<PAGE>   1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D. C. 20549


                                    FORM 10-Q


(Mark One)

 X       Quarterly report pursuant to Section 13 or 15(d) of the Securities
---      Exchange Act of 1934


FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997

OR

         Transition report pursuant to Section 13 or 15(d) of the Securities
---      Exchange Act of 1934

                         COMMISSION FILE NUMBER: 0-21773


                         FIREARMS TRAINING SYSTEMS, INC.

             (Exact name of registrant as specified in its charter)

         DELAWARE                                       57-0777018
(State or other jurisdiction of                        (I.R.S. Employer
incorporation or organization)                        Identification No.)

                            7340 MCGINNIS FERRY ROAD
                             SUWANEE, GEORGIA 30024
                    (Address of principal executive offices)

                         TELEPHONE NUMBER (770) 813-0180
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                           Yes  X                        No
                              -----                        -----

         As of January 30, 1998, there were (1) 20,413,126 shares of the
Registrant's Class A Common Stock and (2) no shares of the Registrant's Class B
Non-voting Common Stock outstanding.




<PAGE>   2


                         FIREARMS TRAINING SYSTEMS, INC.


                                      INDEX


<TABLE>
<CAPTION>

                           PART I.   FINANCIAL INFORMATION                                                    Page No.
<S>      <C>                                                                                                  <C>
         
ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:

         Condensed Consolidated Statements of Income
         Three and nine months ended December 31, 1997 and 1996 ...........................................      3

         Condensed Consolidated Balance Sheets
         December 31, 1997 and March 31, 1997 .............................................................      4

         Condensed Consolidated Statements of Cash Flows
         Nine months ended December 31, 1997 and 1996 .....................................................      5

         Notes to Condensed Consolidated Financial Statements .............................................      6

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         AND RESULTS OF OPERATIONS ........................................................................      8

         PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS ................................................................................     14

ITEM 5.  OTHER INFORMATION ................................................................................     14

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K .................................................................     15

         SIGNATURES .......................................................................................     16
</TABLE>

                                                                               2
<PAGE>   3


PART I.  FINANCIAL INFORMATION

ITEM 1.  CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

                         FIREARMS TRAINING SYSTEMS, INC.
                   CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                      (In thousands, except per share data)
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                           Three months ended            Nine months ended
                                                              December 31,                  December 31,
                                                         ------------------------     -----------------------
                                                            1997         1996            1997          1996
                                                         -----------  -----------     ---------     ---------
<S>                                                      <C>          <C>             <C>           <C>
Revenues                                                  $ 18,102      $ 25,667      $ 56,126      $ 64,805

Cost of revenues                                             9,079        12,557        26,425        30,537
                                                          --------      --------      --------      --------
Gross profit                                                 9,023        13,110        29,701        34,268
                                                          --------      --------      --------      --------

Operating expenses:
     Selling, general and administrative expenses            2,940         3,842        10,831        11,355
     Research and development expenses                       1,803           944         4,599         2,775
     Depreciation and amortization                             246           124           630           327
                                                          --------      --------      --------      --------
          Total operating expenses                           4,989         4,910        16,060        14,457
                                                          --------      --------      --------      --------
Operating income                                             4,034         8,200        13,641        19,811
                                                          --------      --------      --------      --------

Other (expense) income, net:
     Interest (expense) income, net                         (1,499)       (2,814)       (4,419)       (4,647)
     Nonrecurring recapitalization expenses                   --             (61)         --          (1,181)
     Other (expense) income, net                               (70)          211           (77)          172
                                                          --------      --------      --------      --------
          Total other (expense) income, net                 (1,569)       (2,664)       (4,496)       (5,656)
                                                          --------      --------      --------      --------
Income before income taxes and extraordinary item            2,465         5,536         9,145        14,155
Provision for income taxes                                     814         2,023         3,219         5,304
                                                          --------      --------      --------      --------
Net income before extraordinary item                         1,651         3,513         5,926         8,851
Extraordinary item, net of taxes                              --          (3,327)         --          (3,327)
                                                          --------      --------      --------      --------
Net income                                                $  1,651      $    186      $  5,926      $  5,524
                                                          ========      ========      ========      ========

Basic Earnings per common share                           $   0.08      $   0.01      $   0.29      $   0.36
                                                          ========      ========      ========      ========
Diluted Earnings per common share                         $   0.08      $   0.01      $   0.28      $   0.33
                                                          ========      ========      ========      ========

Weighted average common shares outstanding
                                                            20,410        16,750        20,406        15,187
                                                          ========      ========      ========      ========

Weighted average common and common
  equivalent shares outstanding                             21,190        18,244        21,448        16,770
                                                          ========      ========      ========      ========
</TABLE>

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



                                                                               3
<PAGE>   4


                         FIREARMS TRAINING SYSTEMS, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                 (In thousands)

<TABLE>
<CAPTION>
                                                                   DECEMBER 31,            March 31,
                                                                      1997                    1997
                                                                   ------------            ---------
                                                                   (Unaudited)
<S>                                                                <C>                     <C> 
                                    ASSETS
Current assets:
    Cash and cash equivalents                                      $   3,688               $   1,663
    Accounts receivable, net                                          18,892                  20,690
    Inventories                                                       13,151                  11,965
    Prepaid expenses and other current assets                            264                     477
    Deferred income taxes                                              1,529                   1,491
                                                                   ---------               ---------
              Total current assets                                    37,524                  36,286
    

Property and equipment, net                                            3,398                   2,660
Escrow and other deposits                                                125                     171
Other assets                                                           5,092                   3,004
                                                                   =========               =========
                                                                   $  46,139               $  42,121
                                                                   =========               =========


                     LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
    Accounts payable                                               $   2,422               $   4,538
    Accrued liabilities                                                7,203                   7,400
    Income taxes payable                                                 199                     653
    Deferred warranty revenue and reserves                             1,687                   1,757
    Current maturities of long-term debt                               4,600                   1,588
                                                                   ---------               ---------
        Total current liabilities                                     16,111                  15,936
                                                                   ---------               ---------

Long-term debt, less current maturities                               55,200                  57,012
                                                                   ---------               ---------
Other noncurrent liabilities                                             411                     551
                                                                   ---------               ---------

Stockholders' equity:
    Class A common stock                                                --                      --
    Additional paid-in-capital                                       112,365                 112,331
    Accumulated (deficit) earnings                                  (137,876)               (143,802)
    Cumulative foreign currency translation adjustment                   (72)                     93
                                                                   ---------               ---------
               Total stockholders'  (deficit) equity                 (25,583)                (31,378)
                                                                   ---------               ---------
                                                                   $  46,139               $  42,121
                                                                   =========               =========
</TABLE>

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




                                                                               4
<PAGE>   5



                         FIREARMS TRAINING SYSTEMS, INC.

                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                Nine months ended
                                                                                  December 31,
                                                                           ----------------------------
                                                                               1997           1996
                                                                           -------------  -------------
<S>                                                                         <C>             <C>
Cash flows from operating activities:
     Net income                                                             $ 5,926         $   5,524
     Adjustments to reconcile net income to net
       cash provided by operating activities:
        Depreciation and amortization                                         1,163               710
        Non cash portion of extraordinary item                                 --               3,871
        Stock grant                                                            --                 120
        Deferred income taxes                                                   (38)             (377)
        Deferred profit sharing compensation                                     16              --
        Changes in assets and liabilities:
          Accounts receivable, net                                            1,800            (4,099)
          Inventories                                                          (948)           (1,033)
          Income tax receivable                                                --              (1,912)
          Prepaid expenses and other current assets                             212              (294)
          Escrow and other deposits                                              47              (355)
          Accounts payable                                                   (2,116)               97
          Accrued liabilities                                                  (196)            1,739
          Income taxes payable                                                 (446)             (998)
          Deferred revenues and reserves                                       (120)              846
          Noncurrent liabilities                                               (140)              418
                                                                            -------         ---------
            Total adjustments                                                  (766)           (1,267)
                                                                            -------         ---------
            Net cash provided by operating activities                         5,160             4,257
                                                                            -------         ---------

Cash flows from investing activities:
     Payments for business acquisitions                                      (2,400)             --
     Additions to property and equipment, net                                (1,140)           (1,049)
                                                                            -------         ---------
            Net cash used in investing activities                            (3,540)           (1,049)
                                                                            -------         ---------

Cash flows from financing activities:
     Repurchase of warrants                                                    --              (3,755)
     Borrowings of long-term debt                                             2,000           110,000
     Repayments of long-term debt                                              (800)          (51,400)
     Proceeds from sales of common stock                                          9           112,740
     Repurchase of common stock                                                --            (171,150)
     Deferred financing costs                                                  (639)           (6,359)
                                                                            -------         ---------
            Net cash provided by (used in) financing activities                 570            (9,924)
                                                                            -------         ---------

Effect of changes in foreign exchange rates                                    (165)               74
                                                                            -------         ---------

Net increase (decrease) in cash                                               2,025            (6,642)
Cash, beginning of period                                                     1,663             8,121
                                                                            =======         =========
Cash, end of period                                                         $ 3,688         $   1,479
                                                                            =======         =========

Supplemental disclosures of cash paid for:
     Interest                                                               $ 3,994         $   3,419
                                                                            =======         =========
     Income  taxes                                                          $ 3,672         $   6,355
                                                                            =======         =========
</TABLE>

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


                                                                               5
<PAGE>   6

                         FIREARMS TRAINING SYSTEMS, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


1.   BASIS OF PRESENTATION.
     The accompanying unaudited condensed consolidated financial statements have
     been prepared in accordance with generally accepted accounting principles
     for interim financial information and with the instructions to Form 10-Q
     and Article 10 of Regulation S-X. Accordingly, they do not include all of
     the information and footnotes required by generally accepted accounting
     principles for complete financial statements. In the opinion of management,
     all adjustments, consisting of normal recurring adjustments, considered
     necessary for a fair presentation have been included. Operating results for
     the three and nine months ended December 31, 1997 are not necessarily
     indicative of the results that may be expected for the year ended March 31,
     1998. For further information, refer to the company's consolidated
     financial statements and footnotes thereto for the year ended March 31,
     1997.

2.   INVENTORY.
     Inventories consist primarily of simulators, computer hardware, projectors,
     and component parts. Inventories are valued at the lower of cost (on a
     first-in, first-out basis) or market. Cost includes materials, labor, and
     manufacturing overhead. Market is defined as net realizable value.

     Inventories consist of the following (in thousands):

<TABLE>
<CAPTION>
                                                 DECEMBER 31,      March 31,
                                                    1997              1997
                                                 ------------      ---------
<S>                                              <C>               <C>
     Raw materials                               $ 6,960           $ 8,233
     Work in progress                              4,026             2,816
     Finished Goods                                2,165               916
                                                 -------           -------
                                                 $13,151           $11,965
                                                 =======           =======
</TABLE>

3.   EXTRAORDINARY ITEM.

     A portion of the proceeds from the initial public offering in November 1996
     was used to repay $40 million in bridge notes and reduce senior bank debt
     by $11.2 million. As a result, an extraordinary loss occurred on the early
     extinguishment of debt. This extraordinary item includes legal fees,
     unamortized deferred financing costs, unamortized basis of certain warrants
     issued in connection with the bridge notes and a fee paid in connection
     with the repayment of the bridge notes.




                                                                               6
<PAGE>   7



                         FIREARMS TRAINING SYSTEMS, INC.
        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


     The following table sets forth the earnings per share before the
     extraordinary item and for the extraordinary item for the three and nine
     months ended December 31, 1997 and 1996, respectively:

<TABLE>
<CAPTION>

                                                           Three months ended                 Nine months ended
                                                              December 31,                       December 31,
                                                         ------------------------           -----------------------
                                                            1997         1996                 1997         1996
                                                         -----------  -----------          -----------  -----------
<S>                                                      <C>          <C>                  <C>          <C>
    Income before extraordinary item - earnings per share
        Basic                                               $ 0.08       $ 0.21               $ 0.29       $ 0.58
                                                            ======       ======               ======       ======
        Diluted                                             $ 0.08       $ 0.19               $ 0.28       $ 0.53
                                                            ======       ======               ======       ======
    Extraordinary item, net of taxes - earnings per share
        Basic                                                  $--       $ 0.20                  $--       $ 0.22
                                                            ======       ======               ======       ======
        Diluted                                                $--       $ 0.18                  $--       $ 0.20
                                                            ======       ======               ======       ======

    Weighted average common shares outstanding              20,410       16,750               20,406       15,187
                                                            ======       ======               ======      =======


    Weighted average common and common
      equivalent shares outstanding                         21,190       18,244               21,448       16,770
                                                            ======       ======               ======      =======
</TABLE>




                                                                               7
<PAGE>   8



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

This Management's Discussion and Analysis of Financial Condition and Results of
Operations should be read in conjunction with the Management's Discussion and
Analysis of Financial Condition and Results of Operations contained in the
Company's most recently filed Form 10-K and Form 10-Q.

RESULTS OF OPERATIONS

Three Months Ended December 31, 1997 and 1996

Revenues. Revenues decreased $7.6 million, or 29.5%, to $18.1 million for the
three months ended December 31, 1997 as compared to $25.7 million for the three
months ended December 31, 1996. Sales to U.S. military customers for the three
months ended December 31, 1997, decreased by $9.2 million, or 50.7%, to $9.0
million, primarily due to decreased sales to the U.S. Marine Corps. Sales to
U.S. law enforcement customers for the three months ended December 31, 1997
increased by $1.4 million, or 97.5%, to $2.9 million primarily attributable to
the delivery of systems to the FBI. Sales to international customers for the
three months ended December 31, 1997 increased by $0.5 million, or 8.0%, to $6.1
million. Sales to U.S. Hunter/Sports customers for the three months ended
December 31, 1997 decreased by $209,000, or 56.0%, to $164,000.

Cost of Revenues. Cost of revenues decreased $3.5 million, or 27.7%, to $9.1
million for the three months ended December 31, 1997 as compared to $12.6
million for the three months ended December 31, 1996. As a percentage of
revenues, cost of revenues increased to 50.2% for the three months ended
December 31, 1997 as compared to 48.9% for the three months ended December 31,
1996. The higher cost of sales as a percentage of revenue achieved in the third
quarter fiscal 1998 as compared to the third quarter fiscal 1997 was primarily
attributable to customer and product mix changes and the Company attaining
better operating leverage in the third quarter fiscal 1997.

Gross Profit. As a result of the foregoing, gross profit decreased $4.1 million,
or 31.2%, to $9.0 million, or 49.8% of revenues, for the three months ended
December 31, 1997 as compared to $13.1 million, or 51.1% of the revenues, for
the three months ended December 31, 1996.

Total Operating Expenses. Total operating expenses increased $0.1 million, or
1.6%, to $5.0 million for the three months ended December 31, 1997 as compared
to $4.9 million for the three months ended December 31, 1996. Total operating
expenses as a percentage of revenues increased to 27.6% for the three months
ended December 31, 1997 from 19.1% for the three months ended December 31, 1996
due primarily to a $0.9 million, or 91.0%, increase in research and development
("R&D") costs as part of continued efforts in developing new and improving
existing products. Selling, General & Administrative ("S, G & A") expenses
decreased $0.9 million, or 23.5%, primarily due to lower agents commissions and
bonus expenses in the third quarter of fiscal 1998 as compared to the third
quarter of fiscal 1997.



                                                                               8
<PAGE>   9




Operating Income. As a result of the foregoing, operating income decreased $4.2
million, or 50.8%, to $4.0 million, or 22.3% of revenues, for the three months
ended December 31, 1997 as compared to $8.2 million, or 31.9% of revenues, for
the three months ended December 31, 1996.

Other (Expense) Income, net. Net interest expense totaled $1.5 million, or 8.3%
of revenues for the three months ended December 31, 1997 as compared to $2.8
million, or 11.0% for the three months ended December 31, 1996. The decrease in
net interest expense was a result of the repayment of a portion of debt incurred
in connection with the Recapitalization in July 1996 (the "Recapitalization")
with the proceeds from the initial public offering (the "Offering").

Provision for Income Taxes. The effective tax rate decreased to 33.0% of income
before income taxes for the three months ended December 31, 1997 as compared to
36.5% of income before taxes for the three months ended December 31, 1996. This
decrease was primarily attributable to certain nonrecurring expenses incurred in
connection with the Recapitalization, which were not deductible for income tax
purposes in fiscal 1997.

Net Income Before Extraordinary Item. As a result of the foregoing, net income
before extraordinary item decreased $1.8 million, or 53.0%, to $1.7 million, or
9.1% of revenues for the three months ended December 31, 1997 as compared to
$3.5 million, or 13.7% of revenues for the three months ended December 31, 1996.

Extraordinary Item. A portion of the proceeds from the Offering was used to
repay the $40 million bridge notes and reduce the senior bank debt by $11.2
million. As a result, an extraordinary loss occurred on the early extinguishment
of debt in the three months ended December 31, 1996. This extraordinary item
includes legal fees, unamortized deferred financing costs, unamortized basis of
the warrants and a fee paid in connection with the repayment of the bridge
notes.

Net Income. As a result of the foregoing, net income as reported increased to
$1.7 million ($0.08 per share), or 9.1% of revenues for the three months ended
December 31, 1997 as compared to $0.2 million ($0.01 per share), or 0.7% of
revenues for the three months ended December 31, 1996.

Pro Forma Results. The following pro forma results for fiscal 1997 give effect
to the Recapitalization and the initial public offering of the Company's common
stock on November 26, 1996 as if it occurred at the beginning of the period. The
pro forma results exclude the nonrecurring expenses incurred in connection with
the Recapitalization and the extraordinary loss related to the early
extinguishment of debt and reflect interest expense for all periods presented,
based on the senior bank debt of $58.6 million outstanding after the Offering.
The actual net income for the three months ended December 31, 1997 was $1.7
million ($0.08 per share), or 9.1% of revenues, a decrease of $2.7 million from
the $4.4 million ($0.20 per share), or 17.0% of revenues, pro forma net income
for the three months ended December 31, 1996.




                                                                               9
<PAGE>   10



Nine Months Ended December 31, 1997 and 1996

Revenues. Revenues decreased $8.7 million, or 13.4%, to $56.1 million for the
nine months ended December 31, 1997 as compared to $64.8 million for the nine
months ended December 31, 1996. This decrease was attributable to a $12.9
million decrease, or 32.7%, to $26.6 million in sales to the U.S. military due
primarily to a decrease in sales to the U.S. Marine Corps. This decrease was
partially offset by an increase of $2.7 million, or 13.8%, to $22.0 million, in
international sales. Sales to U.S. law enforcement customers for the nine months
ended December 31, 1997 increased by $1.8 million, or 36.0%, to $6.7 million
primarily attributable to the delivery of systems to the FBI. Sales to U.S.
Hunter/Sports customers decreased by $0.2 million, or 22.0%, to $0.8 million.

Cost of Revenues. Cost of revenues decreased $4.1 million, or 13.5%, to $26.4
million for the nine months ended December 31, 1997 as compared to $30.5 million
for the nine months ended December 31, 1996. As a percentage of revenues, cost
of revenues remained unchanged at 47.1% for the nine months ended December 31,
1997 and December 31, 1996.

Gross Profit. As a result of the foregoing, gross profit decreased $4.6 million,
or 13.3%, to $29.7 million, or 52.9% of revenues, for the nine months ended
December 31, 1997 as compared to $34.3 million, or 52.9% of the revenues, for
the nine months ended December 31, 1996.

Total Operating Expenses. Total operating expenses increased $1.6 million, or
11.1%, to $16.1 million for the nine months ended December 31, 1997 as compared
to $14.5 million for the nine months ended December 31, 1996. Total operating
expenses as a percentage of revenues increased to 28.6% for the nine months
ended December 31, 1997 from 22.3% for the nine months ended December 31, 1996.
S, G & A expenses decreased $0.5 million, or 4.6%. Also, R&D costs increased
$1.8 million, or 65.7%, from the nine months ended December 31, 1996 to the nine
months ended December 31, 1997 due to continued efforts in developing new and
improving existing products.

Operating Income. As a result of the foregoing, operating income decreased $6.2
million, or 31.1%, to $13.6 million, or 24.3% of revenues, for the nine months
ended December 31, 1997 as compared to $19.8 million, or 30.6% of revenues, for
the nine months ended December 31, 1996.

Other (Expense) Income, net. Net interest expense totaled $4.4 million, or 7.9%
of revenues for the nine months ended December 31, 1997 as compared to $4.6
million, or 7.2% for the nine months ended December 31, 1996. The decrease in
net interest expense was a result of the repayment of a portion of debt incurred
in connection with the Recapitalization with the proceeds from the Offering.
Other (expense) income, net also includes a nonrecurring charge of $1.2 million
for expenses incurred in connection with the Recapitalization.

Provision for Income Taxes. The effective tax rate decreased to 35.2% of income
before income taxes for the nine months ended December 31, 1997 as compared to
37.5% of income before taxes for the nine months ended December 31, 1996. This
decrease was primarily attributable to certain nonrecurring expenses incurred in
connection with the Recapitalization, which were not deductible for income tax
purposes in fiscal 1997.

                                                                              10
<PAGE>   11

Net Income Before Extraordinary Item. As a result of the foregoing, net income
before extraordinary item decreased $2.9 million, or 33.0%, to $5.9 million, or
10.6% of revenues for the nine months ended December 31, 1997 as compared to
$8.9 million, or 13.7% of revenues for the nine months ended December 31, 1996.

Extraordinary Item. A portion of the proceeds from the Offering was used to
repay the $40 million bridge notes and reduce the senior bank debt by $11.2
million. As a result, an extraordinary loss occurred on the early extinguishment
of debt in the nine months ended December 31, 1996. This extraordinary item
includes legal fees, unamortized deferred financing costs, unamortized basis of
the warrants and a fee paid in connection with the repayment of the bridge
notes.

Net Income. As a result of the foregoing, net income as reported increased $0.4
million, or 7.3%, to $5.9 million ($0.28 per share), or 10.6% of revenues for
the nine months ended December 31, 1997 as compared to $5.5 million ($0.33 per
share), or 8.5% of revenues for the nine months ended December 31, 1996.

Pro Forma Results. The following pro forma results for fiscal 1997 give effect
to the Recapitalization and the Offering as if it occurred at the beginning of
the period. The pro forma results exclude the nonrecurring expenses incurred in
connection with the Recapitalization and the extraordinary loss related to the
early extinguishment of debt and reflect interest expense for all periods
presented, based on the senior bank debt of $58.6 million outstanding after the
Offering. The actual net income for the nine months ended December 31, 1997 was
$5.9 million ($0.28 per share), or 10.6% of revenues, a decrease of $4.2 million
from the $10.1 million ($0.46 per share), or 15.5% of revenues, pro forma net
income for the nine months ended December 31, 1996.




                                                                              11
<PAGE>   12



BACKLOG

Backlog, representing customer orders that have been contracted for future
delivery, totaled approximately $38.6 million at December 31, 1997.
Approximately 93.5% and 3.9% of this backlog was attributable to international
and U.S. military customers, respectively.

Contracts with U.S. and other governments may generally be terminated by the
customer in whole or in part for default or its convenience if such termination
would be in the best interest of the customer. Accordingly, there can be no
assurance that the Company's backlog will result in future revenues. However,
these contracts generally provide for reimbursement of costs incurred through
the date of termination.

LIQUIDITY AND CAPITAL RESOURCES

The Company's principal liquidity and capital needs are to fund debt service,
working capital and capital expenditures necessary to support its growth. Net
working capital was $21.4 million at December 31, 1997 and $20.4 million at
March 31, 1997.

The Company's operating activities generated cash of $5.2 million in the nine
months ended December 31, 1997 and $4.3 million in the nine months ended
December 31, 1996. The $0.9 million increase in net cash provided by operations
was primarily due to the increase in net income and the increase in non-cash
depreciation and amortization.

The Company's investing activities used cash of $3.5 million for the nine months
ended December 31, 1997 and $1.0 million for the nine months ended December 31,
1996. The Company's primary investing activity in the nine month period ended
December 31, 1997 was the purchase of the ICAT division from SBS Technologies
("ICAT") on June 26, 1997 for $2,150,000, including transaction costs.  The
Company's other use of cash for investing activities for the nine months ended
December 31, 1997 was capital expenditures that were primarily for equipment
used in manufacturing, R&D and general administration.

The Company's financing activities provided cash of $0.6 million for the nine
months ended December 31, 1997. The Company's primary financing activity in the
nine month period ended December 31, 1997, was the borrowing of $2.0 million
from its credit facility to finance the purchase of ICAT and $800,000 in
scheduled repayments of principle under its credit facility.

The Company amended and restated its NationsBank Credit Agreement ("Credit
Agreement") on October 15, 1997. The amended Credit Agreement incorporated
several important changes, including, but not limited to, the following: (i)
increased the available borrowings under the revolving line of credit from $15
million to $25 million; (ii) increased the annual capital expenditures basket
from $3 million to $5 million; (iii) reduced the interest rate on the Tranche B
Term Loan Eurodollar borrowings by 0.50%; (iv) added flexibility for future
acquisitions by including a $10 million aggregate acquisition basket; and (v)
permitted foreign currency letters of credit. All members of the current bank
syndicate participated in the amended and restated Credit Agreement.

                                                                              12
<PAGE>   13


The Company's indebtedness and the related covenants will have several important
effects on its future operations, including, but not limited to, the following:
(i) a portion of the Company's cash flow from operations must be dedicated to
the payment of interest on and principal of its indebtedness and will not be
available for other purposes; (ii) the Company's ability to obtain additional
financing in the future for working capital, capital expenditures, R&D,
acquisitions, general corporate purposes or other purposes may be limited; and
(iii) the Company's level of indebtedness could limit its flexibility in
reacting to business developments and changes in its industry and economic
conditions generally.

The Company believes that cash flow from operations and borrowings available
under its credit agreement will be sufficient to meet the Company's presently
anticipated working capital, capital expenditure and debt service needs for at
least the next 12 months.

OTHER

The Company continues to make deliveries to and is actively pursuing additional
business from all branches of the U.S. military. One of the most important
business opportunities in this regard is the U.S. Army contract for the purchase
of Engagement Skills Trainers (EST). On November 17, 1997, STRICOM issued a
Request for Proposal ("RFP") for the U.S. Army EST. On January 8, 1998, the
Company submitted its proposal to STRICOM for the U.S. Army EST contract.
STRICOM has indicated that it will require a product demonstration of selected
competing bidders, which we anticipate will be held in the first calendar
quarter of 1998 with an award soon after. If the Company is the successful
bidder, it is unlikely that it would obtain and deliver significant orders under
this contract before the second half of fiscal 1999, beginning October 1, 1998.

The foregoing forward looking statements are subject to a number of factors
which could cause actual results to differ as described above and under Item 5
"Other Information".



                                                                              13
<PAGE>   14



PART II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS


The Company is involved in legal proceedings from time to time in the ordinary
course of its business. As of the date of this filing, there are no legal
proceedings pending against the Company which management believes are material.


ITEM 5.  OTHER INFORMATION

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:

Certain statements in this filing, and elsewhere (such as in other filings by
the Company with the Commission, press releases, presentations by the Company or
its management and oral statements) constitute "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company to be materially different from any future results, performance or
achievements expressed or implied by such forward-looking statements. Such
factors include, among other things, (i) those described above including the
timing and size of, and the Company's success in competing for, new contracts
awarded by military and other government customers; (ii) significant variability
in the Company's quarterly revenues and results of operations as a result of
variations in the number and size of the Company's shipments in a particular
quarter while a significant percentage of its operating expenses are fixed in
advance; (iii) concentrations of revenues from a few large customers who vary
from one period to the next; (iv) the high percentage of sales to military and
law enforcement authorities whose orders are subject to extensive government
regulations, termination for a variety of factors and budgetary constraints; (v)
a significant proportion of international sales which may be subject to
political, monetary and economic risks; (vi) the relatively undeveloped nature
of the market for small and supporting arms training simulators and the need for
continued adoption of simulation training systems if the market is to expand;
(vii) the potential for increased competition; (viii) the Company's ability to
attract and retain key personnel and adapt to changing technologies; and (ix)
other factors described in the Company's Form 10-K for the fiscal year ended
March 31, 1997 under the caption Part I and in the Company's Prospectus under
the caption "Risk Factors".



                                                                              14
<PAGE>   15



ITEM 6.    EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

         The following documents are filed with this report as exhibits:

<TABLE>
<CAPTION>
Exhibit
Number      Description
-------     -----------
<S>         <C>
11.01       Statement regarding computation of earnings per common share.

27.01       Financial Data Schedule (for SEC use only)
</TABLE>

      (b) No reports on Form 8-K were filed during the quarter ended December
          31, 1997.



                                                                              15
                                                                                
<PAGE>   16



                                   SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

DATED:  February 9, 1998


                                      FIREARMS TRAINING SYSTEMS, INC.
                                              (Registrant)





                                      /s/  Peter  A. Marino
                                      -----------------------------------------
                                      Peter A. Marino
                                      President and Chief Executive Officer




                                      /s/  David A. Apseloff
                                      -----------------------------------------
                                      David A. Apseloff
                                      Vice President, Chief Financial Officer
                                      and Treasurer (Principal Financial and
                                      Accounting Officer)



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