UNITED STATES
                       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 December 31, 1998

                                      -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 No. 1-6035

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

     Delaware                                                         95-2588754
(State or other jurisdiction of                                    (IRS Employer
incorporation or organization)                               Identification No.)

                             3033 Science Park Road
                        San Diego, California 92121-1199
               (Address of principal executive offices, zip code)

       Registrant's telephone number, including area code: (619) 552-9500

           Securities registered pursuant to Section 12(b) of the Act:

Title of each class                         Name of exchange on which registered
$1.00 Cumulative Convertible                         New York Stock Exchange
Preferred Stock, $1.00 par value
Common Stock, $.01 par value
Preferred Stock Purchase Rights

        Securities registered pursuant to Section 12(g) of the Act: None

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 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. [X]

     Aggregate  market value of the voting stock held by  non-affiliates  of the
     registrant as of March 22, 1999: $173,561,859.

     Number  of shares of Common  Stock  outstanding  as of March 22,  1999 was:
     36,235,133

                      Documents Incorporated By Reference:

Proxy  Statement for the 1999 Annual  Meeting of  Stockholders  on May 18, 1999.
(The Company has filed a definitive  proxy statement with the Commission  within
120 days after the close of the fiscal year  pursuant to Regulation  14A).  With
the exception of those portions which are incorporated by reference in this Form
10-K  Annual  Report,  the  Proxy  Statement  for the  1999  Annual  Meeting  of
Stockholders is not deemed to be filed as part of this Report, Part III.
<PAGE>
<TABLE>
<CAPTION>
                                                        FORM 10-K

                                                          INDEX

                                                          PART I
                                                                                                                   Page

             <S>            <C>                                                                                    <C>
             ITEM 1         Business...........................................................................      3
             ITEM 2         Properties.........................................................................     13
             ITEM 3         Legal Proceedings..................................................................     14
             ITEM 4         Submission Of Matters To a Vote of Security Holders................................     14
                                     PART II

             ITEM 5         Market for the Company's Common Equity And Related Stockholder Matters.............    14-15
             ITEM 6         Selected Financial Data............................................................     16
             ITEM 7         Management's Discussion and Analysis of Results of Operations and Financial
                            Condition..........................................................................    16-23
             ITEM 8         Financial Statements and Supplementary Data........................................    25-46
             ITEM 9         Changes in and Disagreements with Accountants on Accounting and Financial
                            Disclosure.........................................................................     47
                                    PART III

             ITEM 10        Directors and Executive Officers of the Company....................................     47
             ITEM 11        Executive Compensation.............................................................     47
             ITEM 12        Security Ownership of Certain Beneficial Owners and Management.....................     47
             ITEM 13        Certain Relationships and Related Transactions.....................................     47
                                     PART IV

             ITEM 14        Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................    47-49

                            Signatures.........................................................................     50


</TABLE>

<PAGE>
                                     PART I

Item 1.  Business

         Except for the historical  information  contained in this Annual Report
on Form 10-K, the  information  contained  herein  constitutes  forward  looking
information  within the meaning of Section 27A of the Securities Act and Section
21E  of the  Exchange  Act,  including,  in  particular,  statements  about  the
Company's plans, strategies and prospects.  These statements,  which may include
words  such  as  "may,"   "will,"   "expect,"   "believe,"   "intend,"   "plan,"
"anticipate,"  "estimate," or similar words, are based on the Company's  current
beliefs,  expectations  and assumptions and are subject to a number of risks and
uncertainties.  Although the Company believes that its beliefs, expectations and
assumptions  reflected in these statements are reasonable,  the Company's actual
results and financial  performance  may prove to be very different from what the
Company  might have  predicated  on the date of this Annual Report on Form 10-K.
Some of the risks and  uncertainties  that  might  cause  such  differences  are
discussed below and others are discussed under the headings "Business-Government
Contracts," "Business-Backlog," and "Risk Factors."

General Development and Description of Business

     The Titan  Corporation  ("the Company" or "Titan") is a leading provider of
state-of-the-art  communications and information  solutions to U.S. military and
allied  government  agencies and commercial  customers.  The Company's  systems,
products and services  enable  government and commercial  customers to generate,
process, transmit, store and distribute information in a secure,  cost-effective
and timely  manner.  The Company has organized its business into five  segments:
(i) Information  Technologies  ("Titan  Technologies and Information Systems" or
"TTIS"),   which  provides   information   systems   solutions  to  defense  and
intelligence-related government agencies; (ii) Software Systems ("Titan Software
Systems"),  primarily  a  systems  integrator  that  provides  a broad  range of
information  technology  services and solutions for commercial  and  non-defense
government  customers;  (iii)  Medical  Sterilization  and  Food  Pasteurization
("Titan  Scan"),  which provides  turnkey  sterilization  systems and outsourced
sterilization   services  primarily  for  medical  device  manufacturers;   (iv)
Communications  Systems,  which provides  advanced  satellite ground  terminals,
satellite  voice/data  modems,  networking systems and other products to defense
and commercial customers;  and (v) Emerging  Technologies and Businesses,  which
leverages the Company's extensive technology portfolio and superior research and
development  capabilities  to create  solutions to  technology-related  problems
which the Company can then sell to commercial markets.

Operating Segments

INFORMATION TECHNOLOGIES SEGMENT

     The Company's core defense  contracting  business is conducted primarily by
subsidiaries  and  affiliates  of Titan  Technologies  and  Information  Systems
("TTIS").  TTIS provides comprehensive  information systems solutions to defense
and  intelligence-related   government  agencies  with  large  data  management,
information  manipulation,   information  fusion,  knowledge-based  systems  and
communications requirements. TTIS also develops and manufactures digital imaging
products,   electro-optical  systems,  threat  simulation/training  systems  and
intelligence  electronic hardware primarily used by the defense and intelligence
communities.  TTIS  installs,  tests  and  maintains  all of  these  specialized
products.

     The U.S.  government is the largest single buyer of information systems and
services  in the  world.  The U.S.  government's  focus on  information  systems
reflects the critical role that those systems play both in national security and
in  improving  government  efficiency.  The U.S.  military  is  placing  greater
emphasis on  increasing  productivity  while using fewer  resources by employing
systems  that act as "force  multipliers."  To further this  strategy,  military
agencies are relying on communications products and systems that provide secure,
reliable and efficient transmission of voice and data in demanding environments.
TTIS  markets its  services to military  and  intelligence  agencies of the U.S.
government,  countries within NATO and other U.S.  defense  partners  worldwide.
TTIS has extensive  knowledge of the operations,  relationships  and information
systems needs of this  specialized  community and is capable of providing a full
range of systems  engineering and technical support for the C4ISR initiatives of
the DoD. This expertise allows TTIS to provide comprehensive  solutions that are
compatible  with a  customer's  overall  information  systems  architecture  and
strategy,  as opposed to narrow solutions that address only the specific problem
presented. This ability to provide full-service solutions enables the Company to
bid on larger, more comprehensive C4ISR defense contracts.

<PAGE>

     TTIS'  services  include  systems  analysis  and  design,   object-oriented
software  development  services and systems  integration.  TTIS' initial work in
this area  generally  involves a joint  analysis  of the  customer's  enterprise
structure  and  processes and  information  system needs.  Once this analysis is
completed,  TTIS  provides  process  re-engineering  and designs the  technology
solution to meet the customer's needs. This process typically  involves software
development  by TTIS,  coupled with  integration of  off-the-shelf  software and
hardware  as  available.  TTIS also  provides  a  variety  of  professional  and
technical  support  services,  including  electronics and mechanical  design and
fabrication,  computer-aided  drafting  and  manufacturing  services,  technical
documentation and prototyping.

     There has been a general consolidation trend among companies in the defense
industry,  particularly in the information  technology sector. The Company plans
to continue to support TTIS' growth through active  participation in the ongoing
defense  industry  consolidation,  taking  advantage of synergistic  acquisition
opportunities.  Four  of  the  Company's  recent  acquisitions,  Delfin  Systems
("Delfin"),   Horizons  Technology,  Inc.  ("Horizons"),   Validity  Corporation
("Validity")  and DBA Systems,  Inc. ("DBA") have been integrated into TTIS. The
increased size of TTIS resulting from this  integration is significant  because,
as the U.S.  government  continues to award fewer but larger-scale  contracts to
meet its defense-related  requirements,  companies must now have greater overall
capability,  including financial and technical  resources,  to be competitive in
the bidding  process.  The Company  believes  that the  increased  technical and
personnel  resources of TTIS resulting from its  acquisitions  will enable it to
bid on and  perform  a greater  number  of large  contracts.  The  Company  also
believes  that its  acquisitions  and the  successful  execution of its strategy
provide  several  other  benefits.  Strategic  acquisitions  have  expanded  the
Company's  customer base. The four  acquisitions  the Company  completed in 1998
have added  significant Army, Air Force and intelligence  agencies  contracts to
the Company's historically strong Navy business. Furthermore, they have enhanced
the  Company's  technology  and  product  portfolio  by  providing  it with  new
technologies that have significant commercial potential. Additionally, they have
strengthened the Company's  already strong management team by allowing it to tap
into the operational expertise of the key individuals involved with the acquired
companies.

SOFTWARE SYSTEMS SEGMENT

     Titan Software  Systems is primarily a systems  integrator  that provides a
broad range of  end-to-end  information  technology  services  and  solutions to
customers such as the State of Wyoming, the Federal Aviation Administration, MCI
Worldcom, Sempra Energy and other non-defense government and commercial entities
with large and complex  system  integration  and data  management  requirements.
Transnational  Partners II, LLP ("TNP"),  the Company's most recent acquisition,
has been integrated into Titan Software Systems. Titan Software Systems provides
integration  services and  solutions for companies  with  distributed  computing
environments.  Its services  include systems  integration  and package  software
implementation services, integration of third party enterprise resource planning
(ERP) software solutions, business process re-engineering,  data warehousing and
database  administration,   client/server  application  development,  Year  2000
solutions,  Internet and intranet  infrastructure  design and  development,  and
electronic commerce solutions.

     Titan  Software  Systems has  assembled a team of  software  engineers  and
technicians   with   substantial   experience   in  software   engineering   for
client/server   applications,   data   warehousing,   database   management  and
Internet/intranet  technologies.   Titan  Software  Systems'  core  competencies
include:  (1)  development of  client/server  applications  utilizing  tools and
languages  such as  PowerBuilder,  C,  Visual  C++,  Visual  Basic and  Oracle's
Developer/2000,   (2)  networked  system  expertise  and  (3)  operating  system
selection,  integration and  implementation  (including Windows NT and Microsoft
Windows,  UNIX, VMS, MVS and Novell  NetWare).  Titan Software Systems also uses
state-of-the-art tools such as Arbor Essbase,  Powerplay,  Oracle's Datamart and
MicroStrategy  DSS  Agent  to  provide  powerful  value-added  data  warehousing
solutions,  and develops and operates databases,  using leading products such as
Oracle,  Sybase,  MS SQL Server and  Informix,  running in a variety of UNIX and
Windows NT networked environments.

     To enhance  its  service  offerings  and expand its  customer  base,  Titan
Software Systems is actively  developing  relationships  with software companies
which offer  products  that require  integration.  For example,  Titan  Software
Systems and PointCast are  approaching  large PointCast users and offering Titan
Software  Systems'  services to install,  integrate and develop custom features,
including executive information systems interfaced with PointCast,  to add value
to PointCast's push technology.

<PAGE>

MEDICAL STERILIZATION AND FOOD PASTEURIZATION SEGMENT

     Titan Scan utilizes linear accelerator  technology to provide sterilization
systems and services  primarily  for medical  device  manufacturers.  Titan Scan
developed its proprietary  electron beam  sterilization  process from technology
that  Titan  developed  during  Titan's  involvement  in the  Strategic  Defense
Initiative  program.  The  Company  believes  that  its  sterilization   system,
SureBeam(R),  offers  a  superior,  reliable,   environmentally  acceptable  and
efficient  alternative to the existing  technologies in the industry,  Gamma and
EtO sterilization.

     The market for sterilization systems historically has been dominated by EtO
and Gamma sterilization.  The primary drawbacks of Gamma, which uses radioactive
energy,  and EtO,  which uses gas  penetration,  are their slow speed and use of
dangerous  materials.  Gamma sterilization is accomplished by exposing a product
to Cobalt-60, an isotope that emits Gamma radiation. The product processing time
for Gamma  sterilization  generally requires from 4 to 8 hours.  Turnaround time
(measured  from  receipt of the  product to shipment  back to the  manufacturer)
generally ranges from 3 to 7 days. In addition, the long exposure of the product
to the Gamma  source  can result in the  product  becoming  discolored,  brittle
and/or deformed.  Furthermore,  supply problems can exist with Cobalt-60 due to:
(i) the limited  number of  suppliers of  Cobalt-60;  (ii) the  restrictions  on
transporting radioactive materials;  and (iii) the time-consuming  "re-sourcing"
of Cobalt-60 periodically required due to its decaying nature. EtO sterilization
is  accomplished  by  exposing  products  to  ethylene  oxide  gas in a  lengthy
three-step procedure which uses special packaging to allow gas to penetrate to a
product. The product processing time for EtO sterilization generally ranges from
7 to 14 days,  with turnaround  time being slightly  longer.  The length of this
procedure,   as  well  as  safety  and  environmental  concerns  and  regulatory
restrictions  related to the use of ethylene oxide gas, has led to a decrease in
EtO sterilization over the past 10 years.

     Electron  beam  sterilization  has speed  and  safety  advantages,  and its
operating  costs  are  significantly  lower  than the  costs  of  Gamma  and EtO
sterilization.   Like  Gamma   sterilization,   Titan   Scan's   electron   beam
sterilization  process disrupts the DNA structure of microorganisms on or within
the product rendering them sterile.  The fundamental  difference between the two
processes  is that  Gamma  sterilization  uses  Cobalt-60  while  electron  beam
sterilization  uses electrons from a commercial  electrical  source.  Titan Scan
believes its SureBeam(R)  system offers a reliable,  environmentally  acceptable
and efficient alternative to both Gamma sterilization and EtO sterilization. The
primary  advantages of the SureBeam(R)  system include a  significantly  shorter
turnaround time and reduced  inventory  carrying costs,  reduced  degradation of
product,   enhanced   safety,   lack  of  supply  problems  and  turnkey  system
capabilities.

     The  Company  believes  that its  turnkey  SureBeam(R)  system  is the only
existing technology that offers the economic benefits of allowing  sterilization
to be directly  incorporated into a manufacturer's  production process. To date,
turnkey SureBeam(R) systems have been purchased by Guidant  Corporation,  Baxter
Corporation in the Dominican  Republic and Rochialle  Corporation  in Wales.  In
addition  to its  turnkey  systems,  Titan Scan  offers  contract  sterilization
services at its facilities in San Diego and Denver.

     Titan Scan also provides  electron beam linear  accelerators to the non-DoD
government and scientific communities both domestically and internationally.

     Potential Markets. Although contaminated food is one of the most widespread
health  problems  in  the  world,  lack  of  regulatory  approval  and  consumer
acceptance  historically  have  limited the  development  of the market for food
pasteurization.   The  Company  believes  the  absence  of  a  market  for  food
pasteurization  historically  has  been due in part to the lack of Food and Drug
Administration  ("FDA") approval for the pasteurization of most foods, including
red meat.  On December 3, 1997,  however,  the FDA approved  irradiation  of red
meat.  The FDA also found that  irradiation of meat, at its  recommended  doses,
affects  neither the food's taste nor its  nutritional  value in any  detectable
way. In February 1999, the U.S.  Department of  Agriculture  ("USDA")  announced
that it would  soon  allow  the  nation's  meatpackers  and food  processors  to
sterilize raw meat and several  other food  products to eliminate  bacteria with
beams of  radiation.  Despite the FDA's  approval  and the USDA's  announcement,
however,  the  development of this potential  market is still dependent on broad
consumer  acceptance of pasteurized foods,  which may not occur.  Although Titan
Scan,  until  recently,  has focused  its efforts in the area of medical  device
products,  it  believes  it is well  positioned  to take  advantage  of the food
pasteurization market if it develops.  Titan Scan is actively pursuing contracts
to test and  ultimately  commercialize  its  food  pasteurization  services.  In
addition,  Titan  Scan  believes  that its  SureBeam(R)  technology  is  readily
adaptable to the sterilization of pharmaceutical products.

<PAGE>

Communications Systems Segment

     The  Communications  Systems segment  ("Communications  Systems")  operates
primarily in two markets:  (1) secure defense  communications  and (2) satellite
communications  in the private  sector to support rural  telephony in developing
countries.  Communications  Systems  develops  and produces  advanced  satellite
ground terminals,  satellite  voice/data  modems,  networking  systems and other
products for  government  and  commercial  customers  worldwide.  Communications
Systems'  products  incorporate  DAMA  technology,  which  is  used  to  provide
bandwidth-efficient,  cost-effective  communications  and  addresses the need to
increase the efficiency of satellites in response to the  significant  growth in
demand for satellite communications.

     Secure  Defense  Products.  The U.S.  military  has sought to increase  its
satellite  communications  capacity to meet increasing user demands by improving
the efficiency of its existing constellation of military satellites, in which it
has a significant investment, as well as by enabling its communications hardware
to use commercial satellites. Despite declining defense spending, the government
is increasing its investment in communications products which are seen as "force
multipliers," making military assets more effective in a conflict. Additionally,
the government is increasingly  using open systems that  incorporate  commercial
off-the-shelf  products to minimize the impact of the shrinking  defense budget.
Communications  Systems'  defense  business  growth is being driven by the Joint
Chiefs of Staff decision to standardize DAMA-based satellite  communications and
initiate a major  upgrade  program which  requires  that all military  radios be
capable of using DAMA technology. Communications Systems offers a complete range
of solutions  that satisfy the Joint Chiefs of Staff mandate,  including  add-on
modules which can be incorporated into existing military communications products
and stand-alone products which operate with existing military products,  and new
systems  incorporating DAMA technology.  Communications  Systems' solutions also
have the design flexibility to incorporate off-the-shelf products.

     Communications  Systems  markets  its  defense  products  directly  to  all
branches  of the U.S.  military,  its allies and  international  companies  that
supply such  allies,  and also works with  strategic  partners  such as Motorola
Corporation to incorporate its  technologies  into their  products.  The Company
expects  that  the  upgrade  of  all  military   satellite   communications   to
DAMA-compatible  technology  will take a number of years to complete and that it
will be a major source of revenue for Communications Systems over the next three
years.

     Rural  Telephony.  Telephone  service for remote  areas of many  developing
countries has not been practical for a number of economic and technical reasons,
and  consequently,  nearly  50% of  the  world's  population  has  never  made a
telephone  call.   However,   the  development  of  low-cost  ground  terminals,
availability  of satellite  capacity  covering rural areas and  advancements  in
voice transmission  technologies have made satellite  communications a practical
solution for rural telephony. Recently, governments in developing countries have
shown an  increased  interest in  providing  rural  telephone  services for both
economic and political reasons.  In addition,  consumers and businesses in these
areas are in need of affordable telephone services.

     Communications  Systems'  commercial  products use existing  geosynchronous
satellites  to provide  low-cost  voice,  facsimile  and data  services to rural
areas. These products connect directly to the national public switched telephone
network of the host country,  making it possible to provide  low-cost  telephone
services to vast under-served areas. Communications Systems develops and markets
its rural telephony products through strategic alliances, which it currently has
with  AfroNetwork,  Benin,  Sakon  Corporation and PT. Pasifik Satelit Nusantara
("PSN"),  for sales of products in developing countries in Africa, Latin America
and Asia. Similarly,  Communications Systems is also part of a consortium led by
Alcatel Telespace, pursuant to which the companies pursue symbiotic successes in
new markets.

     Communications  Systems is leveraging its experience in rural  telephony to
selectively pursue private networking opportunities in developing countries. For
example, in Thailand,  Communications Systems is providing elements of a private
voice,  data  and  facsimile  communications  network  for use by The  Bank  for
Agriculture and Agricultural Cooperatives.

Emerging Technologies and Businesses Segment

     The  Emerging  Technologies  and  Businesses  segment  consists of embedded
real-time  software and services,  video  imaging and graphics,  and certain new
technologies  and  early-stage  businesses,  including  businesses  in which the
Company owns only a minority interest.  The Emerging Technologies and Businesses
segment pursues commercial applications for technologies originally developed by
the Company's  other segments in  government-sponsored  research and development
programs. This segment employs the Company's rich technology portfolio, superior
research and development  capabilities and stream of government  funded projects
to create solutions to technology-related problems which the Company can sell to
multiple commercial markets.

<PAGE>

Government Contracts

     A  substantial  portion  of  the  Company's  revenues  are  dependent  upon
continued  funding of United States and allied government  agencies,  as well as
continued funding of the programs targeted by the Company's businesses.  For the
years ended December 31, 1996, 1997 and 1998, United States government  business
represented  approximately  81%,  82% and 80%,  respectively,  of the  Company's
revenues.  United  States  defense  budgets and the budgets of other  government
agencies  have  been  declining  in real  terms  since the  mid-1980's,  and may
continue  to  do  so  in  the  future.  However,  U.S.  government  spending  on
information  technology  has  increased  as a percent of the total U.S.  defense
budget and in real dollars in each of the past three  years,  and it is expected
to continue to do so according to industry sources.  Any significant  reductions
in the funding of United  States  government  agencies  or in the funding  areas
targeted by the Company's  businesses  could materially and adversely affect the
Company's business, results of operations and financial condition.

     The Company's direct contracts with the United States  government,  and its
subcontracts  with prime  contractors who have direct  contracts with the United
States  government,  are  subject  to  termination  for the  convenience  of the
government,  as well as  termination,  reduction or modification in the event of
budgetary constraints or any change in the government's  requirements.  When the
Company subcontracts with prime contractors,  such subcontracts are also subject
to the  ability of the prime  contractor  to perform its  obligations  under its
prime  contract.  The Company  often has little or no control over the resources
allocated by the prime contractor to the prime contract,  and any failure by the
prime  contractor  to perform its  obligations  under the prime  contract  could
result in the  Company's  loss of its  subcontract.  In addition,  the Company's
contract-related costs and fees, including allocated indirect costs, are subject
to audits and  adjustments  by  negotiation  between  the Company and the United
States  government.  As part of the audit process,  the government  audit agency
verifies that all charges made by a contractor against a contract are legitimate
and appropriate.  Audits may result in  recalculation  of contract  revenues and
non-reimbursement  of some contract  costs and fees. Any audits of the Company's
contract-related  costs and fees could  result in  material  adjustments  to the
Company's  revenues.  In  addition,   United  States  government  contracts  are
conditioned upon the continuing  availability of  congressional  appropriations.
Congress usually  appropriates funds on a fiscal year basis even though contract
performance  may take  several  years.  Consequently,  at the  outset of a major
program,  the contract is usually  incrementally funded and additional funds are
normally  committed to the contract by the  procuring  agency as Congress  makes
appropriations for future fiscal years. Any failure of such agencies to continue
to fund such  contracts  could have a material  adverse  effect on the Company's
business, results of operations and financial condition.

     The Company's  business with the U.S.  government and prime  contractors is
generally performed under cost reimbursement,  fixed price or time and materials
contracts.   Cost  reimbursement   contracts  for  the  government  provide  for
reimbursement  of costs plus the payment of a fee. Under fixed price  contracts,
the Company  agrees to perform  certain work for a fixed  price.  Under time and
materials  contracts,  the Company is  reimbursed  for labor hours at negotiated
hourly billing rates and is reimbursed  for travel and other direct  expenses at
actual costs plus applied general and administrative expense.

     The  following  table  gives the  percentage  of  revenues  realized by the
Company from the three primary types of government  contracts during the periods
indicated.

                                                 Year Ended December 31,
                                            --------------------------------
        Contract Type                        1996          1997         1998
        -------------                       ------        ------       ------
        Cost Reimbursement................   50.5%         51.6%         49.8%
        Fixed Price.......................   31.8          32.8          32.0
        Time and Materials................   17.7          15.6          18.2
                                            ------        ------        ------
                                            100.0%        100.0%        100.0%
                                            ======        ======        ======
Raw Materials

     The Company  operates both  fabrication  and assembly  facilities  and also
purchases  certain  components  and  assemblies  from  other  suppliers.  No one
supplier accounts for a significant portion of total purchases.

Patents, Trademarks and Trade Secrets

     The  Company's  policy  is to  apply  for  patents  and  other  appropriate
statutory  protection when it develops new or improved  technology.  The Company
presently holds numerous United States and international  patents,  as well as a
number of trademarks and  copyrights.  However,  it does not rely solely on such
statutory  protection to protect its technology and  intellectual  property.  In
addition to seeking patent protection for its inventions,  the Company relies on
the laws of unfair  competition  and trade  secrets  to protect  its  unpatented
proprietary  rights. The Company attempts to protect its trade secrets and other
unpatented proprietary  information through agreements with customers,  vendors,
employees and  consultants.  In addition,  various names used by the Company for
its products and services have been registered with the United States Patent and
Trademark Office.

<PAGE>

Backlog

     Contracts   undertaken   by  the  Company  may  extend   beyond  one  year.
Accordingly,  portions are carried  forward from one year to the next as part of
backlog.  Because many factors affect the  scheduling of projects,  no assurance
can be given as to when  revenue  will be realized  on projects  included in the
Company's backlog. Although backlog represents only business which is considered
to be firm, there can be no assurance that  cancellations  or scope  adjustments
will not occur. The majority of backlog represents  contracts under the terms of
which cancellation by the customer would entitle the Company to all or a portion
of its costs incurred and potential fees.

     Many of the  Company's  contracts  with the United  States  government  are
funded by the procuring agency from year to year,  primarily based on its fiscal
requirements.  This  results  in  two  different  categories  of  United  States
government  backlog:  funded and unfunded backlog.  "Funded backlog" consists of
the aggregate contract revenues remaining to be earned by the Company at a given
time, but only to the extent such amounts have been appropriated by Congress and
allocated to the contract by the procuring government agency. "Unfunded backlog"
consists of (i) the  aggregate  contract  revenues  expected to be earned as the
Company's customers  incrementally allot funding to existing contracts,  whether
the  Company  is acting as a prime  contractor  or  subcontractor,  and (ii) the
aggregate  contract  revenues  to be funded on  contracts  which have been newly
awarded to the Company.  "Backlog" is the total of the government and commercial
funded and unfunded backlog.

     The Company's backlog consisted of the following  approximate amounts as of
December 31 of the following years:


Backlog                                         1997               1998
                                            -------------     -------------
U.S. Government funded backlog............  $ 126,720,000     $ 106,635,000
U.S. Government unfunded backlog..........    356,052,000       466,149,000
Commercial backlog........................     48,367,000        47,227,000
                                            -------------     -------------
Total backlog.............................  $ 531,139,000     $ 620,011,000
                                            =============     =============

     In addition to the backlog  described  above,  at December  31,  1998,  the
Company had  remaining  priced  options of over $240  million  from the Navy for
full-scale  production of its Mini-DAMA  satellite  communications  terminal and
certain systems engineering and program management services. The Company expects
that a  substantial  number of these  options  will be  exercised in the future,
although there is no assurance that any options will be exercised.

     Management believes that year-to-year  comparisons of backlog are difficult
and not  necessarily  indicative of future  revenues.  The Company's  backlog is
typically  subject to large  variations  from  quarter  to  quarter as  existing
contracts  are renewed or new contracts  are awarded.  Additionally,  all United
States government  contracts included in backlog,  whether or not funded, may be
terminated at the convenience of the United States government.

     The Company expects to realize  approximately  31% of its December 31, 1998
backlog by the end of 1999.

Competition

     Information  Technologies.  TTIS  is  one of  many  companies  involved  in
providing  information  systems solutions for a variety of programs for agencies
of the U.S. government and prime contractors for these agencies. Most activities
in which TTIS  engages  are very  competitive  and  require  highly  skilled and
experienced  technical  personnel.  Many of TTIS' competitors have significantly
greater  financial  and  personnel  resources  than  TTIS.  Competitors  in this
industry include Anteon Corp., Autometrics, BTG, Inc., Booz-Allen Hamilton Inc.,
CACI International, Inc., Comptek Research, Inc., Computer Sciences Corporation,
Contraves,  Dunn Computer Corporation,  Dynamics Research  Corporation,  General
Dynamics Corporation,  GRC International,  Government Technology Services, Inc.,
Intergraph  Corporation,  Lockheed Martin Corporation,  Metric,  Morpho, Nichols
Research  Corporation,  Raytheon  Company,  Science  Applications  International
Corporation,  Steven Myers & Associates,  Inc.,  and TRW. TTIS believes that the
primary  competitive  factors  for  its  information  systems  services  include
technical skills, experience in the industry and customer relationships.

<PAGE>

     Software  Systems.  The Information  Technology ("IT") services industry is
highly  competitive.  Titan Software  Systems competes against a large number of
multinational, national, regional and local firms, including system integrators,
custom software developers and service groups of software vendors. Many of Titan
Software Systems'  competitors have substantially  greater financial,  technical
and  marketing  resources  and  greater  name  recognition  than Titan  Software
Systems.  In addition,  many of Titan Software Systems' clients have internal IT
resources  and may elect to do work  in-house  instead of using  Titan  Software
Systems' services.  Titan Software Systems believes that the primary competitive
factors for its IT services  include  technical  skills,  knowledge  of specific
industry  operations  for which  software is integrated  or developed,  customer
relationships and quality and cost of service.

     Medical Sterilization and Food Pasteurization. The market for sterilization
services is intensely  competitive  and is  characterized  by significant  price
competition.  Titan  Scan's  market is  fragmented  as a result of  geographical
limitations  on the  transportation  of  products  for  sterilization,  multiple
technologies  and the mix of in-house  and  contract  sterilization  facilities.
Although  Titan Scan believes that it is the only provider of relatively  small,
low-cost, turnkey systems for in-house manufacturers, Titan Scan currently faces
competition  from several  providers of contract Gamma  sterilization  services,
several providers of contract E-Beam sterilization  services and a significantly
larger number of providers of contract EtO  sterilization  services.  Certain of
Titan Scan's competitors and potential  competitors have  substantially  greater
financial,  marketing,  distribution,  technical and other  resources than Titan
Scan,  or  offer  multiple   sterilization   technologies  or  operate  multiple
sterilization facilities at geographically  advantageous sites, which may enable
them to address a broader range of the sterilization  requirements of individual
customers.

     Communications  Systems. The industries and markets in which Communications
Systems  competes  are  highly   competitive,   and  the  Company  expects  that
competition  will increase in such markets.  Communications  Systems  encounters
intense  competition  from  numerous  companies,  including  large and  emerging
domestic and international companies,  many of which have far greater financial,
engineering,  technological,  marketing,  sales and  distribution  and  customer
service resources than Communications  Systems. Some of Communications  Systems'
competitors  in the  secure  defense  communications  market  include  GEC (UK),
Raytheon   Corporation,   Rockwell   International  and  ViaSat,  Inc.  Some  of
Communications  Systems' commercial competitors include Gilat Satellite Networks
Ltd.,  Hughes Network  Systems,  Scientific  Atlanta Inc., STM Wireless Inc. and
ViaSat, Inc. Furthermore,  the satellite communications industry itself competes
with other  technologies  such as  terrestrial  wireless,  copper wire and fiber
optic communications systems.

     Emerging   Technologies  and  Businesses.   Because  it  is  attempting  to
commercialize  a  number  of  diverse   technologies   and  products,   Emerging
Technologies  effectively competes in many areas. Other companies are engaged in
significant research and development  activities in these areas, either on their
own or in  collaboration  with  others.  Some of these  companies  have  greater
financial and personnel  resources,  and more experience in these specific areas
than the Company.  The Company anticipates that Emerging  Technologies will face
increased  competition  in the future as new  companies  enter  these  areas and
additional and potentially more sophisticated technologies become available.

Research and Development

     The Company maintains a staff of engineers,  other scientific professionals
and support  personnel  engaged in development of new applications of technology
and  improvement of existing  products.  These  programs'  costs are expensed as
incurred.  Total  expenditures  for research and development  were $9.8 million,
$12.8  million and $10.0  million in 1996,  1997 and 1998,  respectively.  These
expenditures included  Company-funded  research and development of $5.0 million,
$7.5 million and $5.6 million, and  customer-sponsored  research and development
of $4.8  million,  $5.3  million  and  $4.4  million  in 1996,  1997  and  1998,
respectively.  The  majority of the  Company's  customer-sponsored  research and
development   activity  is  funded  under   contracts  with  the  United  States
government.

Employees

     As  of  December  31,  1998,  the  Company  employed   approximately  2,200
employees, predominantly located in the United States.

Government and Environmental Regulations

     The  Company  must  comply  with  and is  affected  by  various  government
regulations.  These regulations  affect how the Company and its customers can do
business and, in some instances, impose added costs to the Company's businesses.
Any changes in applicable laws could adversely affect the financial  performance
of the business affected by the changed regulations.  Any failure to comply with
applicable  laws could result in material  fines and penalties or affect how the
Company conducts its business in the future.

<PAGE>

     In addition,  the Company is subject to  environmental  and safety laws and
regulations  and laws  governing  use and storage of  hazardous  materials.  The
Company  cannot  completely  eliminate the risk of accidental  contamination  or
injury from these  materials,  and, in the event of such an  accident,  could be
held  liable for any  damages  that  result.  From time to time,  the Company is
notified of minor violations of government and  environmental  regulations.  The
Company  attempts to promptly  correct  these  violations  without any  material
impact on its  operations.  Also, in the quarter ended  September 30, 1997,  DBA
recorded a $3.0 million charge in recognition of certain  environmental  matters
including  soil  contamination  and  potential  asbestos  and  lead-based  paint
contamination  at its Kissimmee,  Florida  facility.  This charge  represents an
initial  estimate,  which  could  change  significantly  as further  studies are
performed.  The Company may be required to incur significant additional costs to
comply  with  environmental  laws and  regulations  in the  future.  Any  future
violation of, and the cost of compliance with, these laws and regulations  could
have a material adverse effect on the Company's  business,  financial  condition
and operations.

Risk Factors

     Dependence on Government  Contracts.  We earn a substantial  portion of our
revenues from  government  contracts.  During 1996,  1997 and 1998, our revenues
from U.S.  government  business  represented  approximately  81%,  82%, and 80%,
respectively,  of our total  revenues.  This  percentage may rise in the future.
Although  we  bid  for  and  are  awarded  long-term  government  contracts  and
subcontracts,  the government only funds these contracts on an annual basis. The
government may cancel these  contracts at any time without penalty or may change
its  requirements  or its  contract  budget.  The U.S.  Congress  may decline to
appropriate  funds needed to complete the  contracts  awarded to us or the prime
contractor.  On  our  subcontracts,  we  generally  do  not  control  the  prime
contractor's  allocation of resources.  We also depend upon the prime contractor
to perform its obligations on the primary government contract. Any cancellations
or  modifications  of our significant  contracts or subcontracts  could hurt our
financial  performance  in the short or long-term.  Continuing  declines in U.S.
defense and other federal agency budgets also may hurt our ongoing prospects.

     Our  government  contracts  are subject to cost  audits by the  government.
These  audits may occur  several  years after  completion  of the audited  work.
Audits may  result in a  recalculation  of  contract  revenues  or result in the
government refusing to reimburse some of our contract costs and fees. Generally,
we resolve audit issues by negotiation without material adjustments. However, in
the  future,  we could have a material  adjustment  to revenue as a result of an
audit,  including an audit of one of the  companies we have  recently  acquired.
Prior to being acquired by Titan,  some of the recently  acquired  companies did
not impose  internal  controls as rigorous as those we impose on the  government
contracts we perform. As part of the integration process,  Titan will take steps
to apply its policies throughout the acquired companies.

     Finally,  some of our  contracts  are fixed  price  contracts.  Under these
contracts,  we bear the risk of any cost  overruns and our profits are adversely
affected  if our  costs  exceed  the  assumptions  we  used in  bidding  for the
contract.

     Attraction  and  Retention  of Key  Personnel.  We  need  to  maintain  our
workforce of highly qualified technical and management personnel,  including our
engineers,  computer programmers and personnel with security clearances required
for classified work. In addition,  our future success will depend in part on our
ability  to  identify,   recruit  and  retain  additional  qualified  personnel,
including individuals with security clearances required for classified work. Our
employees  generally  have many  other job  opportunities  and there is  intense
competition for their services in the areas of our activities.  Consequently, we
strive to maintain an  entrepreneurial  work  environment and provide  financial
incentives to attract and retain our key personnel.  We cannot guarantee that we
will be able to  continue  to attract  and retain  personnel  with the  advanced
technical and security clearance qualifications necessary for the development of
our  business.  The  loss of any  key  personnel  could  negatively  affect  our
financial performance.

     Competition.  Our  businesses  are highly  competitive.  We believe we must
continue to expand our defense  information  technology  business so that we can
remain price competitive and compete for larger  contracts.  For that reason, we
are continuing to look for  acquisition  candidates.  Our commercial  businesses
compete  against other  technologies  as well as against  companies with similar
products.  In order to remain  competitive,  we must invest to keep our products
technically  advanced and compete on price and on value added to our  customers.
Our  ability to  compete  may be  adversely  affected  by limits on our  capital
resources and our ability to invest in maintaining and growing our market share.
Any adverse financial  developments  could make us a less effective  competitor.
Many of our competitors  are larger,  better financed and better known companies
who may compete more effectively than we are able to compete.

<PAGE>

     Risks  Associated  with  Acquisition  Strategy.  Since  January 1, 1998, we
acquired  five  defense  information   technology   companies  as  part  of  our
consolidation   strategy  for  our  defense  business.  All  but  one  of  these
transactions   was  structured  as  a  stock  for  stock  pooling  of  interests
transaction.  The acquisition  and  integration of new companies  involves risk.
While we believe  that each of our recent  acquisitions  may improve our overall
financial  performance  and enable us to compete  more  effectively  for defense
contracts,  the integration of these  businesses may be costly in the short run.
We may need to divert more management  resources to integration than we planned.
This diversion may adversely  affect our ability to pursue other more profitable
activities.  In addition,  we may not  eliminate as many  redundant  costs as we
anticipated  in  selecting  our  acquisition  candidates.  One  or  more  of our
acquisition  candidates also may have  liabilities or adverse  operating  issues
that we failed to  discover  through  our  diligence  prior to the  acquisition.
Consequently,  our recent acquisitions may not improve our financial performance
in the short or long-term as we expect them to do.

     We intend to continue to look for complementary  businesses or technologies
to acquire so that we can expand our core businesses.  However,  we may not find
any more attractive  candidates or may find that the  acquisition  terms are not
favorable to us. In  addition,  we may compete  with other  companies  for these
acquisition   candidates.   Instability  in  the  U.S.  securities  markets  and
volatility in our stock price may make  acquisitions  with stock more expensive.
We also may not adequately assess the risks inherent in a particular acquisition
candidate or correctly  assess the  candidate's  potential  contribution  to our
financial performance. Accordingly, our acquisition strategy may not improve our
overall financial performance and could weaken it.

     Fluctuations in Results of Operations.  Our quarterly and annual  financial
performance   has   historically   fluctuated  and  may  continue  to  fluctuate
significantly  in the future.  Our  revenues are affected by factors such as the
unpredictability  of sales  and  contract  awards  due to the  long  procurement
process for most of our products and services, defense and intelligence budgets,
competition and general  economic  conditions.  Our product mix and unit volume,
our ability to keep expenses within budgets,  our distribution  channels and our
pricing  affect our gross  margins.  These factors and other risks  discussed in
this section may  adversely  affect our financial  performance  within a period.
Consequently,  we do not believe that  comparison of our  financial  performance
from period to period is  necessarily  meaningful  or  predictive  of our likely
future performance.

     Ability to Commercialize New  Technologies.  In 1991, we adopted a strategy
of seeking to develop  commercial  businesses using technology  developed in our
defense businesses.  Most of our commercial  businesses are in an early stage of
development.  These technology-based businesses are subject to risks inherent in
early  stage  startup  companies.  We must  ensure  that these  businesses  have
adequate  capital to fund their growth.  At the inception of this  strategy,  we
used cash generated through our defense business to fund the substantial startup
and expansion  costs.  This practice cost us short-term  profitability  in prior
years.  We have since  modified our financing  strategy and are seeking  funding
from external  sources through  minority  spin-offs or through sales of majority
interests  in earlier  stage  technologies  that  require  substantial  business
development. However, external funding may not be available and we may be unable
or chose not to fund these businesses  through our operations.  Lack of adequate
capital could cause one or more of these  businesses to fail or cause us to sell
a business.

     These  businesses  are also subject to a high degree of  competition  and a
risk of  technical  obsolescence  if we fail to respond  to rapid  technological
changes.  Each of these  businesses  face  market and  operating  risks that are
unique to the particular business,  and require significant  management time and
resources.  We have a limited history of  commercializing  new  technologies and
ultimately may not succeed in creating new commercial businesses that positively
contribute to our profitability.

     Reliance on  Strategic  Relationships.  Since the  primary  markets for our
commercial  communications  products are in more rural developing countries,  we
have formed  strategic  arrangements  with local  partners to develop and expand
this business.  We have strategic  arrangements with AfroNetwork,  Benin,  Sakon
Corporation  ("Sakon") and PT. Pasifik  Satelit  Nusantara  ("PSN") for sales of
commercial  communications  products in  developing  countries in Africa,  Latin
America  and  Asia.  Similarly,  we are  part  of a  consortium  led by  Alcatel
Telespace,  pursuant to which the companies  pursue  symbiotic  successes in new
markets.  In addition,  our electronic beam sterilization  products are marketed
primarily through a joint venture with Varian  Associates,  Inc., and several of
our defense  communications and information  technologies  products are marketed
through strategic relationships with Motorola,  Inc. and Harris Corporation.  We
will need to  continue  these  relationships  and develop  additional  strategic
relationships  to  support  our  operations  and  continued  growth.  We  cannot
guarantee  that  we can  maintain  these  strategic  alliances  or  develop  new
strategic  alliances  to  expand  our  marketing  networks  for  our  commercial
communications products.  Without these alliances and stable economic conditions
in our target  markets,  our  development of robust  commercial  markets for our
communication products may be delayed or may not occur.

     Risk of  International  Operations.  We sell our commercial  communications
products  primarily in foreign  countries  with large rural  areas.  Although we
generally sell our commercial  communications products in U.S. dollars, currency
devaluations  and  adverse  market  conditions  in  Indonesia  and  other  Asian
countries have  negatively  affected  demand for our  commercial  communications
products  and,  consequently,  our revenues  for this  segment.  Our  commercial
communications  products generally require substantial capital investments,  and
our  potential  customers  have  not had the  capital  resources  to make  these
investments.  We have assisted our established marketing partner in Indonesia by
extending   some  trade  credit  that  has   subsequently   been  extended  with
installments due over an additional two years.  Because of market  conditions in
Indonesia and other factors,  there is a risk that our customer there may not be
able to pay this debt in accordance with the extended terms.  Further, we do not
have the capital  resources  or risk  tolerance  to finance the  purchase of our
commercial  communications  products.  As a result,  revenues  in this group may
decline until economic conditions in the Pacific Rim region begin to improve.

<PAGE>

     Selling  products or services in  international  markets also entails other
market, economic,  cultural, legal and political risks, conditions and expenses.
These risks include trade  barriers,  export and import  restrictions  and other
applicable laws, political and economic instability,  difficulties in collecting
amounts  owed  to  us  and  difficulties  in  managing  overseas  employees  and
contractors.  Any one of these  factors or other  international  business  risks
could adversely affect our financial performance.

     Customer  Concentration.  A  significant  percentage  of our  products  and
services are predominantly sold and performed under contracts with various parts
of the U.S. Navy or with prime  contractors  to the U.S.  Navy.  Although  these
various  parts of the U.S.  Navy are subject to common  budgetary  pressures and
other factors, our various U.S. Navy customers exercise  independent  purchasing
decisions. However, because of such concentration, we are potentially vulnerable
to adverse  changes in our  revenues  and  overall  financial  performance  if a
significant   number  of  our  U.S.   Navy   contracts  and   subcontracts   are
simultaneously delayed or canceled for budgetary or other reasons.

     Market  Acceptance of Food  Pasteurization.  Our Medical  Sterilization and
Food  Pasteurization  segment is attempting to develop food  pasteurization as a
new market for its E-Beam sterilization process.  Because food pasteurization or
irradiation has yet to gain consumer acceptance, we do not know whether a viable
new market will develop or grow.  Unless meat producers and large-scale  sellers
such as chain  restaurants  decide to pasteurize or purchase  pasteurized  meat,
this market is unlikely to develop.  If the market does develop,  our technology
will  compete  against  other   technologies  now  used  to  sterilize   medical
instruments and our business may not win a substantial share of this market.

     Compliance  with  Government  and  Environmental  Regulations.   Like  most
businesses,  our  defense  and  commercial  businesses  must  comply with or are
affected by various  government  regulations.  These regulations  affect how our
customers and we can do business and, in some  instances,  impose added costs to
our  businesses.  Any  changes in  applicable  laws could  adversely  affect the
financial  performance of the business affected by the changed regulations.  Any
failure to comply  with  applicable  laws  could  result in  material  fines and
penalties or affect how we do business in the future.

     In  addition,   we  are  subject  to  environmental  and  safety  laws  and
regulations and laws governing use and storage of hazardous materials. We cannot
completely  eliminate the risk of accidental  contamination or injury from these
materials,  and, in the event of such an  accident,  we could be held liable for
any damages that result.  From time to time, we are notified of minor violations
of government  and  environmental  regulations.  We attempt to promptly  correct
these  violations  without any material impact on our  operations.  Also, in the
quarter  ended  September  30,  1997,  DBA  recorded  a $3.0  million  charge in
recognition of certain  environmental  matters including soil  contamination and
potential asbestos and lead-based paint contamination at its Kissimmee,  Florida
facility.  This  charge  represents  an initial  estimate,  which  could  change
significantly  as further  studies  are  performed.  We may be required to incur
significant  additional costs to comply with  environmental laws and regulations
in the future.  Any future  violation of and the cost of  compliance  with these
laws and  regulations  could have a  material  adverse  effect on our  business,
financial condition and operations.

     Dependence upon Suppliers; Sole and Limited Sources of Supply. Our internal
manufacturing capacity is limited so we use contract manufacturers. While we use
care in selecting our manufacturers, this arrangement gives us less control over
the quality and price of products or  components  than if we  manufactured  them
ourselves.  In some cases,  we obtain products from a sole supplier or a limited
group of  suppliers.  Consequently,  we risk  disruptions  in our  supply of key
products and components if our suppliers  fail or are unable to perform  because
of  strikes,  natural  disasters,  financial  condition  or other  factors.  Any
material supply  disruptions could adversely affect our revenues and our ongoing
product cost structure.

     Limited  Intellectual   Property  Protection;   Dependence  on  Proprietary
Technology.  As a policy,  we seek to protect  our  proprietary  technology  and
inventions  through  patents,  copyrights,  trade  secret  law and  other  legal
protections.  While our patent  portfolio is  valuable,  our  financial  success
ultimately  depends upon our ability to deliver  products and services that meet
customer  needs,  not on  intellectual  property  laws. We may,  however,  incur
significant  expense  in  both  protecting  our  intellectual  property  and  in
defending or assessing  claims with respect to  intellectual  property  owned by
others. Any patent or other infringement  litigation by or against us could have
an  adverse  effect on our  financial  performance.  We also  could be forced to
modify or  abandon  one or more  planned  or  current  products  based  upon our
assessment of  intellectual  property  risks or actual or  threatened  claims by
other companies.

<PAGE>

     Impact of the Year 2000 Issue.  We have  implemented a Year 2000 compliance
program to address our current  hardware and software  products and  development
tools and all of our  major  computing  information  systems  networks,  desktop
systems and infrastructure.  In addition,  we are contacting business associates
such as our third party  vendors,  business  partners,  contractors  and service
providers to assess  their level of  readiness.  Finally,  we have formed a Year
2000 steering committee to monitor implementation of our overall program and the
plans of each of our  business  units.  Each of our  business  units has  formed
steering committees to develop and implement compliance plans.

     We are  in the  process  of  assessing  whether  all of our  business  unit
products  and  services  are Year 2000  compliant.  We do not expect our current
products or services  to have  material  Year 2000  issues.  In some cases,  our
government  customers have contracted with us to modify our older products to be
Year 2000 compliant.  Our products are not sold under extended  warranties so we
do not expect that we will have to spend any material amounts to make any of our
prior products Year 2000 compliant.  However, we are in the process of assessing
all of our products, including the products of our recently acquired businesses,
and we cannot be certain that Year 2000 issues will not arise.

     As part of our program,  we intend to review the  internally  developed and
third party  software that we use for  accounting,  manufacturing  processes and
other  business  functions.  Because of our history of  acquisitions,  we have a
number of business units that use different  systems;  some of which we know are
not Year  2000  compliant.  Based  upon  our  assessment,  we may  elect to move
business  units to other Year 2000  compliant  systems that we currently  use as
part of an overall plan to  consolidate  the number of different  systems  being
used.  We estimate the cost of moving  business  units to new systems will range
from $3 million  to $5  million.  Some of our  business  units may use  internal
resources  to convert  legacy  application  systems  to be Year 2000  compliant.
Finally,  many  of  our  government  contracts  related  business  units  use an
accounting  package that is not currently Year 2000  compliant.  Our supplier of
this package has released a Year 2000  compliant  version that we are  currently
installing.  We expect to incur substantially all of our Year 2000 related costs
during fiscal year 1999. These costs could have a material adverse effect on our
financial  position,  results of operations  or cash flows.  If we cannot timely
correct all Year 2000 problems,  these problems also may cause material  adverse
effects on our financial position, results of operations or cash flows.

     Some of our customers,  in particular the U.S. government,  utilize complex
billing and  accounting  systems to determine when and what amounts will be paid
to us under our various contracts.  In addition,  several of our major strategic
partners  rely on complex  software  systems to  coordinate  and  control  their
day-to-day  operations.  These complex  systems may not be Year 2000  compliant.
Although these customers and strategic partners have advised us that they expect
to resolve any Year 2000 issues prior to December 31, 1999, we cannot  guarantee
that our  billing  procedures  and  cycles,  or our joint  sales  and  marketing
efforts, will not be interrupted. If these customers' or business partners' Year
2000 issues are not resolved on time, or at all, our financial position, results
of operations or cash flows could be materially and adversely affected.

     We plan on  developing  contingency  plans in the event  that our  internal
systems  or  our  third  party  business  associates'  systems  are  not  timely
corrected.

Item 2.  Properties

     The Company's operations occupy approximately  900,000 square feet of space
located  throughout the United States. The large majority of the space is office
space.  Substantially  all of the  Company's  facilities  are leased.  For lease
commitment  information,  reference  is  made  to  Note  8 to  the  accompanying
financial statements.

     It  is  management's  policy  to  maintain  the  Company's  facilities  and
equipment  in  good  condition  and  at a high  level  of  efficiency.  Existing
facilities  are  considered  to be  generally  suitable  and  adequate  for  the
Company's present needs. The Company owns substantially all of the machinery and
equipment employed by it in its business.

<PAGE>

     The locations of the principal operating  facilities of the Company and its
consolidated subsidiaries are as follows:
<TABLE>
<CAPTION>

             Information Technologies                       Software Systems
             ------------------------                       ----------------
             <S>                                            <C>
             Anniston, Alabama                              Dublin, California
             Huntsville, Alabama                            San Diego, California
             Chatsworth, California                         Colorado Springs, Colorado
             Englewood, California                          Washington, D.C.
             National City, California                      Heathrow, Florida
             Port Hueneme, California                       Tampa, Florida
             Sacramento, California                         Dallas, Texas
             San Diego, California                          Reston, Virginia
             San Leandro, California
             Santa Clara, California                        Medical Sterilization and Food Pasteurization
                                                            ---------------------------------------------
             Vallejo, California                            Dublin, California
             Aurora, Colorado                               San Diego, California
             Denver, Colorado                               Denver, Colorado
             Gales Ferry, Connecticut
             Niantic, Connecticut                           Communications Systems
                                                            ----------------------
             Melbourne, Florida                             San Diego, California
             Warner Robins, Georgia
             Hanover, Maryland                              Emerging Technologies and Businesses
                                                            ------------------------------------
             Indian Head, Maryland                          Phoenix, Arizona
             Largo, Maryland                                Tempe, Arizona
             Lexington Park, Maryland                       Dublin, California
             Billerica, Massachusetts                       San Diego, California
             Westborough, Massachusetts                     Pensacola, Florida
             Princeton, New Jersey                          Westford, Massachusetts
             Akron, Ohio                                    Alexandria, Virginia
             Middleton, Rhode Island                        Dumfries, Virginia
             Westerly, Rhode Island                         Richmond, Virginia
             Newport News, Virginia                         Virginia Beach, Virginia
             Norfolk, Virginia                              United Kingdom
             Fairfax, Virginia
             King George, Virginia
             Reston, Virginia
             Virginia Beach, Virginia

</TABLE>

Item 3.  Legal Proceedings

     In the ordinary course of business, defense contractors are subject to many
levels of audit and investigation by various government  agencies.  Further, the
Company  and its  subsidiaries  are  subject to claims and from time to time are
named as  defendants  in legal  proceedings.  The Company may also assert claims
from  time to time.  In the  opinion  of  management,  the  amount  of  ultimate
liability or recovery with respect to these actions will not  materially  affect
the financial position or results of operations of the Company.

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

         At a special  meeting of  stockholders  held on October 21,  1998,  the
stockholders  approved a proposal to amend the Company's Restated Certificate of
Incorporation  to  increase  the number of  authorized  shares of the  Company's
Common Stock from 45,000,000 to 100,000,000. Stockholders voted as follows:

             Affirmative Votes..............     15,215,716
             Negative Votes.................      3,702,258
             Abstaining.....................         78,474

<PAGE>

                                     PART II

Item 5.  Market for the Company's Common Equity and Related Stockholder Matters

     The Company's common stock and cumulative  convertible  preferred stock are
traded on the New York Stock Exchange ("NYSE").  As of March 2, 1999, there were
approximately  3,844  holders of record of the  Company's  common  stock and 654
holders of record of the Company's preferred stock,  excluding beneficial owners
of shares held in the names of brokers or other nominees. The closing prices for
the common and preferred  stock on the NYSE as of March 2, 1999,  were $5.63 and
$11.44, respectively. The quarterly market price ranges for the Company's common
and preferred stock on the NYSE in 1998 and 1997 were as follows:


   Common Stock                 1998                       1997
                         -------------------        -------------------
     Fiscal Quarter       High          Low          High          Low
    ------------------   ------       ------        ------       ------ 
     First               $ 6.81       $ 5.75        $ 3.75       $ 2.88
     Second                8.13         5.81          4.38         2.88
     Third                 6.56         3.94          7.31         4.44
     Fourth                5.94         4.50          8.19         5.34




    Cumulative
    Convertible
    Preferred Stock             1998                       1997
                         -------------------        -------------------
     Fiscal Quarter       High          Low          High          Low
    ------------------   ------       ------        ------       ------ 
     First              $ 13.38      $ 11.81       $ 11.75      $ 10.57
     Second               14.38        13.19         12.50        10.13
     Third                14.00        11.00         13.25        12.38
     Fourth               11.94        11.25         13.69        12.38


     No  dividends  were  paid on the  Company's  common  stock in 1998 or 1997.
Regular  quarterly  dividends  of $.25 per  share  were  paid on the  cumulative
convertible preferred stock in both years.

Item 6.  Selected  Financial  Data* (in  thousands of dollars,  except per share
data)
<TABLE>
<CAPTION>


                                                                               1998        1997        1996       1995        1994
                                                                            ----------  ---------   ---------  ---------   ---------
Operating Results:

<S>                                                                          <C>        <C>         <C>        <C>         <C>      
Revenues ..................................................................  $ 303,428  $ 275,923   $ 245,976  $ 244,882   $ 230,611
Income (loss) from continuing  operations before
   cumulative  effect of  change  in  accounting
   principle ..............................................................      7,213     (1,382)      5,342      2,053      10,203

Income (loss) from continuing operations before cumulative effect of change
   in accounting principle per common share:
      Basic ...............................................................        .18       (.07)        .14        .04         .31
      Diluted .............................................................        .18       (.07)        .14        .04         .31

Financial Position:



Cash, cash equivalents and investments ....................................     11,079     15,882      15,607     14,477       9,447
Total assets ..............................................................    192,567    183,703     193,288    163,060     150,424
Line of credit, long-term .................................................     39,632       --          --         --          --
Other long-term debt ......................................................     30,659     37,565      40,521      6,874       4,196
Redeemable preferred stock ................................................       --        3,000       3,000       --          --
Stockholders' equity ......................................................     50,711     65,447      82,279     71,691      78,296
Preferred dividends .......................................................        778        875         803        695         695

</TABLE>

     *Previously   reported   amounts   have  been   restated   to  reflect  the
acquisitions,  accounted  for as  poolings  of  interests,  of Delfin,  VisiCom,
Horizons and DBA in 1998, and the discontinuance of the Company's access control
systems business in 1998.

Item 7.  Management's  Discussion  And  Analysis  Of Results Of  Operations  And
Financial Condition
     (The  following   discussion   should  be  read  in  conjunction  with  the
consolidated   financial  statements  and  related  notes.  Dollar  amounts  are
expressed in thousands.)

Company Overview

     The Company is a leading provider of  state-of-the-art  communications  and
information  solutions to the U.S. military and allied government agencies.  The
Company's  systems,  products  and  services  enable its  customers to generate,
process, transmit, store and distribute information in a secure,  cost-effective
and  timely  manner.   The  Company  operates  its  business  primarily  through
subsidiaries that are focused on targeted markets and/or technologies.

     A substantial portion of the Company's revenues is dependent upon continued
funding of U.S. and allied  government  agencies as well as continued funding of
the programs targeted by the Company's businesses.  For the years ended December
31, 1998, 1997, and 1996, U.S.  government  business  represented  approximately
80%, 82%, and 81% of the Company's revenues,  respectively. U.S. defense budgets
have generally been declining in real terms since the mid-1980's.  However, U.S.
government spending for professional and technical services such as engineering,
information  technology,  training,  research and  development and operating and
maintenance  support  has  increased  in real  dollars in each of the past three
years,  and  industry  sources  expect it to continue to do so. Any  significant
reductions in the funding of United States government agencies or in the funding
areas targeted by the Company's businesses could materially and adversely affect
the Company's business, results of operations and financial condition.

<PAGE>

     Throughout 1998, the Company closely followed its well-defined  strategy of
growing its defense information technology business through the Company's active
participation  in  the  industry  roll  up of  third-tier  defense  intelligence
companies. In addition, these acquisitions provided expansion of the Information
Technologies  segment's existing Navy customer base to include  significant Army
and Air Force business. The Company completed five acquisitions during 1998: DBA
Systems ("DBA") on February 27, Validity  Corporation  ("Validity") on March 31,
Horizons Technology ("Horizons") on June 30, VisiCom Laboratories ("VisiCom") on
August 24, and Delfin  Systems  ("Delfin")  on October 23. All mergers  with the
exception  of  Validity  were  stock-for-stock  transactions  accounted  for  as
poolings of  interests  transactions.  All  acquisitions  with the  exception of
VisiCom were integrated into the Company's Information Technologies segment. The
operating results of VisiCom have been included in the Emerging Technologies and
Businesses segment.

     Through  acquisitions  and internal  growth,  record revenues and operating
profits were achieved by the Company's Information Technologies segment in 1998.
This segment  provides  information  systems  solutions  primarily to government
customers  with large data  management,  information  manipulation,  information
fusion,  knowledge-based systems, and communications requirements.  This segment
also supports high priority government programs by providing system integration,
information systems engineering services, development of systems and specialized
products,  as well as  systems  research,  development  and  prototyping.  Other
services include research and development  under government funded contracts for
the Department of Defense (DoD) and other customers.

     During 1998,  operating  entities in the Information  Technologies  segment
were awarded five contracts  with an aggregate  potential  value  exceeding $180
million.   These  contracts  provide  for  communications  systems  integration,
engineering  and  technical  support  services  for the U.S.  government  over a
five-year period. A substantial  portion of the contracts booked in this segment
was awarded to the entities that were acquired  during 1998. The Company intends
to further support this segment's growth through continued active  participation
in the on-going defense industry consolidation,  taking advantage of synergistic
acquisition opportunities.

     The Company's Software Systems segment ("Titan Software Systems") continued
to diversify its customer base and achieve  internal  revenue  growth as well as
significantly  improving  operating  performance in 1998. In addition,  in early
January 1999, the Company's  wholly-owned  subsidiary,  Titan  Software  Systems
Corporation,  acquired  Transnational  Partners  II,  LLC, a  software  services
company which provides  infrastructure  and Enterprise  Resource  Planning (ERP)
solutions for major  corporations.  Management  believes  that this  acquisition
brings added business,  profits and critical mass to Titan Software Systems, all
of which are critical factors in implementing the Company's stated strategy of a
future spin-out or spin-off.

     Titan Software  Systems is primarily a systems  integrator  that provides a
broad range of  end-to-end  information  technology  services  and  solutions to
customers such as the State of Wyoming, the Federal Aviation Administration, MCI
Worldcom, Sempra Energy and other non-defense government and commercial entities
with large and complex  system  integration  and data  management  requirements.
Titan Software Systems provides integration and package software  implementation
services, integration of third party enterprise resource planning (ERP) software
solutions,  business  process  re-engineering,  data  warehousing  and  database
administration,  client/server  application  development,  Year 2000  solutions,
Internet and intranet  infrastructure  design and  development,  and  electronic
commerce solutions.

     The  Company's  Medical  Sterilization  and  Food  Pasteurization   segment
achieved  record  revenues  and  operating  profits  during  1998.  This segment
currently  provides  medical  product   sterilization   services  at  two  Titan
facilities and manufactures and sells turnkey  electron beam  sterilization  and
food pasteurization systems to customers for use in their own facilities.

     The 1998 operating results include the  near-completion  of two SureBeam(R)
sterilization  systems during 1998, the first for Rochaille Corporation in Wales
and the second for Baxter  Corporation in the Dominican  Republic.  During 1998,
the Company signed agreements to provide medical product sterilization  services
at its Denver facility,  with aggregate values of approximately $6 million. Both
the San Diego and Denver facilities  achieved record  utilization  levels during
1998.

<PAGE>

     In addition,  in February 1999, the U.S.  Department of Agriculture  (USDA)
announced that it would soon allow the nation's  meatpackers and food processors
to sterilize raw meat and several other food products with beams of radiation to
eliminate bacteria.  The Company has received significant  inquiries in response
to this recent USDA  announcement.  The Company  believes  that its  SureBeam(R)
product is superior  to other  similar  systems to  eliminate  these  food-borne
bacteria.

     The  Company's  Communications  Systems  segment,   ("Linkabit  Wireless"),
develops and produces advanced satellite ground terminals,  satellite voice/data
modems,    networking    systems   and   other    products   used   to   provide
bandwidth-efficient  communications for commercial and government customers. Its
market-driven  product  development  efforts have resulted in products which are
particularly well suited for rural telephony and secure defense communications.

     During  1998,  the  defense  communications  systems  business  of Linkabit
Wireless  was  awarded  a $13.8  million  contract  as  well  as two  additional
production  options  with an  aggregate  value  of $4.5  million  for  Mini-DAMA
satellite  communications  terminals.  This business also  experienced  internal
revenue and operating profit growth in 1998.

     In October  1998,  the  Company  acquired a 50%  ownership  position  in an
African based telecommunications company, AfroNetwork,  Benin, which is building
a satellite-based  telephone system in Benin,  Africa.  The Company also entered
into a strategic relationship with Sakon Corporation, an international telephone
service  provider  and  communications  company  which  provides  telephone  and
internet  services.  Through a newly formed company,  Sakon LLC, Titan and Sakon
Corporation  will  provide  carrier,  direct dial rural  telephony  and enhanced
communications services,  including international fax, conference calling, voice
over IP, virtual communication  centers and virtual-private  network services to
the developing countries of Africa, Latin America, the Middle East and Southeast
Asia.

     The Company's  Emerging  Technologies  and Businesses  segment  experienced
internal  revenue growth as well as  significantly  improved  operating  margins
during 1998.  This segment  consists  primarily of image  processing and circuit
boards,  as  well  as  certain  new  technologies  and  early-stage  businesses,
including  businesses  in which  the  Company  owns  only a  minority  interest.
Emerging  Technologies  and  Businesses  pursues  commercial   applications  for
technologies   originally   developed  by  the  Company's   other   segments  in
government-sponsored  research and development  programs.  Emerging Technologies
and  Businesses  employs  the  Company's  rich  technology  portfolio,  superior
research and development  capabilities and stream of government  funded projects
to create solutions to technology-related problems which the Company can sell to
multiple commercial markets.

Operating Results

     The  table  below  sets  forth  the  Company's  operating  results  and the
percentage of total revenues for certain  operations  data for each of the three
years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
                                              1998          %       1997          %        1996         %
                                           ---------      -----  ---------      -----  ---------      -----
<S>                                        <C>            <C>    <C>            <C>    <C>            <C>  
Revenues ...............................   $ 303,428      100.0  $ 275,923      100.0  $ 245,976      100.0
Cost of revenues .......................     232,041       76.5    216,553       78.5    192,657       78.4
Selling, general and administrative ....      37,553       12.4     36,731       13.3     36,226       14.7
Research and development ...............       5,590        1.8      7,466        2.7      5,023        2.0
Special acquisition related charges and        9,891        3.3      6,600        2.4        --          --
   other
Operating profit .......................      18,353        6.0      8,573        3.1     12,070        4.9
Interest expense, net ..................       6,985        2.3      5,771        2.1      4,125        1.7
Income tax provision ...................       4,155        1.4      4,184        1.5      2,603        1.1
Cumulative effect of change in
   accounting principle, net ...........     (19,474)      (6.4)        --         --         --         --
Loss from discontinued operations, net .      (7,444)      (2.4)   (17,930)      (6.5)    (6,326)      (2.6)
Net income (loss).......................     (19,705)      (6.5)   (19,312)      (7.0)      (984)      (0.4)
</TABLE>

Results of Operations

     As noted above, the Company's consolidated revenues were $303,428, $275,923
and  $245,976 in 1998,  1997 and 1996,  respectively.  Increased  revenues  were
reported   in  the   Information   Technologies,   Software   Systems,   Medical
Sterilization and Food  Pasteurization and Emerging  Technologies and Businesses
segments  in 1998.  Revenue  growth in 1998 was  primarily  attributable  to the
impact of the acquisitions noted previously in the Information  Technologies and
Emerging Technologies and Businesses segments, work performed on new business in
the Software Systems segment, and the near-completion of two SureBeam(R) systems
in the Medical Sterilization and Food Pasteurization segment.

     The  Company's  consolidated  operating  profits  have  been  significantly
impacted by a number of factors in each of the three years shown above. The 1998
operating  results  include a charge of $9,891  primarily  related to the direct
transaction costs incurred on the Delfin, VisiCom, Horizons and DBA mergers, and
to a lesser degree certain costs  incurred to integrate  these  businesses  into
Titan, as well as certain integration costs incurred in other business segments.
The 1997  operating  results  include a charge of $9,846  related  primarily  to
provisions  taken  to  reflect  certain  asset   impairments  and  an  estimated
environmental liability pertaining to a DBA manufacturing facility which is held
for sale.  The 1996  operating  performance  reflects the  Company's  continuing
investment in and funding of its commercial ventures.

<PAGE>

     Selling, general and administrative ("SG&A") expenses were $37,553, $36,731
and $36,226 in 1998, 1997 and 1996,  respectively.  As a percentage of revenues,
SG&A expenses have decreased from 14.7% in 1996 to 13.3% in 1997 and to 12.4% in
1998.  The  reductions  in 1997 and 1998  reflect  the impact of cost  reduction
measures as well as economies of scale and efficiencies that have been achieved.
In addition,  the Company has eliminated  many duplicate  functions and costs as
part of its process of integrating certain of its acquired businesses.  In early
1997, the Company  implemented a  re-engineering  process of its  administrative
functions.  This  re-engineering  focused on the  elimination  of  redundancies,
resulting in increased efficiencies and reduced infrastructures,  and ultimately
resulted in reduced costs.  This  re-engineering  process  continued  throughout
1998,  and the Company  intends to continue  this  process  through  1999 as the
acquired entities are integrated into the Company.

     Research and development ("R&D") expenses were $5,590, $7,466 and $5,023 in
1998, 1997 and 1996, respectively. The reduced level of R&D expenditures in 1998
primarily  reflects the  completion  of certain  development  and  certification
efforts in the defense  communications  business within  Communications  Systems
which were  substantially  completed in 1997. The Company  anticipates  that the
1999 levels of R&D spending will increase in absolute  dollars  primarily in the
defense  communications  business and the Emerging  Technologies  and Businesses
segment.

     Net  interest  expense  has  increased  over the  three-year  period  ended
December 31, 1998,  primarily as a direct result of the  increased  level of the
Company's  borrowings,  primarily to fund the growth in the various segments. In
1998 and 1997,  the  principal  component of interest  expense is related to the
convertible  subordinated debentures issued by the Company in November 1996. The
debentures  are redeemable by the Company on or after November 2, 1999. In 1996,
the  principal  component  of  interest  expense  is  related  to the  Company's
borrowings under its bank lines of credit. Borrowings from the Company's primary
bank lines of credit,  excluding  the working  capital  lines from the  acquired
companies,  averaged  $28,889,  $10,803 and $12,315 at weighted average interest
rates of 7.7%,  8.1% and 8.2% during  1998,  1997 and 1996,  respectively.  Also
included in interest expense is interest on the Company's deferred  compensation
and retiree  medical  obligations.  Interest  expense related to these items was
$890, $767 and $801 for 1998, 1997, and 1996, respectively.

     Income taxes reflect effective rates of 37%, 149% and 33% in 1998, 1997 and
1996,  respectively.  The  difference  between  the  actual  provision  and  the
effective rate (based on the United States  statutory tax rate) in 1998 and 1996
was due  primarily to state income  taxes.  The  increased  rate in 1997 was due
primarily  to  significant  non-deductible  expenses  which  were  recorded  for
financial  reporting  purposes,  as well as the  inability  to offset  losses of
certain acquired entities with income of other entities. The Company expects its
effective  income  tax rate to  remain  stable in the  foreseeable  future at an
approximate rate of 30% to 34%.

     In the third  quarter of 1998,  the Company  adopted  Statement of Position
98-5 (SOP 98-5), "Reporting on the Costs of Start-Up Activities".  This resulted
in a $19,474 one-time, non-cash charge accounted for as a cumulative effect of a
change in  accounting  principle.  The charge  primarily  represents  previously
capitalized  start-up  costs  incurred in the Company's  discontinued  broadband
communications business and deferred pre-contract costs as well as non-recurring
engineering   costs   previously   carried  in   inventory   in  the   Company's
Communications Systems segment.

     In late 1998,  the Company  made a decision to divest  and/or wind down its
access control systems business. Revenues and operating income (losses) for this
business were $3,122 and $(3,026) in 1998,  $4,136 and $492 in 1997,  and $1,808
and $483 in 1996,  respectively.  The 1998 loss  includes a charge of $1,500 for
the  estimated  costs to be incurred in future  periods in  connection  with the
winding down of this business. Early in 1997, the Company announced its decision
to divest its broadband communications  business.  Revenues and operating losses
for the broadband communications business were $-0- and $4,172 in 1998, $551 and
$343 in 1997,  and $2,238 and $3,642 in 1996,  respectively.  During  1998,  the
Company  received  cash  payments  of  $4,400  for  licensing  of the  broadband
technology and as settlement of certain  contingencies  related to the broadband
patents. In the third quarter ended September 30, 1998, the remaining net assets
of  this  business  were  written  off as a  charge  to loss  from  discontinued
operations  of  $4,638.   Additionally,   approximately   $7,200  in  previously
capitalized broadband  communications start-up costs were written off as part of
the cumulative effect of the change in accounting principle discussed above.

<PAGE>

     In addition to the  discontinued  operations of the access control  systems
business  and the  broadband  business,  the loss from  discontinued  operations
reflects  operations  discontinued by certain of the companies acquired by Titan
in 1998.  The  decisions to dispose of or otherwise  wind down these  operations
were  made by the  separate  Boards  of  Directors  of the  respective  acquired
companies  prior to  entering  into any  discussions  with Titan  regarding  the
potential acquisitions of these entities by Titan. Revenues and losses for these
discontinued  operations were $10,899 and $-0- for 1998,  $7,999 and $17,907 for
1997,  and  $9,367  and $2,998 for 1996,  respectively.  Aggregate  charges  for
estimated  costs to be incurred in future periods in connection with the winding
down of these operations amounted to approximately $6,800,  substantially all of
which was  recorded  by the  acquired  companies  in the last  quarter  of 1997.
Operating losses of approximately $5.8 million were charged against this accrual
during  1998.  Additionaly,  a pre-tax  charge of $1,300  was taken in the third
quarter of 1998 based on  management's  most recent  review of estimated  future
wind-down costs.

Information Technologies

     Revenues in this segment were $190,467, $165,739 and $154,054 in 1998, 1997
and 1996,  respectively.  The increase in 1998  primarily  relates to $22,969 of
revenue  generated  from  Validity,  which was purchased in March 1998, and to a
lesser  degree,  revenues  related to a claim with the U.S.  Government for work
performed in a prior year. The increased  revenue in 1997 was primarily  related
to a full-year's revenues generated from Eldyne and Unidyne, which were acquired
in May 1996.

     Segment  operating income increased to $16,291 in 1998,  compared to $5,457
in 1997 and  $14,861 in 1996.  The 1998  operating  income  includes a charge of
$5,772  related  to  special   acquisition  and   integration   related  charges
principally  comprised of direct  transaction and integration  costs incurred by
the Company in  conjunction  with the mergers of DBA,  Horizons and Delfin.  The
1997 operating  income  includes  charges of $9,846 related to the write-down of
property held for sale, an estimated  environmental  liability and certain other
asset write-downs  recorded in connection with the acquisition of DBA. Excluding
the impact of these charges,  segment operating income increased from $14,861 in
1996, to $15,303 in 1997,  and to $22,063 in 1998,  primarily from the increased
revenues  discussed above, as well as from certain cost reduction  efforts taken
during 1997 and 1998.

Software Systems

     Revenues in this segment increased to $21,470 in 1998,  compared to $17,374
in 1997 and $18,505 in 1996.  One federal  agency  accounted  for  approximately
$11,200 of this  revenue in 1998,  $8,900 in 1997,  and $6,800 in 1996,  and one
telecommunications customer accounted for approximately $3,700 of this segment's
revenue in 1998,  $4,500 in 1997, and $8,300 in 1996.  Reduced revenues from the
latter  customer in 1998 were offset by revenues  from  several new and existing
customers, as well as increased revenues from the aforementioned federal agency.

     Segment operating income improved to $5,137 in 1998,  compared to $4,580 in
1997,  and an  operating  loss of $137 in 1996.  The 1998  increase in operating
performance  reflects the impact of the increased  revenues discussed above. The
1997 results reflect the impact of cost reductions achieved,  offset somewhat by
additional costs associated with a negotiated  conclusion of certain  contracts.
The 1996  operating  loss was due primarily to reduced sales from the previously
mentioned  telecommunications customer, the timing of corresponding decreases in
SG&A,  and  additional  costs  associated  with  the   aforementioned   contract
conclusion.

Medical Sterilization and Food Pasteurization

Revenues  in this  segment  were  $10,000 in 1998,  $5,983 in 1997 and $2,818 in
1996.  The  increase  in 1998 is a  result  of  revenue  recognized,  using  the
percentage-of-completion  method of  accounting,  for two turnkey  sterilization
systems which were ordered by customers in late 1997 and substantially completed
in 1998.  Increased  processing of medical products at the Company's two medical
sterilization  facilities also  contributed to this revenue growth.  Revenues in
1997 were also favorably impacted by increased processing of medical products as
well as the sale of the  Company's  turnkey  sterilization  systems  to  Guidant
Corporation and Baxter Healthcare.

     Segment  operating  performance  improved to operating  income of $1,365 in
1998,  compared  to $189 in  1997,  and an  operating  loss of  $1,080  in 1996.
Operating  margins were  directly  impacted by the growth in revenues  discussed
previously.

Communications Systems

     Revenues in this segment were $42,468 in 1998, $48,980 in 1997, and $27,850
in 1996.  The  decline  in 1998  revenues  was due  primarily  to the  decreased
shipments  made on the  Company's  contract  with PSN for Xpress  Connection(TM)
units for a rural telephony  system in Indonesia,  offset partially by increased
revenues generated on the Company's Mini-DAMA contract.  The revenue increase in
1997 primarily  reflected the fulfillment of the Company's  initial contract for
Xpress  Connection  units,  increased  market  acceptance  for  certain  of  the
Company's  modem and  networking  products,  and an  increase in  deliveries  of
Mini-DAMA, LSM-1000 and the LST-5D products.

<PAGE>

     Segment operating loss was $1,418 in 1998,  compared to operating income of
$1,074  in 1997 and an  operating  loss of $4,187  in 1996.  The 1998  operating
results include special charges of $2,841 including  pre-operating  and start-up
costs of $572 related to the  AfroNetwork,  Benin  operation,  $1,383 related to
employee  termination and retention costs related to the  reorganization of this
business,  as well as  approximately  $900  related to costs  incurred to file a
registration  statement  with the Securities  and Exchange  Commission  ("SEC"),
which was ultimately withdrawn. Excluding the impact of these charges, operating
income, as adjusted, was $1,423, compared to operating income of $1,074 in 1997,
and an operating  loss of $4,187 in 1996.  Although  revenues  declined in 1998,
operating  income,  as  adjusted,  increased  slightly due to a reduction in the
level of R&D  spending.  Operating  performance  improved  in 1997 from 1996 due
primarily to the increased revenue volume.

Emerging Technologies and Businesses

     Revenues in this segment were $39,023 in 1998,  compared to $37,847 in 1997
and $42,749 in 1996. The increase in 1998 was due primarily to increased revenue
volume  experienced in several of VisiCom's  product lines,  offset partially by
the  wind-down of the Company's  environmental  consulting  business  during the
first  quarter  of  1998,  and due to the  near  completion  of  certain  of the
Company's contracts to build linear electron  accelerators.  The decline in 1997
revenues  was due  primarily  to contract  completion  in this same  accelerator
business.

     Segment  operating income was $3,455 in 1998,  compared to $81 in 1997, and
$3,156 in 1996. The 1998 operating  results include special charges of $1,003 of
transaction  costs  incurred in connection  with the VisiCom  merger.  Excluding
these charges,  operating income was $4,458 in 1998, compared to $81 in 1997 and
$3,156 in 1996.  The  increased  operating  margin in 1998 was due  primarily to
favorable  product  mix as well as to the  increase in revenue  volume.  Reduced
profits in 1997 were primarily impacted by reduced revenue volume.

Liquidity and Capital Resources

     On July 29, 1998, the Company  entered into a credit  agreement with a bank
syndicate  under which it may borrow up to $80 million.  The new credit facility
includes  a five year $55  million  working  capital  line of  credit  and a $25
million  component  dedicated for  acquisitions  which converts any  outstanding
balances  after one year into a term loan, to be repaid in increasing  quarterly
amounts  over four years.  The Company has the option to borrow at the bank base
rate or at LIBOR,  plus  applicable  margins based on the ratio of total debt to
EBITDA (earnings before interest,  taxes,  depreciation and  amortization).  The
agreement  contains,  among  other  financial  covenants,  provisions  which set
maximum  debt to EBITDA  limits  and  which  require  the  Company  to  maintain
stipulated  levels of EBITDA,  tangible net worth,  a minimum  quick ratio,  and
minimum coverage of fixed charges, as defined. Initial proceeds of $36.1 million
were used to pay off and replace the then  outstanding  line of credit  balances
with the Company's and Horizons' banks and for working capital  purposes.  Also,
as part of the terms of the Company's  merger with VisiCom,  the Company retired
VisiCom's  bank line of credit of $5 million in August  1998.  At  December  31,
1998, the  outstanding  balances on the working capital line and the acquisition
line were $35 million and $5 million,  respectively.  Cash and cash  equivalents
were $11,079 at December 31, 1998.

     During 1998,  the  Company's  continuing  operations  used $132 in cash and
discontinued  operations  used $1,814 in cash.  Financing  activities  generated
$12,714,  substantially all of which was utilized to purchase Validity for $11.7
million in cash, net of cash acquired.

     Income from the Company's continuing operations was $7,213. Working capital
changes included significant cash uses from increases in accounts receivables of
$12,427,  primarily related to increases in the defense information technologies
businesses,  and to a lesser  degree,  due to increases in  commercial  software
receivables. Other uses of cash included increases in inventories of $2,290, and
the funding requirements of certain accrued costs of $3,933. Additionally, after
the receipt of payment for the licensing of the broadband technology,  $1,814 of
cash was used by discontinued operations.

     The Company has a receivable of  approximately  $7,800 from its  Indonesian
customer,  PSN. The Company has negotiated a payment plan agreement with PSN for
settlement of all amounts due from PSN. The payment plan agreement  provides for
an immediate payment by PSN of $1,000,  which was received by the Company in the
fourth  quarter  of  1998,  with  the  remaining  balance  to be paid  in  equal
installments  of $3,907 on  September  30,  1999 and  September  30,  2000.  All
outstanding balances will accrue interest at 10% per annum. At any time prior to
the payment of all the obligations in full, the Company 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 at any time  after  the
execution of this agreement,  PSN sells any of its interest in its  wholly-owned
subsidiary,  subject to another third party  obligation,  PSN is required by the
agreement  to  immediately  pay to the  Company  the lesser of the $3,907 or the
total amount of the outstanding  balance owed to the Company.  In the event that
PSN  obtains  financing  from  additional  sources,  the  payment  terms  of its
obligation to the Company will be renegotiated at that time.

<PAGE>

     Funding for the  advancement of the Company's  strategic  goals,  including
acquisitions  and continued  investment in targeted  commercial  businesses  and
start-up ventures, is expected to continue throughout 1999. The Company plans to
finance these  requirements  from a combination  of sources,  which include cash
generation from the Company's core businesses,  the Company's expanded bank line
of  credit as  described  above and other  available  cash  sources.  One of the
Company's primary  strategies is the funding of growth in specific  subsidiaries
through  spin-out  transactions.  If the  Company  is unable to  implement  this
strategy,  whether in whole or in part,  then the  Company  may need to complete
additional  equity or debt  financings  to fund  potential  acquisitions  of new
businesses  and   technologies.   Any  additional  equity  or  convertible  debt
financings  could,  however,  result in  substantial  dilution to the  Company's
stockholders. Management is continually monitoring and reevaluating its level of
investment  in all of its  operations  and the  financing  sources  available to
achieve the Company's goals in each business area.  Management believes that the
combination of cash on hand,  amounts  available on its credit facility and cash
flow  expected to be generated  from its  operations  will be sufficient to fund
planned investments and working capital requirements through fiscal 1999.

Forward Looking Information: Certain Cautionary Statements

     Certain statements  contained in this Management's  Discussion and Analysis
of  Results  of  Operations  and  Financial  Condition  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.

     Dependence on Government Contracts.  A substantial portion of the Company's
revenues are  dependent  upon  continued  funding of U.S. and allied  government
agencies as well as continued  funding of the programs targeted by the Company's
businesses.  U.S. defense budgets and the budgets of other  government  agencies
have been declining in real terms since the  mid-1980's,  and may continue to do
so in the future. Any significant  reductions in the funding of U.S.  government
agencies or in the funding  areas  targeted by the  Company's  businesses  could
materially and adversely  affect the Company's  business,  results of operations
and financial condition.

     Ability to  Commercialize  New  Technologies.  Since 1991,  the Company has
sought to leverage the  technologies  developed as part of its defense  business
into new business  opportunities.  Accordingly,  many of the Company's  existing
businesses,  such as medical product sterilization and food pasteurization,  and
new  businesses  the Company is continuing to develop are at an early stage.  As
such,  the Company is subject to all the risks  inherent in the  operation  of a
start-up  venture,  including the need to secure the funding required to operate
and expand  these  businesses,  to develop  and  maintain  marketing,  sales and
support   capabilities,   to  secure   appropriate   third-party   manufacturing
arrangements,  to respond to the rapid  technological  advances  inherent in the
markets for these new technologies  and,  ultimately,  to design and manufacture
products or provide services acceptable to buyers in its target markets. Certain
of the  Company's  new  products,  including  products for which the Company has
contracts  for  delivery,  are  still  in the  testing  stage.  There  can be no
assurance that such tests will be completed  satisfactorily  or that the Company
will be able to satisfy all of the  requirements for delivery of and payment for
these products. In addition, many of the opportunities in the communications and
sterilization  businesses  involve  projects  with  lengthy  sales  cycles.  The
Company's  efforts to address  these risks have  required,  and may  continue to
require,  significant  expenditures  and  dedicated  management  time and  other
resources.  There can be no  assurance  that the Company will be  successful  in
addressing these risks or in commercializing these new technologies.

     Risks of  International  Operations.  Several of the Company's  businesses,
particularly the Communications Systems segment, conduct substantial business in
foreign  countries.  The Company generally  denominates its foreign contracts in
U.S.  dollars,  and the  Company  believes  that its global  competitors  follow
similar  business  practices.  Accordingly,  the Company  does not believe  that
foreign currency fluctuations will have a material adverse impact on its ability
to  compete  with  these   competitors  in  these  markets.   Foreign   currency
fluctuations  could,  however,  make the Company's  products less affordable and
thus reduce the demand for such products.  Furthermore, a precipitous decline in
such foreign currency values could result in certain of the Company's  customers
and local  subcontractors  and partners  refusing to perform  their  obligations
under  contracts with the Company,  the  cancellation of projects from which the
Company  expects  to  receive  significant  revenues,   defaulting  on  accounts
receivable,   and  the  loss  of  any   investments  by  the  Company  to  build
infrastructure or develop business in these countries. Accordingly, there can be
no assurance that a decline in the value of any one foreign currency relative to
the U.S.  dollar  will not  have a  material  adverse  effect  on the  Company's
business,   financial   condition  and  results  of  operations.   The  currency
devaluations  and  adverse  market  conditions  in  Indonesia  and  other  Asian
countries  have  negatively  affected  the demand for the  Company's  commercial
communications  products and,  consequently,  the revenues in the Communications
Systems segment.

<PAGE>

     Additional   risks  inherent  in  the  Company's   international   business
activities include various and changing regulatory requirements, costs and risks
of relying upon local subcontractors, increased sales and marketing and research
and  development  expenses,  export  restrictions  and  availability  of  export
licenses, tariffs and other trade barriers,  political and economic instability,
difficulties in staffing and managing foreign operations, longer payment cycles,
seasonal reduction in business activities, potentially adverse tax laws, complex
foreign  laws  and  treaties  and  the  potential  for  difficulty  in  accounts
receivable collection. Any of these factors could have a material adverse effect
on the  Company's  business,  financial  condition  and  results of  operations.
Certain of the Company's  customer  purchase  agreements are governed by foreign
laws, which may differ significantly from U.S. laws. Therefore,  the Company may
be limited in its ability to enforce  its rights  under such  agreements  and to
collect  amounts  owing to the Company  should any  customer  refuse to pay such
amounts.  In addition,  the Company is subject to the Foreign Corrupt  Practices
Act (the "FCPA")  which may place the Company at a competitive  disadvantage  to
foreign companies which are not subject to the FCPA.

Year 2000 Readiness Disclosure

     The Company has implemented a Year 2000  compliance  program to address its
current  hardware and software  products  and  development  tools and all of its
major   computing   information   systems   networks,    desktop   systems   and
infrastructure.  In addition, the Company is contacting business associates such
as its third party vendors, business partners, contractors and service providers
to assess their level of readiness.  Finally, the Company has formed a Year 2000
steering  committee  to monitor  implementation  of its overall  program and the
plans of each of its business  units.  Each of the Company's  business units has
formed steering committees to develop and implement compliance plans.

     The  Company is in the  process of  assessing  whether  its  business  unit
products and services are Year 2000  compliant.  The Company does not expect its
current  products or services to have material Year 2000 issues.  In some cases,
the Company's  government  customers have  contracted with the Company to modify
the Company's older products so that they are Year 2000 compliant. The Company's
products are not generally sold under extended  warranties,  so the Company does
not expect  that it will have to spend any  material  amounts to make any of its
prior products Year 2000  compliant.  However,  the Company is in the process of
assessing  its  products,  including  the  products  of  its  recently  acquired
businesses, and it cannot predict whether any Year 2000 issues will arise.

     As part of its Year 2000 compliance program,  the Company intends to review
the internally  developed and third party software that it uses for  accounting,
manufacturing processes and other business functions.  Because of its history of
acquisitions,  the  Company has a number of  business  units that use  different
systems;  some of which it knows are not Year 2000 compliant at this time. Based
upon the Company's assessment, it may elect to move business units to other Year
2000  compliant  systems that the Company  currently  uses as part of an overall
plan to consolidate the number of different  systems being used. It is estimated
that the cost of moving business units to new systems will range from $3 million
to $5 million.  Some of the Company's  business units may use internal resources
to convert legacy  application  systems to be Year 2000  compliant.  The Company
does not  separately  track the costs  incurred of its own employees on the Year
2000  project.  Finally,  many of the  Company's  government  contracts  related
business  units  use an  accounting  package  that is not  currently  Year  2000
compliant.  The  supplier  of this  package has  released a Year 2000  compliant
version that the Company is currently  installing.  If the Company cannot timely
correct  all Year 2000  problems,  these  problems  may cause  material  adverse
effects on the  Company's  financial  position,  results of  operations  or cash
flows.

     Some of the Company's customers, in particular the U.S. government, utilize
complex  billing and accounting  systems to determine when and what amounts will
be paid to the Company under its various contracts. In addition,  several of the
Company's  major  strategic   partners  rely  on  complex  software  systems  to
coordinate and control their  day-to-day  operations.  These complex systems may
not be Year 2000 compliant. Although these customers and strategic partners have
advised  the Company  that they expect to resolve any Year 2000 issues  prior to
December 31, 1999, the Company cannot guarantee that its billing  procedures and
cycles, or its joint sales and marketing  efforts,  will not be interrupted.  If
these  customers'  or business  partners'  Year 2000 issues are not  resolved on
time, or at all, the Company's financial position, results of operations or cash
flows  could  be  materially  and  adversely  affected.  The  Company  plans  on
developing  contingency  plans in the event that its  internal  systems or third
party business associates' systems are not timely corrected.









                      [THIS SPACE LEFT INTENTIONALLY BLANK]




<PAGE>
Item 8.  Financial Statements and Supplementary Data

Index to Financial Statements and Financial Statement Schedules

                                                                            Page

Report of Independent Public Accountants......................................
Financial Statements:
     Consolidated Statements of Operations....................................
     Consolidated Balance Sheets..............................................
     Consolidated Statements of Cash Flows....................................
     Consolidated Statements of Stockholders' Equity..........................
     Notes to Consolidated Financial Statements...............................

Supporting  Financial  Schedule  Covered by the  Foregoing  Report of
Independent Public Accountants:

     Schedule   II   -   Valuation   and   Qualifying
        Accounts.............................................................





<PAGE>
                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Titan Corporation:

         We have audited the  accompanying  consolidated  balance  sheets of The
Titan  Corporation (a Delaware  corporation) and subsidiaries as of December 31,
1998  and  1997,  and  the  related   consolidated   statements  of  operations,
stockholders'  equity and cash  flows for each of the three  years in the period
ended December 31, 1998. These financial statements and the schedule referred to
below are the responsibility of the Company's management.  Our responsibility is
to express an opinion on these  financial  statements  and schedule based on our
audits.

         We conducted our audits in accordance with generally  accepted auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in  all  material  respects,   the  financial  position  of  The  Titan
Corporation  and  subsidiaries as of December 31, 1998 and 1997, and the results
of their  operations  and their  cash  flows for each of the three  years in the
period ended December 31, 1998 in conformity with generally accepted  accounting
principles.

         Our audits were made for the purpose of forming an opinion on the basic
financial  statements  taken as a whole.  The  schedule  listed  in the index to
financial statements and financial statement schedules is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic  financial  statements.  This  schedule  has been  subjected to the
auditing procedures applied in our audit of the basic financial  statements and,
in our opinion,  fairly  states in all  material  respects  the  financial  data
required to be set forth therein in relation to the basic  financial  statements
taken as a whole.

                                                             ARTHUR ANDERSEN LLP

San Diego, California
February 15, 1999
<PAGE>

<TABLE>
<CAPTION>
                                         THE TITAN CORPORATION
                                 CONSOLIDATED STATEMENTS OF OPERATIONS
                                 (In thousands, except per share data)

                                                                      For the Years Ended December 31,
                                                                    ----------------------------------
                                                                       1998        1997         1996
                                                                    ---------    ---------    --------
<S>                                                                 <C>          <C>          <C>
                     
Revenues ........................................................   $ 303,428    $ 275,923    $ 245,976
                                                                    ---------    ---------    ---------
Costs and expenses:
   Cost of revenues .............................................     232,041      216,553      192,657
   Selling, general and administrative expense ..................      37,553       36,731       36,226
   Research and development expense .............................       5,590        7,466        5,023
   Special acquisition related charges and other ................       9,891        6,600           --  
                                                                    ---------    ---------    ---------
   Total costs and expenses .....................................     285,075      267,350      233,906
                                                                    ---------    ---------    ---------
Operating profit ................................................      18,353        8,573       12,070
Interest expense ................................................      (7,377)      (6,643)      (4,764)
Interest income .................................................         392          872          639
                                                                    ---------    ---------    ---------
Income from continuing operations before income taxes and
   cumulative effect of change in accounting principle ..........      11,368        2,802        7,945
Income tax provision ............................................       4,155        4,184        2,603
                                                                    ---------    ---------    ---------
Income (loss) from continuing operations before cumulative effect
   of change in accounting principle ............................       7,213       (1,382)       5,342
Cumulative effect of change in accounting principle, net of taxes     (19,474)          --           --
Loss from discontinued operations, net of taxes .................      (7,444)     (17,930)      (6,326)
                                                                    ---------    ---------    ---------
Net loss ........................................................     (19,705)     (19,312)        (984)
Dividend requirements on preferred stock ........................        (778)        (875)        (803)
                                                                    ---------    ---------    ---------
Net loss applicable to common stock .............................   $ (20,483)   $ (20,187)   $  (1,787)
                                                                    =========    =========    =========
Basic earnings (loss) per share:
   Income (loss) from continuing operations .....................   $     .18    $    (.07)   $     .14
   Cumulative effect of change in accounting principle ..........        (.56)          --           --
   Loss from discontinued operations ............................        (.21)        (.54)        (.20)
                                                                    ---------    ---------    ---------
   Net loss .....................................................   $    (.59)   $    (.61)   $    (.06)
                                                                    =========    =========    =========

  Weighted average shares .......................................      34,895       33,094       32,068
                                                                    =========    =========    =========
Diluted earnings (loss) per share:
   Income (loss) from continuing operations .....................   $     .18    $    (.07)   $     .14
   Cumulative effect of change in accounting principle ..........        (.54)          --           --
   Loss from discontinued operations ............................        (.21)        (.54)        (.20)
                                                                    ---------    ---------    ---------
   Net loss .....................................................   $    (.57)   $    (.61)   $    (.06)
                                                                    =========    =========    =========
   Weighted average shares ......................................      36,177       33,094       32,445
                                                                    =========    =========    =========



        The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
                                          THE TITAN CORPORATION
                                       CONSOLIDATED BALANCE SHEETS
                           (In thousands, except shares and per share amounts)

                                                                                    As of December 31,
                                                                                 ----------------------
                                                                                    1998          1997
                                                                                 ---------    ---------
<S>                                                                              <C>          <C>
Assets
Current Assets:
  Cash and cash equivalents ..................................................   $  11,079    $  11,383
  Investments ................................................................          --        4,499
  Accounts receivable-net ..................................................        88,068       72,653
  Inventories ................................................................       8,646       18,826
  Net assets of discontinued operations ......................................          --        3,930
  Prepaid expenses and other .................................................       2,176        2,743
  Deferred income taxes ......................................................      10,978        8,298
                                                                                 ---------    ---------
     Total current assets ....................................................     120,947      122,332
Property and equipment-net ...................................................      25,702       27,666
Goodwill-net of accumulated amortization of $7,620 and $6,078 ................      38,694       21,274
Other assets-net .............................................................       6,579        8,756
Net assets of discontinued operations ........................................         645        3,675
                                                                                 ---------    ---------
Total assets .................................................................   $ 192,567    $ 183,703
                                                                                 =========    =========
Liabilities and Stockholders' Equity
Current Liabilities:
  Lines of credit ............................................................   $     368    $  23,130
  Accounts payable ...........................................................      21,335       16,086
  Acquisition debt ...........................................................       3,000           --
  Current portion of long-term debt ..........................................       1,581        1,505
  Accrued compensation and benefits ..........................................      12,682       14,300
  Other accrued liabilities ..................................................      11,659       10,522
  Net liabilities of discontinued operations .................................       5,872           --
                                                                                 ---------    ---------
     Total current liabilities ...............................................      56,497       65,543
                                                                                 ---------    ---------
Line of credit ...............................................................      39,632           --
                                                                                 ---------    ---------
Long-term debt ...............................................................      30,659       37,565
                                                                                 ---------    ---------
Other non-current liabilities ................................................      15,068       12,148
                                                                                 ---------    ---------
Commitments and contingencies

Series B cumulative convertible redeemable preferred stock, $3,000 liquidation
  preference, 6% cumulative annual dividend, -0- and 500,000 shares issued and
  outstanding ................................................................          --        3,000
                                                                                 ---------    ---------
Stockholders' Equity:
  Preferred stock: $1 par value, authorized 2,500,000 shares:
     Cumulative convertible, $13,897 liquidation preference:
       694,872 shares issued and outstanding .................................         695          695
     Series A junior participating, authorized 250,000 shares:
       None issued ...........................................................          --           --
  Common stock: $.01 par value, authorized 100,000,000 shares, issued and
     outstanding: 36,650,460 and 34,776,764 shares ...........................         367          348
Capital in excess of par value ...............................................      75,157       69,332
Retained earnings (deficit) ..................................................     (22,929)      (2,337)
Treasury stock (962,530 and 971,894 shares), at cost .........................      (2,579)      (2,591)
                                                                                 ---------    ---------
  Total stockholders' equity .................................................      50,711       65,447
                                                                                 ---------    ---------
Total liabilities and stockholders' equity ...................................   $ 192,567    $ 183,703
                                                                                 =========    =========




         The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                            THE TITAN CORPORATION
                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                          (In thousands of dollars)

                                                                           For the Years Ended December 31,
                                                                           --------------------------------
                                                                              1998        1997        1996
                                                                           --------    --------    --------         
<S>                                                                        <C>         <C>         <C>
Cash Flows from Operating Activities:
Income (loss) from continuing operations ...............................   $  7,213    $ (1,382)   $  5,342
Adjustments to reconcile income (loss) from continuing operations to net
   cash provided by (used for) continuing operations:
      Depreciation and amortization ....................................      7,126       9,213       8,044
      Deferred income taxes and other ..................................       (498)      1,926      (1,655)
      Write-off of assets, investments and environmental accrual .......         --       9,846          --
      Poolings of interests ............................................       (109)        695          --
      Change in operating assets and liabilities, net of effects from
         businesses sold and acquired:
            Accounts receivable ........................................    (12,427)     (4,102)      7,989
            Inventories ................................................     (2,290)     (1,047)     (6,069)
            Prepaid expenses and other assets ..........................      1,081        (879)        594
            Accounts payable ...........................................      3,705         874      (3,467)
            Income taxes payable .......................................         --          --        (653)
            Accrued compensation and benefits ..........................     (2,298)      1,531      (1,587)
            Restructuring activities ...................................         --        (815)     (4,099)
            Other liabilities ..........................................     (1,635)     (6,165)       (684)
                                                                           --------    --------    --------
Net cash provided by (used for) continuing operations ..................       (132)      9,695       3,755
                                                                           --------    --------    --------
Loss from discontinued operations ......................................     (7,444)    (17,930)     (6,326)
Changes in net assets and liabilities of discontinued operations .......      5,630       7,426      (2,639)
                                                                           --------    --------    --------
Net cash used for discontinued operations ..............................     (1,814)    (10,504)     (8,965)
                                                                           --------    --------    --------
Net cash used for operating activities .................................     (1,946)       (809)     (5,210)
                                                                           --------    --------    --------
Cash Flows from Investing Activities:
Capital expenditures ...................................................     (4,038)     (6,647)     (6,638)
Proceeds, net of transaction costs, from sale of businesses ............         --         200       2,492
Payment for purchase of businesses, net of cash acquired ...............    (11,679)         --      (2,679)
Proceeds from sale of investments ......................................      4,499      19,199       5,000
Purchase of investments ................................................         --     (15,410)     (9,888)
Other ..................................................................        146         235        (283)
                                                                           --------    --------    --------
Net cash used for investing activities .................................    (11,072)     (2,423)    (11,996)
                                                                           --------    --------    --------
Cash Flows from Financing Activities:
Additions to debt ......................................................     16,870      12,671      37,762
Retirements of debt ....................................................     (1,447)     (3,137)    (21,909)
Redemption of Series B Preferred Stock .................................     (3,000)         --          --
Deferred debt issuance costs ...........................................        --           --      (2,035)
Proceeds from stock issuances ..........................................      1,214         708         433
Purchase of stock from benefit plan ....................................         --        (471)         --
Dividends paid .........................................................       (778)       (875)       (803)
Other ..................................................................       (145)         --          --
                                                                           --------    --------    --------
Net cash provided by financing activities ..............................     12,714       8,896      13,448
                                                                           --------    --------    --------
Net increase (decrease) in cash and cash equivalents ...................       (304)      5,664      (3,758)
Cash and cash equivalents at beginning of year .........................     11,383       5,719       9,477
                                                                           --------    --------    --------
Cash and cash equivalents at end of year ...............................   $ 11,079    $ 11,383    $  5,719
                                                                           ========    ========    ========



          The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                                               THE TITAN CORPORATION
                                  CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
 
                               FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
                                       (In thousands, except per share data)

                                            Cumulative              Capital in                                               
                                            Convertible             Excess of   Retained                                       
                                             Preferred   Common       Par       Earnings/    Treasury                   
                                              Stock      Stock       Value      (Deficit)     Stock        Total
                                            ---------   ---------   --------    --------    ---------    --------
<S>                                         <C>         <C>         <C>         <C>         <C>          <C>     
Balances at December 31, 1995 ...........   $     695   $     317   $ 54,933    $ 19,270    $  (3,524)   $ 71,691
   Stock issued for acquisition .........          --          18     10,659          --           --      10,677
   Other stock issued ...................          --           1        161          --           --         162
   Exercise of stock options and other ..          --           3        349         (16)         (62)        274
   Shares contributed to employee benefit
      plans .............................          --         --         827        (261)         626       1,192
   Income tax benefit from employee stock
      transactions ......................          --         --          70          --           --          70
   Dividends on preferred stock -
      Cumulative Convertible, $1.00 per
      share .............................          --         --          --        (695)          --        (695)
      Series B, 6% annual ...............          --         --          --        (108)          --        (108)
   Net loss .............................          --         --          --        (984)          --        (984)
                                            ---------   ---------   --------    --------    ---------    --------
Balances at December 31, 1996 ...........         695         339     66,999      17,206       (2,960)     82,279
   Conversion of subordinated debt ......          --           5      1,597          --           --       1,602
   Exercise of stock options and other ..          --           2        726         (51)          37         714
   Stock issued for acquisition .........          --           2        503          --           --         505
   Shares contributed to employee benefit
      plans .............................          --         --          12          --          332         344
   Shares purchased from benefit plan ...          --         --        (545)         --           --        (545)
   Income tax benefit from employee stock
      transactions ......................          --         --          40          --           --          40
   Pooling of interests .................          --         --          --         695           --         695
   Dividends on preferred stock -
      Cumulative Convertible, $1.00 per
      share .............................          --         --          --        (695)          --        (695)
      Series B, 6% annual ...............          --         --          --        (180)          --        (180)
   Net loss .............................          --         --          --     (19,312)          --     (19,312)
                                            ---------   ---------   --------    --------    ---------    --------
Balances at December 31, 1997 ...........         695         348     69,332      (2,337)      (2,591)     65,447
   Conversion of subordinated debt ......          --          15      5,368          --           --       5,383
   Stock repurchase .....................          --          (1)      (752)         --           --        (753)
   Exercise of stock options and other ..          --           4        848          --           12         864
   Conversion of warrants ...............          --           1        349          --           --         350
   Poolings of interests ................          --          --         --        (109)          --        (109)
   Shares contributed to employee benefit
      plans .............................          --          --       (100)         --           --        (100)
   Income tax benefit from employee stock
      transactions ......................          --          --        112          --           --         112
   Dividends on preferred stock -
      Cumulative Convertible, $1.00 per
      share .............................          --          --         --        (695)          --        (695)
      Series B, 6% annual ...............          --          --         --         (83)          --         (83)
   Net loss .............................          --          --         --     (19,705)          --     (19,705)
                                            ---------   ---------   --------    --------    ---------    --------
Balances at December 31, 1998 ...........   $     695   $     367   $ 75,157    $(22,929)   $  (2,579)   $ 50,711
                                            =========   =========   ========    ========    =========    ========

                                                                                                                                    


              The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>
<PAGE>

                              THE TITAN CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                 (in thousands, except share and per share data)


     Note 1. Summary of Significant Accounting Policies

          Nature of  Operations.  The Titan  Corporation  (the "Company" or
     "Titan") provides  information  technology and electronic  systems and
     services to government  and commercial  customers.  The Company groups
     its  businesses  into  four  core  business   segments   --Information
     Technologies,   Software  Systems,   Medical  Sterilization  and  Food
     Pasteurization,  and  Communications  Systems -- and a fifth  business
     segment,  Emerging  Technologies and Businesses.  The Company provides
     engineering,  technical,  management  and  consulting  services in the
     areas of national security,  software systems,  communication systems,
     information systems, threat  simulation/training  systems,  electronic
     control  systems,  advanced  research  and  development,  and  medical
     products  sterilization  and food  pasteurization.  The  Company  also
     develops,  designs,  manufactures and markets satellite communications
     subsystems,  digital imaging products,  electro-optical  systems,  and
     pulsed power products including linear accelerators.

          The Company is involved  in a number of start-up  ventures,  most
     notably the commercial  satellite  communications  business in Titan's
     Communications  Systems segment. The Company believes that the primary
     source of revenues for this business will be  international  customers
     in  developing  countries,  primarily  within  Asia,  Africa and South
     America.

          Principles   of   Consolidation.   The   consolidated   financial
     statements  include the  accounts of Titan and its  subsidiaries.  All
     significant   intercompany   transactions   and  balances   have  been
     eliminated.  The accompanying  consolidated  financial statements have
     been  restated  to reflect  four  acquisitions  in 1998 that have been
     accounted  for as  poolings  of  interests  (see Note 2). From time to
     time, the Company makes  investments in joint ventures which primarily
     involve international  locations and operations.  Management evaluates
     its  investment  in each  joint  venture  on an  individual  basis for
     purposes of determining  whether or not  consolidation is appropriate.
     Investments in such ventures are generally  consolidated  in instances
     where the Company retains control through  decision-making ability and
     a greater than 50% ownership interest. In the absence of such factors,
     the Company generally  accounts for these investments under the equity
     method.

          Use of  Estimates.  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.

          Revenue  Recognition.  A majority of the Company's revenue,  both
     government and commercial,  is derived from products  manufactured and
     services performed under cost-reimbursement,  time-and-materials,  and
     fixed-price  contracts  wherein  revenues are generally  recognized as
     services are  performed,  using the  percentage-of-completion  method,
     which  includes  revenues  recognized  as units are  delivered.  Total
     estimated  costs  are  based on  management's  assessment  of costs to
     complete  the  project  based  upon  evaluation  of the  level of work
     achieved and costs  expended to date.  Estimated  contract  losses are
     fully charged to operations when identified.

<PAGE>


          Cash Equivalents. All highly liquid investments purchased with an
     original  maturity  of three  months  or less are  classified  as cash
     equivalents.

          Investments.  The Company  does not invest in  securities  as its
     primary   business   and  does  not   maintain   a  trading   account.
     Occasionally,  however,  the Company purchases  financial  instruments
     with   maturities   greater   than  three  months  from  the  date  of
     acquisition,  principally  investment  grade commercial paper and U.S.
     Treasury obligations. Such securities are classified as "available for
     sale" as required by Statement of Financial  Accounting  Standards No.
     115 ("SFAS  115")  "Accounting  for  Certain  Investments  in Debt and
     Equity  Securities."  As of December 31, 1998, the Company has no such
     investments.  As of December 31, 1997, all such investment  securities
     owned by the Company  matured in one year or less and were  carried at
     their current market value, which approximated their cost, as required
     by SFAS 115.

          Unbilled  Accounts   Receivable.   Unbilled  accounts  receivable
     include  work-in-process  which  will be  billed  in  accordance  with
     contract  terms and delivery  schedules,  as well as amounts  billable
     upon final execution of contracts, contract completion,  milestones or
     completion  of  rate   negotiations.   Generally,   unbilled  accounts
     receivable are expected to be collected  within one year.  Payments to
     the Company for performance on certain U.S.  Government  contracts are
     subject to audit by the Defense  Contract Audit Agency.  Revenues have
     been   recorded  at  amounts   expected  to  be  realized  upon  final
     settlement.

          Concentration of Credit Risk. As the Company expands its business
     into international markets and developing countries,  certain accounts
     receivable may be exposed to credit risk due to political and economic
     instability  in  these  areas.  To  mitigate  credit  risk in  foreign
     countries,  the Company generally denominates its foreign contracts in
     U.S.  dollars and requires  payment  primarily in the form of stand-by
     letters of  credit,  advance  deposits,  or wire  transfers,  prior to
     shipment.

          Inventories.  Inventories include the cost of material, labor and
     overhead,  and are  stated  at the  lower of cost,  determined  on the
     first-in,  first-out (FIFO) and weighted  average methods,  or market.
     The  Company  periodically  evaluates  its  on-hand  stock  and  makes
     appropriate disposition of any stock deemed excess or obsolete.

          Property  and  Equipment.  Property and  equipment  are stated at
     cost.  Depreciation is provided using the straight-line  method,  with
     estimated useful lives of 25 to 40 years for buildings,  2 to 40 years
     for  leasehold  improvements  and  3 to 10  years  for  machinery  and
     equipment and furniture and fixtures.  Certain machinery and equipment
     in the Company's medical  sterilization  business is depreciated based
     on units of production.

          Goodwill.  The  excess  of the cost  over  the fair  value of net
     assets  of  purchased  businesses   ("goodwill")  is  amortized  on  a
     straight-line basis over varying lives ranging from 5 to 30 years. The
     Company   periodically   re-evaluates  the  original  assumptions  and
     rationale  utilized in the  establishment  of the  carrying  value and
     estimated  lives  of  its  goodwill.   The  criteria  used  for  these
     evaluations  include  management's  estimate of the asset's continuing
     ability to generate  positive income from operations and positive cash
     flow in future  periods as well as the strategic  significance  of the
     intangible asset to the Company's business objectives.

          Impairment  of  Long-Lived  Assets.  Periodically,   the  Company
     reviews for  possible  impairment  its  long-lived  assets and certain
     identifiable  intangibles  to be held and  used.  Whenever  events  or
     changes in circumstances indicate that the carrying amount of an asset
     may not be fully recoverable, asset values are adjusted accordingly.

<PAGE>

          Stock-Based  Compensation.  The  Company has elected to adopt the
     disclosure  only  provisions  of  Statement  of  Financial  Accounting
     Standards No. 123,  "Accounting for Stock-Based  Compensation"  ("SFAS
     123"). Accordingly, the Company will continue to account for its stock
     based compensation plans under the provisions of APB No. 25.

          Income  Taxes.  The  Company  accounts  for  income  taxes  under
     Statement of Financial  Accounting  Standards No. 109, "Accounting for
     Income Taxes" ("SFAS  109"),  which  requires the use of the liability
     method of accounting  for deferred  income  taxes.  Under this method,
     deferred income taxes are recorded to reflect the tax  consequences on
     future  years of  differences  between  the tax  bases of  assets  and
     liabilities and their financial reporting amounts at each year-end. If
     it is more likely than not that some  portion or all of a deferred tax
     asset will not be realized, a valuation allowance is recognized.

          Per Share  Information.  The Company computes  earnings per share
     based on the provisions of Statement of Financial Accounting Standards
     No. 128, "Earnings Per Share" ("SFAS 128").

          The  following  data  summarize  information  relating to the per
     share  computations  for continuing  operations  before the cumulative
     effect of a change in accounting principle:
<TABLE>
<CAPTION>

                                                                             For the Year Ended December 31, 1998
                                                                             -------------------------------------
                                                                               Income         Shares     Per-Share
                                                                             (Numerator)  (Denominator)   Amounts
                                                                             -----------  -------------  ---------
<S>                                                                          <C>          <C>            <C>
Income from continuing operations .........................................      $ 7,213
Less preferred stock dividends ............................................         (778)
                                                                             -----------
Basic EPS:
    Income from continuing operations available to common stockholders ....        6,435         34,895    $   .18

Effect of dilutive securities: Stock options ..............................           --          1,282       (.00)
                                                                             -----------    -----------   --------
Diluted EPS:
    Income from continuing operations available to common stockholders plus
       assumed conversions ................................................      $ 6,435         36,177    $   .18
                                                                             ===========    ===========   ========
</TABLE>

<TABLE>
<CAPTION>

                                                                             For the Year Ended December 31, 1997
                                                                             -------------------------------------
                                                                               Income         Shares     Per-Share
                                                                             (Numerator)  (Denominator)   Amounts
                                                                             -----------  -------------  ---------
<S>                                                                          <C>          <C>            <C>    
Loss from continuing operations............................................      $(1,382)
Less preferred stock dividends.............................................         (875)
                                                                             -----------
Basic EPS:
  Loss from continuing operations available to common stockholders.........      $(2,257)        33,094    $  (.07)
                                                                             ===========    ===========   ========
Diluted EPS:...............................................................                    Same as basic
</TABLE>

<TABLE>
<CAPTION>
                                                                             For the Year Ended December 31, 1996
                                                                             -------------------------------------
                                                                               Income         Shares     Per-Share
                                                                             (Numerator)  (Denominator)   Amounts
                                                                             -----------  -------------  ---------
<S>                                                                          <C>          <C>            <C>
Income from continuing operations..........................................      $5,342
Less preferred stock dividends.............................................        (803)
                                                                             -----------
Basic EPS:
  Income from continuing operations available to common stockholders.......       4,539          32,068    $   .14

Effect of dilutive securities: Stock options...............................          --             377       (.00)
                                                                             -----------    -----------   --------
Diluted EPS:
  Income from continuing operations available to common stockholders plus                                                  
    assumed conversions....................................................      $4,539          32,445    $   .14
                                                                             ===========    ===========   ========
</TABLE>
<PAGE>


          In 1998,  options to  purchase  approximately  742,000  shares of
     common  stock were not  included in the  computation  of diluted  EPS,
     because  the  options'  exercise  price was  greater  than the average
     market price of the common  shares.  In 1998,  1997 and 1996,  463,268
     shares of common  stock  that  could  result  from the  conversion  of
     cumulative  convertible preferred stock, as well as common shares that
     could  result  from  the  conversion  of  the  Company's   convertible
     subordinated debentures and Series B cumulative convertible redeemable
     preferred stock,  were not included in the computation of diluted EPS,
     as  the  effect  would  have  been  anti-dilutive  on the  results  of
     continuing operations.

          Comprehensive  Income.  Effective  January 1, 1998,  the  Company
     adopted   Statement  of  Financial   Accounting   Standards  No.  130,
     "Reporting   Comprehensive   Income"  ("SFAS  130").   This  statement
     establishes  standards  for  reporting  and  display of  comprehensive
     income and its components in a full set of general  purpose  financial
     statements.  The  objective of the statement is to report a measure of
     all changes in equity of an enterprise  that result from  transactions
     and other economic events of the period other than  transactions  with
     owners.  The adoption of the accounting  and disclosure  provisions of
     SFAS 130 has had no impact on the Company's financial  statements,  as
     comprehensive  income  is the  same  as net  income  for  all  periods
     presented.

          Business   Segments.   In  December  1997,  the  Company  adopted
     Statement  of Financial  Accounting  Standards  No. 131,  "Disclosures
     About Segments of an Enterprise and Related Information" ("SFAS 131").
     This statement  establishes  standards for reporting and disclosure of
     operating  segments on a basis  consistent with that of the management
     structure.  As a result of  adopting  SFAS 131,  in 1997,  the Company
     restated its segments for all periods presented.

          New Accounting Standards.  In 1998, the Company adopted Statement
     of Financial  Accounting  Standards  No. 132,  "Employers'  Disclosure
     about Pensions and Other  Postretirement  Benefits" ("SFAS 132"). This
     statement  revises  and  standardizes   employers'  disclosures  about
     pension and other postretirement benefit plans, but it does not change
     the measurement or recognition of those plans.  This statement further
     requires  restatement  of disclosure  provisions  for earlier  periods
     provided for comparative purposes. The adoption of SFAS 132 has had no
     material  impact on the  Company's  financial  statements  or  related
     disclosures thereto.

          In 1998, the Company adopted the provisions of AICPA Statement of
     Position  98-1,   "Accounting  for  the  Costs  of  Computer  Software
     Developed or Obtained for Internal Use" ("SOP 98-1").  This  statement
     provides  guidance on  accounting  for the costs of computer  software
     developed or obtained for internal use and identifies  characteristics
     of  internal-use  software  as well as  assists  in  determining  when
     computer  software is for  internal  use. The adoption had no material
     impact on the Company's  financial  statements  or related  disclosure
     thereto.

          In 1998, the Company adopted the provisions of AICPA Statement of
     Position 98-5,  "Reporting on the Costs of Start-Up  Activities" ("SOP
     98-5"). This Statement provides guidance on the financial reporting of
     start-up  and  organization  costs and  requires  that  such  costs of
     start-up  activities be expensed as incurred.  The Company adopted SOP
     98-5 in the third  quarter  ended  September  30,  1998,  recording  a
     one-time,  non-cash charge of $19,474. The charge primarily represents
     previously  capitalized  start-up  costs  incurred  in  the  Company's
     discontinued   broadband    communications   business   and   deferred
     pre-contract   costs  as  well  as  non-recurring   engineering  costs
     previously  carried in  inventory in  accordance  with SOP 81-1 in the
     Company's  Communications Systems segment. The adoption of SOP 98-5 by
     the Company was  recorded  effective  January 1, 1998 as a  cumulative
     effect  of  change  in  accounting   principle  in  the  Statement  of
     Operations for the year ended December 31, 1998.

     Note 2. Mergers and Acquisitions

          On October 23, 1998, the Company consummated a merger with Delfin
     Systems ("Delfin") in a stock-for-stock  transaction.  Delfin provides
     systems   engineering   and  program   management   services,   signal
     intelligence  systems,  and program integration and high-end software.
     Titan issued  approximately  3,628,000 shares of Titan common stock in
     exchange  for all the  outstanding  shares of Delfin  common stock and
     assumed Delfin stock options representing approximately 823,000 shares
     of Titan common stock, based on an exchange ratio of approximately .50
     shares of Titan  common stock for each share of Delfin  common  stock.
     The  merger  constituted  a  tax-free   reorganization  and  has  been
     accounted for as a pooling of interests.

<PAGE>

          On August 24, 1998, the Company consummated a merger with VisiCom
     Laboratories,  Inc.,  ("VisiCom")  in a  stock-for-stock  transaction.
     VisiCom specializes in information technology solutions.  Titan issued
     approximately 4,172,000 shares of common stock in exchange for all the
     outstanding  shares of VisiCom and  assumed  VisiCom's  stock  options
     representing approximately 593,000 shares of Titan common stock, based
     on an exchange ratio of approximately .45 shares of Titan common stock
     for each share of VisiCom's  common  stock.  The merger  constituted a
     tax-free  reorganization  and has been  accounted  for as a pooling of
     interests.

          On June 30, 1998 the Company  consummated  a merger with Horizons
     Technology,  Inc.,  ("Horizons")  in  a  stock-for-stock  transaction.
     Horizons is a provider of systems  engineering and program  management
     services,  computer systems  integration and high-end software.  Titan
     issued approximately  3,200,000 shares of common stock in exchange for
     all the outstanding  shares of Horizons stock based on exchange ratios
     of  approximately  .37 and .82 shares of Titan  common  stock for each
     share  of  Horizons'  common  stock  and  Horizons'  preferred  stock,
     respectively. The merger constituted a tax-free reorganization and has
     been accounted for as a pooling of interests.

          On February 27, 1998,  the Company  consummated a merger with DBA
     Systems,  Inc.  ("DBA"),  in a stock-for-stock  transaction.  DBA is a
     developer   and    manufacturer   of   digital    imaging    products,
     electro-optical systems and threat  simulation/training  systems whose
     products   and  systems  are   primarily   used  by  the  defense  and
     intelligence communities.  Titan issued approximately 6,100,000 shares
     of common  stock in  exchange  for all the  outstanding  shares of DBA
     stock and assumed options representing approximately 441,000 shares of
     Titan common stock based on an exchange  ratio of  approximately  1.37
     shares of Titan's common stock for each share of DBA stock. The merger
     constituted a tax-free  reorganization and has been accounted for as a
     pooling of interests.

          Delfin,  Horizons  and DBA  have  been  integrated  into  Titan's
     Information  Technologies segment. VisiCom is included in the Emerging
     Technologies and Businesses segment.

<PAGE>

          Effective January 1, 1998, Delfin's September 30, VisiCom's March
     31, Horizons'  January 31 and DBA's June 30 fiscal year-ends have been
     changed  to  coincide   with  Titan's   year-end.   Accordingly,   the
     accompanying  financial statements presented herein have been restated
     to include the combined results of operations, financial positions and
     cash flows of Delfin, VisiCom,  Horizons and DBA as if the mergers had
     occurred at the beginning of the periods presented.

          The combining periods of Titan, Delfin, VisiCom, Horizons and DBA
     are as follows:

                         Fiscal Years 1997 and 1996
                        ----------------------------------------------
      Titan              Fiscal years ended December 1997 and 1996
      Delfin             Fiscal years ended September 1997 and 1996
      VisiCom            Fiscal years ended March 1998 and 1997
      Horizons           Fiscal years ended January 1998 and 1997
      DBA                Twelve months ended December 1997 and  June 1996

                               Fiscal Year 1997 Quarterly Periods
                    ----------------------------------------------------------
                         Q1 97          Q2 97           Q3 97          Q4 97
                    ------------    -----------     -----------    -----------
      Titan            March 97       June 97         Sept. 97       Dec. 97
      Delfin           Dec. 96        March 97        June 97        Sept. 97
      VisiCom          June 97        Sept. 97        Dec. 97        March 98
      Horizons         April 97       July 97         Oct. 97        Jan. 98
      DBA              March 97       June 97         Sept. 97       Dec. 97


          For the six months ended  December 31, 1996,  revenues of $11,724
     and net income of $695 were  reported  by DBA.  Such  amounts  are not
     reflected in the accompanying statements of operations as DBA's fiscal
     year ended June 30, 1997 was  conformed  to Titan's  fiscal year ended
     December  31,  1997.  DBA's  six-month  1996  net  income  of  $695 is
     reflected as a pooling  adjustment  in the  accompanying  Statement of
     Stockholders'  Equity  for the year ended  December  31,  1996.  Other
     adjustments  to  conform  Delfin's,  VisiCom's  and  Horizons'  fiscal
     year-ends  were  not   significant  and  resulted  in  a  net  pooling
     adjustment of $(109) in 1998,  which is reflected in the  accompanying
     Statement  of  Stockholders'  Equity for the year ended  December  31,
     1998.

<PAGE>

          The  separate  and combined  results of Titan,  Delfin,  VisiCom,
     Horizons and DBA in prior years are as follows:

                                         For the Year Ended December 31, 1997
                                      ------------------------------------------
                                                       Income
                                                       (Loss)
                                                        from
                                                     Continuing      Net Income
                                       Revenues      Operations        (Loss)
                                      ----------    ------------    ------------
                  Titan.............    $167,050       $   5,188      $   5,165
                  Delfin............      26,534            (127)          (127)
                  VisiCom...........      31,360          (1,352)       (13,397)
                  Horizons..........      26,281           1,640         (4,222)
                  DBA...............      24,698          (6,731)        (6,731)
                                      ----------    ------------    ------------
                                        $275,923       $  (1,382)     $ (19,312)
                                      ==========    ============    ============


                                         For the Year Ended December 31, 1996
                                      ------------------------------------------
                                                       Income
                                                       (Loss)
                                                        from
                                                     Continuing      Net Income
                                       Revenues      Operations        (Loss)
                                      ----------    ------------    ------------
                  Titan.............    $133,676       $     (50)     $  (3,378)
                  Delfin............      29,629             (92)           (92)
                  VisiCom...........      32,650           1,389            381
                  Horizons..........      29,551           2,934            944
                  DBA...............      20,470           1,161          1,161
                                      ----------    ------------    ------------
                                        $245,976       $   5,342      $    (984)
                                      ==========    ============    ============


          DBA's loss from  continuing  operations and net loss for the year
     ended  December 31, 1997 include  recognition  of a special  charge of
     $9,846 for the write-down of certain  assets to net  realizable  value
     and accrual for certain liabilities as described in Notes 8 and 14.

          Net income  (loss)  reflects the  discontinued  operations of the
     broadband communications business, the access control systems business
     and  certain  operations  discontinued  by  companies  prior  to their
     acquisition by Titan. Refer to Note 3 for further discussion.

          On March 31, 1998,  the Company  acquired all of the  outstanding
     common stock of Validity  Corporation  ("Validity") for $12 million in
     cash, and notes payable to the  shareholders  of Validity  totaling $3
     million, subject to post-closing adjustments,  if any, due and payable
     March  31,  1999,  and  bearing   interest  at  the  prime  rate.  The
     transaction  has  been  accounted  for  as  a  purchase;  accordingly,
     Validity's  results  of  operations  have been  consolidated  with the
     Company's results of operations beginning April 1, 1998. The excess of
     the  purchase  price  over the  estimated  fair  value  of net  assets
     acquired is being  amortized  on a straight  line basis over 30 years,
     and amounted to approximately $18.6 million as of December 31, 1998.

<PAGE>

          During the year ended  December  31, 1998,  the Company  recorded
     special  acquisition  related  and  other  charges  of  $9,891,  which
     includes  approximately $5,500 of direct transaction costs (consisting
     primarily of investment banking and other professional  fees),  $3,800
     of integration  expenses and $600 of pre-operating  and start-up costs
     of the  AfroNetwork,  Benin  operation.  Approximately  $4,600  of the
     direct  transaction costs were incurred in connection with the Delfin,
     VisiCom,  Horizons and DBA mergers.  The remaining $900 in transaction
     fees were related to costs  incurred to file a withdrawn  registration
     statement of Linkabit Wireless.

          The   integration   costs  included   approximately   $3,500  for
     severance,   outplacement   and  retention   costs   incurred  in  the
     Information Technologies and Communications Systems segments. Included
     in these amounts were termination  benefits associated with employment
     agreements,  as well as retention  amounts  associated  with  employee
     retention agreements.  The integration costs also include $330 related
     to  the  closure  and  elimination  of  leased  facilities,  primarily
     duplicate field offices.

          Accruals for unpaid special  charges of $1,090 and $250 remain in
     other current and non-current liabilities,  respectively,  at December
     31,  1998.  Unpaid  amounts at  year-end  are  primarily  termination,
     retention and other  integration  costs which will be paid by December
     31, 1999.

          On May 24, 1996, the Company  completed the  acquisition of three
     privately-held affiliated businesses--Eldyne, Inc. ("Eldyne"), Unidyne
     Corporation  ("Unidyne") and Diversified Control Systems, LLC ("DCS").
     The   overall   transaction   consideration,    excluding   associated
     transaction  costs  and  expenses,   consisted  of  $1  million  cash,
     1,779,498 shares of Titan common stock with an assigned value of $6.00
     per share, the issuance of 500,000 shares of a new class of cumulative
     convertible  redeemable  preferred  stock (see Note 9),  assumption of
     indebtedness  and a  promissory  note  for $1  million  issued  to the
     principal  stockholder of the acquired companies.  The $1 million note
     was due and paid on March 15,  1997,  and earned  interest  of 10% per
     annum.  Titan  also  entered  into an  agreement  with  the  principal
     stockholder,  providing  for annual  payments of $.3 million,  payable
     monthly,  for 6 years beginning May 24, 1996. The net present value of
     this  agreement  ($1.5  million) was recorded as  additional  purchase
     price at the acquisition  date. This obligation was settled in full on
     January 2, 1997.  Estimated other direct costs of the acquisition were
     approximately $3 million.  The acquisition has been accounted for as a
     purchase, and, accordingly,  Titan's consolidated financial statements
     include the operating  results of the three acquired  companies  since
     May 24, 1996. The excess of the purchase price over the estimated fair
     value of net assets  acquired of $16.9 million at December 31, 1998 is
     being amortized using a straight-line method over 30 years.

     Note 3. Discontinued Operations

          In December 1998, the Company's Board of Directors adopted a plan
     to wind  down the  Company's  access  control  systems  business.  The
     results of this  business have been  accounted  for as a  discontinued
     operation.  Revenues  for the access  control  business  were  $3,122,
     $4,136 and $1,808 and operating  profit (loss) was $(3,026),  $492 and
     $483  for  the  years  ended   December  31,  1998,   1997  and  1996,
     respectively.  The 1998  loss  includes  a charge  of  $1,500  for the
     estimated  costs to be incurred in future  periods in connection  with
     the winding down of this business.

          In 1997,  the  Company's  Board of  Directors  adopted  a plan to
     divest the Company's broadband communications business. The results of
     the broadband  communications  business  have been  accounted for as a
     discontinued  operation in accordance with Accounting Principles Board
     Opinion No. 30,  which among other  provisions,  anticipates  that the
     plan of disposal will be carried out within one year. During 1998, the
     Company  received  cash  payments  of  $4,400  for  licensing  of  the
     broadband  technology  and  as  settlement  of  certain  contingencies
     related to the broadband patents.  As a result of a periodic review by
     management of the  likelihood of receiving  further  proceeds from the
     sale of the  broadband  technology,  which would enable the Company to
     realize the remaining net assets of the broadband business, a decision
     was reached by  management  in the third  quarter of 1998 to write off
     such remaining net assets.  The write-off resulted in a pre-tax charge
     to  loss  from  discontinued   operations  of  $4,638.   Additionally,
     approximately  $7,200 in previously  capitalized  start-up  costs were
     written  off as  part  of the  cumulative  effect  of  the  change  in
     accounting   principle  (see  Note  1).  Revenues  for  the  broadband
     communications business were $-0-, $551 and $2,238 for the years ended
     December 31, 1998, 1997 and 1996, respectively.  Titan deferred losses
     from the  discontinued  operation of $9,271 in 1997,  which  primarily
     represented amortization and wind-down costs of the business.

<PAGE>

          In addition to the discontinued  operations of the access control
     systems  business and the broadband  business as discussed  above, the
     accompanying  consolidated  financial  statements  reflect  operations
     discontinued  by certain of the  companies  acquired by Titan in 1998.
     The  decisions to dispose of or otherwise  wind down these  operations
     were  made by the  separate  Boards  of  Directors  of the  respective
     acquired  companies prior to entering into any discussions  with Titan
     regarding the potential  acquisitions of these entities by Titan.  All
     periods  presented  reflect these specific  operations as discontinued
     operations.  Revenue  for  these  discontinued  operations  aggregated
     $10,899, $7,999 and $9,367 for the years ended December 31, 1998, 1997
     and 1996, respectively,  and losses attributable to these discontinued
     operations aggregated $-0-, $17,907 and $2,998 for the same respective
     periods.  Aggregate  charges  for  estimated  costs to be  incurred in
     future periods in connection with the winding down of these operations
     amounted  to  approximately  $6,800,  substantially  all of which  was
     recorded  by the  acquired  companies  in the  last  quarter  of 1997.
     Operating  losses of  approximately  $5.8 million were charged against
     this accrual during 1998. Additionally, a pre-tax charge of $1,300 was
     taken in the third quarter of 1998 based on  management's  most recent
     review of estimated future wind-down costs.

          Net liabilities of  discontinued  operations at December 31, 1998
     consist primarily of accrued liabilities of approximately $12,700, net
     of current  assets  (primarily  accounts  receivable and inventory) of
     approximately $6,200. The liabilities consist of accruals for contract
     losses, estimated wind-down costs and costs related to the closure and
     elimination of leased facilities. Long-term net assets of discontinued
     operations are primarily fixed assets.

     Note 4. Other Financial Data

          Following are details concerning certain balance sheet accounts:
<TABLE>
<CAPTION>


                                                                                  1998        1997
                                                                                --------    --------
                                <S>                                             <C>         <C>
                                Accounts Receivable:
                                   U.S. Government--billed ..................   $ 44,021    $ 33,031
                                   U.S. Government--unbilled ................     30,710      23,648
                                   Trade ....................................     13,586      16,692
                                   Less allowance for doubtful accounts .....       (249)       (718)
                                                                                --------    --------
                                                                                $ 88,068    $ 72,653
                                                                                ========    ========
                               Inventories:
                                  Materials .................................   $  3,871    $  4,343
                                  Work-in-process ...........................      1,788      12,421
                                  Finished goods ............................      2,987       2,062
                                                                                --------    --------
                                                                                $  8,646    $ 18,826
                                                                                ========    ========
                               Property and Equipment:
                                  Machinery and equipment ...................   $ 45,299    $ 51,238
                                  Furniture and fixtures ....................      8,320       6,726
                                  Land, buildings and leasehold improvements      13,902      14,960
                                  Construction in progress ..................        358         406
                                                                                --------    --------
                                                                                  67,879      73,330
                               Less accumulated depreciation and amortization    (42,177)    (45,664)
                                                                                --------    --------
                                                                                $ 25,702    $ 27,666
                                                                                ========    ========
</TABLE>
<PAGE>

     Note 5. Segment Information

          In the fourth  quarter of 1997,  the  Company  realigned  certain
     operations  within its existing  segments and added a fifth segment to
     better position these operations for strategic  transactions  pursuant
     to the Company's  corporate strategy.  This realignment  conforms with
     the provisions of Statement of Financial  Accounting Standards No. 131
     "Disclosures about Segments of an Enterprise and Related Information".
     All prior  year  segment  data were  restated  to  conform to the 1997
     presentation.

          The Information Technologies segment provides information systems
     solutions   primarily  to   government   customers   with  large  data
     management,    information    manipulation,     information    fusion,
     knowledge-based   systems   and   communications   requirements,   and
     manufactures  digital imaging  products,  electro-optical  systems and
     threat  simulation/training  systems primarily used by the defense and
     intelligence  communities.  This segment also  supports  high priority
     government  programs by  providing  systems  integration,  information
     systems engineering  services,  development of systems and specialized
     products,  as well as systems  research,  development and prototyping.
     Other  services   provided  include  research  and  development  under
     government  funded  contracts for the  Department of Defense (DoD) and
     other customers.

          The  Software  Systems  segment  is  a  systems  integrator  that
     provides systems integration services and solutions for commercial and
     non-defense clients with distributed computing environments.

          The  Medical   Sterilization  and  Food  Pasteurization   segment
     provides   medical  product   sterilization   services  at  two  Titan
     facilities   and   manufactures   and  sells  turnkey   electron  beam
     sterilization and food pasteurization  systems to customers for use in
     their own facilities.

          The  Communications  Systems  segment is made up of the Company's
     wholly-owned   subsidiary,   Linkabit   Wireless,   Inc.,   ("Linkabit
     Wireless"),   which   develops   and   produces   advanced   satellite
     communications  products  and systems for  government  and  commercial
     customers.

          The Emerging Technologies and Businesses segment includes several
     businesses  which apply the Company's  proprietary  knowledge and core
     competencies to industrial and commercial opportunities.

          Substantially all of the Company's  operations are located in the
     United States.  Export  revenues  amounted to  approximately  $18,893,
     $21,365 and $10,693 in 1998, 1997 and 1996, respectively, primarily to
     countries in the Far East and Western Europe. All international  sales
     are denominated in U.S. dollars.

<PAGE>

          The following  tables  summarize  industry segment data for 1998,
     1997 and 1996.
<TABLE>
<CAPTION>
                                                                          1998       1997       1996
                                                                        --------   --------   --------
                                 <S>                                    <C>        <C>        <C>     
                                 Revenues:
                                 Information Technologies ...........   $190,467   $165,739   $154,054
                                 Software Systems ...................     21,470     17,374     18,505
                                 Medical Sterilization and Food
                                   Pasteurization ...................     10,000      5,983      2,818
                                 Communications Systems .............     42,468     48,980     27,850
                                 Emerging Technologies and Businesses     39,023     37,847     42,749
                                                                        --------   --------   --------
                                                                        $303,428   $275,923   $245,976
                                                                        ========   ========   ========
</TABLE>

          Sales to the United States Government, including both defense and
     non-defense  agencies,  and sales as a subcontractor as well as direct
     sales,  aggregated  approximately  $242,560 in 1998, $225,016 in 1997,
     and $199,901 in 1996.  Inter-segment sales were not significant in any
     year.
<TABLE>
<CAPTION>

                                                                             1998        1997        1996
                                                                           --------    --------    --------
                        <S>                                                <C>         <C>         <C>
                        Operating Profit (Loss):
                           Information Technologies ....................   $ 16,291    $  5,457    $ 14,861
                           Software Systems ............................      5,137       4,580        (137)
                           Medical Sterilization and Food Pasteurization      1,365         189      (1,080)
                           Communications Systems ......................     (1,418)      1,074      (4,187)
                           Emerging Technologies and Businesses ........      3,455          81       3,156

                           Corporate ...................................     (6,477)     (2,808)       (543)
                                                                           --------    --------    --------
                                                                           $ 18,353    $  8,573    $ 12,070
                                                                           ========    ========    ========
</TABLE>
<PAGE>


          Corporate includes corporate general and administrative expenses,
     certain corporate  restructuring charges, and gains or losses from the
     sale of businesses.  Corporate general and administrative expenses are
     generally   recoverable  from  contract   revenues  by  allocation  to
     operations.

<TABLE>
<CAPTION>


                                                                              1998       1997       1996
                                                                            --------   --------   --------
                          <S>                                               <C>        <C>        <C>
                          Identifiable Assets:
                            Information Technologies ....................   $103,034   $ 85,449   $ 96,665
                            Software Systems ............................     14,959      8,114      6,139
                            Medical Sterilization and Food Pasteurization     11,362     11,854     10,222
                            Communications Systems ......................     22,406     29,019     18,774
                            Emerging Technologies and Businesses ........     14,239     15,573     18,349
                            Discontinued operations, net ................        645      7,605     15,031
                            General corporate assets ....................     25,922     26,089     28,108
                                                                            --------   --------   --------
                                                                            $192,567   $183,703   $193,288
                                                                            ========   ========   ========
</TABLE>

          General corporate assets are principally cash,  prepaid expenses,
     property and equipment, deferred income taxes and other assets.
<TABLE>
<CAPTION>

                                                                               1998     1997     1996
                                                                              ------   ------   ------
                              <S>                                             <C>      <C>      <C>
                              Depreciation and Amortization of Property and
                                Equipment, Goodwill, and Other Assets:
                                  Information Technologies ................   $3,291   $4,101   $3,751
                                  Software Systems ........................      475      617    1,152
                                  Medical Sterilization and Food ..........      617      499      510
                                    Pasteurization
                                  Communications Systems ..................    1,191    1,292      820
                                  Emerging Technologies and Businesses ....      952    1,722    1,398
                                  Corporate ...............................      600      982      413
                                                                              ------   ------   ------
                                                                              $7,126   $9,213   $8,044
                                                                              ======   ======   ======
                             Capital Expenditures:
                               Information Technologies ....................  $1,648   $1,972   $2,175
                               Software Systems ............................     325      453      261
                               Medical Sterilization and Food Pasteurization     210      429    1,024
                               Communications Systems ......................   1,180    1,438    1,831
                               Emerging Technologies and Businesses ........     317    2,236    1,120
                               Corporate ...................................     358      119      227
                                                                              ------   ------   ------
                                                                              $4,038   $6,647   $6,638
                                                                              ======   ======   ======
</TABLE>
<PAGE>

     Note 6. Income Taxes

          The  components  of the  income  tax  provision  from  continuing
     operations are as follows:

                                              1998      1997      1996
                                            ------     ------    ------
                        Current:
                         Federal.........   $  782     $2,046    $2,131
                         State...........      278        374       377
                                            ------     ------    ------
                                             1,060      2,420     2,508
                        Deferred.........    3,095      1,764        95
                                            ------     ------    ------
                                            $4,155     $4,184    $2,603
                                            ======     ======    ======

          Following is a  reconciliation  of the income tax provision  from
     continuing  operations  expected  (based on the United States  federal
     income tax rate  applicable  in each year) to the actual tax provision
     on income:
<TABLE>
<CAPTION>

                                                                                 1998       1997       1996
                                                                               -------    -------    -------
                       <S>                                                     <C>        <C>        <C>    
                       Expected Federal tax provision on continuing ........   $ 3,865    $   953    $ 2,701
                          operations
                       State income taxes, net of Federal income tax benefit       341         92        (18)
                       Research credit .....................................        --       (324)        --
                       Goodwill amortization ...............................       218        351         88
                       Keyman life insurance ...............................        24         24         36
                       Acquisition special charges and other ...............      (293)     3,088       (204)
                                                                               -------    -------    -------
                       Actual tax provision on continuing operations .......   $ 4,155    $ 4,184    $ 2,603
                                                                               =======    =======    =======
</TABLE>

          The deferred tax asset as of December 31, 1998 and 1997,  results
     from the following temporary differences:
<TABLE>
<CAPTION>

                                                                             1998        1997
                                                                           --------    --------
                                    <S>                                    <C>         <C>     
                                    Loss carryforward ..................   $  7,746    $  7,798
                                    Employee benefits ..................      4,275       4,923
                                    Loss from discontinued operations ..       --        (3,338)
                                    Tax credit carryforwards ...........      2,096       2,546
                                    Inventory and contract loss reserves     10,199       8,919
                                    Depreciation .......................     (1,378)     (1,400)
                                    Deferred tax on foreign profit .....       --         1,123
                                    Other ..............................       (306)       (759)
                                                                           --------    --------
                                                                             22,632      19,812
                                    Valuation allowance ................    (11,200)    (11,200)
                                                                           --------    --------
                                    Net deferred tax asset .............   $ 11,432    $  8,612
                                                                           ========    ========
</TABLE>

          Realization  of certain  components of the net deferred tax asset
     is dependent  upon the Company  generating  sufficient  taxable income
     prior  to  expiration  of  loss  and  credit  carryforwards.  Although
     realization is not assured, management believes it is more likely than
     not that the net deferred  tax asset will be  realized.  The amount of
     the net deferred tax asset considered  realizable,  however,  could be
     reduced in the near term if estimates of future  taxable income during
     the  carryforward  period are changed.  Also,  under  Federal tax law,
     certain potential changes in ownership of the Company which may not be
     within the Company's  control may limit annual future  utilization  of
     these  carryforwards.  Deferred  income  taxes  of $454  and  $314 are
     included in Other Assets at December 31, 1998 and 1997, respectively.

          Cash paid for  income  taxes was  $1,343  and  $1,195 in 1998 and
     1997, respectively. Net tax refunds in 1996 were $277.

<PAGE>

     Note 7. Debt

          On July 29, 1998,  the Company  entered  into a credit  agreement
     with a bank  syndicate  under  which it may borrow up to $80  million,
     replacing its existing line of credit  agreement.  The credit facility
     includes a five year $55 million  working capital line of credit and a
     $25 million  component  dedicated for acquisitions  which converts any
     outstanding  balances after one year into a term loan, to be repaid in
     increasing  quarterly  amounts  over four  years.  The Company has the
     option to borrow  at the bank base rate or at LIBOR,  plus  applicable
     margins  based on the ratio of total debt to EBITDA  (earnings  before
     interest,  taxes,   depreciation  and  amortization).   The  agreement
     contains,  among  other  financial  covenants,  provisions  which  set
     maximum  debt to  EBITDA  limits  and which  require  the  Company  to
     maintain  stipulated  levels of EBITDA,  tangible net worth, a minimum
     quick  ratio,  and  minimum  coverage  of fixed  charges,  as defined.
     Initial proceeds of $36.1 million were used to pay off and replace the
     then outstanding line of credit balances with the Company's, Horizons'
     and VisiCom's banks and for working capital purposes.  At December 31,
     1998,  the  outstanding  balances on the working  capital line and the
     acquisition  line were $35  million  and $5 million  (of which $368 is
     current),  respectively.  The  borrowings  were  subject to a weighted
     average  interest  rate of 7.09%,  and  commitments  under  letters of
     credit reducing availability under the working capital line were $950.

          In  November  1996,  Titan  issued  $34,500 of 8.25%  convertible
     subordinated debentures due 2003. At December 31, 1998, $27,515 remain
     outstanding.  The debentures are convertible  into common stock of the
     Company  at  a  conversion  price  of  $3.50  per  share,  subject  to
     adjustment upon the occurrence of certain  events.  The debentures are
     redeemable,  on or after  November 2, 1999,  initially  at 104.125% of
     principal  amount  and at  decreasing  prices  thereafter  to  100% of
     principal amount through maturity,  in each case together with accrued
     interest.  The  debentures  also may be  repaid  at the  option of the
     holder upon a change in control, as defined in the indenture governing
     the debentures, at 100% of principal amount plus accrued interest. The
     net proceeds from the issuance of these  securities were used to repay
     borrowings  under the  Company's  bank lines of credit and for working
     capital and general corporate purposes.

          At  December  31,  1998 and 1997,  Titan had $3,328  and  $4,319,
     respectively,  outstanding  under two  promissory  notes,  secured  by
     certain machinery and equipment,  at interest rates of 8.5% and 7.42%,
     respectively.  At December 31, 1998, $1,101 is due within one year. At
     December  31,  1998 and  1997,  the  Company  also had  outstanding  a
     mortgage note collateralized by real estate with a balance of $747 and
     $1,196, respectively, at an interest rate of LIBOR plus 2.5%, of which
     $112 is due within one year.  Long-term  debt at entities  acquired by
     the Company in 1998 was $650 ($368 short-term) at December 31, 1998.

          Cash  paid  for  interest,  primarily  on these  borrowings,  was
     $6,491,  $6,254 and $3,847 in 1998, 1997, and 1996,  respectively.  At
     December  31, 1998 the Company was in  compliance  with all  financial
     covenants under its various debt agreements.

<PAGE>

     Note 8. Commitments and Contingencies

          The  Company  leases  certain   buildings  and  equipment   under
     non-cancelable  operating  lease  agreements.  These leases  generally
     require  the  Company  to pay  all  executory  costs  such  as  taxes,
     insurance and maintenance related to the leased assets. Certain of the
     leases contain  provisions for periodic rate  accelerations to reflect
     cost-of-living  increases.  Rental  expense  under  these  leases  was
     $10,130 in 1998,  $9,457 in 1997 and $11,928 in 1996.  The Company has
     entered into a long-term  lease  agreement  for  facilities  which are
     owned by an entity in which Titan has a minority  ownership  interest.
     Rental expense in 1998,  1997 and 1996 includes  $921,  $904 and $884,
     respectively, paid under this agreement.

          Future  minimum  lease  payments  under  noncancelable  operating
     leases at December 31, 1998, are as follows:

                 1999.......................................     $ 8,311
                 2000.......................................       6,649
                 2001.......................................       5,310
                 2002.......................................       4,567
                 2003.......................................       3,613
                 Thereafter.................................       9,343
                                                                 -------
                    Total minimum lease payments............     $37,793
                                                                 =======

          In 1997,  DBA recorded a $3.0 million  charge in  recognition  of
     certain environmental matters at its Kissimmee facility including, but
     not  limited  to,  soil   contamination  and  potential  asbestos  and
     lead-based paint contamination. These matters became known to DBA as a
     result of an  environmental  study  performed  as part of Titan's  due
     diligence process related to the merger with DBA. The accrual has been
     recorded in accordance  with SFAS No. 5 and SOP 96-1 and represents an
     initial  estimate which could change  significantly as further studies
     are performed.  In the accompanying  balance sheet,  approximately $.2
     million is included in other  current  liabilities  and the  remaining
     $2.8 million is included in other non-current liabilities based on the
     estimated  timing of continued  assessments and remediation work to be
     performed.  This  property is  currently on the market and the Company
     has  received  several  indications  of  interest  (see Note 14).  The
     Company has  commenced  its  pre-cleanup  activities,  which are being
     coordinated with the sale of the property.

          On April 19, 1995 Titan was served in a lawsuit  entitled  Donald
     P. Shaw v. Titan Corporation (the "Lawsuit").  The Lawsuit was pending
     in the  United  States  District  Court for the  Eastern  District  of
     Virginia,  Alexandria Division,  and sought compensatory damages in an
     aggregate  amount of $3,000  and  punitive  damages  in the  amount of
     $1,050 on account  of alleged  wrongful  termination  and  intentional
     infliction of emotional  distress.  The Lawsuit  resulted in a verdict
     for the  plaintiff  awarding $65 in  compensatory  damages and $350 in
     punitive damages which was affirmed on appeal in February 1998.

          In the  ordinary  course of  business,  defense  contractors  are
     subject  to  many  levels  of  audit  and   investigation  by  various
     government  agencies.  Further,  the Company and its  subsidiaries are
     subject  to claims  and from time to time are named as  defendants  in
     legal  proceedings.  The Company  may also assert  claims from time to
     time. In the opinion of management,  the amount of ultimate  liability
     or recovery with respect to these actions will not  materially  affect
     the financial position or results of operations of the Company.

<PAGE>

     Note 9.  Series B  Cumulative  Convertible  Redeemable  Preferred Stock

          The Company's  Series B Preferred Stock had a par value of $1.00,
     accrued  dividends  at a rate of 6% per  annum  payable  quarterly  in
     arrears cumulatively,  had a liquidation preference of $6.00 per share
     plus  accrued  and  unpaid   dividends   (the  "Series  B  Liquidation
     Preference")   and  entitled  the  holder  thereof  to  one  vote  per
     outstanding  share,  voting  together  as a class with the  holders of
     shares of  outstanding  Common  Stock (and any other series or classes
     entitled to vote therewith) on all matters submitted for a shareholder
     vote.  The Series B  Preferred  Stock was  redeemable  at the Series B
     Liquidation  Preference (i) at the holder's option, after May 24, 1998
     until May 24, 2001,  and (ii) at the Company's  option,  after May 24,
     2001 until May 24, 2006. The Company  redeemed all of the  outstanding
     shares of Series B Preferred Stock in 1998.

     Note 10. Cumulative Convertible Preferred Stock

          Each share of $1.00  cumulative  convertible  preferred  stock is
     entitled  to  1/3  vote,  annual  dividends  of $1  per  share  and is
     convertible at any time into 2/3 share of the Company's  common stock.
     Common stock of 463,248  shares has been  reserved  for this  purpose.
     Upon   liquidation,   the  $1.00  cumulative   convertible   preferred
     stockholders  are entitled to receive $20 per share,  plus  cumulative
     dividends in arrears,  before any  distribution  is made to the common
     stockholders.

<PAGE>

     Note 11. Common Stock

          At December 31, 1998, approximately 47,974,672 common shares were
     reserved  for  future   issuance   for   conversion   of   convertible
     subordinated  debentures,  preferred  stock,  and all stock  incentive
     plans.

          On August 17, 1995, the Board of Directors  adopted a Shareholder
     Rights  Agreement and  subsequently  distributed  one preferred  stock
     purchase right ("Right") for each  outstanding  share of the Company's
     common stock.  Each Right entitles the  registered  holder to purchase
     from the  Company  one  one-hundredth  of a share  of  Series A Junior
     Participating   Preferred  Stock,  par  value  $1.00  per  share  (the
     "Preferred  Shares") at a price of $42.00 per one  one-hundredth  of a
     Preferred Share, subject to adjustment.  The Rights become exercisable
     if a person or group  acquires,  in a transaction  not approved by the
     Company's Board of Directors  ("Board"),  15% or more of the Company's
     common stock or announces a tender offer for 15% or more of the stock.

          If a person or group acquires 15% or more of the Company's common
     stock,  each Right (other than Rights held by the acquiring  person or
     group  which  become  void) will  entitle  the holder to receive  upon
     exercise a number of shares of the  Company's  common  stock  having a
     market value of twice the Right's  exercise  price.  If the Company is
     acquired in a transaction not approved by the Board, each Right may be
     exercised for common shares of the acquiring  company  having a market
     value of twice the Right's exercise price. Titan may redeem the Rights
     at $.01 per Right, subject to certain conditions. The Rights expire on
     August 17, 2005.

     Note 12. Stock-Based Compensation Plans

          The  Company  provides  stock-based   compensation  to  officers,
     directors and key employees  through  various fixed stock option plans
     and to all non-executive  employees through an employee stock purchase
     plan.  The  Company  has adopted the  disclosure  only  provisions  of
     Statement of Financial  Accounting  Standards No. 123, "Accounting for
     Stock-Based Compensation."  Accordingly, no compensation cost has been
     recognized  for the fixed stock option or stock  purchase  plans.  Had
     compensation  cost for the Company's  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 SFAS  123,  the
     Company's  results of  operations  would have been  reduced to the pro
     forma amounts indicated below:
<TABLE>
<CAPTION>
                                                                1998       1997       1996
                                                             --------   --------    --------
        <S>                              <C>                 <C>        <C>         <C>      
        Net loss                         As reported......   $(19,705)  $(19,312)   $   (984)
                                         Pro forma........    (20,827)   (21,019)     (1,654)

        Net loss per share, basic        As reported......       (.59)      (.61)       (.06)
                                         Pro forma........       (.62)      (.66)       (.08)
                                                  
        Net loss per share, diluted      As reported......       (.57)      (.61)       (.06)
                                         Pro forma........       (.60)      (.66)       (.08)
</TABLE>
                                                  

          The Company  currently has options  available for grant under the
     Stock Option Plans of 1990, 1994 and 1997, The 1989  Directors'  Stock
     Option  Plan  and  The  1996   Directors'   Stock  Option  and  Equity
     Participation  Plan (the "1996 Directors'  Plan").  Options authorized
     for grant under the employee plans and under the directors'  plans are
     3,000,000 and 185,000, respectively. Under the 1996 Directors' Plan, a
     director  may elect to  receive  stock in lieu of fees,  such stock to
     have a fair  market  value  equal to the fees.  Under all  plans,  the
     exercise price of each option equals the market price of the Company's
     stock on the date of grant.  Under the  employee  plans,  an  option's
     maximum term is ten years. Under the directors' plans,  options expire
     90 days  after the option  holder  ceases to be a  director.  Employee
     options may be granted  throughout  the year;  directors'  options are
     granted  annually  during the first two or three  years as a director.
     All options vest in 25% increments  beginning one year after the grant
     date.  Stock options assumed by the Company as a result of the mergers
     discussed  in Note 2 generally  retain the terms under which they were
     granted.

<PAGE>

          The fair value of each option  grant is  estimated on the date of
     grant using the Black-Scholes option-pricing model using the following
     weighted-average assumptions: zero dividend yield and an expected life
     of 5 years in all years;  expected  volatility of 71% in 1998,  70% in
     1997 and 87% in 1996;  and a risk free interest rate of 4.74% in 1998,
     5.72% in 1997 and 6.57% in 1996.

          A summary of the status of the Company's fixed stock option plans
     as of December 31, 1998,  1997 and 1996,  and changes during the years
     ending on those dates is presented below:
<TABLE>
<CAPTION>
                                             1998                 1997                 1996
                                     --------------------  -------------------  -------------------
                                                 Weighted             Weighted             Weighted
                                                 Average              Average              Average
                                     Shares      Exercise   Shares    Exercise   Shares    Exercise
                                     (000)       Price      (000)      Price     (000)      Price
                                     -------    --------   -------    --------  -------    -------
<S>                                  <C>        <C>        <C>        <C>       <C>        <C>    
Outstanding at beginning of year..     3,697    $   3.66     3,155    $   3.37    3,148    $  3.22
Granted ..........................       808        4.30     1,175        3.77    1,202       3.45
Exercised ........................      (258)       2.70      (207)       2.75     (241)      2.13
Cancelled ........................      (589)       4.31      (426)       3.10     (954)      2.71
                                     -------               -------              -------
Outstanding at end of year .......     3,658        3.77     3,697        3.66    3,155       3.37
                                     =======               =======              =======
Options exercisable at year-end...     1,898                 1,994                1,814
Weighted-average fair value of
 options granted during the year..   $  5.46               $  3.42              $  2.47
</TABLE>

          The  following  table  summarizes  information  about fixed stock
     options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
                               Options Outstanding                 Options Exercisable
                     --------------------------------------     ------------------------
                                    Weighted-
                                     Average      Weighted-                    Weighted-
       Range of         Number      Remaining     Average        Number        Average
       Exercise      Outstanding   Contractual    Exercise       Exercisable   Exercise
       Prices        at 12/31/98       Life        Price         at 12/31/98    Price
     ------------    -----------   ------------  ----------     -----------   ----------
     <S>             <C>           <C>           <C>            <C>           <C>
     $ 0.05-3.94      1,852,964     6.06 years     $ 2.19       1,283,420       $ 2.25
       4.00-5.88      1,418,805     8.39 years       4.79         445,636         4.60
       6.06-9.50        386,232     7.81 years       7.57         168,732         8.34
                      ---------                                 ---------
                      3,658,001     7.15 years                  1,897,788
                      =========                                 =========
</TABLE>
<PAGE>

          Under the 1995  Employee  Stock  Purchase  Plan,  the  Company is
     authorized  to issue  up to  500,000  shares  of  common  stock to its
     full-time employees.  Elected officers of the Company are not eligible
     to  participate.  Under the terms of the plan,  employees may elect to
     have between 1 and 10 percent of their regular earnings, as defined in
     the plan,  withheld  to  purchase  the  Company's  common  stock.  The
     purchase  price of the stock is 85  percent of the lower of its market
     price at the beginning or at the end of each  subscription  period.  A
     subscription  period is six months,  beginning January 1 and July 1 of
     each  year.  Approximately  13%,  11%  and 11% of  eligible  employees
     participated  in the Plan and  purchased  92,089,  110,461  and 89,865
     shares  of  the  Company's  common  stock  in  1998,  1997  and  1996,
     respectively.  The weighted-average  fair value of the purchase rights
     granted  in  1998,   1997  and  1996  was  $1.61,   $1.06  and  $1.71,
     respectively.

          Four of the Company's wholly-owned subsidiaries have stock option
     plans  for the  granting  of  subsidiary  common  stock,  which is not
     publicly traded. The exercise price of all options granted under these
     plans  equals  the fair value of the  subsidiary  stock at the date of
     grant as determined by the  subsidiaries'  board of directors.  If all
     options  available  for  grant  in these  plans  were  exercised,  the
     Company's ownership in each of the subsidiaries would be diluted by no
     greater than 20% to 30%.

     Note 13. Benefit Plans

          The  Company  has  various  defined  contribution  benefit  plans
     covering certain employees. The Company's contributions to these plans
     were $3,326,  $2,914 and $3,040 in 1998, 1997 and 1996,  respectively.
     Titan's and Horizons'  combined  discretionary  contributions to their
     Employee Stock  Ownership Plans were $295, $372 and $120 in 1998, 1997
     and  1996,  respectively.  Discretionary  contributions  to  a  profit
     sharing plan covering  certain  employees were $150,  $175 and $150 in
     1998, 1997 and 1996,  respectively.  During 1997 and 1996, the Company
     utilized treasury stock of $344 and $1,192, respectively,  for benefit
     plan contributions.

          The Company has a non-qualified  executive deferred  compensation
     plan for certain officers and key employees. The Company's expense for
     this  plan  was  $824,   $821  and  $901  in  1998,   1997  and  1996,
     respectively.  Interest expense for the years ended December 31, 1998,
     1997 and 1996 includes $650, $527 and $561,  respectively,  related to
     the plan.  Included  in other  non-current  liabilities  is $4,311 and
     $3,954   related  to  this  plan  at  December   31,  1998  and  1997,
     respectively. The Company also has performance bonus plans for certain
     of its employees.  Related expense amounted to  approximately  $3,316,
     $2,125 and $1,709 in 1998, 1997 and 1996, respectively.

          The Company has previously  provided for  postretirement  benefit
     obligations of operations discontinued in prior years. The Company has
     no  postretirement  benefit  obligations  for  any of  its  continuing
     operations nor for its recently discontinued businesses.

     Note 14. DBA Asset Impairments

          The Company  has a 141,000  square  foot  manufacturing  facility
     located in  Kissimmee,  Florida  which was acquired in the merger with
     DBA. The property has been held for sale since June 1996.  As a result
     of  several  factors,  including  offers  received  by third  parties,
     management concluded that there had been an impairment in the carrying
     value of the  asset.  A charge of $2.0  million  was  recorded  in the
     Company's  financial  statements  for the year ended December 31, 1997
     which  reflects  management's  estimate of the  impairment,  including
     estimated  disposal costs.  Titan  management has a program of ongoing
     maintenance  (and  environmental  remediation  - see  Note  8)  and is
     actively  marketing  the property for sale through  various  channels.
     Management  regularly reviews this asset for further  impairment,  and
     believes that the recorded book value at December 31, 1998 reflects an
     amount which is not less than net realizable value.

          In  September  1997,  DBA  invested  $1.6  million  in a start-up
     venture.  To date,  this  start-up  venture has not yet  generated any
     significant  business and has  generated no  significant  revenue.  In
     light of these circumstances, Titan management believed that there was
     an  impairment  in the value of the  investment as recorded by DBA. An
     adjustment  to write down the  investment by $1.6 million was recorded
     in the results of operations for the year ended December 31, 1997.

<PAGE>

     Note 15. Subsequent Event

          In January 1999,  the Company's  wholly-owned  subsidiary,  Titan
     Software Systems Corporation,  acquired Transnational Partners II, LLP
     ("TNP"), a software services company which provides infrastructure and
     enterprise  resources planning solutions for major  corporations,  for
     $9.8  million  in a  transaction  that  will  be  accounted  for  as a
     purchase.  The purchase  price  consisted  of $7 million  cash, a $2.8
     million note due January  2000  (bearing  interest at 7%),  subject to
     certain post-closing adjustments, and a preferred stock representing a
     minority  interest  in  Titan  Software  Systems  Corporation,   which
     comprises the Company's Software Systems segment.

     Note 16.  Quarterly  Financial  Data  (Unaudited)  (in thousands,
     except per share data)
<TABLE>
<CAPTION>

                                           First        Second       Third        Fourth         Total
1998                                      Quarter       Quarter     Quarter       Quarter         Year
----                                    ----------    ----------   ----------    ----------    -----------
<S>                                     <C>           <C>          <C>           <C>           <C>        
Revenues ............................   $   64,630    $   75,413   $   78,635    $   84,750    $   303,428
Gross profit ........................       15,163        17,071       17,628        21,525         71,387
Income from continuing operations
   before cumulative effect of change
   in accounting principle ..........          954         2,973        1,948         1,338          7,213
Net income (loss) ...................      (18,349)        3,184       (4,051)         (489)       (19,705)
Basic earnings per share:
   Income from continuing operations           .02           .08          .05           .03            .18
   Net income (loss) ................         (.55)          .09         (.11)         (.02)          (.59)
Diluted earnings per share:
   Income from continuing operations           .02           .07          .05           .03            .18
   Net income (loss) ................         (.53)          .08         (.09)         (.02)          (.57)
</TABLE>

<TABLE>
<CAPTION>
                                        First       Second       Third        Fourth          Total
1997                                   Quarter      Quarter     Quarter       Quarter         Year
----                                 ----------   ----------   ----------    ----------    -----------
<S>                                  <C>          <C>          <C>           <C>           <C>        
Revenues .........................   $   67,827   $   70,255   $   66,931    $   70,910    $   275,923
Gross profit .....................       14,808       17,102       14,776        12,684         59,370
Income (loss) from continuing
   operations ....................        2,253        2,301       (4,366)       (1,570)        (1,382)
Net income (loss) ................        1,172        1,619      (15,765)       (6,338)       (19,312)
Basic earnings (loss) per share:
   Income (loss) from continuing
      operations .................          .06          .06         (.14)         (.05)          (.07)
   Net income (loss) .............          .03          .04         (.48)         (.20)          (.61)
Diluted earnings (loss) per share:
   Income (loss) from continuing
      operations .................          .06          .06         (.14)         (.05)          (.07)
   Net income (loss) .............          .03          .04         (.48)         (.20)          (.61)
</TABLE>

          The above  financial  information  for each quarter  reflects all
     normal and recurring adjustments.

<PAGE>

          Previously  reported  amounts  have been  restated to reflect the
     acquisitions,  accounted  for as poolings of  interests,  of Horizons,
     VisiCom and Delfin in the second,  third and fourth  quarters of 1998,
     respectively,  the  discontinuance  of the  Company's  access  control
     systems  business  in the fourth  quarter of 1998,  and to reflect the
     cumulative effect of a change in accounting  principle as effective in
     the first quarter of 1998.

          Net  results  for the first  quarter of 1998  reflect a charge of
     $19,474 for the cumulative effect of a change in accounting  principle
     (see Note 1). Income (loss) from continuing  operations and net income
     (loss)  include  special  charges of $1,460,  $3,093 and $5,338 in the
     first, third and fourth quarters of 1998, respectively,  and asset and
     investment  write-downs and environmental accrual of $5,000 and $4,846
     in the third and fourth  quarters of 1997,  respectively  (see Notes 2
     and 14).
                                    PART III

Item  9.  Changes  In and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure

         Not Applicable

Item 10.  Directors and Executive Officers of the Company

         The  information  required by Item 10 with respect to the directors and
the executive  officers of the Company is incorporated  herein by this reference
to such  information  on pages 3 - 7 and 15 of the  Company's  definitive  proxy
statement for the 1999 Annual Meeting of Stockholders.

Item 11.  Executive Compensation

     The  information  required  by  Item  11 is  incorporated  herein  by  this
reference  to  such  information  on  pages  4 - 5 and 8 - 13 of  the  Company's
definitive proxy statement for the 1999 Annual Meeting of Stockholders.

Item 12. Security Ownership of Certain Beneficial Owners and Management

         The  information  required  by Item 12 is  incorporated  herein by this
reference  to such  information  on  page 2 of the  Company's  definitive  proxy
statement for the 1999 Annual Meeting of Stockholders.

Item 13. Certain Relationships and Related Transactions

         No information is required by Item 13.

                                     Part IV

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

     (a) 1 and 2.  Financial  Statements  being filed as part of this report are
         listed in the index in Item 8, on page 24.

     (b) No  reports  on Form 8-K were  filed by the  Company  during the fourth
         quarter of 1998.

     (c) Exhibits

      3.1        Registrant's  Certificate of Amendment of Restated  Certificate
                 of  Incorporation  dated as of  October  21,  1998,  which  was
                 Exhibit No. 3.1 to Registrant's  Quarterly  Report on Form 10-Q
                 dated  November  16,  1998,  is  incorporated  herein  by  this
                 reference.  Registrant's  Restated Certificate of Incorporation
                 dated as of  November  6, 1986,  which was  Exhibit  No. 3.1 to
                 Registrant's  1987 Annual  Report on Form 10-K is  incorporated
                 herein by this reference. Registrant's Certificate of Amendment
                 of Restated  Certificate of Incorporation  dated as of June 30,
                 1987, which was Exhibit 3.2 to Registrant's  1987 Annual Report
                 on Form 10-K is incorporated herein by this reference.
      3.2        Registrant's By-laws, as amended,  which was Exhibit 6(a)(3) to
                 Registrant's  Quarterly  Report on Form 10-Q dated November 13,
                 1995, is incorporated herein by this reference.
      4.1        Rights  Amendment,  dated as of August 21,  1995,  between  The
                 Titan   Corporation  and  American  Stock  Transfer  and  Trust
                 Company,  which was  Exhibit 1 to  Registrant's  Form 8-A dated
                 September 5, 1995, is incorporated herein by this reference.
      4.2        Form  of  Indenture   relating  to  the   Registrant's  8  1/4%
                 Convertible Subordinated Debentures due November 1, 2003, which
                 was Exhibit 4.1 to Amendment No. 1 to Registrant's Registration
                 Statement on Form S-3 (No. 333-10965) is incorporated herein by
                 this reference.
      4.3        Letter Agreement dated February 4, 1998 between the Company and
                 DBA Systems, Inc. ("DBA") regarding certain registration rights
                 granted in  connection  with the  acquisition  of DBA which was
                 Exhibit  10.38  to  Registration  Statement  on Form  S-4  (no.
                 333-45719) is incorporated herein by this reference.

<PAGE>

      10.1       Stock Option Plan of 1983, as amended  though  January 1, 1987,
                 which was Exhibit 10.2 to  Registrant's  1987 Annual  Report on
                 Form 10-K is incorporated herein by this reference.
      10.2       Stock Option Plan of 1986, as amended  through January 1, 1987,
                 which was Exhibit 10.3 to  Registrant's  1987 Annual  Report on
                 Form 10-K is incorporated herein by this reference.
      10.3       Stock  Option  Plan  of  1990,  which  was  filed  in the  1990
                 definitive   proxy   statement   and  was   Exhibit   10.11  to
                 Registrant's 1989 Annual Report on 10-K is incorporated  herein
                 by this reference.
      10.4       Stock  Option  Plan  of  1994,  which  was  filed  in the  1994
                 definitive   proxy   statement   and  was   Exhibit   10.17  to
                 Registrant's  1993 Annual  Report on Form 10-K is  incorporated
                 herein by this reference.
      10.5       1989  Directors'  Stock Option Plan which was filed in the 1990
                 definitive statement and was Exhibit 10.12 to Registrant's 1989
                 Annual  Report  on Form  10-K is  incorporated  herein  by this
                 reference.
      10.6       1992  Directors'  Stock Option Plan which was filed in the 1993
                 definitive   proxy   statement   and  was   Exhibit   10.14  to
                 Registrant's  1992 Annual  Report on Form 10-K is  incorporated
                 herein by this reference.
      10.7       1996  Directors'  Stock  Option and Equity  Participation  Plan
                 which was filed in the 1996 definitive  proxy statement and was
                 Exhibit 10.7 to Registrant's 1995 Annual Report on Form 10-K is
                 incorporated herein by this reference.
      10.8       Supplemental Retirement Plan for Key Executives which was filed
                 in the 1990 definitive proxy statement and was Exhibit 10.13 to
                 Registrant's  1989 Annual  Report on Form 10-K is  incorporated
                 herein by this reference.
      10.9       1995  Employee  Stock  Purchase  Plan,  which was  Exhibit 4 to
                 Registrant's  Form S-8 dated December 18, 1995, is incorporated
                 herein by this reference.
      10.10      Lease Agreement dated as of July 9, 1991, by and between Torrey
                 Pines Limited Partnership, a California limited partnership, as
                 landlord, and Registrant,  as tenant, which was Exhibit 10.1 to
                 Registrant's  Form  8-K  dated  July 11,  1991 is  incorporated
                 herein by this reference.
      10.11      Agreement and Plan of Reorganization  of Eldyne,  Inc. dated as
                 of April 19, 1996, by and among Eldyne,  Inc.,  Jack Witt,  ELD
                 Acquisition Sub, Inc. and Registrant,  which was Exhibit 2.1 to
                 Registrant's  Form 8-K  dated  May 24,  1996,  is  incorporated
                 herein by this reference.
      10.12      Agreement  and Plan of  Reorganization  of Unidyne  Corporation
                 dated as of April 19, 1996, by and among  Unidyne  Corporation,
                 Jack Witt, UNI Acquisition Sub, Inc. and Registrant,  which was
                 Exhibit 2.2 to  Registrant's  Form 8-K dated May 24,  1996,  is
                 incorporated herein by this reference.
      10.13      Executive  Severance Plan entered into by the Company with Gene
                 W. Ray,  Eric M.  DeMarco,  Ronald B.  Gorda,  Mellon C. Baird,
                 Herbert L. Bradley, Clifton L. Cooke, and Ira Frazer, which was
                 Exhibit 6(a)(10) to Registrant's  Quarterly Report on Form 10-Q
                 dated  November  13,  1995,  is  incorporated  herein  by  this
                 reference.
      10.14      Loan and Security  Agreement,  dated  December 29, 1995, by and
                 between Registrant and Capital Associates International,  Inc.,
                 which was Exhibit 10.17 to  Registrant's  1995 Annual Report on
                 Form 10-K, is incorporated by this reference.
      10.15      Rider dated  August 13, 1996,  to Loan and  Security  Agreement
                 dated  December 29, 1995 by and between  Registrant and Capital
                 Associates  International,  Inc.  which  was  Exhibit  10.28 to
                 Registrant's  1996 Annual Report on Form 10-K, is  incorporated
                 herein by this reference.

<PAGE>

      10.16      Loan and Security  Agreement  dated  January 31,  1996,  by and
                 between  Registrant  and Sanwa  General  Equipment  Leasing,  a
                 division  of  Sanwa  Business  Credit  Corporation,  which  was
                 Exhibit 10.18 to Registrant's  1995 Annual Report on Form 10-K,
                 is incorporated herein by this reference.
      10.17      Credit Agreement, dated as of July 29, 1998, among the Company,
                 Various  financial  institutions  from  time  to  time  parties
                 thereto  (the   "Lenders"),   the  Bank  of  Nova  Scotia,   as
                 administrative  agent for the  Lenders,  and  Imperial  Bank as
                 documentation  agent,  which was  Exhibit  10 to the  Company's
                 Quarterly  Report  on Form  10-Q  dated  August  14,  1998,  is
                 incorporated herein by this reference.
      10.18      Agreement and Plan of Merger and  Reorganization  dated January
                 6, 1998 among The Titan  Corporation,  Titan  Acquisition  Sub,
                 Inc.  and DBA Systems,  Inc.  which was filed as Exhibit 2.1 to
                 the   Company's   Registration   Statement  on  Form  S-4  (No.
                 333-45719), is incorporated herein by this reference.
      10.19      Agreement and Plan of Merger and Reorganization  dated February
                 26, 1998, among The Titan Corporation, Sunrise Acquisition Sub,
                 Inc.,  Horizons  Technology,   Inc.  ("Horizons")  and  certain
                 stockholders of Horizons,  which was filed as Appendix A to the
                 Company's Registration Statement on Form S-4 (No. 333-47633) is
                 incorporated herein by this reference.
      10.20      Agreement and Plan of Reorganization  dated as of June 30, 1998
                 by and among The Titan  Corporation,  Delsys Merger Corp.,  and
                 Delfin Systems, which was filed as Exhibit 2.1 to the Company's
                 Registration   Statement  on  Form  S-4  (No.   333-60127)   is
                 incorporated herein by this reference.
      21         Subsidiaries of Registrant as of December 31, 1998.
      23         Consent   of   Arthur   Andersen    LLP,   Independent   Public
                 Accountants.
      27.1       Financial Data Schedule for the year ended December 31, 1998.
      27.2       Restated  Financial  Data Schedule for the years ended December
                 31, 1997 and 1996, and for the three month,  six month and nine
                 month periods ended March 31, 1998, June 30, 1998 and September
                 30, 1998, respectively.
      27.3       Restated Financial Data Schedule for the three month, six month
                 and nine month periods ended March 31, 1997, June 30, 1997, and
                 September 30, 1997, respectively.

<PAGE>



                                   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.


                                                THE TITAN CORPORATION

                                                By: /s/ Gene W. Ray
                                                --------------------------------
                                                Gene W. Ray, President and Chief
                                                       Executive Officer



March 31, 1999

         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 and on the dates indicated.
<TABLE>
<CAPTION>

     Signature                               Title                                  Date
-----------------------      --------------------------------------            --------------
<S>                          <C>                                               <C>
/s/ Gene W. Ray              President, Chief Executive Officer and            March 31, 1999
-----------------------      Director
Gene W. Ray

/s/ Eric M. DeMarco          Executive Vice President and Chief                March 31, 1999
-----------------------      Financial Officer      
Eric M. DeMarco              (Principal Financial Officer)

/s/ Deanna Hom Petersen      Vice President, Corporate Controller              March 31, 1999
-----------------------      (Principal Accounting Officer)
Deanna Hom Petersen          

/s/ Charles R. Allen         Director                                          March 31, 1999
-----------------------
Charles R. Allen

/s/ Joseph F. Caligiuri      Director                                          March 31, 1999
-----------------------
Joseph F. Caligiuri

/s/ Daniel J. Fink           Director                                          March 31, 1999
-----------------------
Daniel J. Fink

/s/ Robert I. Hanisee        Director                                          March 31, 1999
-----------------------
Robert I. Hanisee

                             Director                                          
-----------------------
Robert E. La Blanc

/s/ Thomas G. Pownall       Director                                           March 31, 1999
-----------------------
Thomas G. Pownall

/s/ James Roth               Director                                          March 31, 1999
-----------------------
James Roth

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
                              THE TITAN CORPORATION
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

                For the years ended December 31, 1998, 1997, 1996
                            (in thousands of dollars)


                                              Balance at      Additions
                                             beginning of    (charges to                   Balance at
                                                 year          expense)      Deductions   end of year
                                             ------------    -----------     ----------   -----------
       <S>                                   <C>             <C>             <C>          <C>  
       1998:
          Allowance for doubtful accounts..      $718           $ --            $469(a)       $249
       1997:
          Allowance for doubtful accounts..       481            297              60            718
       1996:
          Allowance for doubtful accounts..       454            106              79            481

(a)      Includes $267 reclassed to unbilled accounts receivable.

</TABLE>


                                  EXHIBIT INDEX

      Exhibit
      Number       Description of Document
      -------      -----------------------
          3.1      Registrant's Certificate of Amendment of Restated Certificate
                   of  Incorporation  dated as of October  21,  1998,  which was
                   Exhibit No. 3.1 to Registrant's Quarterly Report on Form 10-Q
                   dated  November  16,  1998,  is  incorporated  herein by this
                   reference. Registrant's Restated Certificate of Incorporation
                   dated as of  November  6, 1986,  which was Exhibit No. 3.1 to
                   Registrant's  1987 Annual Report on Form 10-K is incorporated
                   herein  by  this  reference.   Registrant's   Certificate  of
                   Amendment of Restated  Certificate of Incorporation  dated as
                   of June 30, 1987, which was Exhibit 3.2 to Registrant's  1987
                   Annual  Report  on Form 10-K is  incorporated  herein by this
                   reference.
          3.2      Registrant's  By-laws, as amended,  which was Exhibit 6(a)(3)
                   to Registrant's  Quarterly Report on Form 10-Q dated November
                   13, 1995, is incorporated herein by this reference.
          4.1      Rights  Amendment,  dated as of August 21, 1995,  between The
                   Titan  Corporation  and  American  Stock  Transfer  and Trust
                   Company,  which was Exhibit 1 to Registrant's  Form 8-A dated
                   September 5, 1995, is incorporated herein by this reference.
          4.2      Form  of  Indenture  relating  to  the  Registrant's  8  1/4%
                   Convertible  Subordinated  Debentures  due  November 1, 2003,
                   which was  Exhibit  4.1 to  Amendment  No. 1 to  Registrant's
                   Registration   Statement  on  Form  S-3  (No.  333-10965)  is
                   incorporated herein by this reference.
          4.3      Letter  Agreement  dated February 4, 1998 between the Company
                   and DBA Systems,  Inc. ("DBA") regarding certain registration
                   rights  granted in  connection  with the  acquisition  of DBA
                   which was Exhibit 10.38 to Registration Statement on Form S-4
                   (no. 333-45719) is incorporated herein by this reference.
         10.1      Stock Option Plan of 1983, as amended though January 1, 1987,
                   which was Exhibit 10.2 to Registrant's  1987 Annual Report on
                   Form 10-K is incorporated herein by this reference.
         10.2      Stock  Option  Plan of 1986,  as amended  through  January 1,
                   1987,  which was  Exhibit  10.3 to  Registrant's  1987 Annual
                   Report on Form 10-K is incorporated herein by this reference.
         10.3      Stock  Option  Plan of  1990,  which  was  filed  in the 1990
                   definitive   proxy   statement   and  was  Exhibit  10.11  to
                   Registrant's  1989  Annual  Report  on 10-K  is  incorporated
                   herein by this reference.

<PAGE>

         10.4      Stock  Option  Plan of  1994,  which  was  filed  in the 1994
                   definitive   proxy   statement   and  was  Exhibit  10.17  to
                   Registrant's  1993 Annual Report on Form 10-K is incorporated
                   herein by this reference.
         10.5      1989 Directors' Stock Option Plan which was filed in the 1990
                   definitive  statement and was Exhibit  10.12 to  Registrant's
                   1989  Annual  Report on Form 10-K is  incorporated  herein by
                   this reference.
         10.6      1992 Directors' Stock Option Plan which was filed in the 1993
                   definitive   proxy   statement   and  was  Exhibit  10.14  to
                   Registrant's  1992 Annual Report on Form 10-K is incorporated
                   herein by this reference.
         10.7      1996 Directors'  Stock Option and Equity  Participation  Plan
                   which was filed in the 1996  definitive  proxy  statement and
                   was Exhibit 10.7 to  Registrant's  1995 Annual Report on Form
                   10-K is incorporated herein by this reference.
         10.8      Supplemental  Retirement  Plan for Key  Executives  which was
                   filed in the 1990 definitive  proxy statement and was Exhibit
                   10.13 to  Registrant's  1989  Annual  Report  on Form 10-K is
                   incorporated herein by this reference.
         10.9      1995 Employee  Stock  Purchase  Plan,  which was Exhibit 4 to
                   Registrant's   Form  S-8  dated   December   18,   1995,   is
                   incorporated herein by this reference.
         10.10     Lease  Agreement  dated as of July 9,  1991,  by and  between
                   Torrey  Pines  Limited  Partnership,   a  California  limited
                   partnership,  as landlord,  and Registrant,  as tenant, which
                   was Exhibit 10.1 to Registrant's Form 8-K dated July 11, 1991
                   is incorporated herein by this reference.
         10.11     Agreement and Plan of Reorganization of Eldyne, Inc. dated as
                   of April 19, 1996, by and among Eldyne,  Inc., Jack Witt, ELD
                   Acquisition  Sub, Inc. and Registrant,  which was Exhibit 2.1
                   to Registrant's  Form 8-K dated May 24, 1996, is incorporated
                   herein by this reference.
         10.12     Agreement and Plan of Reorganization  of Unidyne  Corporation
                   dated as of April 19, 1996, by and among Unidyne Corporation,
                   Jack Witt, UNI Acquisition  Sub, Inc. and  Registrant,  which
                   was Exhibit 2.2 to Registrant's  Form 8-K dated May 24, 1996,
                   is incorporated herein by this reference.
         10.13     Executive  Severance  Plan  entered  into by the Company with
                   Gene W. Ray,  Eric M.  DeMarco,  Ronald B.  Gorda,  Mellon C.
                   Baird, Herbert L. Bradley,  Clifton L. Cooke, and Ira Frazer,
                   which was Exhibit  6(a)(10) to Registrant's  Quarterly Report
                   on Form 10-Q dated November 13, 1995, is incorporated  herein
                   by this reference.
         10.14     Loan and Security Agreement,  dated December 29, 1995, by and
                   between  Registrant  and  Capital  Associates  International,
                   Inc.,  which was Exhibit  10.17 to  Registrant's  1995 Annual
                   Report on Form 10-K, is incorporated by this reference.
         10.15     Rider dated August 13, 1996,  to Loan and Security  Agreement
                   dated December 29, 1995 by and between Registrant and Capital
                   Associates  International,  Inc.  which was Exhibit  10.28 to
                   Registrant's 1996 Annual Report on Form 10-K, is incorporated
                   herein by this reference.
         10.16     Loan and Security  Agreement  dated  January 31, 1996, by and
                   between  Registrant and Sanwa General  Equipment  Leasing,  a
                   division  of Sanwa  Business  Credit  Corporation,  which was
                   Exhibit  10.18 to  Registrant's  1995  Annual  Report on Form
                   10-K, is incorporated herein by this reference.
         10.17     Credit  Agreement,  dated  as of July  29,  1998,  among  the
                   Company,  Various  financial  institutions  from time to time
                   parties thereto (the "Lenders"),  the Bank of Nova Scotia, as
                   administrative  agent for the Lenders,  and Imperial  Bank as
                   documentation  agent,  which was Exhibit 10 to the  Company's
                   Quarterly  Report on Form 10-Q  dated  August  14,  1998,  is
                   incorporated herein by this reference.

<PAGE>

         10.18     Agreement and Plan of Merger and Reorganization dated January
                   6, 1998 among The Titan  Corporation,  Titan Acquisition Sub,
                   Inc. and DBA Systems,  Inc. which was filed as Exhibit 2.1 to
                   the  Company's   Registration  Statement  on  Form  S-4  (No.
                   333-45719), is incorporated herein by this reference.
         10.19     Agreement  and  Plan  of  Merger  and  Reorganization   dated
                   February  26,  1998,  among  The Titan  Corporation,  Sunrise
                   Acquisition Sub, Inc., Horizons Technology, Inc. ("Horizons")
                   and  certain  stockholders  of  Horizons,  which was filed as
                   Appendix A to the  Company's  Registration  Statement on Form
                   S-4 (No. 333-47633) is incorporated herein by this reference.
         10.20     Agreement  and  Plan of  Reorganization  dated as of June 30,
                   1998 by and among The Titan Corporation, Delsys Merger Corp.,
                   and Delfin  Systems,  which was filed as  Exhibit  2.1 to the
                   Company's  Registration Statement on Form S-4 (No. 333-60127)
                   is incorporated herein by this reference.
          21       Subsidiaries of Registrant as of December 31, 1998.
          23       Consent  of  Arthur   Andersen    LLP,   Independent   Public
                   Accountants.
         27.1      Financial Data Schedule for the year ended December 31, 1998.
         27.2      Restated Financial Data Schedule for the years ended December
                   31,  1997 and 1996,  and for the three  month,  six month and
                   nine month  periods  ended March 31, 1998,  June 30, 1998 and
                   September 30, 1998, respectively.
         27.3      Restated  Financial  Data  Schedule for the three month,  six
                   month and nine month periods  ended March 31, 1997,  June 30,
                   1997, and September 30, 1997, respectively.