##### Table of Contents



---

---




SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

|    |  |                                                                                     
|--- |  | ------------------------------------------------------------------------------------
|[X] |  | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2001

OR

|      |  |                                                                                         
|----- |  | ----------------------------------------------------------------------------------------
|[   ] |  | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the transition period from    to
Commission file number 0-25094
BTG, INC.
(Exact name of registrant as specified in its charter)

|                                           |  |                    
|------------------------------------------ |  | -------------------
|Virginia                                   |  | 54-1194161         
|                                          
|                                          
|                                          
|                                          
|(State or other jurisdiction               |  | (I.R.S. Employer   
|                                          
|                                          
|                                          
|                                          
|of incorporation or organization)          |  | Identification No.)
|                                          
|3877 Fairfax Ridge Road, Fairfax, Virginia |  | 22030-7448         
|                                          
|                                          
|                                          
|                                          
|(Address of principal executive offices)   |  | (Zip Code)         

Registrants telephone number, including area code: (703) 383-8000.

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

(Not applicable)

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

Common Stock, no par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrants knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [  ]

Based upon the closing price of the registrants common stock as of June
11, 2001, the aggregate market value of the voting stock held by non-affiliates
of the registrant is $38,924,873*.

The number of shares outstanding of each of the registrants classes of
common stock, as of the latest practicable date is:

|                     |  |                                                
|-------------------- |  | -----------------------------------------------
|Class: Common
Stock. |  | Outstanding at June 11, 2001: 8,960,992 shares.

DOCUMENTS INCORPORATED BY REFERENCE:

PART III: Portions of the Definitive Proxy Statement for the Annual Meeting of
Shareholders to Be Held on August 30, 2001.



---

|* |  | Solely for purposes of this calculation, all executive officers and
directors of the registrant and all shareholders reporting beneficial
ownership of more than 5% of the registrants common stock are considered
to be affiliates.
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

---

---





---

TABLE OF CONTENTS



|                                                 |  |  |  |  |  |  |  | 
|------------------------------------------------ |  |  |  |  |  |  |  | 
|Form 10-K                                       
|Ex-10.7 Sixth Modification to Security Agreement
|Ex-10.15 Employment Agreement re: Weston, Jr.   
|Ex-10.16 Employment Agreement                   
|Ex-10.17 Employment Agreement                   
|Ex-10.18 Employment Agreement                   
|Ex-10.16 Asset Purchase Agreement               
|Ex-11 Statement re: Computation of Earnings     
|Ex-21 Subsidiaries of the Registrant            
|Ex-23.1 Consent of Deloitte & Touche LLP        
|Ex-23.2 Consent of KPMG LLP                     
|Ex-99.1 Report of Deloitte & Touche LLP         
|Ex-99.2 Report of KPMG LLP                      



---



##### Table of Contents



BUSINESS INFORMATION

References in this
Form 10-K to we, us, our,
the Company and BTG mean BTG, Inc.
and our subsidiaries and predecessors, unless the context suggests otherwise.

PART I

Item 1.Business

Background

BTG is an information systems and technical services company. We
provide complete solutions to a broad range of the complex systems needs of the
United States Government and its agencies and departments (the Government)
and other commercial and state and local government customers. Since BTG was
founded in 1982, we have been providing highly sophisticated software-based
solutions to our customers, especially those in the Government defense
intelligence community.

BTGs headquarters and executive offices are located at 3877 Fairfax Ridge
Road, Fairfax, Virginia 22030-7448, and our telephone number is (703) 383-8000.

Company Operations

Our services and solutions are focused on four principal areas:



| |  | Analysis and Consulting  We help our clients manage their knowledge
and information resources. We provide modeling and simulation,
information fusion, and competitive intelligence to customers that
include the U.S. Department of Defense (DOD), and the Board of
Education in Okaloosa County, Florida.                                                                                                                                                        
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Solutions Development  Our engineers provide solutions with the
combination of proven business processes and our strategic
partnerships with leading technology firms like The SAS Institute
(SAS), Microsoft Corporation, Remedy Corporation, and Cisco Systems.
Our customers in this area include: the U.S. Navy, U.S. Air Force,
U.S. Marine Corps, Defense Advanced Research Projects Agency, Federal
Aviation Administration (FAA), and Verizon.           
| 
| |  | Systems Integration  We analyze our customers business processes,
recommend proven commercial off-the-shelf products, and use our
technical expertise to integrate them into existing hardware and
software resources. Our customers include the Office of Naval
Intelligence and the National Science Foundation.                                                                                                                                                  
| 
| |  | Operations and Support  We provide clients with technical experts who
provide a full range of enterprise management services, including
hands-on systems installation and maintenance, management of network
operations centers, help desk support, and training in the efficient
use of the new systems. Our customers include the U.S. Army
Communications and Electronics Command, the Securities and Exchange
Commission, the Joint Chiefs of Staff, and the FAA.

Prior to fiscal 1999, we operated a division that was responsible for
reselling computer hardware and software products (the Product Reselling
Business), principally to the Government. In February 1998, we entered into an
asset purchase agreement with GTSI Corp. (GTSI) under which we completed the
sale to GTSI of substantially all of the operating assets, contracts and
customer orders of the Product Reselling Business (the GTSI Transaction).
Additionally, during fiscal 2000, the last two product reselling contracts held
by us were terminated. As a result of exiting the Product Reselling Business,
we do not expect to have any significant product revenues in the future. In
fact, during fiscal 2001 and 2000, the amount of revenues from the sale of
products decreased by over 84% and 69%, respectively.

We have almost two decades of experience providing expert services and
technology-based solutions to our customers. We apply our experience and
technical knowledge in areas that range from air combat to educational
accountability, from counter-terrorism to data warehousing. Our proven
business processes have become the foundation of expert practice areas in:

2



---



##### Table of Contents





| |  |  | Information Management          
| | - |  | --------------------------------
|
| |  |  | Geographic Information Systems  
|
| |  |  | Technology in Schools           
|
| |  |  | Emergency Management            
|
| |  |  | Airborne Systems                
|
| |  |  | Data Warehousing                
|
| |  |  | Modeling and Simulation         
|
| |  |  | Enterprise Support              
|
| |  |  | Client Care Services            
|
| |  |  | Information and Network Security
|
| |  |  | Network Design and Architecture 

Customers and Customer Support

A substantial portion of our revenues come from contracts with various
agencies of the Government, including all four armed forces, the Defense
Intelligence Agency, the General Services Administration, the National Security
Agency, and many of the civilian Government agencies such as the FAA and the
Departments of Commerce and Justice. In addition, we have performed projects
for, or supplied computer hardware, software and integrated systems to, a
number of commercial customers, as well as several state and local governments.
As of March 31, 2001, BTG was providing services under 420 active Government
contracts.

In fiscal 2001 and 2000, approximately 79% and 83% respectively, of our
revenues came from Government contracts. The following table sets forth our
estimates of the sources of our revenues in the last two fiscal years:

|                                                     |  |                       |  |      |  |  |    |   |  |  |    |  
|---------------------------------------------------- |  | --------------------- |  | ---- |  |  | -- | - |  |  | -- | -
|                                                     |  | Fiscal Years         
|                                                     |  | Ended March 31,      
|                                                     |  |                      
|                                                     |  | 2001                  |  | 2000
|                                                     |  |                       |  |     
|                                                     |  | (% of total revenues)
|U.S. Government  DOD agencies                       |  |                       |  |      |  |  | 59 | % |  |  | 62 | %
|                                                    
|                                                    
|                                                    
|                                                    
|U.S. Government   civilian agencies                 |  |                       |  |      |  |  | 20 |   |  |  | 21 |  
|                                                    
|                                                    
|                                                    
|                                                    
|Commercial customers and state and local governments |  |                       |  |      |  |  | 21 |   |  |  | 17 |  

We offer our customers a full range of support services for the systems we
develop, and strive to understand thoroughly the environment of the end-user of
our systems. Our employees work directly with customers throughout each project
to ensure that the solutions we provide satisfy our customers needs. Of major
importance to us are timely implementation and rapid assistance. We provide
rapid support and backup, by telephone hotline and in person, for systems in
use throughout the world. Our revenues are highly dependent on the Governments
demand for the services we offer. Changes in the structure, composition and/or
buying patterns of the Government could affect our future operations.

Backlog

The Companys total contract backlog is only a portion of our total
contract capacity (i.e., the maximum amount that customers could purchase under
their 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 our 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. Our estimated total contract backlog as of March 31, 2001 and 2000 was
$506 million and $462 million, respectively. We differentiate among the
following four types of backlog which together constitute total backlog:



| |  | Funded Backlog is negotiated and authorized backlog for which the
customer has secured funding and has indicated that funding is
available to BTG for billing. We had $123.1 million of Funded Backlog
as of March 31, 2001.                                
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Authorized but Not Funded (Unfunded) Backlog is negotiated and
authorized backlog for which the customer has not secured funding. We
had $55.4 million of Authorized but Not Funded Backlog as of March 31,
2001.                                           
| 
| |  | Options Backlog is the total value of contract options that have been
negotiated but for which the customer has not authorized work to
begin. We had $98.0 million of Options Backlog as of March 31, 2001.                                                 
| 
| |  | IDIQ Backlog is the estimated total value of revenue expected to be
realized over the remaining life of an existing indefinite
delivery-indefinite quantity (IDIQ) contract. Management estimates
this amount and periodically adjusts the estimate upward

3



---



##### Table of Contents





| |  | or downward based upon actual experience under each specific IDIQ contract. We
had $229.0 million of IDIQ Backlog as of March 31, 2001.                                                                                                                                                                                                                                                                                                         
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The preceding information regarding contract backlog and future revenues to
be derived therefrom is forward-looking and is subject to certain risks and
uncertainties including, but not limited to, the inherent difficulty of
predicting future contract potential, a dependence on the continued funding
of Government programs and contract procurements, and the risk of contract
termination. See Item 1, section entitled Risk Factors.

Competitive Factors

We believe that we have successfully functioned in the Government
information technology market since our inception. This market is generally
characterized by significant barriers to entry, including highly structured
procurement rules and procedures and relatively long sales cycles (often
several years). In addition, many contracts in the defense and intelligence
areas require that employees have high-level security clearances. We believe
the following factors enable us to compete effectively in the Government, as
well as the commercial and state and local government arenas.



| |  | Teaming Agreements  An important factor in our ability to maintain
our competitive stance is our ability to enter into teaming
relationships, in which we may be either a prime contractor or
subcontractor. The Company maintains teaming relationships with major
Government contractors, including General Dynamics, Raytheon, Litton,
and Lockheed Martin Corporation. These arrangements enable us to bid
on and participate in a greater number of increasingly large and
complex procurement projects. Teaming relationships have enabled us to
secure several Government contracts during the past several years.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Strategic Partnerships  We have entered into a number of strategic
alliances with technology companies including SAS, Microsoft, Remedy,
and Spyrus, an Internet security company.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| 
| |  | Security Clearances  Many of our Government contracts require us to
maintain facility security clearances complying with DOD requirements,
including Secured Compartmented Information Facilities for the
performance of classified work under our contracts. It is costly and
time consuming to obtain necessary certifications for this type of
space. As of March 31, 2001, approximately 1,000 of our employees
possessed secret or top secret security clearances, which are required
for the performance of certain of our contracts. None of our contracts
has ever been terminated for security reasons.         
| 
| |  | Diversified Customer Relationships  We provide services to a diverse
group of customers: 59% percent of BTGs fiscal year 2001 revenues
were from defense and intelligence agencies; 20% were from federal
civilian agencies; and 21% were from commercial and state and local
government customers.                                                                                                                                                                                                                                                                                                                     

In seeking to provide a broad range of services and products that address
the complete information technology needs of our customers, we participate, to
varying degrees, in multiple areas of the information technology market,
including markets for systems engineering, development and integration
services. Within each area, we compete against different firms of varying
sizes, with different specializations and skills. Each of the areas in which we
operate is competitive. 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 our competitors are significantly larger and have
greater financial resources than does BTG. Some of these competitors are part of
large, diversified companies that have access to the financial resources of
their parent companies.

We believe that the principal competitive factors in providing information
systems and technical services are management capability, technical
understanding, customer satisfaction, past contract performance, personnel
qualifications, including security clearances, and price. During our recent
history, we have been very successful in securing the exercise of contract
option years in our services business. We believe this to be attributable to
the strength of our past contract performance and our competitive prices.
Further, our senior management team has an extensive number of years of
industry-specific technical and managerial experience. As a result, we believe
we are able to compete favorably on each of the principal competitive factors
within the services business.

Government contracts are periodically subjected to the competitive bidding
process, and we have generally been successful in retaining our incumbent
business. In addition, a significant number of the opportunities we pursue are
large dollar value procurements. In such cases, in order to enhance our ability
to compete, we often form teams or joint ventures with one or more firms
possessing complementary technical skills, which firms may be our competitors
in other procurements.

4



---



##### Table of Contents



Certain Regulatory Matters

The nature of our business subjects us to various regulatory restrictions
and limitations, including those set forth as follows:



| |  | 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 Defense Contract Audit Agency (DCAA),
the Inspectors General of the various departments, the Defense
Criminal Investigative Service, the General Accounting Office and the
Department of Justice. These audits and investigations involve the
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 fiscal
years through 1998. We have not experienced any material adverse
effects as a result of these completed audits. Management does not
expect the completion of future audits on open years 1999 through 2001
to have a material adverse effect on our consolidated financial
position.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| 
| |  | Export Regulations  United States law and regulations issued by
various agencies of the Government, including but not limited to the
Departments of Commerce, Treasury and State, restrict and regulate the
export of technology as well as goods and commodities provided by
United States businesses to foreign entities and controlled foreign
subsidiaries and affiliates. BTG is subject to certain of these
regulations with respect to technology developed by the Company which
is sold to non-U.S. customers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              

Employees

As of March 31, 2001, we had 1,386 employees on staff, of which 1,267 were
employed in technical or managerial positions. We believe that we are
competitive in hiring and retaining qualified personnel. We emphasize both
technical and leadership training as well as career development assistance for
all of our employees.

We have a values-based culture and emphasize integrity, teamwork, and
customer focus and satisfaction. We require all of our employees to complete
training in, and to certify that they understand and will adhere to, BTGs
standards of conduct as described in our written code of ethics.

As of March 31, 2001, none of the Companys employees were represented by
a labor union. Since our acquisition of Research Planning, Inc. (RPI) on
April 2, 2001, 14 of our employees are members of labor unions. We consider our
relations with our employees to be good and we have not experienced any
significant labor problems.

5



---



##### Table of Contents



Executive Officers

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

|                      |  |     |    |          |  |                                                                             
|--------------------- |  | --- | -- | -------- |  | ----------------------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Dr. Edward H. Bersoff |  |     | 58 |          |  | Chairman of the Board, President, and Chief Executive Officer               
|                     
|                     
|                     
|                     
|Thomas W. Weston, Jr. |  |     | 35 |          |  | Senior Vice President and Chief Financial Officer                           
|                     
|                     
|                     
|                     
|Linda E. Hill         |  |     | 41 |          |  | Senior Vice President and Chief Human Development Officer                   
|                     
|                     
|                     
|                     
|John Littley, III     |  |     | 54 |          |  | Senior Vice President and Chief Information Officer                         
|                     
|                     
|                     
|                     
|Robert J. Osterloh    |  |     | 56 |          |  | Senior Vice President and General Manager, Defense and
Intelligence Systems 
|                     
|                     
|                     
|                     
|Leslie A. Rose        |  |     | 53 |          |  | Senior Vice President and General Manager, Applied
Engineering Solutions    
|                     
|                     
|                     
|                     
|Kevin B. Wilshere     |  |     | 39 |          |  | Senior Vice President and General Manager, Logistics,
Engineering & Training
|                     
|                     
|                     
|                     
|Marilynn D. Bersoff   |  |     | 52 |          |  | Corporate Secretary                                                         



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Edward H. Bersoffhas served as BTGs President, Chief Executive
Officer, and Chairman of the Board of Directors since the Companys founding
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
has over 30 years of experience in intelligence system development, software,
quality assurance, configuration management, corporate management, and
management of software product design, development, implementation and
maintenance. Dr. Bersoff serves as a director of Phillips International,
Inc., Transcrypt International, Inc., the Potomac Bank of Virginia,
Re-route.com, Inc., DOAR Communications, Inc., Omni-Vista, Inc., the
American Electronics Association, the Inova Health System, and the Eugene and
Agnes E. Meyer Foundation. He is the husband of Marilynn D. Bersoff.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Thomas W. Weston, Jr.has served as Senior Vice President and Chief
Financial Officer of BTG since 2000. As CFO and a member of BTGs senior
management team, Mr. Weston assists in the Companys strategic planning
process and has responsibility for the Companys finance, accounting, and
treasury departments, as well as its internal audit, investor relations,
government affairs, and media relations activities. He also oversees the
Companys mergers and acquisitions program. Prior to being appointed CFO, Mr.
Weston served as our Group Vice President of Finance. Before joining BTG in
1995, Mr. Weston was a senior manager with the international accounting firm
of KPMG Peat Marwick LLP. He is a certified public accountant in the
Commonwealth of Virginia and is a member of both the American Institute and
the Virginia Society of CPAs.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Linda E. Hillhas served as Senior Vice President and Chief Human
Development Officer since 1999. Previously, she was a Senior Vice President
within the Companys operating unit, where she was responsible for new
business opportunities. Ms. Hill has been with BTG since 1985 and has served
in a variety of positions, including Director of Advanced Programs and Deputy
General Manager of the Systems Engineering Group, where she oversaw strategic
planning, development of new business opportunities, and organizational
planning of the business unit. She has over 19 years of computer-based
systems experience, including world-wide systems integration, systems
development, and program management of large-scale projects for the defense
intelligence community



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | John Littley, IIIhas served as Senior Vice President and Chief
Information Officer of BTG, managing core systems development and overseeing
the network operations and applications support for the Companys automated
systems since 1998. From 1994 to 1998 he served as Vice President and then
Senior Vice President of Corporate Development, in charge of developing new
business opportunities. He served as Director of Corporate Development 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 the Company in 1982. Between 1982 and 1991, he served in a
variety of positions, including Director of Advanced Programs, Director of
Engineering Services, and Director of Systems Development.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Robert J. Osterlohhas served as Senior Vice President and General
Manager of BTGs Defense and Intelligence Systems business unit since 2000.
The units operations include battlespace awareness, information management,
infrastructure and information assurance, database development and
management, data correlation and fusion, information dissemination, network
design and support, and exercise support. From 1994 to 1996, he
served as a Vice President of Program Development in the Engineering
and Development group.  From 1996-1999 he served as a Group Vice
President and Director for the Applied Systems group.  He was first
appointed General Manager of the Defense and Intelligence Systems
business unit in 1999.  Mr. Osterloh joined BTG in 1994
after retiring from the U.S. Air Force, where he served

6



---



##### Table of Contents





| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | as Commander of both the Air Force Information Warfare Center and the
Electronic Warfare Center. Mr. Osterloh attended the National War College
during his 28 years of Air Force service.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Leslie A. Rosehas served as Senior Vice President and General Manager
of BTGs Applied Engineering Solutions business unit since 2000.
Headquartered in Niceville, Florida, this business unit serves U.S. defense
and civilian agencies as well as customers in the private sector. Mr. Rose
came to BTG with our 1994 acquisition of Delta Research Corporation, where he
served as its president. He continued to serve as the President of
Delta from 1994 to 1996. From 1996 to 1999, he served as Group Vice President and
Director of the Delta division.  He joined Delta in 1990 after 20 years in the U.S.
Army where he served in the Corps of Engineers.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Kevin B. Wilsherehas served as Senior Vice President and General
Manager of BTGs Logistics, Engineering & Training business unit since May of
this year. The units operations include modeling, simulation, training, and
integrated logistics support to customers in the defense and the national
intelligence community. Mr. Wilshere came to the Company in 1999 with the
acquisition of STAC, Inc., where he had been Vice President of Defense
Programs since 1996. Prior to joining STAC, Mr. Wilshere was employed at BDM
International, Inc.



| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Marilynn D. Bersoffserved as Senior Vice President and Secretary of BTG
from 1993 to 1999 and is currently Corporate 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. As Corporate Secretary, Ms. Bersoff works
with the Companys Board of Directors and is responsible for maintenance of
the corporate records. Ms. Bersoff has over 22 years of experience in
administration, management and technical support. She is the wife of Edward
H. Bersoff.

Risk Factors

Forward-Looking Statements

Certain sections of this Annual Report on Form 10-K contain
forward-looking statements, within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended, that are based on managements expectations,
estimates, projections, and assumptions. Words such as may, will, should,
intend, expects, anticipates, plans, believes, scheduled,
estimates, variations of these words, and similar expressions are intended to
identify forward-looking statements which include, but are not limited to,
projections of revenues, earnings, segment performance, deliveries, cash flows,
contract awards, and backlog. These statements are not guarantees of future
performance, and involve certain risks and uncertainties, which are difficult
to predict. Therefore, actual future results and trends may differ materially
from what is contemplated by these forward-looking statements. Forward looking
information is based on various factors and was derived using various
assumptions. Actual events and results may differ substantially due to a
variety of factors, including, without limitation: our successful execution of
internal performance plans; performance issues with key suppliers and
subcontractors; the status or outcome of legal and/or regulatory proceedings;
changing customer demand or preferences; changing priorities or reductions in
the Government budget; termination of
government contracts; and the timing and occurrence (or non-occurrence) of
circumstances beyond the Companys control. These factors are discussed in
greater detail below.

Competition in the Industry Could Cause Us to
Lose Customers and Revenue

We face aggressive competition in every area of our business including:



| |  |  | Numerous competitors, ranging from some of the worlds largest
corporations to a number of smaller specialized companies                                        
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Competitors that have substantially greater financial
resources, more extensive marketing and customer service
capabilities, as well as greater name recognition
|
| |  |  | Constantly changing technology that requires us to be able to
master new services, as well as ensure and enhance the acceptance of
our current services         
|
| |  |  | Competitive pricing, in some of our markets, that requires us
to reduce the prices of some of our services                                                      

These competitive pressures could harm our business and operating results.

Our future competitive performance depends on a number of factors, which
include:



| |  |  | Maintaining our ability to develop and introduce new solutions
and offerings, and to do so at better prices, and with better
service, than our competitors
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------

7



---



##### Table of Contents





| |  |  | Offering our customers solutions that operate effectively
within a computing environment that includes hardware and software
from multiple vendors           
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Maintaining and expanding upon our current technical
excellence, management proficiency, strategic alliances and
relationships with subcontractor teams      
|
| |  |  | Maintaining and improving upon our ability to perform in a
cost-effective manner                                                                             
|
| |  |  | Recruiting and retaining key personnel, including personnel
with the necessary skills and security clearances, who are needed to
perform classified contracts

Failure to Maintain or Secure Significant Contracts with the Government Could
Cause a Substantial Decrease in Our Revenues

Currently, approximately 79% of our revenues come from sales of solutions or
services to the Government. Our ability to continue selling to the Government
is subject to a number of risks. These include:



| |  |  | Continuing eligibility as a responsible offeror on Government
contracts                                                                           
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Continued compliance with federal regulatory programs, such as
small and disadvantaged business or equal employment opportunity
practices         
|
| |  |  | Changes in Government acquisition policies                                                                                                        
|
| |  |  | Decisions to delay the acquisition of information technology solutions, services, or systems                                                      
|
| |  |  | Decisions by the Government to change from existing systems to
other systems for which the Companys offerings and services may not
be competitive

These risks could adversely affect the demand for our services, or our ability
to continue furnishing them, with a resultant loss in revenues.

In addition, contract awards are subject to administrative or judicial
challenge, or protest, and if an award is determined to be invalid, it may be
revoked, or options for work in future years, may not be exercised. Also,
contracts may be subject to termination by the Government for its convenience,
as well as for default. If a fixed-price or time-and-materials contract were to
be terminated for the Governments convenience, we would only receive the
purchase price for items delivered prior to termination, reimbursement for
allowable costs for work-in-progress, and an allowance for profit on the
contract, or an adjustment for loss if completion of performance would have
resulted in a loss. Upon termination for convenience of a cost-reimbursement
contract, we normally would be reimbursed only for our allowable costs up to
the date of the termination, plus a proportionate amount of any fees
attributable to the work actually performed. If contracts are terminated for
default, the Government generally will pay us for the work accepted by the
Government, but may require us to reimburse the Government for any excess cost
of reprocurement, as well as for any other damages incurred by the Government.

Government contracts also are conditioned upon the continuing availability
of Congressional appropriations. Congress usually appropriates funds on a
fiscal-year basis, even though contract performance may extend over many years.
Consequently, at the outset of a program, the contract is usually only
partially funded, and Congress must annually determine if additional funds will
be appropriated to the program. Long-term contracts and related orders are
subject to cancellation, or the non-exercise of options, for work in future
years, if appropriations for subsequent periods become unavailable. We have not
historically experienced any significant material adverse effects as a result
of the Governments failure to fund programs awarded to us.

A significant portion of our revenues involve contracts or programs
classified secret or higher by the Government, and which cannot be
specifically described. The business risks associated with these classified
programs do not differ materially from those of our other Government programs.
However, in order to bid on and perform these classified contracts, the Company
must be able to recruit and retain employees with the requisite security
clearances, and must maintain secure facilities in which to perform the
contracts.

The loss of a significant number of governmental contracts, or the
reduction in orders from the Government, would have a material adverse effect
on our business, financial condition, or results of operations. Our ability to
increase sales in the future will depend, in part, on the acquisition decisions
of the Government.

Competition Based Upon Pricing May Adversely
Affect Our Business

Intense competition in the various markets in which the Company competes
may put pressure on the Company to reduce prices on certain offerings and
services. This pressure may be particularly felt in those markets where certain
vendors, on whom the

8



---



##### Table of Contents



Company relies, also sell directly to the Companys
customers. It may also be felt in competitive procurements, such as those
conducted by governmental entities, where the Company is compelled to offer its
services at prices designed to capture contract awards. Also, the Government,
from time to time, enters into multiple award schedule contracts, IDIQ
contracts, and blanket purchase
agreements. To compete for these awards, the Company is often required to offer
aggressive pricing to maintain its competitiveness. Such pricing pressures can
materially adversely affect the Companys revenues and profit margins, as well
as its ability to obtain contracts, with a resulting adverse effect on the
Companys business and results of operations.

Our Business May be Adversely Affected if We Do Not Correctly Estimate Sales
and Trends in the Market

We use a pipeline system, a common industry practice, to forecast sales
and trends in our business. Our management monitors the status of all
proposals. This process requires that we estimate the likelihood that we will
be awarded a contract, the date of such award, and the revenues that may be
expected to accrue to us during the term of the contract and any extensions of
the term. Our management aggregates these estimates periodically in order to
generate a sales pipeline. We compare the pipeline at various points to
identify business trends. While this pipeline analysis may provide some
guidance in business planning and budgeting, these estimates are necessarily
speculative and may not correlate to revenues in a particular quarter or over a
longer period of time. If our estimates are incorrect, it could cause the
Company to plan or budget improperly, thereby materially adversely affecting
its business or results of operations. In addition, there may be delays in the
placing of orders by customers for our services, as customers evaluate our
offers and obtain necessary approvals. During this long sales cycle, events may
occur that could affect the size or timing of any order, or even cause it to be
canceled. Even after an order is placed, the time it takes to deploy our
offerings or perform our services may vary widely from one customer to another.
There may also be delays in obtaining payment for our services. Our results
could be adversely affected if any of these events were to occur.

The Success of Our Business Will Depend Upon Our Ability to Develop New
Solutions and Services

We must continually identify solutions and services, which we can resell
to our customers. We market our solutions and services, either independently or
in conjunction with the solutions or services of others, in order to meet the
current and future needs of our customers. If we fail to do this, we may lose
market share and our future revenues and earnings may suffer. We must
accurately forecast our customers changing needs and buying patterns and
constraints, and must anticipate technological trends. We may therefore make
substantial long-term investments and commit significant resources before
knowing whether our predictions will eventually result in solutions and
services that the market will accept. In addition, hardware and software
products such as those we resell, install, and service, may contain errors.
Although we endeavor to detect and remediate such errors, and may in some cases
have recourse against the manufacturers or vendors of such products, we may not
be able to fix all such errors, or to do so on a timely basis, and this could
result in lost revenues, delays in customer acceptance and payment, and harm to
our business reputation, all of which could be detrimental to our business.

We May Not Be Able to Successfully Integrate Acquired Companies Into Our
Operations, Which Could Slow or Adversely Affect Our Growth

We have historically achieved growth through a combination of
acquisitions, pursuit of contract opportunities, and development of new lines
of business. Our growth strategy depends on our ability to continue these
efforts. In particular, the success of each acquisition will depend on our
ability to retain key personnel of the acquired business; integrate the
operations, personnel, and capabilities of the acquired business; expand our
financial and management controls, and reporting systems and procedures; and to
sell the services of the acquired business. Each acquisition presents unique
service, marketing, research and development, facilities, information systems,
accounting, and personnel challenges. Our integration efforts may not be
successful in every acquisition, and may result in unanticipated operational
challenges, expenses and liabilities, and the diversion of management
resources. Failure to overcome these risks or any other problems encountered in
connection with acquisition transactions could slow our growth or lower the
quality of our services, which could reduce customer demand and adversely
affect our business.

We may also experience disruption in the sales and marketing of services
in connection with an acquisition, and may be unable to correct such disruption
or achieve our marketing objectives if we fail in these efforts. Our sales
personnel may not be accustomed to the business cycles or approaches required
for the acquired product or service lines newly added to their portfolio, and
may therefore experience delays and difficulties in selling these new lines. As
a result, we may fail to take full advantage of the combined efforts of our
sales force, and the Companys sales approach may be ineffective in promoting
another entitys lines, all of which may materially harm our business,
financial condition, or operating results. As we target new lines and markets,
we may further increase our sales and marketing, customer support, and
administrative functions to support anticipated increased levels of operations
from these lines, as well as growth in our existing lines. We may not be
successful in creating this infrastructure, and we may not

9



---



##### Table of Contents



realize any increase
in our level of sales or operations to offset additional expenses. Our
operations may not achieve levels sufficient to justify the increased expenses
associated with these new lines.

With each acquisition we have completed in the past, we have expended
considerable resources and have incurred substantial costs. We expect this will
continue with future acquisitions. We may incur material charges to reflect
additional costs associated with such acquisitions, which will be expensed, if
appropriate, as they are incurred. In addition, consideration paid for future
acquisitions, if any, could be in the form of cash, stock, rights to purchase
stock, or a combination of the foregoing. Dilution to existing shareholders and
to earnings per share may result in connection with any such future
acquisition.

Failure to Raise Necessary Capital Could Restrict Our Competitive Ability and
Development

We may be required to seek additional equity or debt financing to compete
effectively in our markets. We cannot precisely determine the timing or amount
of such capital requirements, which will depend on several factors, including
acquisitions, the demand for our services, and the timing of our collection of
outstanding customer invoices. Such additional financing may not be available
when needed, or if available, may not be on terms satisfactory to us. Failure
to generate or raise sufficient funds may require us to delay or abandon some
of our expenditures or expansion plans, which could harm our business and
competitive position. In addition, to the extent that capital is raised through
the sale of additional equity or convertible debt securities, the issuance of
such equity or securities could result in dilution to our shareholders.

The Rates We Are Charged Under Our Credit Facilities Are Subject to Market
Risks

Currently, we rely on a series of credit facilities, with two primary
lenders, for the financing of our operations. These facilities consist of a
line of credit and a term note. Our credit facilities require that we comply
with a number of financial covenants. If we are in violation of any of these
covenants, we may not have the ability to borrow amounts under these
facilities, unless such noncompliance is waived. Our exposure to market risks
for changes in interest rates relates primarily to the rates charged for
borrowings under our credit facilities. At our option, these rates
are calculated based on bank prime rate, or the
London Interbank Offered Rate (LIBOR) base rate plus a percentage ranging
from 2.25 to 3.25%, depending on our leverage ratio. As a result, a sudden rise
in such rates could have a materially adverse effect on our financial results
and cash flows. Our excess cash is deposited into accounts with our primary
lender and is immediately applied to reduce borrowings.

The Loss of Key Personnel Could Weaken Our Technical and Operational Expertise
and Significantly Harm Our Business

Our future success depends, in part, on our ability to attract and retain
key personnel. Competition for highly skilled employees, especially those with
certain programming skills and security clearances, is extremely intense, due
to low overall unemployment rates and significant spending in the information
technology area. Accordingly, we are experiencing difficulty in identifying and
hiring persons to fill certain positions. We may not be able to hire and retain
such personnel at compensation levels consistent with our existing compensation
and salary structure. We may be compelled to increase compensation to levels
that may not be offset through either improved productivity or higher prices on
our products and services. Our future also depends on the continued
contributions of our executive officers and key management and technical
personnel, each of whom would be difficult to replace. We do not maintain key
person life insurance policies on our chief executive officer or any other
officer. There can be no assurances that we will be successful in continuously
recruiting new personnel and management, or in retaining existing personnel.
The loss of services of one or more of our executive officers or key personnel,
or the inability to continue to attract qualified personnel, could harm our
business, financial condition, and operating results.

The Failure of Our Information Technology Infrastructures Could Adversely
Affect Our Business

Our success depends, among other things, on the capacity, reliability, and
security of our information technology hardware and software infrastructures,
including connections to the Internet and World Wide Web, and our
telecommunications and utility infrastructures. Any failure relating to these
infrastructures, whether through power failures, system defects or
malfunctions, vandalism or computer viruses, or other causes, could
significantly and adversely affect the results of our operations. Our insurance
may not adequately protect us against such losses or interruptions, and we may
be compelled to make capital expenditures or incur costs to remedy such damage
or interruptions. In connection with our growth, we have identified the need to
update our information technology infrastructures and expect to incur
significant costs relating to these upgrades. We must continue to expand and
adapt our systems to keep pace with our growth. Demands that exceed our current
forecasts could result in technical difficulties. Upgrading our network
infrastructures will require substantial financial, operational, and management
resources, the expenditure of which could

10



---



##### Table of Contents



affect the results of our operations.
We may not successfully and timely upgrade and maintain our information
technology infrastructures, and a failure to do so could materially harm our
business, results of operations, and financial condition.

The Success of Our Business Depends upon Our Ability to Protect Our
Intellectual Property Rights

Although we attempt to protect our intellectual property rights through
patents, copyrights, trademarks, trade secrets, nondisclosure agreements, and
other measures, we may not be able to protect our intellectual property
adequately. Additionally, applications for registration of rights that we may
file may not be issued, and foreign intellectual property laws may not
adequately protect our intellectual property rights. There is also a risk that
intellectual property rights we own, or which are issued or licensed by or to
us, will be challenged, invalidated, or circumvented, and that the rights
granted thereunder will not provide us with any competitive advantages. In
addition, our competitors may develop similar systems independently, duplicate
our technology, or design around our intellectual property rights.

Furthermore, we may become subject to infringement claims, infringement
claims by third parties, or claims for indemnification resulting from such
infringement claims. If such claims are successful, our business may be
adversely affected. In the future, it is possible that litigation may be
necessary to enforce intellectual property rights, or to defend against claimed
infringement of the rights of others, and to determine the scope and validity
of the proprietary rights of others. Existing and future litigation could
result in substantial costs and the diversion of our efforts, which by itself
could have an adverse effect on our financial condition and operating results.
Further, adverse determinations in such litigation could result in our loss of
proprietary rights, subject us to significant liabilities to third parties or
to injunctions barring our sale of certain offerings or services, or require us
to seek costly licenses from third parties. Any of these events could have an adverse
effect on our business. In addition, licenses from third parties may not be
available on reasonable terms, if at all.

The Market Price for Shares of Our Common Stock Is Subject to Substantial
Fluctuation

We have experienced substantial fluctuations in the price of our common
stock. The market price may continue to fluctuate in response to various
factors including:



| |  |  | The timing and receipt of orders from certain major customers                                                                                                                                                
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The loss of one or more customers or the termination or expiration of a large contract or program                                                                                                            
|
| |  |  | Competitive pricing pressures                                                                                                                                                                                
|
| |  |  | The costs associated with the acquisition or disposition of a business                                                                                                                                       
|
| |  |  | Expenses associated with litigation                                                                                                                                                                          
|
| |  |  | Government regulatory actions                                                                                                                                                                                
|
| |  |  | Quarterly variations in the Companys or its competitors results of operations                                                                                                                              
|
| |  |  | The need, from time to time, to undertake reorganizations of
our operations, or the need to incur substantial charges or other
expenses, which may cause fluctuations in our operating results and
cash flows

In addition, the stock market has from time to time experienced significant
price and volume fluctuations that are unrelated to the operating performance
of particular companies, which may cause the price of our stock to decline.

The Issuance of Preferred Stock May Adversely Affect the Rights of Holders of
Our Common Stock

Our Board of Directors has the authority to issue up to 1,000,000 shares
of preferred stock and to determine the powers, preferences, and rights of such
shares, without the consent of the shareholders. The preferred stock could be
issued with voting, liquidation, dividend and other rights superior to those of
the holders of common stock. The issuance of preferred stock could, under some
circumstances, have the effect of delaying, deferring, or preventing a change
in control of the Company.

In addition, each share of our outstanding common stock includes one stock
purchase right. Each right entitles the registered holder, subject to the terms
of a rights agreement, to purchase from us one unit, equal to one
one-thousandth of a share of series A preferred stock, at a purchase price of
$65 per unit, subject to adjustment, for each share of common stock held by the
holder. The rights are attached to all certificates representing outstanding
shares of our common stock, and no separate rights certificates have been
distributed. The description and terms of the rights are set forth in a rights
agreement between us and First Union National Bank, as rights agent, dated as
of September 16, 1998, as amended from time to time.

11



---



##### Table of Contents



Some provisions contained in the rights agreement may have the effect of
discouraging a third party from making an acquisition proposal for us and may
thereby inhibit a change in control. For example, such provisions may deter
tender offers for shares of common stock or exchangeable shares, which offers
may be attractive to the shareholders, or may deter purchases of large blocks
of common stock or exchangeable shares, thereby limiting the opportunity for
shareholders to receive a premium for their shares of common stock or
exchangeable shares over the then-prevailing market prices.

The Occurrence of Natural Disasters May Harm Our Business

Some of our facilities are located near major earthquake faults or areas
prone to hurricanes. These and other natural disasters may disrupt our
operations or those of our suppliers. In the event of a natural disaster, our
business, financial condition, or operating results could be adversely
affected.

12



---



##### Table of Contents



Item 2. Properties

BTG leases all of the offices and facilities used in connection with our
operations, which comprise approximately 355,000 square feet at various sites
located in 11 states. The following table sets forth information relating to
the significant offices and facilities currently leased by the Company:

|                         |  |                |         |                        |  |  |                              | 
|------------------------ |  | -------------- | ------- | ---------------------- |  |  | ---------------------------- | 
|                         |  | Approximate   
|Location                 |  | Square Footage |         | Expiration of Lease(s)
|                         |  |                |         |                       
|Fairfax, Virginia (HQ)   |  |                | 210,000 |                        |  |  | June 2012                    | 
|                        
|                        
|                        
|                        
|Tinton Falls, New Jersey |  |                | 27,000  | (1)                    |  |  | January 2007 and August 2008 | 
|                        
|                        
|                        
|                        
|Niceville, Florida       |  |                | 18,000  | (2)                    |  |  | February 2003 and July 2003  | 
|                        
|                        
|                        
|                        
|Orlando, Florida         |  |                | 15,000  | (1)                    |  |  | June 2003 and January 2004   | 
|                        
|                        
|                        
|                        
|Oklahoma City, Oklahoma  |  |                | 13,000  |                        |  |  | December 2002                | 
|                        
|                        
|                        
|                        
|Leavenworth, Kansas      |  |                | 12,000  |                        |  |  | March 2003                   | 



---

|(1) |  | This property is held under two leases. 
|--- |  | ----------------------------------------
|   
|   
|   
|   
|(2) |  | This property is held under four leases.

Item 3. Legal Proceedings

We occasionally become a defendant in litigation incidental to our
business. We believe that none of such litigation currently pending against us,
individually or in the aggregate, will have a material adverse effect on our
financial condition or results of operations.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of BTG shareholders during the fourth
quarter of the fiscal year ended March 31, 2001.

PART II

Item 5. Market for Registrants Common Stock and Related Stockholder Matters

Our common stock is publicly traded on the Nasdaq Stock Markets National
Market under the symbol BTGI. The stock has been publicly traded since
December 1994. The high and low sale closing prices per share of common stock
for each quarter of fiscal 2001 and 2000 are as follows:

|              |  |  |  |  |  |      |       |     |  |   |       |      |  |      |  |     |  |   |        |  |  |   |       | 
|------------- |  |  |  |  |  | ---- | ----- | --- |  | - | ----- | ---- |  | ---- |  | --- |  | - | ------ |  |  | - | ----- | 
|Quarter Ended |  |  |  |  |  | 2001 |       |     |  |   |       | 2000
|              |  |  |  |  |  |      |       |     |  |   |       |     
|              |  |  |  |  |  | High |       | Low |  |   |       |      |  | High |  | Low
|              |  |  |  |  |  |      |       |     |  |   |       |      |  |      |  |    
|March 31      |  |  |  |  |  | $    | 6.750 |     |  | $ | 5.313 |      |  |      |  |     |  | $ | 11.000 |  |  | $ | 7.875 | 
|             
|             
|             
|             
|December 31   |  |  |  |  |  |      | 8.500 |     |  |   | 5.125 |      |  |      |  |     |  |   | 8.125  |  |  |   | 6.000 | 
|             
|             
|             
|             
|September 30  |  |  |  |  |  |      | 9.000 |     |  |   | 7.750 |      |  |      |  |     |  |   | 8.813  |  |  |   | 6.250 | 
|             
|             
|             
|             
|June 30       |  |  |  |  |  |      | 9.688 |     |  |   | 7.000 |      |  |      |  |     |  |   | 7.438  |  |  |   | 5.125 | 

BTG has never paid cash dividends and is currently prohibited from doing
so under its line of credit facility. It is the present policy of the Company
to retain earnings to finance the growth and development of its business and,
therefore, we do not anticipate paying cash dividends on our common stock in
the foreseeable future.

BTG has authorized 20,000,000 shares of common
stock and 1,000,000 shares of preferred stock. At March 31, 2001, 8,897,045 shares
of common stock were outstanding. No preferred shares have been issued. BTG had approximately
269 shareholders of record on March 31, 2001.

Recent Sales of Unregistered Securities

On December 1, 2000, we sold
an aggregate of 778 shares of common stock to a senior vice president
of the Company for an aggregate cash purchase price of $4,909.18. The
issuance of the securities was made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act and
Regulation D promulgated thereunder. The recipient of the securities
represented his intention to acquire the securities for investment
only and not with a view to or for distribution. The senior vice
president had adequate access to information about us through his
relationship with us.

13



---



##### Table of Contents



Item 6. Selected Financial Data

The following information should be read in conjunction with Managements
Discussion and Analysis of Financial Condition and Results of Operations,
Business and our consolidated financial statements and related notes,
included elsewhere in this report. We derived the selected historical
consolidated financial data presented below from our audited consolidated
financial statements.

|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|---------------------------------------------------------------------------------------- | --------------------- | - | ------------------------------------- | ------- | ---- | - | ------- | ------- | ---- | - | ------- | ------- |  | - | ------- | ------- |  | - | ------- | ------- | 
|                                                                                         |                       |   | Fiscal Years Ended March 31,         
|                                                                                         |                       |   |                                      
|                                                                                         |                       |   | 2001                                  |         | 2000 |   | 1999    |         | 1998 |   | 1997   
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |        
|                                                                                         |                       |   | (In thousands, except per share data)
|Statement of Operations Data:                                                           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Revenues:                                                                               
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Contract revenue      |   | $                                     | 217,565 |      |   | $       | 204,229 |      |   | $       | 173,574 |  |   | $       | 134,355 |  |   | $       | 88,231  | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Product sales         |   |                                       | 7,278   |      |   |         | 44,766  |      |   |         | 142,861 |  |   |         | 452,382 |  |   |         | 310,170 | 
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|                                                                                         |                       |   | 224,843                               |         |      |   | 248,995 |         |      |   | 316,435 |         |  |   | 586,737 |         |  |   | 398,401 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Direct costs:                                                                           
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Contract costs        |   |                                       | 142,979 |      |   |         | 134,033 |      |   |         | 113,346 |  |   |         | 83,569  |  |   |         | 63,500  | 
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Cost of product sales |   |                                       | 6,787   |      |   |         | 42,823  |      |   |         | 137,985 |  |   |         | 420,974 |  |   |         | 256,678 | 
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|                                                                                         |                       |   | 149,766                               |         |      |   | 176,856 |         |      |   | 251,331 |         |  |   | 504,543 |         |  |   | 320,178 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Indirect, general and administrative
expenses                                            |                       |   | 63,563                                |         |      |   | 59,915  |         |      |   | 55,242  |         |  |   | 87,351  |         |  |   | 61,861  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Depreciation and amortization expense                                                    |                       |   | 3,001                                 |         |      |   | 2,204   |         |      |   | 1,965   |         |  |   | 3,648   |         |  |   | 3,009   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Restructuring charge                                                                     |                       |   |                                      |         |      |   |        |         |      |   | 1,796   |         |  |   | 38,474  |         |  |   |        |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|                                                                                         |                       |   | 216,330                               |         |      |   | 238,975 |         |      |   | 310,334 |         |  |   | 634,016 |         |  |   | 385,048 |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Operating income (loss)                                                                  |                       |   | 8,513                                 |         |      |   | 10,020  |         |      |   | 6,101   |         |  |   | (47,279 | )       |  |   | 13,353  |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Interest expense, net                                                                    |                       |   | (3,131                                | )       |      |   | (1,917  | )       |      |   | (3,949  | )       |  |   | (8,448  | )       |  |   | (6,107  | )      
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Unusual charge                                                                           |                       |   |                                      |         |      |   |        |         |      |   | (1,201  | )       |  |   |        |         |  |   |        |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Equity in earnings of affiliate                                                          |                       |   |                                      |         |      |   |        |         |      |   | 24      |         |  |   | 589     |         |  |   | 1,887   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Gain (loss) on sales of investments, net                                                 |                       |   | (955                                  | )       |      |   |        |         |      |   | 3,532   |         |  |   | 20,228  |         |  |   | 63      |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Other                                                                                    |                       |   |                                      |         |      |   |        |         |      |   | (179    | )       |  |   | (2,466  | )       |  |   |        |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Income (loss) from continuing operations
before income     taxes and extraordinary
items |                       |   | 4,427                                 |         |      |   | 8,103   |         |      |   | 4,328   |         |  |   | (37,376 | )       |  |   | 9,196   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Provision (benefit) for income taxes                                                     |                       |   | 1,750                                 |         |      |   | 3,548   |         |      |   | 1,567   |         |  |   | (8,295  | )       |  |   | 4,150   |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Income (loss) from continuing
operations                                                 |                       |   | 2,677                                 |         |      |   | 4,555   |         |      |   | 2,761   |         |  |   | (29,081 | )       |  |   | 5,046   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Loss from discontinued operations, net of
income tax     benefit                         |                       |   |                                      |         |      |   | (116    | )       |      |   | (765    | )       |  |   | (4,264  | )       |  |   | (775    | )      
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Net income (loss) before extraordinary
items                                             |                       |   | 2,677                                 |         |      |   | 4,439   |         |      |   | 1,996   |         |  |   | (33,345 | )       |  |   | 4,271   |        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Extraordinary loss from early
extinguishment of debt, net     of income
tax benefit      |                       |   |                                      |         |      |   |        |         |      |   |        |         |  |   | (1,878  | )       |  |   |        |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Net income (loss)                                                                        |                       | $ | 2,677                                 |         |      | $ | 4,439   |         |      | $ | 1,996   |         |  | $ | (35,223 | )       |  | $ | 4,271   |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Basic earnings (loss) per share                                                          |                       | $ | 0.30                                  |         |      | $ | 0.50    |         |      | $ | 0.23    |         |  | $ | (4.12   | )       |  | $ | 0.62    |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Diluted earnings (loss) per share                                                        |                       | $ | 0.30                                  |         |      | $ | 0.49    |         |      | $ | 0.23    |         |  | $ | (4.12   | )       |  | $ | 0.60    |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Weighted average shares used for basic
EPS                                               |                       |   | 8,955                                 |         |      |   | 8,853   |         |      |   | 8,774   |         |  |   | 8,540   |         |  |   | 6,887   |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 
|Weighted average shares used for diluted
EPS                                             |                       |   | 9,029                                 |         |      |   | 9,035   |         |      |   | 8,827   |         |  |   | 8,540   |         |  |   | 7,141   |        
|                                                                                         |                       |   |                                       |         |      |   |         |         |      |   |         |         |  |   |         |         |  |   |         |         | 

|                     |  |                 |        |      |  |      |         |      |  |      |        |  |  |   |         |  |  |   |         | 
|-------------------- |  | --------------- | ------ | ---- |  | ---- | ------- | ---- |  | ---- | ------ |  |  | - | ------- |  |  | - | ------- | 
|                     |  | As of March 31,
|                     |  |                
|                     |  | 2001            |        | 2000 |  | 1999 |         | 1998 |  | 1997
|                     |  |                 |        |      |  |      |         |      |  |     
|                     |  | (In thousands) 
|Balance Sheet Data: 
|                    
|                    
|                    
|                    
|Receivables, net     |  | $               | 58,503 |      |  | $    | 69,352  |      |  | $    | 53,281 |  |  | $ | 135,050 |  |  | $ | 99,017  | 
|                    
|                    
|                    
|                    
|Inventory, net       |  |                 |       |      |  |      | 507     |      |  |      | 378    |  |  |   | 2,214   |  |  |   | 16,716  | 
|                    
|                    
|                    
|                    
|Working capital      |  |                 | 31,808 |      |  |      | 37,561  |      |  |      | 26,895 |  |  |   | 43,812  |  |  |   | 83,551  | 
|                    
|                    
|                    
|                    
|Total assets         |  |                 | 96,700 |      |  |      | 107,382 |      |  |      | 90,377 |  |  |   | 212,439 |  |  |   | 156,080 | 
|                    
|                    
|                    
|                    
|Line of credit       |  |                 | 23,913 |      |  |      | 30,466  |      |  |      | 17,666 |  |  |   | 70,252  |  |  |   | 30,021  | 
|                    
|                    
|                    
|                    
|Shareholders equity |  |                 | 42,098 |      |  |      | 40,213  |      |  |      | 36,011 |  |  |   | 33,060  |  |  |   | 66,245  | 

14



---



##### Table of Contents



Item 7.Managements Discussion And Analysis Of Financial Condition And Results
Of Operations

You should read the following discussion together with our consolidated
financial statements and the related notes to those financial statements that
are included in Part II, Item 8 of this Form 10-K. Except for the historical
information contained herein, the following discussion contains forward-looking
statements that involve risks and uncertainties. Our future results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include risks detailed in Part I, Item 1 under
the caption Risk Factors and elsewhere in this Annual Report on Form 10-K.

NATURE OF OUR BUSINESS

BTG is an information systems and technical services company. For nearly
two decades, we have developed and provided solutions to the complex systems
needs of the Government, as well as to other commercial and state and local
government customers. Our current services and solutions are focused
on four principal areas
of competency: (i) analysis and consulting; (ii) solutions development;
(iii) systems integration; and (iv) operations and support.

Since our founding, we have provided highly sophisticated software-based
solutions to our customers, especially to those in the Government defense
intelligence community. More recently, we have seen that the skills we have
developed in working with Government agencies are increasingly useful for
commercial and state and local government customers and, in this regard, we
have seen that a larger percentage of our revenues has been derived from this
customer set. Our proven business processes have become the foundation of
expert practice areas in Information Management, Geographic Information
Systems, Technology in Schools, Emergency Management, Airborne Systems, Data
Warehousing, Modeling and Simulation, Enterprise Support, Client Care Services,
Information and Network Security, and Network Design and Architecture.

We have an experienced
management team and 1,386 employees
at March 31, 2001, with approximately 2,200 technical and professional degrees
and certifications. Due to the classified nature of much of the work that we do in
the Government defense and intelligence markets, the majority of our employees
have received Secret or Top Secret security clearances from the Government.
Our customers include the four U.S. armed forces, many of the U.S. intelligence
and civilian agencies, a variety of commercial entities including Verizon,
Federal Express, and NCR, and a number of state and local governments in
Colorado, Florida, North Carolina and Virginia. We are headquartered in
Fairfax, Virginia and have employees in over 93 locations worldwide.

15



---



##### Table of Contents



RESULTS OF OPERATIONS

The following table sets forth for the periods indicated (i) the
percentage of revenues represented by major items of income and expense
included in the Consolidated Statements of Operations and (ii) the percentage
period-to-period change in such items.

|                                                      |                                                 |  |                            |       |                     |  |      |       |               |  |               |       |   |  |        |       |    |  |        |       |   
|----------------------------------------------------- | ----------------------------------------------- |  | -------------------------- | ----- | ------------------- |  | ---- | ----- | ------------- |  | ------------- | ----- | - |  | ------ | ----- | -- |  | ------ | ----- | --
|                                                      |                                                 |  | Percentage of Revenue      |       | Period-to-Period   
|                                                      |                                                 |  | Fiscal Year Ended March 31 |       | Increase/(Decrease)
|                                                      |                                                 |  |                            |       |                    
|                                                      |                                                 |  | 2001                       |       | 2000                |  | 1999 |       | 2001 vs. 2000 |  | 2000 vs. 1999
|                                                      |                                                 |  |                            |       |                     |  |      |       |               |  |              
|Revenues:                                            
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contract revenue                                |  |                            | 96.8  | %                   |  |      | 82.0  | %             |  |               | 54.9  | % |  |        | 6.5   | %  |  |        | 17.7  | % 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Product sales                                   |  |                            | 3.2   | %                   |  |      | 18.0  | %             |  |               | 45.1  | % |  |        | (83.7 | )% |  |        | (68.7 | )%
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Total revenues                                  |  |                            | 100.0 | %                   |  |      | 100.0 | %             |  |               | 100.0 | % |  |        | (9.7  | )% |  |        | (21.3 | )%
|                                                     
|                                                     
|                                                     
|                                                     
|Direct Costs:                                        
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Contract costs (as a % of contract revenue)     |  |                            | 65.7  | %                   |  |      | 65.6  | %             |  |               | 65.3  | % |  |        | 6.7   | %  |  |        | 18.3  | % 
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Cost of product sales (as a % of product sales) |  |                            | 93.3  | %                   |  |      | 95.7  | %             |  |               | 96.6  | % |  |        | (84.2 | )% |  |        | (69.0 | )%
|                                                     
|                                                     
|                                                     
|                                                     
|                                                      | Total direct costs (as a % of total revenues)   |  |                            | 66.6  | %                   |  |      | 71.0  | %             |  |               | 79.4  | % |  |        | (15.3 | )% |  |        | (29.6 | )%
|                                                     
|                                                     
|                                                     
|                                                     
|Indirect, general and administrative expenses         |                                                 |  | 28.3                       | %     |                     |  | 24.1 | %     |               |  | 17.5          | %     |   |  | 6.1    | %     |    |  | 8.5    | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Depreciation and amortization expense                 |                                                 |  | 1.3                        | %     |                     |  | 0.9  | %     |               |  | 0.6           | %     |   |  | 36.2   | %     |    |  | 12.2   | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Restructuring charge                                  |                                                 |  |                           |       |                     |  |     |       |               |  | 0.6           | %     |   |  |       |       |    |  | (100.0 | )%   
|                                                     
|                                                     
|                                                     
|                                                     
|Operating income                                      |                                                 |  | 3.8                        | %     |                     |  | 4.1  | %     |               |  | 1.9           | %     |   |  | (15.0  | )%    |    |  | 64.2   | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Interest expense, net                                 |                                                 |  | (1.4                       | )%    |                     |  | (0.8 | )%    |               |  | (1.2          | )%    |   |  | 63.3   | %     |    |  | (51.5  | )%   
|                                                     
|                                                     
|                                                     
|                                                     
|Unusual charge                                        |                                                 |  |                           |       |                     |  |     |       |               |  | (0.4          | )%    |   |  |       |       |    |  | 100.0  | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Gain (loss) on sales of investments, net              |                                                 |  | (0.4                       | )%    |                     |  |     |       |               |  | 1.1           | %     |   |  | (B     | )     |    |  | 100.0  | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Other                                                 |                                                 |  |                           |       |                     |  |     |       |               |  | (0.1          | )%    |   |  |       |       |    |  | 100.0  | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Income from continuing operations before
income taxes |                                                 |  | 2.0                        | %     |                     |  | 3.3  | %     |               |  | 1.4           | %     |   |  | (45.4  | )%    |    |  | 87.2   | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Provision for income taxes                            |                                                 |  | 0.8                        | %     |                     |  | 1.4  | %     |               |  | 0.5           | %     |   |  | (50.7  | )%    |    |  | 126.4  | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Income from continuing operations                     |                                                 |  | 1.2                        | %     |                     |  | 1.8  | %     |               |  | 0.9           | %     |   |  | (41.2  | )%    |    |  | 65.0   | %    
|                                                     
|                                                     
|                                                     
|                                                     
|Loss from discontinued operations                     |                                                 |  |                           |       |                     |  | (A   | )     |               |  | (0.2          | )%    |   |  | (100.0 | )%    |    |  | (84.8  | )%   
|                                                     
|                                                     
|                                                     
|                                                     
|Net income                                            |                                                 |  | 1.2                        | %     |                     |  | 1.8  | %     |               |  | 0.6           | %     |   |  | (39.7  | )%    |    |  | 122.4  | %    



|(A) |  | Amount is less than 0.1%.                               
|--- |  | --------------------------------------------------------
|(B) |  | There was no expense for this item in a comparison year.

Revenues

Historically, we have earned our revenues from both contract activities
and product sales. Contract revenue, earned from our services and solutions
business, is typically less seasonal than product sales but fluctuates from
month to month based on contract delivery schedules. Contract revenue is
typically 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 (i) increases in
volume, driven by additional work requirements under existing contracts, (ii)
new contract awards, and (iii) focused acquisitions. Our operating performance
is affected by both the number and type of contracts held, the timing of the
installation or delivery of the Companys services and products, and the
relative margins of the services performed or products sold. In general, the
Company recognizes its highest margins on its most specialized systems
engineering and software development projects and lower margins on sales of
commercial off-the-shelf products.

16



---



##### Table of Contents



In 1997, we identified what we believed to be a dramatic change in the
federal product reselling market. The Governments product purchasing strategy
shifted its focus to contract vehicles such as General Services Administration
Schedules, which heavily weigh lowest price as opposed to best value. As
profit margins in the product reselling business began to shrink during fiscal
1998, we realized that only the largest product resellers could generate the
volume of sales required to compensate for the decreasing product margins.
Accordingly, on February 12, 1998, we entered into an asset purchase agreement
with GTSI Corp. (GTSI), a large reseller of computer products in the
Government market. Under this agreement, we sold to GTSI (i) certain assets,
principally inventory and property and equipment and (ii) certain reselling
contracts and related outstanding customer orders associated with our computer
hardware and software reselling operating division (the GTSI Transaction).
Additionally, during fiscal 2000, we terminated our last two product reselling
contracts and, as a result, we expect no significant product revenues in future
periods. It is currently planned that future product revenues will only be
derived from sales that are incidental to our services contracts.

Total revenue for both fiscal 2001 and 2000 decreased from their
respective prior fiscal years. In fiscal 2001, our revenues decreased by $24.2
million, or 9.7%, from fiscal 2000 and our revenues for fiscal 2000 decreased
by $67.4 million, or 21.3%, from fiscal 1999. These decreases were
principally due to our strategic shift out of the high-volume, low-margin
product reselling business, which resulted in both the GTSI Transaction and the
subsequent termination of two remaining product reselling contracts.
Offsetting the reductions in our product sales were increased revenues in our
services and solutions business. Fiscal 2001 contract revenue increased $13.3
million, or 6.5%, from fiscal 2000, which increased $30.7 million, or 17.7%,
over fiscal 1999. The net increase from 2000 to 2001 is primarily due to
additional contract wins and extensions from contracts in our existing
operating units and from revenue recognized under contracts acquired in
connection with a business combination in April 2000. These increased business
activities were offset by certain contracts which were completed, most notably
our enterprise support services effort with the U.S. Department of Education
for which we were not awarded the follow-on work. Much of the revenue growth
experienced by our existing operating units came from state and local
government and commercial customers. In fiscal 2001, 21% of our total revenue
was derived from state and local government and commercial customers, whereas
in fiscal 2000, 17% of our revenues came from these customers.

Consistent with our strategic business plan of focusing on our core
services and solutions business, our product sales have decreased from fiscal
2000 to fiscal 2001 by $37.5 million, or 83.7%. There was a $98.1 million, or
68.7%, decrease in product sales from fiscal 1999 to fiscal 2000. Included in
our fiscal 1999 product sales revenue was $93.6 million generated as a result
of certain contracts that were awarded to BTGs former product reselling
business unit in a prior year, and subcontracted to GTSI as part of the GTSI
Transaction (the Royalty Contracts). Pursuant to an agreement entered into
as part of the GTSI Transaction, GTSI assumed substantially all of the future
performance requirements of the Royalty Contracts under a subcontractor
agreement and BTG received a fee of 1% or 2% on total product sales made under
such contracts. In the last quarter of fiscal 1999, we entered into a separate
agreement with GTSI and will receive no future revenue from such contracts.

Direct Costs

Our direct costs, expressed as a percentage of total revenues, decreased
to 66.6% in fiscal 2001, down from 71.0% in fiscal 2000 and 79.4% in fiscal
1999. This is indicative of the decreased proportion of our total revenues
derived from product sales, which typically have higher direct costs than do
revenues generated from services contracts.

Contract costs include the costs of labor, subcontractors, materials, and
other costs directly related to the generation of contract revenue. Contract
costs as a percentage of contract revenue were consistent in fiscal 2001, 2000,
and 1999 at 65.7%, 65.6% and 65.3%, respectively.

As a percentage of product sales, our cost of product sales in fiscal 2001
was 93.3%, 95.7% in fiscal 2000, and 96.6% in fiscal 1999. In fiscal 1999, the
lower gross margin was primarily due to the 1-2% contractual margin earned from
the Royalty Contracts. With no product sales from the Royalty Contracts in
fiscal 2000, we would have expected a higher gross profit margin on product
sales than that which was experienced. The lower-than-anticipated gross margin
in fiscal 2000 was principally due to a $1.0 million addition to our reserve
for anticipated warranty costs which is included in cost of product sales.
This warranty reserve is related to computer hardware products sold by BTGs
former product reselling division prior to the GTSI Transaction. Excluding
this additional warranty reserve, the gross margins experienced on our product
sales were consistent in fiscal 2001 and 2000.

Indirect, General and Administrative Expenses

We include the costs of indirect labor, fringe benefits, overhead, sales
and administration, bid and proposal, and research and development in our
indirect, general and administrative expenses. These costs for fiscal 2001
increased by $3.6 million or 6.1%.

17



---



##### Table of Contents



This was primarily due to indirect costs associated with supporting the
business acquired from our April 2000 business combination and from an increase
in the overall volume of contract revenues. In fiscal 2000, our indirect,
general and administrative costs increased by $4.7 million, or 8.5%, from
fiscal 1999. This was primarily due to indirect costs associated with
supporting the business acquired from our acquisition of STAC, Inc. and an
increase in contract revenues. Included in indirect, general and
administrative expenses in fiscal 2001 and 2000 was $677,000 and $492,000 in
employee severance pay. There was no such expense incurred in fiscal 1999.

Expressed as a percentage of total revenues, indirect, general and
administrative expenses increased in both fiscal 2001 and 2000 to 28.3% and
24.1%, respectively, up from 17.5% in fiscal 1999. This increase is
principally reflective of the decreased proportion of total revenues derived
from product sales, which typically have lower indirect, general and
administrative expenses than do revenues generated from services contracts. As
a percentage of contract revenue, these costs decreased to 29.2% in fiscal
2001, down from 29.3%, and 31.8% in fiscal 2000 and 1999, respectively.

Depreciation and Amortization Expense

Depreciation expense increased from fiscal 2000 to fiscal 2001 by
$347,000, or 22.9%. This was primarily due to the depreciation of assets
acquired from the business combination in April 2000. The $240,000, or 18.9%,
increase from fiscal 1999 to fiscal 2000 was primarily due to our new financial
system, acquired in fiscal 2000, offset by the retirement of certain assets.

Amortization expense, which includes the amortization of goodwill and
other intangible assets, increased from fiscal 2000 to fiscal 2001 by $450,000,
or 64.8%. This was solely due to the goodwill associated with the business
combination consummated in April 2000.

Amortization expense remained relatively consistent from fiscal 1999 to
fiscal 2000. This was attributable to an increase of $278,000 in fiscal 2000
associated with the STAC acquisition, offset by certain intangible assets that
were fully amortized at the end of fiscal 1999 and, thus, we had no expense in
fiscal 2000.

Restructuring Charge

We recognized a restructuring charge of $1.8 million during fiscal 1999.
This resulted from an increase in the estimated restructuring costs accrued
during fiscal 1998 as a result of the divestiture of our former product
reselling division. Specifically, the fiscal 1999 charges related to an
additional write-off of certain assets of the product reselling division and
additional facility costs associated with terminating leases for unused space
previously occupied by the product reselling division. There were no
comparable charges in fiscal 2000 or 2001.

Interest Expense

The primary component of our interest expense has resulted from the
financing costs on borrowings under our revolving line of credit (the Credit
Facility). The Credit Facility has been used historically to fund both our
working capital needs and certain business combinations. In addition to the
interest paid on Credit Facility borrowings, we incurred financing costs in
fiscal 2001, 2000 and 1999 resulting from the issuance of promissory notes
entered into to finance certain acquisitions. Cash used to reduce outstanding
debt was primarily generated from the collection of outstanding receivables and
from proceeds made available from sales of investments. Interest expense for
fiscal 2001 increased by $1.2 million from fiscal 2000 due, in large part, to
the additional debt obtained to finance the business combination we consummated
in April 2000, offset by a higher level of collections of existing receivables.
The number of days sales outstanding in our receivables was reduced from 102
at March 31, 2000 to 95 at March 31, 2001. In addition to the higher monthly
average debt outstanding during fiscal 2001, as compared to 2000, interest
expense increased as a result of higher prevailing interest rates in the
general U.S. economy. The effective interest rate paid by BTG in fiscal 2001
was 9.65%, as compared to 8.38% in fiscal 2000. Interest expense in fiscal
2000 decreased $2.0 million, or 51.5%, from fiscal 1999. This was due to a
significant reduction in the average balance outstanding under the Credit
Facility and repayment of the promissory notes used to finance the STAC
acquisition.

Unusual Charges

We recognized an unusual charge of $1.2 million during fiscal 1999 as a
result of a series of agreements we entered into with GTSI during February 1999
to settle a number of issues which arose subsequent to the GTSI Transaction.
There were no comparable costs in fiscal 2000 or 2001.

18



---



##### Table of Contents



Gain (Loss) on Sales of Investments, Net

We recognized losses on sales of investments in fiscal 2001 of $955,000,
the majority of which resulted from a $905,000 loss on the sale of 1.3 million
shares of common stock we held in GTSI. This represented a liquidation of the
remainder of our equity holdings in GTSI, which were originally acquired as a
portion of the consideration received under the GTSI Transaction.

In fiscal 1999, the gain on sales of investments resulted primarily from
the liquidation of shares we held in Cisco Systems Inc., which we acquired as a
result of our ownership of the WheelGroup Corporation.

Income Tax Expense

Our effective tax rate was 39.5%, 43.8%, and 36.2% during fiscal 2001,
2000, and 1999, respectively. In fiscal 2001, the most significant difference
between the effective tax rate and the statutory tax rate was due to our
goodwill amortization expense, a portion of which is not deductible for income
tax purposes. The effective tax rate for fiscal 2000 was higher than the
statutory Federal income tax rate of 35.0% due principally to our effective
state income tax rate of 4.7% and to certain other costs incurred during fiscal
2000 which were not deductible for income tax purposes, the largest component
of which related to the amortization expense associated with acquired
companies. During fiscal 1999, we realized portions of the net operating
losses generated by our former product reselling division for which a valuation
allowance had been established in fiscal 1998. As a result, the effective
income tax rate for fiscal 1999 was lower than the 45.8% that would otherwise
have been calculated.

Discontinued Operations

We recorded losses of $116,000 in fiscal 2000 and $765,000 in fiscal 1999
from the discontinuance of the non-strategic operations of a retail computer
store. This operation was completely disposed of during the second quarter of
fiscal 2000. We did not recognize any losses associated with this operation
in fiscal 2001, and we anticipate no future losses associated with this
operation.

Inflation

Approximately 18.0% and 15.8% of the Companys contract revenue for fiscal
2001 and 2000, respectively, were under cost-reimbursement type contracts,
under which inflationary increases are borne by the customer. Although BTG
performs on several multi-year, fixed-price and time-and-materials contracts,
under which it bears the risk of inflationary pressures on its costs, to date
we have not been materially adversely affected by inflation. In addition, our
product sales generally have not been affected by inflation.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Working capital was $31.8 million and $37.6 million as of March 31, 2001
and 2000, respectively. The decrease in working capital was primarily
attributable to the increased collection in fiscal 2001 of our receivables, a
current asset, which were used in part to pay down our Credit Facility, a
long-term liability. The lower accounts receivable balance outstanding at
March 31, 2001, resulted in days sales outstanding on this date of 95 compared
to 102 at March 31, 2000. The higher metric at March 31, 2000 was in large
part the result of our implementation of an enterprise-wide financial
accounting system during the latter half of fiscal 2000. This implementation
slowed down our billings and collections process during our fiscal 2000 third
and fourth quarters.

During fiscal 2001, our operating activities provided cash of
approximately $19.1 million which was principally driven by our net income of
$2.7 million, noncash charges for depreciation and amortization of $3.0
million, and reductions in our outstanding receivables of $16.2 million and
prepaid expenses and other assets of $2.4 million. These decreases were offset
by reductions in our accounts payable and accrued expenses of $3.6 million and
$2.2 million, respectively.

In fiscal 2000, our operating activities used cash of approximately $3.1
million. Our use of cash in operations was principally driven by the increase
in our receivables of $16.5 million, offset by net income of $4.4 million,
noncash expenses for depreciation and amortization of $2.2 million and deferred
income taxes of $2.4 million, and increases in both accounts payable and
accrued expenses totaling $3.6 million.

19



---



##### Table of Contents



In fiscal 1999, our focus on the collection of outstanding receivables
from the divested product reselling division provided cash from operating
activities of approximately $41.8 million. This was primarily reflective of a
decrease in receivables of approximately $81.8 million as compared to March 31,
1998. The decrease in receivables was offset by a $56.9 million reduction in
accounts payable, primarily associated with vendor obligations remaining from
the product reselling division. In addition, $10.6 million was
provided from the collection of income taxes receivable, which resulted
from fiscal 1998 operating losses used to claim previously paid taxes.

Investing Activities

We had net cash outflows of $11.6 million during fiscal 2001 as a result
of our investing activities. We used approximately $14.3 million in the
purchase of substantially all of the assets of the enterprise network solutions
division of SSDS, Inc. and $2.0 million for a strategic investment in DOAR
Communications, Inc., which is a leading provider of advanced technology-based
systems and services for the judicial court, litigation, and alternative
dispute resolution markets. These new investments were offset by the proceeds
of $5.6 million from the sale of earlier investments.

In fiscal 2000, our net outflows from investing activities were $7.6
million which were principally attributable to $5.7 million in property and
equipment purchases, of which approximately $4.6 million related to our
implementation of an enterprise level financial accounting system, and $2.1
million for an escrow deposit made in connection with our acquisition of a
division of SSDS.

In fiscal 1999, our net inflows from investing activities were
approximately $23.6 million primarily reflective of the $30.3 million in
proceeds associated with the sale of an investment we held in Cisco stock, offset by $5.7 million used
to purchase STAC in January 1999.

Financing Activities

During fiscal 2001, our financing activities used a net cash amount of
$7.5 million. This amount is principally reflective of repayments on our line
of credit of $6.6 million and the $1.3 million of cash we used for the purchase
of 175,000 shares of our outstanding common stock. Although we obtained $8.0 million in debt in fiscal 2001 in
connection with a business combination, we completely repaid the notes during
the fiscal year.

In fiscal 2000, our financing activities provided a net amount of $10.7
million. This amount is principally reflective of $12.8 million in additional
advances under our Credit Facility, offset by cash used to repay $1.8 million
of other outstanding debt and cash used for the purchase of $1.0 million of
our outstanding common stock. In addition to the repayment of debt and the purchase of
treasury stock, the Credit Facility advances were used for purchases of
property and equipment, payments associated with business combinations and for
the general working capital needs of our operations.

In fiscal 1999, we used $53.2 million to reduce outstanding amounts under
the Credit Facility and $19.2 million to retire outstanding long-term debt
instruments.

Credit Facility

The Credit Facility is a secured revolving credit facility consisting of
two revolving promissory notes provided to BTG and its subsidiaries by Bank of
America and Fleet Capital Corporation in the principal amount of up to $50.0
million. Under the amended agreement, the principal amount outstanding under
the Credit Facility may not exceed the lesser of (i) $50.0 million or (ii) a
defined borrowing base, which is a variable amount calculated by aggregating a
specified set of our accounts receivable and unbilled costs. The interest on
revolving loan advances made under the Credit Facility is, at our option,
either (i) the Bank of America prime rate, or (ii) LIBOR plus a percentage
ranging from 2.25% to 3.25% depending on our leverage ratio.

The Credit Facility is secured by substantially all of our assets and
includes certain financial and other covenants that restrict, 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 BTG for any fiscal quarter,
and certain other matters without the approval of the lenders. At March 31,
2001, we were in compliance with all financial covenants as of that date.

At March 31, 2001, BTG had available borrowings under the Credit Facility
of $10.4 million. We believe that funds available under the Credit Facility
and provided by our operating activities will be sufficient to fund BTGs cash
requirements for the next 12 months.

20



---



##### Table of Contents



RECENT ACCOUNTING PRONOUNCEMENTS

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards, or SFAS, No. 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS No. 133 establishes methods of
accounting for derivative
financial instruments and hedging activities related to those instruments
as well as other hedging activities. Because we currently hold no derivative
instruments and do not engage in hedging activities, we expect that the
adoption of SFAS No. 133 will not have a material impact on our financial
position, results of operations or cash flows. We will be required to implement
SFAS No. 133 for the year ending March 31, 2002.

In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, Revenue Recognition in Financial Statements( SAB
101). SAB 101 summarizes certain areas of the Staffs views in applying
generally accepted accounting principles to revenue recognition in financial
statements. We believe that our current revenue recognition practices comply
with SAB 101.

In March 2000, the Financial Accounting Standards Board issued FASB
Interpretation No. 44, Accounting for Certain Transactions Involving Stock
Compensation, an Interpretation of APB Opinion No. 25. This interpretation is
generally effective for applicable transactions beginning July 1, 2000. The
adoption of this interpretation did not have a material impact on our
consolidated financial statements.

Item 7A. Quantitative and Qualitative
Disclosures about Market Risk

We do not believe that there are any disclosures required under this item
with respect to market risk-sensitive instruments. Our obligations under the
Credit Facility bear interest at rates indexed to current market rates.

21



---



##### Table of Contents



Item 8. Financial Statements and Supplementary Data

Consolidated Statements of Operations
Fiscal Years Ended March 31, 2001, 2000 and 1999
(in thousands, except per share data)

|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |         |  
|----------------------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------- | - | ------- | ------- | ---- | - | ------- | ------- | - | - | ------- | ------- | -
|                                                                                                |                                                                                                            |   | 2001    |         | 2000 |   | 1999   
|                                                                                                |                                                                                                            |   |         |         |      |   |        
|Revenues:                                                                                      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Contract revenue                                                                                           |   | $       | 217,565 |      |   | $       | 204,229 |   |   | $       | 173,574 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Product sales                                                                                              |   |         | 7,278   |      |   |         | 44,766  |   |   |         | 142,861 |  
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                |                                                                                                            | $ | 224,843 |         |      | $ | 248,995 |         |   | $ | 316,435 |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Direct costs:                                                                                  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Contract costs                                                                                             |   |         | 142,979 |      |   |         | 134,033 |   |   |         | 113,346 |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Cost of product sales                                                                                      |   |         | 6,787   |      |   |         | 42,823  |   |   |         | 137,985 |  
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                |                                                                                                            | $ | 149,766 |         |      | $ | 176,856 |         |   | $ | 251,331 |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Indirect, general and administrative expenses                                                   |                                                                                                            |   | 63,563  |         |      |   | 59,915  |         |   |   | 55,242  |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Depreciation and amortization expense                                                           |                                                                                                            |   | 3,001   |         |      |   | 2,204   |         |   |   | 1,965   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Restructuring charge                                                                            |                                                                                                            |   |        |         |      |   |        |         |   |   | 1,796   |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                |                                                                                                            | $ | 216,330 |         |      | $ | 238,975 |         |   | $ | 310,334 |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Operating income                                                                                |                                                                                                            | $ | 8,513   |         |      | $ | 10,020  |         |   | $ | 6,101   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Interest expense, net                                                                           |                                                                                                            |   | (3,131  | )       |      |   | (1,917  | )       |   |   | (3,949  | )      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Unusual charge                                                                                  |                                                                                                            |   |        |         |      |   |        |         |   |   | (1,201  | )      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Gain (loss) on sales of investments, net                                                        |                                                                                                            |   | (955    | )       |      |   |        |         |   |   | 3,532   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Other                                                                                           |                                                                                                            |   |        |         |      |   |        |         |   |   | (155    | )      
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Income from continuing operations before
income taxes                                           |                                                                                                            | $ | 4,427   |         |      | $ | 8,103   |         |   | $ | 4,328   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Provision for income taxes                                                                      |                                                                                                            |   | 1,750   |         |      |   | 3,548   |         |   |   | 1,567   |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Income from continuing operations                                                               |                                                                                                            | $ | 2,677   |         |      | $ | 4,555   |         |   | $ | 2,761   |        
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|Loss from discontinued operations:                                                             
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Loss from operations, net of income tax benefit of $33 and
    $160 for fiscal 2000 and 1999, respectively |   |         |        |      |   |         | (42     | ) |   |         | (251    | )
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Loss on disposal, net of income tax benefit of $56 and
    $124 for fiscal 2000 and 1999, respectively     |   |         |        |      |   |         | (74     | ) |   |         | (514    | )
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                |                                                                                                            |   |        |         |      |   | (116    | )       |   |   | (765    | )      
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Net income                                                                                      |                                                                                                            | $ | 2,677   |         |      | $ | 4,439   |         |   | $ | 1,996   |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Basic earnings per share:                                                                      
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income from continuing operations                                                                          |   | $       | 0.30    |      |   | $       | 0.51    |   |   | $       | 0.32    |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Loss from discontinued operations                                                                          |   |         |        |      |   |         | (0.01   | ) |   |         | (0.09   | )
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                | Net income                                                                                                 |   | $       | 0.30    |      |   | $       | 0.50    |   |   | $       | 0.23    |  
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Diluted earnings per share:                                                                    
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Income from continuing operations                                                                          |   | $       | 0.30    |      |   | $       | 0.50    |   |   | $       | 0.32    |  
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                               
|                                                                                                | Loss from discontinued operations                                                                          |   |         |        |      |   |         | (0.01   | ) |   |         | (0.09   | )
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|                                                                                                | Net income                                                                                                 |   | $       | 0.30    |      |   | $       | 0.49    |   |   | $       | 0.23    |  
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Weighted average shares outstanding (used in the
    calculation of basic earnings per share)   |                                                                                                            |   | 8,955   |         |      |   | 8,853   |         |   |   | 8,774   |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        
|Weighted average shares outstanding (used in the
    calculation of diluted earnings per share) |                                                                                                            |   | 9,029   |         |      |   | 9,035   |         |   |   | 8,827   |        
|                                                                                                |                                                                                                            |   |         |         |      |   |         |         |   |   |         |        

See accompanying notes to consolidated financial statements.

22



---



##### Table of Contents



Consolidated Balance Sheets
March 31, 2001 and 2000
(in thousands, except share data)

|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |         |   |        |  | 
|-------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------- | -------------------------- | ------------------------------------ | - | ------ | ------- | ------- | - | ------ |  | 
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   | 2001   |         | 2000   
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            |                            | ASSETS                              
|                                            
|                                            
|                                            
|                                            
|Current assets:                             
|                                            
|                                            
|                                            
|                                            
|                                             | Investments, at fair value                                                                                                                            |                                                                            | $                          | 53                                   |   |        | $       |        |  
|                                            
|                                            
|                                            
|                                            
|                                             | Receivables, net                                                                                                                                      |                                                                            |                            | 58,503                               |   |        |         | 69,352  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Inventory, net                                                                                                                                        |                                                                            |                            |                                     |   |        |         | 507     |  
|                                            
|                                            
|                                            
|                                            
|                                             | Prepaid expenses                                                                                                                                      |                                                                            |                            | 1,295                                |   |        |         | 1,400   |  
|                                            
|                                            
|                                            
|                                            
|                                             | Deferred income taxes                                                                                                                                 |                                                                            |                            | 468                                  |   |        |         | 1,048   |  
|                                            
|                                            
|                                            
|                                            
|                                             | Other                                                                                                                                                 |                                                                            |                            | 1,824                                |   |        |         | 1,080   |  
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            | Total current assets       |                                      | $ | 62,143 |         |         | $ | 73,387 | 
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|Property and equipment:                     
|                                            
|                                            
|                                            
|                                            
|                                             | Furniture and equipment                                                                                                                               |                                                                            |                            | 16,504                               |   |        |         | 15,589  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Leasehold improvements                                                                                                                                |                                                                            |                            | 2,801                                |   |        |         | 2,618   |  
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       | $                                                                          | 19,305                     |                                      |   | $      | 18,207  |        
|                                            
|                                            
|                                            
|                                            
|                                             | Accumulated depreciation and amortization                                                                                                             |                                                                            |                            | (11,014                              | ) |        |         | (9,164  | )
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       | $                                                                          | 8,291                      |                                      |   | $      | 9,043   |        
|                                            
|                                            
|                                            
|                                            
|Other assets:                               
|                                            
|                                            
|                                            
|                                            
|                                             | Goodwill, net of accumulated amortization of $2,781 and
    $1,641 at March 31, 2001 and 2000, respectively                                           |                                                                            | $                          | 23,224                               |   |        | $       | 14,551  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Restricted investments                                                                                                                                |                                                                            |                            |                                     |   |        |         | 6,429   |  
|                                            
|                                            
|                                            
|                                            
|                                             | Investments, at cost                                                                                                                                  |                                                                            |                            | 2,000                                |   |        |         |        |  
|                                            
|                                            
|                                            
|                                            
|                                             | Notes receivable                                                                                                                                      |                                                                            |                            |                                     |   |        |         | 1,000   |  
|                                            
|                                            
|                                            
|                                            
|                                             | Deferred income taxes                                                                                                                                 |                                                                            |                            | 249                                  |   |        |         | 357     |  
|                                            
|                                            
|                                            
|                                            
|                                             | Other                                                                                                                                                 |                                                                            |                            | 793                                  |   |        |         | 2,615   |  
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       | $                                                                          | 96,700                     |                                      |   | $      | 107,382 |        
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            |                            | LIABILITIES AND SHAREHOLDERS EQUITY
|                                            
|                                            
|                                            
|                                            
|Current liabilities:                        
|                                            
|                                            
|                                            
|                                            
|                                             | Accounts payable                                                                                                                                      |                                                                            | $                          | 18,141                               |   |        | $       | 21,342  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Accrued expenses                                                                                                                                      |                                                                            |                            | 11,682                               |   |        |         | 12,840  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Other                                                                                                                                                 |                                                                            |                            | 512                                  |   |        |         | 1,644   |  
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            | Total current liabilities  |                                      | $ | 30,335 |         |         | $ | 35,826 | 
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|Line of credit, excluding current maturities |                                                                                                                                                       |                                                                            | 23,913                     |                                      |   |        | 30,466  |        
|                                            
|                                            
|                                            
|                                            
|Other                                        |                                                                                                                                                       |                                                                            | 354                        |                                      |   |        | 877     |        
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            | Total liabilities          |                                      | $ | 54,602 |         |         | $ | 67,169 | 
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|Commitments and contingencies               
|                                            
|                                            
|                                            
|                                            
|Shareholders equity:                       
|                                            
|                                            
|                                            
|                                            
|                                             | Preferred stock:                                                                                                                                     
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                                                                                       | No par value, 982,500 shares authorized; no shares issued or outstanding   |                            | $                                    |  |        |         | $       |  |       
|                                            
|                                            
|                                            
|                                            
|                                             |                                                                                                                                                       | $0.01 par value, 17,500 shares authorized; no shares issued or outstanding |                            |                                      |  |        |         |         |  |       
|                                            
|                                            
|                                            
|                                            
|                                             | Common stock, no par value, 20,000,000 shares authorized;
    8,897,045 and 8,985,812 shares outstanding at March 31, 2001
    and 2000, respectively |                                                                            |                            | 53,584                               |   |        |         | 54,308  |  
|                                            
|                                            
|                                            
|                                            
|                                             | Accumulated deficit                                                                                                                                   |                                                                            |                            | (11,418                              | ) |        |         | (14,095 | )
|                                            
|                                            
|                                            
|                                            
|                                             | Accumulated other comprehensive losses                                                                                                                |                                                                            |                            | (68                                  | ) |        |         |        |  
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       |                                                                            | Total shareholders equity |                                      | $ | 42,098 |         |         | $ | 40,213 | 
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        
|                                             |                                                                                                                                                       | $                                                                          | 96,700                     |                                      |   | $      | 107,382 |        
|                                             |                                                                                                                                                       |                                                                            |                            |                                      |   |        |         |        

See accompanying notes to consolidated financial statements.

23



---



##### Table of Contents



Consolidated Statements of Shareholders Equity
Fiscal Years Ended March 31, 2001, 2000, and 1999
(in thousands, except share data)

|                        |                                                                                             |   |        |        |   |              |         |               |  |               |     |       |   |   |        |        |   | 
|----------------------- | ------------------------------------------------------------------------------------------- | - | ------ | ------ | - | ------------ | ------- | ------------- |  | ------------- | --- | ----- | - | - | ------ | ------ | - | 
|                        |                                                                                             |   |        |        |   |              |         | Retained      |  | Accumulated  
|                        |                                                                                             |   |        |        |   |              |         | Earnings      |  | Other         |     | Total
|                        |                                                                                             |   |        | Common |   | (Accumulated |         | Comprehensive |  | Shareholders'
|                        |                                                                                             |   |        | Stock  |   | Deficit)     |         | Income        |  | Equity       
|                        |                                                                                             |   |        |        |   |              |         |               |  |              
|Balance, April 1, 1998  |                                                                                             | $ | 52,857 |        |   | $            | (20,530 | )             |  | $             | 733 |       |   | $ | 33,060 |       
|                       
|                       
|                       
|                       
|                        | Net income                                                                                  |   |        |       |   |              |         | 1,996         |  |               |     |      |   |   |        | 1,996  |  
|                       
|                       
|                       
|                       
|                        | Sale of 131,844 common shares
    under stock option and stock
    purchase plans           |   |        | 753    |   |              |         |              |  |               |     |      |   |   |        | 753    |  
|                       
|                       
|                       
|                       
|                        | Sale of 138,910 common shares
    in a private placement to
    certain directors           |   |        | 1,250  |   |              |         |              |  |               |     |      |   |   |        | 1,250  |  
|                       
|                       
|                       
|                       
|                        | After-tax change in unrealized
    investment gains, net of
    reclassification adjustment |   |        |       |   |              |         |              |  |               |     | (733  | ) |   |        | (733   | )
|                       
|                       
|                       
|                       
|                        | Purchase and retirement of
    53,000 common shares                                         |   |        | (315   | ) |              |         |              |  |               |     |      |   |   |        | (315   | )
|                        |                                                                                             |   |        |        |   |              |         |               |  |               |     |       |   |   |        |       
|Balance, March 31, 1999 |                                                                                             | $ | 54,545 |        |   | $            | (18,534 | )             |  | $             |    |       |   | $ | 36,011 |       
|                       
|                       
|                       
|                       
|                        | Net income                                                                                  |   |        |       |   |              |         | 4,439         |  |               |     |      |   |   |        | 4,439  |  
|                       
|                       
|                       
|                       
|                        | Sale of 122,748 common shares
    under stock option and
    stock purchase plans           |   |        | 758    |   |              |         |              |  |               |     |      |   |   |        | 758    |  
|                       
|                       
|                       
|                       
|                        | Purchase and retirement of
    143,100 common shares                                        |   |        | (995   | ) |              |         |              |  |               |     |      |   |   |        | (995   | )
|                        |                                                                                             |   |        |        |   |              |         |               |  |               |     |       |   |   |        |       
|Balance, March 31, 2000 |                                                                                             | $ | 54,308 |        |   | $            | (14,095 | )             |  | $             |    |       |   | $ | 40,213 |       
|                       
|                       
|                       
|                       
|                        | Net income                                                                                  |   |        |       |   |              |         | 2,677         |  |               |     |      |   |   |        | 2,677  |  
|                       
|                       
|                       
|                       
|                        | Sale of 86,233 common shares
    under stock option and
    stock purchase plans            |   |        | 554    |   |              |         |              |  |               |     |      |   |   |        | 554    |  
|                       
|                       
|                       
|                       
|                        | After-tax change in unrealized
    investment gains and losses                              |   |        |       |   |              |         |              |  |               |     | (68   | ) |   |        | (68    | )
|                       
|                       
|                       
|                       
|                        | Purchase and retirement of
    175,000 common shares                                        |   |        | (1,278 | ) |              |         |              |  |               |     |      |   |   |        | (1,278 | )
|                        |                                                                                             |   |        |        |   |              |         |               |  |               |     |       |   |   |        |       
|Balance, March 31, 2001 |                                                                                             | $ | 53,584 |        |   | $            | (11,418 | )             |  | $             | (68 | )     |   | $ | 42,098 |       
|                        |                                                                                             |   |        |        |   |              |         |               |  |               |     |       |   |   |        |       

See accompanying notes to consolidated financial statements.

24



---



##### Table of Contents



Consolidated Statements of Cash Flows
Fiscal Years Ended March 31, 2001, 2000, and 1999
(in thousands)

|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |         |        |         |  
|------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------- | ----- | ------- | ---- | ------ | ----- | ------- | - | ------- | ------ | ------- | -
|                                            |                                                                                             |                                                                                       |                                                                                  |         | 2001  |         | 2000 |        | 1999 
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |      
|Cash flows from operating activities:      
|                                           
|                                           
|                                           
|                                           
|                                            | Net income                                                                                  |                                                                                       | $                                                                                | 2,677   |       |         | $    | 4,439  |       |         | $ | 1,996   |       
|                                           
|                                           
|                                           
|                                           
|                                            | Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Loss on discontinued operations                                                       |                                                                                  |         |      |         |      |        | 116   |         |   |         | 765    |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Depreciation and amortization                                                         |                                                                                  |         | 3,001 |         |      |        | 2,204 |         |   |         | 1,965  |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Amortization of debt issue costs                                                      |                                                                                  |         | 100   |         |      |        | 48    |         |   |         | 284    |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Deferred income taxes                                                                 |                                                                                  |         | 445   |         |      |        | 2,364 |         |   |         | 167    |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Provision for losses on accounts receivable and inventory                             |                                                                                  |         | 117   |         |      |        | 427   |         |   |         | 366    |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Equity in earnings of affiliate                                                       |                                                                                  |         |      |         |      |        |      |         |   |         | (24    | )      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Loss on sales of property and equipment                                               |                                                                                  |         | 16    |         |      |        | 95    |         |   |         |       |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Loss (gain) on sales of investments                                                   |                                                                                  |         | 955   |         |      |        |      |         |   |         | (3,532 | )      
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Restructuring charge                                                                  |                                                                                  |         |      |         |      |        |      |         |   |         | 1,796  |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Unusual charge                                                                        |                                                                                  |         |      |         |      |        |      |         |   |         | 1,706  |        
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             | Changes in assets and liabilities, net of the effects from
purchases of subsidiaries:
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | (Increase) decrease in receivables                                               |         |       | 16,173  |      |        |       | (16,548 | ) |         |        | 81,821  |  
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | (Increase) decrease in inventory                                                 |         |       | 495     |      |        |       | (330    | ) |         |        | 1,439   |  
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | (Increase) decrease in income tax receivable                                     |         |       |        |      |        |       | 43      |   |         |        | 10,572  |  
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | (Increase) decrease in prepaids and other assets                                 |         |       | 2,388   |      |        |       | 1,680   |   |         |        | 3,678   |  
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | Increase (decrease) in accounts payable                                          |         |       | (3,611  | )    |        |       | 1,056   |   |         |        | (56,853 | )
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | Increase (decrease) in accrued expenses                                          |         |       | (2,154  | )    |        |       | 2,526   |   |         |        | (3,793  | )
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | Increase (decrease) in other liabilities                                         |         |       | (1,494  | )    |        |       | (1,328  | ) |         |        | (408    | )
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|                                            |                                                                                             |                                                                                       | Net cash provided by (used in) the operating activities of
continuing operations |         |       | 19,108  |      |        |       | (3,208  | ) |         |        | 41,945  |  
|                                           
|                                           
|                                           
|                                           
|                                            |                                                                                             |                                                                                       | Net cash provided by (used in) discontinued operations                           |         |       |        |      |        |       | 135     |   |         |        | (124    | )
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|                                            |                                                                                             |                                                                                       | Net cash provided by (used in) operating activities                              |         | $     | 19,108  |      |        | $     | (3,073  | ) |         | $      | 41,821  |  
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|Cash flows from investing activities:      
|                                           
|                                           
|                                           
|                                           
|                                            | Purchases of subsidiaries, net of cash acquired                                             |                                                                                       |                                                                                  | (14,298 | )     |         |      |       |       |         |   | (5,705  | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Purchases of property and equipment                                                         |                                                                                       |                                                                                  | (745    | )     |         |      | (5,739 | )     |         |   | (939    | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Deposit on subsequent business combination                                                  |                                                                                       |                                                                                  |        |       |         |      | (2,100 | )     |         |   |        |       
|                                           
|                                           
|                                           
|                                           
|                                            | Proceeds from sales of investments                                                          |                                                                                       |                                                                                  | 5,555   |       |         |      |       |       |         |   | 30,288  |       
|                                           
|                                           
|                                           
|                                           
|                                            | Purchases of investments                                                                    |                                                                                       |                                                                                  | (2,000  | )     |         |      | (250   | )     |         |   |        |       
|                                           
|                                           
|                                           
|                                           
|                                            | Proceeds from redemption of notes receivable                                                |                                                                                       |                                                                                  | 500     |       |         |      | 500    |       |         |   |        |       
|                                           
|                                           
|                                           
|                                           
|                                            | Capitalized product development costs                                                       |                                                                                       |                                                                                  | (629    | )     |         |      |       |       |         |   |        |       
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|                                            |                                                                                             |                                                                                       | Net cash provided by (used in) investing activities                              |         | $     | (11,617 | )    |        | $     | (7,589  | ) |         | $      | 23,644  |  
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|Cash flows from financing activities:      
|                                           
|                                           
|                                           
|                                           
|                                            | Net advances (repayments) under line of credit                                              |                                                                                       |                                                                                  | (6,553  | )     |         |      | 12,800 |       |         |   | (53,155 | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Principal payments on long-term debt and capital lease obligations                          |                                                                                       |                                                                                  | (8,114  | )     |         |      | (1,820 | )     |         |   | (19,192 | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Proceeds from the issuance of long-term debt                                                |                                                                                       |                                                                                  | 8,000   |       |         |      |       |       |         |   | 5,400   |       
|                                           
|                                           
|                                           
|                                           
|                                            | Payment of debt issue costs                                                                 |                                                                                       |                                                                                  | (100    | )     |         |      |       |       |         |   | (3      | )     
|                                           
|                                           
|                                           
|                                           
|                                            | Proceeds from the issuance of common stock                                                  |                                                                                       |                                                                                  | 554     |       |         |      | 677    |       |         |   | 1,800   |       
|                                           
|                                           
|                                           
|                                           
|                                            | Purchase of treasury stock                                                                  |                                                                                       |                                                                                  | (1,278  | )     |         |      | (995   | )     |         |   | (315    | )     
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|                                            |                                                                                             |                                                                                       | Net cash provided by (used in) financing activities                              |         | $     | (7,491  | )    |        | $     | 10,662  |   |         | $      | (65,465 | )
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|Increase (decrease) in cash and equivalents |                                                                                             |                                                                                       |                                                                                 |         |       |         |     |        |       |         |  |        
|                                           
|                                           
|                                           
|                                           
|Cash and equivalents, beginning of year     |                                                                                             |                                                                                       |                                                                                 |         |       |         |     |        |       |         |  |        
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        
|Cash and equivalents, end of year           |                                                                                             | $                                                                                     |                                                                                 |         |       | $       |     |        |       | $       |  |        
|                                            |                                                                                             |                                                                                       |                                                                                  |         |       |         |      |        |       |         |   |        

See accompanying notes to consolidated financial statements.

25



---



##### Table of Contents



Consolidated Statements of Comprehensive Income
Fiscal Years Ended March 31, 2001, 2000, and 1999
(in thousands)

|                                        |                                  |                                                                    |       |      |     |      |       |      |   |   |       |  |        |  
|--------------------------------------- | -------------------------------- | ------------------------------------------------------------------ | ----- | ---- | --- | ---- | ----- | ---- | - | - | ----- |  | ------ | -
|                                        |                                  |                                                                    |       | 2001 |     | 2000 |       | 1999
|                                        |                                  |                                                                    |       |      |     |      |       |     
|Net income                              |                                  | $                                                                  | 2,677 |      |     | $    | 4,439 |      |   | $ | 1,996 | 
|                                       
|                                       
|                                       
|                                       
|Other comprehensive income, net of tax:
|                                       
|                                       
|                                       
|                                       
|                                        | Unrealized gains on investments:
|                                       
|                                       
|                                       
|                                       
|                                        |                                  | Unrealized holding gains (losses) arising during the period        |       |      | (68 | )    |       |      |  |   |       |  | 1,839  |  
|                                       
|                                       
|                                       
|                                       
|                                        |                                  | Less: reclassification adjustment for gains included
in net income |       |      |    |      |       |      |  |   |       |  | (2,572 | )
|                                        |                                  |                                                                    |       |      |     |      |       |      |   |   |       | 
|Comprehensive income                    |                                  | $                                                                  | 2,609 |      |     | $    | 4,439 |      |   | $ | 1,263 | 
|                                        |                                  |                                                                    |       |      |     |      |       |      |   |   |       | 

See accompanying notes to consolidated financial statements.

26



---



##### Table of Contents

\

BTG, INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

1.   NATURE OF OPERATIONS

BTG, Inc. (BTG or we or us) is an information systems and technical
services company providing expertise to a broad range of the complex systems
needs of our customers. We are an industry leader in providing systems
analysis and consulting services, solutions development, systems integration,
and computer-based operations and support.

2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

In the accompanying consolidated financial statements, we have included
the accounts of all our majority-owned subsidiaries. We have eliminated all
significant intercompany balances and transactions. We record investments in
unconsolidated affiliates owned more than 20 percent, but not in excess of 50
percent using the equity method of accounting.

Revenue Recognition

We provide systems analysis and engineering services, solutions
development, systems integration, and computer-based operations and support,
primarily to the United States Government and its agencies and departments (the
Government), on a contractual basis. We recognize revenue on cost-plus-fee
contracts to the extent of costs incurred plus a proportionate amount of fees
earned. We recognize revenue on time-and-material contracts to the extent of
billable rates times hours delivered plus other direct costs incurred. We
recognize revenue on fixed-price contracts using the percentage-of-completion
method based on costs incurred in relation to total estimated costs. We
recognize anticipated contract losses as soon as they become known and
estimable.

We defer revenue that is contractually billable prior to performance or
delivery until the work has been performed and/or we have delivered the
product.

We also provide off-the-shelf hardware and software to the Government
under a variety of contract vehicles and to commercial companies as a
third-party distributor. We recognize the related revenue when products are
shipped or when customers have accepted the products or services, depending on
contractual terms. We accrue estimated future costs associated with providing
customer support under warranty obligations for products sold at the time of
revenue recognition.

Cash and Equivalents

All highly liquid debt instruments with original maturities of three
months or less are classified as cash equivalents.

Investments

We classify our marketable equity securities 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.
These securities are carried at fair market value, with unrealized gains and
losses reported in shareholders equity as a component of other comprehensive
income.

Inventory

Our inventory, net of an allowance for obsolescence, consists principally
of purchased products held for resale, and we value it at the lower of cost,
determined on the average cost basis, or market value. All inventory at March
31, 2001 was fully reserved.

27



---



##### Table of Contents



Property and Equipment

We record property and equipment at cost and depreciate it over its
estimated useful lives, three to ten years, using the straight-line method. We
amortize leasehold improvements over the shorter of the terms of the related
leases or their estimated useful lives using the straight-line method. Our
capital leased assets are amortized using the straight-line method over either
the lease term or the estimated useful lives of the leased assets depending on
the criteria used for lease capitalization.

In March 1999, we began implementing an enterprise-wide financial
information system. We capitalized external direct costs of materials and
services and payroll-related costs of employees working on development of the
software system portion of the project. Training costs and costs to reengineer
business processes were expensed as incurred. We completed the implementation
of the system during fiscal 2000. Total capitalized costs associated with the
acquisition and development of the system were approximately $5.8 million, of
which $4.6 million were capitalized during fiscal 2000.

Goodwill

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.

We assess the recoverability of our goodwill when impairment indicators
are present by determining whether the balances can be recovered through the
estimated, undiscounted future operating cash flows of the acquired operations.
We measure the amount of impairment, if any, based on projected discounted
future operating cash flows. Our assessment of the recoverability of goodwill
will be impacted if we do not achieve estimated 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. We measure deferred tax assets and liabilities using enacted tax rates
expected to apply to taxable income in the years 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.

Research and Development Expenses

We expense research and development costs as they are incurred.

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 revenue to total estimated revenue, with a minimum
amortization using the straight-line method over the products estimated
economic life. Capitalized product development costs are carried at the lower
of unamortized cost or net realizable value.

The establishment of technological feasibility and the ongoing assessment
of recoverability of capitalized product development costs require considerable
judgment by management with respect to certain external factors such as
anticipated future revenues, estimated economic lives, and changes in hardware
and software technologies.

Fair Value of Financial Instruments

The carrying value of our marketable securities, receivables, payables,
and revolving line of credit instruments approximates fair value since all such
instruments are either readily tradable, short-term in nature or bear interest
rates which are indexed to current market rates. Fair value for our notes
receivable is determined based on current rates offered for instruments with
similar remaining maturities. At March 31, 2001 and 2000, the carrying value
of our notes receivable approximated fair value.

28



---



##### Table of Contents



Earnings Per Share

We compute our basic earnings per share by dividing net income for the
year by the weighted average number of shares of common stock outstanding
during the year. Diluted earnings per share is computed by dividing net income
for the year by the weighted average number of shares of common stock and
potential dilutive securities outstanding during the year. Potential dilutive
securities include all issued and outstanding options whose exercise price was
greater than or equal to the average market price for the respective period
presented.

Use of Estimates

In preparing our consolidated financial statements in conformity with
generally accepted accounting principles, our management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingencies as of the dates of the financial statements, and
the reported amounts of revenues and expenses during the reporting periods. We
use the most current and best available information in preparing these
estimates. Significant estimates were used in the consolidated financial
statements to account for revenue recognition, the accounts receivable
allowance, deferred tax asset valuation allowance, product warranty liability,
and certain other reserves recorded in connection with our restructuring
charges in fiscal 1999. Actual results may differ from those estimates.

Reclassification

We have reclassified certain amounts in the prior years financial
statements to conform to the fiscal 2001 presentation.

3.   RECEIVABLES

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

|                                             |       |   |          |        |  |  |  |  |      |   |        |        | 
|-------------------------------------------- | ----- | - | -------- | ------ |  |  |  |  | ---- | - | ------ | ------ | 
|                                             |       |   | March 31
|                                             |       |   |         
|                                             |       |   | 2001     |        |  |  |  |  | 2000
|                                             |       |   |          |        |  |  |  |  |     
|Amounts billed and billable                  |       | $ | 54,876   |        |  |  |  |  |      | $ | 66,179 |       
|                                            
|                                            
|                                            
|                                            
|Retainages billable upon contract completion |       |   | 3,237    |        |  |  |  |  |      |   | 2,939  |       
|                                            
|                                            
|                                            
|                                            
|Other unbilled amounts                       |       |   | 1,073    |        |  |  |  |  |      |   | 1,277  |       
|                                            
|                                            
|                                            
|                                            
|Allowance for doubtful accounts              |       |   | (683     | )      |  |  |  |  |      |   | (1,043 | )     
|                                             |       |   |          |        |  |  |  |  |      |   |        |       
|                                             | Total |   | $        | 58,503 |  |  |  |  |      |   | $      | 69,352 | 
|                                             |       |   |          |        |  |  |  |  |      |   |        |       

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

4.   ACCRUED EXPENSES

Accrued expenses consist of the following (in thousands):

|                                   |  |          |        |  |  |  |  |      |  |   |        | 
|---------------------------------- |  | -------- | ------ |  |  |  |  | ---- |  | - | ------ | 
|                                   |  | March 31
|                                   |  |         
|                                   |  | 2001     |        |  |  |  |  | 2000
|                                   |  |          |        |  |  |  |  |     
|Accrued salaries and related taxes |  | $        | 4,969  |  |  |  |  |      |  | $ | 6,414  | 
|                                  
|                                  
|                                  
|                                  
|Accrued employee leave             |  |          | 4,415  |  |  |  |  |      |  |   | 3,941  | 
|                                  
|                                  
|                                  
|                                  
|Accrued product warranty costs     |  |          | 695    |  |  |  |  |      |  |   | 842    | 
|                                  
|                                  
|                                  
|                                  
|Accrued employee medical claims    |  |          | 259    |  |  |  |  |      |  |   | 565    | 
|                                  
|                                  
|                                  
|                                  
|Other                              |  |          | 1,344  |  |  |  |  |      |  |   | 1,078  | 
|                                   |  |          |        |  |  |  |  |      |  |   |        | 
|                                   |  | $        | 11,682 |  |  |  |  |      |  | $ | 12,840 | 
|                                   |  |          |        |  |  |  |  |      |  |   |        | 

29



---



##### Table of Contents



5.   INCOME TAXES

Total income tax expense (benefit) for the years ended March 31, 2001,
2000 and 1999 was allocated as follows (in thousands):

|                                  |  |                    |       |      |  |      |       |   |  |   |       |  
|--------------------------------- |  | ------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                  |  | Fiscal Years Ended
|                                  |  | March 31          
|                                  |  |                   
|                                  |  | 2001               |       | 2000 |  | 1999
|                                  |  |                    |       |      |  |     
|Income from continuing operations |  | $                  | 1,750 |      |  | $    | 3,548 |   |  | $ | 1,567 |  
|                                 
|                                 
|                                 
|                                 
|Discontinued operations           |  |                    |      |      |  |      | (89   | ) |  |   | (284  | )
|                                  |  |                    |       |      |  |      |       |   |  |   |       |  
|                                  |  | $                  | 1,750 |      |  | $    | 3,459 |   |  | $ | 1,283 |  
|                                  |  |                    |       |      |  |      |       |   |  |   |       |  

The provision for income taxes attributable to income from continuing operations include the following (in thousands):

|          |         |   |                    |       |      |   |       |       |  |   |       |     | 
|--------- | ------- | - | ------------------ | ----- | ---- | - | ----- | ----- |  | - | ----- | --- | 
|          |         |   | Fiscal Years Ended
|          |         |   | March 31          
|          |         |   |                   
|          |         |   | 2001               |       | 2000 |   | 1999 
|          |         |   |                    |       |      |   |      
|Current: 
|         
|         
|         
|         
|          | Federal |   | $                  | 1,096 |      |   | $     | 867   |  |   | $     | 828 | 
|         
|         
|         
|         
|          | State   |   |                    | 208   |      |   |       | 255   |  |   |       | 381 | 
|          |         |   |                    |       |      |   |       |       |  |   |       |    
|          |         |   | 1,304              |       |      |   | 1,122 |       |  |   | 1,209 |    
|          |         |   |                    |       |      |   |       |       |  |   |       |    
|Deferred:
|         
|         
|         
|         
|          | Federal |   |                    | 370   |      |   |       | 2,014 |  |   |       | 299 | 
|         
|         
|         
|         
|          | State   |   |                    | 76    |      |   |       | 412   |  |   |       | 59  | 
|          |         |   |                    |       |      |   |       |       |  |   |       |    
|          |         |   | 446                |       |      |   | 2,426 |       |  |   | 358   |    
|          |         |   |                    |       |      |   |       |       |  |   |       |    
|          |         | $ | 1,750              |       |      | $ | 3,548 |       |  | $ | 1,567 |    
|          |         |   |                    |       |      |   |       |       |  |   |       |    

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

|                                                    |                    |  |                    |      |      |  |      |      |   |  |      |      |  
|--------------------------------------------------- | ------------------ |  | ------------------ | ---- | ---- |  | ---- | ---- | - |  | ---- | ---- | -
|                                                    |                    |  | Fiscal Years Ended
|                                                    |                    |  | March 31          
|                                                    |                    |  |                   
|                                                    |                    |  | 2001               |      | 2000 |  | 1999
|                                                    |                    |  |                    |      |      |  |     
|Statutory Federal income tax rate                   |                    |  | 35.0               | %    |      |  | 35.0 | %    |   |  | 35.0 | %   
|                                                   
|                                                   
|                                                   
|                                                   
|State income tax, net of Federal
income tax benefit |                    |  | 4.9                |      |      |  | 4.7  |      |   |  | 5.3  |     
|                                                   
|                                                   
|                                                   
|                                                   
|Phase-in tax rate differential                      |                    |  | (1.0               | )    |      |  | (1.0 | )    |   |  | (1.0 | )   
|                                                   
|                                                   
|                                                   
|                                                   
|Non-deductible amortization expense                 |                    |  | 5.3                |      |      |  | 2.9  |      |   |  | 4.3  |     
|                                                   
|                                                   
|                                                   
|                                                   
|Change in the valuation allowance                   |                    |  |                   |      |      |  |     |      |   |  | (9.6 | )   
|                                                   
|                                                   
|                                                   
|                                                   
|Other                                               |                    |  | (4.7               | )    |      |  | 2.2  |      |   |  | 2.2  |     
|                                                    |                    |  |                    |      |      |  |      |      |   |  |      |     
|                                                    | Effective tax rate |  |                    | 39.5 | %    |  |      | 43.8 | % |  |      | 36.2 | %
|                                                    |                    |  |                    |      |      |  |      |      |   |  |      |     

30



---



##### Table of Contents



The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
2001 and 2000 are as follows (in thousands):

|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |        |       | 
|------------------------------ | ---------------------------------------------------------------- | ----------------------- | ------ | -------- | ----- |  |  |  |  | ---- | ------ | ------ | ----- | 
|                               |                                                                  |                         |        | March 31
|                               |                                                                  |                         |        |         
|                               |                                                                  |                         |        | 2001     |       |  |  |  |  | 2000
|                               |                                                                  |                         |        |          |       |  |  |  |  |     
|Deferred tax assets:          
|                              
|                              
|                              
|                              
|                               | Employee benefits, accrued for financial reporting purposes      |                         | $      | 1,496    |       |  |  |  |  |      | $      | 1,293  |      
|                              
|                              
|                              
|                              
|                               | Financial reporting reserves                                     |                         |        | 459      |       |  |  |  |  |      |        | 777    |      
|                              
|                              
|                              
|                              
|                               | Product warranty costs, accrued for financial reporting purposes |                         |        | 351      |       |  |  |  |  |      |        | 552    |      
|                              
|                              
|                              
|                              
|                               | Net operating loss carryforwards                                 |                         |        | 180      |       |  |  |  |  |      |        | 321    |      
|                              
|                              
|                              
|                              
|                               | Other                                                            |                         |        | 178      |       |  |  |  |  |      |        | 241    |      
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       
|Total deferred tax assets      |                                                                  |                         | 2,664  |          |       |  |  |  |  |      | 3,184  |       
|                              
|                              
|                              
|                              
|Less: valuation allowance      |                                                                  |                         | (133   | )        |       |  |  |  |  |      | (133   | )     
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       
|                               |                                                                  | Net deferred tax assets |        |          | 2,531 |  |  |  |  |      |        |        | 3,051 | 
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       
|Deferred tax liabilities:     
|                              
|                              
|                              
|                              
|                               | Revenues not contractually billable                              |                         |        | (1,617   | )     |  |  |  |  |      |        | (1,598 | )    
|                              
|                              
|                              
|                              
|                               | Other                                                            |                         |        | (197     | )     |  |  |  |  |      |        | (48    | )    
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       
|Total deferred tax liabilities |                                                                  |                         | (1,814 | )        |       |  |  |  |  |      | (1,646 | )     
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       
|                               |                                                                  | Net deferred tax assets |        | $        | 717   |  |  |  |  |      |        | $      | 1,405 | 
|                               |                                                                  |                         |        |          |       |  |  |  |  |      |        |       

The valuation allowance for deferred tax assets as of March 31, 1999 was
$133,000. In assessing the realizability of deferred tax assets, our
management considers whether it is more likely than not that we will realize
some portion or all of the deferred tax assets. 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.
In making this assessment, we consider taxes paid during the past two years,
scheduled reversal of deferred tax liabilities, historical and projected future
taxable income, and tax planning strategies. Based upon these factors, we have
established a valuation allowance against that portion of the deferred tax
assets for which we believe that ultimate realization cannot presently be
assessed as more likely than not. We believe, based principally on the past
earnings history of our ongoing operations and the scheduled reversal of
significant deferred tax liabilities, the majority of our deferred tax assets
at March 31, 2001 are more likely than not realizable.

6.   LINE OF CREDIT

Our revolving line of credit facility (the Credit Facility) is with a
syndicate of financial institutions which, as amended, currently provides for
borrowings up to $50.0 million based on specified percentages of eligible
accounts receivable (the borrowing base). The Credit Facility, which is
secured by substantially all of our assets, requires BTG to comply with various
financial covenants and restricts us from, among other things, paying
dividends, changing our capital structure, or making acquisitions without the
approval of the lenders. At March 31, 2001, we were in compliance with all
financial covenants under the Credit Facility. At March 31, 2000, we obtained
a waiver from the lending financial institutions for non-compliance with the
capital expenditure covenant. We were in compliance with all of the other
financial covenants as of that date.

At March 31, 2001, we have classified the entire balance outstanding under
the Credit Facility as a noncurrent liability in the accompanying consolidated
balance sheet, as we anticipate that our borrowing base over the next fiscal
year will provide for a minimum availability equal to or in excess of the
amount outstanding on such date. The Credit Facility has a termination date of
August 31, 2002.

In addition to a revolving loan, the Credit Facility includes a facility
under which we can, subject to the approval of the lenders and the payment of
certain fees, obtain letters of credit of up to a maximum of $5.0 million. At
March 31, 2001 and 2000, there were no letters of credit outstanding under the
facility. Costs incurred to obtain the Credit Facility have been capitalized
and are being amortized over the term of the agreement.

At March 31, 2001, the balance outstanding under the Credit Facility was
approximately $23.9 million and approximately $10.4 million was available for
additional borrowing. At March 31, 2000, the balance outstanding under the
Credit Facility was approximately $30.5 million and approximately $15.5 million
was available for additional borrowing. Interest on outstanding

31



---



##### Table of Contents



borrowings under the amended agreement is provided at a rate equal to, at
the Companys option, either the lenders prime rate or LIBOR plus a percentage
ranging from 2.25% to 3.25%, depending on our leverage ratio.

An analysis of activity under
the Credit Facility is as follows (dollars in
thousands):

|                                                                     |                                   |   |          |      |   |  |  |  |      |   |        |      |  
|-------------------------------------------------------------------- | --------------------------------- | - | -------- | ---- | - |  |  |  | ---- | - | ------ | ---- | -
|                                                                     |                                   |   | March 31
|                                                                     |                                   |   |         
|                                                                     |                                   |   | 2001     |      |   |  |  |  | 2000
|                                                                     |                                   |   |          |      |   |  |  |  |     
|Maximum line of credit available
during the period                   |                                   | $ | 45,901   |      |   |  |  |  |      | $ | 48,896 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Balance outstanding at the end of the period                         |                                   | $ | 23,912   |      |   |  |  |  |      | $ | 30,466 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Total borrowing base at the end of the period                        |                                   | $ | 34,353   |      |   |  |  |  |      | $ | 45,997 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Interest rate at the end of the period:                             
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | At the lenders prime rate option |   |          | 8.00 | % |  |  |  |      |   |        | 9.00 | %
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|                                                                     | At the LIBOR option (average)     |   |          | 7.53 | % |  |  |  |      |   |        | 8.26 | %
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Monthly average amount outstanding during the period                 |                                   | $ | 29,304   |      |   |  |  |  |      | $ | 26,805 |     
|                                                                    
|                                                                    
|                                                                    
|                                                                    
|Monthly weighted average interest rate
outstanding during the period |                                   |   | 9.65     | %    |   |  |  |  |      |   | 8.38   | %   

7.   LONG-TERM DEBT

In April 2000, we issued two term promissory notes to each of the two
financial institutions that lend to us under the Credit Facility totaling $8.0
million to provide us with financing for a business combination. These notes
were repaid in their entirety during fiscal 2001.

In January 1999, we issued term promissory notes totaling $3.4 million to
each of the two financial institutions that lend to us under the Credit
Facility. We used the proceeds from the term promissory notes to finance the
acquisition of STAC, Inc. and repaid $1.7 million in March 1999 and the
remaining $1.7 million during fiscal 2000.

8.   SHAREHOLDERS EQUITY AND STOCK OPTIONS

Preferred Stock

Our Amended Articles of Incorporation authorize us to issue up to
1,000,000 shares of preferred stock, 982,500 of which have no par value and
17,500 of which have a par value of $0.01 per share. No preferred shares have
been issued as of March 31, 2001.

Common Stock

There is one class of voting common stock, with no par value, and
20,000,000 shares authorized for issuance.

In September 1998, the Companys Board of Directors approved the adoption
of a share repurchase plan. Under the terms of the share repurchase plan, we
are authorized to purchase, from time to time, up to 500,000 shares of BTG
common stock through both open market and negotiated purchases. During fiscal
2001 and 2000, we purchased 175,000 and 143,100 shares of common stock under
the share repurchase plan for approximately $1.3 million and $995,000,
respectively.

At March 31, 1999, there were outstanding common stock purchase warrants
(the Warrants) which entitled the holder to purchase up to 317,478 shares of
our common stock at $4.79 per share. In January 2000, the holder of the
Warrants exercised 100% of the Warrants in a cashless transaction. Under this
transaction, we issued 153,959 shares of BTG common stock to the Warrant
holder. At March 31, 2001 and March 31, 2000, we had no other warrants
outstanding.

32



---



##### Table of Contents



Employee Stock Option Plan

We have adopted an employee stock option plan (the Plan) which provides
for grants of both qualified and non-qualified common stock options. As
currently amended, the Plan permits us to issue up to 1,750,000 options at
prices equal to or greater than the fair value of a company share on the date
of grant. Options granted under the Plan expire upon the earlier of ten years
from the date of grant or three months after the optionees termination of
employment with the Company.

Additional information with respect to all options granted under the
Companys employee stock option plan is as follows:

|                                    |                   |  |           |          |                |   |                  |       | 
|----------------------------------- | ----------------- |  | --------- | -------- | -------------- | - | ---------------- | ----- | 
|                                    |                   |  |           |          |                |   | Weighted-Average
|                                    |                   |  | Number    |          | Exercise Price
|                                    |                   |  | of Shares |          | Per Share     
|                                    |                   |  |           |          |               
|Shares under option, March 31, 1998 |                   |  | 327,877   |          |                | $ | 11.39            |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 815,750  |                |   |                  | 7.53  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options exercised |  |           | (26,737  | )              |   |                  | 4.30  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options forfeited |  |           | (141,139 | )              |   |                  | 11.14 | 
|                                    |                   |  |           |          |                |   |                  |      
|Shares under option, March 31, 1999 |                   |  | 975,751   |          |                |   | 8.39             |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 597,150  |                |   |                  | 7.94  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options exercised |  |           | (22,248  | )              |   |                  | 6.48  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options forfeited |  |           | (84,225  | )              |   |                  | 7.93  | 
|                                    |                   |  |           |          |                |   |                  |      
|Shares under option, March 31, 2000 |                   |  | 1,466,428 |          |                |   | 8.22             |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 186,450  |                |   |                  | 8.90  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options exercised |  |           | (5,858   | )              |   |                  | 5.99  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options forfeited |  |           | (472,479 | )              |   |                  | 8.25  | 
|                                    |                   |  |           |          |                |   |                  |      
|Shares under option, March 31, 2001 |                   |  | 1,174,541 |          |                | $ | 8.33             |      
|                                    |                   |  |           |          |                |   |                  |      
|Options exercisable, March 31, 2000 |                   |  | 289,220   |          |                | $ | 8.00             |      
|                                    |                   |  |           |          |                |   |                  |      
|Options exercisable, March 31, 2001 |                   |  | 543,591   |          |                | $ | 8.06             |      
|                                    |                   |  |           |          |                |   |                  |      

Directors Stock Option Plan

We have a Directors Stock Option Plan (the Directors Option Plan) which
provides for the granting of a maximum of 100,000 nonqualified stock options to
non-employee members of the Board of Directors. In September 1999, the
shareholders of the Company approved an amendment to the Directors Option Plan
under which the option price per share is equal to 110% of the fair market
value of a company share on the date of grant. The term of each option is ten
years and an option first becomes exercisable six months after the date of
grant. Under the amended terms of the Directors Option Plan, each non-employee
member of the Board of Directors is granted 2,500 options on each anniversary
date of the Directors service commencement date.

33



---



##### Table of Contents



Additional information with respect to options granted under the Directors
Option Plan is as follows:

|                                    |                   |  |           |        |                |   |                  |       | 
|----------------------------------- | ----------------- |  | --------- | ------ | -------------- | - | ---------------- | ----- | 
|                                    |                   |  |           |        |                |   | Weighted-Average
|                                    |                   |  | Number    |        | Exercise Price
|                                    |                   |  | of Shares |        | Per Share     
|                                    |                   |  |           |        |               
|Shares under option, March 31, 1998 |                   |  | 23,000    |        |                | $ | 12.25            |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 7,500  |                |   |                  | 7.55  | 
|                                   
|                                   
|                                   
|                                   
|                                    | Options forfeited |  |           | (1,000 | )              |   |                  | 13.13 | 
|                                    |                   |  |           |        |                |   |                  |      
|Shares under option, March 31, 1999 |                   |  | 29,500    |        |                |   | 10.96            |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 15,000 |                |   |                  | 8.16  | 
|                                    |                   |  |           |        |                |   |                  |      
|Shares under option, March 31, 2000 |                   |  | 44,500    |        |                |   | 10.02            |      
|                                   
|                                   
|                                   
|                                   
|                                    | Options granted   |  |           | 17,500 |                |   |                  | 8.24  | 
|                                    |                   |  |           |        |                |   |                  |      
|Shares under option, March 31, 2001 |                   |  | 62,000    |        |                | $ | 9.55             |      
|                                    |                   |  |           |        |                |   |                  |      
|Options exercisable, March 31, 2000 |                   |  | 42,000    |        |                | $ | 10.03            |      
|                                    |                   |  |           |        |                |   |                  |      
|Options exercisable, March 31, 2001 |                   |  | 57,000    |        |                | $ | 9.85             |      
|                                    |                   |  |           |        |                |   |                  |      

Stock Purchase Plans

Our shareholders have adopted two stock purchase plans: the Annual Leave
Stock Plan (the Annual Leave Plan) and the Employee Stock Purchase Plan (the
ESPP). Under the Annual Leave Plan, eligible employees can 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 2001, 2000
and 1999, we issued 12,595, 8,506 and 13,264 shares, respectively, of common
stock under the Annual Leave Plan. The value of the shares issued in fiscal
2001, 2000 and 1999 was approximately $72,000, $80,000 and $75,000,
respectively.

Under the ESPP, participating and eligible employees purchase our common
stock, through payroll deductions or annual lump sum contributions, at a 15
percent discount to the lower of the fair market value of such stock at the
beginning or ending date of the quarterly election period. The total number of
shares of our common stock under the ESPP is limited to 400,000. We issued
58,077, 68,327, and 72,882 common stock shares under the ESPP during fiscal
2001, 2000, and 1999, respectively. Since inception, we have issued 355,199
shares under the ESPP.

Our shareholders have also adopted 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 number of shares that may be
issued under the Directors Purchase Plan is 100,000. Under this plan, we
issued 19,128, 19,169, and 18,961 shares of common stock valued at
approximately $151,000, $126,000, and $128,000 during fiscal 2001, 2000, and
1999, respectively. Since inception, we have issued 63,628 shares of stock
under this plan.

Profit Sharing Plan

We 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, we may contribute to the plan. Our
current contribution, as approved by the Board, is a matching contribution of
an amount up to five percent of eligible employees deferrals. Employees
participating in the plan vest in the employer contribution over four years at
10%, 30%, 60%, and 100% cumulative per year, respectively.

Company contributions to the 401(k) plan were approximately $1.5 million,
$2.4 million, and $1.6 million, in fiscal 2001, 2000 and 1999, respectively.

Disclosures Pursuant to Statement of Financial Accounting Standards No.
123

We apply Accounting Principles Board Opinion 25 and its related
interpretations in accounting for our equity participation programs. No
compensation cost has been recognized for our incentive stock option and stock
purchase plans. Had compensation

34



---



##### Table of Contents



cost for our stock-based compensation plans been determined based on the fair
value at the grant dates for awards under those plans consistent with the
method of accounting under Statement of Financial Accounting Standards No. 123,
Accounting for Stock-Based Compensation, then our net income and earnings per
share would have been reduced to the pro forma amounts indicated as follows (in
thousands, except per share data):

|                           |  |                       |  |                    |             |      |  |      |             |  |  |    |             | 
|-------------------------- |  | --------------------- |  | ------------------ | ----------- | ---- |  | ---- | ----------- |  |  | -- | ----------- | 
|                           |  |                       |  | Fiscal Years Ended
|                           |  |                       |  | March 31          
|                           |  |                       |  |                   
|                           |  |                       |  | 2001               |             | 2000 |  | 1999
|                           |  |                       |  |                    |             |      |  |     
|Net income                 |  | As reported
Pro forma |  | $$                 | 2,677
1,200 |      |  | $$   | 4,439
4,005 |  |  | $$ | 1,996
1,739 | 
|                          
|                          
|                          
|                          
|Diluted earnings
per share |  | As reported
Pro forma |  | $$                 | 0.30
0.13   |      |  | $$   | 0.49
0.44   |  |  | $$ | 0.23
0.20   | 

The fair value of each option is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for option grants during the years ended March 31, 2001, 2000
and 1999, respectively:

|                        |  |                    |           |      |  |           |      |   |           |  |      |  
|----------------------- |  | ------------------ | --------- | ---- |  | --------- | ---- | - | --------- |  | ---- | -
|                        |  | Fiscal Years Ended
|                        |  | March 31          
|                        |  |                   
|                        |  | 2001               |           | 2000 |  | 1999     
|                        |  |                    |           |      |  |          
|Dividend yield          |  |                    | 0.0       | %    |  |           | 0.0  | % |           |  | 0.0  | %
|                       
|                       
|                       
|                       
|Expected volatility     |  |                    | 60.5      | %    |  |           | 66.6 | % |           |  | 60.0 | %
|                       
|                       
|                       
|                       
|Risk-free interest rate |  |                    | 6.3       | %    |  |           | 6.5  | % |           |  | 5.1  | %
|                       
|                       
|                       
|                       
|Forfeiture rate         |  |                    | 11.0      | %    |  |           | 6.0  | % |           |  | 6.0  | %
|                       
|                       
|                       
|                       
|Expected life           |  |                    | 3-7 years |      |  | 3-7 years |      |   | 3-8 years

The following table summarizes information about fixed employee and director stock options outstanding at March 31, 2001:

|                    |  |                     |           |                  |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|------------------- |  | ------------------- | --------- | ---------------- |  | ---------------- | ---- | ----------- |  | ---------------- | ----- |  |  |  | ------- |  |  | - | ----- | 
|Options Outstanding |  | Options Exercisable
|                    |  |                    
|                    |  | Number              |           | Weighted-Average |  |                  |      |             |  | Number          
|Range of            |  | Outstanding         |           | Remaining        |  | Weighted-Average |      | Exercisable |  | Weighted-Average
|Exercise Prices     |  | at 3/31/01          |           | Contractual Life |  | Exercise Price   |      | at 3/31/01  |  | Exercise Price  
|                    |  |                     |           |                  |  |                  |      |             |  |                 
|$5.78 - $7.88       |  |                     | 551,555   |                  |  |                  | 7.69 |             |  | $                | 6.44  |  |  |  | 346,992 |  |  | $ | 6.47  | 
|                   
|                   
|                   
|                   
|$8.25 - $9.90       |  |                     | 572,818   |                  |  |                  | 8.07 |             |  |                  | 9.14  |  |  |  | 188,269 |  |  |   | 9.15  | 
|                   
|                   
|                   
|                   
|$10.31 - $20.08     |  |                     | 112,168   |                  |  |                  | 6.53 |             |  |                  | 14.16 |  |  |  | 65,330  |  |  |   | 14.92 | 
|                    |  |                     |           |                  |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 
|$5.78 - $20.08      |  |                     | 1,236,541 |                  |  |                  | 7.76 |             |  | $                | 8.39  |  |  |  | 600,591 |  |  | $ | 8.23  | 
|                    |  |                     |           |                  |  |                  |      |             |  |                  |       |  |  |  |         |  |  |   |       | 

The per share weighted-average fair value of stock options granted during
fiscal 2001, 2000, and 1999 was $8.83, $9.46, and $3.99, respectively.

35



---



##### Table of Contents



9. EARNINGS PER SHARE

The following table illustrates the calculation of basic and diluted
earnings per share results for fiscal 2001, 2000 and 1999 (in thousands, except
per share data):

|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |       | 
|--------------------------------------------- | ------------------------------------------ | - | ------------------ | ----- | ---- | - | ----- | ----- |  | - | ----- | ----- | 
|                                              |                                            |   | Fiscal Years Ended
|                                              |                                            |   | March 31          
|                                              |                                            |   |                   
|                                              |                                            |   | 2001               |       | 2000 |   | 1999 
|                                              |                                            |   |                    |       |      |   |      
|Income from continuing operations             |                                            | $ | 2,677              |       |      | $ | 4,555 |       |  | $ | 2,761 |      
|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |      
|Weighted average common stock shares         
|                                             
|                                             
|                                             
|                                             
|                                              | outstanding during the period (used in the
|                                             
|                                             
|                                             
|                                             
|                                              | calculation of basic per share results)    |   |                    | 8,955 |      |   |       | 8,853 |  |   |       | 8,774 | 
|                                             
|                                             
|                                             
|                                             
|Dilutive effect of common stock options and  
|                                             
|                                             
|                                             
|                                             
|                                              | common stock purchase warrants             |   |                    | 74    |      |   |       | 182   |  |   |       | 53    | 
|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |      
|Weighted average common stock and potentially
|                                             
|                                             
|                                             
|                                             
|                                              | dilutive securities outstanding during the
|                                             
|                                             
|                                             
|                                             
|                                              | period (used in the calculation of diluted
|                                             
|                                             
|                                             
|                                             
|                                              | per share results)                         |   |                    | 9,029 |      |   |       | 9,035 |  |   |       | 8,827 | 
|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |      
|Basic earnings per share                      |                                            | $ | 0.30               |       |      |   | 0.51  |       |  | $ | 0.32  |      
|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |      
|Diluted earnings per share                    |                                            | $ | 0.30               |       |      |   | 0.50  |       |  | $ | 0.32  |      
|                                              |                                            |   |                    |       |      |   |       |       |  |   |       |      

10. RESTRUCTURING CHARGE

In fiscal 1998, our Board of Directors approved a restructuring plan
designed to refocus us on BTGs core business and historical strengths.
Pursuant to this plan, in February 1998, we divested substantially all of the
BTG operating division (the Division) responsible for the reselling of
computer hardware and software products. As a result, we recorded a
restructuring charge of approximately $38.5 million. At March 31, 1998, there
were outstanding accruals and reserves of approximately $14.6 million for
restructuring costs established during fiscal 1998. During fiscal 1999,
approximately $7.5 million of these accruals and reserves were utilized against
the estimated impairment of retained Division assets, the reserve established
for facility and operating lease commitments, accrued employee severance costs,
and certain other accrued reserves. We recorded an additional charge in fiscal
1999 of $1.8 million, related to an adjustment to the estimated impairment of
retained Division assets and additional facility costs. We had $586,000 of
remaining reserves outstanding at March 31, 2000, relating to facility and
operating lease commitments. At March 31, 2001, these commitments have been
fully satisfied, and accordingly, there are no restructuring reserves currently
outstanding.

11. DISCONTINUED OPERATIONS

During the year ended March 31, 1999, our Board of Directors approved a
management plan to dispose of a retail computer store that we operated. In
connection with this discontinued operation, we recorded losses during fiscal
2000 and 1999 of approximately $116,000 and $765,000, net of the related income
tax benefits. Net losses from our discontinued operations have been segregated
from continuing operations and reported as a separate line item on the
consolidated statements of operations. Prior year reported results have been
reclassified in order to provide for consistent presentation. Operating
results from our discontinued operations are as follows (in thousands):

|                                       |                 |  |                    |  |  |   |      |     |      |   |       |      |  
|-------------------------------------- | --------------- |  | ------------------ |  |  | - | ---- | --- | ---- | - | ----- | ---- | -
|                                       |                 |  | Fiscal Years Ended
|                                       |                 |  | March 31          
|                                       |                 |  |                   
|                                       |                 |  |                    |  |  |   | 2000 |     | 1999
|                                       |                 |  |                    |  |  |   |      |     |     
|Operating revenues                     |                 |  |                    |  |  | $ | 972  |     |      | $ | 2,033 |     
|                                      
|                                      
|                                      
|                                      
|Loss before income taxes               |                 |  |                    |  |  |   | (75  | )   |      |   | (411  | )   
|                                      
|                                      
|                                      
|                                      
|Loss from discontinued operations, net
|                                      
|                                      
|                                      
|                                      
|                                       | of income taxes |  |                    |  |  |   |      | (42 | )    |   |       | (251 | )

36



---



##### Table of Contents



12. INVESTMENTS

DOAR Communications, Inc.

In January 2001, we
signed a strategic partnership and investment agreement with
DOAR Communications, Inc. (DOAR), which is a privately held leading provider
of advanced technology-based systems and services for the judicial court,
litigation, and alternative dispute resolution markets. Under the terms of the
agreement, BTG may acquire up to 19.5% of DOAR stock over the next year for a
potential investment of up to a total of $3.0 million. An initial investment of
$1.0 million was made in January 2001 followed by a second
investment of $1.0 million in February 2001. In return for its initial investments, BTG has
received a 12% equity stake in DOAR.

GTSI Corp.

In conjunction with our restructuring in February 1998, BTG and GTSI Corp.
(GTSI), a publicly traded product reseller, entered into an Asset Purchase
Agreement (the APA) under which we sold certain of the assets and existing
contracts and customer orders associated with the BTG operating division
responsible for reselling computer hardware and software products.

In February 1999, BTG and GTSI entered into a series of agreements in
order to settle a number of issues which arose subsequent to the APA. Under
the terms of the new agreements, among other things, BTG agreed to assign
certain contracts that we were awarded in the previous year. During fiscal
1999, we recognized revenue of approximately $93.6 million of product sales
associated with these contracts under which GTSI was used as the subcontractor.
We recognized an unusual charge of approximately $1.2 million in fiscal 1999,
as a result of these agreements.

Also in February 1999, BTG and GTSI entered into an agreement under which
GTSI issued a note payable to BTG as consideration for the purchase by GTSI of
400,000 shares of the GTSI common stock held by BTG. These shares were sold at
$5.00 per share. The note, which bears interest at an annual rate of 8.0%, is
payable in three annual installments beginning on January 31, 2000. During
fiscal 2001, 2000 and 1999, we recognized interest income of approximately
$113,333, $164,000 and $21,000, respectively from this note. To date, we have
received $1.0 million in note repayments with the remaining $1.0 million due in
January 2002.

We held 1.3 million shares of GTSI common stock at March 31, 2000.
This investment represented all of the restricted investments reflected
on our consolidated balance sheets. Our investment in GTSI at March 31, 2000,
represented less than 20% of GTSIs outstanding shares, and we did not have the
ability to exercise significant influence over the operating or financial
policies of GTSI. Accordingly, this investment was carried at cost. In
October 2000, GTSI purchased the 1.3 million shares of common stock for $4.25
per share. We recognized a non-operating loss of $905,000 associated with the
sale of this investment.

WheelGroup Corporation

In May 1996, we entered into an agreement with WheelGroup Corporation
(WheelGroup) under which, among other things, we purchased shares of the
outstanding common stock of WheelGroup. In March 1998, pursuant to a merger
agreement entered into by WheelGroup and Cisco Systems, Inc. (Cisco), a
publicly traded technology company, our ownership interests in WheelGroup were
converted into common shares of Cisco. We recorded a gain in fiscal 1998 of
approximately $20.2 million calculated using the fair market value of Cisco
common stock on the date of closing of the merger. In fiscal 1999, we sold all
of our shares of Cisco for approximately $25.5 million and used the proceeds
from these sales to retire outstanding debt. As a result of these sales, we
recorded gains of approximately $4.2 million during fiscal 1999.

13. BUSINESS COMBINATIONS

In April 2000, we acquired substantially all of the assets of the
enterprise network solutions division of SSDS, Inc. (SSDS). This division
has approximately 160 employees who provide client-server and web-based network
security, enterprise management, and custom software solutions to Government,
state and local government, and commercial customers. This acquisition was
accounted for using the purchase method of accounting and accordingly, the
results of operations of SSDS have been included in our consolidated statements
of operations from the date of the acquisition. We allocated the purchase
price to net tangible and identifiable intangible assets and liabilities based
on estimates of their fair value as of the date of acquisition. The excess of
purchase price over the estimated fair value of net tangible and identifiable
intangible assets and liabilities acquired of approximately $9.8 million was

37



---



##### Table of Contents



allocated to
goodwill and is being amortized on a straight-line basis over 20 years.
This acquisition does not have a material effect on pro forma operations.

In January 1999, BTG completed the acquisition of STAC, Inc. (STAC) an
analysis and software development company headquartered in Fairfax, Virginia.
We purchased all of the common stock of STAC for approximately $6.4 million,
$1.5 million of which was contingent on certain stock market indices which were
subsequently satisfied. We accounted for this acquisition using the purchase
method of accounting and accordingly, the results of operations of STAC have
been included in our consolidated statements of operations from the date of the
acquisition. We allocated the purchase price to net tangible and identifiable
intangible assets and liabilities based on estimates of their fair value as of
the date of acquisition. The excess of purchase price over the estimated fair
value of net tangible and identifiable intangible assets and liabilities
acquired of approximately $6.8 million was allocated to goodwill and is being
amortized on a straight-line basis over 20 years. In addition, we entered into
retention agreements with certain former employees of STAC which provide for an
aggregate payment of up to $700,000 over a three-year period if the employees
remain with BTG. This acquisition does not have a material effect on pro forma
operations.

Subsequent to fiscal 2001, in April 2001, we acquired Research Planning,
Inc. (RPI), which has over 400 employees, the majority of whom are based in
the Washington, D.C. area. RPI provides services in defense programs,
emergency management, and range technology and base support to customers in the
Department of Defense and Federal civilian agencies, state governments and
commercial firms, as well as planning support to metropolitan areas and other
customers. RPI was acquired for approximately $9.0 million, which was
comprised of $6.0 million in cash and $3.0 million of notes payable to RPIs
former shareholders.

14. COMMITMENTS AND CONTINGENCIES

Audit Review

We bill under substantially all of our cost-reimbursable Government
contracts at our provisional rates. The Defense Contract Audit Agency and other
regulatory agencies audit our financial records to ensure that our billings are
in accordance with appropriate regulations. Audits and finalized rates through
fiscal 1998 have been completed. We do not expect audits for 1999 and
subsequent years to result in a material adverse effect on our consolidated
financial position or future results of operations.

Litigation and Claims

We are a party to various legal actions and claims resulting from the
normal course of business. Although it is not possible to ascertain the total
amount of liability, if any, that would result from those matters, we believe
that any resulting liability will not have a material adverse effect on our
consolidated financial position or future results of operations.

Leases

We lease office space and equipment under certain operating lease
agreements expiring at various dates through June 2012. Most leases include
provisions for periodic rent escalations based on changes in various economic
indices. Rent expense, net of sublease income, in fiscal 2001, 2000 and 1999
was $4.7 million, $5.0 million, and $5.6 million, respectively.

Future minimum lease payments on non-cancelable operating leases,
including sublease commitments, were as follows on March 31, 2001 (in
thousands):

|                    |  |             |        |             |  |             |       |  |  |   |        | 
|------------------- |  | ----------- | ------ | ----------- |  | ----------- | ----- |  |  | - | ------ | 
|Fiscal Years Ending |  | Gross       |        | Sublease    |  | Net        
|March 31            |  | Commitments |        | Commitments |  | Commitments
|                    |  |             |        |             |  |            
|2002                |  | $           | 7,988  |             |  | $           | 1,651 |  |  | $ | 6,337  | 
|                   
|                   
|                   
|                   
|2003                |  |             | 5,604  |             |  |             | 775   |  |  |   | 4,829  | 
|                   
|                   
|                   
|                   
|2004                |  |             | 4,917  |             |  |             | 432   |  |  |   | 4,485  | 
|                   
|                   
|                   
|                   
|2005                |  |             | 4,341  |             |  |             | 445   |  |  |   | 3,896  | 
|                   
|                   
|                   
|                   
|2006                |  |             | 4,309  |             |  |             | 458   |  |  |   | 3,851  | 
|                   
|                   
|                   
|                   
|Thereafter          |  |             | 16,797 |             |  |             | 115   |  |  |   | 16,682 | 
|                    |  |             |        |             |  |             |       |  |  |   |        | 
|                    |  | $           | 43,956 |             |  | $           | 3,876 |  |  | $ | 40,080 | 
|                    |  |             |        |             |  |             |       |  |  |   |        | 

38



---



##### Table of Contents



We currently sublease approximately 50,000 square feet of furnished space
in BTGs headquarters facility to Teligent Communications, LLC, a subsidiary of
Teligent, Inc. (Teligent). In May 2001, Teligent filed a voluntary
bankruptcy petition under Chapter 11 of the U.S. Bankruptcy Code. BTGs
current sublease with Teligent has a term expiring on June 30, 2002 and commits
Teligent to pay BTG monthly space and furniture rental payments of
approximately $110,000. Teligent has filed a motion with the Bankruptcy Court
requesting that it be relieved of its obligations under the sublease. We
believe that there is a strong likelihood this request will be granted. In that
event, BTG would receive no future rent under the sublease, but would be free
to re-let the space. We are unable to determine at this time what the effect
on BTG would be if Teligents request is denied or if Teligent withdraws its
motion and alternatively seeks to affirm and continue the sublease, but, we
believe that, based on currently available information, it is unlikely that BTG
will receive 100% of the amounts due for the remaining term of the sublease.

15. SUPPLEMENTAL CASH FLOW DISCLOSURES

Supplemental cash flow disclosures, not presented elsewhere in the
consolidated footnotes, are as follows:

|                                              |              |  |                    |       |      |  |      |       |  |  |   |       | 
|--------------------------------------------- | ------------ |  | ------------------ | ----- | ---- |  | ---- | ----- |  |  | - | ----- | 
|                                              |              |  | Fiscal Years Ended
|                                              |              |  | March 31          
|                                              |              |  |                   
|                                              |              |  | 2001               |       | 2000 |  | 1999
|                                              |              |  |                    |       |      |  |     
|Cash paid during the year for (in thousands):
|                                             
|                                             
|                                             
|                                             
|                                              | Interest     |  | $                  | 2,914 |      |  | $    | 1,981 |  |  | $ | 4,248 | 
|                                             
|                                             
|                                             
|                                             
|                                              | Income taxes |  | $                  | 1,159 |      |  | $    | 1,657 |  |  | $ | 693   | 

During fiscal 1999, we obtained approximately $814,000 of internal-use
software through the conversion of amounts paid to a major software company in
a prior year. The original payments were made as advanced royalties against
future sales by BTG of certain products of the software company.

In connection with our business combinations in fiscal 2001 and 1999, the
following liabilities were assumed (in thousands):

|                                                      |  |      |                    |      |  |   |        |  
|----------------------------------------------------- |  | ---- | ------------------ | ---- |  | - | ------ | -
|                                                      |  |      | Fiscal Years Ended
|                                                      |  |      | March 31          
|                                                      |  |     
|                                                      |  | 2001 |                    | 1999
|                                                      |  |      |                    |     
|Fair value of tangible and intangible assets acquired |  | $    | 15,704             |      |  | $ | 9,775  |  
|                                                     
|                                                     
|                                                     
|                                                     
|Cash paid and notes payable issued                    |  |      | (14,298            | )    |  |   | (6,351 | )
|                                                      |  |      |                    |      |  |   |        |  
|Liabilities assumed                                   |  | $    | 1,406              |      |  | $ | 3,424  |  
|                                                      |  |      |                    |      |  |   |        |  

16. SEGMENT REPORTING

Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures
about Segments of an Enterprise and Related Information, established procedures
and requirements for the (i) determination of business segments, (ii)
presentation and disclosure of segment information, and (iii) disclosure of
selected segment information within interim consolidated financial statements.
Business segments, as defined in SFAS No. 131, are components of an enterprise
for which separate financial information is available and is evaluated
regularly by the Company in deciding how to allocated resources and in
assessing performance.

Under SFAS No. 131, in fiscal 2001 and 2000, BTG has only one reportable
segment. In fiscal 1999, we had two reportable segments: the Systems Business
and the Product Reselling Business. Currently, we provide systems development,
integration, engineering and network design, and security expertise services
under our Systems Business. In fiscal 1999 and prior years, we resold computer
hardware and software under our Product Reselling Business. The accounting
policies of these segments are the same as those described in the summary of
significant accounting policies. In February 1998, pursuant to a restructuring
plan approved by BTGs Board of Directors, we began phasing out our operating
activities in the Product Reselling Business. Accordingly, there was no
operating activity in the Product Reselling Business in either fiscal 2001 or
2000, and we do not anticipate any operating activity in the Product Reselling
Business segment in future periods. In addition, there were no assets
associated with the Product Reselling Business at March 31, 2001 and 2000.
The product revenue shown in our income statement in fiscal 2001 and 2000, does
not relate to the Product Reselling Business but rather is derived from product
sales that are incidental to our Systems Business.

39



---



##### Table of Contents



Selected financial data for our operating segments is summarized as
follows (in thousands):

|                                         |                                       |                            |         |                |         |  
|---------------------------------------- | ------------------------------------- | -------------------------- | ------- | -------------- | ------- | -
|                                         |                                       |                            |         | For the fiscal
|                                         |                                       |                            |         | year ended    
|                                         |                                       |                            |         | March 31, 1999
|                                         |                                       |                            |         |               
|Revenues:                               
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Systems Business           |         | $              | 222,868 |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Product Reselling Business |         |                | 93,567  |  
|                                         |                                       |                            |         |               
|                                         |                                       | $                          | 316,435 |               
|                                         |                                       |                            |         |               
|Depreciation and amortization expense:  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Systems Business           |         | $              | 1,965   |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Product Reselling Business |         |                |        |  
|                                         |                                       |                            |         |               
|                                         |                                       | $                          | 1,965   |               
|                                         |                                       |                            |         |               
|Restructuring charge:                   
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Systems Business           |         | $              |        |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Product Reselling Business |         |                | 1,796   |  
|                                         |                                       |                            |         |               
|                                         |                                       | $                          | 1,796   |               
|                                         |                                       |                            |         |               
|Interest expense, net:                  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Systems Business           |         | $              | 3,949   |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Product Reselling Business |         |                |        |  
|                                         |                                       |                            |         |               
|                                         |                                       | $                          | 3,949   |               
|                                         |                                       |                            |         |               
|Income (loss) from continuing operations
|                                        
|                                        
|                                        
|                                        
|                                         | before taxes and extraordinary items:
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Systems Business           |         | $              | 3,392   |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Product Reselling Business |         |                | (800    | )
|                                         |                                       |                            |         |               
|                                         |                                       | $                          | 2,592   |               
|                                         |                                       |                            |         |               

|              |                            |   |                  |        | 
|------------- | -------------------------- | - | ---------------- | ------ | 
|              |                            |   | As of the fiscal
|              |                            |   | year ended      
|              |                            |   | March 31, 1999  
|              |                            |   |                 
|Total assets:
|             
|             
|             
|             
|              | Systems Business           |   | $                | 88,632 | 
|             
|             
|             
|             
|              | Product Reselling Business |   |                  | 1,745  | 
|              |                            |   |                  |       
|              |                            | $ | 90,377           |       
|              |                            |   |                  |       

A reconciliation of segment data to consolidated Company data is as
follows (in thousands):

|                                         |                                       |                                      |       |                |        |  
|---------------------------------------- | ------------------------------------- | ------------------------------------ | ----- | -------------- | ------ | -
|                                         |                                       |                                      |       | For the fiscal
|                                         |                                       |                                      |       | year ended    
|                                         |                                       |                                      |       | March 31, 1999
|                                         |                                       |                                      |       |               
|Income (loss) from continuing operations
|                                        
|                                        
|                                        
|                                        
|                                         | before taxes and extraordinary items:
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Segment data                         |       | $              | 2,592  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Gain on sale of investments, net     |       |                | 3,532  |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Unusual charges                      |       |                | (1,201 | )
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Equity in the earnings of affiliates |       |                | 24     |  
|                                        
|                                        
|                                        
|                                        
|                                         |                                       | Other unallocated corporate costs    |       |                | (619   | )
|                                         |                                       |                                      |       |               
|                                         |                                       | $                                    | 4,328 |               
|                                         |                                       |                                      |       |               

Approximately 79%, 83%, and 92% in fiscal 2001, 2000, and 1999,
respectively, of our revenues resulted from contracts or subcontracts with, and
product sales to, the Government. We operate principally in the United States.

40



---



##### Table of Contents



17. QUARTERLY FINANCIAL DATA (Unaudited)

Unaudited summarized financial data by quarter for fiscal 2001 and 2000
are as follows (in thousands, except per share data). Quarterly revenues and
operating income in fiscal 2000 exclude the revenues and operating losses of
businesses classified as discontinued operations:

Fiscal 2001:

|                                  |  |                             |        |               |       |         |        |        |       |          |        |   |       |   |        |  |       | 
|--------------------------------- |  | --------------------------- | ------ | ------------- | ----- | ------- | ------ | ------ | ----- | -------- | ------ | - | ----- | - | ------ |  | ----- | 
|                                  |  |                             |        | Quarter Ended
|                                  |  |                             |        |              
|                                  |  |                             |        | June 30       |       | Sept 30 |        | Dec 31 |       | March 31
|                                  |  |                             |        |               |       |         |        |        |       |         
|Revenues                          |  | $                           | 59,923 |               |       | $       | 54,753 |        |       | $        | 51,380 |   |       | $ | 58,787 | 
|                                 
|                                 
|                                 
|                                 
|Operating income (loss)           |  | $                           | 3,385  |               |       | $       | 3,120  |        |       | $        | (251   | ) |       | $ | 2,259  | 
|                                 
|                                 
|                                 
|                                 
|Net income (loss)                 |  | $                           | 1,445  |               |       | $       | 1,260  |        |       | $        | (1,113 | ) |       | $ | 1,085  | 
|                                 
|                                 
|                                 
|                                 
|Basic earnings (loss) per share   |  | $                           | 0.16   |               |       | $       | 0.14   |        |       | $        | (0.12  | ) |       | $ | 0.12   | 
|                                 
|                                 
|                                 
|                                 
|Diluted earnings (loss) per share |  | $                           | 0.16   |               |       | $       | 0.14   |        |       | $        | (0.12  | ) |       | $ | 0.12   | 
|                                 
|                                 
|                                 
|                                 
|Weighted average shares          
|                                 
|                                 
|                                 
|                                 
|                                  |  | outstanding for basic EPS   |        |               | 8,988 |         |        |        | 9,005 |          |        |   | 8,945 |   |        |  | 8,882 | 
|                                 
|                                 
|                                 
|                                 
|Weighted average shares          
|                                 
|                                 
|                                 
|                                 
|                                  |  | outstanding for diluted EPS |        |               | 9,110 |         |        |        | 9,129 |          |        |   | 8,945 |   |        |  | 8,882 | 

Fiscal 2000:

|                           |                             |   |               |       |         |   |        |       |          |   |        |       |  |   |        |       | 
|-------------------------- | --------------------------- | - | ------------- | ----- | ------- | - | ------ | ----- | -------- | - | ------ | ----- |  | - | ------ | ----- | 
|                           |                             |   | Quarter Ended
|                           |                             |   |              
|                           |                             |   | June 30       |       | Sept 30 |   | Dec 31 |       | March 31
|                           |                             |   |               |       |         |   |        |       |         
|Revenues                   |                             | $ | 66,345        |       |         | $ | 63,911 |       |          | $ | 59,348 |       |  | $ | 59,391 |      
|                          
|                          
|                          
|                          
|Operating income           |                             | $ | 2,137         |       |         | $ | 2,538  |       |          | $ | 2,478  |       |  | $ | 2,867  |      
|                          
|                          
|                          
|                          
|Net income                 |                             | $ | 965           |       |         | $ | 1,065  |       |          | $ | 1,134  |       |  | $ | 1,275  |      
|                          
|                          
|                          
|                          
|Basic earnings per share   |                             | $ | 0.11          |       |         | $ | 0.12   |       |          | $ | 0.13   |       |  | $ | 0.14   |      
|                          
|                          
|                          
|                          
|Diluted earnings per share |                             | $ | 0.11          |       |         | $ | 0.12   |       |          | $ | 0.13   |       |  | $ | 0.14   |      
|                          
|                          
|                          
|                          
|Weighted average shares   
|                          
|                          
|                          
|                          
|                           | outstanding for basic EPS   |   |               | 8,840 |         |   |        | 8,836 |          |   |        | 8,839 |  |   |        | 8,923 | 
|                          
|                          
|                          
|                          
|Weighted average shares   
|                          
|                          
|                          
|                          
|                           | outstanding for diluted EPS |   |               | 8,846 |         |   |        | 9,062 |          |   |        | 9,029 |  |   |        | 9,150 | 

PART III

Item 9.Changes in and Disagreement with Accountants on
Accounting and Financial Disclosure

None.

Item 10.Directors and Executive Officers of the Registrant

For information regarding the members of the Board of Directors of BTG,
please consult the sections entitled Election of Directors and Compliance
with Section 16 (a) of the Securities Exchange Act in BTGs definitive proxy
statement with respect to our annual meeting of shareholders to be held August
30, 2001 (the Proxy Statement) to be filed within 120 days after the end of
our fiscal year. That information is incorporated herein by reference.
Information required to be supplied about the experience of the executive
officers is provided in Item 1 of this report. See Item 1. Business 
Executive Officers.

Item 11.Executive Compensation

For information regarding compensation of BTGs executive officers, please
consult the section entitled Executive Compensation appearing in the Proxy
Statement. That information is incorporated herein by reference.

41



---



##### Table of Contents



Item 12.Security Ownership of Certain Beneficial Owners and Management

For information regarding ownership of BTGs stock, please consult the
section entitled Beneficial Ownership of Common Stock appearing in the Proxy
Statement. That information is incorporated herein by reference.

Item 13.Certain Relationships and Related Transactions

For information regarding related party transactions, please consult the
section entitled Certain Relationships and Related Transactions appearing in
the Proxy Statement. That information is incorporated herein by reference.

PART IV

Item 14.Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a) Documents filed as part of this Report:

|   |  |                                                                                                                                                                                                                                                                                
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|1. |  | Financial Statement Schedules.The following additional financial
data should be read in conjunction with the Consolidated Financial
Statements included in Item 8. Schedules other than those listed below
have been omitted because they are inapplicable or are not required.

|                                                      |  |             
|----------------------------------------------------- |  | ------------
|Valuation and Qualifying Accounts                     |  | Schedule II 
|                                                     
|                                                     
|                                                     
|                                                     
|Statement regarding computation of per share earnings |  | Exhibit 11  
|                                                     
|                                                     
|                                                     
|                                                     
|Independent Auditors Report  Deloitte & Touche LLP  |  | Exhibit 99.1
|                                                     
|                                                     
|                                                     
|                                                     
|Independent Auditors Report  KPMG LLP               |  | Exhibit 99.2

|   |  |                                                                                                  
|-- |  | -------------------------------------------------------------------------------------------------
|2. |  | The following exhibits are either filed with this Report or are
incorporated herein by reference:

|     |  |                                                                                                                                                                                                                                                                                                       
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended and Restated Articles of Incorporation of the Company,
and the Amendment thereto (incorporated by reference to the Companys
Form 10-Q for the quarter ended September 30, 1997).                                                                                                             
|    
|    
|    
|    
|3.2  |  | Amended and Restated Bylaws of the Company (incorporated by
reference to the Companys registration statement on Form S-1 (File
No. 33-85854)).                                                                                                                                                       
|    
|    
|    
|    
|4.1  |  | Specimen certificate of share of Common Stock (incorporated by
reference to the Companys registration statement on Form S-8 (File
No. 33-97302)).                                                                                                                                                    
|    
|    
|    
|    
|10.1 |  | Amended and Restated Business Loan and Security Agreement,
dated October 31, 1997, among BTG, Inc. and its subsidiaries and
NationsBank, N.A. (incorporated by reference to the Companys
registration statement on Form S-4 (File No. 333-40917)).                                                   
|    
|    
|    
|    
|10.2 |  | First Modification to Amended and Restated Business Loan and
Security Agreement, dated February 24, 1998, by and among BTG, Inc.
and its Subsidiaries and NationsBank, N.A. (incorporated by reference
to the Companys Form 10-K for the year ended March 31, 1998).                                 
|    
|    
|    
|    
|10.3 |  | Second Modification to Amended and Restated Business Loan and
Security Agreement, dated June 24, 1998, by and among BTG, Inc. and
its subsidiaries and NationsBank, N.A. (incorporated by reference to
the Companys Form10-K for the year ended March 31, 1998).                                     
|    
|    
|    
|    
|10.4 |  | Third Modification to Amended and Restated Business Loan and
Security Agreement, dated November 9, 1998, by and among BTG, Inc.
and its subsidiaries, NationsBank, N.A. and Fleet Capital Corporation
(incorporated by reference to the Companys Form 10-Q for the quarter
ended September 30, 1998).
|    
|    
|    
|    
|10.5 |  | Fourth Modification to Amended and Restated Business Loan and
Security Agreement, dated January 26, 1999, by and among BTG, Inc.
and its subsidiaries, NationsBank, N.A. and Fleet Capital Corporation
(incorporated by reference to the Companys Form 10-Q for the quarter
ended December 31, 1998).
|    
|    
|    
|    
|10.6 |  | Fifth Modification to Amended and Restated Business Loan and
Security Agreement, dated April 19, 2000, by and among BTG, Inc. and
its subsidiaries, Bank of America, N.A. and Fleet Capital Corporation
(incorporated by reference to the Companys Form 10-K for the year
ended March 31, 2000).     
|    
|    
|    
|    
|10.7 |  | Sixth Modification to Amended and Restated Business Loan and
Security Agreement, dated April 2, 2001, by and among BTG, Inc. and
its subsidiaries, Bank of America, N.A. and Fleet Capital
Corporation.                                                                                               
|    
|    
|    
|    
|10.8 |  | 1995 Employee Stock Option Plan (incorporated by reference to
the Companys Registration statement on Form S-8 (File No.
333-10473)).*                                                                                                                                                                
|    
|    
|    
|    
|10.9 |  | Employee Stock Purchase Plan (incorporated by reference to the
Companys Registration statement on Form S-8 (File No. 333-10473)).*                                                                                                                                                                   

42



---



##### Table of Contents



|      |  |                                                                                                                                                                                                                                                                               
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     
|     
|     
|     
|10.10 |  | Annual Leave Stock Plan (incorporated by reference to the
Companys registration statement on Form S-8 (File No. 33-97302)).*                                                                                                                                                 
|     
|     
|     
|     
|10.11 |  | Directors Stock Option Plan (incorporated by reference to the
Companys Form 10-K for the year ended March 31, 1996).*                                                                                                                                                        
|     
|     
|     
|     
|10.12 |  | Non-Employee Director Stock Purchase Plan (incorporated by
reference to the Companys registration statement on Form S-1 (File
No. 333-14767)).*                                                                                                                              
|     
|     
|     
|     
|10.13 |  | Employment Agreement between the Company and Edward H. Bersoff
(incorporated by reference to the Companys registration statement on
Form S-1 (File No. 33-85854)).*                                                                                                          
|     
|     
|     
|     
|10.14 |  | Employment Agreement between the Company and Linda E. Hill
dated as of April 1, 2000 (incorporated by reference to the
Companys Form 10-Q for the quarter ended June 30, 2000).*                                                                                             
|10.15 |  | Employment Agreement between the Company and Thomas W. Weston,
Jr. dated as of December 1, 2000.*                                                                                                                                                                             
|10.16 |  | Employment Agreement between the Company and John Littley, III
dated as of April 1, 2000.*                                                                                                                                                                                    
|     
|     
|     
|     
|10.17 |  | Employment Agreement between the Company and Robert J. Osterloh
dated as of April 1, 2000.*                                                                                                                                                                                   
|     
|     
|     
|     
|10.18 |  | Employment Agreement between the Company and Leslie A. Rose
dated as of April 1, 2000.*                                                                                                                                                                                       
|     
|     
|     
|     
|10.19 |  | Asset Purchase Agreement, dated February 28, 2000, by and
between BTG, Inc. and SSDS, Inc., as amended April 17, 2000.                                                                                                                                                        
|     
|     
|     
|     
|10.20 |  | Asset Purchase Agreement, dated February 12, 1998, among BTG,
Inc., BTG Technology Systems, Inc., Concept Automation, Inc. of
America and Government Technology Services, Inc. (incorporated by
reference to the Companys Form 10-Q for the quarter ended December
31, 1997).
|     
|     
|     
|     
|10.21 |  | Standstill Agreement, dated February 12, 1998, among BTG, Inc.
and Government Technology Services, Inc. (incorporated by reference
to the Companys Form 10-Q for the quarter ended December 31, 1997).                                                                       
|     
|     
|     
|     
|10.22 |  | Certificate of Designations, Preferences and Rights of Series
C 8% Cumulative Redeemable Convertible Preferred Stock (incorporated
by reference to the Companys Form 10-Q for the quarter ended
December 31, 1997).                                                          
|     
|     
|     
|     
|11    |  | Statement regarding computation of per share earnings.                                                                                                                                                                                                                        
|     
|     
|     
|     
|21    |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                               
|     
|     
|     
|     
|23.1  |  | Consent of Independent Auditors  Deloitte & Touche LLP.                                                                                                                                                                                                                      
|     
|     
|     
|     
|23.2  |  | Consent of Independent Auditors  KPMG LLP.                                                                                                                                                                                                                                   
|     
|     
|     
|     
|99.1  |  | Report of Independent Auditors Deloitte & Touche LLP.                                                                                                                                                                                                                        
|     
|     
|     
|     
|99.2  |  | Report of Independent Auditors KPMG LLP.                                                                                                                                                                                                                                     



---

|* |  | Management contract or compensatory plan or arrangement.
|- |  | --------------------------------------------------------

(b) Reports on Form 8-K:

|             |  |                                                                                                                                                        
|------------ |  | -------------------------------------------------------------------------------------------------------------------------------------------------------
|June 9, 2001 |  | On June 9, 2001, we filed a current report on Form 8-K to report the
acquisition of all of the issued and outstanding shares of Research
Planning, Inc.

(c) Exhibits to this Form 10-K are filed herewith, unless incorporated by
reference.

(d) Schedules to this Form 10-K are filed herewith.

43



---



##### Table of Contents



SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized as of the 25th day
of June, 2001.



| | BTG, INC.
Registrant
| | --------------------



| |     |  |                                      
| | --- |  | -------------------------------------
| | By: |  | /s/ EDWARD H. BERSOFF                
| |     |  |                                      
| |     |  | Edward H. Bersoff                    
|
|
|
|
| |     |  | President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated as of June 25, 2001.

|                         |  |                                          
|------------------------ |  | -----------------------------------------
|Signature                |  | Title                                    
|                         |  |                                          
|                        
|/s/ EDWARD H. BERSOFF    |  | Chairman of the Board and Chief Executive
|                        
|                        
|                        
|                        
|                         |  | Officer (Principal Executive Officer)    
|                        
|                        
|                        
|                        
|Edward H. Bersoff       
|                        
|/s/ THOMAS W. WESTON, JR |  | Chief Financial Officer                  
|                        
|                        
|                        
|                        
|                         |  | (Principal Accounting Officer)           
|                        
|                        
|                        
|                        
|Thomas W. Weston, Jr.   
|                        
|/s/ RUTH M. DAVIS        |  | Director                                 
|                        
|Ruth M. Davis           
|                        
|/s/ NEAL B. FREEMAN      |  | Director                                 
|                        
|Neal B. Freeman         
|                        
|/s/ ALAN G. MERTEN       |  | Director                                 
|                        
|Alan G. Merten          
|                        
|/s/ RAYMOND T. TATE      |  | Director                                 
|                        
|Raymond T. Tate         
|                        
|/s/ RONALD L. TURNER     |  | Director                                 
|                        
|Ronald L. Turner        
|                        
|/s/ DONALD M. WALLACH    |  | Director                                 
|                        
|Donald M. Wallach       
|                        
|/s/ EARLE C. WILLIAMS    |  | Director                                 
|                        
|Earle C. Williams       

44



---



##### Table of Contents



SCHEDULE II

BTG, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS
For Fiscal Years Ended March 31, 2001, 2000, and 1999
(In thousands)

|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |   |       | 
|----------------- | -------------- | ------------------------------------------- | ----- | --------- | ----- | --------- | ----- | ----------- | ----- | ------------ | ----- | --------- | ----- | ------- | ---- | ------- | ---- | - | ----- | - | ----- | 
|                  |                |                                             |       | Balance   |       |           |       |             |       |              |       |           |       | Other   |      | Balance
|                  |                |                                             |       | At        |       |           |       |             |       |              |       |           |       | Changes |      | at     
|                  |                |                                             |       | Beginning |       | Additions |       |             |       |              |       | Additions |       | End of 
|                  |                |                                             |       | of Year   |       | At Cost   |       | Retirements |       | (Deductions) |       | Year     
|                  |                |                                             |       |           |       |           |       |             |       |              |       |          
|Fiscal Year Ended
|                 
|                 
|                 
|                 
|                  | March 31, 2001
|                 
|                 
|                 
|                 
|                  |                | Allowances for doubtful accounts
receivable |       | $         | 1,043 |           |       |             | 105   |              |       |           | 465   |         |      | $       |     |   |       | $ | 683   | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for inventory
obsolescence       |       |           | 88    |           |       |             | 12    |              |       |           | 53    |         |      |         |     |   |       |   | 47    | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for income tax
valuations        |       |           | 133   |           |       |             |      |              |       |           |      |         |      |         |     |   |       |   | 133   | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for warranty
costs               |       |           | 1,293 |           |       |             | 575   |              |       |           |       |         |      |         | (221 | ) |       |   | 496   | 
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |  
|                  |                | $                                           | 2,557 |           |       | $         | 692   |             |       | $            | 518   |           |       | $       | (221 | )       |      | $ | 1,359 |  
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |   |       | 
|Fiscal Year Ended
|                 
|                 
|                 
|                 
|                  | March 31, 2000
|                 
|                 
|                 
|                 
|                  |                | Allowances for doubtful accounts
receivable |       | $         | 2,638 |           |       |             | 605   |              |       |           | 2,200 |         |      | $       |     |   |       | $ | 1,043 | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for inventory
obsolescence       |       |           | 700   |           |       |             |      |              |       |           | 365   |         |      |         | (247 | ) |       |   | 88    | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for income tax
valuations        |       |           | 133   |           |       |             |      |              |       |           |      |         |      |         |     |   |       |   | 133   | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for warranty
costs               |       |           | 1,374 |           |       |             | 1,022 |              |       |           | 1,103 |         |      |         |     |   |       |   | 1,293 | 
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |  
|                  |                | $                                           | 4,845 |           |       | $         | 1,627 |             |       | $            | 3,668 |           |       | $       | (247 | )       |      | $ | 2,557 |  
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |   |       | 
|Fiscal Year Ended
|                 
|                 
|                 
|                 
|                  | March 31, 1999
|                 
|                 
|                 
|                 
|                  |                | Allowances for doubtful accounts
receivable |       | $         | 3,183 |           |       | $           | 286   |              |       | $         | 831   |         |      | $       |     |   |       | $ | 2,638 | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for inventory
obsolescence       |       |           | 1,675 |           |       |             | 80    |              |       |           | 1,055 |         |      |         |     |   |       |   | 700   | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for income tax
valuations        |       |           | 550   |           |       |             | 417   |              |       |           |       |         |      |         |     |   |       |   | 133   | 
|                 
|                 
|                 
|                 
|                  |                | Allowances for warranty
costs               |       |           | 2,971 |           |       |             | 593   |              |       |           | 2,190 |         |      |         |     |   |       |   | 1,374 | 
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |  
|                  |                | $                                           | 8,379 |           |       | $         | 959   |             |       | $            | 4,493 |           |       | $       |     |         |      | $ | 4,845 |  
|                  |                |                                             |       |           |       |           |       |             |       |              |       |           |       |         |      |         |      |   |       |   |       | 

45