TITAN CORP, 10-Q, 2000-08-14

TITAN CORP
10-Q, 2000-08-14
COMPUTER INTEGRATED SYSTEMS DESIGN

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

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

FORM 10-Q

<TABLE>
<C> <S>
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2000
OR

<TABLE>
<C> <S>
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
</TABLE>

FOR THE TRANSITION PERIOD FROM ______________ TO ______________

COMMISSION FILE NUMBER 1-6035

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

THE TITAN CORPORATION
(Exact name of registrant as specified in its charter)

<TABLE>
<CAPTION>
DELAWARE 95-2588754
<S> <C>
(State or other jurisdiction
of (I.R.S. Employer
incorporation or
organization) Identification No.)
</TABLE>

3033 SCIENCE PARK ROAD
SAN DIEGO, CALIFORNIA 92121-1199
(Address of principal executive offices, zip code)

(Registrant's telephone number, including area code) (858) 552-9500

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

(Former name, former address and former fiscal year, if changed since last
report.)

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

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 / /

The number of shares of registrant's common stock outstanding at August 10,
2000, was 53,741,222.

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<PAGE>
PART I--FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

THE TITAN CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................ $255,197 $191,446 $476,863 $354,005
-------- -------- -------- --------
Costs and expenses:
Cost of revenues.................................. 191,333 141,909 359,187 264,496
Selling, general and administrative expense....... 47,377 32,674 91,932 60,546
Research and development expense.................. 3,077 2,252 5,324 3,726
Acquisition related charges and other............. 20,924 -- 38,994 --
-------- -------- -------- --------
Total costs and expenses........................ 262,711 176,835 495,437 328,768
-------- -------- -------- --------
Operating profit (loss)............................. (7,514) 14,611 (18,574) 25,237
Interest expense.................................... (9,583) (4,710) (16,998) (7,980)
Interest income..................................... 1,045 102 1,972 176
-------- -------- -------- --------
Income (loss) before income taxes, minority
interest,
extraordinary loss and foreign currency gain...... (16,052) 10,003 (33,600) 17,433
Income tax provision (benefit)...................... (4,013) 3,441 (8,400) 6,094
-------- -------- -------- --------
Income (loss) before minority interest,
extraordinary loss and foreign currency gain...... (12,039) 6,562 (25,200) 11,339
Minority interest................................... 837 -- 2,215 --
Extraordinary loss from early extinguishments of
debt, net of taxes................................ (1,290) -- (4,744) --
Foreign currency gain............................... 7 -- 7 --
-------- -------- -------- --------
Net income (loss)................................... (12,485) 6,562 (27,722) 11,339
Dividend requirements on preferred stock............ (173) (173) (347) (347)
-------- -------- -------- --------
Net income (loss) applicable to common stock........ $(12,658) $ 6,389 $(28,069) $ 10,992
======== ======== ======== ========
Basic earnings (loss) per share:
Income (loss) before extraordinary loss........... $ (0.22) $ 0.14 $ (0.45) $ 0.25
Extraordinary loss from early extinguishments of
debt, net of taxes.............................. (0.02) -- (0.09) --
-------- -------- -------- --------
Net income (loss)................................. $ (0.24) $ 0.14 $ (0.54) $ 0.25
======== ======== ======== ========
Weighted average shares........................... 52,624 45,299 52,536 44,589
======== ======== ======== ========
Diluted earnings (loss) per share:
Income (loss) before extraordinary loss........... $ (0.22) $ 0.12 $ (0.45) $ 0.22
Extraordinary loss from early extinguishments of
debt, net of taxes.............................. (0.02) -- (0.09) --
-------- -------- -------- --------
Net income (loss)................................. $ (0.24) $ 0.12 $ (0.54) $ 0.22
======== ======== ======== ========
Weighted average shares........................... 52,624 53,765 52,536 53,402
======== ======== ======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

2
<PAGE>
THE TITAN CORPORATION

CONSOLIDATED BALANCE SHEETS

(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARES AND PER SHARE DATA)

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 81,992 $ 13,469
Accounts receivable--net.................................. 315,460 266,988
Inventories............................................... 20,671 15,640
Prepaid expenses and other................................ 19,896 12,224
Deferred income taxes..................................... 25,769 13,361
-------- --------
Total current assets.................................... 463,788 321,682
Property and equipment--net................................. 67,494 47,556
Goodwill--net............................................... 320,961 240,106
Other assets................................................ 54,122 24,757
Net assets of discontinued operations....................... 443 557
-------- --------
Total assets............................................ $906,808 $634,658
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Line of credit............................................ $ 2,500 $ 18,635
Accounts payable.......................................... 67,098 52,402
Acquisition debt.......................................... 4,000 4,800
Current portion of long-term debt......................... 1,334 6,491
Accrued compensation and benefits......................... 47,826 39,401
Other accrued liabilities................................. 66,606 61,592
Income taxes payable...................................... -- 9,857
Net liabilities of discontinued operations................ 3,488 7,142
-------- --------
Total current liabilities............................... 192,852 200,320
-------- --------
Lines of credit............................................. 246,875 215,987
Other long-term debt........................................ 20,750 14,802
Other non-current liabilities............................... 38,061 31,851
Company obligated mandatory redeemable convertible preferred
securities of a subsidiary trust whose sole assets are
senior subordinated debentures of Titan................... 250,000 --
Minority interests.......................................... 12,354 5,350
Stockholders' Equity:
Preferred stock: $1 par value, authorized 5,000,000
shares:
Cumulative convertible, $13,897 liquidation preference:
690,000 and 694,850
shares issued and outstanding......................... 690 695
Series A junior participating: authorized 250,000
shares:
None issued........................................... -- --
Common stock: $.01 par value, authorized 200,000,000
shares, issued and outstanding: 53,730,111 and
52,456,641.............................................. 537 525
Capital in excess of par value............................ 170,057 163,252
Deferred compensation..................................... (2,100) (738)
Retained earnings (deficit)............................... (21,434) 5,283
Foreign currency translation adjustment................... (40) (33)
Treasury stock (981,115 and 966,398 shares), at cost...... (1,794) (2,636)
-------- --------
Total stockholders' equity.............................. 145,916 166,348
-------- --------
Total liabilities and stockholders' equity.............. $906,808 $634,658
======== ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

3
<PAGE>
s

THE TITAN CORPORATION CONSOLIDATED

STATEMENTS OF CASH FLOWS

(UNAUDITED)
(IN THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
--------------------
2000 1999
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)........................................... $ (27,722) $ 11,339
Adjustments to reconcile net income (loss) to net cash used
for operating activities, net of effects of businesses
acquired:
Depreciation and amortization............................. 21,139 8,971
Deferred income taxes and other........................... (7,090) 3,024
Pooling of interests...................................... 1,352 --
Minority interests........................................ (2,215) --
Deferred compensation..................................... 524 --
Changes in operating assets and liabilities, net of the
effects of businesses acquired:
Accounts receivable..................................... (27,647) (33,637)
Inventories............................................. (3,677) (2,166)
Prepaid expenses and other assets....................... (9,133) (7,345)
Accounts payable........................................ 9,407 (5,231)
Accrued compensation and benefits....................... 5,057 3,055
Income taxes payable.................................... (11,046) 1,652
Other liabilities....................................... (6,667) 3,334
--------- --------
Net cash used for continuing operations..................... (57,718) (17,004)
--------- --------
Changes in net assets and liabilities of discontinued
operations................................................ (3,540) (4,920)
--------- --------
Net cash used for discontinued operations................... (3,540) (4,920)
--------- --------
Net cash used for operating activities...................... (61,258) (21,924)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures........................................ (24,811) (5,154)
Acquisition of businesses and other equity interests, net of
cash acquired............................................. (104,950) (58,989)
Other....................................................... (956) 524
--------- --------
Net cash used for investing activities...................... (130,717) (63,619)
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of redeemable convertible preferred securities..... 250,000 --
Additions to debt........................................... 121,779 110,098
Retirements of debt......................................... (106,235) (38,774)
Contribution from minority interest of consolidated
subsidiary................................................ 6,373 --
Deferred financing costs.................................... (19,823) --
Extraordinary loss on retirements of debt................... 4,744 --
Dividends paid.............................................. (347) (347)
Proceeds from stock issuances............................... 3,698 1,447
Purchase of stock........................................... (173) (286)
Other....................................................... 489 (21)
--------- --------
Net cash provided by financing activities................... 260,505 72,117
--------- --------
Effect of exchange rate changes on cash..................... (7) --
--------- --------
Net increase (decrease) in cash and cash equivalents........ 68,523 (13,426)
Cash and cash equivalents at beginning of period............ 13,469 11,411
--------- --------
Cash and cash equivalents at end of period.................. $ 81,992 $ (2,015)
========= ========
</TABLE>

The accompanying notes are an integral part of these consolidated financial
statements.

4
<PAGE>
THE TITAN CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

(UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
CUMULATIVE
CUMULATIVE CAPITAL FOREIGN
CONVERTIBLE IN EXCESS RETAINED CURRENCY
PREFERRED COMMON OF PAR DEFERRED EARNINGS TRANSLATION TREASURY
STOCK STOCK VALUE COMPENSATION (DEFICIT) ADJUSTMENT STOCK TOTAL
----------- -------- --------- ------------ --------- ----------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SIX MONTHS ENDED JUNE 30,
2000:
Balances at December 31,
1999........................ $695 $525 $163,252 $ (738) $ 5,283 $(33) $(2,636) $166,348
Pooling adjustment.......... 1,352 1,352
Exercise of stock options
and other................. 12 2,066 2,078
Proceeds from stock
issuances................. 1,820 1,820
Issuance of stock for equity
interest.................. 900 900
Deferred compensation,
related to the issuance of
stock options............. 1,833 (1,886) (53)
Amortization of deferred
compensation.............. 524 524
Purchase of treasury
stock..................... (173) (173)
Shares contributed to
employee benefit plans.... (78) 842 764
Foreign currency translation
adjustment................ (7) (7)
Conversion of preferred
stock..................... (5) 5 --
Income tax benefit from
employee stock
transactions.............. 432 432
Dividends on preferred
stock--Cumulative
convertible, $.50 per
share..................... (347) (347)
Net loss.................... (27,722) (27,722)
---- ---- -------- ------- -------- ---- ------- --------
Balances at June 30, 2000..... $690 $537 $170,057 $(2,100) $(21,434) $(40) $(1,794) $145,916
==== ==== ======== ======= ======== ==== ======= ========
SIX MONTHS ENDED JUNE 30,
1999:
Balances at December 31,
1998........................ $695 $435 $131,664 $ -- $(31,775) $ -- $(2,579) $ 98,440
Conversion of subordinated
debentures................ 34 11,788 11,822
Exercise of stock options
and other................. 5 1,466 (21) 1,450
Sale of treasury stock...... 643 643
Purchase of treasury
stock..................... (286) (286)
Income tax benefit from
employee stock
transaction............... 106 106
Divestiture of discontinued
operations................ 565 565
Dividends on preferred
stock--Cumulative
convertible, $.50 per
share..................... (347) (347)
Net income.................. 11,339 11,339
---- ---- -------- ------- -------- ---- ------- --------
Balances at June 30, 1999..... $695 $474 $145,946 $ -- $(20,783) $ -- $(2,600) $123,732
==== ==== ======== ======= ======== ==== ======= ========
</TABLE>

5
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (1) BASIS OF FINANCIAL STATEMENT PREPARATION

The accompanying consolidated financial information of The Titan Corporation
and its subsidiaries ("Titan" or "the Company") should be read in conjunction
with the Notes to Consolidated Financial Statements contained in the Company's
Annual Report on Form 10-K/A to the Securities and Exchange Commission for the
year ended December 31, 1999. The accompanying financial information includes
all subsidiaries on a consolidated basis and all normal recurring adjustments
which are considered necessary by the Company's management for a fair
presentation of the financial position, results of operations and cash flows for
the periods presented. However, these results are not necessarily indicative of
results for a full fiscal year. The prior year financial statements have been
restated to reflect as poolings of interests the acquisitions of Advanced
Communication Systems, Inc. ("ACS") and AverStar, Inc. ("AverStar"), in the
first and second quarter of 2000, respectively (See Note 2).

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

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS

On June 28, 2000, the Company's second-tier holding company, Titan Wireless
Africa, a wholly owned subsidiary of Titan Wireless, completed the acquisition
of a majority interest (80%) of Ivoire Telecom S.A. Holding ("Ivoire Telecom"),
and through such interest acquired a controlling (minimum of 50.1%) equity
interest in each of the principal subsidiaries owned by Ivoire Telecom. The
purchase consideration consisted of $5.0 million in cash subject to certain
indemnification obligations, less $2.7 million to be placed in escrow. The
escrow is due approximately 180 days from the closing date. In addition, Titan
has committed to fund, up to a maximum of $25 million, for equipment financing
to build out the Ivoire Telecom network, subject to Titan's approval of each
equipment financing requirement. At August 10, 2000, approximately $1.8 million
has been advanced for such expenditures.

On June 26, 2000, the Company acquired AverStar, Inc. ("AverStar"), a
government information technology services company, in a stock-for-stock
transaction. AverStar's operations are primarily included in the Titan Systems
segment, with certain operations reported in the Emerging Technologies and
Businesses segment. Titan issued approximately 2,850,000 shares of common stock
for all the outstanding shares of AverStar common stock, subject to a holdback
of 180,000 shares held in escrow to cover certain indemnification obligations,
and assumed AverStar stock options representing approximately 551,000 shares of
Titan common stock, based on an exchange ratio of approximately .41415 shares of
Titan common stock for each share of AverStar common stock. The acquisition
constituted a tax-free reorganization and has been accounted for as a pooling of
interests.

Acquisition related charges of $11.7 million in the quarter ended June 30,
2000, include direct transaction costs of approximately $5.9 million related to
the consummation of the AverStar acquisition, which are comprised of accounting,
legal, investment banking, financial printing, and other direct costs. Also
included in these acquisition costs are employee termination and retention costs
of approximately $5.5 million, and costs to eliminate duplicate facilities and
assets of approximately $.3 million.

6
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS (CONTINUED)
In June 2000, Titan's wholly owned subsidiary, SureBeam Corporation, entered
into an agreement with Texas A&M University and the Texas Agricultural
Experiment Station (collectively, the "University System"), whereby SureBeam
agreed to provide three electronic food pasteurization systems pursuant to a
no-cost 10-year lease with title passing to the University System at the end of
the 10-year term. Under the agreement, SureBeam may retain the University System
to conduct certain research and development activities. This transaction has
been accounted for in accordance with APB No. 29, "Accounting For Nonmonetary
Transactions." Nonmonetary sales on a percentage-of-completion basis have been
recorded at the fair market value of the electronic food pasteurization systems.
A long-term asset has been recorded in a similar amount and will be recognized
as an expense over a term not to exceed the term of the lease.

On June 7, 2000, the Company completed the acquisition of all of the stock
of SenCom Corporation, ("SenCom") for a purchase price of approximately
$35 million in cash, subject to certain post-closing adjustments and
indemnification obligations, less a $5.0 million holdback, and less a
$1.3 million retention bonus pool to be paid one year from the closing date. Of
the $5.0 million holdback, $3 million is due approximately 90 days after the
closing date, and the remaining $2 million holdback is due 18 months from the
closing date, and accrues interest at 7% per annum. SenCom is an information
technology services company and is included in the Titan Systems segment. The
transaction was accounted for as a purchase, and accordingly, SenCom's results
of operations have been consolidated with the Company's results of operations
since June 8, 2000. The excess of the purchase price over the estimated fair
market value of the net assets acquired, to be amortized on a straight line
basis over 30 years, was approximately $28.1 million at June 30, 2000.

In May 2000, the Company's wholly owned subsidiary, SureBeam Corporation,
received purchase orders from Tech Ion Brasil S.A. for eleven electronic food
processing systems. Also in May 2000, SureBeam and Tech Ion Industrial Brazil
S.A., jointly established SureBeam Brasil Ltda. SureBeam acquired a 19.9% equity
interest in SureBeam Brasil without charge at the time of signing of the
agreement to establish SureBeam Brasil Ltda. SureBeam has the right, exercisable
at any time within 20 years of the formation of the strategic alliance to
acquire up to 50% of the total equity interest in SureBeam Brasil for no charge.
SureBeam Brasil Ltda. will provide, among other things, food pasteurization
services through multiple planned food pasteurization facilities to various food
companies in Brazil. The agreement further provides that SureBeam or another
Titan affiliate will provide a $5.0 million working capital line of credit to
Tech Ion, and advances will bear interest at 10% and are secured by the stock
and assets of Tech Ion. As of June 30, 2000, there was $.2 million outstanding
under this line of credit.

On May 1, 2000, Titan's wholly owned subsidiary, SureBeam Corporation,
entered into a non-compete agreement with Applied Power Associates, Inc. ("APA")
for $5 million in cash and a warrant to acquire 372,671 shares of SureBeam
common stock at an exercise price of $.1438 per share. The warrant expires on
the earliest of: (a) May 1, 2003; (b) SureBeam's initial public offering or
(c) the date SureBeam is sold. The consideration of approximately $5.2 million,
which includes $0.2 million related to the fair market value of the warrant, is
being amortized on a straight line basis over two years, the term of the non-
compete agreement included as part of this transaction.

On March 30, 2000, the Company completed the acquisition of all of the stock
of LinCom Corporation ("LinCom"), for a purchase price of approximately
$23 million in cash, subject to certain post-closing

7
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS (CONTINUED)
adjustments and indemnification obligations, less a $1 million holdback and a
$2 million promissory note. The $1 million holdback was due approximately
60 days after the closing date, and approximately $978,000 was paid in the
fulfillment of the Company's obligations, and the $2 million note is due one
year after the closing date and accrues interest at 7%. LinCom is a developer of
wireless communications and information systems for both commercial and
government customers. The operations of LinCom are primarily reported in the
Titan Systems segment. The commercial applications within LinCom are reported in
the Emerging Technologies and Businesses segment. The transaction was accounted
for as a purchase, and accordingly, LinCom's results of operations have been
consolidated with the Company's results of operations since March 31, 2000. The
excess of the purchase price over the estimated fair market value of the net
assets acquired, to be amortized on a straight line basis over 30 years, was
approximately $19.9 million at June 30, 2000.

On March 24, 2000, the Company completed the acquisition of all the
outstanding stock of Pulse Engineering ("Pulse") for a purchase price of
approximately $27.4 million in cash, subject to certain post-closing adjustments
and indemnification obligations, less a $1 million holdback placed in escrow and
a $2 million deferred payment. The holdback is due approximately 90 days from
the closing date and the deferred payment is due one year from the closing date.
Pulse provides highly specialized security and signal intelligence systems and
services to the intelligence community and is included in the Titan Systems
segment. The transaction was accounted for as a purchase, and accordingly,
Pulse's results of operations have been consolidated with the Company's results
of operations since March 25, 2000. The excess of the purchase price over the
estimated fair market value of the net assets acquired, to be amortized on a
straight line basis over 30 years, was approximately $23.4 million at June 30,
2000. In connection with the determination of the fair value of assets acquired
in the quarter ended June 30, 2000, and pursuant to the provisions of Accounting
Principles Board Opinion No. 16, the Company has valued acquired contracts in
process at contract price, minus the estimated costs to complete and an
allowance for the normal industry profit on its effort to complete such
contracts, which amounted to $684. This adjustment has been relfected in the
accompanying balance sheet as an increase to goodwill and a corresponding
increase to deferred profit. The Company recognized approximately $293 as a
reduction of costs in the second quarter of 2000, with the remaining $391 to be
recorded as a reduction of costs in future periods as work on certain contracts
is performed, which is estimated to be through fiscal 2004.

8
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS (CONTINUED)
Unaudited pro forma data giving effect to the purchase of LinCom, Pulse and
SenCom as if they had been acquired at the beginning of 1999 are shown below.

On February 25, 2000, the Company acquired Advanced Communication
Systems, Inc. ("ACS"), a government information technology services company, in
a stock-for-stock transaction. ACS' operations are primarily included in the
Titan Systems segment, with certain operations reported in the Emerging
Technologies and Businesses segment. Titan issued approximately 5,082,000 shares
of common stock for all the outstanding shares of ACS common stock and assumed
ACS stock options representing approximately 263,000 shares of Titan common
stock, based on an exchange ratio of approximately .57 shares of Titan common
stock for each share of ACS common stock. The acquisition constituted a tax-free
reorganization and has been accounted for as a pooling of interests.

Acquisition related charges of $18.1 million in the quarter ended March 31,
2000 and six months ended June 30, 2000, include direct transaction costs of
approximately $9.3 million related to the consummation of the ACS acquisition,
which are comprised of accounting, legal, investment banking, financial
printing, and other direct costs. Also included in these acquisition costs are
employee termination a nd retention costs of approximately $2.1 million, costs
to eliminate duplicate facilities and assets of approximately $1.2 million and a
write-down of approximately $5.5 million related to the impairment of certain
receivables, for which the realizability of such assets were impaired as a
result of the acquisition by Titan, which impacted the recoverability of certain
contract costs. Additional acquisition related expenses related to the ACS
acquisition of $7.3 million in the quarter ended June 30, 2000 include employee
termination and retention costs of $1.0 million, $1.3 million of costs to
eliminate duplicate facilities and assets and a valuation allowance of
$5.0 million against certain contract receivables provided in connection with
certain of the Company's integration activities, particularly as it relates to
conforming ACS to Titan's accounting policies and procedures, and determining
appropriate valuation allowances against potential contract receivables which
may not be realizable under normal contract reimbursement cycles.

Effective January 1, 2000, ACS' September 30 fiscal year-end has been
changed to coincide with the Company's year-end. The 1999 financial statements
presented have been restated to include the combined results of operations,
financial position and cash flows as if the merger had occurred at the beginning
of the periods presented. A pooling of interests adjustment has been made in the
consolidated statement of

9
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS (CONTINUED)
cash flows and consolidated statement of stockholders' equity for the six months
ended June 30, 2000, to reflect the activity for ACS in the quarter ended
December 31, 1999, as reported in ACS Form 10-Q for the fiscal quarter ended
December 31, 1999. ACS' revenues and net income for the quarter ended
December 31, 1999 were $46,255 and $1,352 respectively. The separate and
combined results of Titan, ACS and AverStar are as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 2000 JUNE 30, 2000
------------------ ----------------
<S> <C> <C>
Revenues:
Titan..................................................... $156,913 $288,089
ACS....................................................... 50,348 94,671
AverStar.................................................. 47,936 94,103
-------- --------
Combined.................................................. $255,197 $476,863
======== ========

Extraordinary loss:
Titan..................................................... $ -- $ (3,170)
ACS....................................................... -- (284)
AverStar.................................................. (1,290) (1,290)
-------- --------
Combined.................................................. $ (1,290) $ (4,744)
======== ========

Net income (loss):
Titan..................................................... $ 669 $ (2,676)
ACS....................................................... 1,912 3,549
AverStar.................................................. 627 651
Acquisition expenses, net of taxes........................ (15,693) (29,246)
-------- --------
$(12,485) $(27,722)
======== ========
</TABLE>

The separate net income results of ACS and AverStar prior to the date of the
consummation of the mergers reflect interest expense charges incurred on each of
ACS' and AverStar's outstanding debt balances. As Titan repaid these outstanding
balances at the close of the mergers, interest expense has not been presented on
a stand-alone ACS and AverStar basis in the period following the close of the
mergers.

In November 1999, Titan's wholly owned subsidiary, SureBeam Corporation,
entered into an agreement with Hawaii Pride LLC ("Hawaii Pride"), whereby Hawaii
Pride would acquire a SureBeam system and construct a facility in Hilo, Hawaii
for the purpose of disinfesting fruit and other products. Prior to Hawaii Pride
obtaining third party financing, SureBeam advanced $3.4 million to Hawaii Pride,
which has been reflected as an other long-term asset in the accompanying balance
sheets. SureBeam can convert $1.0 million of the amount advanced into 19.9% of
the common stock of Hawaii Pride. If SureBeam converts the remaining balance of
the advance, it can increase its ownership of Hawaii Pride to 51%. In
June 2000, Hawaii Pride obtained a 15-year loan of approximately $6.8 million
from the USDA. If Hawaii Pride defaults on its loan obligations, or fails to
comply with USDA requirements, SureBeam has the right to acquire 100% of the
equity of Hawaii Pride for a nominal amount. Titan has agreed that upon

10
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (2) ACQUISITIONS, STRATEGIC ALLIANCES AND INVESTMENTS (CONTINUED)
SureBeam's acquisition of any equity interest in Hawaii Pride, it will guarantee
a percentage amount of the USDA loan equal to the percentage of SureBeam's
equity interest in Hawaii Pride.

In January 1999, the Company invested approximately $.5 million for a 19.9%
ownership interest in a joint venture with Sakon. Titan consolidates the
operating results of Sakon in accordance with the joint venture agreement which
assigns 100% of the joint venture revenues and operating results to Titan. Titan
has the option to increase its ownership interest to 49.9%. In July 2000, Titan
loaned Sakon $15 million pursuant to a promissory note agreement with Sakon
under which Titan may elect, at any time prior to October 1, 2000, to convert
amounts owed under the promissory note plus additional consideration into
additional equity interest of 30.0% of Sakon pursuant to its option (See Note
7). Titan will continue to consolidate the operating results of Sakon until a
liquidity event, defined as an initial public offering or the sale of Sakon, for
which the profits and losses will be allocated according to the percentage of
equity ownership in the joint venture agreement.

During the year ended December 31, 1999, the Company recorded acquisition
and related charges of approximately $3.6 million of legal costs and
approximately $9.3 million of integration and restructuring expenses. Unpaid
amounts of $5,880 in Other current liabilities at December 31, 1999 were
primarily termination and other integration costs. Charges against this accrual
in the first and second quarters of 2000 were approximately $410 and 200,
respectively for termination costs related to six employees and approximately
$1,280 and $170, respectively for other integration and legal costs.

In January 2000, the Company committed to an investment of $1 million in a
private limited partnership operating as a Small Business Investment Company.
The CEO of Titan is on the partnership's executive advisory board. The
investment is to be made over the next five years, with no more than 40% of the
total commitment contributed during any twelve month period. The investment of
$.27 million at June 30, 2000 is included in other assets.

NOTE (3) DISCONTINUED OPERATIONS

In December 1998 and 1997, the Company's Board of Directors adopted a plan
to wind down the Company's access control business and broadband communications
businesses respectively; accordingly, the results of these businesses have been
accounted for as discontinued operations. In addition, the accompanying
consolidated financial statements reflect operations discontinued by certain of
the companies acquired by Titan during 1998. All periods presented reflect these
specific operations as discontinued operations. Net liabilities of discontinued
operations of approximately $3.5 million at June 30, 2000 consist primarily of
accrued liabilities of approximately $7.6 million net of approximately
$4.1 million of current assets (primarily accounts receivable and inventories).
The liabilities consist of accruals for contract losses, estimated wind-down
costs and costs related to the closure and elimination of certain leased
facilities. Charges of approximately $1.7 million and $3.5 million were made
against the accrued liabilities in the three and six months ended June 30, 2000,
respectively. Long-term net assets of discontinued operations are primarily
fixed assets. Management continues to assess the estimated wind-down and and/or
disposal costs associated with the businesses, and may from time to time adjust
the allowance for such costs accordingly.

11
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (4) DEBT

On February 9, 2000, the Company and Titan Capital Trust (the "Trust"), our
wholly owned subsidiary, issued 4 million convertible preferred securities
(Remarketable Term Income Deferrable Equity Securities, "HIGH TIDES") at $50 per
security, for an aggregate total of $200 million, with an overallotment
exercised on February 16, 2000 of an additional 1 million securities, for an
additional $50 million. The trust used the proceeds from the sale of the HIGH
TIDES to purchase from the Company 5 3/4% Convertible Senior Subordinated
Debentures, due February 15, 2030. The debentures have the same financial terms
as the HIGH TIDES. The HIGH TIDES will accrue distributions of 5 3/4% per annum,
with quarterly distributions to be paid in arrears on February 15, May 15,
August 15 and November 15, commencing May 15, 2000. The trust's ability to pay
distributions on the HIGH TIDES is solely dependent on its receipt of interest
payments from the Company on the debentures. Approximately five years after
issuance of the HIGH TIDES, the HIGH TIDES may be remarketed, which means that a
remarketing agent will attempt to establish an annual distribution rate,
conversion price and redemption features for the HIGH TIDES that are consistent
with a price per HIGH TIDES equal to 101% of its liquidation preference and also
are most favorable to the Company. The 5 3/4% per annum rate will be applicable
from the date of original issuance to, but excluding the reset date. The reset
date is any date (a) not later than February 15, 2005, or the final reset date,
or, if the day is not a business day, the next succeeding day, and (b) not
earlier than 70 business days prior to February 15, 2005, as may be determined
by the remarketing agent, in its sole discretion. On or after the reset date,
the applicable rate will be the term rate established by the remarketing agent
based on the outcome of the remarketing. The Company can, on one or more
occasions, defer the interest payments due on the debentures for up to 20
consecutive quarters unless an event of default under the debentures has
occurred and is continuing. The holders of the HIGH TIDES may convert each
security into shares of common stock of Titan at the initial rate of 1.0076
shares of common stock for each HIGH TIDES (equivalent to an initial conversion
price of $49.625 per share of common stock). The Company may redeem the
debentures in whole or in part, at any time on or after February 20, 2003 until
but excluding the tender notification date, at a redemption price equal to
101.44% of the principal amount of the debentures, declining to 100% of the
principal amount of the debentures on or after February 20, 2004, plus any
accrued and unpaid interest; and after the reset date, in accordance with the
term call projections, if any, established in the remarketing or, upon a failed
final remarketing, on or after the third anniversary of the reset date at a
redemption price equal to 100% of the principal amount of debentures, plus any
accrued and unpaid interest.

On February 23, 2000, the Company entered into a credit agreement for
$275 million of financing from a syndicate of commercial banks including Credit
Suisse First Boston acting as Lead Arranger and Administrative Agent, First
Union Securities, Inc. acting as Co-Arranger and Syndication Agent and the Bank
of Nova Scotia serving as Documentation Agent. The credit facility also allowed
the Company to increase total availability by an additional $100 million, if
needed, for an aggregate of $375 million. The credit facility was subsequently
amended on June 1, 2000 to provide for an increase in total availability for an
additional $50 million, for an aggregate total of $425 million. The proceeds of
the loan were used in part to refinance outstanding indebtedness on the
Company's $190 million credit facility arranged by Bank of Nova Scotia in
June 1999. The new credit facility is secured by substantially all of our and
our subsidiaries' assets and guaranteed by substantially all of our
subsidiaries. The $425 million facility is comprised of a seven-year senior
secured multi-draw term loan facility in an aggregate principal amount of up to
$75 million, two six-year senior secured term loan facilities in an aggregate
principal amount of

12
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (4) DEBT (CONTINUED)
$250 million, and a five-year senior secured revolving credit facility in an
aggregate principal amount of up to $100 million. Loans made under the
multi-draw term loan facility mature on the sixth anniversary of the closing
date of the new credit facility, and amortize as follows: 2.5% quarterly in year
two of the credit facility, 3.75% quarterly in year three of the credit
facility, 5% quarterly in year four of the credit facility, 6.25% quarterly in
year five of the credit facility and 7.5% quarterly in year six of the credit
facility. Loans made under the term loan facilities mature on the seventh
anniversary of the closing date of the new credit facility, and amortize as
follows: 0.25% quarterly for years one through six of the credit facility and
23.5% quarterly for year seven of the credit facility. Under each of the term
loan facilities and the revolving facility, the Company has the option to borrow
at the bank's base rate or at adjusted LIBOR plus, in each case, an applicable
ratio based on the ratio of our total debt to EBITDA (earnings before interest
and taxes and depreciation and amortization). The agreement contains financial
covenants that set maximum debt to EBITDA limits and require the Company to
maintain minimum interest and fixed charge coverages and levels of net worth.
Cayenta and its subsidiaries are no longer guarantors under the new credit
facility, and their assets shall no longer be collateral for the new bank
syndicate if Cayenta completes its proposed initial public offering (See
Note 5).

At June 30, 2000, total borrowings outstanding were $249.4 million on the
term loan at a weighted average interest rate of 9.77%. Commitments under
letters of credit, were $2.7 million at June 30, 2000, $1.9 million of which
reduces availability of the working capital line. Of the total borrowings,
$2.5 million was short-term. At June 30, 2000, the Company was in compliance
with all financial covenants under its various debt agreements.

NOTE (5) OTHER FINANCIAL INFORMATION

In the first quarter of 2000, the Company changed the name of its electronic
food pasteurization and medical products sterilization segment to SureBeam.

The Software Systems segment contains the Company's majority owned
subsidiary, Cayenta, Inc. ("Cayenta"). In December 1999, the Company filed a
registration statement including a preliminary prospectus with the Securities
and Exchange Commission ("SEC") for an initial public offering. The Company
controls approximately 97% of the voting power of Cayenta through its ownership
of 10 million shares of Class B common stock. Each Class A share is entitled to
one vote and each Class B share is entitled to ten votes, with Class A and
Class B shares voting together on all matters submitted to the vote of the
holders of common stock. Cayenta has filed a registration statement on Form S-1
for an initial public offering of an as yet undetermined number of shares of its
Class A common stock. If the proposed offering is completed, the 2,345,000
outstanding shares of Series A preferred stock of Cayenta will convert into
Class A common stock of Cayenta. The Company cannot be certain that Cayenta will
be able to complete its offering. Approximately $1.9 million in costs related to
this offering were included in the acquisition related charges and other in the
quarter ended June 30, 2000.

On March 30, 2000, Cayenta executed a Stock Purchase Agreement with Penton
Media ("Penton") whereby Penton purchased 250,000 shares of Class A common stock
for $6.4 million. In addition, Penton agreed to provide up to $2 million in
marketing services to Cayenta.

13
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (5) OTHER FINANCIAL INFORMATION (CONTINUED)

Also in the first quarter of 2000, the Company established three new
business units within its Emerging Technologies and Businesses segment as a
result of combining the Company's internal expertise with the expertise in
recent acquisitions. The first new business unit will address Network, Internet
and Information Security, and targets commercial businesses needing to detect
and protect against network intrusions, as well as those seeking to conduct
secure electronic communications and transactions. The second new business unit
is focused on the continued commercialization of high data rate chip sets for
wireless local area networks and multi-media solutions. The third new business
unit, Information Technology Services, provides web-based solutions, network
performance monitoring and e-business application development to the financial
services industry.

The following tables summarize revenues and operating profit (loss) by
operating segment for the three and six month periods ended June 30, 2000 and
1999.

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
------------------- -------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Titan Systems.......................................... $196,804 $167,099 $371,324 $308,107
Titan Software Systems................................. 19,077 10,466 34,977 18,860
SureBeam............................................... 7,028 2,948 13,091 6,710
Titan Wireless......................................... 18,988 2,559 35,612 4,876
Emerging Technologies and Businesses................... 13,300 8,374 21,859 15,452
-------- -------- -------- --------
$255,197 $191,446 $476,863 $354,005
======== ======== ======== ========
Operating Profit (Loss):
Titan Systems.......................................... $ (3,679) $ 13,471 $ (9,885) $ 23,995
Titan Software Systems................................. (5,096) 2,071 (11,408) 3,501
SureBeam............................................... 666 648 1,520 989
Titan Wireless......................................... 3,086 (191) 5,626 (394)
Emerging Technologies and Businesses................... 521 514 1,262 1,214
-------- -------- -------- --------
Segment operating profit (loss) before Corporate......... (4,502) 16,513 (12,885) 29,305
Corporate................................................ (3,012) (1,902) (5,689) (4,068)
-------- -------- -------- --------
$ (7,514) $ 14,611 $(18,574) $ 25,237
======== ======== ======== ========
</TABLE>

The operating loss of the Titan Systems segment for the three and six month
periods ended June 30, 2000 includes $19,050 and $37,120, respectively, of
acquisition related charges primarily representing costs and expenses of the ACS
and AverStar acquisitions. In the Titan Systems segment in the quarter and six
months ended June 30, 2000, $543 and $946, respectively, of deferred profit was
recognized associated with two acquisitions in 1999 and one acquisition in 2000.
The operating loss of Titan Software Systems for the quarter and six months
ended June 30, 2000, includes $1,874 of charges representing costs and expenses
of the Cayenta registration statement.

During the quarter and six months ended June 30, 2000, the Company's only
element of other comprehensive income resulted from foreign currency translation
adjustments in 2000, which are reflected

14
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (5) OTHER FINANCIAL INFORMATION (CONTINUED)
in the consolidated statements of changes in stockholders' equity as foreign
currency translation adjustments.

The following data summarize information relating to the per share
computations for income (loss) before extraordinary item:

<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 2000 THREE MONTHS ENDED JUNE 30, 1999
--------------------------------------- ---------------------------------------
SHARES SHARES
INCOME (000'S) PER SHARE INCOME (000'S) PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
item............................... $(11,195) $6,562
Less preferred stock dividends....... (173) (173)
Effect of minority interests......... (53) --
-------- ------

Basic EPS:
Income (loss) before extraordinary
item available to common
stockholders..................... (11,421) 52,624 $(0.22) 6,389 45,299 $ 0.14
Effect of dilutive securities:
Stock options...................... -- -- -- -- 2,080 (0.01)
Debentures......................... -- -- -- 326 6,386 (0.01)
-------- ------ ------ ------ ------ ------
Diluted EPS:
Income (loss) before extraordinary
item available to common
stockholders plus assumed
conversions...................... $(11,421) 52,624 $(0.22) $6,715 53,765 $ 0.12
======== ====== ====== ====== ====== ======
</TABLE>

<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 2000 SIX MONTHS ENDED JUNE 30, 1999
--------------------------------------- ---------------------------------------
SHARES SHARES
INCOME (000'S) PER SHARE INCOME (000'S) PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNTS (NUMERATOR) (DENOMINATOR) AMOUNTS
----------- ------------- --------- ----------- ------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Income (loss) before extraordinary
item............................... $(22,978) $11,339
Less preferred stock dividends....... (347) (347)
Effect of minority interests......... (493) --
-------- -------

Basic EPS:
Income (loss) before extraordinary
item available to common
stockholders..................... (23,818) 52,536 $(0.45) 10,992 44,589 $ 0.25
Effect of dilutive securities:
Stock options...................... -- -- -- -- 1,842 (0.01)
Debentures......................... -- -- -- 741 6,971 (0.02)
-------- ------ ------ ------- ------ ------
Diluted EPS:
Income (loss) before extraordinary
item available to common
stockholders plus assumed
conversions...................... $(23,818) 52,536 $(0.45) $11,733 53,402 $ 0.22
======== ====== ====== ======= ====== ======
</TABLE>

15
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (5) OTHER FINANCIAL INFORMATION (CONTINUED)
In the three and six months ended June 30, 2000, resepectively, options to
purchase approximately 3,508,400 and 3,602,700 shares of common stock at prices
ranging from $0.40 to $36.00 and $0.40 to $40.00 per share were not included in
the computation of diluted EPS, as the effect would have been anti-dilutive due
to the loss before extraordinary item. Similarly, approximately 2,771,000 shares
from the potential conversion of convertible securities were not included in the
computation. In the three months and six months ended June 30, 1999,
respectively, options to purchase approximately 1,060,500 and 329,400 shares of
common stock at prices ranging from $5.63 to $9.50 and $6.25 to $9.50 per share
were not included in the computation of diluted EPS, as the exercise price of
such options was greater than the average market price of the common shares. In
2000 and 1999, respectively, approximately 462,000 and 463,000 shares of common
stock that could result from the conversion of cumulative convertible preferred
stock were not included in the computation of diluted EPS, as the effect would
have been anti-dilutive.

Following are details concerning certain balance sheet data:

<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
2000 1999
-------- ------------
<S> <C> <C>
Inventories:
Materials........................................... $ 7,750 $ 7,725
Work-in-process..................................... 9,766 4,357
Finished goods...................................... 3,155 3,558
------- -------
$20,671 $15,640
======= =======
</TABLE>

Supplemental disclosure of cash payments is as follows:

<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest.............................. $8,888 $4,228 $12,619 $7,102
Income taxes.......................... 1,823 575 $10,874 $1,298
</TABLE>

NOTE (6) RELATED PARTY TRANSACTION

In the first quarter of 1999, in order to strengthen the commitment to the
Company of the Company's President and Chief Executive Officer and to provide an
additional incentive to continue in its employ, the Company made a $500 loan, at
6.94% annual interest rate, to Dr. Ray pursuant to a promissory note and loan
agreement, the terms of which provide that the note shall be forgiven on the
first anniversary of it being made unless Dr. Ray has previously resigned from
the employ of the Company or been terminated for cause. The loan is being
charged to expense ratably over the one-year period, and the balance included in
prepaid expenses and other at June 30, 2000 is $333.

16
<PAGE>
THE TITAN CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

JUNE 30, 2000

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA, OR AS OTHERWISE NOTED)

NOTE (7) SUBSEQUENT EVENTS

In July 2000, the Company loaned Sakon LLC $15 million pursuant to a
promissory note agreement with Sakon, which is due on October 1, 2000, and bears
interest at 6.53% per annum. Titan may elect, at any time prior to October 1,
2000, to convert the amounts due under the promissory note plus additional
consideration, into additional equity interest of 30.0% of Sakon L.L.C.,
pursuant to its option to increase its ownership from 19.9% to 49.9%.

On August 14, 2000, the Company's wholly owned subsidiary, SureBeam, filed a
registration statement with the Securities and Exchange Commission (SEC) for the
initial public offering of 6.7 million shares of Class A common stock of
SureBeam Corporation. SureBeam Corporation was formed in August 2000, at which
time Titan contributed the assets, liabilities and operations related to its
electronic food pasteurization business.

NOTE (8) COMMITMENTS AND CONTINGENCIES

On January 6, 2000, Ion Beam Applications s.a. ("IBA"), a Belgian
corporation, and certain of its U.S. subsidiaries filed an action for
declaratory judgment in a federal court in Virginia against Titan relating to
its patent for its SureBeam technology. The action attacks the validity of the
Company's principal patent, seeks a declaration that IBA and its customers have
not infringed any of the 62 claims in our patent, and alleges that the Company
has engaged in unfair competition and that its conduct constitutes patent
misuse. The Company intends to vigorously defend its patent position. However, a
finding in favor of IBA in this action could materially adversely affect the
Company's business.

On August 7, 2000, the former Chief Executive Officer and President of
SureBeam Corporation, filed an action for declaratory relief in a California
state court relating to his stock option agreement with the Company. The action
alleges, among other things, that the Company has breached his employment and
stock option agreements in connection with the repurchase price of his options
upon termination of his services to the Company. The Company intends to
vigorously defend against this action.

17
<PAGE>
THE TITAN CORPORATION

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

RESULTS OF OPERATIONS

REVENUES

CONSOLIDATED. Our consolidated revenues increased from $191.4 million in
the second quarter of 1999 to $255.2 million in the second quarter of 2000 and
from $354.0 million for the six months ended June 30, 1999 to $476.9 million for
the six months ended June 30, 2000. Increased revenues were reported across all
business units in the second quarter and six months ended June 30, 2000, with
the most notable increases in our Titan Wireless segment, our SureBeam segment
and our Software Systems segment (which includes Cayenta), with revenue
increases of 642%, 138% and 82%, respectively, in the second quarter of 2000
compared to the second quarter of 1999. Revenue growth in the second quarter of
2000 was primarily attributable to the impact of the acquisitions of System
Resources Corporation ("SRC"), Atlantic Aerospace Electronics Corporation
("AAEC") made in 1999 and the acquisitions of LinCom Corporation ("LinCom"),
Pulse Engineering ("Pulse"), and SenCom Corporation ("SenCom") made in 2000 in
our Titan Systems segment, and the acquisitions of JB Systems, Inc. (d.b.a.
"Mainsaver"), Assist Cornerstone Technologies, Inc. ("Assist"), and SFG
Technologies Inc. ("SFG") made in 1999 in our Cayenta subsidiary, and shipments
of hardware to Benin, Africa in our Titan Wireless segment.

Three Months Ended June 30, 2000:

TITAN SYSTEMS. Titan Systems' revenues increased from $167.1 million in the
second quarter of 1999 to $196.8 million in the second quarter of 2000,
primarily reflecting the impact of the acquisitions of SRC, AAEC, LinCom, Pulse,
and SenCom contributing an aggregate of approximately $29.5 million, and to a
lesser degree, due to increased production of Titan Systems' manpacks and
increased demand for signal processing antennas. These increases were offset by
a reduction of revenues from AverStar's Year 2000 business and a contract
completed by ACS, aggregating approximately $16.8 million, both of which
occurred in late 1999.

SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues increased
from $10.5 million in the second quarter of 1999 to $19.1 million in the second
quarter of 2000, primarily driven by the growth in Cayenta's enterprise
application integration business, a component of Cayenta's Total Service
Provider ("TSP") offering and by software license revenues from Cayenta's
proprietary e-commerce, revenue cycle management and enterprise asset management
applications principally generated by the companies acquired by Cayenta in 1999.
Cayenta expects to continue to diversify its customer base as it expands its
sales and marketing efforts and further develops and launches its TSP offering.

TITAN WIRELESS. Titan Wireless' revenues increased from $2.6 million in the
second quarter of 1999 to $19.0 million in the second quarter of 2000,
principally due to continued shipments of hardware to Benin of approximately
$12.8 million. In addition, approximately $4.8 million of increased service
revenues from Titan's joint venture with Sakon relating to the commencement of
long distance service in Latin America, Africa, and the Middle East contributed
to Titan Wireless' increased revenues.

SUREBEAM. SureBeam's revenues increased from $2.9 million in the second
quarter of 1999 to $7.0 million in the second quarter of 2000, resulting from
revenues generated on the production of its pasteurization systems for Hawaii
Pride, Zero Mountain and Mitsubishi Corporation, and from revenues recorded on
SureBeam's strategic alliance with Texas A&M University.

18
<PAGE>
EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $8.4 million in the second quarter of 1999 to $13.3 million in
the second quarter of 2000, primarily related to AverStar's acquisition of MJR
Associates, Inc. in March 2000.

Six Months Ended June 30, 2000:

TITAN SYSTEMS. Titan Systems' revenues increased from $308.1 million in the
six months ended June 30, 1999 to $371.3 million in the six months ended
June 30, 2000, primarily reflecting the impact of the acquisitions of SRC, AAEC,
LinCom, Pulse, and SenCom contributing an aggregate of approximately
$44.9 million, and to a lesser degree, due to increased production of Titan
Systems' manpacks and increased demand for signal processing antennas, as well
as increased demand for systems design and integration services from the Air
Force, Army and intelligence community. These increases were offset by a
reduction of revenues from AverStar's Year 2000 business and a contract
completed by ACS, aggregating approximately $36.4 million, both of which
occurred in late 1999.

SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' revenues increased
from $18.9 million in the six months ended June 30, 1999 to $35.0 million in the
six months ended June 30, 2000, primarily driven by the growth in Cayenta's
enterprise application integration business, a component of Cayenta's Total
Service Provider ("TSP") offering and by software license revenues from
Cayenta's proprietary e-commerce, revenue cycle management and enterprise asset
management applications principally generated by the companies acquired by
Cayenta in 1999. Cayenta expects to continue to diversify its customer base as
it expands its sales and marketing efforts and further develops and launches its
TSP offering.

TITAN WIRELESS. Titan Wireless' revenues increased from $4.9 million in the
six months ended June 30, 1999 to $35.6 million in the six months ended
June 30, 2000, principally due to continued shipments of hardware to Benin of
approximately $23.0 million. In addition, approximately $9.4 million of
increased service revenues from Titan's joint venture with Sakon relating to the
commencement of long distance service in Latin America, Africa, and the Middle
East contributed to Titan Wireless' increased revenues.

SUREBEAM. SureBeam's revenues increased from $6.7 million in the six months
ended June 30, 1999 to $13.1 million in the six months ended June 30, 2000,
resulting from revenues generated on the production of its pasteurization
systems for Hawaii Pride, Zero Mountain and Mitsubishi Corporation, and from
revenues recorded on SureBeam's strategic alliance with Texas A&M University.

EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' revenues
increased from $15.5 million in the six months ended June 30, 1999 to
$21.9 million in the same period in 2000, primarily related to the acquisition
of MJR Associates, Inc. in March 2000.

SELLING, GENERAL AND ADMINISTRATIVE

Our S,G&A expenses increased from $32.7 million and $60.5 million in the
three months and six months ended June 30, 1999, respectively, to $47.4 million
and $91.9 million in the three months and six months ended June 30, 2000. SG&A,
as a percentage of revenues, increased from 17.1% in the three months and six
months ended June 30, 1999 to 18.6% and 19.3% in the three months and six months
ended June 30, 2000, respectively. The increase is primarily attributable to the
increased amortization of goodwill costs, which increased from $2.2 million and
$3.5 million in the three months and six months ended June 30, 1999 to
$6.2 million and $14.9 million in the three months and six months ended
June 30, 2000. This increase is attributed to the goodwill resulting from the
acquisitions of SRC, AAEC, Mainsaver, Assist, and SFG during 1999 and from the
acquisitions of LinCom, Pulse and SenCom in 2000. In addition, during the first
quarter of 2000, the amortization periods related to the goodwill associated
with the acquisitions made by Cayenta of Transnational Partners II, LLC ("TNP"),
Mainsaver, Assist, and SFG were reduced from 30 (for TNP) and 20 years (for
Mainsaver, Assist, and SFG) to 5 years. This change in amortization periods
resulted in an additional $3.0 million of goodwill amortization in the first
quarter of 2000 to reflect the increased amortization of the Cayenta
acquisitions. In addition, increased sales,

19
<PAGE>
marketing and administrative costs were incurred in our Cayenta segment,
reflecting the development and implementation of Cayenta's new TSP offering,
and, to a lesser degree, due to increased sales and marketing efforts to expand
our food pasteurization business. We expect that this trend will continue
throughout fiscal 2000.

RESEARCH AND DEVELOPMENT

Our R&D expenses increased from $2.3 million and $3.7 million in the three
months and six months ended June 30, 1999, respectively, to $3.1 million and
$5.3 million in the three months and six months ended June 30, 2000,
respectively. As a percentage of revenues, R&D expenditures remained flat at
1.2% in the second quarter of 1999 compared to the second quarter of 2000. For
the six months ended June 30, 2000, compared to the six months ended June 30,
1999, R&D increased remained flat at 1.1% of revenues. We anticipate that R&D
efforts will increase throughout the remainder of fiscal 2000.

ACQUISITION RELATED CHARGES

Acquisition related charges of $20.9 million in the second quarter of 2000
include costs of $11.7 million related to the consummation of the merger with
AverStar. These costs consisted of approximately $5.9 million of direct
transaction costs, comprised of accounting, legal, investment banking, financial
printing, and other direct costs. Also included in the AverStar acquisition
costs are employee termination and retention costs of approximately
$5.5 million, costs to eliminate duplicate facilities and assets of
approximately $.3 million. The acquisition related charges in the second quarter
of 2000 also include approximately $1.9 million of transaction costs related to
the filing of a registration statement with the Securities and Exchange
Commission ("SEC") for the pending initial public offering of Cayenta.
Approximately $.9 million of these costs related to this offering were deferred
as of March 31, 2000. These costs are primarily comprised of direct transaction
costs, including accounting, legal, investment banking, financial printing, and
other direct costs. Lastly, additional costs of $7.3 million related to the
Advanced Communication Systems ("ACS") merger were also included in the merger
related costs in the second quarter of 2000. Additional ACS merger related costs
consisted of employee termination and retention costs of $1.0 million,
$1.3 million costs to eliminate duplicate facilities and assets and a valuation
allowance of $5.0 million against certain contract receivables provided in
connection with certain of the Company's integration activities, particularly as
it relates to conforming ACS to Titan's accounting policies and procedures, and
determining appropriate valuation allowances against potential contract
receivables which may not be realizable under normal contract reimbursement
cycles.

Acquisition related charges of $39.0 million in the six months ended
June 30, 2000 are comprised of the $20.9 million of charges taken in the second
quarter of 2000 noted above, and approximately $18.1 million related to the ACS
merger charged in the first quarter of 2000, consisting of direct transaction
costs of approximately $9.3 million. Also included in these acquisitions costs
were employee termination and retention costs of approximately $2.1 million,
costs to eliminate duplicate facilities and assets of approximately
$1.2 million and a write-down of approximately $5.5 million related to the
impairment of certain receivables, for which the realizability of such assets
were impaired as a result of the merger with Titan, which impacted the
recoverability of certain contract costs.

OPERATING PROFIT (LOSS)

CONSOLIDATED. Our operating performance decreased from an operating profit
of $14.6 million and $25.2 million in the second quarter and first six months of
1999, respectively, to an operating loss of $7.5 million and $18.6 million in
the second quarter and first six months of 2000. The operating losses in the
second quarter and first six months of 2000 were impacted by increased goodwill
amortization costs of $4.1 million and $11.4 million in the second quarter and
first six months of 2000, respectively, and the acquisition related charges of
$20.9 million and $39.0 million in the second quarter and first six months of
2000, respectively, noted above. On a pro forma basis, excluding the impact of
these charges, the

20
<PAGE>
amortization of goodwill, and a deferred compensation charge of $.3 million and
$.5 million in the second quarter and first six months of 2000, respectively,
operating profit increased from $16.8 million and $28.8 million in the second
quarter and first six months of 1999, respectively, to $20.0 million and
$35.8 million in the second quarter and first six months of 2000. Operating
margins in the first quarter of 2000 were impacted by increased sales and
marketing efforts incurred in the Cayenta and Scan segments, as well as a
significant increase in administrative costs to build the infrastructure of
Cayenta.

Three Months Ended June 30, 2000:

TITAN SYSTEMS. Titan Systems' operating performance decreased from an
operating profit of $13.5 million in the second quarter of 1999 to an operating
loss of $3.7 million in the second quarter of 2000, primarily reflecting the
impact of acquisition charges of $19.1 million incurred in the second quarter of
2000 to consummate the AverStar and ACS mergers. Excluding the impact of these
acquisition related charges, operating profit increased from $13.5 million in
the second quarter of 1999 to $15.4 million in the second quarter of 2000,
primarily reflecting the impact of the increased revenues noted above.

SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' (including Cayenta)
operating performance decreased from an operating profit of $2.1 million in the
second quarter of 1999 to an operating loss of $5.1 million in the second
quarter of 2000. Included in the operating results for the second quarter of
2000 is a charge for amortization of goodwill of approximately $3.2 million,
compared to $.1 million in the same quarter for 1999. Increased amortization
from the acquisitions of Mainsaver, Assist and SFG resulted in the increased
amortization. In addition, deferred compensation of $.3 million and a charge of
$1.9 million related to the registration statement of Cayenta noted above, are
also included in the operating results for the second quarter of 2000. Excluding
the impact of these charges, operating profit decreased from $2.2 million in the
second quarter of 1999 to $.3 million in the second quarter of 2000. The
increase in revenues noted above was more than offset by increased S,G&A efforts
to build the infrastructure of Cayenta as well as increased sales and marketing
efforts.

TITAN WIRELESS. Titan Wireless' operating results improved from an
operating loss of $.2 million in the second quarter of 1999 to operating income
of $3.1 million in the first quarter of 2000, as a result of the increased
revenues noted above.

SUREBEAM. SureBeam's operating results remained flat at approximately
$.6 million operating income in the second quarter of 1999 and $.7 million in
the second quarter of 2000. Included in the operating results for the second
quarter of 2000 is a charge for amortization of goodwill of approximately
$.5 million. Excluding the impact of the amortization charges, operating profit
increased from $.6 million to $1.1 million. This improvement was primarily due
to the increase in revenues mentioned above, offset partially by increased sales
and market efforts.

EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results remained flat at $.5 million in the second quarter of 1999 and the same
period in 2000.

Six Months Ended June 30, 2000:

TITAN SYSTEMS. Titan Systems' operating performance decreased from an
operating profit of $24.0 million in the first six months of 1999 to an
operating loss of $9.9 million in the first six months of 2000, primarily
reflecting the impact of acquisition charges of $37.1 million to consummate the
AverStar and ACS mergers. Excluding the impact of these acquisition related
charges, operating profit increased from $24.0 million in the first six months
of 1999 to $27.2 million in the same period in 2000, primarily reflecting the
impact of the increased revenues noted above.

SOFTWARE SYSTEMS (INCLUDING CAYENTA). Software Systems' (including Cayenta)
operating performance decreased from an operating profit of $3.5 million in the
first six months of 1999 to an operating loss of $11.4 million in the first six
months of 2000. Included in the operating results for the first six months of

21
<PAGE>
2000 is a charge for amortization of goodwill of approximately $9.7 million,
compared to $.2 million in the same period for 1999. Increased amortization from
the acquisitions of Mainsaver, Assist and SFG resulted in the increased
amortization. In addition, deferred compensation of $.5 million and the
$1.9 million of costs incurred to file a registration statement of Cayenta are
also included in the operating results for the first six months of 2000.
Excluding these charges, operating profit decreased from $3.7 million in the
first six months of 1999 to $.7 million in the same period of 2000. The increase
in revenues noted above was more than offset by increased S,G&A efforts to build
the infrastructure of Cayenta as well as increased sales and marketing efforts.

TITAN WIRELESS. Titan Wireless' operating results improved from an
operating loss of $.4 million in the first six months of 1999 to operating
income of $5.6 million in the first six months of 2000, primarily as a result of
the increased revenues noted above.

SUREBEAM. SureBeam's operating income increased from $1.0 million in the
first six months of 1999 to $1.5 million in the same period in 2000. Included in
the operating results for the first six months of 2000 is a charge for
amortization of goodwill of approximately $.5 million. Excluding the impact of
the amortization charges, operating profit increased from $1.0 million to
$2.0 million. This improvement was primarily due to the increase in revenues
mentioned above, offset partially by increased sales and market efforts.

EMERGING TECHNOLOGIES AND BUSINESSES. Emerging Technologies' operating
results remained fairly flat at $1.2 million and $1.3 million in the first six
months of 1999 and 2000, respectively.

INTEREST EXPENSE, NET

Our net interest expense increased from $4.6 million and $7.8 million in the
second quarter and six months ended June 30, 1999, respectively, to
$8.5 million and $15.0 million in the second quarter and six months ended
June 30, 2000, respectively. Net interest expense increased primarily as a
direct result of the increased level of our borrowings, and the issuance of our
Remarketable Term Income Deferrable Equity Securities ("HIGH TIDES"), to fund
the growth in the various segments, as well as due to an increase in our
effective interest rates. Borrowings from our primary bank lines of credit,
excluding working capital lines from acquired companies, averaged $150 million
in the second quarter of 2000, at a weighted average interest rate of 10.58%.

INCOME TAXES

Income taxes reflect an effective rate of 25% in the second quarter and six
months ended June 30, 2000 compared to 34% and 35% for the second quarter and
six months ended June 30, 1999, respectively. The effective rate in the second
quarter and six months ended June 30, 2000 were impacted by the
non-deductibility of certain acquisition related charges and amortization costs,
which resulted in a substantially reduced tax benefit rate. We anticipate that
our effective income tax rate will remain stable in the foreseeable future at an
approximate rate of 30% to 35%.

NET INCOME (LOSS)

We reported net income of $6.6 million in the second quarter of 1999 and
$11.3 million in the six months ended June 30, 1999, compared to a net loss of
$12.5 million in the second quarter of 2000 and a net loss of $27.7 million in
the six months ended June 30, 2000. Included in the net loss for the second
quarter and six months ended June 30, 2000 are extraordinary losses of
$1.3 million and $4.7 million, net of tax, related to the early extinguishment
of AverStar's credit facility in the second quarter of 2000 and our existing
credit facility with Scotia Bank in the first quarter of 2000.

22
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

We have used our cash principally to acquire businesses and fund our capital
expenses and working capital. We fund our cash requirements principally from
cash flows from our operations, borrowings under our senior credit facility and
the proceeds from the sale of securities.

Our investing activities used cash of $130.7 million in the first six months
of 2000, primarily to fund the acquisitions of Pulse, LinCom, SenCom and Ivoire
Telecom. Our financing activities provided cash of $260.5 million, which amount
primarily reflected proceeds from the funding of the $150 million secured term
loan, partially offset by net reductions in borrowings under debt assumed on the
ACS and AverStar mergers.

On February 9, 2000, Titan Capital Trust, our wholly owned subsidiary,
issued 4 million convertible preferred securities (Remarketable Term Income
Deferrable Equity Securities, "HIGH TIDES") at $50 per security, for an
aggregate total of $200 million, with an overallotment exercised on
February 16, 2000 for an additional 1 million securities, for an additional
$50 million. The trust used the proceeds from the sale of the HIGH TIDES to
purchase from us 5 3/4% Convertible Senior Subordinated Debentures, due
February 15, 2030.

We used $100 million of the new term loan facility and part of the total
$250 million proceeds from the sale of the debentures to repay all outstanding
balances on our previous credit facility, which aggregated approximately
$152 million. In addition, we used proceeds of approximately $74 million from
the HIGH TIDES to repay existing indebtedness of Advanced Communication Systems
when we closed the acquisition on February 25, 2000, and to pay certain
acquisition-related expenses. On June 1, 2000 we amended our credit facility for
an additional term loan financing of $150 million. As of August 10, 2000, we
have $249.4 million in outstanding borrowings on our secured term loan
facilities, $2.7 million in letters of credit outstanding and $82.0 million in
cash and equivalents.

We have a receivable of approximately $3.9 million from our Indonesian
customers, PSN, due on September 30, 2000, which accrues interest at 10% per
annum. At any time prior to the payment of the obligation in full, we may elect
to convert all or a portion of the principal and interest due into common stock
of PSN, based on its then current market value. In addition, if PSN sells any of
its interest in its wholly-owned subsidiary, subject to other third party
obligations, PSN is required to immediately pay to us the lesser of the
$3.9 million or the total amount of the outstanding balance owed to us. In the
event that PSN obtains financing from additional sources, the payment terms of
its obligations to us will be renegotiated at that time. Titan received a
payment of $3.9 million from PSN in the third quarter of 1999, in accordance
with the negotiated payment terms.

On December 10, 1999, the Company's wholly owned subsidiary, Titan
Africa, Inc. ("Titan Africa"), in connection with its contract to build a
satellite-based telephone system for the national telephone company of Benin,
Africa, entered into a Loan Facility agreement for up to $30.0 billion Francs
CFA (the currency of the African Financial Community), equivalent to
approximately $45.0 million U.S. dollars, with a syndicate of five banks, with
Africa Merchant Bank as the arranger. This medium term financing is a
non-recourse loan to Titan Africa which is guaranteed by the national telephone
company of Benin, Africa and secured by the national telephone company's
equipment and revenues related to the project. The facility has a fixed interest
rate of 9.5% and will be repaid in seven equal semi-annual payments beginning on
December 31, 2000, and ending on December 31, 2003. The borrowings on this
facility will be utilized to fund the subcontractor costs incurred by Alcatel of
France, a major subcontractor to this project. The equipment provided by Titan
Africa will be paid for in seven equal semi-annual installments commencing
June 30, 2001. The terms of Titan Africa's agreement with the customer include,
among other things, a revenue sharing of total net receipts earned on this
project for up to a period of 9 years. If Titan Africa's proportionate interest
of the revenue sharing portion of the project exceeds these fixed semi-annual
payments, the amounts outstanding could be paid in full prior to December 31,
2003. As of June 30, 2000, approximately $15.3 million was drawn on this
facility.

23
<PAGE>
As part of our strategy of seeking external financing to grow our commercial
businesses, our Cayenta and SureBeam subsidiaries have filed a registration
statement for an initial public offering of its common stock. We cannot
guarantee that Cayenta or SureBeam will succeed in completing the offerings,
which may be adversely affected by market conditions or other factors. We have
extended a credit facility of up to a maximum of $80.0 million to Cayenta under
which Cayenta owed us approximately $71.3 million as of August 10, 2000. Cayenta
may not use the proceeds of its initial public offering to pay amounts
outstanding under its credit facility with us. We have extended a credit
facility of up to a maximum of $75 million to SureBeam under which SureBeam owed
us approximately $39 million as of August 10, 2000. SureBeam may not use the
proceeds of its initial public offering to pay amounts outstanding under its
credit facility with us.

Funding for the advancement of our strategic goals, including acquisitions
and continued investment in targeted commercial businesses and start-up
ventures, is expected to continue. We plan to finance these requirements from a
combination of sources, which include cash generation from our core businesses,
our new credit facility as described above and other available cash sources.
Management believes that the combination of net proceeds from the HIGH TIDES
offering, amounts available under the new credit facility and cash flow expected
to be generated from our operations will be sufficient to fund planned
investments and working capital requirements for at least the next twelve
months. However, we could elect, or we could be required, to raise additional
funds during that period and we may need to raise additional capital in the
future. Additional capital may not be available at all, or may not be available
on terms favorable to us. Any additional issuance of equity or equity-linked
securities may result in substantial dilution to our stockholders. Management is
continually monitoring and reevaluating its level of investment in all of its
operations, specifically the increased investment required in fiscal 2000 to
further grow its commercial businesses, and the financing sources available to
achieve our goals in each business area.

FORWARD LOOKING INFORMATION: CERTAIN CAUTIONARY STATEMENTS

Certain statements contained in this Management's Discussion and Analysis of
Financial Condition and Results of Operations that are not related to historical
results are forward looking statements. Actual results may differ materially
from those stated or implied in the forward looking statements. Further, certain
forward looking statements are based upon assumptions of future events which may
not prove to be accurate. These forward looking statements involve risks and
uncertainties including but not limited to those referred to in the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1999, regarding
ability to commercialize new technologies, risks of international operations and
dependence on government contracts.

[THIS SPACE LEFT INTENTIONALLY BLANK]

24
<PAGE>
THE TITAN CORPORATION
PART II--OTHER INFORMATION

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

At the Annual Meeting of Stockholders held on May 30, 2000, the following
matters were submitted and approved by shareholders:

1. Election of Directors. The holders of proxies solicited by the Board cast
the following votes (no other votes were cast):

<TABLE>
<CAPTION>
AFFIRMATIVE NEGATIVE/ABSTAINING
----------- -------------------
<S> <C> <C>
Charles R. Allen............................................ 44,622,507 664,443
Joseph F. Caliguiri......................................... 44,623,454 663,496
Daniel J. Fink.............................................. 44,100,358 186,592
Robert M. Hanisee........................................... 44,624,836 662,114
Robert E. La Blanc.......................................... 44,626,221 660,729
Thomas G. Pownall........................................... 44,623,813 663,137
Gene W. Ray................................................. 44,626,161 660,789
George A. Robinson.......................................... 44,626,161 660,789
James Roth.................................................. 44,622,347 664,603
</TABLE>

2. Ratification of an amendment to the Company's certificate of incorporation
to increase the number of authorized shares of common stock from 100,000,000
shares to 200,000,000 shares.

<S> <C>
Affirmative Votes........................................... 40,713,318
Negative Votes.............................................. 4,398,031
Abstaining and broker non-votes............................. 119,788
</TABLE>

3. Ratification of an amendment to the Company's certificate of incorporation
to increase the number of authorized shares of preferred stock from
2,500,000 shares to 5,000,000 shares.

<S> <C>
Affirmative Votes........................................... 25,987,221
Negative Votes.............................................. 5,692,370
Abstaining and broker non-votes............................. 13,551,538
</TABLE>

4. Adoption of The Titan Corporation 2000 Employee and Director Stock Option
Plan.

<S> <C>
Affirmative Votes........................................... 18,885,919
Negative Votes.............................................. 12,535,189
Abstaining and broker non-votes............................. 13,310,031
</TABLE>

5. Adoption of The Titan Corporation 2000 Employee Stock Purchase Plan.

<S> <C>
Affirmative Votes........................................... 30,473,315
Negative Votes.............................................. 1,116,985
Abstaining and broker non-votes............................. 13,640,839
</TABLE>

6. Ratification of Selection of Arthur Andersen LLP as the Company's Auditors.

<S> <C>
Affirmative Votes........................................... 45,049,537
Negative Votes.............................................. 84,243
Abstaining.................................................. 100,357
</TABLE>

25
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

a. (27.1) Financial Data Schedule.

(27.2) Restated Financial Data Schedule for the years ended December 31, 1999
and 1998, and for the three month, six month and nine month periods
ended March 31, 1999, June 30, 1999 and September 30, 1999,
respectively.

(27.3) Restated Financial Data Schedule for the year ended December 31, 1997,
and the three month, six month and nine month periods ended March 31,
1998, June 30, 1998 and September 30, 1998, respectively.

b. During the three months ended June 30, 2000, Registrant filed the following:

(1) Current Report on Form 8-K/A, Amendment No. 1, dated April 17, 2000, to
amend the Form 8-K dated February 25, 2000 to provide certain required
financial information.

(2) Current Report on Form 8-K dated May 31, 2000, to report the
acquisition by the Registrant of SenCom Corporation, which included the
Press Release dated June 1, 2000.

(3) Current Report on Form 8-K dated June 26, 2000, reporting the
acquisition of AverStar, Inc., which included certain required
financial information, the Agreement and Plan of Merger dated as of
March 24, 2000, and the Press Release dated June 27, 2000.