<PAGE>
 
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549

                                   Form 10-KSB

[X]  Annual Report Under Section 13 or 15(d) of The Securities Exchange Act of
     1934 [Fee Required] for the Fiscal Year ended December 31, 1996

[_]  Transition Report Under Section 13 or 15(d) of The Securities Exchange Act
     of 1934 [No Fee Required]

                         Commission File Number 0-13741

                         INDUSTRIAL TRAINING CORPORATION
                         -------------------------------
        (Exact name of small business issuer as specified in its charter)

          Maryland                                  52-1078263
          --------                                  ----------
(State or other jurisdiction            (I.R.S. Employer Identification Number)
of incorporation or organization) 

             13515 Dulles Technology Drive, Herndon, Virginia 20171
             ------------------------------------------------------
              (Address of principal executive offices and zip code)

Issuer's telephone number (including area code)                (703)713-3335

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

               None                                     None
               ----                                     ----
        (Title of each Class)                  (Name of each exchange on
                                                   which registered)

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

                     Common Stock, $0.10 par value per share
                     ---------------------------------------

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
                          -------                       -------  
Check if there is no disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any
amendment to this Form 10-KSB.
                                      [ ]

Issuer's revenues for the year ended December 31, 1996 were $22,143,570.
Aggregate market value of voting stock held by non-affiliates and outstanding at
February 14, 1997 was $13,356,054. Amount was computed using the average bid and
ask price as of February 14, 1997, which was $4.50. As of February 14, 1997,
3,897,034 shares of common stock were outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

Portions of the proxy statement for the annual shareholders meeting to be held
May 6, 1997 are incorporated by reference into Part III.
<PAGE>
 
                                TABLE OF CONTENTS
<TABLE> 
<CAPTION> 

Part I                                                                                    Page
------                                                                                    ----

<S>                                                                                       <C> 
Item 1            Description of Business                                                  1

Item 2            Description of Properties                                                2

Item 3            Legal Proceedings                                                        3

Item 4            Submission of Matters to a Vote of Security Holders                      3

                                                                                          
Part II                                                                                   
-------                                                                                   

Item 5            Market for Common Equity and Related Stockholder Matters                 4

Item 6            Management's Discussion and Analysis of Financial Condition             
                      and Results of Operations                                            4

Item 7            Financial Statements                                                     7

Item 8            Changes in and Disagreements with Accountants on                        
                      Accounting and Financial Disclosure                                 22

                                                                                          
Part III                                                                                  
--------                                                                                  

Item 9            Directors, Executive Officers, Promoters and Control Persons;           
                  Compliance with Section 16(a) of the Exchange Act                       23

Item 10           Executive Compensation                                                  25

Item 11           Security Ownership of Certain Beneficial Owners and Management          25

Item 12           Certain Relationships and Related Transactions                          26

Item 13           Exhibits and Reports on Form 8-K                                        26
</TABLE> 
<PAGE>
 
                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

(a)  General Development of Business
     -------------------------------

Industrial Training Corporation (the "Company" or "ITC") was incorporated under
the laws of the State of Maryland on January 28, 1977. ITC develops, markets and
sells training materials in many media; however, the overwhelming majority of
the Company's products are delivered in multimedia platforms. ITC's multimedia
training courseware combines full-motion video, audio, animation, graphics and
text into a single training presentation.

During 1996, the Company concentrated its efforts on product development and
increasing distribution capabilities. The majority of the Company's product
development efforts focused on improving ITC's core multimedia training
products, including converting its existing analog laserdisc training programs
into the digital CD-ROM format. The conversion provides ITC's customers with a
wide range of products in digital formats.

During 1996, Activ Training, Ltd. ("Activ"), a wholly-owned subsidiary of the
Company incorporated in November 1995 as a private limited company of England
and Wales, became fully operational. Activ Training was created in order to
expand the Company's sales, marketing and distribution activities within the
international marketplace. Activ Training is headquartered in London, England.

The Company has further expanded its international distribution capabilities
with the September 1996 acquisition of certain assets and assumption of certain
liabilities of Acumen People and Productivity Pty. Ltd. ("Acumen"), an
Australian distributor of ITC products since 1991. The Company formed a wholly-
owned subsidiary, ITC Australasia Pty. Ltd. ("ITCA"), to acquire Acumen, and to
implement the expansion of the Company's sales efforts into the Pacific Rim.

On December 31, 1996, the Company acquired Anderson Soft-Teach, Inc. ("AST"),
located in Los Gatos, California for $4,500,000 and 300,000 shares of ITC stock.
AST is a leading developer, producer and distributor of computer skills training
software. The acquisition of AST significantly expands the distribution
resources of ITC in the services market and the ability of the Company to
provide networkable products and just-in-time training solutions. AST will
continue to operate under its own name as a wholly-owned subsidiary of ITC.

In October 1996, the Company announced a distribution alliance with Vallen
Corporation, a leading provider of safety solutions. Furthermore, in January
1997, a joint marketing agreement with IBM was announced. These alliances
combine ITC's extensive products with the industry experience and distribution
networks of these two significant partners, and are considered important steps
in expanding the Company's distribution capabilities.

(b)  Narrative Description of Business
     ---------------------------------

ITC is a full-service training company specializing in the development,
production, marketing and sale of off-the-shelf training courseware for
corporate, educational and governmental organizations. ITC courseware uses the
power of full-motion video as a learning tool on a PC platform. These courses
combine high quality video and sound with the PC's capability for graphics and
automatic recordkeeping. Standard multimedia platforms for ITC products include
both AVI and MPEG CD-ROM digital video format. The majority of the Company's
multimedia products are sold under the Company's registered trademark Activ(R).
These products are focused in five primary areas, as represented by the five
Activ(R) Learning Libraries: the "Activ(R) PC Skills Learning Library," the
"Activ(R) Regulatory Training Learning Library," the "Activ(R) Basic Skills
Learning Library," the "Activ(R) Technical 

                                       1
<PAGE>
 
Skills Learning Library," and the "Activ(R) INVOLVE(R) Instrumentation Learning
Library." With the addition of AST, the Company has expanded its offerings of
networkable multimedia training solutions for computer skills training and added
on-line electronic performance support systems (EPSS).

Distribution of the Company's products is managed through a number of channels.
Primarily, the Company employs a direct salesforce which is responsible for
sales of the Company's multimedia training products throughout North America,
Australia and the United Kingdom, with the exception of those territories which
have been sold to certain resellers as exclusive territories for distribution of
the "Activ(R) PC Skills Learning Library." These resellers in turn employ sales
persons to market and sell ITC's "PC Skills" products throughout their protected
territories. In certain other U.S. markets, the Company also uses dealers to
distribute its courseware products. In foreign markets other than Canada,
Australia and the United Kingdom, the Company markets its products primarily
through dealers and distributors.

All of the Company's training programs are proprietary and, as a result, they
are all protected by copyright. The Company's libraries of marketable
off-the-shelf products include in excess of 200 training programs, all of which
were produced by the Company. Certain of the Company's "Basic Skills" and
"Technical Skills" products are owned by limited partnerships in which the
Company acts as a general partner and, in some cases, the Company participates
as a limited partner.

In addition to selling multimedia training courseware, the Company sells related
hardware products. The Company uses many IBM compatible hardware systems for the
delivery of its products. In addition to being an authorized IBM Industry
Remarketer and a Value Added Reseller, the Company utilizes the products of
Compaq, Hewlett Packard, Gateway 2000 and other computer hardware manufacturers.
Such hardware is integrated with ITC's courseware to provide a full-service
solution to the training needs of ITC's clients.

All materials used in the Company's products are available from numerous sources
of supply. The Company does not foresee any shortage of such materials. Further,
ITC does not believe that the loss of any single supplier would have a material
adverse effect on the Company taken as a whole.

There are many companies engaged in the business of providing training and
instructional materials using various media. These companies include providers
of traditional instructor-led training, multimedia developers and sellers,
textbook publishers, and others, all of which compete for available training
funds. At present, there are several providers of interactive multimedia
training products and management believes that the number of companies providing
multimedia training products will continue to increase in the future. Some of
these companies are larger and have greater resources than ITC, while others
offer only specialized training materials. Considering the diversity of the
Company's "Learning Libraries" and the related multiple platforms, management
believes that ITC offers the most broad array of multimedia training products
and services available.

At December 31, 1996, the Company and its subsidiaries employed a total of 120
people, all of whom are full-time. This represents an increase of 37 employees
since December 31, 1995, due primarily to the acquisition of AST. The Company
utilizes free-lance and temporary personnel who are familiar with ITC's
development and production process to support increased personnel requirements
that arise from time to time. The Company is not a party to any collective
bargaining agreements, and believes that relations with its employees are good.

ITEM 2.  DESCRIPTION OF PROPERTIES

The Company currently occupies 26,225 square feet of office, warehouse and
production space in a commercial building located at 13515 Dulles Technology
Drive, Herndon, Virginia. This lease will expire in June of 1999. As a result of
the AST acquisition, the Company occupies 15,515 square feet of office and
warehouse space in Los Gatos, California. This lease expires on July 31, 2000.
The 

                                       2
<PAGE>
 
Company also occupies 3,405 square feet of office space in a commercial building
located at 2000 RiverEdge Parkway, Atlanta, Georgia. This lease will expire in
January of 2001. The Company also leases 950 square feet of office space in a
commercial building located at 2 Milliston Road, Suite 1C, Millis,
Massachusetts. This lease expires in March of 1997. Additionally, the Company
has various leased space for its international operations in Australia, Canada,
and the United Kingdom. All facilities are in good condition and are adequate
for the Company's use.

ITEM 3.  LEGAL PROCEEDINGS

The Company is not a party to, nor is any of its property the subject of, any
material pending legal proceedings.

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

The Company has not submitted any matters to a vote of security holders since
the May 1996 Annual Meeting of Stockholders.

                                       3
<PAGE>
 
                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a)  Market Information
     ------------------

The Company's Common Stock is traded on the National Association of Security
Dealers Automated Quotation System (NASDAQ), National Market System (NMS).

The following table states the high and low quotation information by quarter for
the Company's Common Stock based on actual trading, as reported by NASDAQ/NMS.

<TABLE> 
<CAPTION> 

                                                            High                Low
                                                            ----                ---
                      <S>                                  <C>                 <C> 
                      1st    Quarter, 1995                 10 1/2              6 1/4
                      2nd    Quarter, 1995                 10 1/2                8
                      3rd    Quarter, 1995                 11 1/4              9 5/8
                      4th    Quarter, 1995                   11                8 3/4
                      1st    Quarter, 1996                  9 1/2              6 1/4
                      2nd    Quarter, 1996                    9                  6
                      3rd    Quarter, 1996                  8 1/4             5 5/16
                      4th    Quarter, 1996                 6 5/16                4
</TABLE> 

(b)  Holders
     -------

As of December 31, 1996, there were 1,039 holders of record of the Company's
Common Stock, the Company's only class of stock.

(c)  Dividends
     ---------

Shareholders of the Company's Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available. There has been no declaration of dividends since 1984.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS 

RESULTS OF OPERATIONS

Revenues
--------

During 1996, revenues for ITC totaled $22,144,000 as compared to $22,769,000 for
fiscal 1995, a decrease of $625,000 or 3%. Courseware revenues, which include
sales of off-the-shelf courseware, custom courseware and consulting services,
fees and royalties and linear training products, totaled $18,003,000, compared
to $18,496,000 for 1995. Sales of hardware systems remained consistent with the
previous year, totaling $4,141,000 in 1996 and $4,273,000 in 1995.

While the Company was successful in achieving substantial revenue growth in its
three new target markets of education, government, and international, sales in
ITC's traditional customer base in the process and manufacturing markets slowed
substantially. This is primarily attributable to the Company's inability to
rapidly convert the traditional customer base from laser videodisc products to
digital CD-ROM courseware. Sales for the three target markets noted above more
than doubled from 1995 to 1996, but the increase was completely offset by the
decline in sales to the traditional domestic customer.

                                       4
<PAGE>
 
Revenues from international operations totaled $2,972,000 for 1996 compared to
$1,542,000 in 1995, an increase of 93%. This significant growth is due to the
Company's expansion of direct sales efforts in the international marketplace,
through Activ Training, based in London, and ITCA, located in Australia. Activ
Training was established in the fourth quarter of 1995, and ITCA began
operations on September 1, 1996.

In the second quarter of 1996, the Company entered into a contract with the
DeKalb County (GA) Board of Education for the sale of a district-wide multicopy
courseware license. Approximately $3,200,000 in courseware revenues were
recognized during 1996, as part of a $5,060,000 contract including courseware,
hardware systems and services. As a result of the DeKalb contract, courseware
sales in the education market totaled $4,607,000, an increase of $2,507,000 or
119% over 1995.

Costs and Expenses
------------------

Gross margins on courseware sales declined from 53% to 39% as courseware cost of
sales increased to $10,999,000 from $8,773,000 in 1995. This increase of
$2,226,000 or 25% is principally attributable to an increase in the amortization
of capitalized program development costs and an increase in dealer fees
associated with sales in the education and government markets.

During 1996, sales of product in laser videodisc format declined dramatically as
a result of the conversion of all the Company's multimedia products to digital
formats. As a result, the Company recorded an additional $3,300,000 charge,
principally consisting of the unamortized cost of laser videodisc product, to
reduce capitalized program development costs to net realizable value.

Additionally, in connection with the acquisition of AST effective December 31,
1996, the Company recorded a charge of $2,500,000, representing the value
assigned to acquired in-process research and development.

Selling, general and administrative expenses totaled $9,316,000 in 1996 compared
to $7,531,000 in 1995, an increase of $1,785,000 or 24%. This increase is
principally attributable to expanded sales and marketing efforts in the target
markets mentioned above, particularly the increase in direct sales efforts
internationally resulting from the start up of Activ Training and the 
September 1, 1996 acquisition of ITCA.

Interest income, net of interest expense, was $467,000 in 1996 compared to
$42,000 in 1995, an increase of $425,000, resulting from interest on the cash
balances from the remaining proceeds of the Company's 1995 public offering.
Interest income is expected to decline dramatically as average cash balances are
expected to be substantially lower in 1997.

Taxes
-----

As a result of the Company's significant operating loss during 1996, a
substantial tax benefit has been recorded, a portion of which is expected to
result in a refund of previously paid taxes.

Net Loss
--------

Including the above mentioned write-offs of capitalized program development
costs of $3,300,000 and acquired research and development of $2,500,000, both on
a pre-tax basis, the net loss for 1996 totaled $5,659,000 or $1.59 per share
compared to net income of $1,507,000 or $.54 per share in 1995.

                                       5
<PAGE>
 
Cash Flow, Liquidity and Capital Resources
------------------------------------------

Working capital at December 31, 1996 was $6,056,000 as compared to $13,274,000
at December 31, 1995, a decrease of $7,218,000. The substantial reduction in
working capital resulted from program development costs incurred and capitalized
during 1996 of approximately $4,000,000, as well as the acquisition of AST,
which utilized cash of approximately $4,300,000, net of cash acquired. These
investments were funded by the Company's 1995 public offering.

Cash flow from operations totaled $983,000 for the year ended December 31, 1996
compared to $6,132,000 for the previous year. This decrease is primarily due to
reduced earnings and the effect of increases in current and long-term accounts
receivable, resulting principally from the second quarter sale to DeKalb County
(GA). These decreases in operating cash flow were offset by corresponding
increases in accrued liabilities and the impact of significant non-cash charges
of amortization and the write-offs mentioned above.

Management believes that cash generated from operations combined with the
Company's existing resources and available line of credit are adequate to meet
ITC's working capital requirements for 1997.

                                       6
<PAGE>
 
ITEM 7.  FINANCIAL STATEMENTS

<TABLE> 
<CAPTION> 

       Index                                                                                     Page
------------------------------------------------------------------------------------------------------
<S>                                                                                             <C> 

Report of Independent Auditors                                                                     8

Consolidated Statements of Operations for the Years Ended
December 31, 1996 and 1995                                                                         9

Consolidated Balance Sheets as of December 31, 1996 and 1995                                   10-11

Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1996 and 1995                                                                  12

Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996 and 1995                                                                        13

Notes to Consolidated Financial Statements                                                     14-22
</TABLE> 

                                       7
<PAGE>
 
                         REPORT OF INDEPENDENT AUDITORS
                         ------------------------------

The Board of Directors and Stockholders
Industrial Training Corporation

We have audited the accompanying consolidated balance sheets of Industrial
Training Corporation as of December 31, 1996 and 1995, and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Industrial Training Corporation at December 31, 1996 and 1995, and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.




Washington, D.C.                                Ernst & Young LLP
February 18, 1997

                                       8
<PAGE>
 
                        INDUSTRIAL TRAINING CORPORATION

                     CONSOLIDATED STATEMENTS OF OPERATIONS


                    Years ended December 31, 1996 and 1995
<TABLE> 
<CAPTION> 
                                                                         1996                      1995
                                                                         ----                      ----
<S>                                                                 <C>                       <C> 
Revenues, net:
     Courseware                                                      $ 18,002,803              $ 18,495,997
     Hardware                                                           4,140,767                 4,272,667
                                                                     ------------              ------------ 
         Total revenues, net (note 3)                                  22,143,570                22,768,664

Costs and expenses:
     Courseware cost of sales                                          10,999,376                 8,772,664  
     Hardware cost of sales                                             4,031,627                 4,098,232  
     Reduction in capitalized program development costs                 3,300,000                       --   
     Acquired research and development                                  2,500,000                       --   
     Selling, general and administrative expenses                       9,316,163                 7,530,771  
     Equity in earnings of affiliates                                    (216,832)                 (145,768)  
                                                                     ------------              ------------ 
         Total costs and expenses                                      29,930,334                20,255,899
                                                                     ------------              ------------ 

Income (loss) before interest and provision for
     income taxes                                                      (7,786,764)                2,512,765

Interest income, net                                                      467,454                    42,343
                                                                     ------------              ------------ 

Income (loss) before provision for income taxes                        (7,319,310)                2,555,108

Income tax expense (benefit) (note 8)                                  (1,660,000)                1,048,000
                                                                     ------------              ------------ 

Net income (loss)                                                    $ (5,659,310)             $  1,507,108
                                                                     ============              ============ 

Net income (loss) per common share (note 1)                          $      (1.59)             $        .54
                                                                     ============              ============ 

Weighted average number of shares outstanding                           3,566,000                 2,794,000
                                                                     ============              ============ 
</TABLE> 

                             See accompanying notes.

                                       9
<PAGE>
 
                         INDUSTRIAL TRAINING CORPORATION

                           CONSOLIDATED BALANCE SHEETS


                           December 31, 1996 and 1995


                                     ASSETS

<TABLE> 
<CAPTION> 
                                                                         1996                         1995
                                                                         ----                         ----
<S>                                                                 <C>                           <C> 
Current assets:
     Cash and cash equivalents                                      $  2,697,566                  $ 10,348,762
     Accounts receivable, net (notes 2, 5 and 6)                       7,641,066                     4,802,054
     Due from affiliates (note 3)                                         36,768                        18,842
     Inventories, net of reserve of $142,267 and
         $93,400 at December 31, 1996 and 1995,
         respectively (notes 5 and 6)                                  1,018,383                       871,072  
     Prepaid expenses                                                    190,402                       253,061  
     Income taxes receivable (note 8)                                    689,104                         --    
                                                                    ------------                  ------------ 
         Total current assets                                         12,273,289                    16,293,791

Long-term receivable (notes 2, 5 and 6)                                1,589,916                         --

Property and equipment (note 6):
     Video and computer equipment                                      3,361,923                     3,221,982
     Furniture and fixtures                                              747,146                     1,037,404
     Leasehold improvements                                               95,422                        93,106 
                                                                    ------------                  ------------ 
                                                                       4,204,491                     4,352,492
     Less accumulated depreciation and amortization                   (2,963,197)                   (3,036,918)
                                                                    ------------                  ------------  
         Net property and equipment                                    1,241,294                     1,315,574

Capitalized program development costs, net
     of accumulated amortization of $977,775 and
     $5,203,491 at December 31, 1996 and 1995,
     respectively                                                      4,226,525                     5,941,079
Intangible assets, net of accumulated amortization of
     $511,111 and $346,111 at December 31, 1996
     and 1995, respectively (note 9)                                   3,975,840                     1,961,299
Investments in affiliates (note 3)                                         --                          231,315
Other                                                                     67,461                        31,089
                                                                    ------------                  ------------  
         Total assets                                               $ 23,374,325                  $ 25,774,147
                                                                    ============                  ============
</TABLE> 

                             See accompanying notes.

                                       10
<PAGE>
 
                         INDUSTRIAL TRAINING CORPORATION

                           CONSOLIDATED BALANCE SHEETS


                           December 31, 1996 and 1995


                      LIABILITIES AND STOCKHOLDERS' EQUITY

<TABLE> 
<CAPTION> 
                                                                          1996                        1995
                                                                          ----                        ----
<S>                                                                <C>                          <C> 
Current liabilities:
     Line of credit (note 5)                                       $       515,000              $          --
     Current installments of long-term debt (note 6)                       130,745                     117,175
     Accounts payable                                                    1,331,079                   1,621,543
     Due to affiliates (note 3)                                            335,797                     261,230
     Accrued compensation and benefits                                     826,764                     594,796
     Deferred revenues                                                   1,458,945                     100,769
     Other accrued expenses                                              1,619,326                     219,029
     Income taxes payable                                                      --                      105,000
                                                                   ---------------              --------------
         Total current liabilities                                       6,217,656                   3,019,542


Deferred lease obligations                                                 113,020                     102,964
Deferred income taxes (note 8)                                             353,522                   1,608,522
Long-term debt  (note 6)                                                       --                      130,745
                                                                   ---------------              --------------
         Total liabilities                                               6,684,198                   4,861,773


Commitments (note 10)

Stockholders' equity (notes 6, 7, 9 and 11):
     Common stock, $.10 par value, 12,000,000 shares
         authorized; 3,896,924 and 3,556,424 shares
         issued and outstanding in 1996 and
         1995, respectively                                                389,693                     355,643
     Additional paid-in capital                                         16,067,366                  14,770,853
     Note receivable from ESOP                                            (143,677)                   (250,177)
     Retained earnings                                                     376,745                   6,036,055
                                                                   ---------------              --------------
         Total stockholders' equity                                     16,690,127                  20,912,374
                                                                   ---------------              --------------
         Total liabilities and stockholders' equity                $    23,374,325              $   25,774,147
                                                                   ===============              ==============
</TABLE> 

                             See accompanying notes.

                                       11
<PAGE>
 
                         INDUSTRIAL TRAINING CORPORATION

                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY


                     Years ended December 31, 1996 and 1995
<TABLE> 
<CAPTION> 

                                                       Common Stock               Additional       
                                                       ------------                 Paid-In        
                                                  Shares          Par Value         Capital        
                                                  ------          ---------         -------
<S>                                              <C>           <C>              <C> 
Balance at January 1, 1995                       2,448,824     $   244,883      $   5,638,493      
                                                                                                   
Note payments                                        -               -                  -              
                                                                                                   
New shares issued:                                                                                 
    Stock issuance                               1,032,500         103,250          8,945,353      
    Stock options exercised                         74,500           7,450            182,192      
    Common stock issued to employees                   600              60              4,815      
                                                                                                   
Net income                                           -               -                  -              
                                               -----------     -----------      -------------      
Balance at December 31, 1995                     3,556,424         355,643         14,770,853      
                                                                                                   
                                                                                                   
Note payments                                        -               -                  -              
                                                                                                   
New shares issued:                                                                                 
     Stock issuance                                300,000          30,000          1,170,000      
     Stock options exercised                        40,000           4,000            123,113      
     Common stock issued to employees                  500              50              3,400      
                                                                                                   
Net loss                                             -               -                  -              
                                               -----------     -----------      -------------      
Balance at December 31, 1996                     3,896,924     $   389,693      $  16,067,366      
                                               ===========     ===========      =============      
<CAPTION> 


                                                                                              Total
                                                  Note Receivable       Retained          Stockholders'
                                                     From ESOP          Earnings             Equity
                                                     ---------          --------             ------
<S>                                              <C>                <C>                 <C> 
Balance at January 1, 1995                       $   (358,177)      $   4,528,947       $   10,054,146
                                             
Note payments                                         108,000               -                  108,000
                                             
New shares issued:                           
    Stock issuance                                      -                   -                9,048,603
    Stock options exercised                             -                   -                  189,642
    Common stock issued to employees                    -                   -                    4,875
                                             
Net income                                              -               1,507,108            1,507,108
                                                 ------------       -------------       --------------      
Balance at December 31, 1995                         (250,177)          6,036,055           20,912,374
                                             
                                             
Note payments                                         106,500               -                  106,500
                                             
New shares issued:                           
    Stock issuance                                      -                   -                1,200,000
    Stock options exercised                             -                   -                  127,113
    Common stock issued to employees                    -                   -                    3,450
                                             
Net loss                                                -              (5,659,310)          (5,659,310)
                                                 ------------       -------------       --------------      
Balance at December 31, 1996                     $   (143,677)      $     376,745       $   16,690,127
                                                 ============       =============       ==============
</TABLE> 

                             See accompanying notes.

                                       12
<PAGE>
 
                        INDUSTRIAL TRAINING CORPORATION

                     CONSOLIDATED STATEMENTS OF CASH FLOWS


                    Years ended December 31, 1996 and 1995
<TABLE> 
<CAPTION> 

                                                                           1996                    1995
                                                                           ----                    ----
<S>                                                                     <C>                     <C> 
Cash flows from operating activities:
Net income (loss)                                                       $ (5,659,310)           $  1,507,108
Reconciling items:                                                                              
     Reduction in capitalized program development costs                    3,300,000                     --
     Acquired research and development                                     2,500,000                     --
     Provision (benefit) for deferred taxes                               (1,255,000)                556,000
     Depreciation and amortization                                         4,091,483               2,987,304
     Salespeople awards of common shares                                       3,450                   4,875
     Loss on sale of property and equipment                                      --                   29,772
     Changes in operating assets and liabilities:                                               
         Decrease (increase) in accounts receivable                       (4,428,928)              2,491,423
         Decrease (increase) in inventories                                 (147,311)                332,804
         Decrease (increase) in prepaid expenses                              62,659                (134,615)
         Increase (decrease) in due to affiliates, net                        56,641                 (91,396)
         Decrease (increase) in other assets                                 (36,372)                 42,680
         Decrease in accounts payable                                       (290,464)               (490,728)
         Increase (decrease) in accrued expenses                           2,990,441              (1,086,840)
         Increase (decrease) in deferred lease obligation                     10,056                 (16,352)
         Increase in income taxes receivable                                (794,104)                    --
         Net effect of acquired operating assets and liabilities             579,454                     --
                                                                        ------------            -----------
Net cash provided by operating activities                                    982,695               6,132,035
                                                                                                
Cash flows from investing activities:                                                           
     Capitalized program development costs                                (3,997,925)             (3,779,566)
     Capital expenditures                                                   (326,007)               (755,707)
     Investment in affiliates                                                     --                 (100,625)
     Acquisitions, net of cash acquired                                   (4,426,397)                     --
                                                                        ------------            ------------
Net cash used in investing activities                                     (8,750,329)             (4,635,898)
                                                                                                
Cash flows from financing activities:                                                           
     Repayments under line of credit                                             --                  (80,000)
     Proceeds from long-term debt                                                --                1,320,000
     Principal payments under term loans                                    (117,175)             (2,135,257)
     Payments under capital lease                                                               
         obligations, net of deferred interest                                   --                  (38,286)
     Issuance of common stock                                                127,113               9,238,245
     Employee stock ownership plan note collections                          106,500                 108,000
                                                                        ------------            ------------
         Net cash provided by financing activities                           116,438               8,412,702
                                                                        ------------            ------------
                                                                                                
Net increase (decrease) in cash                                           (7,651,196)              9,908,839
                                                                                                
Cash and cash equivalents at beginning of year                            10,348,762                 439,923
                                                                        ------------            ------------
Cash and cash equivalents at end of year                                $  2,697,566            $ 10,348,762
                                                                        ============            ============
</TABLE> 
                             See accompanying notes.

                                       13
<PAGE>
 
                         INDUSTRIAL TRAINING CORPORATION

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                           December 31, 1996 and 1995

1)   Summary of Significant Accounting Policies
     ------------------------------------------

a)   Basis of Presentation
     ---------------------

The consolidated financial statements of Industrial Training Corporation (the
"Company") include the accounts of its wholly owned subsidiaries, Anderson
Soft-Teach, Inc. ("AST"), ITC Australasia Pty. Ltd. ("ITCA"), Activ Training,
Ltd., and ComSkill Learning Centers, Inc. Significant intercompany accounts and
transactions have been eliminated in consolidation. The Company is a
full-service training company specializing in the development, production,
marketing and sale of both off-the-shelf and custom multimedia training
courseware for corporate, educational and governmental organizations. ITC's
multimedia training courseware combines full-motion video, audio, animation,
graphics and text into a single training presentation.

b)   Revenues and Costs
     ------------------

Revenues from courseware include both off-the-shelf and custom courseware sales,
courseware licenses and consulting service revenues. The Company recognizes
revenues on off-the-shelf product and hardware sales as units are shipped. The
Company permits the customer the right to return the courseware within 30 days
of purchase. In the event that sales returns are material, the Company adjusts
revenue accordingly. Revenues from sales of custom training programs that are
developed and produced under specific contracts with customers, including
contracts with affiliated joint ventures and limited partnerships, are
recognized on the percentage of completion basis as related costs are incurred
during the production period. Gross revenues from sales of affiliated joint
venture and limited partnership copyrighted courseware are included in the
Company's financial statements, as are related production, selling and
distribution costs. Amounts due to co-owners of the affiliated joint venture and
partnerships related to such courseware sales are reflected as royalties and
included in cost of sales in the financial statements. Revenues from courseware
licenses are recognized upon delivery of the initial copy of each product
licensed, less any duplication costs which are accrued based on estimates.
Revenues from consulting services are recognized as services are performed.

The Company recognizes revenues from initial franchise fees when franchise
agreements have been fully executed, the Company has substantially fulfilled all
of its obligations to the franchisee under the agreement, and the non-refundable
franchise fee has been paid. During 1995, the Company recognized revenue from
initial franchise fees of $210,000. Such amounts have been included in
courseware revenues in the accompanying consolidated statements of operations.
During 1996, the Company recognized no revenue from initial franchise fees.

Although the Company conducts certain of its business in foreign markets, the
Company's exposure to foreign currency risk is not considered material.

c)   Capitalized Program Development Costs
     -------------------------------------

Certain costs of developing and producing off-the-shelf courseware have been
capitalized. Capitalized costs include direct labor, materials, product masters,
subcontractors, consultants, and applicable overhead. These capitalized costs
are amortized on a straight-line basis over the estimated useful lives of the
related programs which range from three to six years. The related amortization
expense is included in the cost of sales and amounts to approximately $3,202,000
and $2,197,000 in 1996 and 

                                       14
<PAGE>
 
1995, respectively. Periodically, the Company assesses the net realizable value
of program development costs by reviewing past sales performances, current and
planned future marketing activities, specific sales promotions and strategic
distribution arrangements. Based on this assessment, the Company determines each
product's prospects for future sales, and, if necessary, adjusts asset values to
net realizable value.

During 1996, sales of product in laser videodisc format declined dramatically as
a result of the conversion of all the Company's multimedia products to digital
format, and the Company has determined that potential future sales in the laser
videodisc format are limited. As a result, the Company recorded an additional
$3,300,000 pre-tax charge, principally consisting of the unamortized cost of
laser videodisc product, to reduce all capitalized program development costs in
excess of net realizable value.

d)   Cash and Cash Equivalents
     -------------------------

Cash and cash equivalents include cash and other highly liquid investments
having original maturities of less than three months.

e)   Inventories
     -----------

Inventories primarily consist of multimedia courseware and related computer
hardware, and are stated at the lower of cost or market. Cost is determined
using the average cost method.

f)   Property and Equipment
     ----------------------

Property, equipment and leasehold improvements are stated at cost. Depreciation
on property and equipment is computed on a straight-line basis over estimated
useful lives of three to seven years. Leasehold improvements are amortized on a
straight-line basis over the shorter of the lease term or estimated useful lives
of the related assets. Depreciation and leasehold amortization expense amounted
to approximately $736,000 and $535,000 in 1996 and 1995, respectively.

g)   Investments in Affiliates
     -------------------------

Investments in affiliated joint ventures and limited partnerships are accounted
for using the equity method and, accordingly, the initial cost of the
investments are adjusted for the Company's proportionate share of joint venture
and partnership undistributed earnings or losses.

h)   Income Taxes
     ------------

The Company provides for income taxes using the liability method in accordance
with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Deferred income taxes result primarily from differences between
financial statement and income tax treatment of program development costs,
revenue recognition and net operating loss carryforwards.

i)   Net Income (Loss) Per Common Share
     ----------------------------------

Earnings per common share are based on the weighted average number of common
shares actually outstanding plus the shares that would be outstanding assuming
the exercise of dilutive stock options and warrants, all of which are considered
to be common stock equivalents.

j)   Intangible Assets
     -----------------

Intangible assets include allocations of the purchase price of acquisitions to
work-force investments, customer base and goodwill. These assets are being
amortized using the straight-line method over 

                                       15
<PAGE>
 
estimated useful lives of five to fifteen years. Amortization expense for 1996
and 1995 amounted to approximately $165,000 and $140,000, respectively. During
1995, the Company adjusted goodwill to reflect the utilization of the acquired
tax benefits (see Note 8). The net effect of this adjustment was to decrease the
amount of goodwill originally recorded by approximately $84,000. As part of its
ongoing review, management takes into consideration any events and circumstances
which might indicate an impairment to the carrying amount of intangible assets.
Factors that management uses to evaluate continuing value include sales from
acquired product lines, employee turnover, and development of related customer
and distribution networks that were in place at the date of the acquisition.

k)   Research and Development
     ------------------------

Research and development costs consist of software-related expenditures incurred
during the course of planned search and investigation aimed at developing new
products or processes. The Company expenses all research and development costs
as they are incurred.

l)   Stock Option Plans
     ------------------

In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which has been adopted in the current
financial statements. The Company's method of adoption of SFAS No. 123 requires
additional footnote disclosures regarding the Company's stock-based
compensation, but does not impact the financial position or the results of
operations of the Company.

m)   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 at the date of the
financial statements and the associated amounts of revenues and expenses during
the reporting period. Actual results could differ from the estimates.

n)   Reclassifications
     -----------------

Certain prior year amounts have been reclassified to conform to the current year
presentation.

2)   Accounts Receivable
     -------------------

Accounts receivable include the following at December 31:

<TABLE> 
<CAPTION> 
                                                               1996                         1995
                                                               ----                         ----
<S>                                                       <C>                         <C> 
Trade accounts receivable                                 $   6,738,762               $   4,619,145
Current portion of long-term receivable, net                  1,012,287                         --
Unbilled contract receivables                                   182,025                     291,311
Less allowance for doubtful accounts                           (296,148)                   (190,047)
                                                          -------------               -------------
    Trade accounts receivable, net                            7,636,926                   4,720,409
Other receivables                                                 4,140                      81,645
                                                          -------------               -------------
                                                          $   7,641,066               $   4,802,054
                                                          =============               =============
</TABLE> 

During the second quarter of 1996, the Company entered into a contract with the
DeKalb County (GA) Board of Education ("DeKalb") for the sale of a district-wide
multicopy courseware license, hardware and certain future services. The total
contract amount of $5,060,000 is payable in four installments, $1,535,000 upon
contract execution, and the remaining $3,525,000 in three equal annual
installments beginning in June 1997. Total revenues recognized under the
contract during the second quarter for the courseware license and hardware were
$3,218,000 and $620,000, respectively. Dealer fees 

                                       16
<PAGE>
 
relating to this sale have been charged against the related revenues, and are
payable only when proceeds are received by the Company. The long-term portion of
the net receivable has been discounted assuming a 6% interest rate.

Components of long-term receivable include the following:

<TABLE> 
<CAPTION> 
                                                                                       December 31,
                                                                                           1996
                                                                                           ----
     <S>                                                                              <C> 
     Receivable from DeKalb County (GA) Board of Education                            $   3,525,000
     Related dealer fees payable                                                           (737,083)
     Less amounts classified as current, net of related dealer fees                      (1,012,287)
     Less amount representing interest                                                     (185,714)
                                                                                      ------------- 
                                                                                      $   1,589,916
                                                                                      =============
</TABLE> 

3)   Investments in and Due to Affiliates
     ------------------------------------

The Company is a participant in five separate limited partnerships with
Industrial Training Partners, Ltd. (the ITP partnerships) and a joint venture
with DynCorp. In all of the ITP partnerships, the Company is a 5% general
partner and in certain partnerships the Company has acquired limited partnership
interest as well. In the joint venture with DynCorp, the Company has a 50%
ownership interest. The ITP partnerships and the DynCorp joint venture were
formed to develop and produce various series of training programs. Under the
contracts to market the programs for the partnerships and joint venture, ITC
receives 50%-70% of the sales price for the costs of reproducing and marketing
the training materials. In the case of the joint venture agreement, the Company
also receives an additional 25% for its share of the joint venture profits.
Sales of programs related to these affiliates were approximately $2,493,000 and
$2,103,000 in 1996 and 1995, respectively. Additionally, in connection with the
development of new off-the-shelf partnership programs, the Company billed
certain of the ITP partnerships approximately $532,000 and $52,000 in 1996 and
1995, respectively. Amounts earned but not billed to the ITC partnerships
totaling $21,000 are included in unbilled receivables at December 31, 1996. In
connection with the financing of product development activities for these
partnerships, the Company has guaranteed two bank loans for two of the
partnerships. At December 31, 1996, the outstanding balance of these loans
totaled $467,000.

4)   Leases
     ------

The Company has several noncancelable operating leases, primarily for office
space and transportation equipment, that expire over the next four years,
certain of which include purchase or renewal options at fair value at the time
of renewal.

Future minimum lease payments under noncancelable operating leases as of
December 31, 1996 are as follows:

<TABLE> 
         <S>                                                 <C> 
         Year ending December 31:                         
         -----------------------                          
                   1997                                      $     769,000
                   1998                                            744,000
                   1999                                            549,000
                   2000                                            252,000
                                                             -------------
        Total future minimum lease payments                  $   2,314,000
                                                             =============
</TABLE> 

Rental expenses for operating leases for the years ended December 31, 1996 and
1995 were approximately $533,000 and $532,000, respectively.

                                       17
<PAGE>
 
5)   Line of Credit
     --------------

At December 31, 1996, the Company had no amounts outstanding relating to its
$3,000,000 revolving bank line of credit, which bears interest at prime (8 1/4%
at December 31, 1996). Borrowings under the line are collateralized by the
Company's accounts receivable and inventory.

The loan agreement includes certain covenants which limit borrowings and the
ability to merge or dispose of assets, and requires the maintenance of minimum
working capital and tangible net worth ratios.

In connection with the acquisition of AST, the Company assumed a line of credit
with an outstanding balance of $515,000 at December 31, 1996. In January 1997,
this amount was repaid and the related line of credit was terminated.

6)   Long-term Debt
     --------------

<TABLE> 
<CAPTION> 
Long-term debt consists of the following at December 31:                           1996               1995
                                                                                   ----               ----
     <S>                                                                   <C>                 <C> 
     8.0% note payable to financial institution due in monthly             $       130,745     $     247,920 
     principal and interest installments of $11,278 through December
     1997, collateralized by the assignment of interest in the 
     shares of the Company's common stock held by the ESOP, accounts 
     receivable, inventory and property and equipment.

     Less current installments                                                    (130,745)         (117,175)
                                                                           ---------------     -------------
     Long-term debt, excluding current installments                        $           --      $     130,745
                                                                           ===============     =============
</TABLE> 

Interest paid on all debt amounted to approximately $34,000 and $154,000 in 1996
and 1995, respectively.

7)   Stock Options and Stock Warrants
     --------------------------------

At December 31, 1996, the Company had outstanding options to purchase common
stock under three separate incentive stock option plans. Two of these plans, the
1992 Director Incentive Stock Option Plan and the 1992 Key Employee Incentive
Stock Option Plan have effectively replaced the Company's 1982 Incentive Stock
Option Plan. Options granted under the 1992 Director Incentive Stock Option Plan
may be qualified or non-qualified. From time to time, the Company also has
granted other non-qualified options to certain individuals. The Company also has
outstanding 14,572 warrants to purchase common stock. These warrants are
exercisable at $3.50 and expire in 1998.

                                       18
<PAGE>
 
The following table summarizes option activity:

<TABLE> 
<CAPTION> 
                                                  Non-qualified Options               Qualified Options
                                                  ---------------------               -----------------
                                                 No. of          Exercise          No. of         Exercise
                                                 Options           Price           Options          Price
                                                 -------           -----           -------          -----
<S>                                              <C>            <C>                <C>           <C> 
Outstanding at January 1, 1995                   51,000         $2.125-7.50        174,500       $1.994-6.75
Granted                                          75,000                             20,000
Canceled or expired                                 --                              (2,000)
Exercised                                        (9,000)                           (65,500)
                                            -----------                         ----------
Outstanding at December 31, 1995                117,000         $2.875-7.50        127,000      $2.875-10.05
Granted                                             --                              95,000
Canceled or expired                                 --                             (41,000)
Exercised                                        (6,000)                           (34,000)
                                            -----------                         ---------- 
Outstanding at December 31, 1996                111,000         $5.00-7.50         147,000       $4.75-6.50
                                            ===========                         ==========                 
Exercisable at December 31, 1996                 91,000         $5.00-7.50          52,000       $5.00-6.50
                                            ===========                         ==========                 
</TABLE> 

Qualified options outstanding under the Company's stock option plans expire as
follows: 3,000 in 1997, and 144,000 in 1998 through 2002. There are 146,000
options available for additional grants. Outstanding non-qualified options
expire as follows: 111,000 between 1999 and 2001. There are 29,000 options
available for additional grants.

The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for its
plans. Accordingly, no compensation expense has been recognized for its stock
option plans because stock options are granted with an exercise price equal to
the fair value of the stock on the grant date. Had compensation cost for the
Company's stock option plans been determined based upon the fair value of the
options at the grant date for awards under these plans consistent with the
methodology prescribed under SFAS No. 123, the Company's 1996 net income and
earnings per share would not have been materially affected. The fair value of
the options granted was determined using the Black-Scholes option pricing model
with the following assumptions: dividend yield of 0%, volatility of 69%,
risk-free interest rate of 6.25% and an expected life of five years.

8)  Income Taxes
    ------------

The components of income tax expense (benefit) are as follows:

<TABLE> 
<CAPTION> 
                                                   1996               1995
                                                   ----               ----
     <S>                                    <C>                   <C> 
     Current:                           
         Federal                            $     (320,000)       $    438,500
         State                                     (85,000)             53,500
                                            --------------        ------------
                                                  (405,000)            492,000
                                        
     Deferred:                          
         Federal                                (1,148,000)            477,500
         State                                    (107,000)             78,500
                                            --------------        ------------
                                                (1,255,000)            556,000
                                            --------------        ------------
                                            $   (1,660,000)       $  1,048,000
                                            ==============        ============
</TABLE> 

                                       19
<PAGE>
 
The difference between income tax expense (benefit) and the amount determined by
applying the federal statutory rate is as follows:

<TABLE> 
<CAPTION> 
                                                                                 1996                 1995
                                                                                 ----                 ----
     <S>                                                                  <C>                   <C> 
     Federal statutory rate                                               $   (2,488,000)       $    869,000
     State income taxes, net of federal benefit                                 (192,000)             87,000
     Amortization of intangibles                                                  60,000              52,000
     Acquired research and development                                           925,000                 -
     Other                                                                        35,000              40,000
                                                                          --------------        ------------
                                                                          $   (1,660,000)       $  1,048,000
                                                                          ==============        ============
</TABLE> 

The following temporary differences give rise to the provision for deferred 
taxes (benefit) at December 31:

<TABLE> 
<CAPTION> 
                                                                                 1996                 1995
                                                                                 ----                 ----
     <S>                                                                  <C>                   <C> 
     Capitalized program development costs                                $     (419,000)       $    286,000
     Deferred revenues                                                          (583,000)                -
     Depreciation                                                                (80,000)            (19,000)
     Allowance for doubtful accounts                                             (30,000)             34,000
     Inventory reserves                                                           14,000                 -
     Net operating loss and tax credit carryforwards                            (107,000)            222,000
     Accrued compensation                                                        (50,000)              4,000
     Other                                                                           -                29,000
                                                                          --------------        ------------
                                                                          $   (1,255,000)       $    556,000
                                                                          ==============        ============
</TABLE> 

The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31 are
presented below.

<TABLE> 
<CAPTION> 
                                                                                 1996                 1995
                                                                                 ----                 ----
<S>                                                                       <C>                 <C> 
Deferred tax assets:
     Deferred revenues                                                    $      583,000      $          -
     Allowance for doubtful accounts                                             101,000              71,000
     Inventory reserves                                                           27,000              41,000
     Accrued compensation                                                         78,000              28,000
     Net operating loss carryforwards                                            580,000             473,000
     Deferred lease obligation                                                    26,000              39,000
     Difference in depreciation                                                   97,000              17,000
     Other                                                                           478              16,478
                                                                          --------------      --------------
         Total deferred tax assets                                             1,492,478             685,478
     Less valuation allowance                                                   (421,000)           (421,000)
                                                                          --------------      --------------
         Net deferred tax assets                                               1,071,478             264,478
                                                                          --------------      --------------
Deferred tax liabilities:
     Capitalized product development costs                                    (1,425,000)         (1,873,000)
                                                                          --------------      --------------
         Total gross deferred tax liabilities                                 (1,425,000)         (1,873,000)
                                                                          --------------      --------------
     Net deferred tax liabilities                                         $     (353,522)     $   (1,608,522)
                                                                          ==============      ==============
</TABLE> 

For the year ended December 31, 1995, the Company utilized $370,000 of available
net operating loss carryforwards. At December 31, 1996, the Company had $300,000
in net operating loss carryforwards available for income tax purposes, other
than the prior net operating losses acquired, which are discussed below.

As a result of an acquisition, the Company has available approximately
$1,260,000 of additional net operating loss carryforwards that expire at varying
dates through 2007. Pursuant to Section 382 of the Internal Revenue Code (the
"Code"), the utilization of the net operating loss is limited to approximately

                                       20
<PAGE>
 
$245,000 per year. During 1995, the Company utilized an aggregate of $225,000 of
the acquired net operating loss carryforwards to offset taxable income. As a
result, deferred taxes have been reduced by approximately $84,000. Due to the
limitation on uses and other uncertainties relating to the utilization of the
remaining tax benefit of these deductions, a valuation allowance has been
recorded to substantially offset the net deferred tax asset related to the
acquisition.

The Company paid federal and state income taxes of $103,000 and $466,000 in 1996
and 1995 respectively.

9)     Acquisitions
       ------------

Effective December 31, 1996, the Company purchased the common stock of Anderson
Soft-Teach, Inc. (AST), a California corporation, for $4,500,000 in cash and
300,000 shares of the Company's common stock valued at $4.00 per share. AST is a
developer, producer and distributor of networkable multimedia training solutions
for computer skills training and on-line electronic performance support systems.
As a result of the acquisition, the Company recorded intangible assets of
approximately $2,180,000, consisting of workforce investment, customer base, and
goodwill. Additionally, the Company recorded a charge of $2,500,000 of the
$5,800,000 purchase price, representing the value of acquired in-process
research and development. On September 1, 1996, ITC Australasia Pty. Ltd.
(ITCA), a newly-formed and wholly-owned subsidiary of the Company, purchased
substantially all of the assets of Acumen People and Productivity Pty. Ltd.
(Acumen) for approximately $80,000. Acumen had been a distributor of ITC
products in Australia and Asia since 1991. ITCA was created in order to continue
the expansion of the Company's presence in the international marketplace,
particularly throughout Australia and the Pacific Rim.

The following table sets forth proforma unaudited results of operations of the
Company for the years ended December 31, 1996 and 1995, as if AST had been
acquired as of January 1,1995.

<TABLE> 
<CAPTION> 
                                                                           1996                    1995
                                                                           ----                    ----
<S>                                                                     <C>                   <C> 
Net revenues                                                            $   26,860,000        $   28,380,000
                                                                        ==============        ==============

Net income (loss)                                                       $   (6,306,000)       $    1,222,000
                                                                        ==============        ==============

Net income (loss) per common share                                      $        (1.63)       $         0.34
                                                                        ==============        ==============

</TABLE> 

10)    Commitments
       ----------- 

The Company has entered into separate employment agreements with each of its
corporate officers which are subject to termination upon death or disability or
upon notice by the Company providing up to 34 months of severance pay. In
addition to basic salary, each of these officers is eligible to receive salary
increases, bonuses, stock option grants, pension and profit-sharing
arrangements, and other employee benefits which may from time to time be awarded
or made available.

11)    Stockholders' Equity
       --------------------

During 1995, the Company completed a public offering of 1,207,500 shares of its
common stock including 175,000 shares being sold by certain Company
shareholders. The net proceeds to the Company from the offering amounted to
$9,048,000 (net of underwriters' commissions and approximately $314,000 of
expenses paid directly by the Company). The Company used $1,763,000 of the net
proceeds to reduce its long-term borrowing under two separate term loans.

                                       21
<PAGE>
 
The Company instituted an Employee Stock Ownership Plan (ESOP) and Trust for the
benefit of substantially all employees effective January 1, 1992. To establish
the plan, ITC entered into a loan agreement with a bank and borrowed $637,500
for the purchase of 200,000 shares of ITC common stock from DynCorp. ITC pledged
this stock to the bank to collateralize the loan. The provisions of the ESOP
require that, on an annual basis, the greater of 33,334 shares or the amount of
shares equal to five percent of total compensation of eligible employees be
allocated to employee accounts. Each participant then receives shares based on
their relative annual compensation. The Company recognized contribution expense
of approximately $102,000 and $106,000 for 1996 and 1995, respectively, based on
the cost of shares allocated for the period and any interest expense incurred.
Contributions to the ESOP amounted to approximately $135,000 in both 1996 and
1995, including approximately $16,000 and $25,000 of interest in 1996 and 1995,
respectively. The fair market value of the 33,333 unallocated shares at December
31, 1996 amounted to approximately $187,000.

12)    Employee 401(k) Plan
       --------------------

On January 1, 1991, the Company established a 401(k) Plan for the benefit of
substantially all of its employees. Employees can contribute from 1% to 15% of
their salary to the Plan subject to statutory limitations. At the discretion of
the Board of Directors, the Company can elect to make a contribution to the
Plan. During 1995, the Company made a $30,000 contribution to the 401(k) Plan.
No contribution was made by the Company prior to 1995 or in 1996.

13)    Quarterly Financial Data (Unaudited)
       ------------------------------------
 
Financial data for the interim periods of 1996 and 1995 were as follows (amounts
in thousands except per share amounts):

<TABLE> 
<CAPTION> 
                                                                                          Net Income
                                              Net                  Net Income                (Loss)
                                            Revenue                  (Loss)                Per Share
                                            -------                ----------             ----------
<S>                                       <C>                     <C>                     <C> 
1995 Quarters
     First                                $     4,970             $       265             $      .10
     Second                                     6,286                     461                    .18
     Third                                      6,038                     464                    .18
     Fourth                                     5,475                     317                    .08
                                          -----------             -----------             ----------
           Total                          $    22,769             $     1,507             $      .54
                                          ===========             ===========             ==========

1996 Quarters
     First                                $     3,716             $      (397)            $    (0.11)
     Second                                     7,605                     349                   0.10
     Third                                      5,537                    (498)                 (0.14)
     Fourth (a)                                 5,286                  (5,113)                 (1.44)
                                          -----------             -----------             ----------
           Total                          $    22,144             $    (5,659)            $    (1.59)
                                          ===========             ===========             ========== 
</TABLE> 

(a)  Includes pre-tax write-offs of $3,300,000 for capitalized program
     development costs and $2,500,000 for acquired research and development (see
     notes 1 and 9).


ITEM 8.       CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
              ACCOUNTING AND FINANCIAL DISCLOSURE

None
----

                                       22
<PAGE>
 
                                    PART III

ITEM 9.       DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; 
              COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

(a)  Identification of Directors
     ---------------------------
<TABLE> 
<CAPTION> 
        Name                    Age        Year First Elected      Year of Expiration
        ----                    ---        ------------------      ------------------
<S>                             <C>        <C>                     <C> 
Daniel R. Bannister             66               1988                    1999
                                                                   
Philip J. Facchina              35               1995                    1999
                                                                   
Steven L. Roden                 46               1993                    1997
                                                                   
John D. Sanders                 58               1977                    1998
                                                                   
Richard E. Thomas               70               1982                    1998
                                                                   
James H. Walton                 63               1977                    1997
Chairman of the Board
</TABLE> 

(b)  Identification of Executive Officers
     ------------------------------------

<TABLE> 
<CAPTION> 
                                                                         Year First
       Name                                                Age        Served As Officer
       ----                                                ---        -----------------
<S>                                                       <C>         <C> 
Warren E. Anderson, Executive Vice President               45               1997
and Chief Technology Officer                                        
                                                                    
Elaine H. Babcock, Senior Vice President                   40               1984
                                                                    
Frank A. Carchedi, Vice President,                         39               1995
Treasurer and Chief Financial Officer                               
                                                                    
Anne J. Fletcher, Secretary                                34               1995
                                                                    
Christopher E. Mack, Vice President                        31               1996
and Chief Operating Officer

Steven L. Roden, President                                 46               1993
                                                                            
Carl D. Stevens, Senior Vice President                     50               1997
                                                                            
Robert F. VanStry, Vice President                          46               1983
                                                                            
James H. Walton, Chief Executive Officer                   63               1977
</TABLE> 

                                       23
<PAGE>
 
(c)  Business Experience

Warren E. Anderson is Executive Vice President of ITC and President of Anderson
Soft-Teach, a wholly-owned subsidiary of ITC. He also serves as the Company's
Chief Technology Officer. Mr. Anderson is the Founder of Anderson Soft-Teach,
established in 1983, and has served as its President since that time. Mr.
Anderson is a charter member of the CEO Forum and serves on the Advisory Board
for the Santa Clara University Leavey School of Business and Administration.
Prior to founding Anderson Soft-Teach, he worked at Intel Corporation, Capital
Preservation Fund, and MITRE Corporation. He received his MBA from Santa Clara
University and holds a B.S. in Mechanical Engineering from the University of
Cincinnati.

Elaine H. Babcock is Senior Vice President of ITC. Ms. Babcock is currently
responsible for managing the Domestic Sales Force, Information Technology
Division. During 1995, Ms. Babcock was responsible for all distribution of off-
the-shelf product sales of the Company and its affiliates in North America, with
the exception of sales through the ComSkill franchise network. Prior to January
1994, Ms. Babcock used her sales and management expertise to build ITC's Custom
Services Department. Ms. Babcock joined the Company in 1978 as a Video
Production Specialist. She has a Communications degree from the University of
Maryland.

Daniel R. Bannister, a Director since 1988, has been President and Chief
Executive Officer of DynCorp, a leading professional and technical services
firm, since 1985. He was Executive Vice President and Senior Vice President of
its Technical Services Group from 1983 to 1984.

Frank A. Carchedi is Vice President, Treasurer and Chief Financial Officer of
ITC. Prior to joining ITC in November of 1995, Mr. Carchedi was a consultant in
the Merger and Acquisition group of Ernst & Young LLP. Mr. Carchedi was with
Ernst & Young LLP for over 10 years, prior to which he held several other
positions in private industry and public accounting. Mr. Carchedi holds a B.S.
in Accounting from Wake Forest University and is a C.P.A.

Philip J. Facchina, a Director since 1995, is Executive Vice President and Chief
Operating Officer of View Call America, Inc. Mr. Facchina served as ITC's
President and Chief Operating Officer from October 1995 to November 1996. Prior
to being named President and COO in October 1995, Mr. Facchina served as Vice
President, Treasurer and Chief Financial Officer of ITC from October 1992 to
October 1995. Before joining ITC in October 1992, Mr. Facchina served as
Treasurer and Chief Financial Officer of Facchina Construction Company, Inc. and
its affiliates. Prior to then, Mr. Facchina served as Vice President of Finance
and Administration for E. C. Ernst, Inc. and Assistant Treasurer and Secretary
for The Philadelphia Bourse, Inc. Mr. Facchina holds an M.B.A. from the
University of Pennsylvania's Wharton Business School and a B.S. in Accounting
from the University of Maryland.

Anne J. Fletcher is Secretary of ITC. Ms. Fletcher is an attorney with the law
firm of De Martino, Finkelstein, Rosen & Virga. Ms. Fletcher served as in-house
general counsel to ITC from 1994-1996. Prior to joining ITC, she was engaged in
the private practice of law for six years in Fairfax, Virginia. Ms. Fletcher
received her J.D. from George Mason University School of Law and a B.A. from the
State University of New York, College at Oswego.

Christopher E. Mack is Vice President and Chief Operating Officer of ITC. Prior
to being named COO in November 1996, Mr. Mack served as the Company's Controller
from December 1993 to November 1996. Prior to joining ITC in December 1993, Mr.
Mack served as Assistant Controller of Bardon, Inc., an international
construction materials firm. Mr. Mack holds a B.S. in Accounting from Shepherd
College and is a C.P.A.

Steven L. Roden is President of ITC and Chief Executive Officer of ComSkill. Mr.
Roden served as President and Chief Executive Officer of Comsell from 1987 until
its liquidation into ITC in January 1995. Prior to joining Comsell, he was
President of Digital Controls Video, Inc., Vice President of 

                                       24
<PAGE>
 
Coloney, Inc., and Vice President of First Florida Bank Corp. Mr. Roden holds an
M.B.A. in Finance and Marketing and a B.S. from Florida State University.

John D. Sanders, a Director since 1977, served as Chairman of Tech News Inc.,
publishers of Washington Technology newspaper, from 1987 to 1996, and currently
serves as a consultant to Tech News. He is also a registered representative
(inactive) with Wachtel & Co., Inc., an investment banking firm, a position held
since 1968. Mr. Sanders is a member of the Boards of Directors of: Daedalus
Enterprises, Inc., an electronics specialty consultant; and Information
Analysis, Inc., a supplier of computer software services. He holds a B.E.E. from
the University of Louisville, Kentucky, and an M.S. and Ph.D. in Electrical
Engineering from Carnegie-Mellon University.

Carl D. Stevens, age 50, is Senior Vice President of Marketing and Strategic
Business Development for ITC. Mr. Stevens was Program Director for Public Sector
for the IBM Personal Computer Company. In that capacity, he was responsible for
the U.S. sales of IBM Personal Computers into higher education, K-12, federal,
state and local governments. During his 26 year career with IBM he held numerous
field and headquarters marketing and management positions. He was Branch Manager
for the Southeastern U.S., managed IBM's New Manager School for experienced
managers, held various management positions involving IBM's Personal Computer
Remarketer Channels, and was the Business Alliance Executive for IBM's Education
and Training Division. Mr. Stevens received his education from the Indiana
University, where he majored in Marketing and Business Education.

Richard E. Thomas, a Director since 1982, is semi-retired and serves as a member
of the executive team of COMSAT RSI. Mr. Thomas served as President of COMSAT
RSI from 1994-1996. Prior to that, he was Chairman of the Board, President and
Chief Executive Officer of Radiation Systems, Inc. (RSI), a communications
systems manufacturer, from 1978 until 1994, at which time RSI was merged into
COMSAT Corporation. Mr. Thomas was originally employed by RSI as Vice President,
Operations in 1966.

Robert F. VanStry is a Vice President of ITC. Mr. VanStry manages the Domestic
Sales Force for the Process and Manufacturing division. Mr. VanStry was
previously in charge of ITC's product and technology development. Mr. VanStry
joined the Company in May 1978 as Senior Training Associate and subsequently
fulfilled the responsibilities of Manager of Engineering Projects, Manager of
Project Development, and Vice President of Training Services.

James H. Walton is Chairman of the Board and Chief Executive Officer of ITC. Mr.
Walton has been a Director and officer of ITC since 1977. Prior to the founding
of ITC in 1977, he was responsible for audiovisual production at NUS
Corporation, an engineering and consulting firm (1973-1977). Mr. Walton holds a
B.S. and M.A. from the University of Nebraska.

ITEM 10.      EXECUTIVE COMPENSATION

The information contained on pages 6, 7 and 8 of ITC's Proxy Statement dated
March 13, 1997, with respect to executive compensation and transactions, is
incorporated herein by reference in response to this item.

ITEM 11.      SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
              MANAGEMENT

The information contained on pages 2 and 3 of ITC's Proxy Statement dated March
13, 1997, with respect to security ownership of certain beneficial owners and
management, is incorporated herein by reference in response to this item.

                                       25
<PAGE>
 
ITEM 12.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information contained on page 10 of ITC's Proxy Statement dated March 13,
1997, with respect to certain relationships and related transactions, is
incorporated herein by reference in response to this item.

ITEM 13.      EXHIBITS AND REPORTS ON FORM 8-K

(a)    The following are filed as part of this Form 10-KSB:
       ----------------------------------------------------

       1.  Financial Statements:  See Part II, Item 7.
       2.  Exhibits:  See exhibit index, which index is incorporated herein by
           reference.

(b)    Reports on Form 8-K:
       --------------------

The Company did not file any reports on Form 8-K during 1996.

                                       26
<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.

INDUSTRIAL TRAINING CORPORATION
        (Registrant)

<TABLE> 
<S>                                                           <C> 
BY                /s/James H. Walton                          DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         James H. Walton, Chairman of the Board
         and Chief Executive Officer
</TABLE> 

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> 
<S>                                                           <C> 
BY                /s/Steven L. Roden                          DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Steven L. Roden, President

BY                /s/Christopher E. Mack                      DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Christopher E. Mack, Vice President
         and Chief Operating Officer

BY                /s/Frank A. Carchedi                        DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Frank A. Carchedi, Vice President,
         Treasurer and Chief Financial Officer

BY                /s/John D. Dobey                            DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         John D. Dobey, Controller

BY                /s/Daniel R. Bannister                      DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Daniel R. Bannister, Director

BY                /s/John D. Sanders                          DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         John D. Sanders, Director

BY                /s/Richard E. Thomas                        DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Richard E. Thomas, Director

BY                /s/Philip J. Facchina                       DATE              March 13, 1997
         ----------------------------------------------              -------------------------------------
         Philip J. Facchina, Director
</TABLE> 
<PAGE>
 
<TABLE> 
  <S>                                        <C>  
  Corporate Headquarters                     International Sales Locations  
  Industrial Training Corporation            London, England                                                                     
  13515 Dulles Technology Drive              44 123 34-0880                                                                      
  Herndon, VA  20171-3413                                                                                                        
  (800) 638-3757                             Melbourne, Australia                                                                
  (703) 713-3335                             613-9593-9955                                                                       
  FAX: (703) 713-0065                                                                                                            
  Web-site: http://www.itcactiv.com          Sydney, Australia                                                                   
                                             612-9438-2500                                                                       
  Anderson Soft-Teach                                                                                                            
  983 University Avenue                      Stock Registrar and Transfer Agent                                                  
  Los Gatos, CA  95030                       American Securities Transfer & Trust, Inc.                                          
  (800) 338-4336                             938 Quail Street                                                                    
  FAX: (408) 399-0500                        Suite 101                                                                           
  Web-site: http://www.teach.com             Lakewood, CO  80215                                                                 
                                                                                                                                 
  North American Sales Locations             Stock Listing                                                                       
  Atlanta, GA                                National Market System                                                              
  (770) 984-9881                             NASDAQ/NMS Trading Symbol:  ITCC                                                    
                                                                                                                                 
  Boston, MA                                 Market-Makers                                                                       
  (508) 376-8118                             Koonce Securities, Inc.                                                             
                                             Ferris, Baker Watts, Incorporated                                                   
  Charlotte, NC                                                                                                                  
  (704) 364-1223                             Annual Meeting                                                                      
                                             The Annual Meeting of shareholders will be held on May                              
  Chicago, IL                                6, 1997 at 4:00 pm at the Sheraton Reston Hotel, 11810                              
  (630) 585-7688                             Sunrise Valley Drive, Reston, Virginia 22091.                                       
                                                                                                                                 
  Houston, TX                                Shareholder Inquiries                                                               
  (713) 852-0601                             Communications concerning transfer requirements, lost                               
                                             certificates, and changes in address should be                                      
  Ottawa, Ontario                            directed to the Stock Registrar and Transfer Agent.                                 
  (613) 599-4646                             Other inquiries may be directed to Frank A. Carchedi,                               
                                             CFO.                                                                                
  Plymouth, WI                                                                                                                   
  (414) 893-3900                             Principal Bank                                                                      
                                             Central Fidelity National Bank                                                      
  Pittsburgh, PA                             Alexandria, VA                                                                      
  (814) 643-4116                                                                                                                 
                                             General Counsels                                                                   
  Portland, OR                               Ginsburg, Feldman and Bress, Chartered                                             
  (503) 699-8214                             Washington, D.C.                                                                   
                                                                                                                                
  Tampa, FL                                  Kirkpatrick & Lockhart LLP                                                         
  (813) 855-5201                             Washington, D.C.                                                                   
                                                                                                                                
  Washington, D.C.                           Independent Auditors                                                               
  (301) 601-8799                             Ernst & Young LLP                                                                  
                                             Washington, D.C.                                                                    
                                   
</TABLE> 
<PAGE>
 
                               Index to Exhibits
<TABLE> 
<CAPTION>
   Exhibit                                                                          Page
     No.                               Description                                   No.
-----------------------------------------------------------------------------------------
   <S>        <C>                                                                  <C> 
    3.1       Amended Articles of Incorporation of the Company, incorporated by
              reference to the Company's Form 10-QSB for the quarter ended June
              30, 1996 filed with the Securities and Exchange Commission ("SEC")
              (Commission File No. 33-61393).

    3.2       Restated By-Laws of the Company, incorporated by reference to the
              Company's Form 10-KSB for the fiscal year ended December 31, 1995
              filed March 15, 1996 with the SEC (Commission File No. 0-13741).

    4.1       Specimen Certificate for ITC Common Stock, incorporated by
              reference to the Company's Registration Statement on Form SB-2
              filed July 28, 1995 with the SEC (Commission File No. 33-61393).

    4.2       Registration Rights and Shareholders' Agreement, incorporated by
              reference to the Company's Form 8-K filed January 13, 1997 with
              the SEC (Commission File No. 0-13741).

   10.1       Agreement and Plan of Reorganization By and Among Industrial
              Training Corporation, ITC Acquisition Corporation and Anderson
              Soft-Teach, incorporated by reference to the Company's Form 8-K
              filed January 13, 1997 with the SEC (Commission File No.
              0-13741).

   10.2       Asset Purchase Agreement, Assignment and Bill of Sale, each dated
              February 17, 1995 between ITC and the Instrument Society of
              America, incorporated by reference to the Company's Registration
              Statement on Form SB-2 filed July 28, 1995 with the SEC
              (Commission File No. 33-61393).

   10.3       1992 Director Incentive Stock Option Plan, as amended.

   10.4       1992 Key Employee Incentive Stock Option Plan, as amended.

   10.5       Employee Stock Ownership Plan, incorporated by reference to the
              Company's Form 10-KSB filed March 19, 1992 with the SEC
              (Commission File No. 0-13741).

   10.6       Employment Agreements with Management
              (a)   James H. Walton
              (b)   Philip J. Facchina (now resigned)
              (c)   Elaine H. Babcock
              (d)   Robert F. VanStry

              each incorporated by reference to Pre-Effective Amendment No. 1 to
              the Registration Statement on Form SB-2 filed August 16, 1995 with
              the SEC (Commission File No. 33-61393).
</TABLE> 
<PAGE>
 
<TABLE> 
   <S>        <C> 
              (e)   Steven L. Roden
              (f)   Warren E. Anderson
              (g)   Christopher E. Mack
              (h)   Frank A. Carchedi

   10.7       Lease dated October 21, 1993 for commercial office space in
              Herndon, VA, as amended, incorporated by reference to the
              Company's Form 10-KSB for the fiscal year ended December 31, 1995
              filed March 15, 1996 with the SEC (Commission File No. 0-13741).

   10.8       Lease dated November 30, 1995 for commercial office space in
              Atlanta, GA, incorporated by reference to the Company's Form 10-
              KSB for the fiscal year ended December 31, 1995 filed March 15,
              1996 with the SEC (Commission File No. 0-13741).

   10.9       Lease dated February 10, 1995 for commercial office space in
              Millis, MA, incorporated by reference to the Company's Form 10-KSB
              for the fiscal year ended December 31, 1995 filed March 15, 1996
              with the SEC (Commission File No. 0-13741).

  10.10       Lease dated February 17, 1995 for the commercial office space in
              Los Gatos, California.

   23.1       Consent of Ernst and Young LLP, independent auditors.
</TABLE>