,259

<CAPTION>
QUARTER ENDED
-----------------------------------
MAR. 31, JUNE 30, SEPT. 30,
1996 1996 1996
-------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Revenue:
Contract revenue.................... $ 21,962 $ 20,529 $ 28,975
Product sales....................... 37,790 54,913 86,150
-------- -------- ---------
Total revenue..................... 59,752 75,442 115,125
Direct costs:
Contract costs...................... 10,914 10,948 19,125
Cost of product sales............... 33,420 47,779 75,553
-------- -------- ---------
Total direct costs................ 44,334 58,727 94,678
Indirect, general and administrative
expenses............................ 13,161 14,071 15,366
Amortization and other operating
costs, net.......................... 694 448 501
-------- -------- ---------
Operating income..................... 1,563 2,196 4,580
Interest expense..................... (955) (1,266) (1,643)
Equity earnings of affiliate......... 657 397 663
-------- -------- ---------
Income before income taxes........... 1,265 1,327 3,600
Provision for income taxes........... 565 570 1,606
-------- -------- ---------
Net income........................... $ 700 $ 757 $ 1,994
======== ======== ========
Net income per share................. $ 0.11 $ 0.12 $ 0.31
Weighted average common shares
outstanding......................... 6,297 6,336 6,418
</TABLE>

22
<PAGE> 24

INFLATION

Approximately 56.8% and 31.6% of the Company's contract revenue for fiscal
1996 and for the six months ended September 30, 1996, respectively, were derived
under certain IDIQ contracts or cost-reimbursement contracts, under which
inflationary increases are borne by the client. Although the Company performs on
several multi-year fixed-price, time-and-materials, IDIQ and GSA Schedule
contracts, under which it bears the risk of inflationary pressure on its costs,
to date it has not been materially adversely affected by inflation. In addition,
the Company's product sales generally have not been affected by inflation.

LIQUIDITY AND CAPITAL RESOURCES

Net cash of approximately $19.0 million was used in operating activities
during the six months ended September 30, 1996. This net use of cash largely
resulted from a significant increase in accounts receivable, which was due to
the revenue growth experienced by the Company during the six months ended
September 30, 1996 as compared with the comparable period of the prior year. In
addition, increases in both inventory and prepaid expenses contributed to the
net use of cash in the six months ended September 30, 1996, offset by increases
in accounts payable and accrued expenses. Operating activities during fiscal
1996 used cash of approximately $5.2 million, primarily reflecting increases in
accounts receivable of $10.9 million and decreases in accounts payable of $5.8
million, offset by decreases in prepaid expenses of $5.0 million. Net cash of
$13.3 million and $6.6 million was used by operating activities during fiscal
1995 and 1994, respectively. The cash used in operations during fiscal 1995 was
largely the result of increases in accounts receivable and inventory resulting
from higher business volumes and an increase in prepaid expenses resulting from
advance purchases under the SASS contract. Operating activities during fiscal
1995 used cash of $13.3 million compared with $6.6 million in 1994, primarily
reflecting increases in accounts receivable of $6.3 million and inventory of
$2.6 million resulting from the increased volume of business and $6.8 million in
prepaid expenses resulting from advance purchases under the SASS contract.

Investing activities used cash of approximately $1.2 million during the six
months ended September 30, 1996. This was largely the result of a $200,000
investment made in WheelGroup Corporation ("WheelGroup"), which is primarily
involved in network security products and services, and a $300,000 convertible
note purchased from WheelGroup. In addition, the Company invested cash of
approximately $442,000 in the purchase of office and computer-related equipment
for use in the performance of contracts and for increased efficiency in the
Company's administration. The Company also invested cash of approximately
$297,000 in the development of software products designed for use by the
Company's newly-formed subsidiary, Community Networks, Inc. ("CNI"). CNI was
formed by the Company for the purpose of providing local communities with
high-speed Internet access, specialized intranets, and electronic commerce
capability. Investing activities used cash of approximately $15.2 million during
fiscal 1996, principally due to the acquisition of CAI. In comparison, $4.2
million and $342,000 was used by investing activities in fiscal 1995 and 1994,
respectively. The cash used in investing activities during fiscal 1995 was
principally due to the acquisitions of ACTech and Delta.

During fiscal 1996, 1995, and 1994, the Company invested $1.6 million,
$734,000, and $367,000, respectively, in capital expenditures, primarily
relating to acquisitions of office and computer-related equipment for use in the
performance of contracts and for increased efficiency in the Company's
administration.

During the six months ended September 30, 1996, the Company's financing
activities provided cash of approximately $20.3 million, resulting primarily
from $20.1 million in increased borrowings under the Company's revolving line of
credit used to fund working capital needs. At September 30, 1996, the Company
had approximately $9.5 million available for borrowing under its Credit
Facility. On October 1, 1996, the Credit Facility was amended to increase the
ceiling for available borrowings to $85.0 million through March 31, 1997 and
$65.0 million thereafter. During fiscal 1996, $19.1 million was provided from
financing

23
<PAGE> 25

activities primarily as the result of $15.0 million in proceeds received from
the issuance of the Subordinated Notes and increased borrowings of $7.0 million
under the Credit Facility. See "-- Subordinated Notes" and "-- Credit Facility."
These funds were used to finance the cash portion of the Company's acquisition
of CAI and to fund the Company's significant business growth. These financing
sources were offset by the repayment of $1.6 million of long-term debt,
including amounts previously outstanding with the Company and amounts acquired
in the purchase of CAI, and the payment of $1.6 million of costs incurred to
obtain the Credit Facility and to issue the Subordinated Notes. In fiscal 1995,
$18.6 million was provided from financing activities, reflecting $8.7 million in
net proceeds from the Company's initial public offering and increased borrowings
of $11.4 million under the Company's previous line of credit, which resulted
from financing needed to fund the Company's growth. In fiscal 1994,
approximately $6.6 million was provided for financing activities, principally
from accounts receivable financing under the Company's previous line of credit.

As of September 30, 1996, working capital was $71.4 million, compared to
$47.9 million at March 31, 1996. This increase is primarily due to the
significant increase in the volume of business during the six months ended
September 30, 1996, which resulted in significantly higher accounts receivable
balances. At March 31, 1996, working capital was $47.9 million, a $34.8 million
increase over the working capital level at March 31, 1995. This increase is
primarily attributable to the Company's Credit Facility and to the Subordinated
Notes, both of which represent non-current debt. Borrowings under the Company's
previous credit facility were of a short-term nature.

BTG believes that funds available under its Credit Facility and the
application of the net proceeds of this offering will be sufficient to meet the
Company's working capital and capital expenditure requirements for the next 12
months.

Credit Facility. The Credit Facility is a secured revolving credit
facility consisting of four revolving promissory notes provided to the Company
and its subsidiaries by NationsBank, N.A. ("NationsBank"), Fleet Capital
Corporation, Sanwa Business Credit Corporation, and Signet Bank, N.A.
(collectively the "Lenders") in the principal amount of up to $85.0 million.
(See, however, " -- Subordinated Notes" regarding limitations on the Company's
borrowings under the Credit Facility.) The principal amount outstanding under
the Credit Facility may not exceed the lesser of (i) $85.0 million or (ii) a
defined borrowing base, which is a variable amount calculated by aggregating a
specified set of the Company's accounts receivable, unbilled costs, and
inventory ($81.7 million as of October 14, 1996). The Company must pay a
commitment fee if the quarterly average daily outstanding principal balance
under the Credit Facility is less than 50.00% of the commitment amount ($85.0
million unless otherwise reduced). Interest on revolving loan advances made
under the Credit Facility is, at the option of the Company, either (i) the
NationsBank prime rate or (ii) LIBOR plus 2.00%. The Credit Facility is secured
and includes certain financial and other covenants restricting, among other
things, changes in capital structure, mergers, acquisitions, sales of assets,
changes of operations, purchases and redemptions of stock, additional
indebtedness, payment of dividends and other payments to shareholders,
investments, capital expenditures, a net loss by the Company for any fiscal
quarter and certain other matters without the approval of NationsBank. The
Company was in compliance with all financial covenants and ratios required under
the Credit Facility at September 30, 1996. On such date, the balance outstanding
under the Credit Facility was approximately $50.5 million. The Credit Facility
expires on August 31, 1998.

Subordinated Notes. On February 16, 1996, the Company entered into a Note
and Warrant Purchase Agreement (the "Nomura Agreement") with Nomura Holding
America, Inc. ("Nomura") under which the Company issued $15.0 million of
Subordinated Notes. The Subordinated Notes, which bear interest at 12.875% per
annum, are due in February 2001. In connection with the issuance of the
Subordinated Notes, the Company also issued common stock purchase warrants (the
"Warrants") to the holder of the Subordinated Notes, entitling such holder to
purchase up to 317,478 shares of Common Stock at $9.50 per share and to certain
registration rights with respect to such shares. The Warrants are exercisable at
any time through February 16, 2003. Both the number of shares obtainable from
exercise of the Warrants and the exercise price per share are subject to
adjustment based on certain anti-dilution provisions included in the Nomura
Agreement. The Nomura Agreement also contains certain covenants, which, among
other matters, restrict or

24
<PAGE> 26

limit the ability of the Company to pay dividends, incur indebtedness, make
capital expenditures and acquire other companies. The Company is also required
to maintain certain financial ratios regarding interest coverage, leverage, and
net worth, among others. The Company was in compliance with all financial
covenants and ratios required under the Nomura Agreement at September 30, 1996.
On October 1, 1996, the Company obtained the consent of the Subordinated Notes
holders to increase its borrowings under the Credit Facility to $85.0 million
(the Nomura Agreement originally restricted the Company from borrowing amounts
over $60.0 million from the Credit Facility) until March 31, 1997, and $65.0
million thereafter.

Inventory Financing Facility. BTG expects to enter into an agreement with
a financing organization to borrow up to $15.0 million to finance inventory
purchases (the "Inventory Financing Facility"). The Inventory Financing Facility
will be secured by all of the Company's inventory. The Lenders have approved the
Inventory Financing Facility, as has the holder of the Subordinated Notes,
subject to the condition that the maximum amount of outstanding debt under the
Inventory Financing Facility and the Credit Facility not exceed $90.0 million.

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<PAGE> 27

BUSINESS

GENERAL

BTG is an information technology company providing complete solutions to a
broad range of complex systems and product needs of the Government, state and
local governments and commercial clients. The Company provides systems
development, integration, engineering and network design, implementation and
security expertise services (its "Systems Business"). The Company also resells
computer hardware, software and integrated systems (its "Product Reselling
Business"). Through acquisitions, internal growth and successful contract
awards, the Company has increased its participation as a significant provider of
information technology solutions to the Government. The Company intends to
continue to expand and diversify its Government client base and to pursue other
opportunities for commercial application of its expertise. For fiscal 1996 and
the six months ended September 30, 1996, the Company's revenues were $213.6
million and $190.6 million, respectively, and its net income was $3.0 million
and $2.8 million, respectively. The Company's headquarters and executive offices
are located at 1945 Old Gallows Road, Vienna, Virginia 22182, and its telephone
number is (703) 556-6518.

INDUSTRY BACKGROUND

Since the mid- to late 1980s, the Government, like many corporate
organizations, has increasingly adopted computer networking technology to
interconnect personal computers into resource-sharing work groups referred to as
local area networks. In recent years, there has been an increasing demand in the
information technology industry for open systems approaches designed to create
interoperability among COTS computer software and hardware products manufactured
by different suppliers. In addition, concerns over excessive development costs
and the rapid pace of technological change have led both Government and
commercial clients to demand flexible systems created by adapting
readily-available COTS software and hardware, rather than systems that have been
built to customized specifications.

According to Federal Sources, Inc., an independent market research firm
specializing in the federal market, the United States Government is the world's
largest single buyer of information technology services and products. Federal
Sources estimates that Government spending was $26.3 billion ($9.8 billion by
DoD and $16.4 billion by civilian agencies) in the Government's fiscal 1996
(which ends September 30) and will be $26.5 billion ($9.7 billion by DoD and
$16.8 billion by civilian agencies) in its fiscal 1997. In addition, according
to the Electronic Industries Association, Government agencies that are not
required to report their information technology expenditures, including the
intelligence community, will spend an additional $20 billion in the Government's
fiscal 1997 on such technology. In the Government's fiscal 1997, total
Government spending on information technology services and products is forecast
to be approximately $46 billion.

Since the late 1980s, the Government has made use of fewer, but
larger-scale, procurements to meet its information technology requirements,
requiring companies to have greater financial and technical resources in order
to participate in competitive bids. This has necessitated increased use of
teaming agreements among several firms in order to fulfill the requirements of
the larger procurements, which have frequently been awarded as IDIQ, multiple
party contracts. Increasingly, such IDIQ awards have been made to more than one
team which has resulted in post-award competition for contract orders. See
"-- Government Contracts -- Negotiated Procurement Contracts."

The 1990s marked the emergence of rapidly developing Internet/intranet
technologies. Although information technologies, such as ARPANET, secure data
transmissions, and data encryption have long been in use in the military
intelligence arena, recent technological advancements in computer hardware and
software technology have now made such applications economically viable for use
by private companies. This has given rise to the need for specialized expertise
in the areas of local and wide area network design and installation, network
management and operation, and network security using complex, leading edge
information technology hardware and software products.

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STRATEGY

The Company's objective is to provide responsive and high-quality products,
services and solutions that meet the complete information technology needs of a
growing and increasingly diversified client base. The Company's strategies to
meet this objective are the following:

Leverage Complementary Businesses. The Company will continue to leverage
the core competencies of its Systems Business, including its expertise in the
areas of information warfare, intelligence systems, cost modelling and
simulation and local and wide area network design, implementation and
management, with the procurement capabilities of its Product Reselling Business
to provide complete information technology solutions. It draws on the resources
of these complementary businesses to bid on larger and more complex
procurements, either as prime contractor or as a sub-contractor, that will
generate increased revenue. In November 1995, for example, the Company was
selected as the prime contractor of a team comprised of BTG, EDS Corp. ("EDS")
and Sterling Software Inc. ("Sterling") to provide the United States Air Force
("USAF") and other members of the defense intelligence community with a full
range of integrated hardware and software products and services. Also, the
Company is applying its expertise in systems integration and networking
technology to develop revenue-generating opportunities in all areas of its
business.

Pursue Strategic Acquisitions. The Company will seek additional
opportunities to acquire companies with complementary technical capabilities,
new geographic locations, or clients in new markets. During the last four years,
the Company has made four such acquisitions. The recent acquisition of CAI, for
example, extended the Company's systems integration capabilities, particularly
in the civilian agency sector of the Government market. In addition, the Company
will seek to capitalize on cross-referral and cross-selling opportunities, as
well as economies of scale and reductions of overhead, that are provided by
acquisitions. The Company believes that continued consolidation within the
information technology industry will provide further opportunities to expand
through acquisitions.

Use Teaming Relationships. The Company is building teaming relationships
with other participants in the information technology industry that will enhance
its ability to participate in increasingly large and complex procurement
programs. The Company participates in such projects with major contractors,
including BDM International, Inc. ("BDM"), Coopers & Lybrand L.L.P. ("Coopers &
Lybrand"), EDS, International Business Machines Corp. ("IBM"), Sterling, UNISYS
Corporation ("UNISYS") and Xerox Corp. ("Xerox"). The IC4I contract was awarded
to a team comprised of BTG, EDS and Sterling. Two other teams were also
selected. The ITOP contract was awarded to a team led by BTG with Coopers &
Lybrand and eight other subcontractors, and eight other teams. The Company seeks
to use its teaming relationships to generate increased revenue and
profitability.

Diversify Systems Business Towards Non-Defense Clients. The Company will
seek to extend its expertise in systems integration and networking beyond its
traditional defense intelligence client base. Since the early 1980's, the
Company has provided systems design, integration, and engineering services and
computer hardware and software products to a variety of defense and intelligence
agencies. BTG has been involved in the development and continuing enhancement of
a number of networked systems designed to gather, analyze and distribute
sensitive intelligence information. This depth of expertise is directly
applicable to the emerging Internet/intranet and electronic commerce needs of
the civilian government and the commercial marketplace. The Company will use its
capabilities in open systems development, networking and network security,
client-server architecture, document imaging and information management,
together with its access to COTS hardware/software products, to expand its
growing civilian government and commercial business bases. In August 1996, for
instance, the Company was selected by the NIH as a prime contractor for
ImageWorld, a $100 million program for imaging systems, services and products.
The Company's team members include IBM and Xerox. Six other large contractor
teams and 13 small and minority businesses were also selected. Moreover, in
October 1996, the Company's contract with the Tennessee Valley Authority ("TVA")
to design and implement an accelerated delivery program to manage TVA's
inventory was extended for up to three years with a potential contract capacity
of more than $30 million.

Leverage Expertise with Leading Edge Technologies. The Company will
leverage its expertise with leading edge technologies to provide creative
solutions for complex systems integration and networking

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<PAGE> 29

requirements. The Company is skilled in large scale document imaging,
information management and data retrieval and has developed a proprietary
document search system (TeraSEARCH) which is used by the Company in combination
with other COTS document management products (such as Excalibur's
RetrievalWare(TM) integrated with Netscape's Internet server). In addition, the
Company will continue to develop Internet/intranet applications using
sophisticated network security and encryption technology in tandem with leading
edge system vulnerability assessment and intrusion detection products like
WheelGroup's NetRanger(TM). The Company intends to continue to develop strategic
supplier alliances, such as those it has entered into with Netscape
Communications Corp., Excalibur Technologies Corporation, Verity Inc. and
WheelGroup, to ensure that the Company can provide the most complete, current
and innovative information technology products and services to its clients. The
Company will also continue to assemble custom, high-performance microcomputers
and servers with a variety of microprocessors, memory configurations and other
customized features.

COMPANY OPERATIONS

The Company has organized its business into two principal areas: the
Systems Business and the Product Reselling Business. The Systems Business
accounted for 29.6%, 31.4% and 26.0% of total revenues in fiscal 1995 and 1996,
and the six months ended September 30, 1996, respectively, while the Product
Reselling Business accounted for 70.4%, 68.6% and 74.0% of total revenues during
such periods.

THE SYSTEMS BUSINESS

At the beginning of fiscal 1997, the Company organized the Systems Business
into two strategic units: the Systems Engineering Business Unit and the
Integration and Network Systems Business Unit. The Systems Engineering Business
Unit is generally engaged in system development, integration and engineering
activities primarily for defense oriented applications. The Integration and
Network Systems Business Unit is generally engaged in network development,
document imaging and electronic data interchange activities primarily for
non-defense oriented applications.

Systems Engineering Business Unit. The Company designs, develops and
integrates command, control, communications and intelligence systems that
provide open, modular computer-based solutions for specific military
applications, including information warfare. The Company provides competitive
and rapidly accessible solutions to its clients using either COTS software and
hardware from multiple providers or custom-built systems.

The Company has expertise in data assimilation and correlation
applications, that is, the technique of accepting, analyzing and displaying
electronic data from land-, sea-, air-, and space-based sensors, so it can be
rapidly evaluated. The Company's systems give a coherent picture of the
available electronic information, as well as the means to share such
information. The Company has developed both tactical systems, which allow users
to act upon intelligence data immediately, and analytical systems, which permit
use of data for evaluation and planning purposes. These types of systems have
been used in a variety of military settings, including operations in the Middle
East, Somalia, Bosnia and Korea, for tracking troop movements and other
intelligence functions.

The Company uses its expertise to build fully-integrated systems for
military intelligence applications. These systems contain state-of-the-art
software and hardware products and are often "ruggedized" for use in harsh
climates or hazardous environments. The Company uses its integration expertise
to help clients achieve interoperability and integration of multiple information
systems and to permit the sharing of information across dissimilar systems,
thereby increasing the speed and efficiency with which information retrieval and
processing can occur. The Company furnishes a variety of services, such as
requirements analysis, hardware and software selection, hardware and software
on-site installation, systems packaging, troubleshooting, maintenance, repair,
and user training, to accomplish the integration and continuing support of its
systems. The Company is also involved in the DoD information warfare initiative
designed to protect sensitive information resident in a variety of military
intelligence networks and systems. In this regard, the Company is the exclusive
provider to the Government of WheelGroup's NetRanger(TM) products which provide
the client with network vulnerability and intrusion detection capabilities.

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<PAGE> 30

The Company provides engineering and technical support to its clients
across a wide array of technical disciplines, including systems design, planning
operations and maintenance, configuration management, logistics, training and
cost control. The Company's engineering functions generally focus on client
needs for configuration management, re-engineering of existing systems,
maintenance and technical support. The Company performs software engineering to
develop and prototype various data processing and correlation algorithms,
systems engineering to integrate complex network and mainframe systems, and
management engineering to coordinate and control large system operations,
implementation and upgrades.

The following are significant Systems Engineering Business Unit contracts
and programs:

- The IC4I contract, which was awarded in November 1995 to a team comprised
of BTG, EDS, and Sterling with BTG as the prime contractor and EDS and
Sterling as sub-contractors, requires the BTG team to provide the USAF
and other members of the defense intelligence community with a full range
of integrated hardware and software products and services. Two other
teams were also selected. The IC4I program will focus primarily on the
manufacture and development of interoperable systems and subsystems to
upgrade the defense intelligence system. The IC4I contract is a five-year
program with total contract capacity of approximately $929 million.
Although there can be no assurances, the Company believes that the
potential value to BTG under this contract is in excess of $300 million.
The IC4I program began generating revenues in fiscal 1997. During the six
months ended September 30, 1996, $7.9 million of revenue was recognized
by the Company under this contract.

- The U.S. Department of Transportation's Information Technology Omnibus
Procurement Program ("ITOP") program, which was awarded in May 1996 to a
team comprised of BTG as the prime contractor, Coopers & Lybrand and
eight other subcontractors, will focus on providing systems engineering
services in the areas of electronic commerce and electronic data
interchange, Internet access and intranet support, local and wide area
networks, software engineering, office automation support, and business
process reengineering. Eight other teams were also selected. The ITOP
contract is a seven-year program with a total contract capacity of
approximately $1.1 billion. Although there can be no assurances, the
Company believes that the potential value to BTG under this contract is
approximately $50 million.

Integration and Network Systems Business Unit. The Integration and Network
Systems Business Unit focuses on the adaptation of the Systems Business
expertise to non-defense oriented applications and seeks to leverage the Systems
Business expertise with the procurement capabilities of the Product Reselling
Business.

The Company uses its specialized expertise in the areas of local and wide
area network design and installation, network management and operations, and
network security to develop custom networks and Websites. For example, the
Company (i) helped develop customized Websites for Strong Capital Management
Inc., Spencer Gifts, Inc., the Fairfax County Economic Development Authority and
the U.S. Conference of Mayors, (ii) formed a new subsidiary corporation, CNI, to
work with established cable operators to provide local communities with a range
of Internet/intranet services and (iii) has designed, installed, secured, and/or
managed a variety of networks for its clients.

The Company uses its expertise in document imaging and data retrieval and
organization to provide innovative document storage and retrieval services. BTG
used its proprietary TeraSEARCH imaging system in support of a major defense
client. The system was installed and the first thousand pages indexed in one
day. The system gave researchers and lawyers rapid search and retrieval access
to information that would otherwise be buried in millions of pages of notes,
contracts, and engineering reports. Initially sized for two million document
pages, the system was upgraded to handle over seven million pages. Document
capture and search features were enhanced to work with bate stamps (unique
document identifiers used in the legal profession), and the system has been
integrated with relational database technology to track specific document
information like dates and witnesses.

BTG combines its networking and computer integration skills to create
Electronic Data Interchanges ("EDI"s) to help its clients implement inventory
programs. For example, BTG designed and implemented an accelerated delivery
program for the TVA using an EDI to ensure that the TVA could obtain key
computer

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<PAGE> 31

products within five days of ordering. The Company set up a similar system
specifically tailored to satisfy Freddie Mac's unique purchasing preferences,
including same-day delivery.

The following are significant Integration and Network System Business Unit
contracts and programs:

- In August 1996, NIH awarded its ImageWorld program to a team comprised of
BTG, IBM, Information Management Consultants, Inc., I-NET Inc., Sensor
Systems, Inc. and Xerox. Six other large contractor teams and 13 small
and minority businesses were also selected. The teams will compete for
task orders for imaging technology, document conversion and electronic
storage, and electronic document management. The goal is to convert
traditional paper databases into electronic files that can be retrieved
and shared among Government workers. The NIH program is a five-year
program with a total contract capacity of $100 million. Although there
can be no assurances, the Company believes that the potential value to
BTG under this contract is approximately $10 million.

- Since September 1994, the Company, and its wholly-owned subsidiary CAI,
have provided to the Department of Education ("DoE") roughly 100
automation support professionals from all technical specialties and a
variety of networking and integration services under a large facilities
and engineering support contract. Recently, the Company installed and
customized a complex WorldWide Web server that will enable the DoE to
publish grant announcements and procurement information on the Internet.
The DoE contract is a five-year program, including option periods, with a
total contract capacity of $60 million. Although there can be no
assurances, the Company believes the potential value to BTG under this
contract is approximately $50 million. Revenues in fiscal 1996 and the
six months ended September 30, 1996 were $4.3 million and $6.6 million,
respectively. The DoE contract has accounted for approximately $17.2
million in total revenues through September 30, 1996.

THE PRODUCT RESELLING BUSINESS

Technology Systems Business Unit. As a product reseller of computer
hardware, software and integrated systems, the Company, through its Technology
Systems Business Unit, provides clients with advanced technology products in the
areas of enterprise networking, the UNIX operating system environment, data
storage, image processing and high-performance client/servers. The Company
emphasizes open architecture and widely accepted industry standards in
identifying specific products to be used in clients' systems. The Company sells
directly to the Government and to systems integrators and prime contractors
selling to the Government market.

A significant percentage of the Company's revenues (41.3% in fiscal 1996
and 54.5% during the six months ended September 30, 1996) is derived from
product sales to the Government under a variety of agency-specific IDIQ
contracts. For example, the Company provides microcomputer systems, servers,
networking components, software and services under its TDA-2 contract to the
Department of the Treasury; microcomputer systems, UNIX systems, networking
components, software and services under its contract with the NIH; COTS
software, including Applixware Word, Spreadsheet, and Send Mail, Oracle 7 Office
Relational Database Management System and Interleaf WorldView Press under its
SASS contract with the Defense Intelligence Agency ("DIA"); and portable PCs,
office automation software, computer peripherals, and technical support and
warranty maintenance under its NTOPS contract with the Department of the Navy.
More recently, the Company and one other government contractor was awarded the
U.S. Army's PC-2 contract to supply the Army with high performance COTS hardware
and software. The contract has a total contract capacity of $554 million over
two years. Although there can be no assurances, the Company believes the
potential value to BTG is approximately $200 million.

Another significant percentage of the Company's revenues (19.4% in fiscal
1996 and 11.8% for the six months ended September 30, 1996) is derived from
sales to the Government either directly under the Company's four GSA Schedule
contracts or from sales to other prime contractors with GSA Schedule contracts.
See "-- Government Contracts -- The GSA Schedules." GSA Schedule contracts
permit the Company to offer over 50,000 products from more than 300 suppliers.
Representative products include operating systems, work stations, file servers,
backup and storage systems, printers, secure wide area networks, hardware
peripherals, computer software, and document imaging software.

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<PAGE> 32

In order to complement its ability to provide complete solutions to its
clients, the Company's Product Reselling Business assembles and sells a line of
high-performance RISC- and Intel-based computers under its own BTG trade name.
BTG has an agreement with Digital under which Digital supplies it with Alpha
microprocessors. The BTG systems offer Microsoft's Windows and Windows NT
operating systems, with access to thousands of COTS software applications. The
Company offers a full range of support services to clients purchasing BTG
systems, including testing, installation, maintenance and user support.
Approximately 4.2% of total revenues in fiscal 1996 and for the six months ended
September 30, 1996, were obtained from sales of products carrying the BTG trade
name.

The Company has invested in infrastructure improvements over the past two
years to support its product reselling activities, including automated order
processing, inventory control and status checking systems that permit 48-hour
turnaround on most orders. The Company provides its clients a range of support
services, including employee training, maintenance, repair and user assistance.
Products sold by the Company are protected by a variety of warranties, and the
Company also offers extended service contracts for many products. Technical
support services are often provided by personnel in the Company's systems
development, integration and engineering business areas, although third-party
service firms are also used in certain instances. In order to provide a
centralized source of products for its clients, the Company maintains strong
relationships with leading providers of hardware and software products. See
"-- Suppliers."

CLIENTS

The Company derives a substantial portion of its revenues from contracts
with various agencies of the Government, including all four armed forces, the
DIA, the GSA, the National Security Agency ("NSA"), and many of the civilian
Government agencies such as the Environmental Protection Agency, and the
Departments of Treasury and Education. Under the NATO BOA, the Company has sold
services and products to member countries and agencies of NATO. In addition, the
Company has performed projects for, or supplied computer hardware, software and
integrated systems to, a limited number of commercial clients, as well as
several state and local governments. As of September 30, 1996, the Company was
performing on over 90 active Government contracts, with a total contract
capacity (including option periods) in excess of $1.0 billion. This amount was
increased to over $1.3 billion as a result of the award of the U.S. Army's PC-2
contract to the Company in October 1996. See "-- Backlog."

In fiscal 1995, 1996 and the six months ended September 30, 1996, the
Company derived approximately 91.2%, 89.8% and 89.6%, respectively, of total
revenues from Government contracts. The following table sets forth the Company's
estimates of its total revenues in the last two fiscal years and for the six
months ended September 30, 1996:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED
MARCH 31, SIX MONTHS ENDED
------------------- SEPTEMBER 30,
1995 1996 1996
----- ----- ----------------
(% OF TOTAL REVENUE)
<S> <C> <C> <C>
DoD -- armed forces....................................... 27.2% 31.3% 25.7%
DoD -- national security agencies......................... 11.3 8.7 4.1
NATO...................................................... 27.6 15.2 1.0
----- ----- ------
Defense contracts.................................... 66.1 55.2 30.8
----- ----- ------
GSA (including BTG clients with GSA Schedule sales)....... 17.8 19.4 11.8
Other federal civilian agencies........................... 7.3 15.2 47.0
Commercial clients, state and local governments, and
other................................................... 8.8 10.2 10.4
----- ----- ------
Non-defense contracts................................ 33.9 44.8 69.2
----- ----- ------
Total........................................... 100.0% 100.0% 100.0%
===== ===== ======
</TABLE>

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TEAMING RELATIONSHIPS

The Company maintains teaming relationships with major Government
contractors, including BDM, Coopers & Lybrand, EDS, Sterling, UNISYS and Xerox,
in order to bid on and participate in a greater number of increasingly large and
complex procurement projects. Teaming relationships have enabled BTG to secure
several large Government contracts such as the IC4I contract, which was awarded
in November 1995 to a team comprised of BTG, as the prime contractor, EDS and
Sterling. The IC4I contract requires the BTG team to provide the USAF and other
members of the defense intelligence community with a full range of integrated
hardware and software products and services.

SALES AND MARKETING

Within its Systems Business, the Company's sales and marketing activities
are conducted by senior management and its own professional staff of engineers,
analysts and other personnel. Within its Product Reselling Business, the Company
employs approximately 86 sales and marketing personnel, of whom 79 are primarily
engaged in sales and seven are primarily engaged in marketing activities. The
Company provides training to its sales force on various Government procurement
processes and technical features of the products and services it offers. All
sales personnel have been trained on, and have on-line access to, the Company's
computerized system for maintaining price, product availability, bid, ordering
and order-status information. Marketing personnel design and direct the
Company's market research, telemarketing and direct mail campaigns, and oversee
product management efforts. The Company also plans to implement Company-
sponsored catalogues and seminars, advertise in specialty trade publications and
participate in major trade shows.

BACKLOG

The Company's total contract backlog is only a portion of total contract
capacity (i.e., the maximum amount that the Government can purchase under its
contracts with the Company) and represents management's estimate of the
aggregate revenues that will be earned by the Company over the life of all of
its contracts, including option periods. Because many of BTG's contracts are
multi-year contracts and contracts with option years, total contract backlog
represents revenues expected to be realized over a number of years into the
future. The Company's estimated total contract backlog as of March 31, 1995 and
1996 and September 30, 1996 was $227.7 million, $788.0 million and $857.0
million, respectively. The Company estimates that the U.S. Army's PC-2 contract
awarded in October 1996 increased the Company's total contract capacity by
approximately $200 million to over $1.0 billion. Because total contract backlog
is based on management's estimate as to the future potential of existing
contracts, there is no assurance that all of such backlog will be recognized as
revenues.

Because the Government operates under annual appropriations, agencies of
the Government typically fund contracts on an incremental basis. Accordingly,
only a portion of the Company's total contract backlog is "funded." Funded
backlog consists of the aggregate dollar portion of contracts that is currently
appropriated by Government clients and allocated to contracts by the purchasing
Government agencies or otherwise allocated for payment by clients upon
completion of specified work. The Company estimates that as of March 31, 1995
and 1996 and September 30, 1996, its funded contract backlog was $34.1 million,
$36.0 million and 104.7 million, respectively.

Funded backlog generally varies depending on procurement and funding cycles
and other factors beyond the Company's control. Accordingly, period-to-period
comparisons are difficult and not necessarily indicative of any future trends in
revenues. Moreover, the unfunded backlog cannot be relied upon as an indicator
of future contract revenue because there is no assurance that the unfunded
portion will be funded. Finally, the Government's ability to select multiple
winners under IDIQ contracts, as well as its right to limit orders to any
particular awardee, mean that there is no assurance that unfunded contract
backlog will result in actual orders.

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SUPPLIERS

The Company devotes significant resources to establishing and maintaining
relationships with its suppliers. The Company offers its suppliers a number of
opportunities to expand their sales to the Government market, including access
to the Government market through numerous diverse contracts, relief from
compliance costs of procurement regulations for selling directly to the
Government market, lower costs for selling and marketing programs, and
elimination of billing and collection costs related to the Government market,
and participation in product services, including numerous Government-specific
marketing programs and end-user technical support.

The terms of the Company's agreements with its suppliers vary widely, but
typically permit the Company to purchase products for resale to the Government.
Most of the Company's supplier agreements do not require the Company to purchase
any specified quantities of product. The Company typically requires suppliers
acting under its Government contracts to provide the Company with supply and
price protection for the duration of such contracts. Other than supplier
agreements under Government contracts, the Company's supplier agreements are
typically terminable by the supplier on short notice, at will or immediately
upon default by the Company. These supplier agreements also typically permit the
Company to return previous product purchases at no charge, for a specified
restocking fee and/or in exchange for other products of the supplier. The
Company also purchases some products from independent distributors.

Suppliers provide the Company with incentives in the form of discounts,
rebates, credits, inventory financing programs and cooperative advertising and
market development funds. In accordance with the terms of its Government
contracts, the Company provides periodic reporting of pertinent supplier
contract terms and conditions to Government contracting officials. A reduction
in or discontinuance of these incentives or significant delays in receiving
reimbursements could materially adversely affect the Company.

As a product reseller, the Company must continue to obtain products at
competitive prices from leading suppliers in order to provide a centralized
source of price-competitive products for its clients and to be awarded new
Government contracts and Government orders under its existing IDIQ contracts.
Although most of the Company's suppliers currently do not sell their products
under their own GSA Schedule contracts, certain suppliers have, and others may
apply for, their own GSA Schedule contracts and may sell their products at lower
end-user prices than those the Company currently offers or could profitably
offer. Although the Company believes its relationships with its key suppliers to
be good, certain actions by suppliers could adversely affect the Company's
operations, including sales directly to the Government, sales to the Company's
competitors on more favorable terms than to the Company, use of additional
resellers to represent their products on a GSA Schedule contract, restriction or
termination of the Company's rights to sell their products, or restriction of
their products from being carried on a GSA Schedule contract.

GOVERNMENT CONTRACTS

Approximately 91.2%, 89.8% and 89.6% of the Company's total revenues in
fiscal 1995, 1996 and for the six months ended September 30, 1996, respectively,
were derived from business performed under the following two types of Government
contracts (i) contracts obtained through a negotiated procurement process and
(ii) GSA Schedule contracts. The Company's activities within its Systems
Business are generally performed under contracts obtained through negotiated
procurements, while the Company's product reselling activities are generally
performed under both negotiated procurement contracts (IDIQ type) and GSA
Schedule contracts.

Government contracts are generally subject to a number of risks including,
for example, the termination of contracts by the Government for convenience or
default, the availability of Government funding, the right of the Government not
to exercise option years under contracts, to amend contracts and to subject
contracts to a competitive rebidding process, the adjustment of costs and
revenue by Government auditors, and the shutdown or partial shutdown of selected
Government agencies. Prior to fiscal 1996, the Company had not been materially
affected by the foregoing risks. In the latter half of fiscal 1996, however, the
Company's operations were adversely affected by the Government's budget impasse
which resulted in the partial shutdown of the Government for several weeks
during the third and fourth quarters of the Company's fiscal

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year. This partial shutdown had a negative impact on the Company's third quarter
operations. In addition, the processing of payments under Government contracts
was delayed by the shutdowns. This resulted in the Company having to carry its
outstanding receivable accounts for longer periods of time which, in turn, meant
higher interest costs. The potential exists for similar Government shutdowns in
future years. The extent of any impact on the Company's results of operations,
financial position, or liquidity resulting from possible future shutdowns cannot
be predicted at this time.

Negotiated Procurement Contracts. Negotiated procurement contracts include
cost-reimbursement contracts (both cost-plus-fixed-fee and cost-plus-award-fee),
time and materials contracts, fixed-price contracts and IDIQ contracts. Revenues
derived under negotiated procurement contracts during fiscal 1995 and 1996 and
the six months ended September 30, 1996 were as follows by contract type:

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------------------ SIX MONTHS ENDED
1995 1996 SEPTEMBER 30, 1996
------------------- ------------------- -------------------
(DOLLARS IN THOUSANDS)
REVENUE PERCENT REVENUE PERCENT REVENUE PERCENT
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Cost-reimbursement........................ $ 26,246 22.7 % $ 32,249 20.8% $ 13,666 9.2%
Time and materials........................ 4,326 3.8 5,515 3.5 7,233 4.9
Fixed-price............................... 6,340 5.5 19,695 12.7 9,284 6.3
IDIQ*..................................... 78,512 68.0 97,657 63.0 118,078 79.6
-------- ------- -------- ------- -------- -------
Total negotiated procurement contract
revenue................................. $115,424 100.0 % $155,116 100.0% $148,261 100.0%
========= ======= ========= ======= ========= =======
</TABLE>

- ---------------
* Approximately $9.2 million, $9.6 million and $14.1 million of total Company
revenues in fiscal 1995 and 1996 and the six months ended September 30, 1996,
respectively, were generated under IDIQ contracts which were primarily
service-oriented. Approximately $69.3 million, $88.1 million and $103.9
million of total Company revenues in fiscal 1995 and 1996 and the six months
ended September 30, 1996, respectively, were generated under IDIQ contracts
which were primarily product-oriented.

Cost-plus-fixed-fee contracts provide for the reimbursement of incurred
costs during contract performance, to the extent that such costs are allowable
and allocable, and the payment of a fixed fee. The size of such fees as a
proportion of the contract value is limited by law. Cost-plus-award-fee
contracts typically provide for the reimbursement of costs with a base fee and
an additional fee that is based upon a periodic evaluation of the contractor's
performance against specified criteria. Under time and materials contracts, the
contractor agrees to provide certain categories of labor that satisfy
established education and experience qualifications at a fixed hourly rate. To
the extent a contractor's costs differ from the fixed hourly rate, the
contractor realizes all of the benefit or detriment resulting from decreases or
increases in the cost of performing the work. Under fixed-price contracts, the
contractor agrees to perform certain work for a fixed price and, accordingly,
realizes all the benefit or detriment resulting from decreases or increases in
the cost of performing the work.

Under typical IDIQ contracts, the contractor agrees to provide specific
products and related services at specified unit prices. These contracts, which
are often awarded for large scale Government purchases of computer hardware,
software and integrated systems, are typically awarded through a formal
competitive bid process. The periods of performance for IDIQ contracts typically
span a base year and a number of option years. Under IDIQ contracts, the
Government is under no obligation to make purchases at levels approved under the
contract. As part of the Government mandate to streamline procurement
contracting procedures, agencies are awarding IDIQ contracts to multiple
parties. Each winner then has an opportunity to provide the types of products
and services described in the contract. The agency then typically buys from the
most competitive contractor without going through additional formal procurement
procedures. IDIQ contracts are often subject to modification as products
included in original contract specifications are replaced with new technology.

Unsuccessful offerors on bids for negotiated procurement contracts often
bring protests challenging agency action in connection with the procurement,
either before the General Accounting Office (the "GAO"), the United States Court
of Federal Claims, a United States District Court or another appropriate forum.
The Company is currently aware of a bid protest of its U.S. Army's PC-2
contract. Although there can

34
<PAGE> 36

be no assurances, management believes that the award of the U.S. Army's PC-2
contract to the Company will be upheld.

The GSA Schedules. Approximately 19.4% and 11.8% of the Company's total
revenue in fiscal 1996 and the six months ended September 30, 1996,
respectively, were derived from sales pursuant to GSA Schedule contracts held by
the Company during those periods and from sales to other prime contractors of
the Government with GSA Schedule contracts. The Company is one of the 10 largest
GSA Schedule holders and holds four GSA Schedule contracts: one Schedule A
contract for turnkey and large systems products; one Schedule B/C contract for
microcomputers, software and peripheral equipment; one Schedule E contract for
electronic commerce, electronic data interchange, automated procurement systems
and BTG services; and one Schedule 58VA for miscellaneous supplies related to
sales pursuant to the Company's other GSA Schedules. The Company's GSA Schedules
have terms ranging from one to five years. The Company has not experienced any
difficulty in obtaining renewal of its GSA Schedule contracts.

At the time of initial award, prices to the end-users under the Company's
GSA Schedules are set for the duration of the contract at a specified level or
at specified levels varying over time. In addition, under certain circumstances,
BTG is required under the terms of its GSA Schedules to pass on any savings,
resulting from supplier discounts, or other price reductions, to the Government
in the form of corresponding price reductions. Furthermore, the GSA Schedules do
not have pre-set delivery schedules or minimum purchase levels. The
uncertainties related to future contract performance costs, quantities to be
shipped and dates of delivery make it difficult to predict the future revenues
and profits, if any, that may result from such contracts.

The Procurement Process. The Company's Government Contracts Department,
which consisted of 11 employees at September 30, 1996, prepares bids on
procurements and advises Company personnel on a wide variety of technical and
practical issues relating to the procurement process. The Company believes its
experience in the procurement process enables it to identify procurement
opportunities and to manage resources cost-effectively in the pursuit of a
variety of procurement bids. It is involved in evaluating bid opportunities,
identifying key products or services needed to respond to bids, negotiating
favorable agreements with suppliers and co-contractors, preparing written
responses to the solicitation document, meeting all mandatory technical
requirements and, in general, successfully processing the proposal effort from
initial submission to post-award implementation. This department also monitors
compliance with the relevant procurement regulations and keeps abreast of
changes in such regulations.

COMPETITION

In seeking to provide a broad range of services and products that address
the complete information technology needs of its clients, the Company
participates, to varying degrees, in multiple segments of the information
technology market, including markets for systems engineering, development and
integration and networking and document imaging services and for the sale of
products and component parts. Each of the market segments in which the Company
operates is competitive. Within each segment, the Company competes against
different firms of varying sizes, with different specializations and skills. The
number and size of competitors vary among operating groups and within the
individual divisions of each group. Frequently, the number and identity of
competitors vary even from program to program within a given business area. Many
of the Company's competitors are significantly larger and have greater financial
resources than the Company. Some of these competitors are divisions or
subsidiaries of large, diversified companies that have access to the financial
resources of their parent companies. In the Product Reselling Business, the
Company competes with certain computer manufacturers, who sell directly to the
Government market, as well as a number of systems integrators, resellers and
distributors. In addition, the Company is always at risk to potential
competition from its suppliers in its Product Reselling Business. See
"-- Suppliers."

The Company believes that the principal competitive factors in the Systems
Business are technical understanding, management capability, past contract
performance, personnel qualifications and price. In the Product Reselling
Business, the Company believes that while price is still the most important
competitive factor, the Government has recently placed greater emphasis on a
company's past performance. During its recent history, the Company has been
successful in winning new and repeat contract awards in its Product

35
<PAGE> 37

Reselling Business and in the exercise of contract option years in its Systems
Business, both of which the Company believes are attributable to the strength of
its past contract performance and its competitive prices. Further, the Company's
senior management team has an extensive number of years of industry specific
technical and managerial experience. As a result, the Company believes that it
competes favorably on each of the principal competitive factors within both its
Systems and Product Reselling Businesses.

CERTAIN REGULATORY MATTERS

The nature of the Company's business subjects the Company to various
regulatory restrictions and limitations, including those set forth below.

Security Clearances. Many of the Company's Government contracts require
the Company to maintain facility security clearances complying with DoD
requirements. The Company believes that it is in compliance with these
requirements. As of September 30, 1996, approximately 37.0% of the Company's
employees possessed secret or top secret security clearances, which are required
for the performance of certain of the Company's contracts. The Company has never
had a contract terminated for security reasons.

Government Contract Audits and Investigations. Government contractors are
commonly subject to various audits and investigations by Government agencies.
Among the agencies that oversee or enforce contract performance are the DCAA,
the Inspectors General of the various departments, the Defense Criminal
Investigative Service, the GAO and the Department of Justice. These audits and
investigations involve a review of a contractor's performance on its contracts,
as well as its pricing practices, costs and compliance with applicable laws,
regulations and standards. The DCAA generally audits cost-reimbursable contracts
to verify that costs have been properly charged to the Government. Final audits
by the DCAA have been completed for the Company's fiscal years through 1992. The
Company has not experienced any material adverse effects as a result of these
completed audits. The DCAA is currently in the process of completing its audits
for the Company's fiscal 1993 and 1994. Management does not expect the
completion of these audits, or of future audits on open years 1995 and 1996, to
have a material adverse effect on the Company's consolidated financial position.

EMPLOYEES

As of September 30, 1996, the Company employed 1,021 employees, 725 of whom
were technical/managerial staff, 210 of whom were administrative staff and 86 of
whom were engaged in sales and marketing. As of such date, 378, or 37.0%, of the
Company's employees possessed secret or top secret security clearances, which
are required for the performance of certain of the Company's contracts. The
Company believes that it is competitive in hiring and retaining qualified
personnel. The Company's ability to remain competitive will be based in large
measure upon its ability to recruit and train qualified personnel. None of the
Company's employees is represented by a labor union. The Company considers its
relations with its employees to be good and has not experienced any significant
labor problems.

36
<PAGE> 38

PROPERTIES

The Company leases all of the offices and facilities used in connection
with its operations, which as of September 30, 1996 comprise approximately
280,000 square feet at various sites located in 11 states. The following table
sets forth information relating to the significant offices and facilities leased
by the Company.

<TABLE>
<CAPTION>
LOCATION SQUARE FOOTAGE EXPIRATION OF LEASE(S)
- ---------------------- -------------- ------------------------------------------------
<S> <C> <C>
Vienna, Virginia...... 74,400(1) March and July 1997
Vienna, Virginia...... 29,600(2) Month-to-month and March 1997
San Antonio, Texas.... 11,900 March 2000
McLean, Virginia...... 50,000 May 2002
Rosslyn, Virginia..... 11,500 January 1997
Niceville, Florida.... 17,750(3) April and July 1997, November 1998 and March
2003
Sterling, Virginia.... 17,700 March 1997
</TABLE>

- ---------------
(1) This site, BTG's corporate headquarters, is held under two leases. The
Company has recently entered into a new lease in Fairfax, Virginia,
beginning in April 1997, to replace its Northern Virginia properties. The
new facility has approximately 209,000 square feet and will be used as the
Company's corporate headquarters.

(2) Held under four leases, three of which expire in March 1997.

(3) Held under four leases.

LEGAL PROCEEDINGS

As of September 30, 1996, there were no material pending legal proceedings
to which BTG was a party or to which any of its property was subject, nor, to
BTG's knowledge, is any material legal proceeding threatened.

37
<PAGE> 39

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

Set forth below is certain information with respect to the directors and
executive officers of BTG.

<TABLE>
<CAPTION>
NAME AGE POSITION
- ---------------------------- --- -------------------------------------------------------
<S> <C> <C>
Dr. Edward H. Bersoff (1)... 54 Chairman of the Board, President and Chief Executive
Officer
Clifton Y. Bumgardner....... 46 Senior Vice President, Chief Technical Officer
John M. Hughes.............. 44 Senior Vice President, Chief Financial Officer
John Littley, III........... 49 Senior Vice President, Corporate Development
Marilynn D. Bersoff......... 48 Senior Vice President, Administration and Secretary
C. Thomas Nixon............. 42 Senior Vice President, General Manager
Technology Systems Business Unit
Randall C. Fuerst........... 40 Senior Vice President, General Manager
Systems Engineering Business Unit
Leland R. Phipps............ 41 Senior Vice President, General Manager
Integration and Network Systems Business Unit
Dr. Ruth M. Davis (1)(2).... 67 Director
James V. Kimsey (3)......... 57 Director
Dr. Alan G. Merten (2)...... 53 Director
Raymond T. Tate (3)......... 71 Director
Ronald L. Turner (2)........ 48 Director
Donald M. Wallach (1)(3).... 62 Director
</TABLE>

- ---------------
(1) Member of the Executive Committee.

(2) Member of the Audit and Finance Committee.

(3) Member of the Organization and Compensation Committee.

Dr. Edward H. Bersoff has served as BTG's President, Chief Executive
Officer and Chairman of the Board of Directors since he founded the Company in
1982. From 1975 until 1982, he was employed by CTEC, Inc. ("CTEC"), a provider
of systems integration services, serving first as Vice President, then Executive
Vice President, and later as President. Previously, he was employed by Logicon,
Inc., a provider of advanced technology systems and services to national
security, civil and industrial clients, and the National Aeronautics and Space
Administration, in Cambridge, Massachusetts. Dr. Bersoff serves as Chairman of
the Professional Services Council and as a director of Phillips Business
Information, Inc. He is the husband of Marilynn D. Bersoff.

Clifton Y. Bumgardner has served as a Vice President of BTG since its
founding in 1982 and is currently Senior Vice President and Chief Technical
Officer. His primary responsibility is research and development and technical
assistance on large proposal efforts. He has over 22 years of experience in
systems development, integration and engineering. Previously, he was manager of
software development and later Vice President of CTEC.

John M. Hughes has served as Vice President and Chief Financial Officer of
BTG since 1992 and is currently Senior Vice President and Chief Financial
Officer. From 1974 to 1992 he held various positions at ManTech International
Corporation ("ManTech"), a professional and technical services company, where he
served most recently as Senior Vice President and Corporate Treasurer. His
primary responsibilities at ManTech included business development, strategic
planning and implementation. His role at BTG is to provide financial management
and direct strategic support for BTG's growth through internal strategy,
financing alternatives and acquisitions. Mr. Hughes has 23 years of experience
in the financial operations and management of technology growth companies.

John Littley, III has served as Vice President, Corporate Development, in
charge of developing new business opportunities, since April 1994 and is
currently Senior Vice President, Corporate Development. In

38
<PAGE> 40

this capacity, he performs corporate oversight of several significant Government
contract wins and contracts, including SASS and IC4I. He served as Director of
Corporate Development for BTG from September 1993 to April 1994. Between 1991
and 1993 he was Vice President of Corporate Development for SEA, Inc., a
computer engineering firm. Mr. Littley originally joined BTG in 1982, and served
in a variety of other positions, including Director of Advanced Programs,
Director of Engineering Services and Director of Systems Development until 1991.

Marilynn D. Bersoff has served as Vice President and Secretary of BTG since
1993 and is currently Senior Vice President and Secretary. She also served as
Secretary of BTG from 1982 to 1987 and as Secretary and Treasurer from 1987 to
1993. She was employed by CTEC from 1978 to 1982 and by a data transmission
company prior to CTEC. She has over 20 years of experience in administration,
management and technical support. She has also been involved in the production
and quality control of products and services. She is the wife of Dr. Bersoff.

C. Thomas Nixon has served as Vice President and General Manager of the
Company's Technology Systems Business Unit or its predecessor since March 1995
and is currently Senior Vice President and General Manager of the Technology
Systems Business Unit. Prior to joining BTG, he spent 18 years with AT&T
Corporation ("AT&T"). Most recently, he was Assistant Vice President, Marketing
and New Business Capture with AT&T Global Information Solutions. Mr. Nixon has
over 19 years of managerial, marketing, operational support and technical
experience in the information systems and communications field.

Randall C. Fuerst has served as Vice President of BTG since 1991 and is
currently Senior Vice President and General Manager of the Systems Engineering
Business Unit. Mr. Fuerst has been with BTG since 1982 and has served in a
variety of positions with the Company including Program Manager, Tactical
Programs Division Director, and Group Manager of Engineering and Development. He
has over 16 years of experience in complex systems development, integration, and
world-wide systems support. Previously, Mr. Fuerst worked at CTEC where he was
manager of fielded systems support.

Leland R. Phipps is currently Senior Vice President and General Manager of
the Company's Integration and Network Systems Business Unit. Prior to joining
BTG in October 1995, Mr. Phipps was an owner and corporate officer of CAI, where
he had been employed since 1982. While at CAI, Mr. Phipps served in a variety of
management positions including President and Chief Operating Officer from 1989
to 1995. In addition, he currently is a director for two privately-held
companies. He has over 14 years of general management, finance, marketing,
operational and technical development experience in the information technology
industry.

Dr. Ruth M. Davis is Chair of The Aerospace Corporation, a Government
chartered not-for-profit corporation, and has served since 1981 as President and
Chief Executive Officer of the Pymatuning Group, Inc., a consulting firm which
specializes in industrial modernization strategies and technology development.
Dr. Davis also currently serves on the boards of Air Products and Chemicals,
Inc., Ashton Technology Unit, Consolidated Edison Company of New York, Inc.,
Ceridian Corporation, Giddings & Lewis, Inc., Premark International, Inc.,
Sprint Corporation, Varian Associates, Inc. and Tupperware U.S., Inc. She served
as Assistant Secretary of Energy for Resource Applications from 1979 to 1981 and
as a Deputy Undersecretary of Defense for Research and Advanced Technology from
1977 to 1979.

James V. Kimsey has served at various times as Chairman of the Board, Chief
Executive Officer and President of America Online, Inc. ("AOL") since founding
the company in 1985 and is currently Chairman Emeritus. AOL is the leading
provider of interactive on-line services to consumers. In addition, Mr. Kimsey
is currently a member of the Board of Directors of Capital One Financial
Corporation, Batterson Venture Partners, University Support Services, Inc., The
Jamestown Foundation, Refugees International and the National Stroke
Association.

Dr. Alan G. Merten became the President of George Mason University on July
1, 1996. From 1989 until accepting this position, he served as Dean of the
Johnson Graduate School of Management at Cornell University. Dr. Merten also
currently serves on the boards of Comshare, Inc., The INDUS Group, Inc. and as a
trustee of Common Sense Trust, and as a director/trustee of Van Kampen American
Capital Bond Fund,

39
<PAGE> 41

Inc., Van Kampen American Capital Convertible Securities, Inc., and Van Kampen
American Capital Income Trust.

Raymond T. Tate has served since 1979 as President of Raymond Tate
Associates, Inc., a technology consulting firm. From 1994 to October 1996, he
served as Chairman of the Board, President and Chief Executive of Ashton
Technology Group, Inc., a technology company primarily involved in financial
transaction and neural network research and development activities. He is a
former Deputy Assistant Secretary of the Navy and a former Deputy Director of
the NSA.

Ronald L. Turner has served, since 1993, as the President and Chief
Executive Officer of Computing Devices International, the defense electronics
business division of Ceridian Corporation, an information technology company.
From 1987 to 1993 he served as President and Chief Executive Officer of
GEC-Marconi Electronic Systems Corporation. Mr. Turner also currently serves on
the boards of Aerospace Industries Association of America, Inc., Advanced
Technology Services, Inc., FLIR Systems, Inc., and Electronics Industries
Association Government Division.

Donald M. Wallach has served since 1965 as the President of Wallach
Associates, Inc., a professional recruiting and employment counseling firm which
recruits primarily executive and technical professionals in the fields of
defense, electronics, space and computer science.

COMPENSATION OF DIRECTORS

Non-employee directors of BTG receive quarterly payments of $3,000 and a
fee of $2,000 (plus expenses) for each board meeting attended, and $1,000 (plus
expenses) per committee meeting attended. Attendance via telephone is
compensated at one-half of the normal rate. Directors also receive options under
the Directors Stock Option Plan (the "Directors Plan"). The Directors Plan
provides for the granting of a maximum of 100,000 non-qualified stock options to
non-employee members of the Board of Directors. The option price per share is
equal to the fair market value of a company share on the date of grant. The term
of each option is 10 years, and an option first becomes exercisable six months
after the date of grant. Under the terms of the Directors Plan, each
non-employee member of the Board of Directors will be granted 1,000 options on
each anniversary date of the director's service commencement date. During fiscal
1996, 10,000 options, with a per share exercise price of $11.25, were granted
under the Directors Plan. In addition, on October 15, 1996, the Board adopted
the BTG Non-Employee Director Stock Purchase Plan pursuant to which non-employee
directors may elect to have their fees invested in BTG common stock at 100% of
the fair market value ("FMV"). FMV is based upon the lower of the closing price
for the stock at the beginning or end of an election period. The election period
is the 12-month period beginning October 1 of each year. Up to 100,000 shares
can be issued under the plan. The plan is subject to shareholder approval.

COMMITTEES OF THE BOARD OF DIRECTORS

Executive Committee. The members of the Executive Committee of the
Company's Board of Directors are Drs. Bersoff and Davis and Mr. Wallach. The
Executive Committee has been delegated all of the powers of the Board of
Directors to the extent permitted under the Virginia Stock Corporation Act.

Audit and Finance Committee. The members of the Audit and Finance
Committee of the Company's Board of Directors are Mr. Turner and Drs. Davis and
Merten, all of whom are non-employee directors. The Audit and Finance Committee,
among other things, makes recommendations concerning the engagement of
independent auditors, reviews the results and scope of the annual audit and
other services provided by the Company's independent auditors, and reviews the
adequacy of the Company's internal accounting controls.

Organization and Compensation Committee. The members of the Organization
and Compensation Committee of the Company's Board of Directors are Messrs.
Kimsey, Tate, and Wallach, all of whom are non-employee directors. Messrs. Tate
and Wallach have served as members of the Organization and Compensation
Committee since the beginning of fiscal 1994, and Mr. Kimsey has served as a
member of such committee since August 1995. The Compensation Committee has the
authority and performs all the duties related to the compensation of management
of the Company, including determining policies and practices,

40
<PAGE> 42

changes in compensation and benefits for management, determination of employee
benefits and all other matters relating to employee compensation, including
administering the Company's 1995 Employee Stock Option Plan.

EXECUTIVE COMPENSATION

The following table sets forth certain summary information concerning the
compensation paid to the Company's Chief Executive Officer and each of the other
"four most highly compensated executive officers" (the "Named Executive
Officers") whose total annual salary and bonus exceeded $100,000 during the year
ended March 31, 1996.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
FOR THE ANNUAL COMPENSATION SECURITIES
FISCAL YEAR --------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION ENDED MARCH 31, SALARY($) BONUS($) OPTIONS(#) COMPENSATION*
- ----------------------------------- --------------- --------- -------- ------------ ----------------
<S> <C> <C> <C> <C> <C>
Edward H. Bersoff.................. 1996 $ 289,745 $150,000 0 $ 9,557
Chairman of the Board, President 1995 253,821 115,000 11,000 24,423
and Chief Executive Officer 1994 243,736 110,000 13,000 25,835
John M. Hughes..................... 1996 219,723 40,000 0 10,055
Senior Vice President, Chief 1995 202,585 37,500 7,500 16,828
Financial Officer 1994 197,630 30,000 5,000 9,406
Marilynn D. Bersoff................ 1996 124,702 40,000 0 8,600
Senior Vice President,
Administration 1995 110,735 25,000 2,500 14,011
and Secretary 1994 109,894 27,500 4,000 14,328
C. Thomas Nixon.................... 1996 180,590 20,000 0 8,758
Senior Vice President, General
Manager Technology Systems
Business Unit
</TABLE>

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

* Amounts in this column include Company contributions under the Company's
401(k) profit sharing plan, Company-paid life insurance premiums, additional
executive allowances and reimbursement of uninsured medical expenses (capped
at $5,000 per year).

STOCK OPTIONS

Option Grants. The Company has granted options to the Named Executive
Officers under three separate Option Plans, only one of which, the 1995 Employee
Stock Option Plan, has options that can be granted currently. At March 31, 1996,
options to purchase 678,500 shares of Common Stock were available for issuance
under the Employee Option Plan. No options for Common Stock were granted to any
of the Named Executive Officers during the year ended March 31, 1996. The
Company does not have any stock appreciation rights.

Option Exercises and Year-End Value. The following table sets forth
information regarding the exercise of options during the year ended March 31,
1996, as well as the fiscal year-end value of all unexercised options held, by
the Named Executive Officers.

41
<PAGE> 43

AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES

<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES MARCH 31, 1996 MARCH 31, 1996*
ACQUIRED IN VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED UNEXERCISABLE EXERCISABLE UNEXERCISABLE EXERCISABLE
- -------------------------------- ----------- -------- ------------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Edward H. Bersoff............... 12,500 $76,688 23,835 22,665 $93,685 $ 144,523
Marilynn D. Bersoff............. 4,500 34,920 11,835 4,665 62,940 29,073
John M. Hughes.................. 0 0 10,834 1,666 37,358 10,704
C. Thomas Nixon................. 0 0 0 0 0 0
</TABLE>

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

* Based on a fair market value of $9.875 per share as of March 31, 1996.

EMPLOYMENT AGREEMENTS

Pursuant to an agreement dated as of October 28, 1994, Dr. Bersoff serves
as the Chairman of the Board, President and Chief Executive Officer of BTG. Dr.
Bersoff is paid minimum annual cash compensation of $260,000 and is employed for
a term ending on March 31, 2000. This term is automatically extended for
successive two-year periods unless written notice to terminate is given at least
six months prior to the expiration of the term or any such two-year extension of
the term. Dr. Bersoff's minimum annual cash compensation for such two-year
extensions will increase by 10% for each such extension. Dr. Bersoff's
employment may be terminated by the Board of Directors of BTG for willful and
gross misconduct and in the case of death or illness or disability which
prevents Dr. Bersoff from substantially fulfilling his duties for a period in
excess of six consecutive months. If Dr. Bersoff's employment is terminated
because of death or illness or disability, he or his estate, as the case may be,
will be paid the cash compensation due Dr. Bersoff for a period of three months
following the date of termination. The agreement includes a covenant by Dr.
Bersoff not to be involved, directly or indirectly, in a business enterprise
that competes with BTG during the term of his employment and for two years
thereafter. In addition, under the terms of his employment agreement, Dr.
Bersoff will be nominated to serve as a director of BTG during the term of his
employment.

CERTAIN TRANSACTIONS

Between October 1991 and May 1993, Raymond Tate Associates, Inc. Retirement
Account of which Raymond T. Tate, a director of BTG, has a majority ownership
interest, loaned BTG an aggregate of $75,000 in exchange for notes bearing
interest at rates ranging from 10% to 12 1/2% per annum. In May 1993, Raymond
and Helen Tate loaned BTG $125,000 in exchange for a note bearing interest at
11% per annum. The notes were paid in full, including all accrued interest, on
July 15, 1994.

Between March 1991 and May 1993, Wallach Associates, Inc. Employee Profit
Sharing Plan Trust, in which Donald M. Wallach, a director of BTG, has a
majority interest, loaned BTG an aggregate of $200,000 in exchange for notes
bearing interest at rates ranging from 11% to 13% per annum. These amounts were
repaid in full, including all accrued interest, on July 15, 1994. In addition,
in November 1995, Wallach Associates, Inc., the common stock of which is
wholly-owned by Mr. Wallach, was paid $11,402 for professional recruiting
services by the Company.

42
<PAGE> 44

PRINCIPAL AND SELLING SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of September 30, 1996, and as
adjusted to reflect the sale of 1,670,000 shares offered hereby by the Company
and the 80,000 shares offered hereby by the Selling Shareholder, by (i) each
director of the Company and each of the Named Executive Officers who
beneficially own shares of BTG's Common Stock as of such date, (ii) the Selling
Shareholder, (iii) all persons known by BTG to be beneficial owners of more than
5% of its outstanding Common Stock and (iv) all directors and executive officers
of the Company as a group.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
OFFERING(1) SHARES TO OFFERING(1)
-------------------- BE SOLD IN --------------------
NAME NUMBER PERCENT OFFERING NUMBER PERCENT
- ----------------------------------------------- --------- ------- ---------- --------- -------
<S> <C> <C> <C> <C> <C>
Edward H. Bersoff(2)........................... 1,344,535 21.6% 80,000 1,264,535 16.0%
Donald M. Wallach(3)........................... 266,805 4.3 -- 266,805 3.4
Marilynn D. Bersoff(4)......................... 93,712 1.5 -- 93,212 1.2
James V. Kimsey(5)............................. 11,000 * -- 11,000 *
Ruth M. Davis(6)............................... 5,750 * -- 5,750 *
John M. Hughes(7).............................. 4,121 * -- 4,121 *
Raymond T. Tate(8)............................. 2,000 * -- 2,000 *
Ronald L. Turner(9)............................ 3,500 * -- 1,000 *
C. Thomas Nixon................................ 1,246 * -- 1,246 *
Alan G. Merten(10)............................. -- * -- -- *
All directors and executive officers as a group
(14 persons)................................. 2,006,591 32.3 80,000 1,926,591 24.4
</TABLE>

- ---------------
* Represents less than 1% of the outstanding shares of Common Stock.

(1) The information as to beneficial ownership is based on statements furnished
to the Company by the beneficial owners. Under the rules of the Securities
and Exchange Commission, "beneficial ownership" means the sole or shared
power to vote or direct the voting of a security, or the sole or shared
investment power with respect to a security (i.e., the power to dispose, or
direct the disposition, of a security). A person is deemed as of any date
to have "beneficial ownership" of any security that such person has the
right to acquire within 60 days after such date. More than one person may
be deemed to be a beneficial owner of the same securities. Each of the
shareholders listed on the table has agreed not to sell or otherwise
dispose of the shares to be beneficially owned by them after the offering
for a period of 120 days after the date of this Prospectus. See "Shares
Eligible for Future Sale."

(2) The address of Dr. Bersoff is: c/o BTG, Inc., 1945 Old Gallows Road,
Vienna, Virginia 22182. Includes 16,833 shares of Common Stock underlying
options granted by the Company which are exercisable within 60 days of
September 30, 1996. Does not include (i) 30,667 additional shares issuable
upon the exercise of options granted by the Company which are not
exercisable within 60 days of September 30, 1996; (ii) 87,379 shares of
Common Stock and 15,500 shares of Common Stock underlying options (6,333 of
which are exercisable within 60 days of September 30, 1996) owned by
Marilynn D. Bersoff, Dr. Bersoff's wife; and (iii) 5,750 shares of Common
Stock owned by Dr. Bersoff's parents.

(3) Includes (i) 2,500 shares of Common Stock underlying options granted by the
Company which are exercisable within 60 days of September 30, 1996; (ii)
114,130 shares held in joint tenancy with Shoshana Wallach, Mr. Wallach's
wife; and (iii) 47,050 shares held by the Wallach Associates, Inc. Employee
Profit Sharing Plan Trust, in which Mr. Wallach has a majority interest.
Does not include 1,000 additional shares issuable upon the exercise of
options granted by the Company which are not exercisable within 60 days of
September 30, 1996.

(4) Includes 6,333 shares of Common Stock underlying options granted by the
Company which are exercisable within 60 days of September 30, 1996. Does
not include (i) 9,167 additional shares issuable upon the exercise of
options granted by the Company which are not exercisable within 60 days of

43
<PAGE> 45

September 30, 1996; and (ii) 1,327,702 shares of Common Stock and 47,500
shares of Common Stock underlying options (16,833 of which are exercisable
within 60 days of September 30, 1996) owned by Dr. Bersoff, Ms. Bersoff's
husband.

(5) Includes 1,000 shares of Common Stock underlying options granted by the
Company which are exercisable within 60 days of September 30, 1996. Does
not include 1,000 additional shares issuable upon the exercise of options
granted by the Company which are not exercisable within 60 days of
September 30, 1996.

(6) Includes 2,000 shares of Common Stock underlying options granted by the
Company which are exercisable within 60 days of September 30, 1996. Does
not include 1,000 additional shares issuable upon the exercise of options
granted by the Company which are not exercisable within 60 days of
September 30, 1996.

(7) Includes 1,666 shares of Common Stock issuable upon the exercise of options
granted by the Company which are exercisable within 60 days of September
30, 1996. Does not include 14,834 additional shares issuable upon the
exercise of options granted by the Company which are not exercisable within
60 days of September 30, 1996.

(8) Includes 2,000 shares of Common Stock issuable upon the exercise of options
granted by the Company which are exercisable within 60 days of September
30, 1996. Does not include 1,000 additional shares issuable upon the
exercise of options granted by the Company which are not exercisable within
60 days of September 30, 1996.

(9) Includes 1,000 shares of Common Stock issuable upon the exercise of options
granted by the Company which are exercisable within 60 days of September
30, 1996. Does not include 1,000 additional shares issuable upon the
exercise of options granted by the Company which are not exercisable within
60 days of September 30, 1996.

(10) Does not include 1,000 additional shares issuable upon the exercise of
options granted by the Company which are not exercisable within 60 days of
September 30, 1996.

44
<PAGE> 46

DESCRIPTION OF CAPITAL STOCK

The following description is based, in part, on BTG's Amended and Restated
Articles of Incorporation (the "Amended Articles"). The authorized capital stock
of BTG consists of 10,000,000 shares of BTG Common Stock, of which 6,173,782
were outstanding as of September 30, 1996, and 1,000,000 shares of Preferred
Stock, none of which are outstanding.

COMMON STOCK

Each share of Common Stock is entitled to one vote. Shareholders do not
have cumulative voting rights in the election of directors. In the event of a
liquidation, dissolution, or winding up of BTG, the holders of Common Stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of Preferred Stock, if any, then
outstanding. Subject to preferences that may be applicable to any outstanding
Preferred Stock, the holders of Common Stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by the Board of
Directors out of legally available funds. BTG does not currently intend to pay
cash dividends on its Common Stock. The Common Stock has no preemptive or
conversion rights or other subscription rights. There are no redemption or
sinking fund provisions available to the Common Stock. All outstanding shares of
Common Stock are fully paid and non-assessable, and the shares of Common Stock
to be issued upon completion of the offering will be fully paid and
non-assessable.

PREFERRED STOCK

The Board of Directors may, without action by the shareholders of BTG,
issue Preferred Stock from time to time in one or more series for such
consideration and, within certain limits, with such relative rights, privileges
and preferences as the Board of Directors may determine. Accordingly, the Board
of Directors has the power to fix the dividend rate and to establish the
provisions, if any, relating to voting rights, redemption rate, sinking fund,
liquidation preferences and conversion rights for any series of Preferred Stock
issued in the future. Issuance of the Preferred Stock, while providing BTG
flexibility in connection with possible acquisitions and other corporate
purposes, may be used, in certain circumstances, to create voting impediments on
extraordinary corporate transactions or to frustrate persons seeking to effect a
merger or otherwise to gain control of BTG. BTG has no present plans to issue
any shares of Preferred Stock.

STOCK WARRANTS

The Company issued and sold to Nomura warrants to purchase an aggregate of
317,478 shares of Common Stock pursuant to an agreement entered into between the
Company and Nomura on February 16, 1996. Under the Warrants, Nomura has the
right to purchase the covered shares for an exercise price of $9.50 per share at
any time before February 16, 2003.

LIMITATION OF LIABILITY

BTG's Amended Articles limit the liability of its directors and officers to
the maximum extent permitted by Virginia law. Thus, the directors and officers
of BTG shall not be personally liable to BTG or its shareholders for any breach
of any duty based upon an act or omission, except for an act or omission (i)
resulting from such person's willful misconduct or (ii) in knowing violation of
criminal law.

VIRGINIA ANTI-TAKEOVER PROVISIONS

The Virginia Affiliated Transactions statute imposes restrictions on
certain transactions between a public Virginia Corporation and a 10% beneficial
shareholder of the corporation (the "Interested Shareholder"). Under this
statute, significant transactions (such as a merger, a transfer to the
Interested Shareholder of corporate assets worth more than 5% of net worth, or a
reclassification of securities having the effect of increasing by 5% or more the
corporation's outstanding voting shares held by any Interested Shareholder)
between the corporation and an Interested Shareholder must receive the approval
of both a majority of disinterested directors and the holders of two-thirds of
the corporation's voting shares (not including the

45
<PAGE> 47

Interested Shareholder's shares). After an Interested Shareholder has held the
stock for three years, the transaction may proceed upon the approval of either
the disinterested directors or the holders of two-thirds of the voting shares.
The corporation may avoid application of the statute if a majority of the
disinterested directors approves the initial 10% stock acquisition by the
Interested Shareholder. In addition, this statute does not apply to an
Interested Shareholder who has been such continuously since the date the
corporation first became a public corporation.

CERTAIN PROVISIONS OF BTG'S AMENDED AND RESTATED ARTICLES OF INCORPORATION

BTG's Amended Articles provide for the Board of Directors to be divided
into three classes serving staggered terms. As a result, only one class of
directors will be elected at each annual meeting of the shareholders, and the
time required to elect a new majority to the Board of Directors will be
extended. The Amended Articles grant to the Board the authority to set from time
to time the size of the Board within a range between seven and 15 directors. The
shareholders can change the number of directors, either within or without the
range, only by a super-majority vote at a meeting called for such purpose. The
Amended Articles provide that only the Board of Directors may fill vacancies on
the Board. The Amended Articles further provide that the shareholders may remove
directors only for "cause" as defined in the Amended Articles, and only by
approval of a super-majority vote of the shareholders at a meeting called for
such purpose. Under the Amended Articles, a special meeting of shareholders may
only be called by (i) the Chairman of the Board, (ii) the President, (iii) the
Board of Directors, or (iv) holders of more than 50% of the shares (or of 20% of
the shares if no annual shareholders' meeting has been held within 15 months of
the last annual shareholders' meeting). The Amended Articles grant to the Board
of Directors the authority to consider an array of factors, including
non-economic factors, in deciding whether to approve an acquisition of BTG. In
addition, the Amended Articles permit the shareholders to amend the bylaws only
by a super-majority vote at a meeting called for such purpose. BTG's bylaws
contain certain restrictions on the rights of shareholders to put forth
shareholder proposals and nominate directors. The foregoing provisions of BTG's
Amended Articles and bylaws could have the effect of discouraging a third party
from attempting to obtain control of BTG, even though such attempt might be
beneficial to BTG and its shareholders, and could have a depressive effect on
the market price of the BTG Common Stock. BTG believes that such provisions will
help to assure the continuity and stability of BTG's Board of Directors and
BTG's business strategies and policies.

REGISTRATION RIGHTS

The holders of the Warrants are entitled to certain rights with respect to
the registration under the Securities Act for resale to the public, for an
aggregate of 317,478 shares (the "Registrable Securities"), pursuant to the
terms of the Nomura Agreement. The Nomura Agreement provides that, with certain
limited exceptions, if the Company proposes to register under the Securities Act
for its own account or for the account of the Selling Shareholder, such warrant
holders are entitled to include their Registrable Stock in any such
registration, subject to certain conditions and limitations. Subject to certain
limitations, the Company is required to bear the expenses of all such
registrations.

TRANSFER AGENT

BTG's transfer agent is First Union National Bank of North Carolina.

46
<PAGE> 48

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the offering, the Company will have 7,843,782 shares of
Common Stock outstanding (8,186,282 shares if the Underwriters' over-allotment
options are exercised in full) 4,728,124 (including up to 24,933 shares issued
pursuant to the Company's Employee Stock Purchase Plan which are subject to a
six-month holding requirement) of which will be freely tradeable without
substantial restriction or the requirement of future registration under the
Securities Act except for shares held or purchased by "affiliates" of the
Company as that term is defined in Rule 144, and 1,766,806 shares will be
"restricted securities" under Rule 144. The outstanding restricted securities
which are not sold in this offering are either currently eligible for sale under
Rule 144, or will be eligible for sale under Rule 144 commencing 120 days from
the date of this Prospectus to the extent such restricted securities are held by
signatories to the lock-up agreements described below, subject in each case to
applicable volume and manner-of-sale limitations. Of the 6,173,782 shares of
Common Stock outstanding as of September 30, 1996, 2,966,902 shares are freely
tradeable, 1,766,806 shares (of which no shares are being offered hereby) are
restricted securities under Rule 144, and 1,415,081 additional shares (of which
80,000 shares are being offered hereby) are held by directors and executive
officers who may be deemed affiliates of the Company pursuant to Rule 144, and
which shares may be sold subject to the provisions of Rule 144 and the
contractual restrictions described below.

The Company, the Selling Shareholder and the executive officers and
directors of the Company have agreed that they will not, directly or indirectly,
offer, sell, offer to sell, contract to sell, pledge, grant any option to
purchase or otherwise sell or dispose (or announce any offer, sale, offer of
sale, contract of sale, pledge, grant of any option to purchase or other sale or
disposition) of any shares of Common Stock or other capital stock of the Company
or any securities convertible into, or exercisable or exchangeable for, any
shares of Common Stock or other capital stock of the Company for a period of 120
days from the date of this Prospectus, without the prior written consent of
Prudential Securities Incorporated, on behalf of the Underwriters. There is an
exception under this agreement for the Company to grant additional options under
the Company's Directors Stock Option Plan and 1995 Employee Stock Option Plan
and to issue stock under the Annual Leave Stock Plan, Employee Stock Purchase
Plan and Non-Employee Director Stock Purchase Plan. Upon expiration of these
lock-up agreements, all 1,887,259 shares held by such executive officers,
directors and the Selling Shareholder which are not sold in this offering will
become eligible for sale in the public market, subject to the applicable volume
and manner-of-sale limitations of Rule 144, and 148,834 shares of Common Stock
issuable upon exercise of currently outstanding options will become eligible for
sale as such options become vested. In addition, 24,993 shares become freely
tradeable, pursuant to the terms of the Employee Stock Purchase Plan between
December 31, 1996 and April 1, 1997. Under Rule 144, the volume limitations
permit the sale of a number of shares that does not exceed the greater of 1% of
the then outstanding shares of Common Stock (approximately 78,438 shares
immediately after the offering) or the average weekly trading volume of the
Common Stock on the Nasdaq National Market during the four calendar weeks
preceding the sale, subject to the filing of a Form 144 with respect to such
sale and certain other limitations and restrictions. The Company has filed
registration statements under the Securities Act to register shares of Common
Stock reserved for issuance under its option and stock purchase plans, thus
permitting the resale of shares of Common Stock issued under these plans by
nonaffiliates in the public market without restriction under the Securities Act.
A total of 1,544,384 shares (including shares subject to outstanding options)
are reserved for issuance under the Company's Directors Stock Option Plan, 1995
Employee Stock Option Plan, Annual Leave Stock Plan, Employee Stock Purchase
Plan, Non-Employee Director Stock Purchase Plan, the Company's original
Incentive Stock Option Plan and the 1990 Incentive Stock Option Plan.

The Common Stock has been included in the Nasdaq National Market since
December 16, 1994. Nevertheless, sales of substantial amounts of Common Stock in
the public market could adversely affect the prevailing market price and could
impair the Company's future ability to raise capital through an offering of its
equity securities. See "Risk Factors -- Shares Eligible for Future Sale."

47
<PAGE> 49

UNDERWRITING

The underwriters named below (the "Underwriters"), for whom Prudential
Securities Incorporated, Janney Montgomery Scott Inc. and Ferris, Baker Watts,
Incorporated are acting as representatives (the "Representatives"), have
severally agreed, subject to the terms and conditions of the Underwriting
Agreement, to purchase from the Company and the Selling Shareholder the number
of shares of Common Stock set forth below opposite their respective names:

<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
------------------------------------------------------------------------- ---------
<S> <C>
Prudential Securities Incorporated.......................................
Janney Montgomery Scott Inc. ............................................
Ferris, Baker Watts, Incorporated........................................
---------
Total............................................................... 1,750,000
=========
</TABLE>

The Company and the Selling Shareholder are obligated to sell, and the
Underwriters are obligated to purchase, all of the shares of Common Stock
offered hereby if any are purchased.

The Underwriters, through their Representatives, have advised the Company
and the Selling Shareholder that they propose to offer the shares of Common
Stock initially at the public offering price set forth on the cover page of this
Prospectus; that the Underwriters may allow to selected dealers a concession of
$ per share; and that such dealers may reallow a concession of $ share
to certain other dealers. After the initial public offering, the offering price
and the concession may be changed by the Representatives.

The Company and the Selling Shareholder have granted to the Underwriters
over-allotment options, exercisable for 30 days from the date of this
Prospectus, to purchase, in the aggregate, up to 262,500 additional shares of
Common Stock at the initial public offering price, less underwriting discounts
and commissions, as set forth on the cover page of this Prospectus. The
Underwriters may exercise such options solely for the purpose of covering
over-allotments incurred in the sale of the shares of Common Stock offered
hereby. To the extent such options to purchase are exercised, each Underwriter
will become obligated, subject to certain conditions, to purchase approximately
the same percentage of such additional shares as the number set forth next to
such Underwriter's name in the preceding table bears to 1,750,000.

The Company and the Selling Shareholder have agreed to indemnify the
several Underwriters or contribute to losses arising out of certain liabilities,
including liabilities under the Securities Act.

The Company, its executive officers and directors, and the Selling
Shareholder have agreed that they will not, directly or indirectly, offer, sell,
offer to sell, contract to sell, pledge, grant any option to purchase or
otherwise sell or dispose (or announce any offer, sale, offer of sale, contract
of sale, pledge, grant of any option to purchase or other disposition) of any
shares of Common Stock or other capital stock of the Company, or any securities
convertible into, or exercisable or exchangeable for, any shares of Common Stock
or other capital stock of the Company, for a period of 120 days from the date of
this Prospectus, without the prior written consent of Prudential Securities
Incorporated, on behalf of the Underwriters, except that such agreement does not
prevent the Company from granting additional options under any of its Stock
Plans. See "Management -- Stock Plans."

In connection with this offering, certain Underwriters and selling group
members (if any) or the respective affiliates who are qualified registered
market makers on the Nasdaq National Market, may engage in passive market making
transactions in the Common Stock of the Company on the Nasdaq National Market in
accordance with Rule 10b-6A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), during the two business day period before
commencement of offers or sales of the Common Stock. Passive market making
transactions must comply with applicable volume and price limits and be
identified as such. In general, a passive market maker may display its bid at a
price not in excess of the highest independent

48
<PAGE> 50

bid for such security; if all independent bids are lowered below the passive
market maker's bid, however, such bid must then be lowered when certain purchase
limits are exceeded.

LEGAL MATTERS

The validity of the Common Stock offered hereby is being passed upon for
the Company by Hogan & Hartson L.L.P., Washington, D.C. Certain legal matters
relating to the offering will be passed upon for the Underwriters by Willkie
Farr & Gallagher, New York, New York.

EXPERTS

The consolidated financial statements and schedule of BTG as of March 31,
1995 and 1996, and for each of the years in the three-year period ended March
31, 1996 have been included herein and in the Registration Statement in reliance
upon the reports of KPMG Peat Marwick LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.

The consolidated financial statements of CAI as of December 31, 1993 and
1994, and for the years then ended have been included in the Registration
Statement in reliance upon the reports of Thompson, Greenspon & Co., independent
certified public accountants, and upon the authority of said firm as experts in

accounting and auditing.

49
<PAGE> 51

[THIS PAGE INTENTIONALLY LEFT BLANK]

<PAGE> 52

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
BTG, INC. AND SUBSIDIARIES -- CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-2
Consolidated Statements of Operations for the fiscal years ended March 31, 1994,
1995 and 1996 and the six months ended September 30, 1995 and 1996
(unaudited)..................................................................... F-3
Consolidated Balance Sheets as of March 31, 1995 and 1996 and September 30, 1996
(unaudited)..................................................................... F-4
Consolidated Statements of Shareholders' Equity for the fiscal years ended March
31, 1994, 1995 and 1996 and the six months ended September 30, 1996
(unaudited)..................................................................... F-5
Consolidated Statements of Cash Flows for the fiscal years ended March 31, 1994,
1995 and 1996 and the six months ended September 30, 1995 and 1996
(unaudited)..................................................................... F-6
Notes to Consolidated Financial Statements......................................... F-7
CONCEPT AUTOMATION, INC. OF AMERICA -- CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................................... F-22
Consolidated Balance Sheets as of December 31, 1993 and 1994....................... F-23
Consolidated Statements of Operations and Retained Earnings for the years ended
December 31, 1993 and 1994...................................................... F-24
Consolidated Statements of Cash Flows for the years ended December 31, 1993 and
1994............................................................................ F-25
Notes to Consolidated Financial Statements......................................... F-26
BTG, INC. AND SUBSIDIARIES -- UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Basis of Presentation.............................................................. F-31
Unaudited Pro Forma Condensed Consolidated Balance Sheet as of September 30,
1996............................................................................ F-32
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the six
months ended September 30, 1996................................................. F-33
Unaudited Pro Forma Condensed Consolidated Statement of Operations for the fiscal
year ended March 31, 1996....................................................... F-34
Notes to Unaudited Pro Forma Condensed Consolidated Financial Statements........... F-35
</TABLE>

F-1
<PAGE> 53

INDEPENDENT AUDITORS' REPORT

To The Board of Directors and Shareholders
BTG, Inc.:

We have audited the consolidated financial statements of BTG, Inc. and
subsidiaries as listed in the accompanying index. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. 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 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of BTG, Inc.,
and subsidiaries as of March 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended March 31, 1996, in conformity with generally accepted accounting
principles.

KPMG Peat Marwick LLP

McLean, Virginia
May 10, 1996

F-2
<PAGE> 54

BTG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND THE SIX MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------- -------------------
1994 1995 1996 1995 1996
-------- -------- -------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
Contract revenue........................... $ 35,509 $ 46,130 $ 67,014 $28,556 $ 49,504
Product sales.............................. 68,045 109,859 146,544 61,763 141,063
-------- -------- -------- ------- --------
103,554 155,989 213,558 90,319 190,567
Direct costs:
Contract costs............................. 17,287 23,046 35,577 14,375 30,073
Cost of product sales...................... 60,276 95,585 128,070 53,143 123,332
-------- -------- -------- ------- --------
77,563 118,631 163,647 67,518 153,405
Indirect, general and administrative expenses... 20,858 29,388 40,827 17,692 29,437
Amortization and other operating costs, net..... 905 1,070 1,595 584 949
-------- -------- -------- ------- --------
99,326 149,089 206,069 85,794 183,791
-------- -------- -------- ------- --------
Operating income................................ 4,228 6,900 7,489 4,525 6,776
Interest expense................................ (817) (1,362) (3,045) (1,151) (2,909)
Equity in earnings of affiliate................. -- -- 792 -- 1,060
-------- -------- -------- ------- --------
Income before income taxes...................... 3,411 5,538 5,236 3,374 4,927
Provision for income taxes...................... 1,593 2,406 2,282 1,408 2,176
-------- -------- -------- ------- --------
Net income...................................... $ 1,818 $ 3,132 $ 2,954 $ 1,966 $ 2,751
======== ======== ======== ======= ========
Earnings per common and common equivalent
share......................................... $ 0.38 $ 0.60 $ 0.47 $ 0.32 $ 0.43
======== ======== ======== ======= ========
Weighted average shares of common stock and
common stock equivalents...................... 4,774 5,196 6,233 6,196 6,371
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-3
<PAGE> 55

BTG, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1996 AND SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

MARCH 31,
------------------- SEPTEMBER 30,
1995 1996 1996
------- -------- -------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and equivalents:
Restricted................................................................... $ 31 $ 47 $ --
Unrestricted................................................................. 1,236 -- --
Investments, at fair value....................................................... -- 250 306
Receivables, net................................................................. 44,677 69,146 109,324
Inventory, net................................................................... 6,327 9,421 22,636
Prepaid expenses................................................................. 9,158 5,163 9,789
Other............................................................................ 532 466 778
------- -------- ---------
Total current assets..................................................... 61,961 84,493 142,833
------- -------- ---------
Property and equipment:
Furniture and equipment.......................................................... 4,829 8,299 8,741
Leasehold improvements........................................................... 851 1,151 1,167
------- -------- ---------
5,680 9,450 9,908
Accumulated depreciation and amortization........................................ (3,694) (5,871) (6,534)
------- -------- ---------
1,986 3,579 3,374
------- -------- ---------
Other assets:
Goodwill, net of accumulated amortization of $558, $1,062, and $1,499 at March
31, 1995 and 1996 and September 30, 1996, respectively.......................... 6,141 17,140 16,703
Other intangible assets, net..................................................... 1,867 3,119 2,893
Other............................................................................ 354 1,129 1,832
------- -------- ---------
$72,309 $109,460 $ 167,635
======= ======== =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit................................................................... $23,419 $ -- $ --
Current maturities of long-term debt............................................. 857 230 220
Accounts payable................................................................. 16,786 24,120 58,583
Accrued expenses................................................................. 4,818 7,516 9,739
Deferred income.................................................................. 1,548 1,534 2,055
Income taxes:
Currently payable............................................................ -- 1,310 757
Deferred..................................................................... 1,115 26 --
Other............................................................................ 293 1,808 125
------- -------- ---------
Total current liabilities................................................ 48,836 36,544 71,479
------- -------- ---------
Line of credit....................................................................... -- 30,453 50,506
Long-term debt, excluding current maturities......................................... 267 14,341 14,405
Deferred income taxes................................................................ 94 248 214
Other................................................................................ 73 129 192
------- -------- ---------
Total liabilities........................................................ 49,270 81,715 136,796
------- -------- ---------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value, 1,000,000 shares authorized; no shares issued or
outstanding..................................................................... -- -- --
Common stock, no par value, 10,000,000 shares authorized; 5,948,861, 6,128,102,
and 6,173,782 shares outstanding at March 31, 1995 and 1996 and September 30,
1996, respectively.............................................................. 15,571 17,915 18,224
Retained earnings................................................................ 7,468 10,422 13,173
Treasury stock, at cost, 50,057 shares........................................... -- (527) (527)
Unrealized losses on investments, net of related tax effects..................... -- (65) (31)
------- -------- ---------
Total shareholders' equity............................................... 23,039 27,745 30,839
------- -------- ---------
$72,309 $109,460 $ 167,635
======= ======== =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-4
<PAGE> 56

BTG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND SIX MONTHS ENDED SEPTEMBER
30, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
UNREALIZED
COMMON RETAINED TREASURY LOSSES ON SHAREHOLDERS'
STOCK EARNINGS STOCK INVESTMENTS EQUITY
------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1993......................... $ 7,000 $ 2,518 $ -- $ -- $ 9,518
Net income................................. -- 1,818 -- -- 1,818
Sale of 132,899 common shares to
employees................................ 451 -- -- -- 451
Retirement of 288,820 common shares
acquired related to the divestiture of a
subsidiary............................... (997) -- -- -- (997)
Issuance of 29,000 common shares upon
conversion of debentures................. 87 -- -- -- 87
------- -------- ------- ----- -------
Balance, March 31, 1994......................... 6,541 4,336 -- -- 10,877
Net income................................. -- 3,132 -- -- 3,132
Sale of 1,280,000 common shares related to
initial public offering.................. 8,685 -- -- -- 8,685
Sale of 87,574 common shares to
employees................................ 345 -- -- -- 345
------- -------- ------- ----- -------
Balance, March 31, 1995......................... 15,571 7,468 -- -- 23,039
Net income................................. -- 2,954 -- -- 2,954
Sale of 179,241 common shares under
employee stock option and stock purchase
plans.................................... 881 -- -- -- 881
Issuance of 50,057 common shares upon
business combination..................... 463 -- -- -- 463
Purchase of 50,057 common shares........... -- -- (527) -- (527)
Issuance of common stock purchase
warrants................................. 1,000 -- -- -- 1,000
Unrealized investment losses, net of
related tax effects...................... -- -- -- (65) (65)
------- -------- ------- ----- -------
Balance, March 31, 1996......................... 17,915 10,422 (527) (65) 27,745
Net income (unaudited)..................... -- 2,751 -- -- 2,751
Sale of 45,686 common shares under employee
stock option and stock purchase plans
(unaudited).............................. 309 -- -- -- 309
Unrealized investment gains, net of related
tax effects (unaudited).................. -- -- -- 34 34
------- -------- ------- ----- -------
Balance, September 30, 1996 (unaudited)......... $18,224 $ 13,173 $ (527) $ (31) $30,839
======= ======== ====== ===== =======
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-5
<PAGE> 57

BTG, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996 AND THE SIX MONTHS ENDED
SEPTEMBER 30, 1995 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
-------------------------------- --------------------
1994 1995 1996 1995 1996
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 1,818 $ 3,132 $ 2,954 $ 1,966 $ 2,751
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization.................. 1,120 988 2,161 743 1,752
Deferred income taxes.......................... 531..... (4) (513) 68 (60)
Reserves for accounts receivable and
inventory.................................... 26 192 399 123 1,223
Loss on sales of property and equipment........ 6 17 20 8 11
Changes in assets and liabilities, net of the
effects from purchases of subsidiaries:
(Increase) decrease in restricted cash..... (1,100) 1,069 (16) -- 47
(Increase) decrease in receivables......... (21,641) (6,323) (10,925) (14,792) (40,946)
(Increase) decrease in inventory........... 571 (2,604) (831) (3,399) (13,670)
(Increase) decrease in prepaids and
other.................................... (1,026) (6,994) 4,953 2,107 (4,938)
(Increase) decrease in other assets........ 3 (27) (723) (99) (203)
Increase (decrease) in accounts payable.... 7,468 986 (5,792) 6,054 34,463
Increase (decrease) in accrued expenses.... 1,024 542 1,837 132 2,223
Increase (decrease) in other liabilities... 3,452 (3,267) (41) (247) (1,122)
Increase (decrease) in current income taxes
payable.................................. 1,105 (1,023) 1,310 907 (553)
-------- -------- -------- -------- --------
Net cash used in operating
activities.......................... (6,643) (13,316) (5,207) (6,429) (19,022)
-------- -------- -------- -------- --------
Cash flows from investing activities:
Purchases of subsidiaries, net of cash acquired..... -- (3,416) (13,238) -- --
Purchases of investments............................ -- -- (362) -- (200)
Purchase of note receivable......................... -- -- -- -- (300)
Purchases of property and equipment................. (367) (734) (1,570) (317) (442)
Capitalized product development costs............... -- -- -- -- (297)
Proceeds from sales of property and equipment....... 25 -- 18 -- --
-------- -------- -------- -------- --------
Net cash used in investing
activities.......................... (342) (4,150) (15,152) (317) (1,239)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Net advances under lines of credit.................. 6,150 11,426 7,034 7,903 20,053
Principal payments on long-term debt................ (190) (986) (1,573) (679) (73)
Proceeds from the issuance of subordinated notes.... 225 -- 15,000 -- --
Repayments of subordinated notes.................... (23) (850) -- -- --
Payment of debt issue costs......................... -- -- (1,587) -- (28)
Proceeds from the issuance of common stock.......... 451 9,030 776 352 309
Purchase of treasury stock.......................... -- -- (527) -- --
-------- -------- -------- -------- --------
Net cash provided by financing
activities.......................... 6,613 18,620 19,123 7,576 20,261
-------- -------- -------- -------- --------
Effect of exchange rate changes on cash................. -- -- -- 88 --
-------- -------- -------- -------- --------
Increase (decrease) in unrestricted cash and
equivalents........................................... (372) 1,154 (1,236) 918 --
Unrestricted cash and equivalents, beginning of
period................................................ 454 82 1,236 1,236 --
-------- -------- -------- -------- --------
Unrestricted cash and equivalents, end of period........ $ 82 $ 1,236 $ -- $ 2,154 $ --
========= ========= ========= ========= =========
</TABLE>

See accompanying Notes to Consolidated Financial Statements.

F-6
<PAGE> 58

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996 AND SEPTEMBER 30, 1996

1. NATURE OF OPERATIONS

BTG, Inc. ("BTG" or the "Company") is an information technology company
providing complete solutions to the specific system and product needs of its
clients. The Company's business combines systems development, integration and
engineering with reselling of computer hardware, software and systems.

Approximately 86%, 91%, 90%, and 90% in fiscal 1994, 1995, and 1996, and
during the six months ended September 30, 1996, respectively, of the Company's
revenue resulted from contracts or subcontracts with, and product sales to, the
U.S. Government and its agencies and departments (the "Government"). The Company
operates principally in the United States.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of
all subsidiaries of the Company, each of which is wholly-owned. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investments in affiliates owned more than 20%, but not in excess of 50%, are
recorded on the equity method.

Interim Reporting

The accompanying financial information as of September 30, 1996, and for
the six months ended September 30, 1995 and 1996, including such information
included in the Notes to Consolidated Financial Statements and disclosures
regarding matters occurring after May 10, 1996, is unaudited. In the opinion of
management, all adjustments, consisting only of normal recurring adjustments
considered necessary for a fair presentation have been included. Operating
results for any interim period are not necessarily indicative of the results for
any other interim period or for an entire year.

Revenue Recognition

The Company provides systems development, integration and engineering
services, primarily to the Government, on a contractual basis. Revenue on
cost-plus-fee contracts is recognized to the extent of costs incurred plus a
proportionate amount of fees earned. Revenue on time-and-materials contracts is
recognized to the extent of billable rates times hours delivered plus other
direct costs. Revenue on fixed-price contracts is recognized on the
percentage-of-completion method based on costs incurred in relation to total
estimated costs. Anticipated contract losses are recognized as soon as they
become known and estimable.

Revenue that is contractually billable prior to performance or delivery is
deferred until the work has been completed.

The Company also provides off-the-shelf hardware and software to the
Government under the General Services Administration ("GSA") Schedules and to
commercial companies as a third-party distributor. Related revenue is recognized
when products are shipped or when clients have accepted the products or
services, depending on contractual terms. Estimated future costs of providing
client support for products sold by the Company are recorded at the point of
revenue recognition.

Cash and Equivalents

All highly liquid debt instruments with original maturities of three months
or less are classified as cash equivalents (cash equivalents consist of amounts
held in money market accounts). The Company had restricted cash of approximately
$31,000, $47,000, and none at March 31, 1995 and 1996 and September 30, 1996,
respectively, relating to client agreements, which is required to be held in
escrow until related payments

F-7
<PAGE> 59

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

to vendors have been settled and which is not included in cash and equivalents
for purposes of the Consolidated Statements of Cash Flows.

Investments

The Company's short-term investments, which consist solely of equity
securities, have been classified as "available for sale" in accordance with the
provisions of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("Statement 115").
Accordingly, such investments are carried at fair value in the accompanying
consolidated financial statements. Fair value has been determined based on
quoted market prices. Net unrealized gains and losses from these investments are
carried as a separate component of shareholders' equity, net of the related tax
effects.

Inventory

Inventory, net of an allowance for obsolescence, consists principally of
purchased products held for resale and is valued at the lower of cost,
determined on the average cost basis, or market value.

Property and Equipment

Property and equipment are recorded at cost and are depreciated over their
estimated useful lives, three to seven years, using accelerated and
straight-line methods. Leasehold improvements are amortized over the terms of
the related leases using the straight-line method.

Goodwill and Intangible Assets

Goodwill, the excess of cost over the fair value of net tangible and
identifiable intangible assets of acquired companies, is amortized over the
expected periods of benefit, 15 to 30 years, on a straight-line basis.
Intangible assets are amortized on a straight-line basis over the expected
periods of benefit, 2 to 13 years.

The Company assesses the recoverability of its goodwill and intangible
assets by determining whether the balances can be recovered through estimated,
undiscounted future operating cash flows of the acquired operations. The amount
of impairment, if any, is measured based on projected discounted future
operating cash flows.

Income Taxes

Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.

The Company uses the estimated annual effective rate method for interim
income tax purposes.

Research and Development Expenses

The Company expenses research and development costs as they are incurred.
Research and development expenses for the fiscal years ended March 31, 1994,
1995 and 1996 and the six months ended September 30, 1996 were approximately
$128,700, $100,100, $55,000, and $26,000, respectively.

F-8
<PAGE> 60

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Capitalized Product Development Costs

Costs associated with software development are capitalized once a product's
technological feasibility is established. Capitalized product development costs
are amortized on a product-by-product basis based on the ratio of recorded
revenues to total estimated revenues, with a minimum amortization using a
straight-line method over a product's estimated economic life. During the six
months ended September 30, 1996, approximately $297,000 of product development
costs were capitalized (see Note 4). There were no capitalized product
development costs in fiscal 1994, 1995, and 1996.

Fair Value of Financial Instruments

The carrying value of the Company's cash and equivalents, receivables, and
revolving line of credit instruments approximates fair value since all such
instruments are either short-term in nature or bear interest rates which are
indexed to current market interest rates. Fair value for the Company's notes
payable is determined based on current rates offered for debt of similar
remaining maturities. At March 31, 1996 and September 30, 1996, the carrying
value of the notes payable approximated fair value.

Earnings Per Share

Earnings per share is computed by dividing net income for the year by the
weighted average number of shares of common stock and common stock equivalents
outstanding during the year. Common stock equivalents include all issued and
outstanding options and warrants.

Reclassification

Certain amounts in the prior years' financial statements have been
reclassified to conform to the fiscal year 1996 presentation.

Use of Estimates

The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts of assets and liabilities and disclosure
of contingencies as of the dates of the financial statements, and the reported
amounts of revenue and expenses during the reporting periods. Actual results
inevitably will differ from those estimates.

3. RECEIVABLES

The components of receivables are as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
------------------ SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
<S> <C> <C> <C>
Amounts billed........................................ $39,552 $61,927 $ 95,418
Amounts currently billable............................ 2,839 3,024 5,414
Retainages billable upon contract completion.......... 986 1,381 1,251
Other unbilled amounts................................ 1,127 2,180 7,148
Other receivables..................................... 495 855 1,082
Allowance for doubtful accounts receivable............ (322) (221) (989)
------- ------- ---------
$44,677 $69,146 $ 109,324
======= ======= =========
</TABLE>

The Company anticipates collecting substantially all receivables, except
retainages, within one year.

F-9
<PAGE> 61

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. OTHER INTANGIBLE ASSETS

Other intangible assets consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
---------------- SEPTEMBER 30,
1995 1996 1996
------ ------ -------------
<S> <C> <C> <C>
Contract backlog........................................ $ 848 $ 848 $ 848
Debt issue costs........................................ -- 1,587 1,615
Non-compete covenants................................... 500 700 700
Favorable leasing arrangements.......................... 455 455 455
Product development costs............................... -- -- 297
Other................................................... 300 300 300
------ ------ ------
2,103 3,890 4,215
Accumulated amortization................................ (236) (771) (1,322)
------ ------ -------
$1,867 $3,119 $ 2,893
====== ====== =======
</TABLE>

During the six months ended September 30, 1996, the Company capitalized
approximately $297,000 of costs associated with the internal development of
certain software products designed for use by the Company's newly formed
subsidiary, Community Networks, Inc. ("CNI"). CNI, which is a separate legal
entity wholly-owned by BTG, was formed for the purpose of providing local
communities with high-speed Internet access, specialized intranets, and
electronic commerce capability.

5. ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
---------------- SEPTEMBER 30,
1995 1996 1996
------ ------ -------------
<S> <C> <C> <C>
Accrued salaries and related taxes...................... $2,600 $3,852 $ 4,937
Accrued leave........................................... 1,707 2,320 2,466
Other................................................... 511 1,344 2,336
------ ------ -------
$4,818 $7,516 $ 9,739
====== ====== =======
</TABLE>

F-10
<PAGE> 62

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES

The provisions for income taxes include the following (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, SIX MONTHS ENDED
-------------------------- SEPTEMBER 30,
1994 1995 1996 1996
------ ------ ------ ----------------
<S> <C> <C> <C> <C>
Current provision:
Federal................................. $ 955 $1,978 $2,334 $1,912
State................................... 212 390 461 370
------ ------ ------ -------
1,167 2,368 2,795 2,282
------ ------ ------ -------
Deferred provision (benefit):
Federal................................. 354 36 (428) (89)
State................................... 72 2 (85) (17)
------ ------ ------ -------
426 38 (513) (106)
------ ------ ------ -------
$1,593 $2,406 $2,282 $2,176
====== ====== ====== =======
</TABLE>

Total income tax expense (benefit) was allocated as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, SIX MONTHS ENDED
-------------------------- SEPTEMBER 30,
1994 1995 1996 1996
------ ------ ------ ----------------
<S> <C> <C> <C> <C>
Income before income taxes................... $1,593 $2,406 $2,282 $2,176
Shareholders' equity, for the tax effects on
unrealized investment gains (losses)....... -- -- (47) 22
------ ------ ------ ------
$1,593 $2,406 $2,235 $2,198
====== ====== ====== ======
</TABLE>

Income tax expense differs from the amount of income taxes determined by
applying the U.S. Federal income tax statutory rates to income before income
taxes as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, SIX MONTHS ENDED
---------------------- SEPTEMBER 30,
1994 1995 1996 1996
---- ---- ---- ----------------
<S> <C> <C> <C> <C>
Statutory Federal income tax rate............... 34.0% 35.0% 35.0% 35.0%
State income tax, net of Federal income tax
benefit....................................... 5.3 5.3 4.9 4.8
Phase-in tax rate differential.................. -- (1.0) (1.0) (0.8)
Non-deductible amortization expense............. 6.6 3.3 5.1 4.1
Change in the valuation allowance............... -- -- (1.7) --
Other permanent differences..................... 0.8 0.8 1.3 1.1
---- ---- ---- -----
Effective tax rate......................... 46.7% 43.4% 43.6% 44.2%
==== ==== ==== =====
</TABLE>

F-11
<PAGE> 63

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. INCOME TAXES (CONTINUED)

The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1995 and 1996 are presented below (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
----------------
1995 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Employee benefits, accrued for financial reporting purposes.... $ 503 $ 734
Financial reporting reserves................................... 295 447
Deferred revenue............................................... 591 336
Capital loss carryforwards..................................... 197 197
Other.......................................................... 206 364
------ ------
Total deferred tax assets........................................... 1,792 2,078
Valuation allowance................................................. (197) (105)
------ ------
Net deferred tax assets................................... 1,595 1,973
------ ------
Deferred tax liabilities:
Revenue not contractually billable............................. 1,855 1,366
Net profits accrued on sales................................... 949 427
Other.......................................................... -- 454
------ ------
Total deferred tax liabilities...................................... 2,804 2,247
------ ------
Net deferred tax liability................................ $1,209 $ 274
====== ======
</TABLE>

The valuation allowance for deferred tax assets as of April 1, 1994 was
$200,000. In assessing the realizability of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will be realized. The ultimate realization of the deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which the temporary differences become deductible. Management
considers taxes paid during the previous three years, scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies which can be implemented by the Company in making this assessment.
Based upon these factors, the Company has established a valuation allowance
against that portion of the deferred tax assets for which management believes
that ultimate realization cannot presently be assessed as "more likely than
not."

7. LINES OF CREDIT

In June 1994, the Company entered into a line of credit agreement which
provided for borrowings up to $35 million. In November 1995, the Company entered
into a new revolving line of credit facility ("Credit Facility") which provides
for borrowings up to $60 million based on specified percentages of eligible
accounts receivable and inventory. All outstanding borrowings under the existing
line of credit were refinanced under this Credit Facility. The Credit Facility
is secured by substantially all assets of the Company as well as the pledge of a
security interest in the Company's stock in one of its subsidiaries. Interest on
advances made under the Credit Facility is equal to, at the option of the
Company, either the lender's prime rate or LIBOR plus 2%. Under both line of
credit agreements, the Company has been required to comply with various
financial covenants and is restricted from, among other things, paying
dividends, changing its capital structure, or making acquisitions without the
approval of the lenders. At March 31, 1995 and September 30, 1996, the Company
was in compliance with all financial covenants under the existing agreement. The
Company obtained a waiver from the lending financial institution at March 31,
1996, for non-compliance with a certain covenant under the Credit Facility. The
new revolving line of credit facility expires in August 1998. At March 31, 1996
and September 30, 1996, the entire balance outstanding under the agreement has
been

F-12
<PAGE> 64

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. LINES OF CREDIT (CONTINUED)

classified as a noncurrent liability in the accompanying consolidated balance
sheets as the Company anticipates that its borrowing base over the next fiscal
year will provide for a minimum availability equal to or in excess of amounts
currently outstanding. On October 1, 1996, the Credit Facility was amended to
increase the ceiling for available borrowings to $85 million through March 31,
1997 and $65 million thereafter.

In addition to a revolving loan, the Credit Facility includes a facility
under which the Company can, subject to the approval of the lender and the
payment of certain fees, obtain letters of credit of up to a maximum of $1
million. At March 31, 1996 and September 30, 1996, there were no letters of
credit outstanding under this facility. Costs incurred to obtain and amend the
Credit Facility have been capitalized and are being amortized over the term of
the agreement. An analysis of the Company's line of credit activity is as
follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
------------------ SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
<S> <C> <C> <C>
Maximum line of credit available during the period.... $35,000 $48,667 $60,000
Balance outstanding at the end of the period.......... $23,419 $30,453 $50,506
Interest rate at the end of the period:
At the lender's prime rate....................... 9.00% 8.25% 8.25%
At LIBOR plus 2% (1% at March 31, 1995).......... 7.25% 7.35% 7.40%
Monthly average amount outstanding during the
period.............................................. $15,249 $31,512 $42,491
Monthly weighted average interest rate during the
period.............................................. 7.90% 8.05% 7.49%
</TABLE>

8. LONG-TERM DEBT

The Company's long-term debt consists of the following (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
----------------- SEPTEMBER 30,
1995 1996 1996
------ ------- -------------
<S> <C> <C> <C>
Senior subordinated notes payable, due in February
2001, interest due quarterly at 12.875% per annum.... $ -- $15,000 $15,000
Unamortized discount on senior subordinated notes
payable.............................................. -- (975) (875)
Note payable to the former shareholders of Delta
Research Corporation associated with covenants not to
compete, payable in annual installments of
$100,000............................................. 300 200 200
Notes payable to the former shareholders of ACTech,
Inc. associated with covenants not to compete,
$33,333 payable at July 1, 1995 and at January 2,
1996, and $16,667 payable at January 2, 1997......... 83 17 17
Notes payable to the former shareholders of ACTech,
Inc., principal and interest, at prime, repaid in
June 1995............................................ 500 -- --
Other.................................................. 241 329 283
------ ------- -------
1,124 14,571 14,625
Less: current maturities............................... 857 230 220
------ ------- -------
$ 267 $14,341 $14,405
====== ======= =======
</TABLE>

On February 16, 1996, the Company entered into a Note and Warrant Purchase
Agreement (the "Agreement") with Nomura Holding America, Inc. under which the
Company issued $15 million of Senior Subordinated Notes (the "Notes"). The
Notes, which bear interest at 12.875% per annum, are due in

F-13
<PAGE> 65

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. LONG-TERM DEBT (CONTINUED)

February 2001. In connection with the issuance of the Notes, the Company also
issued common stock purchase warrants (the "Warrants") to the holder of the
Notes entitling such holder to purchase up to 317,478 shares of the Company's
common stock at $9.50 per share, and to certain registration rights with respect
to such shares. The Warrants are exercisable at any time through February 16,
2003. Both the number of shares obtainable from exercise of the Warrants and the
exercise price per share are subject to adjustment based on certain
anti-dilution provisions included in the Agreement. The fair value of the
Warrants on the date of issuance, which was determined using various pricing
models, was estimated as $1 million. Accordingly, this amount has been recorded
as a discount on the Notes and is being amortized into interest expense over the
term of the Notes. The Agreement also contains certain covenants which, among
other matters, restrict or limit the ability of the Company to pay dividends,
incur indebtedness, and make capital expenditures. The Company must also
maintain certain financial ratios regarding interest coverage, leverage and net
worth, among others. At March 31, 1996, the Company obtained a waiver from the
holder of the Notes for non-compliance with the covenant limiting the amount of
capital expenditures made by the Company during the fiscal year. The Company was
in compliance with all covenants under the Agreement as of September 30, 1996.
Costs incurred to issue the Notes have been capitalized and are being amortized
over the term of the Notes.

Aggregate scheduled maturities on all long-term indebtedness as of March
31, 1996 and September 30, 1996 are as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDING
MARCH 31, MARCH 31, 1996 SEPTEMBER 30, 1996
--------------------- -------------- ------------------
<S> <C> <C>
1997...................................... $ 230 $ 169
1998...................................... 211 213
1999...................................... 105 112
2000...................................... -- 6
2001...................................... 15,000 15,000
-------------- ----------
$ 15,546 $ 15,500
=========== ==============
</TABLE>

9. SHAREHOLDERS' EQUITY AND STOCK OPTIONS

Preferred Stock

In November 1994, the Board of Directors amended the Company's Articles of
Incorporation to authorize up to 1,000,000 shares of preferred stock, with no
par value. No preferred shares have been issued as of September 30, 1996.

Common Stock

The Company has one class of voting common stock with 10 million shares
authorized for issuance. In December 1994, the Company sold 1.28 million shares
of common stock, pursuant to an initial public offering, at $8.00 per share, for
total proceeds of $8.7 million, net of issuance costs of $1.5 million.

Directors Stock Option Plan

During fiscal 1996, the Company adopted, subject to the approval of the
Company's shareholders, the Directors Stock Option Plan (the "Directors Option
Plan"). The Directors Option Plan provides for the granting of a maximum of
100,000 nonqualified stock options to non-employee members of the Board of
Directors. The option price per share is equal to the fair market value of a
company share on the date of grant. The term of each option is 10 years, and an
option first becomes exercisable six months after the date of grant.

F-14
<PAGE> 66

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)

Under the terms of the Directors Option Plan, each non-employee member of the
Board of Directors will be granted 1,000 options on each anniversary date of the
Director's service commencement date. During fiscal 1996, 10,000 options, with a
per share exercise price of $11.25, were granted under the Directors Option
Plan. During the six months ended September 30, 1996, 6,000 options, with per
share exercise prices ranging from $13.38 to $13.75, were granted under the
Directors Option Plan. The Company's shareholders approved the Directors Option
Plan in August 1996.

Employee Stock Option Plans

In 1986 and again in 1990, the Company adopted qualified Employee Stock
Option Plans (the "Plans"). Under the terms of the Plans, 375,000 and 400,000
shares, respectively, of common stock were reserved for issuance under the
Plans. The option price per share is determined by the Board of Directors, but
shall be no less than the fair value on the date of the grant. Each option is
exercisable no sooner than two years and no later than five years after the
grant of the option. No new options are currently issuable under the Plans.

In fiscal 1995, the Company adopted a new option plan (the "New Plan").
Under the terms of the New Plan, 250,000 shares of common stock were reserved
for issuance to employees. The New Plan provides for grants of both qualified
and non-qualified options. At March 31, 1996, 178,500 options were reserved for
future grants to employees. In August 1996, the Company's shareholders approved
an amendment to the New Plan which increased the total number of shares of
common stock reserved for issuance to 750,000. During the six months ended
September 30, 1996, options to acquire 87,500 shares of common stock were
granted under the New Plan. At September 30, 1996, 591,000 options were reserved
for future grants to employees.

Additional information with respect to all options under the Company's
employee stock option plans is as follows:

<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF SHARES PER SHARE
--------- -------------
<S> <C> <C>
Shares under option, March 31, 1993......................... 520,554 $2.22 - $3.90
Options granted........................................ 93,000 3.45 - 3.75
Options exercised...................................... (6,305) 2.74 - 3.90
Options forfeited...................................... (211,354) 2.22 - 3.90
--------- -------------
Shares under option, March 31, 1994......................... 395,895 2.22 - 4.40
Options granted........................................ 76,000 7.75 - 8.53
Options exercised...................................... (85,193) 2.22 - 4.40
Options forfeited...................................... (20,662) 2.22 - 4.00
--------- -------------
Shares under option, March 31, 1995......................... 366,040 2.22 - 8.53
Options exercised...................................... (96,824) 2.22 - 3.74
Options forfeited...................................... (10,815) 2.22 - 7.75
--------- -------------
Shares under option, March 31, 1996......................... 258,401 2.22 - 8.53
Options granted........................................ 87,500 9.38 - 10.31
Options exercised...................................... (20,793) 2.22 - 3.45
Options forfeited...................................... (10,518) 2.22 - 3.45
--------- -------------
Shares under option, September 30, 1996..................... 314,590 2.22 - 10.31
--------- -------------
Options exercisable,
March 31, 1996......................................... 124,782 2.22 - 3.80
September 30, 1996..................................... 149,100 $2.22 - $3.80
--------- -------------
</TABLE>

F-15
<PAGE> 67

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)

Stock Purchase Plans

In fiscal 1993, the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). Under the terms of the Purchase Plan, 250,000 shares were
reserved for issuance. The offering price per share was to be determined by the
Board of Directors. During fiscal 1994 and 1995, 62,718 and 87,574 shares were
issued under the Purchase Plan, respectively. The Purchase Plan was terminated
during fiscal 1995.

In August 1995, the Company's shareholders adopted (i) the Annual Leave
Stock Plan (the "Annual Leave Plan") and (ii) the Employee Stock Purchase Plan
(the "ESPP"). Under the Annual Leave Plan, eligible employees are permitted to
exchange certain unused amounts of accrued annual leave for shares of common
stock at the fair market value of the stock on the date of exchange. During
fiscal 1996, 10,840 shares of common stock, valued at approximately $105,000,
were issued under the Annual Leave Plan. Under the ESPP, eligible employees of
the Company who elect to participate are permitted to purchase common stock of
the Company, through payroll deductions, at a 15 percent discount from the fair
market value of such stock. The total number of shares of common stock that may
be issued under the ESPP is 150,000, limited to 12,500 per fiscal quarter. A
total of 24,979 shares were issued under the ESPP during fiscal year 1996. In
August 1996, the Company's shareholders approved an amendment to the ESPP which
(i) increased the total number of shares of common stock issuable under the ESPP
to 400,000; (ii) eliminated the quarterly purchase limitation; and (iii) added a
provision to allow for annual lump sum contributions. A total of 24,993 shares
were issued under the ESPP during the six months ended September 30, 1996.

On October 15, 1996, the Company adopted, subject to the approval of the
Company's shareholders, the Non-Employee Director Stock Purchase Plan (the
"Directors Purchase Plan"). Under the terms of the Directors Purchase Plan,
non-employee members of the Board of Directors may elect to have their fees
invested in BTG common stock at a price equal to the lower of 100% of the fair
market value of a company share on the beginning or ending date of the election
period. The election period is the 12-month period beginning on October 1 of
each year. The maximum amount of shares that may be issued under the Directors
Purchase Plan is 100,000.

Profit Sharing Plans

The Company established a qualified 401(k) profit sharing plan in 1987
under which eligible employees may elect to defer a portion of their salary. At
the discretion of the Board of Directors, the Company may contribute to the
plan. The current contribution, as approved by the Board, is one percent of
salaries for all eligible employees and a matching contribution of an additional
amount up to three percent of eligible employees' deferrals. Employees
participating in the plan vest in the employer contribution at 20% per year,
after first completing six months of service.

A subsidiary of the Company maintains a separate 401(k) profit sharing plan
which covers substantially all employees of the subsidiary meeting minimum
service requirements. Contributions to the plan are made through voluntary
employee salary reductions and are matched by the subsidiary up to a maximum of
three and one-half percent. In addition to the subsidiary matching contribution,
in which the employee is immediately vested, the plan provides for an additional
discretionary contribution by the subsidiary. Employees participating in the
plan vest in the employer discretionary contributions over a seven year period.

Company contributions to the profit sharing plans were $539,900, $732,000,
$1.1 million and $986,000 in fiscal 1994, 1995 and 1996, and the six months
ended September 30, 1996, respectively.

F-16
<PAGE> 68

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. SHAREHOLDERS' EQUITY AND STOCK OPTIONS (CONTINUED)

Impact of Statement of Financial Accounting Standards No. 123

In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation ("Statement 123"). Statement 123 provides companies with the option
to choose between a fair value based method of accounting for its stock-based
compensation arrangements or retaining an intrinsic value-based method as is
required under current accounting standards. Under Statement 123, companies that
elect to retain the traditional intrinsic value-based methods of accounting for
their stock-based compensation arrangements will be required to provide expanded
disclosures in the footnotes accompanying their basic financial statements. The
provisions of Statement 123 are effective for the Company's fiscal 1997
financial statements. As permitted by Statement 123, the Company will adopt the
new standard in fiscal 1997 and will choose to continue the current intrinsic
value-based method of accounting for stock-based compensation. Accordingly, the
Company will disclose in the notes to the 1997 consolidated financial
statements, the pro forma net income and earnings per share calculated using the
fair value-based method of accounting.

10. INVESTMENTS IN AFFILIATES

In September 1993, the Company entered into an agreement to sell BDS
Systems, Inc., a subsidiary which was involved in medical imaging, to the
subsidiary's former president in exchange for stock owned in the Company. The
estimated fair value of the shares acquired approximated the fair value of the
net assets sold and the associated goodwill carried on the Company's records,
and no gain or loss was recognized.

In fiscal 1994, the Company wrote off $397,000 of its remaining unamortized
goodwill related to a previously acquired subsidiary.

On May 2, 1996, the Company entered into an agreement with WheelGroup
Corporation ("WheelGroup") under which it (i) purchased 214,042 shares of the
outstanding common stock of WheelGroup for $200,000; (ii) purchased a
convertible note receivable from WheelGroup for $300,000; and (iii) committed to
the purchase of certain distribution rights and consulting services from
WheelGroup for approximately $1 million, payable in various installments over
fiscal 1997 and 1998. The convertible note, which bears interest at an annual
rate of 2% above the prime rate established by the Company's principal lender,
is convertible at any time at the Company's option. The convertible note is due
in quarterly installments beginning on April 1, 1999 and ending on January 2,
2001. During the six months ended September 30, 1996, the Company paid
approximately $350,000 for consulting services to this company. The Company's
equity investment under this arrangement was accounted for using the cost method
during the six months ended September 30, 1996.

A subsidiary of the Company has a 49% interest in an unincorporated joint
venture (the "Joint Venture"). The Joint Venture was formed with an unrelated
company in February 1994 for the purpose of performing under a contract to
provide certain computer equipment, software and peripherals to the government.
The equity method is used to account for the Company's interest in the Joint
Venture. At March 31, 1996 and September 30, 1996, the Company's investment in
the Joint Venture was approximately $623,000 and $561,000, respectively, and is
included in other noncurrent assets in the accompanying consolidated balance
sheets.

F-17
<PAGE> 69

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. INVESTMENTS IN AFFILIATES (CONTINUED)

Unaudited condensed financial information of the Joint Venture as of and
for the period from October 20, 1995 (the date of acquisition of the subsidiary)
through March 31, 1996 is as follows (in thousands):

<TABLE>
<S> <C>
Current assets............................................................. $ 3,912
Total assets............................................................... 3,936
Current liabilities........................................................ 2,785
Total liabilities.......................................................... 2,785
Partners' equity........................................................... 1,151
Revenue.................................................................... 13,673
Income to the Joint Venture partners....................................... $ 1,616
</TABLE>

11. BUSINESS COMBINATIONS

In July 1994, the Company acquired for $1.9 million cash all of the
outstanding stock of Advanced Computer Technology, Inc., ("ACTech"), a
value-added reseller and manufacturer of computer systems. The acquisition has
been accounted for as a purchase and, accordingly, the results of operations of
ACTech have been included in the Company's consolidated financial statements
from the date of acquisition, July 1, 1994. The excess of the purchase price
over the fair value of the net tangible and identifiable intangible assets
acquired of approximately $1.1 million has been recorded as goodwill and is
being amortized on a straight-line basis over 15 years. In connection with the
closing of the transaction, the Company entered into certain non-compete
agreements which require payments to former ACTech officers over a three-year
period. At March 31, 1995 and 1996, and September 30, 1996, $83,000, $17,000,
and $17,000, respectively, were outstanding under these agreements. This
acquisition did not have a material effect on pro forma operations.

In November 1994, the Company acquired for $2.8 million cash all of the
outstanding stock of Delta Research Corporation ("Delta"), which provides
software development and systems integration services focusing on project
planning and cost controls and environmental engineering, primarily for the
government. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Delta have been included in the
Company's consolidated financial statements from the date of acquisition,
November 15, 1994. The excess of the purchase price over the fair value of the
net tangible and identifiable intangible assets acquired of approximately
$146,000 has been recorded as goodwill and is being amortized on a straight-line
basis over 15 years. In connection with the closing of the transaction, the
Company entered into certain non-compete agreements which require payments of
$100,000 per year for four years.

In October 1995, the Company acquired, for $13.0 million in cash, 50,057
shares of common stock valued at approximately $463,000, and $1.25 million due
in April 1996, all of the outstanding shares of Concept Automation, Inc. of
America ("CAI"), which is primarily involved in the sale and maintenance of
electronic data processing equipment and related support services. The
acquisition has been accounted for as a purchase and, accordingly, the results
of operations of CAI have been included in the Company's consolidated financial
statements from the date of acquisition, October 20, 1995. The excess of the
purchase price over the fair value of the net tangible and identifiable
intangible assets acquired of approximately $11.5 million has been recorded as
goodwill and is being amortized on a straight-line basis over 20 years. In
connection with the closing of the transaction, the Company entered into various
employment and non-compete agreements with certain of CAI's officers. In
addition, the agreement provides that certain contingent payments are to be made
to the former shareholders of CAI in the event that future income is generated
under a specific contract for which CAI had a proposal outstanding on the date
of acquisition. At March 31, 1996, no amounts have been included in the purchase
price relating to these contingent payments. On April 18, 1996, the Company was
notified that this contract was awarded to CAI. During the six months ended
September 30, 1996, no amounts have been paid to the former shareholders of CAI
as a result of this arrangement.

F-18
<PAGE> 70

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. BUSINESS COMBINATIONS (CONTINUED)

The following unaudited pro forma financial information presents the
combined results of operations of the Company and the Delta and CAI acquisitions
as if the acquisitions had occurred as of the beginning of the fiscal years
ended March 31, 1995 and 1996. The pro forma financial information does not
necessarily reflect the results of operations that would have occurred had the
Company and such acquired companies constituted a single entity during such
periods.

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31,
---------------------
1995 1996
-------- --------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
<S> <C> <C>
Revenues....................................................... $246,362 $247,832
Net income..................................................... 3,794 1,474
Earnings per common share...................................... $ 0.72 $ 0.23
</TABLE>

12. COMMITMENTS AND CONTINGENCIES

Audit Review

Substantially all payments to the Company under cost-reimbursable
government contracts are provisional payments which are subject to adjustment
upon audit by the Defense Contract Audit Agency or other regulatory agency. At
March 31, 1996, audits through fiscal 1989 had been completed and final rates
established. During the six months ended September 30, 1996, audits were
completed for fiscal 1990, 1991, and 1992. Audits for 1993 and subsequent years
are not expected to result in a material adverse effect on the Company's
consolidated financial position.

In addition, product sales under GSA Schedule contracts may also be subject
to audit by the GSA. One of the Company's GSA Schedule contracts was audited
during fiscal 1996 and the Company was recently notified that the customer was
seeking to recover approximately $156,000 as a result of the audit. The Company
disagrees with certain of the claims made under the audit and intends to
vigorously defend its position through the appeals process. Management of the
Company believes that sufficient reserves are available to offset any potential
adjustments.

Leases

The Company leases office space and equipment under certain operating lease
agreements expiring at various dates through March 2003. Most leases include
provisions for periodic rent escalations based on changes in various economic
indices. Rent expense in fiscal 1994, 1995 and 1996 was $2.3 million, $2.8
million, and $4.8 million, respectively. During the six months ended September
30, 1996, rent expense was $2.6 million. The facility lease for the Company's
primary headquarters location is scheduled to terminate in March 1997.

F-19
<PAGE> 71

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. COMMITMENTS AND CONTINGENCIES (CONTINUED)
Future minimum lease payments on non-cancelable operating leases were as
follows on March 31, 1996 (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDING
MARCH 31, AMOUNT
--------------------- -------
<S> <C>
1997.......................................................... $ 4,567
1998.......................................................... 1,964
1999.......................................................... 1,432
2000.......................................................... 1,087
2001.......................................................... 860
Thereafter.................................................... 1,115
-------
$11,025
=======
</TABLE>

In August 1996, the Company entered into a new operating lease for its
principal office space. The agreement, which commences on April 1, 1997, is for
a period of 152 months. Future minimum lease payments under this lease are as
follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEARS ENDING
MARCH 31, AMOUNT
--------------------- -------
<S> <C>
1998.......................................................... $ 3,243
1999.......................................................... 3,312
2000.......................................................... 3,383
2001.......................................................... 3,456
2002.......................................................... 3,532
Thereafter.................................................... 31,256
-------
$48,182
=======
</TABLE>

13. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures are as follows:

<TABLE>
<CAPTION>
FISCAL YEARS ENDED
MARCH 31, SIX MONTHS ENDED
------------------------ SEPTEMBER 30,
1994 1995 1996 1996
---- ------ ------ ----------------
<S> <C> <C> <C> <C>
Cash paid during the year for (in thousands):
Interest................................. $817 $1,200 $2,934 $1,976
Income taxes............................. $101 $3,424 $1,468 $2,807
</TABLE>

During fiscal 1996, the Company issued 10,840 shares to employees in
exchange for $105,000 of previously accrued annual leave balances under the
Company's newly adopted Annual Leave Stock Plan.

F-20
<PAGE> 72

BTG, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

13. SUPPLEMENTAL CASH FLOW DISCLOSURES (CONTINUED)

In connection with the Company's business combinations in fiscal 1995 and
1996, liabilities were assumed as follows (in thousands):

<TABLE>
<CAPTION>
1995 1996
------- --------
<S> <C> <C>
Fair value of tangible and intangible assets acquired............ $ 8,801 $ 30,120
Cash paid and notes payable issued............................... (5,178) (14,488)
Common stock issued.............................................. -- (463)
------- --------
Liabilities assumed.............................................. $ 3,623 $ 15,169
======= ========
</TABLE>

During fiscal 1994, the Company disposed of all of its shares of capital
stock in BDS Systems, a wholly-owned subsidiary, in exchange for 288,820 shares
of the Company's common stock, valued at approximately $997,000, which was held
by certain employees of BDS Systems.

During fiscal 1994, the Company issued 29,000 shares of common stock,
valued at $87,000, upon redemption of convertible debentures.

14. QUARTERLY FINANCIAL DATA (UNAUDITED)

Unaudited summarized financial data by quarter for fiscal 1995 and 1996 and
for the first two quarters of fiscal 1997 are as follows (in thousands, except
per share data):

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MARCH 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
FISCAL 1995:
Revenue................................................ $27,400 $ 43,617 $45,554 $39,418
Operating income....................................... 1,213 2,033 2,542 1,112
Net income............................................. 549 983 994 606
Earnings per common share.............................. $ 0.11 $ 0.20 $ 0.20 $ 0.10
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------
JUNE 30 SEPT. 30 DEC. 31 MARCH 31
------- -------- ------- --------
<S> <C> <C> <C> <C>
FISCAL 1996:
Revenue................................................ $39,589 $ 50,730 $63,487 $59,752
Operating income....................................... 1,718 2,807 1,401 1,563
Net income............................................. 671 1,295 288 700
Earnings per common share.............................. $ 0.11 $ 0.21 $ 0.05 $ 0.11
</TABLE>

<TABLE>
<CAPTION>
QUARTER ENDED
-------------------
JUNE 30 SEPT. 30
------- --------
<S> <C> <C>
FISCAL 1997:
Revenue................................................ $75,442 $115,125
Operating income....................................... 2,196 4,580
Net income............................................. 757 1,994
Earnings per common share.............................. $ 0.12 $ 0.31
</TABLE>

F-21
<PAGE> 73

INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Shareholders
Concept Automation, Inc. of America
Sterling, Virginia

We have audited the accompanying consolidated balance sheets of Concept
Automation, Inc. of America and its wholly-owned subsidiary as of December 31,
1993 and 1994, and the related consolidated statements of operations and
retained earnings and cash flows for the years then ended. These financial
statements are the responsibility of the Corporation's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit 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 financial position of Concept Automation, Inc. of
America and its wholly-owned subsidiary as of December 31, 1993 and 1994, and
the consolidated results of operations and cash flows for the years then ended,
in conformity with generally accepted accounting principles.

THOMPSON, GREENSPON & CO.

Fairfax, Virginia
March 16, 1995

F-22
<PAGE> 74

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 AND 1994

<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents..................................... $ 240,105 $ 13,493
Accounts and notes receivable
Contract revenue receivables (Notes 2 and 4)............. 10,976,914 11,928,376
Notes receivable -- officers/shareholders (Note 3)....... 79,030 90,426
Other.................................................... 345,596 814,234
Inventory (Notes 4 and 5)..................................... 4,763,027 14,352,101
Deferred income tax benefit (Notes 1 and 5)................... 112,000 178,000
Prepaid items and other....................................... 71,646 71,385
----------- -----------
Total Current Assets................................ 16,588,318 27,448,015
----------- -----------
Property and Equipment (Note 4)
Computer and related equipment................................ 2,236,050 1,006,856
Vehicles...................................................... 165,548 61,789
Maintenance equipment......................................... 1,022,903 41,014
Office furniture and equipment................................ 521,239 325,123
Leasehold improvements........................................ 144,156 137,633
----------- -----------
Total Cost.......................................... 4,089,896 1,572,415
Accumulated depreciation and amortization..................... (3,252,972) (1,054,167)
----------- -----------
Net Property and Equipment.......................... 836,924 518,248
----------- -----------
Other Assets Investment -- stock (Note 1).......................... 89,772 --
Software and related licenses, net of accumulated amortization
of $211,460 and $77,826 in 1993 and 1994, respectively....... 99,254 46,636
Deposits...................................................... 71,781 84,952
----------- -----------
Total Other Assets.................................. 260,807 131,588
----------- -----------
Total Assets....................................................... $17,686,049 $28,097,851
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Commercial line of credit (Note 4)............................ $ 4,100,175 $ 597,138
Trade accounts payable (Note 4)............................... 9,895,641 22,175,672
Accrued salaries, wages, and other............................ 698,696 1,105,548
Accrued profit sharing plan contributions (Note 6)............ 198,240 246,000
Current income taxes payable (Note 1)......................... 125,544 287,874
----------- -----------
Total Current Liabilities........................... 15,018,296 24,412,232
----------- -----------
Contributed Capital
Common Stock, $1 par value, 200,000 shares authorized; 112,000
shares issued and outstanding................................ 112,000 112,000
Retained Earnings............................................. 2,555,753 3,573,619
----------- -----------
Total Shareholders' Equity.......................... 2,667,753 3,685,619
----------- -----------
Total Liabilities and Shareholders' Equity......................... $17,686,049 $28,097,851
========== ==========
</TABLE>

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

F-23
<PAGE> 75

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1993 AND 1994

<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Contract Revenue (Note 2).......................................... $68,492,692 $75,410,490
----------- -----------
Direct Costs of Contracts
Direct labor.................................................. 1,343,668 1,685,919
Materials..................................................... 54,939,126 58,125,557
Subcontractors................................................ 1,812,069 2,529,420
Freight....................................................... 169,130 45,055
Travel........................................................ 97,055 182,038
Other direct costs............................................ 356,206 392,816
----------- -----------
Total Direct Costs....................................... 58,717,254 62,960,805
----------- -----------
Gross Profit on Contracts................................ 9,775,438 12,449,685
----------- -----------
Indirect Costs
Overhead...................................................... 3,672,700 5,131,893
General and administrative expenses........................... 3,101,944 3,097,278
Employee fringe benefits...................................... 1,757,030 2,001,061
----------- -----------
Total Indirect Costs..................................... 8,531,674 10,230,232
----------- -----------
Operating Income......................................... 1,243,764 2,219,453
Other (Expense) Income............................................. 13,637 (131,699)
Financing expense, net of interest income of $48,736 and $27,095
in 1993 and 1994, respectively................................... (353,859) (320,888)
----------- -----------
Income before Income Taxes............................... 903,542 1,766,866
----------- -----------
Income Tax Expense (Benefit) (Notes 1 and 5)
Current....................................................... 472,000 815,000
Deferred...................................................... (112,000) (66,000)
----------- -----------
Total Income Tax Expense................................. 360,000 749,000
----------- -----------
Net Income............................................... 543,542 1,017,866
Retained Earnings, beginning of year............................... 2,846,734 2,555,753
Distributions to Shareholders...................................... (834,523) --
----------- -----------
Retained Earnings, end of year..................................... $ 2,555,753 $ 3,573,619
========== ==========
</TABLE>

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

F-24
<PAGE> 76

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993 AND 1994

<TABLE>
<CAPTION>
1993 1994
------------ ------------
<S> <C> <C>
Cash Flows from Operating Activities
Net income.................................................. $ 543,542 $ 1,017,866
Noncash items included in net income
Depreciation and amortization.......................... 350,272 260,352
Loss (gain) on sale of property and equipment.......... (4,287) 44,037
(Increase) Decrease in
Contract revenue receivables...................... 2,596,344 (951,462)
Other receivables................................. (311,281) (468,638)
Inventory......................................... 2,110,210 (9,333,595)
Deferred income tax benefit....................... (112,000) (66,000)
Prepaid items and other........................... 39,694 261
Deposits.......................................... (13,867) (13,171)
Increase (Decrease) in
Trade accounts payable............................ (1,798,737) 12,280,031
Accrued expenses.................................. 183,373 454,612
Current income taxes payable...................... 125,544 162,330
------------ ------------
Net Cash Provided by Operating Activities.... 3,708,807 3,386,623
------------ ------------
Cash Flows from Investing Activities
Proceeds from sale of property and equipment................ 12,065 2,625
Purchase of equipment and software.......................... (467,467) (191,199)
Proceeds from sale of investment............................ 10,228 --
Loss on investment.......................................... -- 89,772
Collections of notes receivable -- officers/shareholders.... 515,970 --
Loans made to officers/shareholders......................... -- (11,396)
------------ ------------
Net Cash (Used) Provided by Investing
Activities................................. 70,796 (110,198)
------------ ------------
Cash Flows from Financing Activities
Line of credit borrowings................................... 38,643,000 33,878,000
Line of credit repayments................................... (41,856,433) (37,381,037)
Distributions to shareholders............................... (834,523) --
------------ ------------
Net Cash Used by Financing Activities........ (4,047,956) (3,503,037)
------------ ------------
Net Decrease in Cash and Cash Equivalents........................ (268,353) (226,612)
Cash and Cash Equivalents, beginning of year..................... 508,458 240,105
------------ ------------
Cash and Cash Equivalents, end of year........................... $ 240,105 $ 13,493
=========== ===========
Schedule of Noncash Investing and Financing Activities
Increase in inventory due to transfers from property and
equipment...................................................... $ -- $ 255,479
=========== ===========
</TABLE>

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

F-25
<PAGE> 77

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1994

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accounting and reporting policies of Concept Automation, Inc. of
America and its consolidated subsidiary corporation conform with generally
accepted accounting principles and reflect practices appropriate to the
government contracting industry. These policies are summarized below.

Certain amounts for 1993 have been reclassified to make them comparable
with the current period.

Principles of Consolidation

The consolidated financial statements include the accounts of Concept
Automation of America, Inc. and its wholly-owned subsidiary Concept Automation
Services, Inc. All material intercompany accounts and transactions have been
eliminated.

Cash and Cash Equivalents

Cash equivalents include cash in banks and daily repurchase agreements. The
Corporations typically maintain balances on deposit in banks in excess of
insured amounts.

Interest paid amounted to $393,911 and $381,223 in 1993 and 1994. Income
taxes paid in 1993 and 1994 amounted to $345,880 and $614,938, respectively.

Revenue Recognition

Revenue from the sale of electronic data processing equipment is recorded
at the time of transfer of title. Revenue from services such as installation,
training, maintenance, and other services are recognized as the services are
rendered. Revenue from the lease of systems and equipment is recognized over the
term of the lease. Revenue from time-and-materials contracts is recognized by
the unit-of-completion method as billable units are completed. Revenue from
fixed-price contracts is recognized by the unit-of-completion method as billable
units are completed. Costs and expenses are recorded as incurred.

At the time a loss on a contract becomes known, the entire amount of the
estimated ultimate loss is accrued.

Accounts Receivable

Most revenue and contract revenue receivables are related to contracts and
subcontracts with the Federal government.

All accounts receivable are expected by management to be fully collectible;
therefore, no allowance for doubtful receivables is maintained.

Inventory

The inventory of electronic data processing equipment and related items is
valued at the lower of average cost or market.

Property and Equipment

Property and equipment are stated at cost and depreciated or amortized over
their estimated useful lives.

F-26
<PAGE> 78

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Depreciation and amortization are computed under the straight-line method
for leasehold improvements and accelerated methods for other items. Depreciation
and amortization expense was $295,744 and $237,047 in 1993 and 1994,
respectively.

Investment

The Corporations purchased 12,500 shares, at $8.00 per share, of DMS
Systems, Inc., a closely held company, on December 11, 1986. The shares
purchased represented 7 percent of the outstanding shares of DMS Systems, Inc.
During 1993, DMS Systems was purchased by Openvision in exchange for options to
purchase Openvision shares as well as an undetermined amount of money based on
collection of DMS accounts receivable and royalties on DMS products. The
Corporations received $10,228 through December 31, 1993. The carrying value of
the investment has been reduced to zero at December 31, 1994.

Software and Related Licenses

Software and related licenses are recorded at cost and are being amortized
over five years using the straight-line method. Amortization expense was $54,528
and $23,305 in 1993 and 1994, respectively.

Compensated Absences

The Corporations have accrued the obligation relating to employees'
compensation for future absences attributable to services already rendered.

401(k) Profit Sharing Plan

The Corporations maintain a 401(k) profit sharing plan covering all
employees meeting minimum service requirements. Contributions to the plan are
through voluntary employee salary reductions. The Corporations are required to
match employee contributions by establishing the matching percentage of
compensation annually up to a maximum of 3.5% of covered compensation.

Income Taxes

Effective January 1, 1993, the Corporations adopted Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes. FASB Statement No.
109 utilizes an asset and liability approach to accounting for income taxes. The
objective is to recognize the amount of income taxes payable or refundable in
the current year based on the Corporations' income tax returns and the deferred
tax liabilities and assets for the expected future tax consequences of events
that have been recognized in the Corporation's financial statements or tax
returns. The asset and liability method accounts for deferred income taxes by
applying enacted statutory rates to temporary differences, the difference
between financial statement amounts and tax bases of assets and liabilities. The
resulting deferred tax liabilities or assets are classified as current or
noncurrent based on the classification of the related asset or liability.
Deferred income tax liabilities or assets are adjusted to reflect changes in tax
laws or rates in the year of enactment.

Temporary differences result from accrued expenses and different methods of
valuing inventory for the financial statements and tax returns.

A consolidated Federal income tax return is filed for Concept Automation,
Inc. and its subsidiary corporation. Consolidated income tax returns are also
filed in Virginia and Oklahoma. Other state tax returns required for the
Corporations are unconsolidated.

F-27
<PAGE> 79

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. CONTRACT REVENUE RECEIVABLES

An aging of accounts receivable at December 31, is as follows:

<TABLE>
<CAPTION>
1993 1994
----------- -----------
<S> <C> <C>
Less than 30 days.......................................... $ 5,710,243 $ 7,455,831
30-60 days................................................. 3,496,315 3,203,184
61-90 days................................................. 1,163,598 626,136
Over 90 days............................................... 606,758 643,225
----------- -----------
Totals........................................... $10,976,914 $11,928,376
========== ==========
</TABLE>

At December 31, 1993, $8,065,713 was receivable under these contracts and
$2.5 million was receivable under federal government subcontracts. At December
31, 1994, $10.0 million was receivable under contracts with various federal
government departments and agencies. Included in current receivables at December
31, 1993 and 1994, is $372,178 and $814,207 of unbilled contract revenue.

3. NOTES RECEIVABLE -- OFFICERS/SHAREHOLDERS

The Corporations have demand notes receivable due from officers and
shareholders for $46,250 and $57,646 at December 31, 1993 and 1994,
respectively. Accrued interest receivable on these and previous notes is $32,780
at December 31, 1993 and 1994. The notes currently bear interest at 6.00%.

4. FLOOR PLAN AND ACCOUNTS RECEIVABLE LINES OF CREDIT

The Corporations have agreements with a financing organization to borrow up
to $15.0 million to finance floor plan inventory purchases and accounts
receivable. Floor plan borrowings are collateralized by most of the assets of
the Corporations and accounts receivable borrowings are collateralized by
accounts receivable and inventory not encumbered under the floor plan agreement.
The floor plan agreement specifies repayment terms of 60 days after which
interest is charged at a rate of 0.25% plus a per annum rate of Chase
Manhattan's prime rate plus 2.50%. Interest on accounts receivable borrowing is
payable monthly at Chase Manhattan's prime rate plus 1.00% per annum with a
minimum of 6.50%. Starting on January 1, 1995, the interest rate charged for
financing accounts receivable is Chase Manhattan's prime rate plus 0.50%.

The agreements, which include restrictive financial covenants, remain in
force until one of the parties gives notice that they are terminated. The
Corporations have violated certain covenants and the lender has waived
compliance.

The balances under the above agreements are as follows at December 31:

<TABLE>
<CAPTION>
1993 1994
---------- -----------
<S> <C> <C>
Trade accounts receivable................................... $4,100,175 $ 597,138
Floor plan (included in trade accounts payable)............. 4,859,021 13,191,022
---------- -----------
$8,959,196 $13,788,160
========= ==========
</TABLE>

In May 1994, the Corporations entered into a $5.0 million wholesale
inventory financing line of credit agreement with a second organization.
Borrowings are collateralized by inventory. The agreement has repayment terms of
45 days after which interest is charged at an annual rate of prime plus 6.50%.
The agreement remains in force until one of the parties gives notice that it is
terminated. The balance under the agreement which is included in trade accounts
payable at December 31, 1994 is $5.4 million.

F-28
<PAGE> 80

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. INCOME TAXES

Deferred tax assets included in current assets as of December 31, 1993 and
1994 consist of the following components:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Accrued expenses................................................ $102,710 $ 99,800
263(a) inventory adjustment..................................... 9,290 73,375
Capital loss............................................... -- 36,000
Other...................................................... -- 4,825
-------- --------
Gross deferred tax asset........................................ 112,000 214,000
Deferred tax assets valuation allowance on capital loss......... -- (36,000)
-------- --------
Net deferred tax asset.......................................... $112,000 $178,000
======== ========
</TABLE>

The income tax expense differs from the amount of income tax determined by
applying the U.S. Federal income tax rate to pretax income for the year ended
December 31, due to the following:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Federal income tax computed at statutory rate................... $307,200 $600,700
State and local income taxes, net of Federal tax benefit........ 34,900 97,900
Nondeductible capital loss...................................... -- 36,000
Other...................................................... 17,900 14,400
-------- --------
$360,000 $749,000
======== ========
</TABLE>

6. RETIREMENT PLANS

For the years ended December 31, 1993 and 1994, the Board of Directors
approved a matching contribution of 2.0% of eligible employees' salaries to the
profit-sharing plan in addition to the 3.5% required by the plan.

Contributions to the plan, for the years ended December 31, 1993 and 1994,
were $198,240 and $245,000, respectively.

7. OPERATING LEASES

The Corporation leases its headquarters from a partnership in which one of
the shareholders holds a controlling interest, for $24,000 per month. The lease
expires on January 1, 2010. Rental expense from this lease for the years ended
December 31, 1993 and 1994 is $288,000.

The Corporation leases office space, warehouse facilities and equipment
under operating leases with terms ranging from month-to-month to five years.
Certain leases have renewal options. Monthly rental payments are $23,177 and
$26,785 in 1994 and 1993, respectively. Rental expense is $276,216 in 1993 and
$354,921 in 1994.

The Corporation leases three to four vehicles at a time with total payments
of $3,542 and $2,716 per month in 1993 and 1994, respectively. The terms of the
leases are from 24 to 48 months. The leases are classified as operating leases.
Annual rental expense is $37,541 in 1993 and $29,950 in 1994.

F-29
<PAGE> 81

CONCEPT AUTOMATION, INC. OF AMERICA
AND ITS WHOLLY-OWNED SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

7. OPERATING LEASES (CONTINUED)

The future minimum lease payments are as follows at December 31:

<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, 1993 1994
--------------------------- ---------- ----------
<S> <C> <C>
1994.......................................... $ 583,895 $ --
1995.......................................... 518,422 621,484
1996.......................................... 495,966 552,389
1997.......................................... 328,368 360,116
1998.......................................... 288,000 303,051
1999.......................................... 288,000 290,845
Thereafter.................................... 2,880,000 2,880,000
---------- ----------
Totals.............................. $5,382,651 $5,007,885
========= =========
</TABLE>

8. CONTINGENT LIABILITY

The Corporation is the guarantor on $873,998 and $806,618 of secured notes
payable owed by a partnership in which one of the shareholders holds a
controlling interest, at December 31, 1993 and 1994, respectively. The
indebtedness is secured by 5.2 acres of land and the office building in which
the Corporation is headquartered.

F-30
<PAGE> 82

BTG, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

BASIS OF PRESENTATION

The accompanying unaudited pro forma condensed consolidated financial
statements give effect to (i) the acquisition of Concept Automation, Inc. of
America ("CAI"), as described in Note 3; (ii) the sale by the Company of
1,670,000 shares of Common Stock offered hereby at an assumed offering price of
$16.625 (the "Offering"); and (iii) the elimination of interest expense on
Company borrowings to be repaid with the net proceeds of the Offering as if such
transactions had occurred at the beginning of the periods presented. CAI's
fiscal year end is December 31, while the fiscal year end of BTG, Inc. and
Subsidiaries ("BTG") is March 31. BTG and CAI, on a combined basis, are referred
to herein as the "Company".

The unaudited pro forma condensed consolidated balance sheet as of
September 30, 1996 and the unaudited pro forma condensed consolidated statement
of operations for the six months ended September 30, 1996 only reflect
adjustments resulting from the effects of the Offering since the acquisition of
CAI is reflected in the historical consolidated financial statements of the
Company as of and for the six months ended September 30, 1996. The unaudited pro
forma condensed consolidated statement of operations for the fiscal year ended
March 31, 1996, has been prepared by combining BTG's consolidated statement of
operations for the fiscal year ended March 31, 1996, with CAI's consolidated
statement of operations for the period from April 1, 1995 through the date of
acquisition, October 20, 1995.

The unaudited pro forma condensed consolidated financial statements have
been prepared by the Company's management and should be read in conjunction with
the historical financial statements of BTG and CAI and the related notes
thereto. The unaudited pro forma condensed consolidated statements of operations
are not necessarily indicative of the results of operations that may have
actually occurred had the transactions taken place on April 1, 1995 or 1996, or
of the future results of the Company.

F-31
<PAGE> 83

BTG, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET

SEPTEMBER 30, 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current assets:
Investments, at fair value............................ $ 306 $ -- $ 306
Receivables, net ..................................... 109,324 -- 109,324
Inventory, net........................................ 22,636 -- 22,636
Prepaid expenses and other............................ 10,567 -- 10,567
--------- --------- ---------
Total current assets............................. 142,833 -- 142,833
Property and equipment, net................................ 3,374 -- 3,374
Goodwill, net.............................................. 16,703 -- 16,703
Other intangible assets, net............................... 2,893 -- 2,893
Other...................................................... 1,832 -- 1,832
--------- --------- ---------
$ 167,635 $ -- $ 167,635
======== ========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt.................. $ 220 $ -- $ 220
Accounts payable...................................... 58,583 -- 58,583
Accrued expenses...................................... 9,739 -- 9,739
Deferred income....................................... 2,055 -- 2,055
Other................................................. 882 -- 882
--------- --------- ---------
Total current liabilities........................ 71,479 -- 71,479
Line of credit............................................. 50,506 (25,598)(A) 24,908
Other liabilities.......................................... 14,811 -- 14,811
Shareholders' equity....................................... 30,839 25,598 (A) 56,437
--------- --------- ---------
$ 167,635 $ -- $ 167,635
========= ========= =========
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

F-32
<PAGE> 84

BTG, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

SIX MONTHS ENDED SEPTEMBER 30, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
COMPANY PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Revenue:
Contract revenue..................................... $ 49,504 $-- $ 49,504
Product sales........................................ 141,063 -- 141,063
---------- ----------- ---------
190,567 -- 190,567
Direct costs:
Contract costs....................................... 30,073 -- 30,073
Cost of product sales................................ 123,332 -- 123,332
---------- ----------- ---------
153,405 -- 153,405
Indirect, general and administrative expenses............. 29,437 -- 29,437
Amortization and other operating costs, net............... 949 -- 949
---------- ----------- ---------
183,791 -- 183,791
Operating income.......................................... 6,776 -- 6,776
Interest expense.......................................... (2,909) 959(B) (1,950)
Equity in earnings of affiliate........................... 1,060 -- 1,060
---------- ----------- ---------
Income before income taxes................................ 4,927 959 5,886
Provision for income taxes................................ 2,176 374(C) 2,550
---------- ----------- ---------
Net income................................................ $ 2,751 $ 585 $ 3,336
======== ========= ========
Earnings per common and common equivalent share........... $ 0.43 $ 0.42
======== ========
Weighted average shares of common stock and common stock
equivalents............................................. 6,371 8,041
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

F-33
<PAGE> 85

BTG, INC. AND SUBSIDIARIES

UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS

FISCAL YEAR ENDED MARCH 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
BTG CAI PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
Revenue:
Contract revenue............................ $ 67,014 $ 7,971 $ -- $ 74,985
Product sales............................... 146,544 26,303 -- 172,847
--------- --------- --------- ---------
213,558 34,274 -- 247,832
Direct costs:
Contract costs.............................. 35,577 6,259 -- 41,836
Cost of product sales....................... 128,070 24,397 -- 152,467
--------- --------- --------- ---------
163,647 30,656 -- 194,303
Indirect, general and administrative expenses.... 40,827 5,016 (418)(D) 45,425
Amortization and other operating costs, net...... 1,595 235 366(E) 2,196
--------- --------- --------- ---------
206,069 35,907 (52) 241,924
--------- --------- --------- ---------
Operating income (loss).......................... 7,489 (1,633) 52 5,908
Interest expense................................. (3,045) (45) 1,468(F) (1,622)
Equity in earnings of affiliate.................. 792 321 -- 1,113
--------- --------- --------- ---------
Income (loss) before income taxes................ 5,236 (1,357) 1,520 5,399
Provision (benefit) for income taxes............. 2,282 (300) 736(C) 2,718
--------- --------- --------- ---------
Net income (loss)................................ $ 2,954 $ (1,057) $ 784 $ 2,681
======== ======== ======= =========
Earnings per common and common equivalent
share.......................................... $ 0.47 $ 0.34
======== =========
Weighted average shares of common stock and
common stock equivalents....................... 6,233 7,927
</TABLE>

See accompanying Notes to Unaudited Pro Forma Condensed Consolidated Financial
Statements.

F-34
<PAGE> 86

BTG, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

1. COMPANY HISTORICAL

The historical balances of the Company represent the consolidated financial
position and results of operations as of September 30, 1996 and for the six
months then ended as reported in the historical consolidated financial
statements of BTG, included elsewhere in this Prospectus. The acquisition of
CAI, which occurred in October 1995, is fully reflected in such historical
balances.

2. BTG HISTORICAL

The historical balances of BTG represent the results of operations for the
fiscal year ended March 31, 1996, as reported in the historical consolidated
financial statements of BTG, included elsewhere in this Prospectus. These
balances include the results of operations of CAI from October 20, 1995, the
date of acquisition, through March 31, 1996.

3. CAI ACQUISITION

On October 20, 1995, BTG acquired, for $13.0 million in cash, 50,057 shares
of BTG common stock valued at approximately $463,000, and $1.25 million due in
April 1996, all of the outstanding shares of CAI. The acquisition was accounted
for using the purchase method of accounting. The excess of the purchase price
over the fair value of the net tangible and identifiable intangible assets
acquired of approximately $11.5 million was recorded as goodwill and is being
amortized on a straight-line basis over 20 years. In connection with the closing
of the transaction, BTG entered into various employment and non-compete
agreements with certain of CAI's officers. In addition, the agreement provides
that certain contingent payments are to be made to the former shareholders of
CAI in the event that future income is generated under a specific contract for
which CAI had a proposal outstanding on the date of acquisition. No amounts
relating to these contingent payments have been included in the purchase price.
On April 18, 1996, BTG was notified that this contract was awarded to CAI.

The historical balances of CAI represent the results of operations for the
period from April 1, 1995 through October 20, 1995, the date of acquisition.
Certain amounts in CAI's historical financial statements have been reclassified
to conform to the presentation used in the unaudited pro forma condensed
consolidated financial statements.

4. PRO FORMA ADJUSTMENTS

The following pro forma adjustments are reflected as of September 30, 1996,
in the case of the unaudited pro forma condensed consolidated balance sheet; as
of April 1, 1996, in the case of the unaudited pro forma condensed consolidated
statement of operations for the six months ended September 30, 1996; and as of
April 1, 1995, in the case of the unaudited pro forma condensed consolidated
statement of operations for the fiscal year ended March 31, 1996:

(A) Reduction of outstanding borrowings under BTG's Credit Facility and a
corresponding increase in shareholders' equity resulting from the assumed
application of the net proceeds of the Offering.

(B) Reduction of interest expense on all borrowings assumed to be repaid
with the net proceeds of the Offering (using an effective annual interest rate
of 7.49%).

(C) Additional federal and state income tax expense resulting from the
reduction of interest expense in the six months ended September 30, 1996, and
from the reduction of both interest expense and general and administrative costs
in fiscal 1996.

(D) Reduction of general and administrative expenses attributable to new
employment arrangements with members of CAI senior management.

F-35
<PAGE> 87

BTG, INC. AND SUBSIDIARIES

NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS

4. PRO FORMA ADJUSTMENTS (CONTINUED)

(E) Amortization of identifiable intangible assets on a straight-line basis
over two years and goodwill on a straight-line basis over twenty years.

(F) Interest expense on borrowings needed to fund the cash portion of the
CAI purchase price ($592,000 using an effective annual interest rate of 8.40%
for the period from April 1, 1995 through October 20, 1995), adjusted for the
elimination of interest expense on all borrowings assumed to be repaid with the
net proceeds of the Offering ($2.1 million using an effective annual interest
rate of 8.05%).

5. PRO FORMA NET INCOME PER SHARE

Pro forma net income per share is computed by dividing pro forma net income
by BTG's historical number of weighted average shares of common stock and common
stock equivalents outstanding after giving effect to the 50,057 shares of BTG
common stock issued to fund the stock portion of the purchase price and the
1,670,000 shares of BTG common stock issued in connection with the Offering.

F-36
<PAGE> 88

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

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, ANY UNDERWRITER OR THE SELLING SHAREHOLDER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY THE
SHARES OF COMMON STOCK BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................... 2
Prospectus Summary........................ 3
Risk Factors.............................. 7
Use of Proceeds........................... 12
Price Range of Common Stock............... 13
Dividend Policy........................... 13
Capitalization............................ 14
Selected Consolidated Financial Data...... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 17
Business.................................. 26
Management................................ 38
Certain Transactions...................... 42
Principal and Selling Shareholders........ 43
Description of Capital Stock.............. 45
Shares Eligible for Future Sale........... 47
Underwriting.............................. 48
Legal Matters............................. 49
Experts................................... 49
Index to Financial Statements............. F-1
</TABLE>

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

1,750,000 Shares

[BTG LOGO]

Common Stock

-----------------------
P R O S P E C T U S
-----------------------

PRUDENTIAL SECURITIES INCORPORATED

JANNEY MONTGOMERY SCOTT INC.

FERRIS, BAKER WATTS

Incorporated

November , 1996

- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 89

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following is an estimate of the expenses to be incurred in connection
with the issuance and distribution of the securities being registered, other
than the underwriting discounts and commissions:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 10,482
NASD filing fee................................................... 3,959
Nasdaq National Market fee........................................ 17,500
Printing.......................................................... 115,000
Transfer agent's fees and expenses................................ 10,000
Attorneys' fees and expenses...................................... 200,000
Accountants' fees and expenses.................................... 100,000
Miscellaneous..................................................... 43,059
--------
Total........................................................ $500,000
========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Article 10 of the Company's Amended Articles provides that the Company
will, to the fullest extent permitted by the laws of Virginia, indemnify an
individual who is or was a director or officer of the Company and who was, is,
or is threatened to be made a named defendant or respondent in any threatened,
pending or completed action, suit, or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (collectively, a
"proceeding"), against any obligation to pay a judgment, settlement, penalty,
fine (including any excise tax assessed with respect to any employee benefit
plan) or other liability and reasonable expenses (including counsel fees)
incurred with respect to such a proceeding, except such liabilities and expenses
as are incurred because of such director's or officer's willful misconduct or
knowing violation of the criminal law.

Article 10 also provides that unless a determination has been made that
indemnification is not permissible, the Company will make advances and
reimbursements for expenses reasonably incurred by a director or officer in a
proceeding as described above upon receipt of an undertaking from such director
or officer to repay the same if it is ultimately determined that such director
or officer is not entitled to indemnification.

Article 10 also provides that the determination that indemnification under
such Article 10 is permissible, the authorization of such indemnification (if
applicable), and the evaluation as to the reasonableness of expenses in a
specific case shall be made as provided by law. Special legal counsel selected
to make determinations under such Article 10 may be counsel for the Company. The
termination of a proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent will not of itself create a
presumption that a director or officer acted in such a manner as to make him or
her ineligible for indemnification.

For the purposes of Article 10, every reference to a director or officer
includes, without limitation, (i) every individual who is a director or officer
of the Company, (ii) an individual who, while a director or officer, is or was
serving at the Company's request as a director, officer, partner, trustee,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise, (iii) an individual
who formerly was a director or officer of the Company or who, while a director
or officer, occupied at the request of the Company any of the other positions
referred to in clause (ii) of this sentence, and (iv) the estate, personal
representative, heirs, executors and administrators of a director or officer of
the Company or other person referred to herein. Service as a director, officer,
partner, trustee, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise
controlled by the Corporation shall be deemed service at the request of the

II-1
<PAGE> 90

Company. A director or officer shall be deemed to be serving an employee benefit
plan at the Company's request if such person's duties to the Company also impose
duties on, or otherwise involve services by, such person to the plan or to
participants in or beneficiaries of the plan.

Section 13.1-704(B) of the Virginia Stock Corporation Act provides that a
corporation may provide indemnification and make provision for advances and
reimbursement of expenses so long as the party who is seeking indemnification,
advances or reimbursement did not commit willful misconduct or a knowing
violation of criminal law.

As provided in Section 8 of the Underwriting Agreement, each Underwriter
has agreed, under certain conditions, to indemnify the Company, each of its
directors, each of its officers who has signed the Registration Statement and
each person who controls the Company within the meaning of the Securities Act of
1933, against certain civil liabilities, including certain civil liabilities
under the Act.

As of the date hereof, the Company had purchased directors and officers
liability insurance in the amount of $5.0 million.

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since October 1, 1993 the Company has issued and sold the following
unregistered securities:

1. In connection with options granted prior to January 4, 1989 under
the Company's original Incentive Stock Option Plan, since October 1, 1993
options to purchase a total of 68,749 shares have been exercised at prices
ranging from $3.90 to $4.40 per share.

2. Under the FY 1993 Employee Stock Purchase Plan, 57 employees of the
Company purchased an aggregate of 20,626 shares of Common Stock in May and
June 1993 at a price of $3.25 per share.

3. Since October 1, 1993, options, previously granted in connection
with the acquisition of BDS, Inc., to purchase a total of 22,216 shares of
Common Stock at prices ranging from $2.22 to $2.74 per share were
exercised. Options to acquire an additional 38,590 shares remain to be
exercised.

4. Under the FY 1994 Employee Stock Purchase Plan, 72 employees of the
Company purchased an aggregate of 42,242 shares of Common Stock on March
30, 1994 at a price of $3.45 per share.

5. Under the FY 1995 Employee Stock Purchase Plan, 131 employees of
the Company purchased 46,598 shares of Common Stock at a price of $6.00 per
share.

6. Under the Company's 1990 Incentive Stock Option Plan, between
October 1, 1993 and March 1, 1994 incentive stock options ("ISOs") to
purchase a total of 116,601 shares of Common Stock, net of forfeitures,
were granted to officers and employees of the Company at exercise prices
ranging from $3.00 to $3.80 per share, and, during the same period, ISOs to
purchase a total of 67,391 shares under such plan were exercised at prices
ranging from $3.00 to $3.80 per share.

7. On October 29, 1993 an officer of the Company exercised an option
to purchase a total of 50,000 shares of Common Stock at an exercise price
of $3.45 per share.

8. In connection with the Company's former Annual Leave Stock Plan,
between October 1, 1993 and January 1, 1995, the Company issued and sold a
total of 9,105 shares of Common Stock to 11 employees at $3.45 per share.
Under this plan, the consideration for such shares was accrued vacation
time.

9. On March 31, 1994, four persons purchased 29,000 shares of Common
Stock in connection with convertible debentures issued in 1988, at a price
of $3.00 per share.

10. On October 20, 1995, the Company issued 50,057 shares of Common
Stock, in a private placement, to a former shareholder of CAI in exchange
for such person's shares of CAI common stock. These shares were repurchased
by the Company on February 16, 1996.

II-2
<PAGE> 91

11. On February 16, 1996, the Company sold $15.0 million in aggregate
principal amount of 12.875% Senior Subordinated Notes due 2001, together
with warrants to purchase 317,478 shares of Common Stock, to Nomura Holding
America Inc. in a private placement.

No underwriters were engaged in connection with the foregoing sales and/or
issuances of securities. Such sales were made in reliance upon the exemption
from the registration provisions of the Securities Act set forth in Rule 701
thereunder permitting unregistered sales to employees and consultants, and/or in
Section 4(2) thereof as transactions not involving a public offering, the
respective purchasers thereof having acquired such shares for their respective
accounts without a view to the distribution thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>

++1.1 Form of Underwriting Agreement.

3.1 Amended and Restated Articles of Incorporation of BTG, Inc. (incorporated by
reference to exhibit 3.2 to BTG, Inc.'s registration statement on Form S-1 (File
No. 33-85854)).

3.2 Amended and Restated By-laws of BTG, Inc. (incorporated by reference to exhibit 3.4
to BTG, Inc.'s registration statement on Form S-1 (File No. 33-85854)).

4.1 Stock certificate representing BTG, Inc. Common Stock (incorporated by reference to
exhibit 4.3 to BTG, Inc.'s registration statement on Form S-8 (File No. 33-97302)).

*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common Stock being
registered.

++10.1 Business Loan and Security Agreement, dated as of November 28, 1995, by and among
BTG, Inc. and its subsidiaries and NationsBank, N.A. (incorporated by reference to
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended December 31, 1995),
First and Second Modifications thereto, dated February 16 and March 28, 1996
(incorporated by reference to Exhibits 10.11 and 10.12 to the Company's Annual
Report on Form 10-K for the year ended March 31, 1996) and Third Modification
thereto dated October 1, 1996.

10.2 BTG, Inc. 1995 Employee Stock Option Plan (incorporated by reference to Exhibit 4.4
to the Company's registration statement on Form S-8 (File No. 333-10473)).

10.3 BTG, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 4.6 to
the Company's registration statement on Form S-8 (File No. 333-10473)).

10.4 BTG, Inc. Annual Leave Stock Plan (incorporated by reference to Exhibit 4.6 to the
Company's registration statement on Form S-8 (File No. 33-97302)).

10.5 BTG, Inc. Directors Stock Option Plan (incorporated by reference to Exhibit 10.10
to the Company's Annual Report on Form 10-K for the year ended March 31, 1996).

++10.6 Non-Employee Director Stock Purchase Plan

10.7 Employment Agreement between the Company and Edward H. Bersoff (incorporated by
reference to Exhibit 10.4 to the Company's registration statement on Form S-1 (File
No. 33-85854)).

10.8 Stock Repurchase Agreement between the Company and Edward H. Bersoff (incorporated
by reference to Exhibit 10.5 to the Company's registration statement on Form S-1
(File No. 33-85854)).

10.9 Stock Purchase Agreement, dated October 20, 1995, among BTG, Inc., Concept
Automation, Inc. of America and the Shareholders of Concept Automation, Inc. of
America (incorporated by reference to Exhibit 2 to the Company's Current Report on
Form 8-K dated October 20, 1995).

++10.11 Note and Warrant Purchase Agreement dated February 16, 1996, between BTG and Nomura
Holding America, Inc. (incorporated by reference to Exhibit 10.13 to the Company's
Annual Report on Form 10-K for the year ended March 31, 1996) and amendment thereto
dated October 1, 1996.
</TABLE>

II-3
<PAGE> 92

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------------------------------------------------------------------------------
<C> <S>
++11.1 Statement regarding computation of net income per share

++21.1 Subsidiaries of the Registrant

*23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1)

+23.2 Consent of KPMG Peat Marwick LLP

+23.3 Consent of Thompson, Greenspon & Co., P.C.

++24.1 Power of attorney (included on signature page)
</TABLE>

- ---------------
+ Filed herewith

++ Previously filed

* To be filed by amendment

(b) Financial Statement Schedules

The financial statement schedules required to be filed as part of this
Registration Statement are listed on the attached Index to Financial Statement
Schedules. All other schedules have been omitted because they are inapplicable
or the information is provided in the Consolidated Financial Statements
including the Notes thereto included in the Prospectus.

ITEM 17. UNDERTAKINGS.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant under the provisions referred to in Item 14 of this Registration
Statement, or otherwise, the Registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.

The undersigned Registrant hereby undertakes that:

(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be a part of this
Registration Statement as of the time it was declared effective.

(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.

II-4
<PAGE> 93

SIGNATURES

Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Amendment No. 1 to Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the County of Fairfax,
Virginia, on the 30th day of October, 1996.

BTG, INC.

By: /s/ EDWARD H. BERSOFF
-----------------------------------
EDWARD H. BERSOFF
CHAIRMAN OF THE BOARD, PRESIDENT AND
CHIEF EXECUTIVE OFFICER

Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed by the following persons in the
capacities and on this 30th day of October, 1996.

<TABLE>
<CAPTION>
CAPACITY DATE
--------------------------------- -----------------
<S> <C> <C>
/s/ EDWARD H. BERSOFF
- -----------------------------------------
EDWARD H. BERSOFF Chairman of the Board, President October 30, 1996
and Chief Executive Officer
*
- -----------------------------------------
JOHN M. HUGHES Senior Vice President, October 30, 1996
Chief Financial Officer

*
- -----------------------------------------
RUTH M. DAVIS Director October 30, 1996

*
- -----------------------------------------
JAMES V. KIMSEY Director October 30, 1996

*
- -----------------------------------------
ALAN G. MERTEN Director October 30, 1996

*
- -----------------------------------------
RAYMOND TATE Director October 30, 1996

*
- -----------------------------------------
RONALD L. TURNER Director October 30, 1996

*
- -----------------------------------------
DONALD M. WALLACH Director October 30, 1996

*By: /s/ EDWARD H. BERSOFF
- -----------------------------------------
EDWARD H. BERSOFF
ATTORNEY-IN-FACT
</TABLE>

II-5
<PAGE> 94

INDEX TO FINANCIAL STATEMENT SCHEDULES

<TABLE>
<CAPTION>
PAGE
-------------
<S> <C>
Report of KPMG Peat Marwick LLP................................................ included in
Exhibit 23.2
Schedule VIII -- Valuation and Qualifying Accounts and Reserves................ S-2
</TABLE>

S-1
<PAGE> 95

SCHEDULE VIII

BTG, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
FISCAL YEARS ENDED MARCH 31, 1994, 1995 AND 1996
(IN THOUSANDS)

<TABLE>
<CAPTION>
BALANCE OTHER BALANCE
AT CHANGES AT
BEGINNING ADDITIONS ADDITIONS END OF
OF YEAR AT COST RETIREMENTS (DEDUCTIONS) YEAR
--------- --------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
FISCAL 1994
Allowance for doubtful accounts
receivable............................... $ 104 $ 26 -- $ -- $ 130
Allowance for contract losses.............. 135 165 -- -- 300
Allowance for inventory obsolescence....... 101 84 -- -- 185
Allowance for income tax valuation......... -- 200 -- -- 200
--------- --------- ----------- ------------ -------
$ 340 $ 475 $ -- $ -- $ 815
======= ======= ======== ========== ======
FISCAL 1995
Allowance for doubtful accounts
receivable............................... $ 130 $ 233 $ 41 $ -- $ 322
Allowance for contract losses.............. 300 -- 274 -- 26
Allowance for inventory obsolescence....... 185 314 128 -- 371
Allowance for income tax valuation......... 200 -- 3 -- 197
--------- --------- ----------- ------------ -------
$ 815 $ 547 $ 446 -- $ 916
======= ======= ======== ========== ======
FISCAL 1996
Allowance for doubtful accounts
receivable............................... $ 322 $ 140 $ 241 $ -- $ 221
Allowance for contract losses.............. 26 -- 26 -- --
Allowance for inventory obsolescence....... 371 125 59 (A) 488 925
Allowance for income tax valuation......... 197 -- 92 -- 105
--------- --------- ----------- ------------ -------
$ 916 $ 265 $ 418 $ 488 $ 1,251
======= ======= ======== ========== ======
</TABLE>

- ---------------
(A) Relates to an estimated accrued expense in fiscal 1995 which was settled in
fiscal 1996 at a lesser amount.

S-2
<PAGE> 96

EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NUMBER
- ------- --------------------------------------------------------------------------- -------
<C> <S> <C>

++1.1 Form of Underwriting Agreement

3.1 Amended and Restated Articles of Incorporation of BTG, Inc. (incorporated
by reference to exhibit 3.2 to BTG, Inc.'s registration statement on Form
S-1 (File No. 33-85854)).

3.2 Amended and Restated By-laws of BTG, Inc. (incorporated by reference to
exhibit 3.4 to BTG, Inc.'s registration statement on Form S-1 (File No.
33-85854)).

4.1 Stock certificate representing BTG, Inc. Common Stock (incorporated by
reference to exhibit 4.3 to BTG, Inc.'s registration statement on Form S-8
(File No. 33-97302)).

*5.1 Opinion of Hogan & Hartson L.L.P. regarding the validity of the Common
Stock being registered.

++10.1 Business Loan and Security Agreement, dated as of November 28, 1995, by and
among BTG, Inc. and its subsidiaries and NationsBank, N.A. (incorporated by
reference to Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
December 31, 1995), First and Second Modifications thereto, dated February
16 and March 28, 1996 (incorporated by reference to Exhibits 10.11 and
10.12 to the Company's Annual Report on Form 10-K for the year ended March
31, 1996) and Third Modification thereto dated October 1, 1996.

10.2 BTG, Inc. 1995 Employee Stock Option Plan (incorporated by reference to
Exhibit 4.4 to the Company's registration statement on Form S-8 (File No.
333-10473)).

10.3 BTG, Inc. Employee Stock Purchase Plan (incorporated by reference to
Exhibit 4.6 to the Company's registration statement on Form S-8 (File No.
333-10473)).

10.4 BTG, Inc. Annual Leave Stock Plan (incorporated by reference to Exhibit 4.6
to the Company's registration statement on Form S-8 (File No. 33-97302)).

10.5 BTG, Inc. Directors Stock Option Plan (incorporated by reference to Exhibit
10.10 to the Company's Annual Report on Form 10-K for the year ended March
31, 1996).

++10.6 Non-Employee Director Stock Purchase Plan

10.7 Employment Agreement between the Company and Edward H. Bersoff
(incorporated by reference to Exhibit 10.4 to the Company's registration
statement on Form S-1 (File No. 33-85854)).

10.8 Stock Repurchase Agreement between the Company and Edward H. Bersoff
(incorporated by reference to Exhibit 10.5 to the Company's registration
statement on Form S-1 (File No. 33-85854)).

10.9 Stock Purchase Agreement, dated October 20, 1995, among BTG, Inc., Concept
Automation, Inc. of America and the Shareholders of Concept Automation,
Inc. of America. (incorporated by reference to Exhibit 2 to the Company's
Current Report on Form 8-K dated October 20, 1995).

++10.11 Note and Warrant Purchase Agreement dated February 16, 1996, between BTG
and Nomura Holding America, Inc. (incorporated by reference to Exhibit 10.8
to the Company's Annual Report on Form 10-K for the year ended March 31,
1996) and amendment thereto dated October 1, 1996.

++11.1 Statement regarding computation of net income per share

++21.1 Subsidiaries of the Registrant

*23.1 Consent of Hogan & Hartson L.L.P. (included in exhibit 5.1)

+23.2 Consent of KPMG Peat Marwick LLP

+23.3 Consent of Thompson, Greenspon & Co., P.C.

++24.1 Power of attorney (included on signature page)
</TABLE>

- ---------------
+ Filed herewith

++ Previously filed

* To be filed by amendment

<PAGE> 1
EXHIBIT 23.2

The Board of Directors
BTG, Inc.:

The audits referred to in our report dated May 10, 1996, included the
related financial statement schedule for each of the years in the three-year
period ended March 31, 1996, included in the registration statement. This
financial statement schedule is the responsibility of the Company's management.
Our responsibility is to express an opinion on this financial statement
schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.

We consent to the use of our reports included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the prospectus.

/s/ KPMG PEAT MARWICK LLP
--------------------------
KPMG Peat Marwick LLP

McLean, VA
October 30, 1996

<PAGE> 1
EXHIBIT 23.3

The Board of Directors
BTG, Inc.:

We consent to the use of our reports included herein and to the reference to
our firm under the heading "Experts" in the prospectus.

/s/ THOMPSON, GREENSPAN & CO.
--------------------------------
Thompson, Greenspan & Co.

Fairfax, VA
October 30, 1996