INDUSTRIAL TRAINING CORP, 424B1, 1995-10-02

INDUSTRIAL TRAINING CORP
424B1, 1995-10-02
MOTION PICTURE & VIDEO TAPE PRODUCTION

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<PAGE>
RULE NO. 424(b)(1)
REGISTRATION NO. 33-61393

1,050,000 SHARES

[LOGO OF ITC APPEARS HERE]

INDUSTRIAL TRAINING CORPORATION

COMMON STOCK

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

Of the 1,050,000 shares of Common Stock offered hereby, 875,000 are being
issued and sold by Industrial Training Corporation (the "Company" or "ITC")
and 175,000 are being sold by the Selling Shareholders. The Company will not
receive any of the proceeds from the sale of shares by the Selling
Shareholders. See "Selling Shareholders." The Common Stock is traded on the
NASDAQ National Market System under the Symbol "ITCC." On September 28, 1995,
the last reported sale price of the Company's Common Stock as reported by
NASDAQ was $11 1/4 per share. See "Price Range of Common Stock and Dividend
Policy."

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

PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FACTORS SET FORTH ON PAGE
5 UNDER "RISK FACTORS."

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

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(/1/) COMPANY(/2/) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $9.75 $0.6825 $9.0675 $9.0675
- --------------------------------------------------------------------------------
Total(/3/).............. $10,237,500 $716,625 $7,934,063 $1,586,813
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) See "Underwriting" for a description of indemnification arrangements with
the several Underwriters.
(2) Before deducting expenses estimated at $233,870 payable by the Company.
See "Underwriting."
(3) The Company has granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an aggregate of
157,500 additional shares of Common Stock, solely to cover over-
allotments, if any, on the same terms and conditions as the shares offered
hereby. Assuming full exercise of the over-allotment option, the total
Price to Public, Underwriting Discounts and Commissions, Proceeds to
Company, and Proceeds to Selling Shareholders will be $11,773,125,
$824,119, $9,362,194, and $1,586,813, respectively. See "Underwriting."

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

The shares of Common Stock are offered by the several Underwriters subject
to prior sale, withdrawal, cancellation or modification of the offer without
notice, delivery to and acceptance by the Underwriters and certain other
conditions. It is expected that delivery of the certificates for the shares of
Common Stock will be made at the offices of Ferris, Baker Watts, Incorporated,
1720 Eye Street, N.W., Washington, D.C. or through the facilities of The
Depository Trust Company on or about October 4, 1995.

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

FERRIS, BAKER WATTS
Incorporated

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

The date of this Prospectus is September 29, 1995.
<PAGE>

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

IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS MAY ENGAGE IN PASSIVE
MARKET MAKING TRANSACTIONS IN THE SHARES OF COMMON STOCK ON THE NASDAQ
NATIONAL MARKET SYSTEM IN ACCORDANCE WITH RULE 10b-6A UNDER THE SECURITIES
EXCHANGE ACT OF 1934. SEE "UNDERWRITING."

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

ADDITIONAL INFORMATION

The Company is subject to the reporting requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements, and other information with the Securities and
Exchange Commission (the "Commission"). These reports, proxy statements, and
other information may be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549 and at its New York Regional Office, 7 World Trade Center, Suite
1300, New York, New York 10048 and at its Chicago Regional Office,
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies of such material can be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed
rates.

A registration statement on Form SB-2 relating to the Common Stock offered
hereby has been filed by the Company with the Commission (the "Registration
Statement"). This Prospectus does not contain all of the information set forth
in the Registration Statement and the exhibits and schedules thereto.
Statements contained in this Prospectus as to the contents of any contract or
any other document referred to are not necessarily complete and in each
instance reference is made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference. Further information with respect
to the Company and the Common Stock offered hereby is included or incorporated
by reference in the Registration Statement and exhibits. A copy of the
Registration Statement may be inspected by anyone without charge and may be
obtained at rates prescribed by the Commission at the Public Reference Section
of the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549,
the New York Regional Office located at 7 World Trade Center, New York, New
York 10048, and the Chicago Regional Office located at 500 West Madison
Street, Chicago, Illinois 60661-2511.

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Each investor is encouraged to read this Prospectus in its
entirety. Unless otherwise indicated, all information in this Prospectus
assumes that the Underwriters' over-allotment option will not be exercised.
Investors should carefully consider the information set forth under the heading
"Risk Factors."

THE COMPANY

ITC develops, produces, markets and distributes interactive multimedia
training solutions that improve productivity and reduce training time and
costs. ITC's broad array of interactive multimedia "courseware" combines full-
motion video, audio, animation, graphics and text into a single training
presentation. By packaging its courseware together with standard multimedia
personal computer systems and offering reliable customer assurance and
consultative support, ITC provides its customers with a complete training
solution that may command a premium price relative to other technology-based
training programs. While all of the Company's products are available in analog
laser video disc format, ITC recently converted and released many of its "PC
Skills" and all of its "Regulatory Training" products in a digital CD-ROM
format. ITC's five courseware libraries, all marketed under the ACTIV(R)
trademark, include over 200 individual multimedia products to train users in
"PC Skills," "Regulatory Training," "Technical Skills," "Instrumentation
Training" and "Basic Skills." ITC's multimedia products provide an alternative
to traditional stand-up training. The Company's courseware is highly
interactive and is self-paced, allowing employees to adjust the rate of
training to their individual needs, competency levels and work schedules.

ITC offers its courseware to customers in many markets, including the
industrial processing and manufacturing industries, government, educational
organizations, utilities and the service sector. The Company acquired the "PC
Skills Learning Library" in September 1993 enabling ITC to expand its sales
into service-based industries, such as telecommunications and personnel
services. The domestic market for all training and employee education in 1994
was estimated by Training Magazine to represent a $50.6 billion industry, of
which approximately $7.0 billion was estimated to be off-the-shelf products and
hardware. See "Risk Factors -- Developing Market and -- Dependence on Product
Development."

In aggregate, ITC's ACTIV(R) courseware has been purchased by over 5,000
companies, including many Fortune 1,000 companies, and other major
organizations. Among the better-known purchasers of ITC ACTIV(R) courseware are
the following companies or their affiliates: The Southern Companies, General
Electric Company, NYNEX, Talent Tree Personnel Services, Cargill, Inc., Ford
Motor Company and Illinois Power Company.

The Company's objective is to accelerate its growth and profitability by
further penetrating the market for interactive multimedia training and
educational courseware. ITC's strategy for achieving this objective is to
expand product platforms and development efforts; increase distribution
capabilities; and pursue strategic acquisitions and marketing alliances. See
"Business -- Corporate Strategy."

ITC was incorporated in 1977 under the laws of the state of Maryland. The
Company's principal executive office address is 13515 Dulles Technology Drive,
Herndon, Virginia 22071. ITC's telephone number is (703) 713-3335.

THE OFFERING

<TABLE>
<C> <S>
Securities Offered.......................... 1,050,000 shares of Common Stock, $.10 par value
Securities Offered by the Company.......... 875,000 shares of Common Stock, $.10 par value
Securities Offered by Selling Shareholders. 175,000 shares of Common Stock, $.10 par value
Common Stock Outstanding After the Offering. 3,355,088 shares(/1/)
Proposed Use of Proceeds.................... To reduce indebtedness; to finance product expansion through
internal development and acquisitions of compatible
businesses, products or technologies; to increase
marketing efforts; and, for working capital and general
corporate purposes. See "Use of Proceeds."
NASDAQ National Market Symbol............... ITCC
</TABLE>
- --------------------
(1)Excluding 276,572 shares issuable upon the exercise of options and warrants.

3
<PAGE>

SUMMARY CONSOLIDATED FINANCIAL DATA

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

The summary consolidated financial data set forth below should be read in
conjunction with, and are qualified by reference to, the Consolidated Financial
Statements of the Company and the Notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included
elsewhere in this Prospectus.

<TABLE>
<CAPTION>
JUNE 30, 1995
(UNAUDITED)
---------------------
DECEMBER 31, AS
1994 ACTUAL ADJUSTED(/3/)
------------ ------- -------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................... $ 440 $ 1,179 $ 7,010
Working capital......... 4,095 4,620 10,895
Total assets............ 17,130 19,085 24,916
Long-term debt, net of
current installments... 773 1,614 189
Total stockholders' eq-
uity................... 10,054 10,851 18,551
</TABLE>

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

(1) The decline in 1993 income before provision for income taxes resulted from
several factors including lower overall gross margins, increased selling,
general and administrative costs as a result of increased marketing, sales,
and promotional efforts, and resources dedicated to expanding the Company
through acquisition. Effective September 30, 1993, the Company acquired CI
Acquisition Corporation and its two wholly-owned subsidiaries, Comsell
Training, Inc. and ComSkill Learning Centers, Inc.
(2) 1990 and 1991 data have been adjusted to reflect a 2 for 1 stock split,
which occurred in January 1992.
(3) Gives effect to the sale by the Company of 875,000 shares of Common Stock
at the public offering price of $9 3/4 per share and after deducting
estimated underwriting discounts, offering expenses, and the applicable
filing and registration fees. See "Use of Proceeds."

4
<PAGE>

RISK FACTORS

Investors should carefully consider the following risk factors, in addition
to all of the other information contained in this Prospectus, including the
Consolidated Financial Statements and Notes to Consolidated Financial
Statements, before purchasing the Common Stock offered hereby.

DEVELOPING MARKET

The market for training and employee education is characterized by a high
degree of fragmentation and competition. Competitors include publishers of
text and videotape training products, providers of instructor-led training,
and developers and publishers of other multimedia products. Technology-based
training products represent a small portion of the overall market for
training. As a result, the Company's future success and realization of the
Company's strategic plan will depend, in part, on the extent to which
companies continue to adopt technology-based training as a fundamental part of
their employee education and development programs. There can be no assurance
that the current trend will continue or that the Company will significantly
increase or sustain current distribution levels for its products.

DEPENDENCE ON PRODUCT DEVELOPMENT

Several of the Company's products, including the Company's "PC Skills
Learning Library" and, to a lesser degree, the Company's "Regulatory Training
Learning Library," are influenced by changes in the content of the subject
matter. Changes in the subject matter of any of the Company's products could
render such products obsolete. Therefore, the Company's success may depend
upon the Company's ability to adapt, modify and update its products, to
develop and introduce, in a timely manner, new and competitive products, or to
acquire new products. There can be no assurance that the Company will be
successful in these endeavors.

ACQUISITIONS

The Company's continued growth depends, in part, on its ability to
successfully acquire complementary businesses or product lines. There can be
no assurance that any such acquisitions will be consummated, or if
consummated, that such acquisitions will be successful. The Company has no
current commitments, understandings or arrangements with respect to any
specific transaction. See "Business -- Corporate Strategy."

DISTRIBUTION

Part of the Company's strategy is to expand distribution channels for its
courseware. Although the Company intends to hire additional salespersons, add
dealers, franchisees and distributors, and explore relationships with other
resellers, no assurance can be given that such expanded distribution will
either occur or have a positive effect on the Company's business operations.

CHANGING TECHNOLOGIES

The Company utilizes several different personal computer-based hardware
platforms to deliver its products. These platforms range from standard analog
format, using laser video disc, to any of the several digital-based CD-ROM
platforms, such as "MPEG" (the Motion Pictures Experts Group standard), "DVI"
(Digital Video Interactive) and INDEO(R). The Company also operates in an
environment where its customers face networking and portability issues.
Delivery platforms are constantly evolving as new and different technologies
emerge. Changes in technologies or the means through which the Company's
products are delivered could render the Company's products obsolete. There can
be no assurance that the Company will be able to anticipate and respond
adequately to technological changes that may affect the delivery of the
Company's products or that costs to develop such responses will not adversely
affect the financial condition of the Company.

5
<PAGE>

INTELLECTUAL PROPERTY

The Company considers all of its products to be proprietary and relies on a
combination of statutory and common law copyright, trademark and trade secret
laws, customer licensing agreements, employee and third-party nondisclosure
agreements and other methods to protect its proprietary rights. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use the Company's courseware or technology without authorization, or to
develop similar courseware or technology independently. The Company includes
in its courseware packaging an end-user agreement that restricts unauthorized
use. If unauthorized copying or misuse of the Company's products were to occur
to any substantial degree, the Company's business and results of operations
could be materially and adversely affected. There can be no assurance that the
Company's means of protecting its proprietary rights will be adequate or that
the Company's competitors will not independently develop similar technology.
There can likewise be no assurance that third parties will not claim that the
Company's current or future products infringe upon the proprietary rights of
others. Any such claim, with or without merit, could result in costly
litigation or require the Company to enter into royalty or licensing
agreements. Such royalty or license agreements, if required, may not be
available on terms acceptable to the Company or at all. See "Business --
Intellectual Property."

DEPENDENCE ON AND NEED FOR KEY PERSONNEL

At the present time, the Company depends to a great extent upon the efforts
of each of its executive officers to administer the Company's business. In
addition, the Company's ability to accelerate growth and profitability will
depend, in part, on its ability to attract and retain additional qualified
personnel. There is significant competition for qualified personnel, and there
can be no assurance that the Company will be successful in recruiting or
training a sufficient number of employees of the requisite caliber to enable
the Company to operate its business and implement its strategy as planned. See
"Management."

COMPETITION

The training and employee education industry is highly competitive, and
competition is increasing among providers of technology-based training.
Competitors include providers of traditional instructor-led training,
multimedia developers and sellers, textbook publishers, and manufacturers and
producers of videotape training materials and other products. These
competitors range from small to large firms, some of which have substantially
greater financial, personnel and marketing resources than the Company. No
assurance can be given that the Company will be able to compete effectively
with existing or future competitors in the training industry. The inability to
remain competitive could result in a reduction of the Company's revenues and
could have a material adverse effect on the Company's overall financial
condition. See "Business -- Competition."

DILUTION

Purchasers of the shares of Common Stock offered hereby will suffer
immediate and substantial dilution (i.e., the difference between the offering
price of a share of Common Stock and the net tangible book value thereof after
giving effect to this Offering) of $4.81 per share in the net tangible book
value of their shares of Common Stock, assuming that all shares offered by the
Company are sold. At June 30, 1995, the net tangible book value of the Company
was approximately $8,748,084, or $3.56 per share based on 2,455,624 shares of
Common Stock outstanding. Net tangible book value per share of Common Stock
represents the amount of the Company's total assets less the amount of its
intangible assets (goodwill) and liabilities, divided by the number of shares
of Common Stock outstanding. After giving effect to the sale by the Company of
875,000 shares offered hereby (at the public offering price of $9 3/4 per
share) and the application of the estimated net proceeds therefrom, the pro
forma net tangible book value at June 30, 1995 would have been approximately
$16,448,277 or $4.94 per share of Common Stock. In the event that the
Underwriters exercise the over-allotment option in full, the pro forma net
tangible book value after this Offering (after deducting underwriting
discounts and estimated offering expenses to be paid by the Company) would be
$5.12 per share, and the public investors would experience dilution of $4.63
per share.

USE OF PROCEEDS

The net proceeds of this Offering are subject to reallocation by the
Company. See "Use of Proceeds."

6
<PAGE>

USE OF PROCEEDS

The net proceeds from the sale by the Company of 875,000 shares of Common
Stock in this Offering will be approximately $7.7 million ($9.1 million if the
Underwriters' over-allotment option is exercised in full) based upon the
public offering price per share of $9 3/4. The Company will not receive any of
the proceeds from the sale of Common Stock by the Selling Shareholders. The
Company anticipates that the net proceeds will be used over the next twelve to
eighteen months for the purposes described below.

The Company expects to use approximately $1.9 million of the net proceeds
received by the Company to reduce its long-term borrowings. The long-term debt
consists of two term loans. The first term loan, the balance of which was
$615,000 as of June 30, 1995, was incurred for the Company's acquisition of CI
Acquisition Corporation ("CI") and its related subsidiaries in September 1993.
This loan bears interest at a rate of prime plus one percent (1%) (10% as of
June 30, 1995) and matures in November 1998. The second term loan, the balance
of which was $1,254,000 at June 30, 1995, was incurred in connection with the
February 17, 1995 acquisition of the "INVOLVE(R) Instrumentation Learning
Library" from the Instrument Society of America ("ISA"). The second loan bears
interest at a rate of prime plus one-half percent ( 1/2%) (9.5% as of June 30,
1995) and matures in March 2000.

The Company intends to use up to $3 million of the net proceeds to fund
development of additional courseware products and to convert the Company's
existing analog courseware libraries of "Technical Skills" and
"Instrumentation Training" to a digital-based CD-ROM format.

The $2.8 million balance of net proceeds ($4.2 million if the Underwriters
exercise the over-allotment option in full) will be used to broaden and expand
the Company's range of training products by acquiring companies or products,
and for working capital and other general corporate purposes. With respect to
future acquisitions, the Company is regularly reviewing potential
acquisitions, although it has no current agreements, understandings or
commitments with respect to any material transactions. Amounts allocated to
working capital may be used, in part, to finance expanded distribution
efforts.

The foregoing represents the Company's estimate of the allocation of the net
proceeds of this Offering based upon the current status of its business
operations, its current plans and current economic conditions. Future events,
as well as changes in competitive conditions affecting the Company's business
and the success or lack thereof of the Company's marketing efforts, may make
shifts in the allocation of funds necessary or desirable. A change in the use
of proceeds or timing of such use will be at the Company's discretion. Pending
application of the net proceeds from this Offering, the net proceeds will be
invested in short-term, investment-grade, interest bearing securities. See
"Risk Factors -- Use of Proceeds."

The Company may incur additional borrowings in the next twelve to eighteen
months to support its development plans and to effect acquisitions.

7
<PAGE>

PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY

The Company's Common Stock is traded on the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") National Market
System under the symbol ITCC. The following table states the high and low
closing sale prices by quarter for the Company's Common Stock based on actual
trading, as reported by NASDAQ.

<TABLE>
<CAPTION>
HIGH LOW
------ -----
<S> <C> <C>
1993
1st Quarter.................................................. 7 1/4 6 1/4
2nd Quarter.................................................. 7 7/8 6 3/8
3rd Quarter.................................................. 7 1/2 5 1/4
4th Quarter.................................................. 6 4 3/4
1994
1st Quarter.................................................. 5 1/4 4
2nd Quarter.................................................. 4 1/2 3 5/8
3rd Quarter.................................................. 8 1/2 3 5/8
4th Quarter.................................................. 8 1/2 7 1/4
1995
1st Quarter.................................................. 10 1/2 6 1/4
2nd Quarter.................................................. 10 1/2 8
3rd Quarter (through September 28, 1995)..................... 11 1/4 9 5/8
</TABLE>

The last reported sale price on the NASDAQ National Market System on
September 28, 1995 was $11 1/4.

As of June 30, 1995, there were 2,455,624 shares of the Company's Common
Stock outstanding, held by 1,037 holders of record.

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. No cash dividends have been declared since 1984. Future
cash dividends, if any, will be determined by the Company's Board of Directors
and will be based upon the Company's earnings, capital requirements, financial
condition, and other factors deemed relevant by the Board of Directors.

The transfer agent and registrar for ITC's Common Stock is American
Securities Transfer, 938 Quail Street, Suite 101, Lakewood, Colorado 80215.

8
<PAGE>

CAPITALIZATION

The following table sets forth the capitalization of the Company as of June
30, 1995, and as adjusted to reflect the sale of 875,000 shares of Common
Stock offered by the Company hereby at the public offering price of $9 3/4 per
share and the application of estimated net proceeds therefrom. See "Use of
Proceeds." This table should be read in conjunction with the detailed
information included in the Consolidated Financial Statements and the Notes
thereto contained elsewhere in this Prospectus.

<TABLE>
<CAPTION>
AS OF JUNE 30, 1995
------------------------
ACTUAL AS ADJUSTED
----------- -----------
<S> <C> <C>
Current installments of long-term debt............ $ 580,726 $ 136,726
Long-term debt, net of current installments....... 1,614,198 189,198
Stockholders' equity:
Common stock, $.10 par value, 4,000,000 shares
authorized; 2,455,624 shares outstanding;
3,330,624 shares outstanding, as adjusted(/1/). 245,562 333,062
Additional paid-in capital...................... 5,654,864 13,267,557
Note receivable from ESOP....................... (304,177) (304,177)
Retained earnings............................... 5,254,461 5,254,461
----------- -----------
Total stockholders' equity.................... 10,850,710 18,550,903
----------- -----------
Total capitalization.............................. $13,045,634 $18,876,827
=========== ===========
</TABLE>
- ---------------------

(1) The number of shares of the Company's Common Stock outstanding, the value
of Common Stock and the value of Additional Paid-in Capital have been
reduced by 17,704 shares, $1,771 and $59,538, respectively, to reflect
treasury stock that the Company repurchased prior to June 30, 1995.

9
<PAGE>

SELECTED CONSOLIDATED FINANCIAL DATA

(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

The following selected consolidated financial data for, and as of the end
of, each of the years in the five year period ended December 31, 1994 are
derived from the audited consolidated financial statements of the Company. The
following selected interim consolidated data for, and as of the end of, the
six month periods ended June 30, 1994 and 1995 have been derived from
unaudited financial statements of the Company, which, in the opinion of
management, have been prepared on the same basis as the audited Consolidated
Financial Statements included herein, and reflect all adjustments, which are
of a normal recurring nature, necessary for a fair presentation of such data.
The results of the interim periods are not indicative of the results of a full
year. The selected consolidated financial data set forth below should be read
in conjunction with, and are qualified by reference to, the Consolidated
Financial Statements of the Company and the Notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
-------------------------------------------- ---------------
1990 1991 1992 1993 1994 1994 1995
------ ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Revenues................ $9,229 $11,011 $11,135 $13,812 $22,337 $9,364 $11,256
Cost of sales........... 5,007 6,024 5,681 8,215 13,629 5,585 6,453
------ ------- ------- ------- ------- ------ -------
Gross margin............ 4,222 4,987 5,454 5,597 8,708 3,779 4,803
Selling, general &
administrative
expenses............... 3,157 3,914 4,327 5,554 6,693 3,091 3,596
Equity in earnings of
affiliates............. -- -- (135) (124) (136) (70) (78)
------ ------- ------- ------- ------- ------ -------
Income before interest
and provision for
income taxes........... 1,066 1,074 1,262 167 2,151 758 1,285
Interest expense, net... 213 156 148 131 186 88 54
------ ------- ------- ------- ------- ------ -------
Income before provision
for income taxes....... 853 918 1,114 36(/1/) 1,965 670 1,231
Income tax expense...... 339 368 413 15 805 268 505
------ ------- ------- ------- ------- ------ -------
Net income.............. $ 514 $ 550 $ 701 $ 21 $ 1,160 $ 402 $ 726
====== ======= ======= ======= ======= ====== =======
Net income per common
share(/2/)............. $ 0.33 $ 0.35 $ 0.42 $ 0.01 $ 0.48 $ 0.17 $ 0.28
====== ======= ======= ======= ======= ====== =======
Weighted average shares
outstanding(/2/)....... 1,555 1,590 1,680 1,959 2,428 2,378 2,588
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------ 1995
1990 1991 1992 1993 1994 (UNAUDITED)
------ ------ ------ ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash.......................... $ 144 $ 114 $ 168 $ 126 $ 440 $ 1,179
Working capital............... 2,118 1,686 2,643 2,139 4,095 4,620
Total assets.................. 6,840 7,656 8,358 14,642 17,130 19,085
Long-term debt, net of current
installments................. 1,043 1,328 963 1,101 773 1,614
Total stockholders' equity.... 3,795 3,715 5,001 8,418 10,054 10,851
</TABLE>

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

10
<PAGE>

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

OVERVIEW

Since ITC was formed in 1977, the focus of the Company's business has
evolved from linear-based videotape training products to interactive
multimedia programs, delivered in analog laser video disc and digital-based
CD-ROM platforms. Until 1993, the Company derived the majority of its revenues
from the distribution and sale of its "Technical Skills Learning Library" and
"Basic Skills Learning Library" to companies in the industrial processing and
manufacturing markets.

With the development of its "Regulatory Training Learning Library" and the
addition of the "PC Skills Learning Library" upon the acquisition of CI and
its subsidiaries, Comsell Training, Inc. ("Comsell") and ComSkill Learning
Centers, Inc. ("ComSkill"), in September 1993, the Company was able to enter
new markets and increase revenues significantly. In February 1995, the Company
acquired the "INVOLVE(R) Instrumentation Learning Library," which it had
developed for the Instrument Society of America ("ISA"). As a result of this
acquisition, the Company is no longer required to pay royalties upon the sale
of INVOLVE(R) products. For additional information regarding the CI
acquisition and purchase of the INVOLVE(R) products, see Notes 2 and 13,
respectively, to the Company's Consolidated Financial Statements included
herein.

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
--------------------------
YEARS ENDED SIX MONTHS
DECEMBER ENDED JUNE
31, 30,
------------ ------------
1993 1994 1994 1995
----- ----- ----- -----
<S> <C> <C> <C> <C>
Revenues........................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales................................... 59.5 61.0 59.6 57.3
----- ----- ----- -----
Gross margin.................................... 40.5 39.0 40.4 42.7
Selling, general & administrative expenses...... 40.2 30.0 33.0 31.9
Equity in earnings of affiliates................ (0.9) (0.6) (0.7) (0.6)
----- ----- ----- -----
Income before interest and provision for income
taxes.......................................... 1.2 9.6 8.1 11.4
Interest expense, net........................... 0.9 0.8 0.9 0.4
----- ----- ----- -----
Income before provision for income taxes........ 0.3 8.8 7.2 11.0
Income tax expense.............................. 0.1 3.6 2.9 4.5
----- ----- ----- -----
Net income...................................... 0.2% 5.2% 4.3% 6.5%
===== ===== ===== =====
</TABLE>

Six Months Ended June 30, 1995 Compared with Six Months Ended June 30, 1994

Total revenues for the six months ended June 30, 1995 were $11,256,000,
compared to $9,364,000 for the comparable six months of 1994, an increase of
approximately 20%. The strong growth in revenues for the six months ended June
30, 1995 was due primarily to expansion of distribution channels and product
development efforts during 1994, which resulted in a record performance for
the Company's core multimedia training products.

Total revenues for the six months ended June 30, 1995 were positively
affected by the increase in sales of multimedia hardware systems. Hardware
revenues for the six months ended June 30, 1995 aggregated $2,400,000, which
represents an increase of $710,000 or 42% relative to 1994. While hardware
sales do not add significantly to the Company's earnings, Management believes
that increased hardware sales are an important factor in developing the demand
for the Company's off-the-shelf courseware.

11
<PAGE>

Franchise related revenues (fees and royalties) achieved for the six months
ended June 30, 1995 amounted to $304,000. This compares to $55,000 achieved
during the first six months of 1994, an increase of $249,000 or 453%. The
Company has sold two franchise territories in 1995, with a total of 17
territories sold to date.

Sales of the Company's linear products (primarily videotape and text-based
products), marketed under the label USA Training, amounted to $461,000 for the
six months ended June 30, 1995. This represents a decrease of $155,000 or 25%
for the comparable period in 1994. The decline in sales of these products is
consistent with industry trends. Due to the relative size of ITC's linear
products division in comparison to ITC, this decline is not considered
significant.

Cost of sales represented 57.3% and 59.6% of total revenues for the six
months ended June 30, 1995 and June 30, 1994, respectively. The relative
decrease in cost of sales on a comparative basis is attributable to an
increase in the sale of higher margin Company-owned courseware.

Selling, general and administrative expenses aggregated $3,596,000 for the
six months ended June 30, 1995. This compares to expenses of $3,091,000 for
the same period in 1994. The increase of $505,000 was due primarily to
additional operational, sales and marketing costs. The amount of selling,
general and administrative expenses as a percentage of sales has decreased
slightly, from 33% to 32% for the six months ended June 30, 1995, relative to
the same period in 1994.

For the six months ended June 30, 1995, income before provision for income
taxes totaled $1,231,000, as compared to $670,000 for 1994, an increase over
the prior year of $561,000 or 84%. The significant improvement in income
before provision for income taxes over 1994 was a result of several factors,
including the Company's improved revenue performance, the reduction in royalty
expense due to the Company's purchase of the INVOLVE(R) products in February
1995, and the Company's efforts to control costs.

Net income for the six months ended June 30, 1995 aggregated $726,000 or 28
cents per share, as compared to $402,000 or 17 cents per share during the
first six months of 1994. The substantial increase in net income during 1995
was a result of the same factors that contributed to the increases in income
before provision for income taxes.

As a result of the Company's available tax loss carryforwards (as described
in Note 9 to the Consolidated Financial Statements included elsewhere herein),
the Company has, historically, paid a minimal amount of income taxes. However,
as a result of the Company's increasing level of profitability, combined with
the restrictions on the utilization of the net operating losses acquired with
CI, the Company began to pay a larger amount of income taxes beginning in the
second quarter of 1995. These increased levels of tax payments are expected to
continue, provided the Company continues to improve its level of
profitability.

Fiscal Year 1994 Compared to Fiscal Year 1993

Total revenues for 1994 were $22,337,000, representing a 62% increase over
the prior year's revenues of $13,812,000. The Company continued to be
positively affected by the September 30, 1993 acquisition of CI, its
subsidiaries, Comsell and ComSkill, and the related "PC Skills Learning
Library." Revenues for 1994 included a full year of CI's results of
operations, while 1993 consolidated results of operations included only three
months of CI's revenues and expenses. The dramatic improvement in revenues
also resulted from increases in demand for nearly all of the Company's
products and services. Sales of the Company's off-the-shelf multimedia
products, hardware systems, linear training products and ComSkill franchises
all increased substantially, while the only area that experienced a decline
was the Company's custom services business.

Revenues from off-the-shelf courseware increased 84% to $15,597,000 in 1994,
as compared to revenues of $8,473,000 during 1993. Several factors that
contributed to the increase include additional resources and channels being
focused on sales and distribution of off-the-shelf courseware, an aggressive
product development schedule that resulted in the release of 32 new courses in
1994 and a product marketing strategy that positioned all of the Company's
four "Learning Libraries" as a single product family. The Company anticipates
that revenues will

12
<PAGE>

continue to grow due to the Company's broadened product lines, additional
sales and distribution channels, and continued investments in new products and
technologies.

During 1994, sales of hardware systems aggregated $4,353,000, representing a
103% increase from the revenue level achieved in 1993 of $2,149,000. Similar
to 1993, in 1994 increases in hardware sales resulted from competitive pricing
strategies and the increase in off-the-shelf courseware sales.

Revenues from custom courseware and consulting services amounted to
$2,387,000 in 1994, a decrease of $802,000 or 25% over the corresponding
period in 1993. The decline in custom and consulting revenues was the result
of the Company's decision to de-emphasize the custom business as an
independent endeavor, while focusing only on those custom opportunities that
satisfy the needs of the Company's existing customer base.

Cost of sales represented 61% and 59% of total revenues for the years ended
1994 and 1993, respectively. The relative increase in cost of sales on a
comparative basis is attributable to several factors including the significant
increase in hardware sales that bear extremely low margins and an increase in
sales of third-party and partnership courseware that bear much lower margins
than sales of Company-owned courseware. However, for the most part, these
increases in cost of sales have been offset by increases in sales of Company-
owned courseware and franchise fees. Sales from products owned solely by the
Company accounted for 72% and 36% of total multimedia courseware sales in 1994
and 1993, respectively.

Selling, general and administrative expenses totalled $6,693,000 in 1994, an
increase of $1,139,000 or 21% over the corresponding period of 1993. The
overall increase in selling, general and administrative expenses was due
primarily to the acquisition of CI and expanded operational support for
ComSkill. The Company realized substantial savings relative to the independent
operations of ITC and CI, as indicated by the decline in selling, general and
administrative expenses as a percentage of revenue from 40% in 1993 to 30% in
1994.

Income before the provision for income taxes aggregated $1,965,000 in 1994.
This represents an increase of $1,929,000 over the corresponding result of
$36,000 achieved for fiscal 1993. The dramatic increase in income before the
provision for income taxes in 1994 resulted from several factors including
substantial savings in selling, general and administrative expenses as a
result of combining the overhead structures of ITC and CI, substantial
increases in sales of off-the-shelf courseware, and sales of new ComSkill
franchises.

Net income for 1994 was $1,160,000, compared to $21,000 in 1993, an increase
of $1,139,000. The significant increase in net income for 1994 resulted from
the same factors that affected the increase in income before the provision for
income taxes.

Due to the Company's available net operating loss carryforwards, the Company
paid minimal taxes during 1994 and 1993. As of December 31, 1994, the Company
had available $1,500,000 of net operating loss carryforwards of which
$1,400,000 is restricted in use to approximately $245,000 per year, as such
net operating loss carryforwards were acquired from CI.

13
<PAGE>

Quarterly Results

The following table sets forth certain quarterly financial information. This
information is derived from unaudited consolidated financial statements which
include, in the opinion of Management, all normal and recurring adjustments
which the Company considers necessary for a fair treatment of the results for
such periods. The operating results for any quarter are not necessarily
indicative of results for any future periods.

<TABLE>
<CAPTION>
NET INCOME
NET GROSS NET INCOME (LOSS) PER
REVENUES MARGIN (LOSS) SHARE
-------- ------ ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER
SHARE DATA)
<S> <C> <C> <C> <C>
1993 QUARTERS
First................................ $ 2,734 $1,226 $ 45 $ .03
Second............................... 2,498 1,145 (32) (.02)
Third................................ 3,335 1,211 21 .01
Fourth............................... 5,245 2,015 (13) (.01)
------- ------ ------ -----
Total.............................. $13,812 $5,597 $ 21 $ .01
======= ====== ====== =====
1994 QUARTERS
First................................ $ 4,168 $1,759 $ 111 $ .05
Second............................... 5,266 2,090 290 .12
Third................................ 5,497 2,009 262 .11
Fourth............................... 7,406 2,850 497 .20
------- ------ ------ -----
Total.............................. $22,337 $8,708 $1,160 $ .48
======= ====== ====== =====
1995 QUARTERS
First................................ $ 4,970 $2,177 $ 265 $ .10
Second............................... 6,286 2,626 461 .18
------- ------ ------ -----
Total.............................. $11,256 $4,803 $ 726 $ .28
======= ====== ====== =====
</TABLE>

The Company's net revenues have steadily increased on a comparable quarterly
basis with the fourth quarter of each year being the Company's strongest.
Management believes that the fourth quarter will continue to be the Company's
strongest because many of the Company's customers expend a disproportionate
share of their annual training budgets during the last quarter of the calendar
year. Additionally, gross margin and net income on a quarterly basis are
affected by the relative sales mix between courseware and hardware related
products.

LIQUIDITY AND CAPITAL RESOURCES

Working capital at June 30, 1995 was $4,620,000 as compared with $4,095,000
at December 31, 1994. The increase of $525,000 or 13% was due to the strong
results of operations of the Company during the first six months of 1995, as
described above.

The Company experienced an increase in cash provided from operations in the
first six months of 1995. Operations generated approximately $2,171,000 of
cash compared with $1,375,000 for the six month periods ended June 30, 1995
and 1994, respectively. Additionally, in February 1995, the Company incurred
$1,320,000 of long-term debt in order to finance the acquisition of the
INVOLVE(R) products as described below. The cash flow provided by operations
and the proceeds from long-term debt was used primarily as follows: $2,154,000
to fund the Company's product development efforts, $361,000 for certain
capital expenditures, $212,000 for principal payments on the Company's long-
term debt, and $80,000 for repayment of the Company's revolving line of
credit.

The Company's borrowings against its revolving credit line decreased from
$80,000 at December 31, 1994 to zero at June 30, 1995. Subsequent to June 30,
1995, the Company negotiated an increase in the amount

14
<PAGE>

available pursuant to its line of credit from $2,000,000 to $2,500,000. Any
borrowings under this line of credit will bear interest at prime plus one-half
percent.

Accounts receivable at June 30, 1995 aggregated $7,258,000 due primarily to
two factors: the strong revenue performance in the second quarter of 1995 and
a $1,713,000 sale to a customer at the end of the second quarter. Although the
entire order was shipped and billed prior to June 30, 1995, due to the
specific terms of this contract, only $578,000 was recognized as revenue in
the second quarter of 1995.

On February 17, 1995, ITC purchased all right, title and interest in the 51
lessons in the INVOLVE(R) Series. These products, which were developed for ISA
by ITC, had previously been sold by the Company under an exclusive third-party
sales and marketing agreement. The aggregate purchase price for this
transaction was approximately $1,590,000. The price included the forgiveness
of a receivable from ISA of approximately $90,000, and purchase of
approximately $180,000 of INVOLVE(R) inventory. The Company borrowed
$1,000,000 under its available line of credit and paid $500,000 in cash.
Subsequently, the Company paid down the line of credit borrowings with the
proceeds from a five year term loan in the original principal amount of
$1,320,000.

During 1993, in order to effectuate the acquisition of CI and its
subsidiaries, Comsell and ComSkill, the Company exchanged 610,000 shares of
its Common Stock for all of the issued and outstanding equity of CI and its
affiliates. Additionally, the Company borrowed $971,000 from a bank ($900,000
of which was in the form of a then new five year term loan) in order to
refinance an obligation of CI.

15
<PAGE>

BUSINESS

HISTORY

The Company was founded in 1977 to provide videotape-based technical skills
training primarily for the industrial processing and manufacturing
marketplace. During the 1980's, the Company converted its training programs
from linear-based videotape to interactive multimedia laser video disc in
order to utilize emerging computer technologies and to enhance the
effectiveness and quality of its training products. In addition to
technological enhancements, the Company focused on developing new training
courseware and expanding its customer base. In 1985, the Company merged with
the International Institute of Applied Technology, a publicly held hardware
systems integrator, and began trading on NASDAQ under the symbol ITCC.

In September 1993, ITC acquired Comsell and ComSkill, the operating
subsidiaries of CI. The acquisition of CI brought to ITC an additional product
line (the "PC Skills Learning Library") and additional distribution channels,
including dealers, distributors and the ComSkill franchise network. In
February 1995, the Company purchased INVOLVE(R), an instrumentation learning
library, from ISA. This courseware was originally developed by the Company for
ISA. Management believes that these acquisitions, in addition to the internal
development of the "Technical Skills," "Basic Skills," and "Regulatory
Training" learning libraries, and further expansion of the "PC Skills Learning
Library," have strategically positioned the Company to meet the evolving and
diverse training needs of its customers.

CORPORATE STRATEGY

. Expand product platforms and development efforts;

. Increase distribution capabilities; and

. Pursue strategic acquisitions and marketing alliances.

Expand Product Platforms and Development Efforts. The Company must adapt its
products to changing multimedia delivery platforms. The Company currently
delivers its "PC Skills" and "Regulatory Training" products in both analog and
digital formats, while the "Basic Skills," "Technical Skills," and
"Instrumentation Training" programs are offered only in analog laser video
disc format. Recently, the Company accelerated its conversion efforts for
release of these products in a digital format, because the Company regards
digital delivery, including the use of CD-ROM, as the future of the industry,
although laser video disc remains today's standard of performance and
reliability.

As the market for interactive multimedia training expands, customers can be
expected to analyze and demand more performance features and benefits such as
portability and networking. In addition to improving ITC's current product
features (such as customization capabilities, administration and record
keeping), ITC anticipates investing in and developing new elements of
multimedia to further increase performance. See "Risk Factors -- Dependence on
Product Development, -- Changing Technologies and -- Intellectual Property."

Increase Distribution Capabilities. The Company seeks to expand its United
States and international distribution channels, including direct sales,
dealers, distributors and franchises. Management anticipates hiring additional
persons to support the Company's direct sales efforts and to continue to
expand reseller channels. This effort is intended to result in a more focused
approach to the customer.

As the market for technology-based training continues to develop, ITC
intends to increase its efforts to distinguish its products from competitive
products and services. As a result, the Company intends to hire additional
marketing specialists to further develop the Company's corporate, library, and
product marketing strategies in support of the Company's sales and
distribution efforts. See "Risk Factors -- Developing Market and --
Distribution."

16
<PAGE>

Pursue Strategic Acquisitions and Marketing Alliances. The Company intends
to broaden and expand its range of training products by acquiring companies or
products and, potentially, entering into marketing alliances with developers
of compatible products. The acquisitions of CI and of the "INVOLVE(R)
Instrumentation Learning Library" reflect the Company's commitment to this
strategy. The Company intends to use a portion of the net proceeds realized
from the Offering to fund the Company's acquisition strategy. There can be no
assurance that the Company will locate suitable acquisition candidates or
consummate acquisitions on terms favorable to the Company. See "Risk
Factors -- Acquisitions."

In certain product areas, such as "PC Skills," the Company intends to enter
into development and marketing alliances with key software applications
developers to assist in the production of ITC training programs. The Company
believes that these alliances might provide a number of competitive
advantages, including access to partners' product development plans, source
material and distribution channels. To date, the Company has not entered into
any marketing alliances with key software applications developers. There can
be no assurance that the Company will enter into marketing alliances with any
software applications developers.

INDUSTRY OVERVIEW

The proliferation of personal computers throughout organizations and the
increase in multimedia capabilities of computers are two factors driving the
demand for interactive training and educational courseware. According to
Training Magazine, the domestic market for off-the-shelf and custom training
products, outside services and hardware increased from $6.2 billion in 1991 to
$7.0 billion in 1994. Training Magazine also estimates that the total domestic
market for corporate training (including training staff salaries and
expenditures for seminars) increased from $43.2 billion in 1991 to $50.6
billion in 1994. Training Magazine reports that 46% of companies utilized
computer-based training in 1994.

Management believes that the demand for its products and services is being
driven by (i) an increasingly competitive environment in which businesses seek
to improve efficiency and productivity through a more skilled workforce; (ii)
corporate downsizing, resulting in increased training requirements for
employees who perform multiple job tasks; (iii) the significant increase in
the use of computers throughout all levels of organizations, increasing the
number of employees who need training; and (iv) the continuous introduction
and evolution of computer technologies, contributing to the need for
continuing education and training. Moreover, International Data Corporation
("IDC") has concluded that technology-based applications are extremely
effective methods of communicating instructional information to learners.
Studies by IDC indicate that the time required for instruction is reduced
measurably by using interactive technologies in a training environment, and
that comprehension and retention rates are improved appreciably as well.

The foregoing industry trends suggest the potential demand for certain of
ITC's specific product libraries. For example, growth in the "PC Skills"
training market is being fueled by the expanded use of personal computers. The
demand for "Regulatory Training" has already increased due to new Federal
government mandated training for Occupational Safety and Health Act ("OSHA")
regulations and other safety related issues. Demand for the Company's
"Technical Skills" and "Instrumentation Training" programs also has increased
because of both an increasingly competitive operating environment and the
restructuring and downsizing of corporate America that, together, drive the
need for more efficient cross-trained employees. ITC's management believes
that the Company is well positioned to capitalize on both the increases in the
overall training market and the transition to technology-based learning
solutions. See "Risk Factors -- Developing Market, -- Changing Technologies
and -- Competition."

PRODUCTS AND SERVICES

ITC is a full-service training company specializing in the development,
production, marketing and sale of both off-the-shelf and custom interactive
multimedia training courseware for corporate, educational and governmental
organizations. The Company offers in excess of 200 titles in its ACTIV(R)
learning libraries, and 300 videotape programs. ITC's courseware employs the
power of full-screen, full-motion video on a PC platform.

17
<PAGE>

These courses combine high quality video and sound with the PC's capabilities
for graphics and automatic recordkeeping.

Although the analog laser video disc system remains today's standard for
quality multimedia, the Company recognizes the importance of emerging digital
technologies. ITC has begun the process of converting its courseware to
digital-based CD-ROM platforms. Currently ITC's "Regulatory Training" and "PC
Skills" learning libraries are available in both MPEG and DVI digital formats,
while "Basic Skills," "Technical Skills" and "Instrumentation Training" are in
the process of being converted to MPEG. The Company expects the conversion to
expand the possibilities for portability and networking.

The vast majority of ITC's products are interactive multimedia programs;
however, the Company does market, sell and distribute certain linear training
products (primarily videotape and text-based) through its USA Training
division.

Along with its products, the Company offers a variety of services to support
the customer's training programs. ITC works with each customer to determine
technological requirements and appropriate courseware. If desired, certain
courses can be customized to meet customer needs. Upon request, ITC personnel
handle the on-site installation of hardware and courseware. Customer assurance
representatives respond promptly to customer inquiries received during and
after business hours. The Company believes that its training solutions may
command a premium price relative to other technology-based training programs.

ACTIV(R) Learning Libraries

The ACTIV(R) "PC SKILLS LEARNING LIBRARY" provides a powerful, yet flexible,
approach to understanding personal computers while unlocking the productivity
power of today's new software tools. This ACTIV(R) learning library includes
introductory courses on PCs, Windows(R) software applications, including
Microsoft(R), Lotus(R), and WordPerfect(R) products, as well as several
programs on DOS-based applications.

The ACTIV(R) "REGULATORY TRAINING LEARNING LIBRARY" addresses many of the
OSHA, Environmental Protection Agency and Department of Transportation
regulations. Titles include "Confined Space Entry," "Transport of Hazardous
Material," "Lockout/Tagout," "Environmental Awareness," "Powered Industrial
Vehicles," and "Bloodborne Pathogens." ITC's ACTIV(R) regulatory courses
provide broad regulatory training coverage and updates for regulatory changes.

The ACTIV(R) "TECHNICAL SKILLS LEARNING LIBRARY" is designed to increase
technical competency. These uniquely customizable courses use "real world"
workplace situations and terminology, providing a practical atmosphere for the
learner. The ACTIV(R) "Technical Skills Learning Library" offers nearly 100
courses that address specific technical training needs in the areas of
fundamentals, quality, safety, mechanical and electrical/electronics.

The ACTIV(R) "INVOLVE(R) INSTRUMENTATION LEARNING LIBRARY" offers "Technical
Skills" courses relating to instrumentation topics. Developed by ITC in
association with ISA, the 51 customizable courses comprising the library
communicate complex instrument, multi-craft and process operations. Lessons
are available on every level from the basic principles of process control to
the hands-on skills necessary to keep a process running.

The ACTIV(R) "INVOLVE(R) INSTRUMENTATION LEARNING LIBRARY" includes broad
training topics ranging from distributed control to instrument calibration and
from troubleshooting to industrial measurement.

The ACTIV(R) "BASIC SKILLS LEARNING LIBRARY" provides students with a
working understanding of math, reading, writing and interpersonal skills. The
courses can be customized to highlight situations that may be encountered by
employees on the job.

18
<PAGE>

ACTIV(R) Administration System

The Company's proprietary ACTIV(R) Administration System offers customers a
method of managing, reporting and tracking their employees' individual and
group training data and progress when training with ITC's ACTIV(R) programs.

Hardware

The Company sells personal computers and related multimedia hardware
products to customers who require hardware to implement training programs. In
addition to being an authorized IBM Industry Remarketer and a Value Added
Reseller, the Company utilizes the products of Compaq, Gateway and other
computer hardware manufacturers. Such hardware is integrated with ITC's
ACTIV(R) 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.

PRODUCT DEVELOPMENT

The Company has made substantial investments in product development. ITC
products are developed both internally and with third-party contractors. After
a subject has been researched and identified for product development, the
first step in developing a new training program is to develop a working
knowledge of the underlying content by consulting subject matter experts,
existing courses, and product reference materials. The Company then writes a
program script, which covers all of the relevant concepts, tasks to be
completed, interactive features and tests to measure achievement and to
reinforce the lesson. During and after development of a script, the Company's
developers, programmers, video directors, and graphic designers simultaneously
plan and develop the course's performance characteristics and video graphics.
The final script and graphics are integrated into a single file. Video and
audio are recorded onto a master videotape which is subsequently mastered as a
laser video disc and a CD-ROM. The workbook is finalized and printed, then
course diskettes are prepared. The program is then tested to ensure that each
course delivers the desired education and training. After testing is complete,
the product is released for sale.

The Company performs most of its own courseware development activities and
retains control over course development performed by outside developers and
subcontractors. All deliverables produced by outside developers or
subcontractors remain the Company's property.

Expenditures for product development were $969,870 in fiscal year 1993,
$1,543,128 in fiscal year 1994, and $755,576 for the six month period ended
June 30, 1995 (excluding the INVOLVE(R) product purchase of $1,398,507). See
"Risk Factors -- Dependence on Product Development," "Use of Proceeds," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SALES, MARKETING AND CUSTOMER SUPPORT

Distribution of the Company's products is managed through a number of
channels. Primarily, the Company employs a direct sales force that is
responsible for sales of the Company's interactive multimedia products
throughout North America. The Company also markets its products through
dealers, distributors and, in the case of the ACTIV(R) "PC Skills Learning
Library," its ComSkill franchisees. In foreign markets, with the exception of
Canada, the Company markets its products through dealers and distributors.

Direct Sales

The Company's direct sales force and support organization is responsible for
the distribution of ITC's interactive multimedia products throughout North
America, with the exception of those territories that have been

19
<PAGE>

sold to ComSkill franchisees as exclusive territories for distribution of the
ACTIV(R) "PC Skills Learning Library." The efforts of the direct sales and
support personnel accounted for approximately 84% of the Company's multimedia
revenues in 1994. At June 30, 1995, ITC employed fifteen direct sales people
responsible for generating new customer sales and eight customer service
representatives providing ongoing support for the Company's existing customer
base. In addition, the Company employs an internal sales staff to assist the
direct sales force and customer service representatives. With the exception of
Canada, the Company does not have a direct sales employee presence in
international markets.

The Company develops direct sales contacts from many sources. The Company
has established a presence at many of the training industry's national and
regional trade shows. Trade shows permit the Company to promote and enhance
its image as a leading publisher and distributor of self-directed training
programs and to initiate customer contacts, which are followed by a direct
salesperson or customer service representative communication. The Company also
contacts potential clients referred by existing customers.

Indirect Sales

The Company also distributes its products through a variety of indirect
sales channels, which include dealers, distributors and franchisees. The
indirect sales channels generated 16% of the Company's revenues in 1994. The
Company believes that utilizing indirect sales channels offers the Company
additional opportunities to broaden its customer base. By having the Company's
dealers, distributors and franchisees establish their own presence in local
markets, ITC accesses customers in some markets that could not be targeted as
cost-effectively by the Company's direct sales force. The Company currently
utilizes approximately twelve dealers and distributors in foreign markets,
excluding Canada.

The franchises sold through ITC's ComSkill subsidiary employ their own
direct sales personnel to market and sell ITC's products throughout their
protected territories. ComSkill franchises have exclusive rights to sell "PC
Skills" products and nonexclusive rights to sell other ITC products. In
connection with the Company's strategy to expand distribution channels, ITC
intends to explore relationships with additional prospective resellers of its
courseware.

ComSkill Franchises

ComSkill offers and sells franchises to independent operators or franchisees
throughout the United States and Canada for the sale and distribution of ITC
"PC Skills" courseware and the operation of personal computer multimedia
learning centers within exclusive territories. Under the terms of the
franchise agreements, the franchisees have the right to resell and lease "PC
Skills" courseware to third parties. Territories are based on IDC's
statistical survey of personal computer distribution in each of the top 150
Metropolitan Statistical areas in the United States as of January 1, 1993, and
on county and postal zip codes. All franchise agreements are for a ten year
term, with eligibility for renewal for an additional ten years, subject to
certain terms and conditions. Franchisees are also granted the right to use
the trademark "ComSkill" with logo, registered with the U.S. Patent and
Trademark Office on January 3, 1995, Registration No. 1,871,652. ComSkill
currently has seventeen territories established.

Customer Support

The Company provides customer support in several ways. First, each sale is
based upon an analysis of the customer's training needs. Second, ITC offers
"1-800" telephone support to its customers during normal business hours.
Third, the Company solicits feedback from new and existing customers regarding
service improvements and requests for new products.

CUSTOMERS

ITC's ACTIV(R) courseware has been purchased by over 5,000 companies,
including many Fortune 1,000 companies, and other major organizations. These
organizations span a wide range of industries including

20
<PAGE>

industrial processing and manufacturing, telecommunications, utilities,
government and education. The following table lists certain of the Company's
customers within each of the identified industries. The organizations listed
below (or their affiliates) represent some of the customers that have
purchased in excess of $100,000 of products from the Company since January 1,
1994.

<TABLE>
<CAPTION>
PROCESS/MFG. TELECOMMUNICATIONS UTILITIES GOVERNMENT EDUCATION OTHER
----------------- ------------------- -------------- ----------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Martin Marietta BellSouth Carolina Power Administrative DeKalb County Talent Tree
Utility Services, Telecommunications, and Lighting Offices of the (GA) Board of Personnel
Inc. Inc. Company U.S. Courts Education Services
Ford Motor NYNEX Illinois Power Navy Public CSX
Company Company Works Center Transportation
General Electric The Southern Health Canada Excel
Company Companies Corporation
North Star Steel PEPCO Revenue Canada First Union
Company National Bank
of North
Anheuser-Busch Statistics Canada Carolina, N.A.
</TABLE>

No customer accounted for more than 7% of revenues in 1994. Less than 10% of
the Company's 1994 revenues were derived from foreign sales.

INTELLECTUAL PROPERTY

The Company considers its training programs to be proprietary and relies on
a combination of statutory and common law copyright, trademark and trade
secret laws, customer licensing agreements, employee and third-party
nondisclosure agreements and other methods to protect its proprietary rights.
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 also participates as a limited partner.

The Company is the owner of certain trademarks and service marks filed in
the United States Patent and Trademark Office:

ACTIV, Reg. No. 1,542,258, expiring June 6, 2009

ACTIV (with logo), Reg. No. 1,541,251, expiring May 30, 2009

ITC (with logo), Reg. No. 1,456,363, expiring September 8, 2007

ITC, Reg. No. 1,483,827, expiring April 5, 2008

ComSkill (with logo), Reg. No. 1,871,652, expiring January 3, 2001

INVOLVE, Reg. No. 1,655,283 (originally registered in the name of
Instrument Society of America and assigned to the Company by assignment
dated March 13, 1995 and filed in the United States Patent and Trademark
Office), expiring September 1996.

The Company's trademarks and service marks are eligible for renewal at the
time of their expiration and may be maintained indefinitely by the Company,
provided the Company is still using the trademark or service mark and fulfills
the United States Patent and Trademark Office's filing requirements.

Additionally, the Company has filed trademark applications for the
trademarks "Enginuity" (one for products and another for services) and "USA
Training," which applications are currently pending in the United States
Patent and Trademark Office. See "Risk Factors -- Intellectual Property."

21
<PAGE>

COMPETITION

There are many companies engaged in the business of providing training and
instructional materials. These companies include providers of traditional
instructor-led training, multimedia developers and sellers, textbook
publishers, manufacturers of videotapes, training films and others, all of
which compete for available training funds. At present, there are also several
providers of interactive multimedia training products. Management believes
that the number of companies providing interactive 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. Management believes that its five "Learning
Libraries" offer the broadest array of interactive multimedia training
products and services available. See "Risk Factors -- Competition."

EMPLOYEES

At June 30, 1995, the Company and its subsidiaries employed a total of 78
people, all of whom are full-time. 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.

FACILITIES

The Company currently occupies 28,431 square feet of office, warehouse and
production space in a commercial building located at 13515 Dulles Technology
Drive, Herndon, Virginia. The lease expires in June of 1999. Further, the
Company occupies approximately 6,450 square feet of office space in a
commercial building located at One Buckhead Plaza, Suite 1500, 3060 Peachtree
Road, Atlanta, Georgia. This lease expires in January of 1996. All facilities
are in good condition and are adequate for the Company's use.

LEGAL PROCEEDINGS

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

22
<PAGE>

MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The Directors and Executive Officers of the Company are as follows:

<TABLE>
<CAPTION>
NAME AGE TITLE
- ---- --- -----
<S> <C> <C>
James H. Walton...................... 62 Chairman of the Board, President and
Chief Executive Officer
Gerald H. Kaiz....................... 56 Vice Chairman of the Board, Executive
Vice President and Secretary
Steven L. Roden...................... 45 Director, Executive Vice President and
Chief Executive Officer of ComSkill
Elaine H. Babcock.................... 38 Senior Vice President of Sales
Philip J. Facchina................... 33 Vice President, Treasurer and Chief
Financial Officer
Elizabeth E. Tomaszewicz............. 49 Vice President, President of ComSkill
Robert F. VanStry.................... 45 Vice President
Thomas M. Balderston................. 39 Director
Daniel R. Bannister.................. 65 Director
John D. Sanders...................... 57 Director
Richard E. Thomas.................... 68 Director
</TABLE>

James H. Walton is Chairman of the Board, President 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.

Gerald H. Kaiz is Vice Chairman of the Board, Executive Vice President and
Secretary of ITC. Mr. Kaiz has been a director and officer of ITC since 1977.
Prior to the founding of ITC, Mr. Kaiz was Manager of Training Consulting for
NUS Corporation (1967-1977). Mr. Kaiz holds a B.S. in Physics and an M.S. in
Nuclear Engineering from the Massachusetts Institute of Technology.

Steven L. Roden, a director since 1993, is Chief Executive Officer of
ComSkill and Executive Vice President of ITC. 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 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.

Elaine H. Babcock is Senior Vice President of Sales of ITC. In this
capacity, she is 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 with a Communications degree from the University of Maryland.

Philip J. Facchina is Vice President, Treasurer and Chief Financial Officer
of ITC. Prior to joining ITC in October 1992, Mr. Facchina served as Treasurer
and Chief Financial Officer of Facchina Construction Company, Inc. Prior to
then, Mr. Facchina served as Vice President of Finance and Administration for
E. C. Ernst, Inc. He is a former audit manager of Arthur Young & Company (now
Ernst & Young LLP). 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, and is a C.P.A.

23
<PAGE>

Elizabeth E. Tomaszewicz is a Vice President of ITC and President of
ComSkill. Prior to joining the Company, Ms. Tomaszewicz served as Senior Vice
President of Sales and Marketing of TRO Learning, Inc. ("TRO") from 1989 to
1993. Prior to TRO, she served as Executive Vice President, Marketing and
Field Operations of Applied Learning International, Inc. Ms. Tomaszewicz holds
a B.S. from the University of Massachusetts.

Robert F. VanStry is a Vice President of ITC. 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.

Thomas M. Balderston, a director since 1993, has been a partner of TDH, a
venture capital fund group, from 1985 to present. He is also director of
Actronics, Inc. Prior to TDH, he was Assistant Vice President of Middle Market
Lending for the Bank of Boston. Mr. Balderston holds an M.B.A. from the
Anderson School of Management at UCLA and a B.A. from Williams College.

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.

John D. Sanders, a director since 1977, is Chairman and Chief Executive
Officer of Tech News Inc., publishers of Washington Technology newspaper. 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. In addition,
Mr. Sanders is a registered representative (inactive) with Wachtel & Co., Inc.
Mr. Sanders is a member of the Board of Directors of the following public
companies: Daedalus Enterprises, Inc., an electronics specialty consultant;
Information Analysis, Inc., a supplier of computer software services; and Data
Measurement Corporation, a manufacturer of specialized measuring equipment.

Richard E. Thomas, a director since 1982, was Chairman of the Board,
President and Chief Executive Officer of Radiation Systems, Inc., a
communications systems manufacturer, from 1978 until 1994, at which time
Radiation Systems, Inc. was merged into COMSAT Corporation and Mr. Thomas
became the President of COMSAT RSI.

The Company has three classes of directors. Each class serves staggered
terms of three years in duration. The terms of Messrs. Balderston, Roden, and
Walton are due to expire in 1997. The terms of Messrs. Bannister and Kaiz are
due to expire in 1996. The terms of Messrs. Sanders and Thomas are due to
expire in 1998. Directors are elected by a plurality of the votes cast at the
Company's annual meeting of shareholders. Directors who are employees of the
Company receive no extra compensation for serving as directors. Non-employee
directors are paid $1,500 per quarter and $250 per meeting.

COMMITTEES OF THE BOARD OF DIRECTORS

Compensation Committee. The Board of Directors has a three-member
Compensation Committee, the members of which are outside directors. Messrs.
Thomas, Sanders and Bannister serve on this Committee. The Committee
recommends salaries and other compensation of the executive officers of the
Company for action by the entire Board.

Audit Committee. The Board of Directors also has established an Audit
Committee which is comprised of the same outside directors as the Compensation
Committee. The Audit Committee acts in an oversight capacity to review
quarterly and year-end financial processes, and meets with the Company's
auditors to review their reports and recommendations.

EMPLOYMENT AGREEMENTS

The Company has entered into employment agreements with its executive
officers. The agreements are generally subject to termination upon (i) death
(with certain individuals' beneficiaries receiving up to $5,000 in death
benefits); (ii) disability; or (iii) upon 45-60 days notice (depending upon
the individuals) by the Company. The agreements provide for 34 months of
severance pay to Messrs. Walton and Kaiz, twelve months of severance pay to
Messrs. Facchina and Roden and Ms. Tomaszewicz, and ten months of severance
pay to Ms. Babcock

24
<PAGE>

and Mr. VanStry (with certain exceptions for liquidation other than in
connection with the transfer of all Company assets to another entity as in a
merger or consolidation). The agreements with Ms. Babcock, Ms. Tomaszewicz and
Mr. Facchina specify that upon certain changes of control, Ms. Babcock and Ms.
Tomaszewicz would receive twelve months salary as severance pay if they are
terminated or voluntarily leave within one year of the effective date of such
an occurrence and Mr. Facchina would receive 24 months salary as severance pay
upon a change of control.

In addition to base salary, each officer is eligible to receive salary
increases, bonuses, stock option grants, pension and profit sharing
arrangements and other employee benefits that may from time to time be awarded
or made available. Messrs. Walton and Kaiz are required to give the Company
twelve months notice of resignation, while the other executive officers must
provide from 45-120 days notice. During the notice period, all officers
receive salary. The agreements also provide for certain paid sick or
disability leave and reimbursement of certain other medical expenses not
covered by the Company's group insurance. See "Risk Factors -- Dependence on
and Need for Key Personnel."

EXECUTIVE COMPENSATION

The following information is being furnished with respect to the Company's
compensation of its Chief Executive Officer ("CEO") and its executive officers
whose annual salary and bonus exceeded $100,000 for the most recent fiscal
year, for services rendered to the Company during each of the last three
completed fiscal years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------------ ------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS
POSITION YEAR SALARY($) BONUS($)(B) COMPENSATION($)(C) GRANTED(#)
- ------------------ ---- --------- ----------- ------------------ ------------
<S> <C> <C> <C> <C> <C>
James H. Walton....................... 1994 133,183 80,000 13,470 0
President & CEO 1993 132,088 0 10,455 0
1992 117,808 48,000 11,713 2,000

Gerald H. Kaiz........................ 1994 112,332 30,000 11,858 0
Executive Vice President & Secretary 1993 117,783 0 9,220 0
1992 109,965 10,000 10,998 0

Steven L. Roden....................... 1994 120,609 45,000 12,930 0
Executive Vice President of ITC & 1993 29,800(a) 0 2,503 30,000
CEO of ComSkill 1992 0 0 0 0

Elaine H. Babcock..................... 1994 86,770 37,500 9,150 30,000
Senior Vice President 1993 80,233 0 6,688 0
1992 72,106 10,000 7,469 0

Philip J. Facchina.................... 1994 87,366 60,000 23,460(d) 0
Vice President, Chief 1993 72,852 0 28,906(d) 15,000
Financial Officer & Treasurer 1992 11,181 5,000 0 9,000

Robert F. VanStry..................... 1994 90,623 30,000 8,078 0
Vice President 1993 75,670 0 6,166 0
1992 71,595 7,875 7,469 0
</TABLE>
- --------

(a) Mr. Roden was hired by the Company as of September 30, 1993, the date of
the CI acquisition. Salary compensation represents amounts paid by the
Company to Mr. Roden after the acquisition of CI.
(b) Bonus compensation represents amounts paid to the executive pursuant to
the Company's Incentive Compensation Plan for the year earned.
(c) Represents the fair market value of shares allocated pursuant to the
Company's Employee Stock Ownership Plan.
(d) Includes amounts paid by Company for certain education related expenses.

25
<PAGE>

OPTION GRANTS AND POTENTIAL REALIZABLE VALUES

Ms. Babcock received options to purchase 30,000 shares during 1994. Messrs.
Walton and Facchina received options to purchase 50,000 shares and 25,000
shares, respectively, during the first quarter of 1995.

OPTION EXERCISES AND VALUES FOR 1994

The following table sets forth, as to each of the named executive officers,
information with respect to option exercises during 1994 and the status of
their options on December 31, 1994.

<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL AT FISCAL YEAR-
SHARES VALUE YEAR-END (#) END ($)
ACQUIRED ON REALIZED EXERCISABLE (E)/ EXERCISABLE(E)/
NAME EXERCISE (#) ($) UNEXERCISABLE (U) UNEXERCISABLE (U)
- ---- ------------ -------- ------------------- --------------------
<S> <C> <C> <C> <C>
James H. Walton......... -- -- 28,000(E) 74,674(E)
Gerald H. Kaiz.......... -- -- 26,000(E) 63,674(E)
Steven L. Roden......... -- -- 10,000(E) 55,000(E)
20,000(U) 110,000(U)
Elaine H. Babcock....... -- -- 13,000(E) 33,125(E)
30,000(U) 0(U)
Philip J. Facchina...... -- -- 10,000(E) 57,500(E)
14,000(U) 85,000(U)
Robert F. VanStry....... -- -- 13,000(E) 32,125(E)
</TABLE>

STOCK OPTIONS AND WARRANTS

At June 30, 1995, the Company had outstanding options to purchase Common
Stock under three separate incentive stock option plans. Two plans, the 1992
Director Incentive Stock Option Plan and the 1992 Key Employee Incentive Stock
Option Plan, were adopted by the Board of Directors and approved by the
shareholders during 1992. These plans effectively have replaced the Company's
1982 Incentive Stock Option Plan that expired in 1992.

Pursuant to the 1982 Incentive Stock Option Plan, at June 30, 1995, there
were 72,000 options outstanding at exercise prices ranging from $2.00 to
$3.16. This plan has no additional options available for grant. Options
exercisable at June 30, 1995 expire as follows: 48,000 in 1995 and 24,000 in
1996.

Pursuant to the 1992 Key Employee Incentive Stock Option Plan, at June 30,
1995, there were 94,000 options outstanding at exercise prices ranging from
$4.13 to $6.75, and 20,500 options were available for additional grants.
Options outstanding at June 30, 1995 expire as follows: 2,000 in 1996 and
92,000 in 1997 through 2002. Options for 34,000 shares were exercisable at
June 30, 1995.

Pursuant to the 1992 Director Incentive Stock Option Plan, at June 30, 1995,
there were 6,000 options outstanding at an exercise price of $5.00, and 29,000
options were available for additional grants. All 6,000 of these options were
exercisable at June 30, 1995 and expire in 1997. All options granted pursuant
to this plan are nonqualified.

From time to time, the Company has granted other nonqualified options to
certain individuals. At June 30, 1995, there were 120,000 of these options
outstanding at exercise prices ranging from $2.13 to $7.50. Options
outstanding at June 30, 1995 expire as follows: 9,000 in 1995, 6,000 in 1996,
and 105,000 in 1999 through 2001. Options for 90,000 shares were exercisable
at June 30, 1995.

In connection with a 1987 $1,275,000 debenture financing, the Company
entered into warrant agreements with certain investment advisors. Pursuant to
the warrant agreements, these advisors may purchase up to 7,286 shares (14,572
shares adjusted for the 1992 stock split) of the Company's Common Stock at an
original purchase price of $7.00 per share ($3.50 per share as adjusted for
the 1992 stock split). Such purchase must occur in increments of 1,000 shares
or more. The warrant agreements expire July 31, 1998 and are transferrable
only once.

26
<PAGE>

The warrant agreements grant the holders certain "piggyback" registration
rights only if the Company registers shares represented by other outstanding
warrants or options. The Company has no current plans to register for sale any
shares underlying outstanding warrants or options.

INCENTIVE COMPENSATION PLAN

Historically, the Company has adopted an Incentive Compensation Plan ("ICP")
for each fiscal year, designed to provide additional incentive to the
Company's officers to achieve the growth and profitability goals of the
Company. The maximum compensation payable under the ICP is determined by the
Board of Directors at the beginning of each fiscal year and no payments are
made under the ICP in the event that the targeted revenues and net income for
ITC, as set forth in the ICP, are not achieved. Payments to the participants
in the ICP are based upon the participant achieving targeted revenues, or in
the case of those officers with both revenue and net income responsibilities,
achieving both targeted revenues and targeted net income. Payments made under
the ICP are calculated at the end of each fiscal year and are paid to the
eligible participants within fifteen days after completion of the annual audit
of the Company's financial statements and the Company's filing of its Annual
Report on Form 10-KSB with the Commission.

EMPLOYEE STOCK OWNERSHIP PLAN

Effective January 1, 1992, the Company established an Employee Stock
Ownership Plan ("ESOP") for the benefit of substantially all employees. The
purpose of the ESOP is to enable participating employees to share in the
growth of the Company. The ESOP requires that 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 annually. Each participating
employee is allocated shares based upon his or her relative annual
compensation. The shares vest over time and are fully vested when an employee
has six years of service with the Company. The ESOP does not require any
monetary contribution from the participating employee, but has a minimum
eligibility requirement of 1,000 hours of service in any plan year.

The ESOP is administered by three Trustees who are subject to the terms and
conditions of a separate trust agreement which specifies their duties.

Each ESOP participant is eligible for distribution of benefits no later than
the 60th day after the close of the plan year in which any of the following
events occur: (i) the participant attains the age of 65; (ii) the occurrence
of the tenth anniversary in which the participant commenced participation in
the plan; or (iii) the participant terminates his service with the Company.

LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS

The Company's Restated Bylaws provide that in the absence of fraud or bad
faith, the Company will indemnify its directors and officers to the full
extent authorized by Maryland law against all liability and expenses actually
and reasonably incurred in connection with or resulting from any action, suit
or proceeding in which such person becomes involved by reason of having been
an officer or director of the Company. Insofar as indemnification for
liabilities arising under the Securities Act of 1933, as amended ("Securities
Act") may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that, in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act, and is therefore
unenforceable.

There is no pending litigation or proceeding involving a director or officer
of the Company as to which indemnification is being sought, nor is the Company
aware of any pending or threatened litigation that may result in claims for
indemnification by any director or officer.

27
<PAGE>

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As a result of the Company's 1993 acquisition of CI and its subsidiaries,
Comsell and ComSkill, all of the issued and outstanding equity securities of
CI were converted into the Company's Common Stock (the "Conversion"). In
connection with the Conversion, a total of 610,000 shares of ITC Common Stock
("Conversion Shares") were issued to fifteen persons, including the Selling
Shareholders. Mr. Roden received 63,811 shares of ITC Common Stock. TDH II
Limited ("TDH"), of which Mr. Balderston is a partner, received 432,911 shares
of ITC Common Stock in exchange for its equity interest in CI, and an
additional 10,000 shares of ITC Common Stock for certain consulting services
related to the transaction. ITC issued 113,278 shares of its Common Stock to
CI's other shareholders in the CI acquisition. The Conversion Shares and the
10,000 additional shares issued to TDH are subject to certain resale
restrictions under Rule 144 promulgated under the Securities Act. To the
extent that these shares are not sold in this Offering, they will begin to
become eligible for future sale, subject to the limitations of Rule 144,
commencing in October 1995.

Piggyback Registration Rights

As part of the acquisition of CI, the Company granted certain "piggyback"
registration rights to the holders of Conversion Shares. Under the Agreement
and Plan of Merger, dated September 30, 1993, between CI and ITC (the "Merger
Agreement"), ITC must, upon request, include former CI shareholders'
Conversion Shares in any registration statement that ITC files with the
Commission relating to a public offering of ITC Common Stock. Such "piggyback"
rights are conditioned upon inclusion of Conversion Shares in the offering by
the managing underwriter for the offering. Notwithstanding such "piggyback"
rights, the Company retains control over all actions regarding a registration
statement. The holders of Conversion Shares bear a proportionate amount of any
underwriting discounts for their participation in the "piggyback" offering,
and any expenses incurred by legal counsel retained by holders of Conversion
Shares. The "piggyback" rights of holders of Conversion Shares expire on
September 30, 1996.

Demand Registration Rights

Under the terms of the Merger Agreement, the Company granted to the holders
of Conversion Shares a one-time demand registration right to register the
Conversion Shares for sale. This one-time demand registration right may only
be exercised upon request by a "Forty Percent Holder," defined as any holder
of forty percent of the Conversion Shares, or a group of persons acting
together to hold forty percent of the Conversion Shares. Given the
distribution of stock in the Conversion, the registration rights may be
exercised only if TDH elects to make such a demand. The demand rights expire
in October 1997. TDH has agreed not to exercise the demand registration right
for a period of 360 days after the Offering and will not offer, sell or
otherwise dispose of the Company's Common Stock for 180 days after the
Offering. See "Underwriting."

28
<PAGE>

PRINCIPAL SHAREHOLDERS

STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS

The following table sets forth information as to the beneficial ownership of
each person known to the Company to own more than 5% of the outstanding Common
Stock, directors, named executive officers, and directors and officers as a
group, as of September 28, 1995.

<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING(/1/)
----------------- ----------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
- ------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Thomas M. Balderston(/2/)............. 442,911 16.6% 290,843(/3/) 8.2%
One Rosemont Business Campus, Suite
301
919 Conestoga Road
Rosemont, PA 19010
Gruber & McBaine Capital Management,
Inc.(/4/)............................ 175,450 6.6% 175,450 5.0%
50 Osgood Place
San Francisco, CA 94133
James H. Walton(/5/).................. 243,299 9.1% 243,299 6.9%
5213 N. 23rd Road
Arlington, VA 22207
Gerald H. Kaiz(/6/)................... 175,714 6.6% 175,714 5.0%
14406 Nadine Drive
Rockville, MD 20853
Steven L. Roden(/7/).................. 86,062 3.2% 73,300(/8/) 2.1%
305 Glenn Lake Drive
Atlanta, GA 30327
John D. Sanders....................... 30,550 1.1% 30,550 0.9%
4600 N. 26th Street
Arlington, VA 22207
Richard E. Thomas..................... 18,870 0.7% 18,870 0.5%
8207 Light Horse Court
Annandale, VA 22003
Daniel R. Bannister................... 9,000 0.3% 9,000 0.3%
8414 Brookwood Court
McLean, VA 22102-1749
Elaine H. Babcock(/9/)................ 17,977 0.7% 17,977 0.5%
16 Bogastow Circle
Millis, MA 02054
Philip J. Facchina(/10/).............. 37,489 1.7% 37,489 1.3%
8428 Boss Street
Vienna, VA 22182
Robert F. VanStry(/11/)............... 16,644 0.6% 16,644 0.5%
3157 Kirkwell Place
Herndon, VA 22071
Directors and Executive Officers as a
group (11 persons)................... 1,187,516 44.5% 1,022,686 28.9%
</TABLE>

29
<PAGE>

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

(1) Assumes all 875,000 shares of Common Stock offered by the Company are
sold, 3,355,088 shares are outstanding after the Offering, and options to
purchase 187,000 shares are exercised. Unless otherwise indicated, each
person has sole voting and investment rights with respect to the shares
specified opposite his name.
(2) Mr. Balderston's shares are held by TDH II Limited, with which Mr.
Balderston is affiliated. Mr. Balderston does not have sole voting power
for the shares.
(3) Assumes the sale of 152,068 shares in the Offering. See "Selling
Shareholders."
(4) Includes 23,600 shares held by Jon D. Gruber and 13,300 shares held by J.
Patterson McBaine, the sole directors and executive officers of Gruber &
McBaine Capital Management, Inc. ("GMCM"). Also includes 71,000 shares
held by Laquintas Partners, L.P., a California limited partnership in
which GMCM and Messrs. Gruber and McBaine are general partners, and 1,500
shares held by CMJ Investments, L.P., a California limited partnership in
which GMCM and Messrs. Gruber and McBaine are general partners. GMCM and
Messrs. Gruber and McBaine disclaim beneficial ownership of the shares
held by Laquintas Partners, L.P. and CMJ Investments, L.P.
(5) Includes 1,500 shares owned by spouse and 5,799 shares held by Employee
Stock Ownership Plan. Includes 72,000 shares which Mr. Walton is entitled
to acquire pursuant to stock options.
(6) Includes 1,000 shares owned by spouse and 5,214 shares held by Employee
Stock Ownership Plan. Includes 6,000 shares which Mr. Kaiz is entitled to
acquire pursuant to stock options.
(7) Includes 2,251 shares held by Employee Stock Ownership Plan. Includes
20,000 shares which Mr. Roden is entitled to acquire pursuant to stock
options.
(8) Assumes the sale of 12,762 shares in the Offering. See "Selling
Shareholders."
(9) Includes 3,777 shares held by Employee Stock Ownership Plan.
(10) Includes 2,489 shares held by Employee Stock Ownership Plan.
(11) Includes 3,524 shares held by Employee Stock Ownership Plan.

30
<PAGE>

SELLING SHAREHOLDERS

The following shareholders are selling Common Stock in the Offering.

<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING NUMBER OF THE OFFERING
--------------------- SHARES ---------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT OFFERED NUMBER PERCENT
- ------------------------ ---------- ------------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TDH II Limited.............. 442,911 16.6% 152,068 290,843 8.2%
Steven L. Roden............. 86,062 3.2% 12,762 73,300 2.1%
Harvey Shuster.............. 29,734 1.1% 5,947 23,787 0.7%
Glenn Crews................. 12,849 0.5% 2,510 10,339 0.3%
Phyllis Fobes............... 8,567 0.3% 1,713 6,854 0.2%
---------- -------- ------- ---------- --------
TOTAL..................... 580,123 21.7% 175,000 405,123 11.5%
========== ======== ======= ========== ========
</TABLE>

DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 4,000,000 shares of
Common Stock, $.10 par value, of which 2,480,088 shares were issued and
outstanding as of September 28, 1995. Upon completion of the Offering, the
issued and outstanding capital stock of the Company will consist of 3,355,088
shares of Common Stock (3,512,588 shares if the over-allotment option is
exercised).

The Common Stock has voting rights and is entitled to dividends from sources
available therefor when, as and if declared by the Board of Directors. See
"Price Range of Common Stock and Dividend Policy." Shareholders have no
preemptive rights and no rights to convert their Common Stock into any other
securities. The holders of Common Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the shareholders.
In the event of a liquidation, dissolution or winding up of the Company,
holders of Common Stock are entitled to share ratably in all assets remaining
after payment of liabilities and the liquidation preference of any then
outstanding preferred stock. There are no redemption or sinking fund
provisions applicable to the Common Stock. All outstanding shares are, and all
shares to be sold and issued as contemplated hereby will be, fully paid and
nonassessable and legally issued.

The Company has three classes of directors, which may tend to delay, defer,
or prevent a change of control of the Company. In addition, the following
statutes may have a similar effect.

Business Combination Statute. The Maryland General Corporation Law
establishes special requirements with respect to "business combinations"
between Maryland corporations and "interested stockholders" unless exemptions
are applicable. Among other things, the law prohibits, for a period of five
years, a merger and other specific or similar transactions between a company
and an interested stockholder and requires a supermajority vote for such
transactions after the end of such five year period.

"Interested stockholders" are all persons owning beneficially, directly or
indirectly, more than 10% of the outstanding voting stock of a Maryland
corporation. "Business combinations" include any merger or similar transaction
subject to a statutory vote and additional transactions involving transfers of
assets or securities in specified amounts to interested stockholders or their
affiliates. Unless an exemption is available, transactions of these types may
not be consummated between a Maryland corporation and an interested
stockholder or its affiliates for a period of five years after the date on
which the stockholder first became an interested stockholder and, thereafter,
may not be consummated unless recommended by the board of directors of the
Maryland corporation and approved by the affirmative vote of at least 80% of
the votes entitled to be cast by all holders of outstanding shares of voting
stock and 66 2/3% of the votes entitled to be cast by all holders of
outstanding shares of voting stock other than the interested stockholder. A
business combination with an interested stockholder which is approved by the
board of directors of a Maryland corporation at any time before an interested
stockholder first becomes an interested stockholder is not subject to the
special voting requirements.

31
<PAGE>

An amendment to a Maryland corporation's charter electing not to be subject
to the foregoing requirements must be approved by the affirmative vote of at
least 80% of the votes entitled to be cast by all holders of outstanding
shares of voting stock and 66 2/3% of the votes entitled to be cast by holders
of outstanding shares of voting stock who are not interested stockholders. Any
such amendment is not effective until eighteen months after the vote of
stockholders and does not apply to any business combination of a corporation
with a stockholder who was an interested stockholder on the date of the
stockholder vote. The Company has not adopted any such amendment to its
Charter.

Control Share Acquisition Statute. The Maryland General Corporation Law
imposes limitations on the voting rights of shares of capital stock acquired
in a "control share acquisition." The Maryland statute defines a "control
share acquisition" at the 20%, 33 1/3% and 50% acquisition levels and requires
a two-thirds stockholder vote (excluding shares owned by the acquiring person
and certain members of management) to accord voting rights to stock acquired
in a control share acquisition. The statute also requires Maryland
corporations to hold a special meeting at the request of an actual or proposed
control share acquiror, generally, within 50 days after a request is made with
the submission of an "acquiring person statement," but only if the acquiring
person (a) posts a bond for the cost of the meeting and (b) submits a
definitive financing agreement to the extent that financing is not provided by
the acquiring person. In addition, unless the charter or bylaws provide
otherwise, the statute gives the Maryland corporation, within certain time
limitations, various redemption rights if there is a stockholder vote on the
issue and the grant of voting rights is not approved, or if an "acquiring
person statement" is not delivered to the target within ten days following a
control share acquisition. Moreover, unless the charter or bylaws provide
otherwise, the statute provides that if, before a control share acquisition
occurs, voting rights are accorded to control shares which results in the
acquiring person having majority voting power, then minority stockholders have
appraisal rights. An acquisition of shares may be exempted from the control
share statue, provided that a charter or bylaw provision is adopted for such
purpose prior to the control share acqusition. There are no such provisions in
the charter or bylaws of the Company.

Reference is made to the full text of the foregoing statutes for their
entire terms, and the summary contained in this Prospectus is not intended to
be complete. The summary is qualified in its entirety by the statutes, copies
of which have been filed as exhibits to the Registration Statement of which
this Prospectus is a part.

32
<PAGE>

UNDERWRITING

Subject to the terms and conditions set forth in the Underwriting Agreement,
the Company and the Selling Shareholders have agreed to sell to each of the
Underwriters named below, and each of the Underwriters, for whom Ferris, Baker
Watts, Incorporated is acting as Representative, has severally agreed to
purchase the number of shares of Common Stock set forth opposite its name
below.

<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERWRITERS TO BE PURCHASED
------------ ----------------
<S> <C>
Ferris, Baker Watts, Incorporated........................... 960,000
Davenport & Co. of Virginia, Inc. .......................... 10,000
Equitable Securities Corporation............................ 10,000
Friedman, Billings, Ramsey & Co., Inc. ..................... 10,000
Interstate/Johnson Lane Corporation......................... 10,000
Janney Montgomery Scott Inc. ............................... 10,000
Pennsylvania Merchant Group, Ltd............................ 10,000
Scott & Stringfellow, Inc. ................................. 10,000
Branch, Cabell & Co......................................... 5,000
Koonce Securities Inc....................................... 5,000
Moors & Cabot, Inc.......................................... 5,000
Wachtel & Co., Inc.......................................... 5,000
---------
Total..................................................... 1,050,000
=========
</TABLE>

The nature of the Underwriters' obligations under the Underwriting Agreement
is such that all shares of Common Stock offered, excluding shares covered by
the over-allotment option granted to the Underwriters, must be purchased if
any are purchased. The Underwriting Agreement provides that the obligations of
the several Underwriters thereunder are subject to the approval of certain
legal matters by legal counsel and to certain other conditions.

The Company and the Selling Shareholders have been advised by the
Representative that the several Underwriters propose to offer the shares of
Common Stock to the public initially at the price set forth on the cover page
of this Prospectus and to certain dealers at such price less a concession not
in excess of $0.41 per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $0.10 per share to other dealers. The
public offering price and concessions and reallowances to dealers may be
changed by the Representative.

The Company has granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to an additional
157,500 shares of Common Stock to cover over-allotments, at the same price per
share to be paid by the Underwriters for the other shares offered hereby. If
the Underwriters purchase any such additional shares pursuant to this option,
each of the Underwriters will be committed to purchase such additional shares
in approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments, if any,
in connection with the Offering made hereby.

In connection with the Offering, certain Underwriters and/or their
affiliates may engage in passive market making transactions in the Common
Stock of the Company on the NASDAQ National Market System in accordance with
Rule 10b-6A under the Exchange Act during the period before commencement of
offers or sales of the Common Stock. The passive market making transactions
must comply with applicable volume and price limits and be designated as such.

The Company and its executive officers and directors and certain
shareholders have agreed that for a period of 180 days after the date of this
Prospectus, they will not offer, sell or otherwise dispose of any shares of
the Company's Common Stock, in the open market without the prior written
consent of the Representative, except to effect exercises of options.

33
<PAGE>

The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including certain
liabilities under the Securities Act.

The Company has agreed to reimburse the Representative for expenses incurred
by the Representative in an amount not to exceed $27,500.

The Representative has informed the Company that it does not expect the
Underwriters to confirm sales of Common Stock offered by this Prospectus to
any accounts over which it exercises discretionary authority.

LEGAL OPINIONS

The validity of the Common Stock offered hereby will be passed upon for the
Company by Kirkpatrick & Lockhart LLP, Washington, D.C. Shapiro and Olander,
Baltimore, Maryland, has acted as counsel to the Underwriters.

EXPERTS

The consolidated financial statements of Industrial Training Corporation at
December 31, 1994 and 1993, and for each of the two years in the period ended
December 31, 1994 appearing in this Prospectus and in the Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of such firm as experts in accounting and auditing.

34
<PAGE>

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INDUSTRIAL TRAINING CORPORATION

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors............................................ F-2
Financial Statements
Consolidated Balance Sheets -- December 31, 1993 and 1994 and June 30,
1995 (Unaudited)....................................................... F-3
Consolidated Statements of Income -- Years Ended December 31, 1993 and
1994 and for the Six Months Ended June 30, 1994 and 1995 (Unaudited)... F-5
Consolidated Statements of Stockholders' Equity -- Years Ended December
31, 1993 and 1994 and for the Six Months Ended June 30, 1995 (Unau-
dited)................................................................. F-6
Consolidated Statements of Cash Flows -- Years Ended December 31, 1993
and 1994 and for the Six Months Ended June 30, 1994 and 1995 (Unau-
dited)................................................................. F-7
Notes to Consolidated Financial Statements.............................. F-8
</TABLE>

F-1
<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, 1994 and 1993, and the related
consolidated statements of income, 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, 1994 and 1993 and the
consolidated results of its operations and its cash flows for the years then
ended, in conformity with generally accepted accounting principles.

Vienna, Virginia Ernst & Young LLP
February 24, 1995

F-2
<PAGE>

INDUSTRIAL TRAINING CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, DECEMBER 31, 1995
1993 1994 (UNAUDITED)
------------ ------------ -----------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents (note 6). $ 126,136 $ 439,923 $ 1,178,642
Accounts receivable, net (notes 3,
6 and 7).......................... 4,930,087 7,293,477 7,257,710
Due from affiliates (note 4)....... 159,734 86,111 46,388
Inventories, net of reserve of
$83,400 at December 31, 1993;
$93,400 at December 31, 1994; and
$93,400 at June 30, 1995.......... 1,287,937 1,203,876 1,100,037
Prepaid expenses................... 182,378 118,446 305,846
----------- ----------- -----------
Total current assets............. 6,686,272 9,141,833 9,888,623
Property and equipment (notes 6 and
7):
Video and computer equipment....... 1,977,119 2,366,661 2,717,431
Furniture and fixtures............. 1,011,482 1,032,563 1,037,204
Leasehold improvements............. 79,254 89,106 95,111
Videotape masters.................. 144,180 144,180 144,180
----------- ----------- -----------
3,212,035 3,632,510 3,993,926
Less accumulated depreciation and
amortization...................... (2,141,487) (2,507,393) (2,814,069)
----------- ----------- -----------
Net property and equipment........... 1,070,548 1,125,117 1,179,857
Deferred program development costs,
net of accumulated amortization of
$1,682,017 at December 31, 1993;
$3,006,689 at December 31, 1994; and
$3,900,263 at June 30, 1995......... 4,139,859 4,358,315 5,618,824
Goodwill, net of accumulated
amortization of $40,299 at December
31, 1993; $206,284 at December 31,
1994; and $288,784 at June 30, 1995. 2,377,642 2,185,126 2,102,626
Investments in affiliates (note 4)... 269,180 245,887 220,976
Other................................ 98,615 73,769 73,658
----------- ----------- -----------
Total assets..................... $14,642,116 $17,130,047 $19,084,564
=========== =========== ===========
</TABLE>

See accompanying notes.

F-3
<PAGE>

INDUSTRIAL TRAINING CORPORATION

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
JUNE 30,
DECEMBER 31, DECEMBER 31, 1995
1993 1994 (UNAUDITED)
------------ ------------ -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Line of credit (note 6)............... $ 650,000 $ 80,000 $ --
Current installments of long-term debt
(note 7)............................. 770,593 328,637 580,726
Accounts payable...................... 1,555,659 2,112,271 2,247,594
Due to affiliates (note 4)............ 431,787 419,895 281,529
Accrued expenses:
Compensation and benefits............ 591,216 942,215 488,259
Royalties............................ 155,518 291,905 20,461
Other................................ 179,757 794,666 637,210
Deferred revenues.................... 212,682 77,648 712,847
Income taxes payable................. -- -- 300,000
----------- ----------- -----------
Total current liabilities........... 4,547,212 5,047,237 5,268,626
Deferred lease obligations.............. 111,730 119,316 111,968
Deferred income taxes (note 9).......... 463,498 1,136,522 1,239,062
Long-term debt (note 7)................. 1,101,462 772,826 1,614,198
----------- ----------- -----------
Total liabilities................... 6,223,902 7,075,901 8,233,854
Commitments (notes 4, 5 and 10)
Stockholders' equity (notes 8 and 11):
Common stock, $.10 par value,
4,000,000 shares authorized;
2,361,128 outstanding at December 31,
1993; 2,466,828 outstanding at Decem-
ber 31, 1994; and 2,473,328 outstand-
ing at June 30, 1995................. 236,113 246,683 247,333
Additional paid-in capital............ 5,275,685 5,698,147 5,714,402
Note receivable from ESOP............. (460,827) (358,177) (304,177)
Retained earnings..................... 3,368,890 4,528,947 5,254,461
----------- ----------- -----------
8,419,861 10,115,600 10,912,019
Treasury stock, at cost (3,404 shares
in 1993; 18,004 shares in 1994; and
17,704 shares at June 30, 1995)...... (1,647) (61,454) (61,309)
----------- ----------- -----------
Total stockholders' equity.......... 8,418,214 10,054,146 10,850,710
----------- ----------- -----------
Total liabilities and stockholders'
equity............................. $14,642,116 $17,130,047 $19,084,564
=========== =========== ===========
</TABLE>

See accompanying notes.

F-4
<PAGE>

INDUSTRIAL TRAINING CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
YEARS ENDED DECEMBER 31, (UNAUDITED)
-------------------------- ----------------------
1993 1994 1994 1995
------------ ------------ ---------- ----------
<S> <C> <C> <C> <C>
Revenues, net:
Courseware............... $ 11,662,493 $ 17,983,796 $7,673,944 $8,855,846
Hardware................. 2,149,482 4,353,219 1,689,701 2,399,786
------------ ------------ ---------- ----------
Total revenues, net (note
4)...................... 13,811,975 22,337,015 9,363,645 11,255,632
Cost of sales:
Courseware............... 6,136,043 9,440,595 3,929,673 4,003,156
Hardware................. 2,078,649 4,187,960 1,655,281 2,449,252
------------ ------------ ---------- ----------
Total cost of sales...... 8,214,692 13,628,555 5,584,954 6,452,408
------------ ------------ ---------- ----------
Gross margin............... 5,597,283 8,708,460 3,778,691 4,803,224
Selling, general and admin-
istrative expenses........ 5,553,840 6,693,221 3,090,546 3,596,371
Equity in earnings of af-
filiates.................. (123,657) (136,012) (70,154) (77,961)
------------ ------------ ---------- ----------
Income before interest and
provision for
income taxes.............. 167,100 2,151,251 758,299 1,284,814
Interest expense, net...... 131,298 186,194 87,826 54,300
------------ ------------ ---------- ----------
Income before provision for
income taxes.............. 35,802 1,965,057 670,473 1,230,514
Income tax expense (note
9)........................ 15,000 805,000 268,842 505,000
------------ ------------ ---------- ----------
Net income ................ $ 20,802 $ 1,160,057 $ 401,631 $ 725,514
============ ============ ========== ==========
Net income per common share
(note 1).................. $ .01 $ .48 $ .17 $ .28
============ ============ ========== ==========
Weighted average number of
shares
outstanding............... 1,959,206 2,427,707 2,377,875 2,588,176
============ ============ ========== ==========
</TABLE>

See accompanying notes.

F-5
<PAGE>

INDUSTRIAL TRAINING CORPORATION

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL NOTE
------------------- PAID-IN RECEIVABLE RETAINED TREASURY
SHARES PAR VALUE CAPITAL FROM ESOP EARNINGS STOCK TOTAL
--------- --------- ---------- ---------- ---------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1,
1993................... 1,720,928 $172,093 $2,036,180 $(553,084) $3,348,088 $ (1,791) $ 5,001,486
Treasury stock issued... -- -- 3,236 -- -- 264 3,500
Treasury stock acquired. -- -- (1,692) -- -- (120) (1,812)
Note payments........... -- -- -- 92,257 -- -- 92,257
New shares issued:
Stock options exer-
cised................. 20,200 2,020 44,961 -- -- -- 46,981
Comsell acquisition.... 620,000 62,000 3,193,000 -- -- -- 3,255,000
Net income............. -- -- -- -- 20,802 -- 20,802
--------- -------- ---------- --------- ---------- -------- -----------
Balance at December 31,
1993................... 2,361,128 236,113 5,275,685 (460,827) 3,368,890 (1,647) 8,418,214
Treasury stock issued... -- -- 2,007 -- -- 193 2,200
Treasury stock acquired. -- -- -- -- -- (60,000) (60,000)
Note payments........... -- -- -- 102,650 -- -- 102,650
New shares issued:
Stock issuance......... 100,000 10,000 402,500 -- -- -- 412,500
Stock options exer-
cised................. 5,700 570 17,955 -- -- -- 18,525
Net income............. -- -- -- -- 1,160,057 -- 1,160,057
--------- -------- ---------- --------- ---------- -------- -----------
Balance at December 31,
1994................... 2,466,828 246,683 5,698,147 (358,177) 4,528,947 (61,454) 10,054,146
Treasury stock issued... -- -- 1,505 -- -- 145 1,650
Note payments........... -- -- -- 54,000 -- -- 54,000
New shares issued:
Stock options exer-
cised................. 6,500 650 14,750 -- -- -- 15,400
Net income............. -- -- -- -- 725,514 -- 725,514
--------- -------- ---------- --------- ---------- -------- -----------
Balance at June 30, 1995
(unaudited)............ 2,473,328 $247,333 $5,714,402 $(304,177) $5,254,461 $(61,309) $10,850,710
========= ======== ========== ========= ========== ======== ===========
</TABLE>

See accompanying notes.

F-6
<PAGE>

INDUSTRIAL TRAINING CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED JUNE 30,
DECEMBER 31, (UNAUDITED)
------------------------ ----------------------
1993 1994 1994 1995
----------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income........................... $ 20,802 $ 1,160,057 $ 401,631 $ 725,514
Reconciling items:
Provision for deferred taxes....... 15,000 765,000 263,028 102,540
Depreciation and amortization...... 1,041,091 1,918,123 839,695 1,307,661
Salespeople awards of treasury
shares............................ 1,688 2,200 -- 1,650
Increase in reserve for doubtful
accounts.......................... 50,963 78,000 -- 45,000
Increase in reserve for inventory
obsolescence...................... 20,000 10,000 -- --
Loss on sale of property and equip-
ment.............................. 36,021 -- -- --
Changes in operating assets and li-
abilities:
Increase in accounts receivable.. (71,327) (2,441,390) (256,315) (9,233)
(Increase) decrease in inventory. (85,993) 74,061 (123,525) 103,839
(Increase) decrease in prepaid
expenses........................ (47,044) 63,932 (55,519) (187,400)
Decrease in due from affiliates,
net............................. 69,324 61,731 (14,613) (98,643)
Decrease in other assets......... 910 24,846 (49,462) 111
Increase in accounts payable..... 381,772 556,612 442,490 135,323
(Decrease) increase in accrued
expenses........................ (336,083) 1,094,320 (872) (882,856)
Increase (decrease) in deferred
revenues........................ 212,682 (135,034) (60,024) 635,199
Increase in income taxes payable. -- -- -- 300,000
Increase (decrease) in deferred
lease obligation................ 45,403 7,586 (11,971) (7,348)
----------- ----------- --------- -----------
Net cash provided by operating activ-
ities............................... 1,355,209 3,240,044 1,374,543 2,171,357
Cash flows from investing activities:
Deferred program development costs. (969,870) (1,543,128) (712,935) (2,154,083)
Capital expenditures............... (457,915) (420,475) (47,679) (361,416)
Acquisition of Comsell............. (85,072) (57,469) -- --
Investment in affiliates........... (28,007) (38,268) (34,593) --
----------- ----------- --------- -----------
Net cash used in investing activi-
ties................................ (1,540,864) (2,059,340) (795,207) (2,515,499)
Cash flows from financing activities:
Borrowings (repayments) under line
of credit......................... 550,000 (570,000) (240,000) (80,000)
Principal payments under long-term
debt.............................. (521,474) (742,204) (379,390) (212,152)
Payments under capital lease obli-
gations........................... (23,682) (28,388) (14,195) (14,387)
Proceeds from long-term debt....... -- -- -- 1,320,000
Issuance of common stock........... 46,981 431,025 18,464 15,400
Acquisition of treasury stock...... -- (60,000) (60,072) --
Employee stock option note collec-
tion.............................. 92,257 102,650 56,250 54,000
----------- ----------- --------- -----------
Net cash provided by (used in) fi-
nancing activities................ 144,082 (866,917) (618,943) 1,082,861
----------- ----------- --------- -----------
Net (decrease) increase in cash...... (41,573) 313,787 (39,607) 738,719
Cash and cash equivalents at begin-
ning of period...................... 167,709 126,136 126,136 439,923
----------- ----------- --------- -----------
Cash and cash equivalents at end of
period.............................. $ 126,136 $ 439,923 $ 86,529 $ 1,178,642
=========== =========== ========= ===========
</TABLE>

See accompanying notes.

F-7
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(INFORMATION AT JUNE 30, 1995 AND FOR THE SIX MONTHS ENDED JUNE 30, 1994 AND
1995 IS UNAUDITED)

1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a) Basis of Presentation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary, CI Acquisition Corporation ("CI") (see Note
13). Significant intercompany accounts and transactions have been eliminated
in consolidation. The accompanying interim unaudited consolidated financial
statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of the Company, all
adjustments, consisting of only normally recurring adjustments necessary for a
fair presentation of the financial statements for these interim periods, have
been made. The results for the interim period ended June 30, 1995 are not
necessarily indicative of the results to be obtained for a full fiscal year.

b) Revenues and Costs

Revenues from courseware include both off-the-shelf and custom courseware
sales 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
venture/partnerships related to such courseware sales are reflected as
royalties and included in cost of sales in the financial statements.

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 1993 and 1994, the Company
recognized $90,000 and $450,000 of revenues from initial franchise fees.
Additionally, during the six month periods ended June 30, 1994 and 1995, the
Company recognized $40,000 and $190,000, respectively, of revenues from
initial franchise fees. These amounts have been included in courseware
revenues in the accompanying consolidated statements of operations.

Although the Company conducts certain of its business in foreign markets,
the Company mitigates its exposure to foreign currency risk by requiring
payments in U.S. dollars.

c) Deferred Program Development Costs

Costs of developing and producing off-the-shelf courseware have been
capitalized as deferred program development costs. 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 seven years. The net book value of the Company's deferred program
development costs at December 31, 1994 amounted to $1,881,000, $904,000,
$210,000, and $1,363,000 for the ACTIV(R) "PC Skills Learning Library," the
ACTIV(R) "Regulatory Training Learning Library," the ACTIV(R) "Basic Skills
Learning Library" and the ACTIV(R) "Technical Skills Learning Library,"
respectively. The net book value of the Company's deferred program development
costs at June 30, 1995 amounted to $1,741,000, $1,097,000, $192,000,
$1,294,000 and $1,294,000 for the ACTIV(R) "PC Skills Learning Library," the
ACTIV(R) "Regulatory Training Learning Library," the ACTIV(R) "Basic Skills
Learning Library," the ACTIV(R)

F-8
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
"Technical Skills Learning Library," and the ACTIV(R) "INVOLVE(R)
Instrumentation Learning Library," respectively. Periodically, the Company
assesses the net realizable value of program development costs by reviewing
past sales performances, current and planned future marketing activity,
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. The
related amortization expense and write downs to net realizable value are
included in the cost of sales and amount to approximately $617,000 and
$1,325,000 in 1993 and 1994, respectively, and $894,000 for the six months
ended June 30, 1995.

d) Cash and Cash Equivalents

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

e) Inventories

Inventories consist of video discs, videotapes, related hardware and
instructional materials. Inventories 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 five 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 amortization
expense amounted to approximately $305,000 and $366,000 for the years ended
1993 and 1994, respectively.

g) Investments in Affiliates

Investments in affiliated joint ventures and limited partnerships are
accounted for using the equity method and, accordingly, the initial costs 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 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 and net operating loss
carryforwards.

i) Net Income Per Common Share

Net income per common share is 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) Goodwill

The excess of purchase price over the fair value of net assets acquired
related to the acquisition of CI (see Note 2) has been recorded as goodwill.
Goodwill is being amortized using the straight-line method over an

F-9
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
estimated useful life of fifteen years. Amortization expense for the years
ended 1993 and 1994 amounted to approximately $40,000 and $166,000,
respectively. During 1994, the Company adjusted goodwill to reflect
adjustments to the value of net assets acquired from CI and to reflect
utilization of acquired tax benefits of CI (see Note 9). The net effect of
these two adjustments was to decrease the amount of goodwill originally
recorded by approximately $27,000. As part of its ongoing review, management
takes into consideration any events and circumstances which might indicate an
impairment to the carrying amount of goodwill. Factors that management uses,
among other things, to evaluate the continuing value of goodwill include sales
from the "PC Skills" product line, development of the ComSkill franchise
network and the value of contracts and agreements that were in place at the
date CI was acquired.

k) Reclassifications

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

2) ACQUISITION OF CI ACQUISITION CORPORATION AND SUBSIDIARIES

On October 8, 1993, Comaq Corporation, a then newly formed and wholly-owned
subsidiary of the Company, merged with CI. By virtue of the merger, all of the
issued and outstanding capital stock of CI was converted into and exchanged
for an aggregate of 610,000 shares of the Company's Common Stock, $.10 par
value per share. The Company issued an additional 10,000 shares of its Common
Stock for fees related to the acquisition. Additionally, the Company borrowed
$971,000 from a bank ($900,000 of which is in the form of a new five year term
loan) in order to refinance an obligation of the acquired company.

The transaction, which was valued at approximately $3,500,000 and was
effective as of September 30, 1993, was accounted for as a purchase
transaction. Accordingly, only three months results of operations were
included in the accompanying consolidated statement of income for 1993. As a
result of the transaction, the Company recorded goodwill of approximately
$2,418,000 which is being amortized over a fifteen year period beginning
October 1, 1993. By virtue of the merger, the Company acquired all of the
assets of CI and its two wholly-owned subsidiaries, Comsell Training, Inc.
("Comsell"), and ComSkill Learning Centers, Inc. ("ComSkill"). Comsell is
engaged in the business of producing and distributing multimedia-based
training courseware directed towards personal computer skills development.
ComSkill is a newly incorporated franchisor of Comsell training products (see
Note 13).

The following table sets forth proforma unaudited results of operations of
the Company for the year ended December 31, 1993, as if CI had been acquired
prior to January 1, 1993:

<TABLE>
<CAPTION>
1993
-----------
<S> <C>
Revenue...................................................... $17,986,715
Net loss..................................................... $ (394,888)
Net loss per share........................................... $ (.20)
</TABLE>

F-10
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

3) ACCOUNTS RECEIVABLE

Accounts receivable include the following:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1993 1994 1995
------------ ------------ ----------
<S> <C> <C> <C>
Trade accounts receivable................. $4,289,610 $7,245,294 $7,453,370
Unbilled contract receivables............. 749,199 242,279 82,008
Less allowance for doubtful accounts...... (202,714) (280,714) (325,714)
---------- ---------- ----------
Trade accounts receivable, net........ 4,836,095 7,206,859 7,209,664
Other receivables......................... 93,992 86,618 48,046
---------- ---------- ----------
$4,930,087 $7,293,477 $7,257,710
========== ========== ==========
</TABLE>

4) INVESTMENTS IN AND DUE FROM AFFILIATES

Investments in affiliates consist of the following at December 31:

<TABLE>
<CAPTION>
1993 1994
-------- --------
<S> <C> <C>
Limited partnerships................................... $192,392 $189,656
Joint venture with ITSC................................ 67,477 56,231
Joint venture with DynCorp............................. 9,311 --
-------- --------
$269,180 $245,887
======== ========
</TABLE>

The Company is a participant in five separate limited partnerships with
Industrial Training Partners, Ltd. (the "ITP Partnerships"). In all of the ITP
Partnerships, the Company is a 5% general partner. In certain of the ITP
Partnerships, the Company has acquired limited partnership interests as well.
The ITP Partnerships were formed to develop and produce various series of
training programs.

Under contracts to market the programs for the ITP Partnerships, ITC
receives 50% to 70% of the sales price for the costs of reproducing and
marketing the training materials. Sales of these programs were approximately
$2,289,000 and $2,291,000 in 1993 and 1994, respectively, and $1,112,000 for
the six months ended June 30, 1995. Royalties to the ITP Partnerships for
these sales amounted to $1,057,000 and $1,004,000 in 1993 and 1994,
respectively, and $455,000 for the six months ended June 30, 1995.
Additionally, in connection with the development of a new off-the-shelf
partnership program, the Company billed certain of these partnerships
approximately $292,000 and $51,000 in 1993 and 1994, respectively. Amounts
earned, but not billed to these partnerships, which are included in unbilled
receivables at December 31, 1993 and 1994, are $226,000 and none,
respectively. Moreover, to finance this development, the Company has
guaranteed a bank loan to one of the limited partnerships. At December 31,
1994, the outstanding balance of this loan was approximately $48,000. During
the first quarter of 1995, the outstanding balance on this loan was paid by
the partnership.

In prior years, the Company executed a 50-50 joint venture agreement with
DynCorp, and entered into contracts with the joint venture to develop and
produce additional training programs. The Company has contracts with the joint
venture to market the programs. Pursuant to the agreements, the Company
receives 50% of the sales price, the costs of reproducing and marketing the
training materials, and an additional 25% as its share of the joint venture's
profits. Revenues from these programs in 1993 and 1994 approximated $124,000
and $162,000, respectively.

F-11
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

5) LEASES

The Company has several noncancelable operating leases, primarily for office
space and transportation equipment, that expire over the next five years and
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, 1994 are as follows:

<TABLE>
<CAPTION>
YEARS ENDING DECEMBER 31:
-------------------------
<S> <C>
1995........................................................ $ 509,000
1996........................................................ 356,000
1997........................................................ 316,000
1998........................................................ 318,000
1999........................................................ 162,000
----------
$1,661,000
==========
</TABLE>

Rental expenses for operating leases for the years ended December 31, 1993
and 1994 were approximately $432,000 and $489,000, respectively.

6) LINE OF CREDIT

At December 31, 1994 and June 30, 1995, the Company had available a
revolving bank line of credit bearing interest at prime plus one-half percent
( 1/2%) in the amount of $2,000,000 and $2,500,000, respectively. The line is
collateralized by all the Company's business assets. The interest rate on
these borrowings at December 31, 1994 was 9%. At June 30, 1995, the Company
had no outstanding balance under the terms of the line of credit.

The loan agreement places certain restrictions on the Company including
limitations on borrowings and on the ability to merge or dispose of assets,
and requires the maintenance of minimum working capital and tangible net worth
ratios. Also, the Company is required to maintain an average compensating
balance of $50,000 with the bank, but may apply balances of the five limited
partnerships (see Note 4) to the requirement.

F-12
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

7) LONG-TERM DEBT

Long-term debt consists of the following at December 31:

<TABLE>
<CAPTION>
1993 1994
---------- ---------
<S> <C> <C>
Prime plus 1% (9.5% at December 31, 1994) note payable
to financial institution due in monthly installments of
$15,000 plus interest through November 1998, collater-
alized by accounts receivable, contract rights, inven-
tory, property and equipment and a $500,000 life insur-
ance policy on the Company's President................. $ 900,000 $ 705,000
8.0% note payable to financial institution due in
monthly principal and interest installments of $11,278
through December 1997, collateralized by the assignment
of interest in 200,000 shares of the Company's Common
Stock held by the ESOP, all of the Company's assets and
a $500,000 life insurance policy on the Company's Pres-
ident.................................................. 460,827 358,177
8.25% capital lease obligation (note 5)................. 66,674 38,286
Prime plus 1% note payable to financial institution due
in monthly principal and interest installments through
December 1994.......................................... 300,000 --
10.56% note payable to financial institution due in
monthly principal and interest installments of $12,816
through December 1994.................................. 144,554 --
---------- ---------
Total long-term debt................................ 1,872,055 1,101,463
Less current installments........................... (770,593) (328,637)
---------- ---------
Long-term debt, excluding current installments.......... $1,101,462 $ 772,826
========== =========
</TABLE>

Interest paid on all debt amounted to approximately $133,000 and $191,000 in
1993 and 1994, respectively.

Maturities of long-term debt at December 31, 1994, are as follows:

8) STOCK OPTIONS AND STOCK WARRANTS

At December 31, 1994, the Company had outstanding options to purchase Common
Stock under three separate incentive stock option plans. Two plans, the 1992
Director Incentive Stock Option Plan and the 1992 Key Employee Incentive Stock
Option Plan, were adopted by the Board of Directors and approved by the
shareholders during 1992. These plans effectively have replaced the Company's
1982 Incentive Stock Option Plan which expired in 1992.

Pursuant to the 1982 Incentive Stock Option Plan, at December 31, 1994,
there were 78,000 options outstanding at exercise prices ranging from $2.00 to
$3.16. This plan has no additional options available for grant. Options
exercisable at December 31, 1994 expire as follows: 54,000 in 1995 and 24,000
in 1996.

Pursuant to the 1992 Key Employee Incentive Stock Option Plan at December
31, 1994, there were 94,500 options outstanding at exercise prices ranging
from $4.13 to $6.75, and 20,500 options were available for

F-13
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
additional grants. Options outstanding at December 31, 1994 expire as follows:
500 in 1995, 3,000 in 1996 and 95,000 in 1997 through 2002. Options for 25,500
shares were exercisable at December 31, 1994.

Pursuant to the 1992 Director Incentive Stock Option Plan, at December 31,
1994, there were 6,000 options outstanding at an exercise price of $5.00, and
29,000 options are available for additional grants. Options exercisable at
December 31, 1993 expire in 1997. All options granted pursuant to this plan
are nonqualified.

From time to time, the Company has granted other nonqualified options to
certain individuals. At December 31, 1994, there were 45,000 of these options
outstanding at exercise prices ranging from $2.125 to $7.50. Options
outstanding at December 31, 1994 expire as follows: 9,000 in 1995, and 6,000
in 1996, and 30,000 in 1999 through 2001. Options for 15,000 shares were
exercisable at December 31, 1994.

The following table summarizes option activity:

<TABLE>
<CAPTION>
NONQUALIFIED OPTIONS QUALIFIED OPTIONS
--------------------- ------------------
1993 1994 1993 1994
---------- ---------- -------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning of year..... 36,400 29,400 114,200 152,500
Granted.............................. -- 30,000 55,500 30,000
Canceled or expired.................. (2,000) (10,400) (2,000) (300)
Exercised............................ (5,000) -- (15,200) (5,700)
--------- ---------- -------- --------
Outstanding at end of year........... 29,400 49,000 152,500 176,500
========= ========== ======== ========
</TABLE>

The Company also has outstanding 14,572 warrants to purchase common stock.
These warrants are exercisable at $3.50 and expire in 1998.

9) INCOME TAXES

The components of income tax expense are as follows:

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1993 1994
------------ ------------
<S> <C> <C>
Current:
Federal............................................. $ -- $ 30,000
State............................................... -- 10,000
------- --------
-- 40,000
Deferred:
Federal............................................. 12,000 659,300
State............................................... 3,000 105,700
------- --------
15,000 765,000
------- --------
$15,000 $805,000
======= ========
</TABLE>

The deferred tax provision relates primarily to differences between
financial statement and income tax treatment of program development cost and
net operating loss carryforwards. The Company paid federal and state income
taxes of $23,000 and $8,000 in 1993 and 1994, respectively, and $142,000
during the six months ended June 30, 1995.

F-14
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

The difference between income tax expense and the amount determined by
applying the federal statutory rate is as follows:

<TABLE>
<CAPTION>
1993 1994
------- --------
<S> <C> <C>
Federal statutory rate....................................... $12,000 $668,000
State income taxes, net of federal benefit................... 1,000 75,500
Amortization of goodwill..................................... 15,000 62,000
Benefit of graduated tax rates............................... (12,000) (12,000)
Other........................................................ (1,000) 11,500
------- --------
$15,000 $805,000
======= ========
</TABLE>

For the years ended December 31, 1993 and 1994, the Company utilized zero
and $1,550,000, respectively, of available net operating loss carryforwards.
At December 31, 1994, the Company had net operating loss carryforwards for
income tax purposes of approximately $100,000 (not including the prior net
operating losses acquired from CI, which are discussed below) which expire at
varying dates through 2008. No valuation allowance has been recognized to
offset the deferred tax assets related to these carryforwards.

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

<TABLE>
<CAPTION>
1993 1994
------- --------
<S> <C> <C>
Deferred program development costs........................... $70,000 $ 74,500
Depreciation................................................. 10,400 16,000
Allowance for doubtful accounts.............................. (12,100) (29,000)
Inventory reserves........................................... (6,800) (9,000)
Net operating loss and tax credits carryforwards............. (73,200) 630,500
Accrued compensation......................................... 30,400 67,500
Other........................................................ (3,700) 14,500
------- --------
$15,000 $765,000
======= ========
</TABLE>

F-15
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

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>
1993 1994
----------- -----------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.................... $ 75,500 $ 104,500
Inventory reserves................................. 50,500 41,500
Accrued compensation............................... 95,600 31,500
Net operating loss carryforwards................... 1,223,500 563,000
Alternative minimum tax and investment tax credit
carryforwards..................................... 35,000 65,000
Deferred lease obligation.......................... 41,500 44,500
Difference in depreciation......................... 84,150 68,000
Other.............................................. -- 16,478
----------- -----------
Total deferred tax assets........................ 1,605,750 934,478
Less valuation allowance........................... (577,864) (505,000)
----------- -----------
Net deferred tax assets.......................... 1,027,886 429,478
Deferred tax liabilities:
Product development costs, capitalized............. (1,491,384) (1,566,000)
----------- -----------
Total gross deferred tax liabilities............. (1,491,384) (1,566,000)
----------- -----------
Net deferred tax liabilities......................... $ (463,498) $(1,136,522)
=========== ===========
</TABLE>

As a result of the Company's acquisition of CI (see Note 2), the Company has
available approximately $1,400,000 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 $245,000 per year. Additionally,
the net operating loss is also subject to the separate return limitation year
(SRLY) rules as prescribed in the Code, which limit its utilization to the
extent CI generates income each year. During 1994, the Company utilized an
aggregate of $226,000 of the acquired net operating loss carryforwards of CI
to offset taxable income. As a result, deferred taxes have been reduced by
approximately $84,000. Due to the limitations 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 of CI.

10) COMMITMENTS

The Company has entered into separate employment agreements with Messrs.
Walton and Kaiz which are subject to termination upon death (with $5,000 death
benefit) or disability (as defined) or upon 60 days' notice by the Company
(with 34 months of severance pay except where the Company is liquidating). In
addition to base 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. If these officers resign, they must give the
Company twelve months' notice during which they continue to receive salary.
The contracts also provide certain payments for other benefits.

11) STOCKHOLDERS' EQUITY

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

F-16
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)
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 loan has a six year amortization period at an interest rate
of 8.0%. In 1994, the Company entered into an agreement with the bank whereby
the ESOP note was modified and extended. Based upon this modification, the
Company will make monthly installments of principal and interest through the
extension date of December 1997. The Company recognizes contribution expense
which was $106,000 and $108,000 for 1993 and 1994, respectively, based on the
cost of shares allocated for the period and any interest expense incurred.
Contributions to the ESOP amounted to approximately $151,000 and $135,000 in
1993 and 1994, respectively, including approximately $45,000 and $32,000 of
interest in 1993 and 1994, respectively. The fair market value of the 100,000
unearned shares at December 31, 1994 amounted to $750,000.

During 1994, the Company hired a new President of the ComSkill franchise
operation. At the date of hire, this executive executed a subscription
agreement to purchase 100,000 shares of the Company's Common Stock at $4.125
per share, the fair market value of the Company's Common Stock on the
effective date of the subscription agreement. As a result, during 1994, the
Company issued 100,000 shares of Common Stock to the executive for an
aggregate purchase price of $412,500. Additionally, the President was granted
30,000 stock options under the 1992 Key Employee Stock Option Plan and
received a commitment for up to an additional 60,000 stock options based on
performance.

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. No contribution was made by the Company during 1993 or 1994.

13) SUBSEQUENT EVENTS

On January 2, 1995, CI and Comsell were merged with and liquidated into the
Company. The merger and liquidation will have no effect on the Company's
financial reporting.

On February 17, 1995, ITC purchased all right, title and interest in the 51
video discs in the INVOLVE(R) Series ("INVOLVE(R)"). INVOLVE(R) had originally
been produced by ITC for the ISA and the Company had acted as the exclusive
third-party distributor for INVOLVE(R) in the United States. The aggregate
purchase price for this transaction was approximately $1,590,000. The purchase
price includes the forgiveness of a receivable from ISA of approximately
$90,000 and approximately $180,000 of INVOLVE(R) inventory. In order to
complete the purchase, ITC borrowed $1,000,000 under its available line of
credit and paid the balance of $500,000 in cash. Management refinanced the
line of credit borrowings to a five year term loan.

F-17
<PAGE>

INDUSTRIAL TRAINING CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)

(INFORMATION AT JUNE 30, 1995 AND FOR THE
SIX MONTHS ENDED JUNE 30, 1994 AND 1995 IS UNAUDITED)

14) QUARTERLY FINANCIAL DATA (UNAUDITED)

Financial data for the interim periods of 1993, 1994 and 1995 were as
follows (amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
NET INCOME
NET GROSS INCOME (LOSS)
REVENUE MARGIN (LOSS) PER SHARE
------- ------ ------ ---------
<S> <C> <C> <C> <C>
1993 QUARTERS
First........................................ $ 2,734 $1,226 $ 45 $.03
Second....................................... 2,498 1,145 (32) (.02)
Third........................................ 3,335 1,211 21 .01
Fourth....................................... 5,245 2,015 ( 13) (.01)
------- ------ ------ ----
Total...................................... $13,812 $5,597 $ 21 $.01
======= ====== ====== ====
1994 QUARTERS
First........................................ $ 4,168 $1,759 $ 111 $.05
Second....................................... 5,266 2,090 290 .12
Third........................................ 5,497 2,009 262 .11
Fourth....................................... 7,406 2,850 497 .20
------- ------ ------ ----
Total...................................... $22,337 $8,708 $1,160 $.48
======= ====== ====== ====
1995 QUARTERS
First........................................ $ 4,970 $2,177 $ 265 $.10
Second....................................... 6,286 2,626 461 .18
------- ------ ------ ----
Total...................................... $11,256 $4,803 $ 726 $.28
======= ====== ====== ====
</TABLE>

F-18
<PAGE>

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

NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR IN-
CORPORATED BY REFERENCE IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFOR-
MATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY
THE COMPANY, THE SELLING SHAREHOLDERS OR ANY OF THE UNDERWRITERS. THIS PRO-
SPECTUS DOES NOT CONSTITUTE ANY OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
BUY SUCH SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY CIRCUM-
STANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY
OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES,
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE FACTS SET FORTH IN
THE PROSPECTUS OR IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HERE-
OF.

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TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Additional Information.................................................... 2
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 5
Use of Proceeds........................................................... 7
Price Range of Common Stock and Dividend Policy........................... 8
Capitalization............................................................ 9
Selected Consolidated Financial Data...................................... 10
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 11
Business.................................................................. 16
Management................................................................ 23
Certain Relationships and Related Transactions............................ 28
Principal Shareholders.................................................... 29
Selling Shareholders...................................................... 31
Description of Securities................................................. 31
Underwriting.............................................................. 33
Legal Opinions............................................................ 34
Experts................................................................... 34
Index to Consolidated Financial Statements................................ F-1
</TABLE>

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1,050,000 SHARES

[LOGO OF ITC APPEARS HERE]

INDUSTRIAL TRAINING CORPORATION

COMMON STOCK

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P R O S P E C T U S

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FERRIS, BAKER WATTS
Incorporated

SEPTEMBER 29, 1995

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