FIREARMS TRAINING SYSTEMS INC, S-1/A, 1996-11-25

FIREARMS TRAINING SYSTEMS INC
S-1/A, 1996-11-25
MANAGEMENT CONSULTING SERVICES

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 25, 1996

REGISTRATION NO. 333-13105
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- -------------------------------------------------------------------------------

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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

AMENDMENT NO. 3
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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FIREARMS TRAINING SYSTEMS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 3699 57-0777018
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)

7340 MCGINNIS FERRY ROAD
SUWANEE, GA 30174
(770) 813-0180
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)

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DAVID A. APSELOFF
FIREARMS TRAINING SYSTEMS, INC.
7340 MCGINNIS FERRY ROAD
SUWANEE, GA 30174
(770) 813-0180
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)

COPIES TO:
JAMES G. ARCHER, ESQ. LAURENT ALPERT, ESQ.
SIDLEY & AUSTIN CLEARY, GOTTLIEB, STEEN & HAMILTON
875 THIRD AVENUE ONE LIBERTY PLAZA
NEW YORK, NY 10022 NEW YORK, NY 10006
(212) 906-2000 (212) 225-2000

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]

CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) FEE(3)
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<S> <C> <C> <C> <C>
Class A Common Stock,
$0.000006 par value per
share................. 6,900,000 shares $16.00 $110,400,000 $38,068.97
</TABLE>
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(1) Includes 900,000 shares of Class A Common Stock which the Underwriters
have the option to purchase from the Selling Shareholder to cover over-
allotments, if any. See "Underwriting."
(2) Estimated solely for the purpose of calculating the amount of the
registration fee pursuant to Rule 457(a) under the Securities Act of 1933.
(3) Already paid.

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

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.

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<PAGE>

++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++

SUBJECT TO COMPLETION, DATED NOVEMBER 25, 1996

6,000,000 SHARES

FIREARMS TRAINING SYSTEMS, INC.

LOGO CLASS A COMMON STOCK

All the 6,000,000 shares of Class A Common Stock, $0.000006 par value (the
"Common Stock"), offered hereby are being sold by Firearms Training Systems,
Inc., a Delaware corporation ("FATS" or the "Company").

Prior to this offering (the "Offering"), there has been no public market for
the Common Stock. It is currently estimated that the initial public offering
price will be between $14.00 and $16.00 per share. See "Underwriting" for a
discussion of factors considered in determining the initial public offering
price. The Common Stock has been approved for quotation on the Nasdaq National
Market under the symbol "FATS," subject to official notice of issuance.

Upon consummation of the Offering, the Company's issued and outstanding
capital stock will consist of 20,402,404 shares of Common Stock, including the
6,000,000 shares of Common Stock being offered hereby. Upon consummation of the
Offering, the Centre Entities (as defined below) will own or have voting
control over approximately 54.7% of the outstanding shares of Common Stock and
THIN International N.V., a Netherlands Antilles corporation ("THIN
International" or the "Selling Shareholder") formerly called Firearms Training
Systems International N.V., will own approximately 14.5% of the outstanding
shares of Common Stock. See "Principal Shareholders."

Of the $82.1 million estimated net proceeds of the Offering anticipated to be
received by the Company: (i) $40.4 million will be used to repay the Bridge
Notes (as defined below), including accrued and unpaid interest, issued by the
Company to NationsBridge, L.L.C. ("NationsBridge") in connection with a set of
transactions (the "Recapitalization") consummated by the Company on July 31,
1996; (ii) $1.3 million will be paid to NationsBridge as a fee in connection
with the repayment of the Bridge Notes; (iii) $19.3 million will be paid to
THIN International as an additional payment for the shares of Common Stock
repurchased by the Company from THIN International in connection with the
Recapitalization, which additional payment is payable by the Company upon
consummation of the Offering; (iv) approximately $4.0 million will be paid to
NationsBridge as consideration for the redelivery to the Company of certain
warrants to purchase shares of Common Stock otherwise required to be delivered
to NationsBridge upon consummation of the Offering; and (v) $17.1 million will
be used to repay a portion of the $69.8 million in outstanding Senior Bank Debt
(as defined below) incurred by the Company in connection with the
Recapitalization. See "Use of Proceeds."

SEE "RISK FACTORS" COMMENCING ON PAGE 8 OF THIS PROSPECTUS FOR A DISCUSSION
OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE
COMMON STOCK OFFERED HEREBY.

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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.

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<TABLE>
<CAPTION>
Price to Underwriting Proceeds to
Public Discount (1) Company (2)
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<S> <C> <C> <C>
Per Share.................................. $ $ $
Total (3).................................. $ $ $
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</TABLE>
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting offering expenses payable by the Company, estimated at
$1,600,000.
(3) The Selling Shareholder has granted to the Underwriters a 30-day option to
purchase up to 900,000 additional shares of Common Stock solely to cover
over-allotments, if any. If the Underwriters exercise this option in full,
the total Price to Public, Underwriting Discount, Proceeds to Company and
Proceeds to Selling Shareholder will be $ , $ , $ and $ ,
respectively. See "Underwriting." The Company will not receive any proceeds
from the sale of any such additional shares.

The shares of Common Stock are offered by the several Underwriters named
herein subject to receipt and acceptance by them and subject to their right to
reject any orders in whole or in part. It is expected that delivery of the
certificates representing such shares will be made against payment therefor at
the office of Montgomery Securities on or about , 1996.

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Montgomery Securities
Lazard Freres & Co. LLC
The Robinson-Humphrey Company, Inc.

, 1996
<PAGE>

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

2
<PAGE>

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial data, including
the financial statements and notes thereto, included elsewhere in this
Prospectus. Except as otherwise noted, all information in this Prospectus: (i)
assumes that the initial public offering price will be $15.00 per share and no
exercise of the Underwriters' over-allotment option; (ii) gives effect to the
Recapitalization and the Drop Down Transaction described herein; and (iii)
gives effect for all periods to the 100,000-for-one stock split effected in
July 1996 and the 1.66-for-one stock split effected November 1, 1996 with
respect to all the outstanding shares of Common Stock.

THE COMPANY

Firearms Training Systems, Inc., a Delaware corporation ("FATS" or the
"Company"), is the leading worldwide producer of interactive simulation systems
designed to provide training in the handling and use of small and supporting
arms. The Company offers a broad array of cost-effective training systems
ranging from individual marksmanship trainers to instructional systems for
multiple users. Unlike traditional live firing ranges, the Company's simulation
systems enable users to train in highly realistic situations through the
integration of video and digitized projected imagery and modified, laser-
emitting firearms that retain the fit, function and feel of the original
weapon. Utilizing internally developed proprietary software and sensors
incorporated into the simulated weapons, the Company's systems offer real-time
feedback and evaluation with respect to a number of performance measures such
as accuracy, reaction time, situational judgment and important elements of
weapons handling. Over its 12-year history, the Company's team of experts has
developed over 180 types of simulated weapons and approximately 100 laser discs
containing more than 1,000 training scenarios. The Company's customers are
primarily U.S. and international military and law enforcement agencies
including the U.S. Marine Corps, the U.S. Army, the U.S. Air Force, the Los
Angeles Police Department, the Internal Revenue Service, the Singapore Army and
Police Coast Guard, the British Ministry of Defense and the Royal Netherlands
Army. More recently, the Company also has begun to sell simulation training
systems for hunter and sports training.

The Company has helped to revolutionize small and supporting arms training
through the introduction of cost-effective and realistic interactive
simulation. For decades, military and law enforcement organizations have
trained personnel on firing ranges with targets that are static or have limited
motion capabilities. This approach neither accurately replicates the hostile
situations armed personnel are likely to face nor helps to develop tactical
skills and individual judgment. Simulation systems not only provide solutions
to these issues but also offer significant improvements in safety and many
other benefits that cannot be attained in live weapons practice, including
reductions in ammunition consumption, weaponry wear, trainee transport, range
maintenance costs and environmental remediation expenses. Furthermore, many law
enforcement agencies have begun to adopt simulation systems based in part on
their concern over the increasing number of liability lawsuits relating to
alleged uses of excessive force. Of the approximately $260 billion U.S.
military budget for fiscal 1997, approximately $3 billion to $5 billion is
allocated to overall training and training-related expenditures. Management
estimates that the market for small and supporting arms simulation systems like
the Company's product line in the U.S. military market segment alone is
approximately $800 million, based on near-term stated acquisition objectives
set by various branches of the U.S. armed services. Moreover, management
believes that the trends favoring increased adoption of simulation in the U.S.
can also be identified abroad as military and law enforcement agencies in other
countries, generally more centralized than those in the U.S. and facing
increasingly restrictive budgets, are allocating greater portions of their
training budgets to small and supporting arms simulation training.

3
<PAGE>

based on its monitoring of the market, that its systems sold to date represent
a substantial majority of the worldwide installed base of interactive small and
supporting arms simulation systems purchased by military and law enforcement
agencies. The Company's revenues and operating income have grown at compound
annual growth rates of 51.8% and 80.6%, respectively, over the last five fiscal
years to $65.4 million and $19.3 million, respectively, in fiscal 1996. As of
September 30, 1996, the Company had a backlog of approximately $56.2 million
from all customers and approximately an additional $46 million in unexercised
options to purchase the Company's products through September 30, 1999 under an
existing contract with the U.S. Marine Corps.

COMPETITIVE ADVANTAGES

Management believes that the Company's success is primarily attributable to
the following key competitive advantages:

. High Quality and Cost-Effective Products. The Company has participated in
studies of its products conducted by the U.S. Marine Corps, the U.S. Army
and the U.S. Air Force. The Company has been informed that such studies
have validated the cost-effectiveness and training benefits of FATS(TM)
systems for such entities and that trainees using the FATS(TM) systems
generally improve their marksmanship and judgment skills faster than
those using only live fire training. FATS(TM) systems have been used for
training U.S. and British forces in Bosnia and for pre-deployment
training of U.S. forces for Operation Desert Storm and operations in
Somalia.

. Premier FATS(TM) Brand Name. The Company believes that the FATS(TM) brand
name has become associated with high quality, technically superior
interactive small and supporting arms simulation systems. Management
believes that its reputation has been enhanced by the acceptance of the
Company's products by certain military and law enforcement agencies that
employ exacting standards in making purchasing decisions.

. Strong Long-Term Relationships with Customers. The Company works closely
with its customers often for a substantial period of time to help define
their training needs and develop customized training solutions.
Management believes that this approach is particularly important given
the relative infancy of the interactive simulation-based small and
supporting arms training market and the education required to convert
into customers those agencies and personnel accustomed to traditional
live fire training.

. Innovative Customized Training Solutions. The Company works closely with
many of its customers to develop training programs, simulated weapons and
training scenarios tailored to their specific needs. This ability to
adapt products to particular training needs is critical because the needs
of the Company's customers vary substantially.

. Extensive Inventory of Proven Weapons and Scenarios. The Company draws on
its extensive catalog of already fielded simulated weapons and scenarios
to address customers' requirements in an innovative manner and on a
timely basis.

. Integration of Advanced Technologies. The Company's strong technical
application capability enables it to integrate effectively: (i) advanced
laser, computer and video technology from third parties; (ii)
proprietary ballistics modeling, training and diagnostic software; and
(iii) specially machined, realistic, sensor-embedded weapons.

. Team of Recognized Subject Matter Experts. The Company maintains a team
of technical, training and other experts from a wide variety of military,
law enforcement and technology backgrounds to ensure an understanding of
each customer's particular training needs as well as the appropriation
and procurement process.

4
<PAGE>

GROWTH STRATEGY

The Company intends to seek further growth by implementing a strategy that
includes the following key elements:

. Increase Market Penetration. The interactive small and supporting arms
simulation industry is relatively new. As a result, the Company is
seeking to broaden acceptance of its products and increase sales to
military and law enforcement agencies in the U.S. and internationally.

. Continue New Product Development. The Company intends to continue to
develop new products based on the Company's research and development
("R&D") capabilities and its understanding of the needs of its customers.
For example, the Company's newest simulator, the Vessel Weapons
Engagement Training System ("VWETS"), is being developed at the request
of and in close collaboration with an international customer.

. Expand into New Markets. Management believes that significant
opportunities exist for sales beyond the Company's traditional military
and law enforcement customers. The Company has already begun to focus on
the hunter and sports training component of the market, which management
believes is a natural extension of its business to date. In addition,
although the Company has not yet taken steps to develop a product line or
otherwise enter the market for arcades, amusement parks and other
entertainment venues, the Company believes that this market may represent
significant opportunities for the Company in the future.

The Company was incorporated in Delaware in 1984. Its principal executive
offices are located at 7340 McGinnis Ferry Road, Suwanee, Georgia 30174. The
Company's telephone number is (770) 813-0180.

RECAPITALIZATION

Prior to July 31, 1996, the Company was wholly-owned by THIN International
N.V., a Netherlands Antilles corporation ("THIN International" or the "Selling
Shareholder") formerly known as Firearms Training Systems International N.V. On
July 31, 1996, the Company consummated a set of transactions (the
"Recapitalization"), pursuant to a Recapitalization and Stock Purchase
Agreement dated as of June 5, 1996 (the "Recapitalization Agreement") among the
Company, THIN International, Centre Partners Management LLC ("Centre
Management") and a group of entities (including Centre Capital Investors II,
L.P., Centre Partners Coinvestment, L.P., Centre Capital Offshore Investors II,
L.P. and Centre Capital Tax-exempt Investors II, L.P.) managed by Centre
Management and referred to herein (together with their controlling entity,
Centre Partners II LLC) as the "Centre Entities." As part of the
Recapitalization, the Company: (i) effected a 100,000-for-one stock split with
respect to its common stock and issued to the Centre Entities certain shares of
the Company's capital stock now consisting of Class A Common Stock, $0.000006
par value ("Common Stock"), for $36.0 million in cash; (ii) issued to
NationsBridge, L.L.C. ("NationsBridge") certain senior subordinated bridge
notes (the "Bridge Notes") for $40.0 million in cash and entered into escrow
arrangements providing for the delivery to NationsBridge in certain
circumstances of certain warrants currently held in escrow (the "NationsBridge
Warrants") to purchase shares of Common Stock, which NationsBridge Warrants are
being reacquired by the Company in connection with this offering (the
"Offering") as described below; (iii) entered into a new credit agreement (the
"NationsBank Credit Agreement") with NationsBank, N.A. (South) ("NationsBank")
and certain other lenders providing for certain credit facilities aggregating
$85.0 million (the "Senior Bank Debt"), borrowed $76.0 million under such
credit facilities and terminated its then existing credit facility with
NationsBank; and (iv) repurchased certain shares of Common Stock owned by THIN
International for approximately $151.9 million in cash ($15.0 million of which
was deposited in escrow) and agreed to make an

5
<PAGE>

additional contingent payment (the "Contingent Payment") in cash or shares of
Common Stock to THIN International in certain circumstances, such as upon the
consummation of the Offering. The obligation to make the Contingent Payment
will be satisfied in full by payment of $19.3 million in cash from the proceeds
of the Offering. Also in connection with the Recapitalization, the Company sold
certain shares of Common Stock and granted certain options to members of the
Company's management on September 18, 1996. The Company and NationsBridge have
agreed that the obligation to deliver from escrow the NationsBridge Warrants if
the Offering is completed as contemplated, which would otherwise have required
the delivery to NationsBridge of warrants to purchase 288,434 shares of Common
Stock at a nominal price upon consummation of the Offering, is to be satisfied
by the payment by the Company to NationsBridge (the "Warrant Payment") of
approximately $4.0 million (which amount represents the aggregate value of the
288,434 shares at an assumed initial offering price of $15.00 per share less
the assumed underwriting discount) from the proceeds of the shares of Common
Stock being offered by the Company hereby, and have agreed that the
NationsBridge Warrants will be redelivered to the Company for cancellation. See
"Management," "Certain Transactions," "Recapitalization" and Note 5 of Notes to
Consolidated Financial Statements.

Effective upon consummation of the Recapitalization and the related sales of
shares of Common Stock to management and prior to the Offering, the Centre
Entities owned or had voting control over and THIN International owned
approximately 77.5% and 20.6% of the outstanding shares of Common Stock,
respectively.
At the consummation of the Offering, the Centre Entities will own or have
voting control over approximately 54.7%, and THIN International will own
approximately 14.5%, of the outstanding shares of Common Stock. See "Principal
Shareholders."

The Company, currently an operating company, is in the process of
reorganizing into a holding company (the "Drop Down Transaction"), with the
Company owning 100% of the outstanding capital stock of a newly-formed
subsidiary, FATS, Inc., a Delaware corporation (the "Drop Down Subsidiary"),
which subsidiary will hold the operating assets of the Company. See
"Recapitalization."

THE OFFERING

<TABLE>
<S> <C>
Common Stock offered by the Company................... 6,000,000 shares
Common Stock to be outstanding after the Offering..... 20,402,404 shares (1)
Use of proceeds....................................... To repay outstanding indebtedness and to
fund the Contingent Payment and the
Warrant Payment. See "Use of Proceeds."
Proposed Nasdaq National Market symbol................ FATS
</TABLE>
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(1) Excludes 2,490,000 shares of Common Stock reserved for issuance pursuant to
the Company's Stock Option Plan, of which options to purchase 1,742,834
shares of Common Stock at an exercise price of approximately $3.25 have
been granted as of the date hereof. See "Management--Stock Option Plan" and
Note 5 of Notes to Consolidated Financial Statements.

6
<PAGE>

SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
--------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $12,324 $14,049 $20,534 $29,164 $65,439 $ 27,089 $ 39,138
Gross profit............ 7,285 8,276 10,883 14,934 34,537 12,885 21,158
Operating income........ 1,813 1,131 2,472 4,139 19,283 6,080 11,611
Income before income
taxes.................. 1,827 1,081 2,248 4,217 19,355 6,088 8,619
Net income.............. $ 1,274 $ 811 $ 1,518 $ 2,830 $12,790 $ 3,962 $ 5,338
======= ======= ======= ======= ======= ======== ========
Net income per share
(1).................... $0.08 $0.05 $0.09 $0.18 $0.80 $0.25 $0.33
======= ======= ======= ======= ======= ======== ========
Weighted average common
shares (1)............. 16,055 16,055 16,055 16,055 16,055 16,055 16,055
PRO FORMA STATEMENT OF OPERATIONS DATA (2):
Operating income........................................ $19,283 $ 11,611
Income before income taxes.............................. 13,745 9,082
Net income.............................................. $ 9,082 $ 5,767
======= ========
Net income per share.................................... $0.42 $0.26
======= ========
Shares used in computation (3).......................... 21,767 21,767
</TABLE>

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
-----------------------
ACTUAL PRO FORMA (4)
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<S> <C> <C>
BALANCE SHEET DATA:
Working capital......................................... $ 10,859 $ 16,386
Total assets............................................ 34,628 33,289
Total debt, including current maturities................ 108,870 52,724
Stockholders' equity (deficit).......................... (87,444) (32,237)
</TABLE>
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(1) Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common stock equivalents issued at prices
below the expected public offering price during the 12-month period prior
to the Company's expected initial public offering have been included in the
calculation of weighted average common shares as if they were outstanding
for all periods prior to the Offering, regardless of whether they are
dilutive. Accordingly, the weighted average common shares for all periods
presented reflects: (i) the issuance of shares to the Centre Entities and
the repurchase of shares from THIN International pursuant to the
Recapitalization; (ii) all shares issuable upon exercise of stock options
granted (using the treasury stock method); (iii) 288,434 shares issuable
upon exercise of the NationsBridge Warrants; (iv) all shares granted to
management within 12 months of the Offering; and (v) all shares purchased
by management within 12 months of the Offering.

(2) Pro forma statement of operations data give effect to the Recapitalization,
the consummation of the Offering and the application of the net proceeds
from the Offering after deducting the assumed underwriting discount and
estimated offering expenses as if they occurred at the beginning of the
respective period. Adjustments to the historical statement of operations
data represent the net effect of: (i) interest on borrowings under the
Senior Bank Debt at effective interest rates of 8.4% to 9.1% representing
interest rates in effect at the time of the Recapitalization and the Bridge
Notes at an average effective interest rate of 13.3% and amortization of
related deferred financing costs; (ii) elimination of interest and
amortization of deferred financing costs due to repayment of the Bridge
Notes and repayment of a portion of the Senior Bank Debt; and (iii) the
effect of the pro forma adjustments on the provision for income taxes. The
effect of the nonrecurring recapitalization expenses and the extraordinary
loss on the early extinguishment of debt as a result of the repayment of
the Bridge Notes and repayment of a portion of the Senior Bank Debt have
not been included in the pro forma statement of operations data as the
nonrecurring recapitalization expenses and the extraordinary loss are
assumed to occur immediately prior to the period presented. See "Use of
Proceeds," "Management's Discussion and Analysis of Financial Conditions
and Results of Operations--Overview--Extraordinary Loss,"
"Recapitalization" and Notes 4 and 10 of Notes to Consolidated Financial
Statements.

(3) Shares used in computation include the effect of 6,000,000 shares of Common
Stock issued and sold by the Company as part of the Offering and 1,365,220
shares of Common Stock issuable upon the exercise of outstanding options
(net of 377,614 shares assumed to be repurchased by the Company using the
treasury stock method). See "Use of Proceeds," "Management," "Certain
Transactions," "Recapitalization" and Note 5 of Notes to Consolidated
Financial Statements.

(4) Pro forma balance sheet data give effect to the consummation of the
Offering and the application of the proceeds from the Offering after
deducting the assumed underwriting discount and estimated offering expenses
as if they had occurred on the balance sheet date. See "Use of Proceeds,"
"Capitalization," "Recapitalization" and Notes 4 and 10 of Notes to
Consolidated Financial Statements.

7
<PAGE>

RISK FACTORS

An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. Prospective purchasers of the Common Stock
offered hereby should carefully review the following risk factors as well as
the other information set forth in this Prospectus.

Prospective investors should note that this Prospectus contains certain
"forward looking statements," including, without limitation, statements
containing the words "believes," "anticipates," "intends," "expects" and words
of similar import. Prospective investors are cautioned that any such forward
looking statements are not guarantees of future performance and involve risks
and uncertainties, and that the actual results may differ materially from
those in the forward looking statements as a result of various factors. The
accompanying information contained in this Prospectus identifies important
factors that could cause such differences. The Company disclaims any
obligation to update any such factors or to announce publicly the result of
any revisions to any of the forward looking statements contained herein to
reflect future events or developments.

SIGNIFICANT VARIABILITY IN QUARTERLY RESULTS

The Company's revenues and results of operations historically have varied
substantially from quarter to quarter, and the Company expects these
variations to continue. Among the factors causing these variations have been
the number, timing and scope of the Company's contracts and purchase orders,
concentration of shipments under large orders and the uneven timing of the
receipt by the Company of necessary authorizations from government customers.
The Company recognizes revenues primarily upon shipment of its products to its
customers, while a high percentage of the Company's operating expenses,
including personnel, rent and debt service, are relatively fixed in advance of
any particular quarter. As a result, the concentration of several order
deliveries in a particular quarter, unanticipated variations in the number and
timing of shipments or customer delays in proceeding to succeeding stages of a
contract could have a material adverse effect on the Company's quarterly
results of operations and financial condition. For example, the three months
ended December 31, 1995 accounted for 36.3% of revenues and 48.0% of net
income for fiscal 1996. As a result of the foregoing factors, the Company's
operating results for a future quarter may be below the expectations of public
market analysts and investors. In such event, the price of the Common Stock
will likely be adversely affected. See "--Customer Concentration; Reliance on
Certain Key Contracts," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations" and "--Quarterly
Results of Operations."

CUSTOMER CONCENTRATION; RELIANCE ON CERTAIN KEY CONTRACTS

In fiscal 1996, the Company's five largest customers accounted for
approximately 67.4% of the Company's revenues, with the U.S. Marine Corps, the
Royal Netherlands Army and the U.S. Army accounting for approximately 26.5%,
12.7% and 10.1%, respectively. In fiscal 1995, the Company's five largest
customers accounted for approximately 71.3% of the Company's revenues, with
the British Ministry of Defense, the Singapore Army, the U.S. Air Force
(including certain other components of the Department of Defense ("DOD") other
than the U.S. Army and the U.S. Marine Corps) and the Swiss Army accounting
for approximately 29.7%, 13.5%, 12.2% and 11.0%, respectively. No other
customer accounted for more than 10% of the Company's revenues in either such
year. (For purposes of the foregoing, the Reserve and National Guard
components of the U.S. Marine Corps, the U.S. Army and the U.S. Air Force are
combined with the respective active forces.) Given the nature of the Company's
contracts, revenues attributable to specific customers are likely to vary from
year to year, and a significant customer in one year may not be a significant
customer in a subsequent year. In order to reach its growth objectives, the
Company will be required to seek contracts from new domestic and international
customers as well as orders from existing customers for additional types of
simulated firearms or increased quantities of previously ordered systems and
simulated weapons. A significant decrease in demand by or the loss of one or
more significant customers could have a material adverse effect on the
Company's results of operations or financial condition. The Company's
contracts are ordinarily terminable by the customer at any time without
penalty to the customer. Accordingly, there can be no assurance that existing

8
<PAGE>

customers will continue to purchase the Company's products or services at
historical levels, if at all. See "Business--Customers" and Note 7 of Notes to
Consolidated Financial Statements.

RELIANCE ON AND RISKS ASSOCIATED WITH GOVERNMENT CONTRACTS AND REGULATIONS

Most of the Company's customers to date have been in the public sector of
the U.S., including the federal, state and local governments, and in the
public sectors of a number of other countries. Approximately 44.3% of the
Company's revenues for fiscal 1996 were attributable to sales to military
authorities in the U.S., 11.5% were attributable to sales to law enforcement
authorities in the U.S. and 43.3% were attributable to sales to military and
law enforcement authorities internationally. Although the Company has
experienced an increased demand for its products in recent years despite
decreases in general levels of defense spending, a significant decrease in the
overall level or allocation of defense spending in the U.S. or other countries
could have a material adverse effect on the Company's future results of
operations and financial condition. Sales to public sector customers are
subject to a multiplicity of detailed regulatory requirements and public
policies as well as to changes in training and purchasing priorities.
Contracts with public sector customers may be conditioned upon the continuing
availability of public funds, which in turn depends upon lengthy and complex
budgetary procedures, and may be subject to certain pricing constraints.
Moreover, U.S. government contracts and those of many international government
customers may generally be terminated for a variety of factors when it is in
the best interests of the government and contractors may be suspended or
debarred for misconduct at the discretion of the government. In addition,
conduct of the Company's operations requires that it maintain a license from
the U.S. Treasury Department's Bureau of Alcohol, Tobacco and Firearms and
meet detailed regulatory requirements in this connection and with regard to
export sales. The Company is currently bringing to the attention of the State
Department certain violations which may have occurred in the conduct of its
operations with regard to transfer of manufacturing data to a foreign
subsidiary of the Company. There can be no assurance that these factors or
others unique to government contracts or the loss or suspension of necessary
regulatory licenses will not have a material adverse effect on the Company's
future results of operations and financial condition. See "Business--
Government Contracts and Regulation" and "Customers."

RELIANCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES

A significant portion of the Company's sales are made to customers located
outside the U.S., primarily in Europe and Asia. In fiscal 1996, 1995 and 1994,
43.3%, 66.3% and 66.1% of the Company's revenues, respectively, were derived
from sales to customers located outside the U.S. The Company expects that its
international customers will continue to account for a substantial portion of
its revenues in the near future. Sales to international customers may be
subject to political and economic risks, including political instability,
currency controls, exchange rate fluctuations and changes in import/export
regulations and tariff rates. In addition, various forms of protectionist
trade legislation have been and in the future may be proposed in the U.S. and
certain other countries. Any resulting changes in current tariff structures or
other trade and monetary policies could adversely affect the Company's sales
to international customers. Political and economic factors have been
identified by the Company with respect to certain of the markets in which it
competes. There can be no assurance that these factors will not result in
defaults by customers in making payments due to the Company, in reductions in
the purchases of the Company's products by international customers or in
foreign currency exchange losses. In certain cases, the Company has reduced
certain of the risks associated with international contracts by obtaining bank
letters of credit to support the payment obligations of its customers and/or
by providing in its contracts for payment in U.S. dollars. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Overview," "Business--Targeted Market," "--Customers" and Notes 7 and 9 of
Notes to Consolidated Financial Statements.

ABILITY TO MANAGE CONTINUED GROWTH

The Company's revenues have grown at a compound annual growth rate of 51.8%
over the last five years to $65.4 million in fiscal 1996. The Company's growth
has been a result of its ability to define, develop and expand the markets for
its products. Any future growth of the Company will depend on its ability to
conduct such activities with the same or greater degree of success as in the
past. Any such growth will continue to place

9
<PAGE>

significant demands on its management and other resources. In particular, the
Company will have to continue to increase the number of its personnel,
particularly skilled technical, marketing and management personnel, and
continue to develop and improve its operational, financial and other internal
systems, both in the U.S. and internationally. Any inability of the Company to
manage its growth effectively could have a material adverse effect on the
quality of the Company's products and services, its ability to attract and
retain key personnel, its business prospects and its results of operations and
financial condition.

DEPENDENCE ON KEY PERSONNEL; NEW CEO

The Company believes that its success depends to a significant degree upon
the continuing contributions of its key management, sales, marketing and R&D
personnel. Failure to retain such key personnel or to attract and integrate
other qualified personnel could have a material adverse effect on the Company's
results of operations and financial condition. The Company recently has entered
into an employment contract with Peter A. Marino, who became the Company's new
Chief Executive Officer in October 1996. In addition, all the Company's senior
officers have entered into non-competition agreements with the Company. Mr.
Marino had not previously worked with the Company. Jody Scheckter, the founder
and former President of the Company, recently terminated his employment with
the Company in connection with the Recapitalization. See "Management."

ABILITY TO CONTINUE DEVELOPMENT OF MARKET

The market for interactive small and supporting arms training simulators is
developing, and the Company believes that its future success will depend upon,
among other factors, the extent to which domestic and foreign military services
and law enforcement departments continue to adopt simulation in their training
regimens. There can be no assurance that the use of simulation training systems
will become widespread or continue to grow or that the Company's products will
maintain their current share of the market. See "Business--Industry Overview."

POTENTIAL FOR INCREASED COMPETITION

The relatively undeveloped nature of the market in which the Company competes
may attract new entrants as they perceive opportunities in this market. While
management believes that the Company is currently the most effective competitor
in its market, existing and new competitors may have significantly greater
financial, technical and marketing resources than the Company, may foresee the
course of market developments more accurately than the Company, may develop
products that are superior to or more cost-effective than the Company's
products or may adapt more quickly than the Company to new technologies or
evolving customer requirements. With respect to potential competitors, the
Company believes that as the firearms simulation market continues to develop, a
number of large domestic defense contractors have the capacity to become
significant competitors due to their expertise with complex simulation systems
and their relationships with the DOD and the U.S. Congress. There can be no
assurance that the Company will be able to maintain its current market
position, and failure to compete successfully with existing and new competitors
could have a material adverse effect on the Company's results of operations and
financial condition. See "Business--Competition."

ABILITY TO ADAPT TO TECHNOLOGICAL CHANGES

The Company's R&D personnel use certain established market-leading
technologies to develop simulation systems and related products. The current
generation of FATS(TM) Systems uses a proprietary operating system known as OS-
9. While such software would be difficult to replace, the term of the Company's
license extends to October 31, 2001 and the Company believes it is on good
terms with its licensor. The continued success of the Company will depend on
its ability to incorporate in its products changing technologies in such fields
as electronics, mechanical engineering, training development and audio-visual
and to develop and introduce new technology that meets the increasingly
sophisticated training needs of the Company's customers. Although the Company
continuously pursues product R&D efforts, there can be no assurance that the
Company will be successful in adapting to these developments in a timely
fashion. The Company's failure to so adapt could have a material adverse effect
on the Company's results of operations and financial condition. See "Business--
Research and Development" and "Business Proprietary Operating System; Raw
Materials and Suppliers."

10
<PAGE>

EFFECTS OF COMPANY'S LEVERAGE

Prior to the consummation of the Recapitalization, the Company historically
used internally generated funds to finance its operations and growth and
generally had relatively insignificant amounts of long-term debt. Following
consummation of the Recapitalization, in which the Company incurred a
substantial amount of indebtedness, and after giving effect to the application
of the proceeds from the sale of the Common Stock offered hereby, the Company
will have approximately $52.7 million in outstanding Senior Bank Debt under the
NationsBank Credit Agreement, including $22.5 million under the Tranche A Term
Loan Facility (as defined below), $30.2 million under the Tranche B Term Loan
Facility (as defined below) and no indebtedness under the $15.0 million
NationsBank Revolving Credit Facility (as defined below). The Tranche A Term
Loan Facility and the NationsBank Revolving Credit Facility mature on July 31,
2002, and the Tranche B Term Loan Facility matures on July 31, 2003. Loans made
under the Tranche A Term Loan Facility and the NationsBank Revolving Credit
Facility bear interest, at the Company's option, at: (i) a floating rate based
upon the Alternate Base Rate (defined as the higher of the prime rate of the
Senior Agent under the NationsBank Credit Agreement and the federal funds rate
as adjusted plus 0.50%) plus an applicable margin of 1.25% to 1.75% per annum
based on the Company's leverage ratio; or (ii) the applicable Eurodollar Rate
for one, two, three or six months, plus an applicable margin of 2.25% to 2.75%
per annum based on the Company's leverage ratio, subject to adjustment in
certain circumstances. Loans made under the Tranche B Term Loan Facility bear
interest, at the Company's option, at: (i) a floating rate based upon the
Alternate Base Rate plus 2.50% per annum; or (ii) the applicable Eurodollar
Rate plus 3.50% per annum, subject to adjustment in certain circumstances.
After giving effect to the application of the estimated net proceeds of the
Offering, quarterly principal payments in respect of the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility will commence on December 31,
1997; from December 31, 1997 through June 30, 1998, the aggregate amount of
such scheduled principal payments will be approximately $0.7 million per
quarter and from September 30, 1998 through March 31, 2001, the aggregate
amount of such scheduled principal payments will be approximately $1.3 million
per quarter. In addition, the Company will be required to make quarterly
interest payments on such indebtedness as described herein. Subject to the
restrictions in the NationsBank Credit Agreement, the Company may incur
additional indebtedness from time to time in the future in order to finance
capital expenditures or acquisitions or for other purposes. See "Use of
Proceeds," "Capitalization," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources,"
"Recapitalization" and Notes 4 and 10 of Notes to Consolidated Financial
Statements.

The Company's indebtedness and its financial and other covenants under the
NationsBank Credit Agreement will have several important effects on its future
operations, including, without limitation, 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.

CONTROL BY CERTAIN EXISTING SHAREHOLDERS

Immediately after consummation of the Offering, the Centre Entities and THIN
International will beneficially own or have voting control over approximately
54.7% and 14.5% of the total outstanding shares of Common Stock, respectively.
Such concentration of ownership may have the effect of delaying or preventing
certain types of transactions involving an actual or potential change in
control of the Company, including transactions in which the holders of the
Common Stock might receive a premium on their shares over a prevailing market
price. In addition, by virtue of ownership of a majority of the outstanding
voting stock of the Company, the Centre Entities will be able to control all
elections of directors as well as all other matters submitted to a vote of
shareholders, including amendments to the certificate of incorporation, mergers
and sales of substantially all assets, going private transactions and other
extraordinary transactions. See "Principal Shareholders" and "Description of
Capital Stock."

11
<PAGE>

EFFECT OF SHARES ELIGIBLE FOR FUTURE SALE ON THE VALUE OF THE COMMON STOCK

Upon completion of the Offering, the Company will have 20,402,404 shares of
Common Stock outstanding. Of those shares, the 6,000,000 shares of Common Stock
sold in the Offering will be freely tradable without restriction or further
registration under the Securities Act of 1933, as amended (the "Securities
Act"), unless purchased by an "affiliate" of the Company, as that term is
defined in Rule 144 under the Securities Act, in which case such shares will be
subject to the resale limitations of Rule 144. The remaining 14,402,404 shares
of Common Stock were issued by the Company in private transactions prior to the
Offering and are "restricted securities" as that term is defined in Rule 144
and may not be sold unless they are registered or unless an exemption from
registration, such as the exemptions under Rule 144, is available. The Company
believes that THIN International may be eligible to sell its shares of Common
Stock after the termination of the 180-day holding period described below under
"Underwriting." The holders of shares of Common Stock at the time of the
Offering, including the Centre Entities and THIN International, have certain
registration rights relating thereto. In addition, options have been issued
under the Company's Stock Option Plan which will become exercisable at various
times and under various circumstances in the future for the purchase of up to
approximately 1,742,834 shares of Common Stock.

The Centre Entities, THIN International and the Company's officers and
directors who are shareholders of the Company and who, immediately following
the Offering collectively will beneficially own an aggregate of 14,402,404
shares of Common Stock, as well as the Company, have agreed not to offer, sell
or otherwise dispose of any of their shares of Common Stock for a period of 180
days from the date of this Prospectus. See "Underwriting."

Because there has been no public market for shares of Common Stock, the
Company is unable to predict the effect, if any, that future sales of shares,
or the availability of shares for future sale, will have on the market price of
the Common Stock prevailing from time to time. Sales of substantial amounts of
Common Stock, whether pursuant to a subsequent public offering or otherwise, or
the perception that such sales could occur, could have a material adverse
effect on the market price of the Common Stock and could impair the Company's
future ability to obtain capital through an offering of equity securities. See
"Management--Stock Option Plan," "Certain Transactions," "Recapitalization,"
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting."

EFFECT OF CERTAIN CHARTER PROVISIONS ON THE VALUE OF THE COMMON STOCK

Effective upon the consummation of the Offering, the Board of Directors of
the Company will be classified into three classes, each of which will serve for
three years, with one class being elected each year. In addition, the Board of
Directors is empowered to issue, without shareholder action, preferred stock
having the terms designated by the Board of Directors. The structure of the
Board of Directors and the existence of this "blank check preferred" could
render more difficult an attempt to obtain control of the Company by means of a
tender offer, merger, proxy contest or otherwise. The issuance of preferred
stock also could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock and could adversely affect the
rights and powers, including voting rights, of the holders of Common Stock. See
"Description of Capital Stock."

NO PRIOR MARKET FOR COMMON STOCK; POSSIBLE VOLATILITY OF COMMON STOCK PRICE

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, there can be no assurance that an active or liquid trading
market for the Common Stock will develop or be sustained. Although the
Representatives of the Underwriters have advised the Company that they
currently intend to make a market in the Common Stock, they are not obligated
to do so and may discontinue such market at any time. The initial public
offering price of the Common Stock will be determined by negotiation among the
Company, the Selling Shareholder and the Representatives of the Underwriters
and may not be indicative of the market price for the Common Stock after the
Offering. Numerous factors, including announcements of fluctuations in the
Company's or its competitors'

12
<PAGE>

operating results, could have a significant impact on the future price of the
Common Stock. In addition, in recent years, the equity market has experienced
extreme price and volume fluctuations that have affected the market price for
many growth companies and that frequently have been unrelated to the operating
performance of those companies. Such market fluctuations may materially and
adversely affect the market price of the Common Stock. See "Underwriting" and
"Management--Stock Option Plan."

DILUTION TO PURCHASERS OF COMMON STOCK

Investors purchasing shares of Common Stock in the Offering will incur
immediate dilution of $16.58 in tangible net worth per share of Common Stock
from the initial public offering price. See "Dilution."

CERTAIN BENEFITS TO EXISTING SECURITY HOLDERS

After giving effect to the Offering, the existing shareholders of the Company
will benefit from an immediate decrease of $4.49 in the deficit in tangible net
worth per share of Common Stock. The existing shareholders will also benefit
from the reduction in the Company's leverage as a result of the application of
certain of the estimated net proceeds from the Offering to the repayment of a
significant portion of the outstanding indebtedness of the Company. In
addition, approximately $23.3 million of the net proceeds of the Offering will
be used to satisfy certain obligations to existing security holders, including
$19.3 million to satisfy the obligation to make the Contingent Payment to THIN
International and approximately $4.0 million to fund the Warrant Payment to
NationsBridge. If the Underwriters exercise their over-allotment option in
full, THIN International also would sell 900,000 shares of Common Stock in the
Offering. Furthermore, the existing shareholders will benefit from the
completion of the Drop Down Transaction when the pledge of the outstanding
shares of Common Stock currently pledged by the existing shareholders in
support of the Company's Senior Bank Debt is released in accordance with the
terms of the pledge in substitution for a pledge of the shares of capital stock
of the Drop Down Subsidiary. See "Dilution," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" and "Recapitalization."

NO PRESENT INTENTION TO PAY DIVIDENDS; RESTRICTION ON ABILITY TO PAY DIVIDENDS

The Company currently intends to retain all available funds to finance the
operation and expansion of its business and therefore does not anticipate
paying any dividends on the Common Stock in the foreseeable future. In
addition, the NationsBank Credit Agreement prohibits the payment of any
dividends in respect of the Common Stock. See "Dividend Policy."

13
<PAGE>

USE OF PROCEEDS

The proceeds to the Company from the sale of 6,000,000 shares of Common
Stock offered hereby by the Company at an assumed initial public offering
price of $15.00 per share, after deducting the assumed underwriting discount
and estimated offering expenses, are estimated to be $82.1 million. The
Company intends to use such estimated net proceeds in the following order of
priority: (i) $40.4 million will be used to repay the Bridge Notes, including
accrued and unpaid interest thereon, issued in connection with the
Recapitalization; (ii) $1.3 million will be used to pay NationsBridge a fee in
connection with the repayment of the Bridge Notes; (iii) $19.3 million will be
used to satisfy the obligation to make the Contingent Payment to THIN
International; (iv) approximately $4.0 million will be used to fund the
Warrant Payment to NationsBridge; and (v) $17.1 million will be used to repay
a portion of the $69.8 million of Senior Bank Debt outstanding under the
NationsBank Credit Agreement entered into in connection with the
Recapitalization, including $7.3 million of the $29.8 million in outstanding
indebtedness under the Tranche A Term Loan Facility and $9.8 million of the
$40.0 million in outstanding indebtedness under the Tranche B Term Loan
Facility.

Pursuant to the Recapitalization, the Bridge Notes were issued by the
Company in an aggregate principal amount of $40.0 million on July 31, 1996.
The Bridge Notes mature on July 31, 2004 and bear interest at an effective
rate of 13.3%, subject to adjustment in certain circumstances. If the Bridge
Notes are outstanding on December 30, 1996, $10.0 million in principal amount
of the Bridge Notes will automatically be exchanged for senior preferred stock
of the Company and $5.0 million in principal amount of the Bridge Notes will
automatically be exchanged for junior convertible preferred stock of the
Company. At that time, NationsBridge will have the option of selling the
junior convertible preferred stock to the Centre Entities.

In addition, pursuant to the Recapitalization, the Senior Bank Debt was
incurred by the Company in the aggregate principal amount of $76.0 million
under the NationsBank Credit Agreement on July 31, 1996. The Senior Bank Debt
included $30.0 million of the Tranche A term loan facility provided for
thereunder (the "Tranche A Term Loan Facility"), $40.0 million of the Tranche
B term loan facility provided for thereunder (the "Tranche B Term Loan
Facility") and $6.0 million of the $15.0 million revolving credit facility
provided for thereunder (the "NationsBank Revolving Credit Facility"). The
NationsBank Credit Agreement provides that the Tranche A Term Loan Facility
and the NationsBank Revolving Credit Facility mature on July 31, 2002, and the
Tranche B Term Loan Facility matures on July 31, 2003. Loans made under the
Tranche A Term Loan Facility and the NationsBank Revolving Credit Facility
bear interest, at the Company's option, at: (i) a floating rate based upon the
Alternate Base Rate (defined as the higher of the prime rate of the Senior
Agent under the NationsBank Credit Agreement and the federal funds rate as
adjusted plus 0.50%) plus an applicable margin of 1.25% to 1.75% per annum
based on the Company's leverage ratio; or (ii) the applicable Eurodollar Rate
for one, two, three or six months, plus an applicable margin of 2.25% to 2.75%
per annum based on the Company's leverage ratio, subject to adjustment in
certain circumstances. Loans made under the Tranche B Term Loan Facility bear
interest, at the Company's option, at: (i) a floating rate based upon the
Alternate Base Rate plus 2.50% per annum; or (ii) the applicable Eurodollar
Rate plus 3.50% per annum, subject to adjustment in certain circumstances. See
"Recapitalization" and Notes 4 and 10 of Notes to Consolidated Financial
Statements.

In connection with the repayment of the Bridge Notes and a portion of the
Senior Bank Debt, the Company will incur an extraordinary loss of
approximately $3.6 million, net of income taxes. Such extraordinary loss will
be recorded in the period in which the Offering is completed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Overview--Extraordinary Loss."

If the Underwriter's over-allotment option is exercised in full, at an
assumed initial public offering price of $15.00 per share the proceeds to be
received by the Selling Shareholder from the sale of the 900,000 shares of
Common Stock offered by the Selling Shareholder, after deducting the assumed
underwriting discount, will be $12.6 million. The Company will not receive any
of the proceeds from the sale of the over-allotment shares of Common Stock
offered by the Selling Shareholder.

14
<PAGE>

DIVIDEND POLICY

The Company currently intends to retain any earnings to finance operations
and expansion and, therefore, does not anticipate paying any dividends on the
Common Stock in the foreseeable future. Future dividends, if any, will be
determined by the Board of Directors of the Company and will depend upon the
Company's earnings, capital requirements, financial condition, level of
indebtedness and other factors deemed relevant by the Board of Directors. The
NationsBank Credit Agreement prohibits the payment of any dividends in respect
of the Common Stock.

15
<PAGE>

CAPITALIZATION

The following unaudited table sets forth the current maturities of long-term
debt and the capitalization of the Company: (i) at September 30, 1996; and
(ii) pro forma for the application of the net proceeds from the sale of the
shares of Common Stock offered by the Company hereby. See "Use of Proceeds."

<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------
ACTUAL PRO FORMA (1)
-------- -------------
(IN THOUSANDS)
<S> <C> <C>
Current maturities of long-term debt............... $ 3,075 $ --
======== =========
Long-term debt, less current maturities............ $105,795 $ 52,724
-------- ---------
Stockholders' equity:
Preferred Stock, $.10 par value; 200,000 shares
authorized, no shares issued and outstanding.... -- --
Class A Common Stock, $0.000006 par value;
68,060,000 shares authorized, 14,402,404 shares
issued and outstanding actual (20,402,404 shares
issued and outstanding pro forma) (1)........... -- --
Class B Non-voting Common Stock, $0.000006 par
value: 2,200,000 shares authorized, no shares
issued and outstanding.......................... -- --
Additional paid-in capital (1)(2)................ 36,991 119,091
Warrants (3)..................................... 930 --
Accumulated earnings (deficit) (4)............... (125,353) (151,316)
Cumulative translation adjustment................ (12) (12)
-------- ---------
Total stockholders' equity (deficit)........... (87,444) (32,237)
-------- ---------
Total capitalization......................... $ 18,351 $ 20,487
======== =========
</TABLE>
- --------
(1) Pro forma Common Stock includes the 6,000,000 shares of Common Stock to be
sold by the Company in the Offering at an assumed initial public offering
price of $15.00 per share less the assumed underwriting discount and
estimated offering expenses.
(2) Pro forma additional paid-in capital includes the proceeds from the
Offering, net of the underwriting discount and estimated offering
expenses, as follows:
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN CAPITAL
---------------
<S> <C>
Balance at September 30, 1996, actual..................... $ 36,991
Proceeds from the Offering, net........................... 82,100
--------
Balance at September 30, 1996, pro forma.................. $119,091
========
</TABLE>
(3) Warrants represent the fair value of the NationsBridge Warrants for
288,434 shares of Common Stock. The NationsBridge Warrants will be
canceled upon payment of the Warrant Payment from the net proceeds of the
Offering. See "Recapitalization" and Notes 4 and 10 of Notes to
Consolidated Financial Statements.
(4) Pro forma accumulated earnings (deficit) includes the following:
<TABLE>
<CAPTION>
ACCUMULATED
DEFICIT
-----------
<S> <C>
Balance at September 30, 1996, actual........................ $(125,353)
Fee in connection with repayment of the Bridge Notes......... (1,300)
Elimination of a portion of capitalized debt financing
costs....................................................... (3,391)
Elimination of discount on Bridge Notes due to the
NationsBridge Warrants...................................... (930)
Income tax benefit on above items............................ 2,052
Payment to THIN International to satisfy the Contingent Pay-
ment, reflected as additional payment for the reacquisition
and subsequent cancellation of shares from THIN
International............................................... (19,300)
Payment to NationsBridge for settlement of NationsBridge
Warrants in excess of the recorded basis.................... (3,094)
---------
Balance at September 30, 1996, pro forma..................... $(151,316)
=========
</TABLE>

The fee in connection with the repayment of the Bridge Notes, the eliminated
portion of capitalized debt financing costs, and the eliminated discount on
Bridge Notes due to the NationsBridge Warrants included above will be
recorded as extraordinary items, net of tax, in the Company's consolidated
statements of income upon completion of the Offering. The payment to
NationsBridge for settlement of the NationsBridge Warrants in excess of the
recorded basis for such warrants will be recorded directly to accumulated
deficit.

16
<PAGE>

DILUTION

As of September 30, 1996, the Company had a deficit in tangible net worth of
approximately $(87.4) million, or $(6.07) per share of Common Stock. Tangible
net worth per share represents the difference between total tangible assets
and total liabilities of the Company divided by the total number of shares of
Common Stock outstanding at September 30, 1996 (excluding shares issuable upon
the exercise of the NationsBridge Warrants to purchase 288,434 shares of
Common Stock). Tangible net worth and number of shares of Common Stock include
the 1.66-for-one stock split effected on November 1, 1996. After giving effect
to the Offering and the application of the estimated net proceeds therefrom,
the deficit in tangible net worth of the Company at September 30, 1996 would
have been approximately $(32.2) million or $(1.58) per share. This represents
an immediate decrease in the deficit in tangible net worth of $4.49 per share
to existing shareholders and an immediate dilution of $16.58 per share to
purchasers of Common Stock in the Offering. The following table illustrates
such dilution:

<TABLE>
<S> <C> <C> <C>
Assumed initial public offering price per share..... $15.00
Tangible net worth per share as of September 30,
1996............................................. $(6.07)

Change in tangible book value per share attributable
to:
6,000,000 shares being sold by the Company in the
Offering......................................... $5.63
$19.3 million contingent payment to THIN
International.................................... (.94)
$4.0 million payment to NationsBridge in
connection with the NationsBridge Warrants....... (.20)
-----
Net increase in tangible net worth per share
attributable to new investors...................... 4.49
------
Pro forma tangible net worth per share after giving
effect to the Offering............................. (1.58)
------
Dilution per share to new investors................. $16.58
======
</TABLE>

Exercise of the Underwriters' over-allotment option will not have an effect
on dilution to new investors since such shares will be sold by an existing
shareholder.

The foregoing computations assume no exercise of stock options prior to the
consummation of the Offering. The Company has reserved 2,490,000 shares for
issuance under its Stock Option Plan. It is anticipated that options to
purchase an aggregate of 1,742,834 shares of Common Stock at an exercise price
of approximately $3.25 per share will be outstanding as of the effective date
of the Offering. If all such stock issuances and such options had been
exercised (using the treasury stock method) at September 30, 1996, the deficit
pro forma net tangible book value per share after completion of the Offering
would have been $(1.22), representing an immediate decrease in the deficit in
pro forma tangible net worth of $4.85 per share attributable to the Offering
and an immediate dilution to new investors of $16.22 per share. See
"Management--Stock Option Plan," "Certain Transactions" and Note 5 of Notes to
Consolidated Financial Statements.

The following table sets forth, on a pro forma basis as of September 30,
1996, the difference between the total consideration and the average price
paid by the existing shareholders for their shares of the Company's Common
Stock and that paid by the purchasers of shares offered by the Company in the
Offering.

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------ -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 14,402,404 70.6% $ 36,991,000 29.1% $ 2.57
New investors........... 6,000,000 29.4 90,000,000 70.9 15.00
---------- ----- ------------ ----- ------
Total............... 20,402,404 100.0% $126,991,000 100.0% $ 6.22
========== ===== ============ ===== ======
</TABLE>

17
<PAGE>

SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)

The selected financial data of the Company for each of the last five years
set forth below have been derived from the Company's consolidated financial
statements for each of the fiscal years in the five-year period ended March
31, 1996, which financial statements have been audited by Arthur Andersen LLP
in the case of the fiscal years ended March 31, 1995 and 1996 and Price
Waterhouse LLP in the case of the fiscal years ended March 31, 1992, 1993 and
1994. The selected historical financial data as of and for the six months
ended September 30, 1995 and 1996 have been derived from the unaudited
financial statements of the Company, but include all adjustments (consisting
only of normal recurring adjustments) which the Company considers necessary
for a fair presentation of the results of operations for the periods
presented. The results of operations for the six-month period ended September
30, 1996 are not necessarily indicative of the operating results that may be
expected for the Company's fiscal 1997. The selected consolidated financial
data set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" set
forth below and the financial statements of the Company included elsewhere in
this Prospectus and referred to in the "Index to Financial Statements"
(together with the notes and other reports relating to such financial
statements).

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
----------------------------------------- --------------------
1992 1993 1994 1995 1996 1995 1996
------- ------- ------- ------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues................ $12,324 $14,049 $20,534 $29,164 $65,439 $27,089 $ 39,138
Cost of revenues........ 5,039 5,773 9,651 14,230 30,902 14,204 17,980
------- ------- ------- ------- ------- --------- ---------
Gross profit............ 7,285 8,276 10,883 14,934 34,537 12,885 21,158
------- ------- ------- ------- ------- --------- ---------
Operating expenses:
Selling, general and
administrative ex-
penses................ 3,640 4,606 6,066 8,169 12,087 5,367 7,513
Research and develop-
ment expenses......... 1,615 2,227 2,048 2,296 2,781 1,242 1,831
Depreciation and amor-
tization.............. 217 312 297 330 386 196 203
------- ------- ------- ------- ------- --------- ---------
Total operating ex-
penses............... 5,472 7,145 8,411 10,795 15,254 6,805 9,547
------- ------- ------- ------- ------- --------- ---------
Operating income........ 1,813 1,131 2,472 4,139 19,283 6,080 11,611
Interest income (ex-
pense), net............ 14 (50) (98) 12 165 35 (1,833)
Nonrecurring recapitali-
zation expenses........ -- -- -- -- -- -- (1,120)
Other income (expense),
net.................... -- -- (126) 66 (93) (27) (39)
------- ------- ------- ------- ------- --------- ---------
Income before income
taxes.................. 1,827 1,081 2,248 4,217 19,355 6,088 8,619
Provision for income
taxes (1).............. 553 270 730 1,387 6,565 2,126 3,281
------- ------- ------- ------- ------- --------- ---------
Net income.............. $ 1,274 $ 811 $ 1,518 $ 2,830 $12,790 $ 3,962 $ 5,338
======= ======= ======= ======= ======= ========= =========
Net income per share
(2).................... $0.08 $0.05 $0.09 $0.18 $0.80 $0.25 $0.33
======= ======= ======= ======= ======= ========= =========
Weighted average common
shares (2)............. 16,055 16,055 16,055 16,055 16,055 16,055 16,055
PRO FORMA STATEMENT OF OPERATIONS DATA: (3)
Operating income......................................... $19,283 $11,611
Income before income taxes............................... 13,745 9,082
Net income............................................... $ 9,082 $ 5,767
======= =========
Net income per share..................................... $0.42 $0.26
======= =========
Shares used in computation (4)........................... 21,767 21,767
</TABLE>

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------------------------------- -------------------
PRO FORMA
1992 1993 1994 1995 1996 1996 1996 (5)
------ ------ ------ ------ ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital......... $2,536 $3,207 $4,784 $7,657 $20,216 $ 10,859 $ 16,386
Total assets............ 5,280 8,036 12,108 16,817 33,820 34,628 33,289
Total debt, including
current maturities..... -- 1,189 876 -- -- 108,870 52,724
Stockholders' equity
(deficit).............. 3,195 4,006 5,524 8,484 21,262 (87,444) (32,237)
</TABLE>

Footnotes to Selected Financial Data appear on following page.

18
<PAGE>

Footnotes to Selected Financial Data.

- --------
(1) Provision for income taxes for fiscal 1992 and 1993 was calculated in
accordance with Accounting Principles Bulletin No. 11. Subsequent to
fiscal 1993 the Company adopted Statement of Financial Accounting
Standards No. 109.

(2) Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and common stock equivalents issued at
prices below the expected public offering price during the 12-month period
prior to the Company's expected initial public offering have been included
in the calculation of weighted average common shares as if they were
outstanding for all periods prior to the Offering, regardless of whether
they are dilutive. Accordingly, the weighted average common shares for all
periods presented reflects: (i) the issuance of shares to the Centre
Entities and the repurchase of shares from THIN International pursuant to
the Recapitalization; (ii) all shares issuable upon exercise of stock
options granted (using the treasury stock method); (iii) 288,434 shares
issuable upon exercise of the NationsBridge Warrants; (iv) all shares
granted to management within 12 months of the Offering; and (v) all shares
purchased by management within 12 months of the Offering.

(3) Pro forma statement of operations data give effect to the
Recapitalization, the consummation of the Offering and the application of
the net proceeds from the Offering after deducting the assumed
underwriting discount and estimated offering expenses as if they occurred
at the beginning of the respective period. Adjustments to the historical
statement of operations data represent the net effect of: (i) interest on
borrowings under the Senior Bank Debt at effective interest rates of 8.4%
to 9.1% representing interest rates in effect at the time of the
Recapitalization and the Bridge Notes at an average effective interest
rate of 13.3% and amortization of related deferred financing costs; (ii)
elimination of interest and amortization of deferred financing costs due
to repayment of the Bridge Notes and repayment of a portion of the Senior
Bank Debt; and (iii) the effect of the pro forma adjustments on the
provision for income taxes. The effect of the nonrecurring
recapitalization expenses and the extraordinary loss on the early
extinguishment of debt as a result of the repayment of the Bridge Notes
and repayment of a portion of the Senior Bank Debt have not been included
in the pro forma statement of operations data as the nonrecurring
recapitalization expenses and the extraordinary loss are assumed to occur
immediately prior to the period presented. See "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview--Extraordinary Loss," "Recapitalization" and Notes
4 and 10 of Notes to Consolidated Financial Statements.

(4) Shares used in computation include the effect of 6,000,000 shares of
Common Stock issued and sold by the Company as part of the Offering and
1,365,220 shares of Common Stock issuable upon the exercise of outstanding
options (net of 377,614 shares assumed to be repurchased by the Company
using the treasury stock method). See "Use of Proceeds," "Management,"
"Certain Transactions," "Recapitalization" and Note 5 of Notes to
Consolidated Financial Statements.

(5) Pro forma balance sheet data give effect to the consummation of the
Offering and the application of the proceeds from the Offering after
deducting the assumed underwriting discount and estimated offering
expenses as if they had occurred on the balance sheet date. See "Use of
Proceeds," "Capitalization," "Recapitalization" and Notes 5 and 10 of
Notes to Consolidated Financial Statements.

19
<PAGE>

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

OVERVIEW

The Company is the leading worldwide producer of interactive simulation
systems designed to provide training in the handling and use of small and
supporting arms. The Company has focused its sales efforts primarily in the
U.S. and international military and law enforcement market and more recently
has begun to sell simulation training systems in the hunter and sports
training component of the market. Since fiscal 1992, the Company's revenues
and operating income have grown to $65.4 and $19.3 million, respectively,
representing five-year historical compound annual growth rates of 51.8% and
80.6%, respectively.

The Company derives most of its revenues from the sale of its products,
which include simulators, simulated firearms, scenarios, software and
auxiliary equipment, and certain additional revenues from service operations.
The Company receives purchase commitments for its products and services from
its customers largely through purchase orders and short- and long-term
contracts principally with governmental entities. Sales revenues are
recognized primarily upon shipment with advanced billings related to contracts
recorded as deferred revenue and recognized primarily as units are delivered.
Service revenues are comprised of revenues from individual purchase orders,
which are recognized as services are provided, and revenues from extended
service contracts, which are recognized over the life of the service
contracts.

Although the Company sells its products and services to a large number of
military and law enforcement agencies in the U.S. and internationally, the top
five customers accounted for approximately 67.4%, 71.3% and 71.9% of the
Company's revenues in fiscal 1996, 1995 and 1994, respectively. A significant
increase or decrease in demand by a large customer could have a substantial
effect on the Company's revenues, and revenues from any one customer can vary
materially from period to period. In addition, although the Company has
experienced an increased demand for its products in recent years despite
decreases in general levels of defense spending, a significant decrease in the
overall level or allocation of defense spending in the U.S. or other countries
could have a material adverse effect on the Company's future results of
operations and financial condition. A significant portion of the Company's
sales are also made to customers located outside the U.S., primarily in Europe
and Asia. During fiscal 1996, 1995 and 1994, approximately 43.3%, 66.3% and
66.1%, respectively, of the Company's revenues were derived from sales to
international customers. The Company expects that sales to international
customers will continue to account for a significant percentage of future
revenues, as the worldwide acceptance for simulation-based training systems
continues to grow. Certain of the Company's international sales are
denominated in foreign currencies. The Company does not currently hedge these
foreign currency transactions, since it believes its exposure to foreign
exchange rate fluctuations is not material. See "Risk Factors--Significant
Variability in Quarterly Results," "--Customer Concentration; Reliance on
Certain Key Contracts," "--Reliance on and Risks Associated with Government
Contracts and Regulations," "--Reliance on and Risks Associated with
International Sales," "Business--Customers" and Note 7 of Notes to
Consolidated Financial Statements.

Cost of revenues generally includes materials, direct labor, overhead and
other direct costs. Operating expenses include selling, general and
administrative expenses, R&D expenses and depreciation and amortization.
Selling, general and administrative expenses consist primarily of salaries,
wages, benefits, international agents' commissions and marketing expenses. R&D
expenses are largely comprised of salaries, wages, benefits, prototype
equipment and project supplies. The Company expenses all R&D costs in the
period in which they are incurred and has funded all of its R&D efforts over
the past 12 years through internally generated funds.

U.S. Marine Corps Contract

In August 1994, through competitive bidding, the Company was awarded a
fixed-price contract ("Contract 2014") with the U.S. Marine Corps for the
supply of small and supporting arms simulators. This contract also contains
provisions which have enabled purchases under the contract of firearms
simulators by the U.S. Army. The total initial contract amount was $16.1
million, and options exercised and contract modifications made have

20
<PAGE>

increased that amount by a total of $51.8 million through September 30, 1996.
Deliveries under Contract 2014 commenced in the fourth quarter of fiscal 1995
and totalled $34.9 million through September 30, 1996. At such date,
unexercised options to purchase additional simulators through September 30,
1999 amounted to approximately $46 million. Future shipments under Contract
2014 could be adversely affected by a variety of factors, including changes in
training or purchasing priorities, a significant decrease in the general level
of defense spending and the unique aspects of the government procurement
process. Any termination of Contract 2014 or a failure to exercise existing
options in the future may have a material adverse effect on the Company's
future results of operations and financial condition. See "Risk Factors--
Customer Concentration; Reliance on Certain Key Contracts," "--Reliance on and
Risks Associated with Government Contracts and Regulations," "Business--
Customers" and "--Government Contracts and Regulation."

Backlog

Backlog represents customer orders that have been contracted for future
delivery. Accordingly, these orders have not yet been recognized as revenue,
but represent potential revenue. As of September 30, 1996, the Company had a
backlog of approximately $56.2 million, of which 67.9% and 31.0% are related
to contracted orders from U.S. military and international customers,
respectively. As of October 25, 1995, the Company had a backlog of
approximately $25.2 million. 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 date of termination.

Recapitalization

In connection with the Recapitalization on July 31, 1996, the Company: (i)
issued shares of its Common Stock to the Centre Entities for $36.0 million in
cash; (ii) issued $40.0 million in Bridge Notes to NationsBridge and agreed to
issue to NationsBridge warrants for shares of Common Stock as described
herein; (iii) borrowed a total of $76.0 million under the NationsBank Credit
Agreement; (iv) repurchased certain shares of its Common Stock from THIN
International for $151.9 million in cash; and (v) agreed to make the
Contingent Payment in cash or shares of Common Stock to THIN International if
certain trigger events occur. In connection with the Recapitalization, the
Company also sold certain shares and granted certain options to members of
management on September 18, 1996. In addition, the Company's Common Stock was
split 100,000-for-one on July 30, 1996 and was split 1.66-for-one on November
1, 1996. All references to Common Stock data in this Prospectus have been
restated to reflect both stock splits. See "Management," "Certain
Transactions" and "Recapitalization."

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. See "Risk Factors--Effects of Company's
Leverage."

Extraordinary Loss

Of the $82.1 million of net proceeds expected from the Offering, after
deducting the underwriting discount and estimated offering expenses, $40.4
million will be used to repay the Bridge Notes, including accrued and unpaid
interest thereon. In addition, the Company will pay a $1.3 million fee to
NationsBridge in connection with the repayment. This fee along with the write-
off of unamortized deferred financing costs and debt discount

21
<PAGE>

will result in an extraordinary loss of approximately $3.6 million, net of
taxes. This extraordinary loss will be recognized at the time the Bridge Notes
are repaid in connection with the completion of the Offering, which is
expected to occur in the three months ending December 31, 1996. See "Use of
Proceeds."

RESULTS OF OPERATIONS

The following table sets forth certain operating data as a percentage of gross
revenues for the periods indicated:

<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FISCAL YEAR ENDED SEPTEMBER
MARCH 31, 30,
------------------- ------------
1994 1995 1996 1995 1996
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Revenues.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues............................ 47.0 48.8 47.2 52.4 45.9
----- ----- ----- ----- -----
Gross profit................................ 53.0 51.2 52.8 47.6 54.1
----- ----- ----- ----- -----
Operating expenses:
Selling, general and administrative
expenses.................................. 29.6 28.0 18.5 19.8 19.2
Research and development expenses.......... 10.0 7.9 4.2 4.6 4.7
Depreciation and amortization.............. 1.4 1.1 0.6 0.7 0.5
----- ----- ----- ----- -----
Total operating expenses................. 41.0 37.0 23.3 25.1 24.4
----- ----- ----- ----- -----
Operating income............................ 12.0 14.2 29.5 22.5 29.7
Interest income (expense), net.............. (0.5) 0.1 0.2 0.1 (4.7)
Nonrecurring recapitalization expenses...... -- -- -- -- (2.9)
Other income (expense), net................. (0.6) 0.2 (0.1) (0.1) (0.1)
----- ----- ----- ----- -----
Income before income taxes.................. 10.9 14.5 29.6 22.5 22.0
Provision for income taxes.................. 3.5 4.8 10.1 7.9 8.4
----- ----- ----- ----- -----
Net income.................................. 7.4% 9.7% 19.5% 14.6% 13.6%
===== ===== ===== ===== =====
</TABLE>

SIX MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO SIX MONTHS ENDED SEPTEMBER 30,
1995

Revenues. Revenues increased $12.0 million, or 44.5%, to $39.1 million for
the six months ended September 30, 1996 as compared to $27.1 million for the
six months ended September 30, 1995. This increase was due to strong growth in
sales throughout the Company's market. Sales to U.S. military customers
increased by $7.6 million, or 55.8%, primarily due to increased sales to the
U.S. Marine Corps under Contract 2014. In addition, sales to international
customers increased $2.9 million, or 26.4%, primarily due to increased sales
to Italian law enforcement agencies and increased deliveries under the
Netherlands Army contract. Sales to U.S. law enforcement agencies increased by
$1.1 million, or 45.8%, primarily due to increased sales to two existing
federal law enforcement customers. The six months ended September 30, 1996
also included approximately $667,000 in sales to hunter and sports training
customers as compared to $200,000 for the six months ended September 30, 1995.

Cost of Revenues. Cost of revenues increased $3.8 million, or 26.6%, to
$18.0 million for the six months ended September 30, 1996 compared to $14.2
million for the six months ended September 30, 1995. As a percentage of
revenues, cost of revenues decreased to 45.9% for the six months ended
September 30, 1996 as compared to 52.4% for the six months ended September 30,
1995. This decrease was a result of a decrease in materials as a percentage of
revenues due to product mix changes which were partially offset by lower gross
margins on sales to U.S. military customers. In addition, labor and overhead
costs as a percentage of revenues decreased as a result of spreading such
costs over a substantially higher revenue base.

Gross Profit. As a result of the foregoing, gross profit increased $8.3
million, or 64.2%, to $21.2 million, or 54.1% of revenues, for the six months
ended September 30, 1996 as compared to $12.9 million, or 47.6% of revenues,
for the six months ended September 30, 1995.

Total Operating Expenses. Total operating expenses increased $2.7 million,
or 40.3%, to $9.5 million for the six months ended September 30, 1996 compared
to $6.8 million for the six months ended September 30, 1995. Total operating
expenses as a percentage of revenues decreased to 24.4% for the six months
ended

22
<PAGE>

September 30, 1996 from 25.1% for the six months ended September 30, 1995
primarily due to operating leverage that enabled the Company to spread its
fixed costs over a larger revenue base. Accordingly, selling, general and
administrative expenses declined as a percentage of revenues to 19.2% for the
six months ended September 30, 1996 from 19.8% for the six months ended
September 30, 1995. R&D expenses increased 47.4% from September 30, 1995 to
September 30, 1996 due to continued efforts in developing new and improving
existing products. R&D expenses as a percentage of revenues increased to 4.7%
for the six months ended September 30, 1996 from 4.6% for the same period of
the prior year.

Operating Income. As a result of the foregoing, operating income increased
$5.5 million, or 91.0%, to $11.6 million, or 29.7% of revenues, for the six
months ended September 30, 1996 as compared to $6.1 million, or 22.5% of
revenues, for the six months ended September 30, 1995.

Other Income (Expense), Net. Net interest expense totaled $1.8 million, or
4.7% of revenues for the six months ended September 30, 1996 as compared to
net interest income of $35,000 for the six months ended September 30, 1995.
The increase in interest expense is a result of interest expense and
amortization of deferred financing costs related to debt incurred in
connection with the Recapitalization on July 31, 1996. Other income (expense),
net also includes a nonrecurring charge of $1.1 million for expenses incurred
in connection with the Recapitalization.

Provision for Income Taxes. The effective tax rate increased to 38.1% of
income before income taxes for the six months ended September 30, 1996
compared to 34.9% of income before taxes for the six months ended September
30, 1995. This increase was primarily attributable to the nonrecurring
expenses incurred in connection with the Recapitalization, which are not
deductible for income tax purposes.

Net Income. As a result of the foregoing, net income as reported increased
$1.3 million, or 34.7%, to $5.3 million ($0.33 per share), or 13.6% of
revenues for the six months ended September 30, 1996 as compared to $4.0
million ($0.25 per share), or 14.6% of revenues for the six months ended
September 30, 1995. If the nonrecurring charge related to the Recapitalization
was excluded, reported net income for the six months ended September 30, 1996
would have been $6.5 million ($0.40 per share), or 16.5% of revenues, an
increase of $2.5 million, or 63.0%, over the six months ended September 30,
1995.

FISCAL YEAR ENDED MARCH 31, 1996 COMPARED TO THE FISCAL YEAR ENDED MARCH 31,
1995

Revenues. Revenues increased $36.2 million, or 124.4%, to $65.4 million for
fiscal 1996 as compared to $29.2 million for fiscal 1995 as a result of
increases in revenues throughout the Company's market. Approximately 65.5% of
such increase was attributable to a $23.8 million increase in sales to the
U.S. military. This increase in sales to the U.S. military was due to two new
contracts awarded in August 1994. Deliveries under Contract 2014, which began
in January 1995, accounted for a majority of the increase. As a result, fiscal
1996 reflected a full year of deliveries under this contract while fiscal 1995
reflected approximately two months of deliveries. The second contract was with
the U.S. Marine Corps Reserves under which deliveries began in October 1995.
Fiscal 1996 reflected six months of deliveries under this contract while
fiscal 1995 reflected no deliveries. In addition, approximately 24.8% of the
overall increase in revenues was attributable to an increase in sales to
international customers of $9.0 million, or 46.5%, primarily due to deliveries
under contracts with the Royal Netherlands Army and two international law
enforcement agencies. The increase in international sales was partially offset
by reductions in deliveries to the British Ministry of Defense, the Singapore
Army and the Swiss Army. Sales to law enforcement agencies also increased by
$2.9 million, or 64.3%, primarily due to significant deliveries to two
existing federal law enforcement customers beginning in the second quarter of
fiscal 1996. Fiscal 1996 also included approximately $573,000 in sales to
hunter and sports training customers.

Cost of Revenues. Cost of revenues increased $16.7 million, or 117.2%, to
$30.9 million for fiscal 1996 as compared to $14.2 million for fiscal 1995. As
a percentage of revenues, cost of revenues decreased to 47.2% for fiscal 1996
as compared to 48.8% for fiscal 1995. The decrease was primarily the result of
spreading labor and overhead costs over a substantially higher revenue base.
This decline in labor and overhead costs as a

23
<PAGE>

percentage of revenues was partially offset by an increase in materials as a
percentage of revenues due to lower gross margins from the two new U.S.
military contracts.

Gross Profit. As a result of the foregoing, gross profit increased $19.6
million, or 131.3%, to $34.5 million, or 52.8% of revenues, for fiscal 1996 as
compared to $14.9 million, or 51.2% of revenues, for fiscal 1995.

Total Operating Expenses. Total operating expenses increased by $4.5
million, or 41.3%, to $15.3 million for fiscal 1996 as compared to $10.8
million for fiscal 1995. Total operating expenses as a percentage of revenues
decreased to 23.3% for fiscal 1996 from 37.0% for fiscal 1995 which resulted
from operating leverage that enabled the Company to spread its fixed costs
over a larger revenue base. Accordingly, selling, general and administrative
expenses declined as a percentage of revenues to 18.5% for fiscal 1996 from
28.0% for fiscal 1995. R&D expenses increased 21.1% from fiscal 1995 to fiscal
1996 due to continued efforts in developing new and improving existing
products. However, R&D expenses as a percentage of revenues decreased to 4.2%
in fiscal 1996 from 7.9% in fiscal 1995.

Operating Income. As a result of the foregoing, operating income increased
$15.2 million, or 365.9%, to $19.3 million, or 29.5% of revenues, for fiscal
1996 as compared to $4.1 million, or 14.2% of revenues, for fiscal 1995.

Other Income (Expense), Net. Other income decreased $6,000, or 7.7%, to
$72,000 for fiscal 1996 as compared to $78,000 for fiscal 1995.

Provision for Income Taxes. The effective tax rate increased to 33.9% of
income before income taxes for fiscal 1996 as compared to 32.9% of income
before income taxes for fiscal 1995. This increase was primarily attributable
to the increase in the federal tax rate at the Company's current taxable
income level to 35.0% for fiscal 1996 as compared to 34.0% for fiscal 1995.
The Company also benefited from the impact of R&D tax credits utilized, the
effect of which was greater in fiscal 1995 than in fiscal 1996 due to the fact
that the Company had lower taxable income in 1995. During fiscal 1996, the
Company also began utilizing a foreign sales corporation which provided a
permanent tax benefit related to international export sales.

Net Income. As a result of the foregoing, net income increased $10.0
million, or 351.9%, to $12.8 million, or 19.5% of revenues, for fiscal 1996 as
compared to $2.8 million, or 9.7% of revenues, for fiscal 1995.

FISCAL YEAR ENDED MARCH 31, 1995 COMPARED TO THE FISCAL YEAR ENDED MARCH 31,
1994

Revenues. Revenues increased $8.7 million, or 42.0%, to $29.2 million for
fiscal 1995 as compared to $20.5 million for fiscal 1994. Approximately 66.8%
of such increase was the result of a significant increase in sales to
international customers of $5.8 million, or 42.4%. A substantial portion of
the increase in fiscal 1995 international sales was due to increased
deliveries under the Company's British Ministry of Defense contract, which
began in September 1993, as well as deliveries to the Singapore Army, Swiss
Army and certain other international customers. In addition, approximately
21.6% of the overall increase in revenues was the result of an increase in
sales to the U.S. military of $1.9 million, or 55.0%. Such increase in U.S.
military sales was due to Contract 2014 awarded in August 1994 by the U.S.
Marine Corps, on which deliveries began in the fourth quarter of fiscal 1995.
Sales to law enforcement agencies in the U.S. also increased by $1.0 million,
or 28.2%.

Cost of Revenues. Cost of revenues increased $4.5 million, or 47.4%, to
$14.2 million for fiscal 1995 as compared to $9.7 million for fiscal 1994. As
a percentage of revenues, cost of revenues increased to 48.8% for fiscal 1995
as compared to 47.0% for fiscal 1994. Such increase was attributable to a
significant increase in materials costs as a percentage of revenues which
resulted from the lower gross margins from Contract 2014.

Gross Profit. As a result of the foregoing, gross profit increased $4.0
million, or 37.2%, to $14.9 million, or 51.2% of revenues, for fiscal 1995 as
compared to $10.9 million, or 53.0% of revenues, for fiscal 1994.

24
<PAGE>

Total Operating Expenses. Total operating expenses increased $2.4 million,
or 28.3%, to $10.8 million for fiscal 1995 as compared to $8.4 million for
fiscal 1994. Total operating expenses as a percentage of revenues decreased to
37.0% for fiscal 1995 as compared to 41.0% for fiscal 1994. This decrease
primarily resulted from a decline in selling, general and administrative
expenses as a percentage of revenues from 29.6% in fiscal 1994 to 28.0% in
fiscal 1995, and a decline in R&D expenses as a percentage of revenues from
10.0% in fiscal 1994 to 7.9% in fiscal 1995. These decreases in percentage of
revenues primarily resulted from operating leverage benefits.

Operating Income. As a result of the foregoing, operating income increased
$1.6 million, or 67.4%, to $4.1 million, or 14.2% of total revenues, for
fiscal 1995 as compared to $2.5 million, or 12.0% of total revenues, for
fiscal 1994.

Other Income (Expense), Net. Other income increased $302,000 to $78,000 for
fiscal 1995 as compared to an expense of $224,000 for fiscal 1994. This
increase primarily resulted from a decrease in interest expense in fiscal 1995
compared to fiscal 1994 and foreign currency translation gains achieved in
fiscal 1995.

Provision for Income Taxes. The effective tax rate increased to 32.9% of
income before income taxes for fiscal 1995 as compared to 32.5% of income
before income taxes for fiscal 1994. Such increase was primarily attributable
to the greater impact of the R&D tax credit utilized to reduce fiscal 1994
income tax expense.

Net Income. As a result of the foregoing, net income increased $1.3 million,
or 86.4%, to $2.8 million, or 9.7% of revenues, for fiscal 1995 as compared to
$1.5 million, or 7.4% of revenues, for fiscal 1994.

QUARTERLY RESULTS OF OPERATIONS

The following table presents certain unaudited quarterly statements of
operations data for each of the six quarters beginning April 1, 1995 and
ending September 30, 1996. Such information, in the opinion of management,
includes all adjustments consisting only of normal recurring adjustments
necessary for a fair presentation of that information. The results of
operations for any quarter are not necessarily indicative of the results to be
expected for any future period.

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------
FISCAL 1996 FISCAL 1997
----------------------------------- -----------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
------- -------- ------- ------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $13,976 $13,113 $23,784 $14,566 $13,734 $25,404
Gross profit............ 7,030 5,855 13,524 8,128 7,173 13,985
Operating income........ 3,297 2,783 9,287 3,916 3,323 8,288
Income before income
taxes.................. 3,305 2,783 9,291 3,976 3,488 5,131
Net income.............. 2,182 1,780 6,111 2,717 2,215 3,123
<CAPTION>
QUARTER ENDED
------------------------------------------------------
FISCAL 1996 FISCAL 1997
----------------------------------- -----------------
JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
------- -------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross profit............ 50.3 44.7 56.9 55.8 52.2 55.1
Operating income........ 23.6 21.2 39.0 26.9 24.2 32.6
Income before income
taxes.................. 23.6 21.2 39.1 27.3 25.4 20.2
Net income.............. 15.6 13.6 25.7 18.7 16.1 12.3
</TABLE>

The Company's operations and related revenues and operating results
historically have varied substantially from quarter to quarter, and the
Company expects these variations to continue. Among the factors causing these
variations have been the number, timing and scope of the Company's contracts
and purchase orders,

25
<PAGE>

concentration of shipments under large orders and the uneven timing of receipt
by the Company of necessary authorizations by governmental customers. See
"Risk Factors--Significant Variability in Quarterly Results."

LIQUIDITY AND CAPITAL RESOURCES

Prior to the Recapitalization, the Company's principal liquidity and capital
needs were to fund working capital and capital expenditures necessary to
support its growth. Net working capital was $10.9 million at September 30,
1996 and $20.2 million at March 31, 1996.

The Company's operating activities generated cash of $5.0 million in the six
months ended September 30, 1996 and $6.6 million, $2.0 million and $1.1
million in fiscal 1996, 1995 and 1994, respectively, due to higher levels of
net income in those periods. Cash generated from operations in fiscal 1996,
1995 and 1994 was partially offset by increases in inventories in all three
years and increases in accounts receivable in fiscal 1996 and 1994.

The Company's investing activities used cash of $432,000 for the six months
ended September 30, 1996 and $761,000, $191,000 and $405,000 in fiscal 1996,
1995 and 1994, respectively. The Company's use of cash for investing
activities in those periods was due to capital expenditures. In fiscal 1996,
the Company's capital expenditures were primarily for manufacturing equipment,
commercial vehicles and certain computer equipment used in R&D and general
administration.

The Company's financing activities used cash of $876,000 to reduce
outstanding borrowings under its line of credit in fiscal 1995. The Company
borrowed $762,000 under its line of credit and repaid $1.1 million of its
related-party notes payable in fiscal 1994. During the six months ended
September 30, 1996, the Company used cash of $11.7 million in financing
activities, primarily in connection with the Recapitalization, as described
herein. See "Recapitalization."

Prior to the Recapitalization described herein, the Company maintained a
$6.0 million revolving credit facility with NationsBank, N.A. which was
terminated in connection with the Recapitalization. In connection with the
Recapitalization, the Company entered into the $85.0 million NationsBank
Credit Agreement under which the Company borrowed an aggregate of $76.0
million in three components: (i) $6.0 million out of an available $15.0
million under the NationsBank Revolving Credit Facility, which matures July
31, 2002; (ii) $30.0 million of the Tranche A Term Loan Facility that requires
quarterly principal payments ranging from $200,000 to $1.8 million, commencing
September 30, 1996 and matures July 31, 2002; and (iii) $40.0 million of the
Tranche B Term Loan Facility that requires quarterly principal payments
ranging from $125,000 to $9.4 million, commencing December 31, 1996 and
matures July 31, 2003. The NationsBank Revolving Credit Facility, the Tranche
A Term Loan Facility and the Tranche B Term Loan Facility bear interest at
variable rates, which were approximately 10.0%, 8.4% and 9.1%, respectively,
at September 30, 1996. The borrowings under the NationsBank Credit Agreement
are secured by: (i) substantially all of the Company's assets; (ii) a pledge
of all of the then-issued Common Stock of the Company, which pledge will be
released upon consummation of the Drop Down Transaction in substitution for a
pledge of all the shares of the Drop Down Subsidiary; and (iii) a pledge of
65% of the capital stock of the Company's foreign subsidiaries. The Company
also received $40.0 million from the sale of Bridge Notes to NationsBridge,
which mature on July 31, 2004 and bear interest at an effective rate of 13.3%,
payable quarterly. See "Risk Factors--Effects of Company's Leverage,"
"Recapitalization" and Notes 4 and 10 of Notes to Consolidated Financial
Statements.

The Company anticipates completing the Drop Down Transaction whereby all the
operating assets of the Company will be contributed to the newly formed Drop
Down Subsidiary. The NationsBank Credit Agreement requires the Company to use
its best efforts to effect the Drop Down Transaction by December 31, 1996 and
provides that on and after January 1, 1997, the interest rates on the Senior
Bank Debt each will be increased by 0.25% until the Drop Down Transaction is
completed. The Company currently anticipates consummation of the Drop Down
Transaction by December 31, 1996. The purpose of the Drop Down Transaction is
to effect the release of the pledge of the outstanding shares of Common Stock
granted under the NationsBank Credit Agreement in connection with the
Recapitalization in substitution for a pledge of the shares of capital stock
of

26
<PAGE>

the Drop Down Subsidiary. Until the Drop Down Transaction occurs, the lenders
under the NationsBank Credit Agreement will retain a pledge of all shares of
Common Stock other than those offered hereby. The Drop Down Transaction will
have no impact on the consolidated financial statements of the Company since
the Drop Down Subsidiary is wholly-owned, and the financial covenants
applicable to the Company and its subsidiaries will remain essentially
unchanged. See "Recapitalization--Drop Down Transaction."

The Company plans to proceed with the Offering with the anticipation of
raising approximately $82.1 million in net proceeds after deducting the
underwriting discount and estimated offering expenses. The Company anticipates
using the net proceeds to the Company to pay off the Bridge Notes, reduce the
Senior Bank Debt and to fund the Contingent Payment and the Warrant Payment.
There can be no assurance that the Offering can be completed at the
anticipated price, or at all.

After giving effect to the application of the estimated net proceeds of the
Offering, quarterly principal payments in respect of the Tranche A Term Loan
Facility and the Tranche B Term Loan Facility will commence on December 31,
1997; from December 31, 1997 through June 30, 1998, the aggregate amount of
such scheduled principal payments will be approximately $0.7 million per
quarter and from September 30, 1998 through March 31, 2001, the aggregate
amount of such scheduled principal payments will be approximately $1.3 million
per quarter. In addition, the Company will be required to make quarterly
interest payments on such indebtedness as described herein.

In addition to cash required for debt service, the Company anticipates that
its primary uses of cash in future periods will be for R&D expenses, working
capital and capital expenditures. From time to time, the Company enters into
long-term contracts with customers, in which R&D and delivery extend for more
than a one-year period. In such contracts, the Company attempts to obtain
advance payments to fund the R&D expenses and production costs required under
these contracts. The Company defers revenues associated with these contracts
until the products are delivered.

The Company believes that the proceeds from the Offering, together with cash
flow from operations and borrowings under the NationsBank 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. See "Use of Proceeds."

27
<PAGE>

BUSINESS

The Company is the leading worldwide producer of interactive simulation
systems designed to provide training in the handling and use of small and
supporting arms. The Company offers a broad array of cost-effective training
systems ranging from individual marksmanship trainers to instructional systems
for multiple users. Unlike traditional live firing ranges, the Company's
simulation systems enable users to train in highly realistic situations
through the integration of video and digitized projected imagery and modified,
laser-emitting firearms that retain the fit, function and feel of the original
weapon. Utilizing internally developed proprietary software and sensors
incorporated into the simulated weapons, the Company's systems offer real-time
feedback and evaluation with respect to a number of performance measures such
as accuracy, reaction time, situational judgment and other important elements
of weapons handling. In addition, the Company's simulation systems offer
significant improvements in safety as well as many other benefits to customers
that cannot be attained in live weapons practice, including reductions in
ammunition consumption, weaponry wear, trainee transport and range maintenance
costs and environmental remediation expenses. Over its 12-year history, the
Company's team of subject matter experts has developed over 180 types of
simulated weapons and approximately 100 laser discs containing more than 1,000
training scenarios.

The Company has focused its sales efforts primarily in the U.S. and
international military and law enforcement market segments through its
principal facilities near Atlanta, Georgia and its other facilities in the
U.K., the Netherlands and Singapore. More recently, the Company has also begun
to sell simulation training systems for hunter and sports training. By
offering products that enhance training effectiveness while reducing costs,
FATS has sold systems to numerous customers in the U.S. and abroad, including
the U.S. Marine Corps, the U.S. Army, the U.S. Air Force, the Los Angeles
Police Department, the Internal Revenue Service, the Singapore Army and Police
Coast Guard, the British Ministry of Defense and the Royal Netherlands Army.

To date the Company has sold more than 2,000 FATS(TM) systems in the U.S.
and over 30 other countries. Although the Company is unaware of any
independent third party industry statistics, the Company believes, based on
its monitoring of the market, that its systems sold to date represent a
substantial majority of the worldwide installed base of interactive small and
supporting arms simulation systems purchased by military and law enforcement
agencies. Management believes that the Company's success to date has been due
primarily to the proven quality and cost-effectiveness of the Company's
products, its premier FATS(TM) brand name, its strong long-term relationships
with its customers, its ability to provide innovative customized training
solutions on a timely basis, its extensive inventory of proven weapons and
scenarios, its ability to integrate advanced technologies and its team of
recognized subject matter experts. As a result of these competitive
advantages, the Company's revenues and operating income have grown at compound
annual growth rates of 51.8% and 80.6%, respectively, over the last five
fiscal years to $65.4 million and $19.3 million, respectively, in fiscal 1996.
As of September 30, 1996, the Company had a backlog of approximately $56.2
million from all customers and an additional $46 million in unexercised
customer options to purchase the Company's products through September 30, 1999
under an existing contract with the U.S. Marine Corps.

INDUSTRY OVERVIEW

28
<PAGE>

enforcement agencies have begun to adopt simulation systems based in part on
their concern over the increasing number of liability lawsuits relating to
alleged uses of excessive force. As a result, military and law enforcement
organizations are allocating greater portions of their training budgets to
small and supporting arms simulation training.

In addition to the increased demand for more realistic training, management
believes the development of the small arms simulation industry has benefitted
from two trends: (i) increasing pressure on budgets; and (ii) rapidly
advancing computer and video technology. Faced with declining budgets, many
military and law enforcement agencies are adopting interactive small and
supporting arms simulation as a means of reducing costs while maintaining
training effectiveness. In addition, firearms simulators help customers reduce
costs associated with environmental compliance requirements such as the
removal from target ranges of lead deposits caused by the use of live
ammunition. At the same time, advances in computing power and speed coupled
with advances in high resolution graphics and video technology have made it
possible to create highly realistic and cost-effective simulators. The
improved fidelity and diagnostic capability of current simulators permit
military and law enforcement agencies to improve the quality of firearms
training at a substantially lower cost than live fire training.

The interactive small and supporting arms simulation industry is relatively
new and developing, and the Company believes that the global business
opportunities remain substantial due to the significant benefits of and demand
for simulation products. Of the approximately $260 billion U.S. military
budget for fiscal 1997, approximately $3 billion to $5 billion is allocated to
overall training and training-related expenditures. Management estimates that
the market for small and supporting arms simulation systems like the Company's
product line in the U.S. military market segment alone is approximately $800
million, based on near-term stated acquisition objectives for small and
supporting arms simulation systems set by various branches of the U.S. armed
services. Moreover, management believes the trends favoring increased reliance
upon simulation in the U.S. can also be identified abroad as military and law
enforcement agencies in other countries, generally centralized to a greater
extent than in the U.S. and facing increasingly restrictive budgets, are re-
allocating greater portions of their training budgets to simulation training.

COMPETITIVE ADVANTAGES

The Company believes that its success to date in the small arms training
simulation market is attributable to the following key competitive advantages:

High Quality and Cost-Effective Products. The Company has participated in
studies of its products conducted by the U.S. Marine Corps, the U.S. Army and
the U.S. Air Force. The Company has been informed that such studies have
validated the cost-effectiveness and training benefits of FATS(TM) systems for
such entities and that trainees using FATS(TM) systems generally improve their
marksmanship and judgment skills faster than those using only live fire
training. FATS(TM) systems have been used for training U.S. and British forces
in Bosnia and for pre-deployment training of U.S. forces for Operation Desert
Storm and operations in Somalia.

Premier FATS(TM) Brand Name. The Company believes that the FATS(TM) brand
name has become associated with high quality, technically superior interactive
small and supporting arms simulator systems. Management believes that its
reputation has been enhanced by the acceptance of the Company's products by
certain military and law enforcement agencies that employ exacting standards
in making purchasing decisions. As a result, management believes that the
FATS(TM) premier brand name is critical to its ability to compete in its
existing market. In addition, the Company intends to build on this reputation
as it focuses on other market segments that have sophisticated firearms
training requirements, as it has already begun to do in the hunter and sports
training component of the market.

Strong Long-Term Relationships with Customers. The Company believes that a
critical element of its success to date and its ability to continue to expand
the market for simulation-based training has been its commitment to long-term
relationships with its customers. The Company works closely with its customers
often

29
<PAGE>

for a substantial period of time to help determine their training needs,
define specifications and develop customized training solutions. This approach
is particularly important given the relative infancy of the simulation-based
small arms training market and the education required to convert into
customers those agencies and personnel accustomed to traditional live fire
training. In addition to providing extensive training manuals, once a system
has been installed for a customer, the Company continues to provide support
through long-term service and maintenance agreements and service centers
designed to address customer needs within 24 hours of notification. Through
these long-term relationships, the Company works to expand its customers'
defined requirements and develop follow-on sales of existing products, systems
upgrades and additional weapons and scenarios. The Company's commitment and
approach to customer service enable it to develop opportunities for the
introduction of product enhancements and other incremental sales
opportunities.

Innovative Customized Training Solutions. The Company works closely with
many of its customers to develop training programs, simulated weapons and
training scenarios tailored to their specific needs. This ability to adapt
products to particular training needs is critical because the needs of the
Company's customers vary substantially. In addition, the Company offers a
broad range of products at various prices and with numerous options in order
to reach as broad a market as possible. When the Company develops highly
customized solutions, it usually retains the rights to each product and
therefore is able to leverage its technology investment in the development of
similar products for sale to other customers.

Extensive Inventory of Proven Weapons and Scenarios. Over its 12-year
history, the Company has fielded more than 180 simulated weapons and
approximately 100 laser discs containing more than 1,000 scenarios. The
Company draws on this proven catalog of existing products to address quickly
specific customer requirements. Management believes that its ability to offer
simulated weapons already fielded and tested by other customers has been
instrumental in its success in competitive bidding situations.

Integration of Advanced Technologies. The Company's strong technical
application capability enables it to effectively integrate: (i) advanced
laser, computer and video technology from third parties; (ii) proprietary
ballistics modelling, training and diagnostic software; and (iii) specially
machined, realistic, sensor-embedded weapons. The Company's strategic
relationships with leading high technology companies provide it access to
advanced simulation technologies and the opportunity for collaborative product
development. This emphasis on continual systems enhancements and development
of new generations of products enables the Company to expand its product
offerings and augment its sales to existing customers. In order to maintain
its technical application capability, the Company dedicates significant
resources to R&D, with a total staff of 61 persons, the majority of whom have
advanced degrees.

Team of Recognized Subject Matter Experts. In order to produce highly
realistic simulated weapons and training scenarios for its small and
supporting arms simulation systems, the Company seeks to hire and retain
specialists with subject matter expertise. The Company's R&D department
consists of technical and training experts drawn from a wide range of military
and law enforcement backgrounds to ensure an understanding of each customer's
unique training needs. Technical weapons experts ensure that the Company's
simulated weapons provide the fit, function and feel of the original weapon,
including characteristics such as recoil, weight, balance and ballistics.
Training specialists translate a customer's live fire training requirements
into quantifiable simulation objectives and then work with R&D engineers to
produce simulation solutions that fulfill such customer's needs. Accordingly,
the Company continually recruits, hires and seeks to retain personnel with
military and law enforcement experience, and in particular individuals with
expertise in technical matters, training requirements and the appropriations
and procurement process.

GROWTH STRATEGY

The Company has experienced substantial growth in its sales during recent
years and intends to seek further growth through expanded sales of its
existing products in its target markets as well as the development of new
products and markets. The Company's growth strategy includes the following
core elements:

30
<PAGE>

Increase Market Penetration. The interactive small and supporting arms
simulation industry is relatively new. As a result, the Company is seeking to
broaden acceptance of its products and increase sales to military and law
enforcement agencies in the U.S. and internationally. While continuing to
acquire new customers by demonstrating the cost-effectiveness and training
benefits of its products, the Company also focuses on generating repeat orders
from existing customers. The Company has found that its customers often order
additional simulation systems after an initial purchase once they experience
the advantages of the FATS(TM) systems. In addition, in recent years, the
Company has begun to focus on generating follow-on orders through systems
upgrades, software and other auxiliary products.

Continue New Product Development. A key element of the Company's growth
strategy is new product development. The Company believes that it can continue
to develop new products as a result of its R&D efforts and its understanding
of the needs of its customers. For example, the Company's newest simulator,
the Vessel Weapons Engagement Training System ("VWETS"), is being developed at
the request of and in close collaboration with an international customer. The
Company is now developing smaller versions of the product for sale to other
customers and believes that this integration of a motion platform with its
core simulation technology can be applied to a variety of other mounted
weapons training situations. In addition, the Company is currently developing
simulation products for training law enforcement personnel in the use of less-
than-lethal force (e.g., tear gas, batons, sticky foam and bean bag shotguns).
The Company is also developing simulators for newly emerging weaponry and
products integrating FATS(TM) systems with larger weapons system simulators.

Expand into New Markets. Management believes that significant opportunities
exist for sales beyond the Company's traditional military and law enforcement
customers. The Company has already begun to focus on the hunter and sports
training component of the market, which management believes is a natural
extension of its activities to date. The Company believes that potential
customers for products related to hunter education include both state and
federal agencies which have shown interest in simulation as a means of
promoting hunter safety and conservation as well as firearms dealers
interested in the use of simulators for competitive shooting exercises, hunter
training and home security programs. In addition, although the Company has not
yet taken steps to develop a product line or otherwise enter the market for
arcades, amusement parks and other entertainment venues, the Company believes
that this market may represent significant opportunities for the Company in
the future. The Company believes that less expensive lower resolution,
portable versions of certain of its systems could be developed readily for
these markets.

Pursue Selected Strategic Acquisitions. As an alternative or a supplement to
the internal development of additional product lines, new products could be
developed or added to the FATS(TM) line by means of strategic acquisitions,
joint ventures or partnerships. In particular, an acquisition of a company
with a strong brand name in lower price point or different products could
permit the Company to expand its product line, while maintaining the premium
position of the FATS(TM) brand name. However, the Company has not made any
such acquisition or entered into any such arrangement in the past and
currently has no existing agreements, commitments or specific plans to do so.

PRODUCTS

The Company offers a variety of innovative products to meet the specific
firearms training needs of its customers. Customers typically purchase a
system comprised of a simulator with several weapons and scenarios. The
Company's systems sell for prices from $50,000 for low-end systems with a
basic complement of weapons and scenarios to over $300,000 for high-end
systems with an extensive set of weapons and scenarios and auxiliary
equipment. The Company also sells additional weapons and laser discs to
customers as add-ons to basic systems at prices ranging from $1,000 to
$25,000.

Simulators. The Company's training simulators combine a primary simulation
computer, a laser hit location detection system, a laser disc player and a
video projector. The user of the simulator practices with a modified firearm
and fires a laser beam at targets within a highly realistic training scenario
appearing on a 10- to 30-foot video screen. The simulator processes data
provided by the laser hit location detection system and sensors integrated
into the simulated weapon to provide the instructor and trainee real-time
performance feedback. In addition, the instructor can replay various parts of
the training exercise with the trainee for detailed analysis of

31
<PAGE>

the trainee's performance, including the trainee's accuracy, reaction time,
judgment and other aspects of weapons handling. Certain of the Company's
simulators can accurately measure weapons fire at simulated distances of up to
2,200 meters and be linked to other simulators so that as many as 15
individuals can train at the same time. In addition, the simulators can be
programmed to replicate a wide variety of real-life situations, including
situations in which outcomes depend upon the user's reactions as well as
situations in which the user faces unexpected events such as the malfunction of
the firearm.

Simulated Firearms. The Company works closely with its customers to offer a
diverse range of specially modified or custom fabricated simulated firearms
which accurately replicate the fit, function and feel of the original firearm
in all material respects. The Company believes it is critical that its
simulated weapons have the same physical functions and operational
characteristics as the actual firearm such as weight, timing of fire, recoil,
potential for weapon malfunction and loading and reloading procedures. A
typical simulated firearm will include an infra-red laser, gas piston
actuators, valves, several types of electronic sensors, a localized computer
controller, specialized recoil buffers, gas lines, ports and wiring. Based upon
customer requirements, the Company can modify actual weapons into simulated
firearms or can manufacture simulated firearms from raw materials. The majority
of simulated firearms sold to U.S. military and law enforcement customers are
modified from actual firearms or assembled from weapon kits purchased from
third party suppliers, while many international military customers provide
their own firearms for the Company to convert into training devices. The
Company's simulated firearms are designed for an extended life-cycle with
maximum reliability and realism. Currently available weapon types include
revolvers, semi-automatic pistols, shotguns, semi-automatic and burst/automatic
rifles, submachine guns, machine guns, anti-armor rocket launchers, grenade
launchers, cannons, mortars and archery bows.

Scenarios and Software. The Company offers more than 100 video laser discs
containing more than 1,000 scenarios designed for various targeted markets. The
Company's software programs combine video and graphics into a versatile
simulation package. The instructor can use the program to modify the training
exercises and monitor performance of the user in a broad range of scenarios.
These scenarios are based on realistic combat situations such as small unit
ambushes complete with tank or helicoptor aggressor units or law enforcement
situations ranging from ordinary patrol encounters to special SWAT operations.
Scenarios are typically filmed in an environment similar to that which the user
is likely to experience. The Company often works with its customers to produce
a video laser disc of a specific training scenario or location. In addition,
the video disc often contains variations of the same situation so that the
customer can train users in a variety of scenarios and with multiple outcomes
depending upon the actions of the trainee or instructions of the trainer. The
Company can also draw on its extensive library of scenarios in order to reduce
the time necessary to provide customized training solutions for new customers.

Auxiliary Equipment. The Company manufactures a wide range of optional
auxiliary equipment which enhances the realism of the training scenarios.
Options include: (i) enemy shootback, which simulates return fire from the
target and has the ability to disable a trainee's training weapon; (ii) night
vision adapter, which can simulate night training using day video scenarios and
standard night vision goggles; (iii) less-than-lethal law enforcement options
such as baton simulation, pepper spray training devices and blank firing
weapons; and (iv) classroom trainers, in which a personal computer and software
are added to the system so that as many as 40 students, each with a personal
keypad, can participate in interactive training.

TARGETED MARKET

The Company currently targets four principal market components: (i) U.S.
military; (ii) U.S. law enforcement; (iii) international (including military
and law enforcement authorities); and (iv) hunter and sports training. Each
market component is in a different stage of development and is defined by a
different set of characteristics.

U.S. Military. The desire to provide realistic training while significantly
reducing costs has been the primary reason for the adoption of simulated arms
training by U.S. military authorities. The costs of live fire training, which
make it a relatively expensive form of training, include the usage of
ammunition, wear and tear on weapons, the need to transport soldiers and
equipment to the firing range and legal requirements for remediation of
environmental damage to the firing range. Moreover, according to budget
estimates of the DOD for the government's fiscal 1997, certain elements of the
U.S. armed forces have accumulated a substantial

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<PAGE>

shortfall relative to desired inventory levels of ammunition, which shortfall
has provided an impetus to certain organizations within the U.S. armed forces
to adopt or expand simulation training.

Although the U.S. military is centralized at the highest level, each major
branch of the U.S. military is at a different stage of implementing simulation
in its training regimen. The U.S. Marine Corps has adopted simulation as a
fundamental part of its training activities. In fiscal 1995, through
competitive bidding, the Company was awarded a contract (Contract 2014) with
the U.S. Marine Corps for the supply of small and supporting arms simulators.
The U.S. Army has purchased systems under the Company's contract with the U.S.
Marine Corps. The U.S. Air Force has purchased systems from the Company through
the procedures of the U.S. General Services Administration ("GSA"). The Company
believes that it is the primary supplier of interactive small and supporting
arms simulation systems to the U.S. Marine Corps, the U.S. Army and the U.S.
Air Force. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Overview--U.S. Marine Corps Contract" and "--Results of
Operations."

A critical feature of the U.S. military component of the market is the
procurement, budgeting and appropriations process. There are two principal
methods by which military organizations in the U.S. acquire training equipment.
For purchasing programs that will be defined in the U.S. government's budget,
the military organizations generally follow the DOD's multi-phase Planning,
Programming, Budgeting and Execution System ("PPBES"). In the planning phase,
the DOD makes a proposal based on its examination of the specific requirements
and requests of each service branch given available existing products and
products under development. The Company's simulation products have been
formally reviewed and tested in the planning phase by all branches of the U.S.
military. In the programming phase, a Program Objective Memorandum is drafted
to identify to the U.S. Congress, which is responsible for the budgeting and
appropriation of funds, the specific purchases requested by the military and
the desired time period for the purchases. In the budgeting phase, each
military branch and command within each branch compete with the other branches
or commands for funds. After funds are included in the federal budget, they
must be appropriated by Congress in order to be released to the military to be
spent. Typically, once funds are appropriated for simulators and other similar
types of equipment for which FATS seeks contracts, the military organization
has three years to enter into a contractual obligation relating to such
appropriation. When a contractual obligation is incurred, funds ordinarily are
expended within a five-year period beginning on the date of appropriation.
Appropriated funds must be spent on the appropriated item unless the U.S.
Congress otherwise agrees to a change. U.S. military authorities can also make
smaller purchases from discretionary funds available to commanders for use in
accordance with their service priorities. These purchases can be made through
various purchasing procedures including the contracting procedures of the GSA.
The Company has a standing contract with the GSA that defines the prices the
Company may charge government entities for certain of its goods and services.
The majority of sales to the U.S. Air Force and federal law enforcement
agencies as well as sales to local law enforcement agencies financed with
federal funds have been made through the GSA procedures.

For fiscal 1996, 44.3% of the Company's total revenues and 78.2% of the
Company's U.S. revenues were attributable to sales to U.S. military
authorities. As of September 30, 1996, the Company had a backlog of $38.2
million for contracts or purchase orders awarded to the Company by U.S.
military authorities. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

U.S. Law Enforcement. The U.S. law enforcement component of the market is
highly fragmented and can be divided into two principal groups: (i) U.S.
government entities (including the U.S. Postal Service, the U.S. Department of
Treasury (including its agencies and bureaus such as the Secret Service and the
Bureau of Alcohol, Tobacco and Firearms), the Federal Bureau of Investigation,
the Drug Enforcement Administration and the Central Intelligence Agency); and
(ii) state and local law enforcement organizations such as the Los Angeles
Police Department. The federal agencies, whose procurement process generally
follows the PPBES method, are typically headquartered in or near Washington,
D.C. By contrast, the state and local law enforcement agencies are widely
dispersed, with more than 12,500 different law enforcement departments in the
U.S. Given this fragmentation, the procurement processes vary substantially
depending upon the requirements of the particular jurisdiction. The Company
believes that its most likely potential local law enforcement customers may be
found among the approximately 2,500 law enforcement agencies and departments
with more than 25 officers. With only approximately 650 systems sold to U.S.
federal and local law enforcement authorities to date (of which approximately
600 are FATS(TM) systems), the Company believes that this market can provide
additional

33
<PAGE>

opportunities to the Company in the future. Law enforcement authorities face
increasing budgetary constraints as well as increasing threats of litigation
and damage awards relating to claims concerning the excessive or improper use
of force, lethal or otherwise, by law enforcement personnel. Accordingly, the
Company believes that there may be opportunities for increased sales to U.S.
law enforcement authorities of cost-effective simulation products designed to
enhance tactical skills and judgment.

For fiscal 1996, 11.5% of the Company's total revenues and 20.3% of the
Company's U.S. revenues were attributable to sales to U.S. law enforcement
authorities. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."

International. The Company believes that many international military and law
enforcement agencies are beginning to recognize the benefits of cost-effective
and realistic small arms simulation training. The Company has sold FATS(TM)
systems to customers in more than 30 countries, including Great Britain, the
Netherlands, Italy and Singapore. Interest in the Company's products may be
greatest in countries in which limited land is available for live fire training
or in which budgetary constraints or interest in technological upgrades may
support a decision to purchase the Company's systems. See "--Customers."

Unlike the U.S., most other countries have centralized law enforcement
organizations. As a result, procurement and purchasing decisions for both
military and law enforcement are typically centralized and in some instances
both functions are managed through the same command structure. The procurement
processes vary substantially depending upon the requirements of the particular
jurisdiction.

For fiscal 1996, 43.3% of the Company's total revenues were attributable to
sales to military and law enforcement authorities outside the U.S. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 7 of Notes to Consolidated Financial Statements.

Hunter and Sports Training. The Company has recently begun to focus on the
U.S. hunter and sports training component of the market. The customers for
firearms training in this emerging market component include state and federal
hunting agencies such as the U.S. Fish and Wildlife Service and the U.S.
Department of Natural Resources, as well as conservation associations such as
Ducks Unlimited, Inc. and the National Wild Turkey Federation, Inc. These
organizations have recognized the use of firearms simulation as a means of
promoting hunter safety and conservation. Moreover, the firearms dealer market
offers the potential to use simulators for competitive shooting exercises,
hunter training and home security programs. Simulators are currently being used
at some shooting competitions as a supplement to live fire matches. The Company
believes that as some states already require the successful completion of a
formal firearms training course as a prerequisite to owning a hunting license
or a gun, in the future, training on simulators may become an integral part of
such courses in many jurisdictions. Given the existence of more than 16,000
firearms dealers in the U.S., the widespread interest in the ownership and use
of firearms and the growing desire to find ways of better assuring the safe use
of firearms, the Company believes that significant business opportunities may
exist in the hunter and sports training component of the market.

For fiscal 1996, 0.9% of the Company's total revenues were attributable to
sales in the hunter and sports training component of the market. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

SALES AND MARKETING

The Company's marketing and sales efforts are organized to service its
principal customers, with separate sales operations for domestic and
international customers. The Company's marketing strategy focuses on developing
relationships with potential customers very early in their decision-making
processes and educating them about the benefits of training through simulation.
The Company then works with training and procurement personnel to identify and
develop solutions for each customer's specific training needs.

By becoming involved with customers at an early stage in their analysis of
potential training solutions, the Company can often sell its training systems
without any significant competition from other providers. In addition, the
Company often has an advantage in competitive situations because the Company's
systems provide standard specifications that are frequently incorporated into
the request for proposal used by the customer in soliciting

34
<PAGE>

bids from suppliers of small and supporting arms simulators. The Company's
consultative approach with customers has often helped it achieve favorable
results in competitive bidding situations.

Domestic sales are generated entirely by the Company's 30-person domestic
marketing group, all of whom report either directly or indirectly to the
Company's Vice President, Domestic. By marketing its products directly without
relying on distributors or agents, the Company can better maintain control of
its sales efforts and promote consistency in marketing with respect to various
products and customers.

The vast scope of the international military and law enforcement components
of the market makes it inefficient for the Company to establish its own direct
sales force. Accordingly, the Company has established a network of agents and
subsidiaries (18 and four, respectively, as of September 30, 1996) operating in
six defined regional areas. The Company employs regional managers to oversee
the activities of these agents, each of whom reports to the Company's Vice
President, International.

CUSTOMERS

To date, the Company has sold more than 2,000 weapon simulation systems to
military and law enforcement authorities in the U.S. and over 30 other
countries. The following table lists certain of the Company's customers in
fiscal 1996 in each of its principal target market components:

<TABLE>
<CAPTION>
U.S. MILITARY U.S. LAW ENFORCEMENT INTERNATIONAL
- ----------------- -------------------------------------- ----------------------------------------
<S> <C> <C>
U.S. Air Force Immigration and Naturalization Service British Ministry of Defense
U.S. Army Internal Revenue Service Finanza (Italian National Customs Police)
U.S. Marine Corps Los Angeles Police Department Royal Netherlands Army
U.S. Postal Service Singapore Army
</TABLE>

In the first six months of fiscal 1997, the Company's five largest customers
accounted for approximately 82.1% of the Company's revenues, with the U.S.
Marine Corps and the Carabinieri (Italian National Military Police) accounting
for approximately 42.0% and 18.3%, respectively. In fiscal 1996, the Company's
five largest customers accounted for 67.4% of the Company's revenues, with the
U.S. Marine Corps, the Royal Netherlands Army and the U.S. Army accounting for
approximately 26.5%, 12.7% and 10.1%, respectively. No other customer accounted
for more than 10% of revenues in either period. Given the nature of the
Company's contracts, revenues attributable to specific customers are likely to
vary from year to year, and a significant customer in one year may not be a
significant customer in a subsequent year. See "Risk Factors--Customer
Concentration; Reliance on Certain Key Contracts," "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and Note 7 of Notes
to Consolidated Financial Statements.

RESEARCH AND DEVELOPMENT

The Company engages in the R&D of new and enhanced simulation and training
technology using internally generated funds. A total of 61 Company employees,
or approximately 20.5% of the Company's employees, were engaged in R&D projects
as of September 30, 1996. Electronic and mechanical R&D expenditures totaled
$2.8 million, $2.3 million and $2.0 million in fiscal 1996, 1995 and 1994,
respectively. The Company's R&D efforts are divided into four separate
disciplines: electronic, mechanical, training and audio-visual.

Electronic R&D combines software and hardware engineering as well as other
electro-optical fields to produce programs and equipment responsive to specific
training needs. The Company's electronic R&D capabilities include object-
oriented software design, video and audio, interactive computer generated
graphics, Distributed Interactive Simulation, video special effects, lasers,
weapon ballistics, optics, image processing, target modeling and motion
platforms. This group is in the final stages of developing the first fully
interactive gunnery/tactics boat simulator and has developed technology to
transition from computer generated imaging to video and then back during the
same training scenario. As of September 30, 1996, a total of 37 Company
employees were engaged in electronic R&D.

Mechanical R&D combines mechanical engineering with the development of highly
specialized sensing mechanisms, incorporating sophisticated programmable micro
controllers for the execution of control firmware and weapons technology.
Mechanical R&D focuses on the refinement of cost-effective products with
enhanced realism and reliability. This process includes conceptualization and
prototype development, testing and

35
<PAGE>

documentation of the finished trainer. The Company has the technology and
resources to execute the entire development process in-house by means of design
teams that generally include a project engineer, a model maker, a draftsman or
designer, a weapons software engineer, an electronics technician and a weapons
training expert. While each system varies according to the original weapon
type, the Company uses common components wherever possible to reduce costs and
make service more feasible. As of September 30, 1996, a total of 14 Company
employees were engaged in mechanical R&D.

Training R&D focuses on the interpretation and translation of customer
training requirements into quantifiable objectives and the development of
simulation programs to meet those objectives. The Company's training R&D
department is staffed with world-class competitive shooters, each of whom has
extensive military or law enforcement experience. Specialized experience on the
part of the Company's employees in such areas as the U.S. military, law
enforcement, hunting and competitive shooting helps ensure an understanding of
customer requirements. As of September 30, 1996, a total of seven Company
employees were engaged in training R&D.

Audio-visual R&D focuses on the production of specialized audio-visual
programs and a range of media support activities, from full production to
customer assistance in user-produced programs. The Company's audio-visual
technology is very important for creating a life-like training environment. The
Company has assembled a team of experienced audio-visual engineers,
cinematographers and specialists and pioneered the use of multi-screen
projection in small arms simulation. As of September 30, 1996, a total of three
Company employees were engaged in audio-visual R&D.

MANUFACTURING OPERATIONS

The Company's manufacturing operations are conducted at its headquarters near
Atlanta, Georgia and to a limited extent at the facility of its U.K.
subsidiary, Firearms Training Systems Ltd. Manufacturing operations are divided
into two departments, systems manufacturing and weapons manufacturing. The
systems manufacturing department assembles the simulator components of the
FATS(TM) systems from subassemblies designed by the Company and supplied by
third-party vendors. As the components are completed, they are tested for both
function and durability and are subjected to a comprehensive quality assurance
program. Systems manufacturing occurs only at the Company's headquarters where
electrical assemblers and technicians can assemble 70 primary simulation
computers and other unique simulator components per month on a single-shift
basis. The Company believes that this capacity can be easily expanded to 100
simulation computers per month by adding a second shift or to even greater
capacity by acquisition of the requisite workstations and floor space for
manufacturing and warehouse operations.

Weapons manufacturing involves the production of simulated firearms and non-
lethal simulators by either modifying actual firearms or other devices into
simulators or assembling simulators from kits manufactured to the Company's
specifications by a variety of outside sources. The assembly process
encompasses the fitting of modified weapons or kits with the Company's
pneumatic and electrical components, followed by the functional testing of the
completed assembly. The combined weapons manufacturing activities in the U.S.
and the U.K. have a capacity of 750 simulated firearms per month on a single-
shift basis. As with systems manufacturing, this capacity can readily be
expanded by using additional shifts and/or by acquiring additional facilities
and workstations.

CUSTOMER SERVICE

The Company has established a worldwide customer service network consisting
of personnel at its headquarters near Atlanta, area service representatives,
the Company's foreign subsidiaries, sub-contractors and agents. The Company
maintains an inventory of repair parts to support the service operations. The
Company maintains a 24-hour customer service hotline and seeks to remedy
customer service needs as quickly as possible after notification by the
customer. In addition to its traditional service role, the Company's service
department administers a U.S. government-owned inventory of spare parts and
assemblies to support the U.S. Marine Corps and the U.S. Army Reserve National
Guard with readily available serviceable parts and assemblies. The Company's
U.K. and Netherlands subsidiaries perform the same support functions for the
British and Netherlands armies, respectively, and a subcontractor in Singapore
provides similar services in support of the Company's customers in that
country.

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<PAGE>

PROPRIETARY OPERATING SYSTEM; RAW MATERIALS AND SUPPLIERS

The Company currently purchases from numerous suppliers on both a competitive
bid and long-term contract basis. However, the Company's current generation
product, as well as earlier model simulators, use a software operating system
known as OS-9 which is a proprietary system owned by Microware Corporation. The
Company has licensed the OS-9 system from Microware on a non-exclusive,
royalty-paying basis for a term currently expiring October 31, 2001 (unless
sooner terminated for breach by the Company of the license terms). Although
loss of its OS-9 license could have a material adverse effect on the future
conduct of its business operations and financial condition, the Company is in
compliance with the terms of such license and believes its relationship with
Microware Corporation to be satisfactory. The Company believes that there are
viable alternative sources for all of its raw materials. In addition, the
Company has a sophisticated machine shop in which it can convert actual weapons
into simulated weapons and produce certain weapons and simulator parts. This
ability provides the Company with the flexibility to produce a large portion of
its principal components if they become unavailable or it becomes economically
advantageous to do so.

COMPETITION

The Company competes with a number of domestic and international providers of
small and supporting arms simulation systems. The Company's principal
competitors in the U.S. military and international components of the market
consist generally of divisions or subsidiaries of larger companies, including
Short Brothers, a division of Bombardier, and Thomson Training and Simulation,
a U.K.-based subsidiary of Thomson CSF. In the U.S. law enforcement component
of the market, the Company's principal competitors include, among others, SBS
Technologies, Inc., I.E.S., Inc. and Caswell International. With respect to
potential competitors, the Company believes that as the interactive small and
supporting arms simulation market continues to develop, a number of large
domestic defense contractors have the capacity to become significant
competitors due to their expertise with complex simulation systems and their
relationships with the DOD and the U.S. Congress. Many of the Company's current
and potential competitors have significantly greater financial, technical and
marketing resources than the Company. The Company believes that although it has
a number of competitors and the potential exists for new entrants in the
market, the Company has been successful to date due to its ability to integrate
advanced technologies, competitive pricing, proven quality, established brand
name, strong customer service and other competitive advantages.

FACILITIES

The Company's headquarters and primary facility, at which it performs
manufacturing, assembly, R&D, sales, marketing, service, financial and
administrative functions, is a leased property of approximately 92,800 square
feet located near Atlanta. The lease expires in 2008 with three five-year
options to extend the lease beyond such date. The Company's U.K. subsidiary
occupies a leased facility in Lincolnshire, England, of approximately 12,000
square feet, at which the U.K. subsidiary performs manufacturing, assembly,
service, training and administrative functions. The lease on the U.K. facility
expires in 2003. The Company's Netherlands subsidiary occupies a leased
facility of approximately 4,800 square feet in Waardenburg, the Netherlands, at
which the Netherlands subsidiary performs service and administrative functions.
The lease expires in 1998 with an option to extend to 2000.

EMPLOYEES

As of September 30, 1996, the Company and its subsidiaries employed 297
persons. As of such date, the Company employed a total of 274 persons
domestically, including 139 in manufacturing, assembly and customer service, 61
in R&D, 39 in sales and marketing, 24 in administration and finance and 11 in
program management; the Company's U.K. subsidiary employed a total of 18
persons, including 14 in manufacturing, assembly and customer service and four
in administration and finance; the Company's Netherlands subsidiary employed a
total of four persons, including three in manufacturing, assembly and customer
service and one in administration and finance; the Company's Canadian
subsidiary employed one person in customer service; and the Company's Singapore
subsidiary contracted with one person in program management. The majority of
the Company's employees are located at its headquarters, with salespersons in
California, Texas, Missouri, Kentucky, New Jersey, Colorado, Utah and Georgia.
None of the employees is unionized.

37
<PAGE>

GOVERNMENT CONTRACTS AND REGULATION

Sales to public sector customers are subject to a multiplicity of detailed
regulatory requirements and public policies that may affect the ability of the
Company to increase or even maintain such sales. In particular, the choice of a
contractor by a customer may be affected by the size of the contractor, the
place of manufacture of the contractor's products or whether the contractor is
given preferential consideration based upon socio-economic factors.
Furthermore, contracts with government agencies are conditioned upon the
continuing availability of public funds, which in turn depends upon lengthy and
complex public budgetary procedures whose outcome is difficult to predict. In
particular, contracts with the U.S. government are conditioned upon the
continuing availability of Congressional appropriations.

Government contracts may generally be terminated by the U.S. government or
the relevant agency in whole or in part for default or its convenience if such
termination would be in the best interest of the U.S. government. Furthermore,
any contractor who is suspected of, or found to have engaged in, commission of
fraud or a criminal offense in connection with a government contract or
subcontract, a serious violation of the terms of a government contract or
subcontract, unfair trade practices, or any other offense indicating moral
turpitude or a lack of business integrity or business honesty faces the
possibility of being suspended or debarred from all further government
contracting. The decision to suspend or debar a contractor is generally at the
discretion of the government. Any such suspension or debarment could have a
material adverse effect on the Company's future results of operations and
financial condition.

The type of government contracts awarded to the Company in the future may
affect its financial performance. A number of the Company's contracts have been
obtained on a sole source basis while others, including its largest current
contract (Contract 2014 with the U.S. Marine Corps), were obtained through a
competitive bidding process. The extent to which the Company's contracts and
orders are obtained through a competitive bidding process rather than as sole
source contracts may affect the Company's profit margins. The contracts
obtained by the Company in the future may also be cost-reimbursement type
contracts rather than fixed-price contracts and in any such case may not take
into account certain costs of the Company such as interest on indebtedness.
There can be no assurance that changes in the type of government contracts and
other contracts entered into by the Company in the future will not have a
material adverse effect on future results of operations or financial condition
of the Company. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

The Company is subject to the export licensing jurisdiction of the U.S.
Department of State (the "State Department") and the U.S. Department of
Commerce (the "Commerce Department") with respect to the temporary or permanent
export of certain of its products and the import of certain other products
based on, respectively, the Arms Export Control Act and the Export
Administration Act (which, though expired, is carried out by Presidential
Executive Order issued under the auspices of the International Emergency
Economic Powers Act). Difficult questions of interpretation arise from time to
time as to whether particular products or information are subject to State
Department or Commerce Department regulation or require licenses under either
set of controls. In addition to application to transfers of information and
products to customers, such regulations also may from time to time require a
license for the transfer of technical information from the Company to its
foreign subsidiaries, such as information necessary to enable a subsidiary to
modify simulated weapons for use in systems being supplied by the subsidiary to
customers. The Company attempts to remain in full compliance with such
requirements, but certain infractions may have occurred from time to time in
connection with the transfer of information to a subsidiary which the Company
is currently voluntarily bringing to the attention of the State Department. The
Company believes that transfers of such nature prior to September 10, 1996 will
not be at issue with the State Department; however, the State Department is
expected to assert that transfers subsequent to September 10, 1996 required
separate State Department licenses. The Company intends to apply for an
appropriate authorization. The respective jurisdictional statutes provide the
State Department and the Commerce Department with the discretion to change
their policies with respect to whether particular products can be licensed for
export to particular countries. In addition, in certain circumstances, export
licenses and other authorizations may be revoked, suspended or amended without
notice. Such events have occurred with respect to other companies subject to
export licensing requirements relating to defense articles and defense services
in connection with the State Department's implementation of the Arms Export
Control Act. Such events have also occurred with respect to the Commerce
Department's implementation of the Export Administration Act. Each of

38
<PAGE>

the State Department and the Commerce Department has the authority in certain
circumstances to debar persons or deny them export privileges. Such action may
be taken for, among other reasons, commission of civil violations, including
infractions of the nature described above, and criminal offenses in connection
with exports. Any loss, suspension or revocation of the Company's export
licenses could have a material adverse effect on the Company's future results
of operations and financial condition. The Company does not believe that any
previous infractions which may have occurred in connection with the transfer
of information to a subsidiary will have a material adverse effect on its
financial condition, results of operations, or the conduct of its business.

The Company has a license from the U.S. Treasury Department's Bureau of
Alcohol, Tobacco and Firearms ("ATF") to import destructive devices and
certain other materials. This license also authorizes the Company to be a
dealer in regulated firearms and other destructive devices. The Company also
has a license from ATF that authorizes it to be a manufacturer of destructive
devices and certain other materials. The Company is registered with the
Director of ATF as a person engaged in the business of importing articles
enumerated on the U.S. Munitions Import List. ATF may revoke licenses or deny
their renewal for failure to follow the prescribed regulations or as a result
of the commission of criminal offenses. Certain of the Company's subsidiaries
also have similar licenses in their jurisdictions of incorporation. Any
revocation of or refusal to renew the Company's ATF license or any such
foreign license could have a material adverse effect on the conduct of the
Company's operations and financial condition since it must possess such
licenses and comply with ATF regulations in order to import, possess and
modify the authentic firearms used in its FATS(TM) systems. See "Risk
Factors--Reliance on the Risks Associated with Government Contracts and
Regulations."

Certain FATS(TM) simulation systems use laser-emitting devices to locate the
user's aiming point in relation to the target. Such products must be
manufactured and operated in accordance with safety standards adopted to
protect human eyesight. In the United States, such standards are included as
part of Food and Drug Administration regulations currently administered by the
Center for Devices and Radiological Health. Systems sold to many international
customers, including those in Europe and Canada, however, must comply with
international standard IEC 825-1, as recently revised, which contains more
rigorous criteria than the present U.S. standards. Depending on the amount of
laser energy emitted, room safety precautions, warning signs and labels,
special shut-off devices, special training for personnel and related safety
measures may be required, which increase costs and can create administrative
concerns for the Company's customers.

CERTAIN 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 Prospectus, there are
no legal proceedings pending against the Company which management believes are
material.

In July 1994, the Company disclosed to the Federal Election Commission (the
"FEC") that violations of the Federal Election Campaign Act ("FECA") may have
occurred with respect to a total of $8,500 in political contributions made on
behalf of candidates for Congressional election. As disclosed by the Company,
Mr. Jody Scheckter, who was then the President of the Company, was reimbursed
by the Company for personal contributions ranging from $500 to $2,000 over the
period from October 1989 through June 1993. Mr. Scheckter promptly reimbursed
the Company for these amounts and contends that he had previously been unaware
that the reimbursements had occurred. In October 1994, the FEC found reason to
believe that the Company, Mr. Scheckter and a secretarial employee who had
processed the reimbursements had knowingly and wilfully violated provisions of
the FECA. Counsel for the three respondents contested the FEC's finding.
Although the Company cannot predict how or when the matter will be resolved,
the statutory procedures provide for an attempt at conciliation, including
payment of civil penalties in the event that the FEC determines there is
probable cause to believe a violation has occurred. Failing such resolution,
the FEC may institute a civil action seeking civil penalties or refer the
matter to the U.S. Attorney General for possible criminal prosecution. The
Company does not believe that the ultimate resolution of the matter will have
a material adverse effect on its financial condition, results of operations,
or the conduct of its business.

The allegations of violations of FECA were apparently triggered by a
complaint by a former chief financial officer of the Company who also alleged
violations of other federal statutes. The Company believes that the ultimate
resolution of these matters will not have a material adverse effect on its
financial condition, results of operations or the conduct of its business.

39
<PAGE>

MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning the Company's
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------- --- ------------------------------------------------
<S> <C> <C>
Peter A. Marino (1)....... 54 President, Chief Executive Officer and Director
Robert B. Terry, Jr. ..... 54 Vice President and Chief Operating Officer
David A. Apseloff......... 37 Treasurer, Chief Financial Officer and Assistant
Secretary
Robert F. Mecredy......... 50 Vice President, Domestic
Juan C. G. de Ledebur..... 41 Vice President, International
Gregory Echols............ 38 Vice President, Engineering
Lester Pollack (1) (2).... 63 Chairman of the Board and Director
William J. Bratton (3).... 49 Director
Craig I. Fields (2) (3)... 50 Director
Jonathan H. Kagan (1) 40 Secretary and Director
(3)......................
Scott Perekslis (1) (2)... 28 Vice President and Director
Bruce G. Pollack.......... 37 Director
Paul J. Zepf (1).......... 31 Director
</TABLE>
- --------
(1) Member of Executive Committee.
(2) Member of Compensation Committee.
(3) Member of Audit Committee.

Peter A. Marino has served as a Director of the Company since September 17,
1996 and became President and Chief Executive Officer on October 15, 1996.
Prior to joining the Company, Mr. Marino served as Senior Vice President of
Raytheon E-Systems, Inc. from 1991 to 1996. Mr. Marino previously served as
President and Chief Operating Officer of Fairchild Industries and prior to
such service was President and Chief Operating Officer of Lockheed Electronics
Co., Inc. Prior to such service, Mr. Marino held various positions at the
Central Intelligence Agency, including Director of the Office of Technical
Services. Mr. Marino serves as a director of Space Imaging, Inc. and E-Systems
Medical Electronics and is a member of the Defense Science Board.

Robert B. Terry, Jr. has served as Chief Operating Officer of the Company
since July 31, 1996 and Vice President since October 15, 1996. Mr. Terry
served as interim President from July 31, 1996 until October 15, 1996. Mr.
Terry previously served as Director of Operations from 1995 to 1996, Director
of Programs from 1992 to 1995 and as a Program Manager in 1992. Prior to
joining the Company in 1992, Mr. Terry served as an officer in the U.S. Army
for 27 years in a variety of staff and management positions in aviation,
transportation, maintenance, supply, training and acquisition. Mr. Terry
retired from the U.S. Army in 1991 with the rank of colonel.

David A. Apseloff has served as Treasurer and Chief Financial Officer since
April 1995 and Assistant Secretary since July 31, 1996. Prior to joining the
Company in April 1995, Mr. Apseloff served as a Vice President of a real
estate development company and worked as a financial consultant from June 1994
to April 1995. From 1986 to 1994, Mr. Apseloff served as Chief Financial
Officer of Sensor Technology, Inc., a manufacturer's representative for
medical devices.

Robert F. Mecredy has served as Vice President, Domestic since September 17,
1996. Prior thereto, Mr. Mecredy served as a Director of the Company from 1993
to 1996, as Director of Domestic Sales and Marketing from 1994 to 1996 and as
Director of U.S. Military Marketing from 1990 to 1994. Before joining the
Company, Mr. Mecredy served as Director of Army and Marine Corps Marketing--
Washington Operations at Raytheon Corporation from 1988 to 1990. Mr. Mecredy
served as an infantry and aviation officer in the U.S. Army for 20 years,
retiring in 1986 with the rank of lieutenant colonel.
- --------
(1) The terms of Messrs. Marino, L. Pollack and Perekslis will expire in 1997,
the terms of Messrs. Bratton, B. Pollack and Kagan will expire in 1998 and
the terms of Messrs. Zepf and Fields will expire in 1999.

40
<PAGE>

Juan C. G. de Ledebur has served as Vice President, International since
September 17, 1996 and previously served as Director of International Sales &
Marketing from 1987 to 1996. Prior to joining the Company in 1987, Mr. de
Ledebur served as manager of European sales for Information Handling Services,
a provider of technical and regulatory information.

Gregory Echols has served as Vice President, Engineering since September 17,
1996 and previously served as Director of Research and Development from 1990
to 1996. Prior to joining the Company, Mr. Echols served as Engineering
Manager for Loral Corporation, a defense contractor, from 1979 to 1990.

Lester Pollack has served as a Director of the Company since July 31, 1996
and as Chairman of the Board since September 17, 1996. Mr. Pollack has served
as Managing Director of Centre Management since 1995. Mr. Pollack has been
Senior Managing Director of Corporate Advisors, L.P., the general partner of
Corporate Partners, L.P. and Corporate Offshore Partners, L.P., since 1988,
Managing Director of Lazard Freres & Co. LLC since 1995 (prior thereto a
General Partner) and Chief Executive Officer of Centre Partners, L.P. since
1986. Mr. Pollack also serves as a director of Continental Cablevision, Inc.,
LaSalle Re Holdings Limited, Parlex Corporation, Polaroid Corporation, Sphere
Drake Holdings Limited, SunAmerica Inc., and Tidewater, Inc. Mr. Pollack is
the father of Bruce Pollack, another Director of the Company.

William J. Bratton has served as a Director of the Company since September
17, 1996. Mr. Bratton has served as Vice Chairman of First Security Services
Corporation and President of its new subsidiary First Security Consulting,
Inc. since April 1996. From 1994 to 1996, Mr. Bratton served as Police
Commissioner of New York City. In 1992 he served as Superintendent in Chief of
the Boston Police Department and was appointed Police Commissioner of the
Boston Police Department in 1993. From 1990 to 1992, Mr. Bratton served as
Chief of the New York City Transit Police.

Craig I. Fields has served as a Director of the Company since September 17,
1996. From 1994 until the present, Dr. Fields has served on various boards of
directors, including the boards of ENSCO, Projectavision, Inc. and Alliance
Gaming Corporation. From 1990 to 1994, Dr. Fields served as Chairman and Chief
Executive Officer of the Microelectronics and Computer Technology Corporation,
a for-profit research and development consortium involved in information
technology. Dr. Fields is Chairman of the Defense Science Board.

Jonathan H. Kagan has served as Secretary and a Director of the Company
since July 31, 1996. Mr. Kagan has served as Managing Director of Centre
Management since 1995. Mr. Kagan has been a Managing Director of Corporate
Advisers, L.P. since 1990. Mr. Kagan has been associated with Lazard Freres &
Co. LLC since 1980 and has been a Managing Director since 1995 (prior thereto
a General Partner). Mr. Kagan also serves as a Director of Continental
Cablevision Inc., LaSalle Re Holdings Limited and Tyco Toys, Inc.

Scott Perekslis has served as a Vice President and a Director of the Company
since July 31, 1996. Since 1995, Mr. Perekslis has been a Principal of Centre
Management and a Principal of Corporate Advisors, L.P. From 1991 to 1995, Mr.
Perekslis was an Associate of Corporate Advisors, L.P.

Bruce G. Pollack has served as a Director of the Company since September 17,
1996. Mr. Pollack has been a Managing Director of Centre Management since
1995. He is also a Partner of Centre Partners L.P., which he joined in January
1991. Mr. Pollack is a Director of Johnny Rockets Group, Inc., Music Holdings
Corp. and Jeepers!, Inc. Mr. Pollack is the son of Lester Pollack, another
Director of the Company.

Paul J. Zepf has served as a Director of the Company since July 31, 1996.
Since 1995, Mr. Zepf has been a Principal of Centre Management and a Principal
of Corporate Advisors, L.P. Mr. Zepf also served as a Vice President of
Corporate Advisors, L.P. from 1993 to 1995 and an Associate from 1989 to 1993.
Mr. Zepf also serves as a Director of LaSalle Re Holdings Limited.

41
<PAGE>

COMMITTEES OF THE BOARD OF DIRECTORS

Executive Committee. The Board of Directors established the Executive
Committee in September 1996 to have all the power and authority of the Board
of Directors, consistent with limitations contained in the By-laws and
provisions of the Delaware General Corporation Law. Messrs. L. Pollack,
Marino, Kagan, Perekslis and Zepf are the members of the Executive Committee.

Audit Committee. The Board of Directors established the Audit Committee in
September 1996 to: (i) make recommendations concerning the engagement of
independent public accounts; (ii) review with the independent public
accountants the plans for and scope of the audit, the audit procedures to be
utilized and the results of the audit; (iii) approve the professional services
provided by the independent public accountants; (iv) review the independence
of the independent public accountants; and (v) review the adequacy and
effectiveness of the Company's internal accounting controls. Messrs. Kagan,
Bratton and Fields are the members of the Audit Committee.

Compensation Committee. The Board of Directors established the Compensation
Committee in September 1996 to determine compensation of the Company's
executive officers and to administer the Company's Stock Option Plan. Messrs.
L. Pollack, Perekslis and Fields are the members of the Compensation
Committee.

DIRECTOR COMPENSATION

Each director of the Company who is not an employee of the Company is
entitled to receive annual compensation of $20,000, payable quarterly. In
addition, directors of the Company are reimbursed for their reasonable
expenses incurred in attending meetings of the Board of Directors or
committees thereof. Messrs. Fields and Bratton have been granted options to
purchase an aggregate of 49,800 shares of Common Stock in connection with
their serving as directors of the Company. See "--Stock Option Plan--
Description of Outstanding Stock Options."

42
<PAGE>

EXECUTIVE COMPENSATION

The following table sets forth all compensation earned for services rendered
to the Company in all capacities for the fiscal year ended March 31, 1996 by
the Company's chief executive officer serving at March 31, 1996 and other
employees serving at March 31, 1996 whose salary and bonus exceeded $100,000.

SUMMARY COMPENSATION TABLE FOR THE FISCAL YEAR ENDED MARCH 31, 1996

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------- OTHER ANNUAL ALL OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS COMPENSATION COMPENSATION
--------------------------- -------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Jody Scheckter
President and Director
(1)........................ $300,000 $1,198,833 $21,490 (2) --
David A. Apseloff
Treasurer and Chief Finan-
cial Officer............... 92,308 10,000 -- $ 173 (3)
Clare Fawkes
Secretary and chief operat-
ing officer (4)............ 120,785 30,729 -- --
Juan C. G. de Ledebur
Vice President, Interna-
tional (5)................. 270,393 -- 4,800 (6) 1,751 (3)
Robert F. Mecredy
Vice President, Domestic
(5)........................ 149,328 15,000 -- 1,432 (3)
</TABLE>
- --------
(1) Mr. Scheckter resigned as President effective July 31, 1996 and resigned
as a Director effective September 17, 1996.
(2) Provision of automobile and reimbursement of a portion of dues for country
club membership by the Company.
(3) Matching contributions made by the Company to its 401(k) plan.
(4) Ms. Fawkes resigned as Secretary and chief operating officer effective
July 31, 1996 and served as a Director of the Company from July 31, 1996
to September 17, 1996.
(5) Messrs. de Ledebur and Mecredy were elected officers of the Company on
September 17, 1996.
(6) Provision of automobile allowance by the Company.

EMPLOYMENT AND NON-COMPETITION AGREEMENTS

Employment Agreement with Mr. Marino. The Company has entered into an
employment agreement with Mr. Marino with an initial term expiring March 31,
2002, with automatic one-year extensions thereafter unless terminated by
either party. Pursuant to the agreement, Mr. Marino serves as President and
Chief Executive Officer at an annual base salary of $350,000, subject to
review and annual increases as approved by the Board of Directors. Mr. Marino
also is eligible for annual bonuses based on the Company reaching targeted
EBITDA levels for each fiscal year, with a maximum of $225,000 in bonus
payable for each fiscal year (or such greater amount as determined by the
Board of Directors). In connection with the execution of the employment
agreement, Mr. Marino received a bonus of $155,000, was granted 36,852 shares
of Common Stock and was granted options to purchase 707,160 shares of Common
Stock, consisting of Series A Options for 353,580 shares and Series B Options
for 353,580 shares. See "--Stock Option Plan--Description of Outstanding Stock
Options." The Company also agreed to pay Mr. Marino's reasonable expenses in
relocating to the Atlanta area. Pursuant to the employment agreement, Mr.
Marino agreed to purchase 61,420 shares of Common Stock at approximately $3.25
per share. Mr. Marino also is subject to a covenant not to compete with the
Company during the period of his employment with the Company or any period
during which he receives payments from the Company pursuant to the employment
agreement and for a period of two years thereafter.

Management Shares Agreement. The Company has entered into a Management
Shares Agreement with Centre Management, the Centre Entities and those
executive officers who: (i) have been awarded options pursuant to the Stock
Option Plan; (ii) have been awarded shares of Common Stock; or (iii) have
purchased

43
<PAGE>

shares of Common Stock from the Company (the "Management Holders"). Pursuant
to the Management Shares Agreement, Centre Management, on behalf of the Centre
Entities, has "bring along rights" pursuant to which it has the right to
require the Management Holders to sell a pro rata portion of their shares in
connection with a sale to an unaffiliated third party of 5.0% or more of the
Common Stock held by the Centre Entities. The Management Holders have similar
"tag along" rights pursuant to which they can participate in a sale by the
Centre Entities of 5% or more of the outstanding shares of Common Stock to an
unaffiliated third party. Each Management Holder, other than the Chief
Executive Officer, has the right to require the Centre Entities to purchase
his shares of Common Stock at the lesser of fair market value or his
acquisition price if such Holder's employment is terminated within six months
of the date of the Agreement (September 18, 1996) other than for cause. The
Centre Entities also have agreed to assist the Management Holders in
registering proportionate amounts of the Common Stock held by such Management
Holders if the Centre Entities exercise any rights to register Common Stock
under the Centre Registration Rights Agreement (as defined below). See "Shares
Eligible for Future Sale--Registration Rights--Centre Registration Rights
Agreement." The Management Shares Agreement terminates: (i) with respect to
the Centre Entities, at such time as they hold less than 10% of the
outstanding shares of Common Stock; and (ii) ten years from the date of the
agreement, if not sooner terminated.

Non-Competition Agreements. The Company has entered into an Agreement to
Limit Future Competition with each member of senior management of the Company.
Pursuant to such agreements each such employee has agreed, for a period of two
years following the termination of employment with the Company, not to: (i) be
employed by specified businesses in an executive capacity; (ii) use or permit
to be used his executive skills, knowledge or expertise for the benefit of any
such business; and (iii) use or permit to be used competitively sensitive
information received while employed by the Company for the benefit of any such
business.

Transition Bonus Agreements. In March 1996, the Company entered into
agreements with 13 employees, including members of senior management, to pay a
transition bonus at the earlier of the six-month anniversary of the
Recapitalization and termination of the employee's employment other than for
cause. The maximum aggregate amount of bonuses payable pursuant to the
agreements is $400,000. The agreements are intended to facilitate the
transition process.

EXECUTIVE SEVERANCE BENEFIT PLAN

The Board of Directors has adopted an Executive Severance Benefit Plan (the
"Executive Severance Plan") that provides severance pay and benefits to five
designated executive officers of the Company in the event any such designated
executive's employment with the Company is terminated by the Company for any
reason other than Cause (as defined in the Executive Severance Plan) prior to
September 30, 1997. The severance benefit payable under the Executive
Severance Plan is equal to: (i) three times the monthly salary of the
terminated executive if such termination of employment occurs prior to July
31, 1997; (ii) two times such monthly salary if such termination of employment
occurs during August 1997; and (iii) an amount equal to such monthly salary if
such termination of employment occurs during September 1997.

STOCK OPTION PLAN

The Firearms Training Systems, Inc. Stock Option Plan (the "Stock Option
Plan"), which became effective September 17, 1996, permits awards of options
to purchase shares of Common Stock to the officers, other key employees,
consultants, independent contractors, agents and Outside Directors (as
defined) of the Company and its subsidiaries. The purposes of the Stock Option
Plan are: (i) to align the interest of the Company's shareholders and the
recipients of options under the Stock Option Plan by increasing the
proprietary interest of such recipients in the Company's growth and success;
(ii) to advance the interests of the Company by attracting and retaining
officers, other key employees, consultants, independent contractors, agents
and well-qualified persons who are not officers or employees of the Company
for service as directors of the Company ("Outside Directors"); and (iii) to
motivate such persons to act in the long-term best interests of the Company's
shareholders. The Company has reserved for issuance under the Stock Option
Plan 2,490,000 shares of Common Stock and has granted

44
<PAGE>

options to purchase 1,742,834 shares to two Outside Directors, six executive
officers and approximately 30 other key employees. Stock options granted under
the Stock Option Plan are nonqualified stock options.

The Stock Option Plan is administered by the Compensation Committee (the
"Committee"). The Committee, subject to the express provisions of the Stock
Option Plan, selects eligible participants to be awarded options and
determines the number of shares of Common Stock subject to each option granted
thereunder, the exercise price of such option, the time and conditions of
exercise of such option and all other terms and conditions of such option,
including, without limitation, the form of the option agreement. The Board
generally may amend the Stock Option Plan, subject to (i) shareholder approval
as may be required by applicable law, rule or regulation, provided, however,
that no amendment may be made without shareholder approval if such amendment
would increase the maximum number of shares of Common Stock available under
the Stock Option Plan and (ii) the consent of any holders of outstanding
options, if such amendment impairs the rights of such holder.

If an optionee's employment with the Company or directorship with the
Company terminates for any reason, each option granted under the Stock Option
Plan and held by such optionee generally will be exercisable only to the
extent that such option is exercisable on the effective date of such
optionee's termination of employment or directorship, as the case may be,
unless the agreement for such option provides otherwise at the discretion of
the Committee. See "--Description of Outstanding Stock Options" for a
description of the options that have been granted. Thereafter an option may be
exercised by such optionee (or such optionee's legal representative or similar
person) until and including the earliest to occur of: (i) the date which is
set forth in such agreement after the effective date of such optionee's
termination of employment or directorship, as the case may be; and (ii) the
expiration date of the term of such option; provided that, if an optionee's
employment is terminated for Cause (as defined in the Stock Option Plan), all
options granted under the Stock Option Plan and held by such optionee will
terminate automatically upon the termination of employment. The Stock Option
Plan contains anti-dilution and adjustment provisions applicable in the event
of any action by the Company such as a stock split, stock dividend,
recapitalization, reorganization, merger, consolidation, combination, exchange
of shares, liquidation, spin-off or other similar change in capitalization or
event and certain issuances of shares of Common Stock or securities
convertible into shares of Common Stock at a price below the market price of
the Common Stock. In addition, in the sole discretion of the Committee, the
terms of an agreement related to an option may provide that an optionee's
outstanding options will, immediately upon the occurrence of a Change in
Control (as defined in the Stock Option Plan), become exercisable in part or
in full. The agreement related to an option may specify: (i) in the event of a
merger, consolidation, reorganization, sale of all or substantially all of the
assets of the Company or complete liquidation or dissolution, the terms and
conditions pursuant to which the number and class of shares shall be
substituted for each share of Common Stock subject to option under such
agreement; and (ii) in the event of other Changes in Control (including the
acquisition of 50% or more of the voting securities of the Company or certain
actions resulting in a majority of the Board of Directors changing), the terms
and conditions pursuant to which the optionee can surrender the option to the
Company and any consideration to be paid to the optionee.

45
<PAGE>

Description of Outstanding Stock Options. Stock options granted under the
Stock Option Plan to date to officers and other employees of the Company have
either been designated as "Series A Options" or "Series B Options." Stock
options granted under the Plan to date to Outside Directors have been
designated as "Series C Options." The following table sets forth the stock
options that have been granted under the Stock Option Plan.

<TABLE>
<CAPTION>
OPTIONS GRANTED
------------------------------------
SERIES A SERIES B SERIES C TOTAL
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Peter A. Marino............................ 353,580 353,580 -- 707,160
Juan C. G. de Ledebur...................... 106,074 106,074 -- 212,148
Robert F. Mecredy.......................... 91,300 91,300 -- 182,600
Robert B. Terry, Jr........................ 63,661 63,661 -- 127,322
Gregory Echols............................. 53,037 53,037 -- 106,074
David A. Apseloff.......................... 37,350 37,350 -- 74,700
Other employees............................ 141,515 141,515 -- 283,030
Outside Directors--
Craig I. Fields.......................... -- -- 33,200 33,200
William J. Bratton....................... -- -- 16,600 16,600
------- ------- ------ ---------
Total.................................. 846,517 846,517 49,800 1,742,834
======= ======= ====== =========
</TABLE>

Each Series A Option granted to date has an exercise price of approximately
$3.25 per share, will expire on the seventh anniversary of its grant date and,
subject to becoming exercisable sooner upon the termination of an optionee's
employment with the Company under certain circumstances set forth in the
related option agreement or upon a Change in Control of the Company, will
become exercisable with respect to 50% of the shares subject thereto on the
third anniversary of its grant date and an additional 25% of the shares
subject thereto on each of the fourth and fifth anniversaries of its grant
date.

Each Series B Option granted to date has an exercise price of approximately
$3.25 per share, will expire after the ninth anniversary of its grant date and
will become exercisable with respect to all of the shares subject thereto on
the ninth anniversary of its grant date unless it becomes exercisable sooner
upon a Change in Control of the Company or as set forth below. Each Series B
Option will become exercisable: (i) with respect to up to one-third of the
shares subject thereto on the 60th day following the close of the Company's
fiscal year ending on March 31, 1997 if certain Company earnings targets are
met or exceeded; (ii) with respect to up to two-thirds (on a cumulative basis)
of the shares subject thereto on the 60th day following the close of the
Company's fiscal year ending on March 31, 1998 if certain Company earnings
targets for the Company's fiscal years ending in 1997 and 1998, on a
cumulative basis, are met or exceeded; and (iii) with respect to up to all of
the shares subject thereto on the 60th day following the close of the
Company's fiscal year ending on March 31, 1999 if certain Company earnings
targets for the Company's fiscal years ending in 1997, 1998 and 1999, on a
cumulative basis, are met or exceeded.

Each Series C Option granted to date has an exercise price of approximately
$3.25 per share, will expire on the seventh anniversary of its grant date and
will become exercisable with respect to one-third of the shares subject
thereto on the first anniversary of its grant date and an additional one-third
of the shares subject thereto on each of the second and third anniversaries of
its grant date.

46
<PAGE>

CERTAIN TRANSACTIONS

Pursuant to certain assurances provided by the Centre Entities in connection
with the Recapitalization, on September 18, 1996, the Company sold to certain
of its executive officers shares of Common Stock at a price of approximately
$3.25 per share as set forth in the following table.

<TABLE>
<CAPTION>
AGGREGATE
PURCHASE
SHARES PRICE
------ ---------
<S> <C> <C>
Peter A. Marino................................................ 61,420 $199,800
Juan C. G. de Ledebur.......................................... 53,784 174,960
Gregory Echols................................................. 46,148 150,120
Robert F. Mecredy.............................................. 30,710 99,900
David A. Apseloff.............................................. 24,900 81,000
Robert B. Terry, Jr. .......................................... 15,371 50,004
</TABLE>

In accordance with the Recapitalization Agreement, the Company paid certain
fees and expenses associated with the Recapitalization including payment of a
transaction fee to the Centre Entities of $790,000 and reimbursement of THIN
International for expenses related to the Recapitalization of $210,000.

RECAPITALIZATION

The Company effected the Recapitalization on July 31, 1996. Prior to July
31, 1996, the Company was a wholly-owned subsidiary of THIN International. In
connection with the Recapitalization, the Company: (i) effected a 100,000-for-
one stock split with respect to the Common Stock and issued to the Centre
Entities 11,165,241 new shares of Common Stock for approximately $36.0 million
in cash; (ii) issued to NationsBridge the Bridge Notes in the aggregate amount
of $40.0 million and entered into certain other arrangements in connection
therewith, including escrow arrangements providing for the issuance to
NationsBridge in certain circumstances of the NationsBridge Warrants currently
held in escrow to purchase shares of Common Stock, which NationsBridge
Warrants are being repurchased by the Company in connection with the Offering
as described below, and (iii) borrowed a total of $76.0 million in Senior Bank
Debt under credit facilities provided for in the NationsBank Credit Agreement,
including the $30.0 million Tranche A Term Loan Facility, the $40.0 million
Tranche B Term Loan Facility and $6.0 million of the $15.0 million NationsBank
Revolving Credit Facility. The Company repurchased 46,832,022 shares of the
then 49,800,000 (as adjusted for the 1.66-for-one stock split) outstanding
shares of Common Stock owned by THIN International and paid THIN International
approximately $151.9 million in cash ($15.0 million of which was deposited in
escrow pursuant to the escrow arrangements described below) as the purchase
price for such shares. The Company also agreed to pay to THIN International,
as an increase in such purchase price, the Contingent Payment in cash or
additional shares of Common Stock in certain circumstances as described below.
The obligation to make the Contingent Payment will be satisfied in full by the
payment of $19.3 million in cash from the proceeds of the Offering, and will
be recorded as an increase in the accumulated deficit of the Company as
additional consideration for the repurchase and subsequent cancellation of
shares of Common Stock from THIN International in connection with the
Recapitalization. In addition, the Company terminated its then existing $6.0
million bank credit facility with NationsBank, N.A., and paid fees and
expenses associated with the Recapitalization including payment of a
transaction fee to the Centre Entities of $790,000 and reimbursement of THIN
International for expenses related to the Recapitalization of $210,000.
Immediately prior to these transactions, THIN International had contributed to
the Company the equity of the Company's U.K. subsidiary, THIN International's
only subsidiary associated with the Company's business then held outside the
direct corporate chain of ownership of the Company. The Company and
NationsBridge have agreed that the obligation to deliver from escrow the
NationsBridge Warrants if the Offering is completed as contemplated, which
would otherwise have required the delivery to NationsBridge of warrants to
purchase 288,434 shares of Common Stock at a nominal price upon consummation
of the Offering, is to be satisfied by the payment by the Company to
NationsBridge of the Warrant Payment in the amount of approximately $4.0
million (which amount represents the aggregate value of the 288,434 shares at
an assumed initial offering price of $15.00 per share less the assumed
underwriting discount) from the proceeds of the shares of Common Stock being
offered by the Company hereby, and have agreed that the NationsBridge Warrants
will be redelivered to the Company for cancellation.

47
<PAGE>

Effective upon consummation of the Recapitalization and the sales of shares
of Common Stock to management, and prior to the Offering, the Centre Entities
owned or had voting control over 11,165,241 shares of Common Stock, or
approximately 77.5% of the total outstanding shares of Common Stock, and THIN
International owned 2,967,978 shares of Common Stock, or approximately 20.6%
of the total outstanding shares of Common Stock.

The Recapitalization and Stock Transactions are being accounted for as a
recapitalization rather than a purchase; accordingly, the historical basis of
the Company's assets and liabilities has not changed as a result of the
transactions and the Company has not recognized goodwill in connection
therewith.

Contingent Payment. The Recapitalization Agreement provides for the
Contingent Payment to be made by the Company to THIN International upon the
occurrence of certain events, including a transaction implying an aggregate
value of the shares of Common Stock sold by the Company to the Centre Entities
in the Recapitalization and the shares of Common Stock retained by THIN
International in the Recapitalization of at least $190.0 million, the meeting
of certain cash flow tests or certain other events. At an estimated initial
offering price of the shares of Common Stock being offered hereby of $15.00,
the Offering implies such an aggregate value and the Company will be obligated
to make the Contingent Payment to THIN International. The Company and THIN
International have agreed that the obligation to make the Contingent Payment
will be satisfied in full by payment of cash from the net proceeds of the
Offering in an aggregate amount of $19.3 million. The Company will record such
payment as an increase in the accumulated deficit of the Company as additional
consideration for the repurchase and subsequent cancellation of shares of
Common Stock from THIN International in connection with the Recapitalization.

Escrow Amount. Pursuant to the Recapitalization Agreement, THIN
International has deposited in escrow $15.0 million out of the $151.9 million
in cash received as the purchase price for certain of its shares of Common
Stock. The escrowed amount is available to indemnify the Company, or in
certain cases the Centre Entities, for losses, liabilities or expenses arising
from breaches of certain representations and warranties and certain covenants
of THIN International set forth in the Recapitalization Agreement. This
indemnification obligation is subject to certain limitations, including a
limitation on the amount available in the aggregate to both the Company and
THIN International of the $15.0 million in escrow and limitations based on the
passage of time. The escrow agreement provides for release of funds that have
not been applied to payment of claims beginning on June 30, 1997.

Bridge Warrants. In connection with the issuance to NationsBridge of the
Bridge Notes, the Company entered into certain arrangements providing for the
release from escrow to NationsBridge of warrants to purchase shares of Common
Stock (consisting of 288,434 shares of Common Stock in the event the Offering
is completed as contemplated) at nominal cost exercisable for a period of ten
years and providing for registration rights in connection therewith. The
Company and NationsBridge have agreed that these warrants will be redelivered
to the Company in connection with the Offering in exchange for the payment to
NationsBridge of the Warrant Payment.

THIN Registration Rights Agreement. In connection with the Recapitalization,
the Company, THIN International and the Centre Entities entered into a
Registration Rights Agreement dated as of July 31, 1996 (the "THIN
Registration Rights Agreement"), pursuant to which THIN International was
granted certain demand registration rights and certain "piggyback"
registration rights with respect to their Common Stock. See "Shares Eligible
for Future Sale--Registration Rights."

Centre Registration Rights Agreement. In connection with the
Recapitalization, the Company and the Centre Entities entered into a
Registration Rights Agreement dated as of July 31, 1996 (the "Centre
Registration Rights Agreement"), pursuant to which the Centre Entities were
granted certain demand registration rights and certain "piggyback"
registration rights with respect to their Common Stock. See "Shares Eligible
for Future Sale--Registration Rights."

48
<PAGE>

NationsBank Credit Agreement. In connection with the Recapitalization, the
Company entered into the NationsBank Credit Agreement for up to $85.0 million,
pursuant to which the Senior Lenders extended the $30.0 million Tranche A Term
Loan Facility, the $40.0 million Tranche B Term Loan Facility and the $15.0
million NationsBank Revolving Credit Facility (which includes a $7.5 million
letter of credit subfacility and a $2.0 million swing line subfacility and
$6.0 million of which was borrowed in connection with the consummation of the
Recapitalization). The Tranche A Term Loan Facility and the NationsBank
Revolving Credit Facility mature on July 31, 2002 and the Tranche B Term Loan
Facility matures on July 31, 2003. Loans made under the Tranche A Term Loan
Facility and the NationsBank Revolving Credit Facility bear interest, at the
Company's option, at: (i) a floating rate based upon the Alternate Base Rate
(defined as the higher of (x) the prime rate of the Senior Agent under the
NationsBank Credit Agreement and (y) the federal funds rate as adjusted, plus
.50%) plus an applicable margin of 1.25% to 1.75% per annum based on the
Company's leverage ratio; or (ii) the applicable Eurodollar Rate for one, two,
three or six months, plus an applicable margin of 2.25% to 2.75% per annum
based on the Company's leverage ratio, subject to adjustment in certain
circumstances. In addition, loans made under the Tranche B Term Loan Facility
bear interest, at the Company's option, at: (i) a floating rate based upon the
Alternate Base Rate plus 2.50% per annum; or (ii) the applicable Eurodollar
Rate plus 3.50% per annum, subject to adjustment in certain circumstances. The
indebtedness of the Company under the NationsBank Credit Agreement is secured
by a perfected security interest in the Company's accounts receivable,
inventory, equipment and certain other personal property and a pledge of 65%
of the capital stock of its foreign subsidiaries. In addition, to the extent
that the Company's rights under contracts to sell equipment and services to
third parties can be assigned as collateral without violating the terms of the
contract or applicable law, the Company's rights have been assigned as
additional security for the loans made under the NationsBank Credit Agreement.
All the shares of Common Stock held by the Centre Entities and THIN
International were also pledged to secure the loans made under the NationsBank
Credit Agreement, which pledge will be released upon consummation of the Drop
Down Transaction in substitution for a pledge of all the shares of capital
stock of the Drop Down Subsidiary.

Following application of the net proceeds from the sale of the shares of
Common Stock being offered by the Company, the outstanding indebtedness under
the NationsBank Credit Agreement will be approximately $52.7 million. See "Use
of Proceeds."

The NationsBank Credit Agreement requires the Company to meet certain
financial tests, including minimum interest coverage, minimum fixed charge
coverage, maximum leverage ratio and minimum net worth. The NationsBank Credit
Agreement also contains covenants which, among other things, prohibit the
payment of dividends and limit the incurrence of liens and encumbrances, the
incurrence of indebtedness, transactions with affiliates, asset sales,
acquisitions, mergers and consolidations, prepayment of other indebtedness and
other matters customarily restricted in such agreements.

The NationsBank Credit Agreement contains events of default including
payment defaults, default for breaches of representations and warranties,
covenant defaults, including a change of control (as defined in the
NationsBank Credit Agreement), cross-defaults to certain other indebtedness,
certain events related to bankruptcy, judgments and adverse changes in the
Company's material agreements or relationships which could reasonably be
expected to have a material adverse effect on the Company's business.

Drop Down Transaction. The Company has been an operating company. The
Company is currently undertaking the Drop Down Transaction pursuant to which
the Company is reorganizing into a holding company with the Company owning
100% of the outstanding capital stock of the Drop Down Subsidiary, which will
hold the operating assets of the Company. In connection with the Drop Down
Transaction, substantially all assets and liabilities of the Company are being
contributed to the Drop Down Subsidiary, including the shares of all the
subsidiaries of the Company (including the Company's U.K., Singapore,
Canadian, Netherlands and Barbados subsidiaries) except that the Drop Down
Subsidiary will not assume: (i) any obligation of the Company to issue shares
of Common Stock to any person (whether pursuant to the Contingent Payment
provisions of the Recapitalization Agreement described above, warrants or
options issued by the Company or otherwise); (ii) any obligation of the
Company pursuant to the registration rights agreements described below; or
(iii) any nonassignable contract (provided that the economic benefits of such
contract will be accorded to the Drop Down

49
<PAGE>

Subsidiary under an agency agreement). The Drop Down Subsidiary will thus
assume all obligations of the Company under the NationsBank Credit Agreement
and certain related loan documents to which the Company has been a party as
well as the Bridge Notes (until repaid with the proceeds of the Offering). The
Company will guarantee the obligations of the Drop Down Subsidiary under the
NationsBank Credit Agreement and pledge all outstanding common stock of the
Drop Down Subsidiary as security for the repayment of the obligations under
the NationsBank Credit Agreement. (The pledge of the outstanding shares of
Common Stock currently pledged by the Centre Entities and THIN International
as security for the NationsBank Credit Agreement will be released.) If the
Drop Down Transaction is not completed, the shares of Common Stock owned by
the Centre Entities and THIN International will not be released from the
pledge. The NationsBank Credit Agreement requires the Company to use its best
efforts to effect the Drop Down Transaction by December 31, 1996 and provides
that on and after January 1, 1997, the interest rates on the Senior Bank Debt
each will be increased by 0.25% until the Drop Down Transaction is completed.
The Company currently anticipates consummation of the Drop Down Transaction by
December 31, 1996. The purpose of the Drop Down Transaction is to effect the
release of the pledge of the outstanding shares of Common Stock granted under
the NationsBank Credit Agreement in connection with the Recapitalization in
substitution for a pledge of the shares of capital stock of the Drop Down
Subsidiary. Until the Drop Down Transaction occurs, the lenders under the
NationsBank Credit Agreement will retain a pledge of all shares of Common
Stock other than those offered hereby.

Under federal acquisition regulations, transfer of all contracts with the
U.S. government from the Company to the Drop Down Subsidiary will require the
consent of the applicable contracting agency. The Company has applied for
consents to effect the Drop Down transfers and will enter into appropriate
novation agreements whereby its obligations under contracts with the U.S.
government will be transferred to the Drop Down Subsidiary. It is intended to
complete the transfer of substantially all the assets of the Company as soon
as the necessary approvals of the U.S. government are obtained. To the extent
transfer of any other contracts may not be effected without consent of the
other contracting party, the Company intends that the Drop Down Subsidiary
will perform such contracts on a agency basis for which it will receive all
the economic benefits of the contracts until such consents may be obtained.
After completion of the Drop Down Transaction, all commercial operations of
the Company will be conducted by the Drop Down Subsidiary and its
subsidiaries.

Company Subsidiaries. Prior to the Drop Down Transaction, the Company
conducted certain of its activities through five wholly owned subsidiaries,
which are being contributed to the Drop Down Subsidiary in connection with the
Drop Down Transaction. These subsidiaries will continue their operations as
subsidiaries of the Drop Down Subsidiary. Firearms Training Systems Limited,
the Company's U.K. subsidiary established in 1992, has been subcontracted by
the Company to perform manufacturing and maintenance work with respect to
certain of the Company's contracts. F.A.T.S. Singapore, LTD., the Company's
Singapore subsidiary established in 1994, conducts certain activities of the
Company in Asia. FATS Canada, Inc., the Company's Canadian subsidiary
established in 1996, was organized to support the performance of servicing
obligations to Canadian customers. Firearms Training Systems Netherlands,
B.V., the Company's Netherlands subsidiary established in 1995, was organized
to perform certain contractual obligations of the Company with respect to the
Company's contract with the Royal Netherlands Army and to provide services to
other customers in the region. F.A.T.S. Foreign Sales Corporation was
organized in April 1995 to act as agent with respect to export sales of
products and services outside the U.S.

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<PAGE>

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of September 30, 1996 and as adjusted to reflect
the sale of shares of Common Stock by the Company being offered hereby by: (i)
each person (or group of affiliated persons) who is known by the Company to
own beneficially more than 5% of the outstanding shares of Common Stock; (ii)
each of the Company's directors; (iii) the Company's former chief executive
officer and each of the other employees included in the Summary Compensation
Table; and (iv) the Company's current directors and officers as a group.
Except as indicated in the footnotes to the table, the persons named in the
table have sole voting and investment power with respect to all shares of
Common Stock indicated as being beneficially owned by them.

<TABLE>
<CAPTION>
BENEFICIAL BENEFICIAL
OWNERSHIP OWNERSHIP
PRIOR TO AFTER THE
OFFERING (2) OFFERING (2) (3)
--------------- -----------------
NAMES OF BENEFICIAL OWNERS (1) NUMBER % NUMBER %
- ------------------------------------------- ---------- ---- ----------- -----
<S> <C> <C> <C> <C>
Centre Capital Investors II, L.P........... 7,266,811 50.5% 7,266,811 35.6%
Centre Partners Coinvestment, L.P.......... 1,074,961 7.5 1,074,961 5.3
Centre Capital Offshore Investors II,
L.P....................................... 1,439,918 10.0 1,439,918 7.1
Centre Capital Tax-exempt Investors II,
L.P....................................... 812,370 5.6 812,370 4.0
Centre Partners Management LLC (4)......... 9,519,099 66.1 9,519,099 46.7
Centre Partners II LLC (5)................. 11,165,241 77.5 11,165,241 54.7
THIN International N.V. (6)................ 2,967,978 20.6 2,967,978 14.5
Peter A. Marino............................ 98,272 * 98,272 *
David A. Apseloff.......................... 24,900 * 24,900 *
Juan C.G. de Ledebur....................... 53,784 * 53,784 *
Robert F. Mecredy.......................... 30,710 * 30,710 *
Lester Pollack (7)......................... -- -- -- --
William J. Bratton......................... -- -- -- --
Craig I. Fields............................ -- -- -- --
Jonathan H. Kagan (8)...................... -- -- -- --
Scott Perekslis (9)........................ 9,005 * 9,005 *
Bruce G. Pollack (10)...................... 7,504 * 7,504 *
Paul J. Zepf (11).......................... 10,506 * 10,506 *
Jody Scheckter............................. -- -- -- --
Clare Fawkes............................... -- -- -- --
All current directors and executive
officers as a group
(13 individuals) (12)..................... 296,200 2.1 296,200 1.5
</TABLE>
- --------

* Less than 1%.
(1) The address of the Centre Entities other than Centre Capital Offshore
Investors II, L.P. is 30 Rockefeller Plaza, New York, New York 10020; the
address of Centre Capital Offshore Investors II, L.P. is c/o Reid
Management, Cedar House, 41 Cedar Avenue, Box HM 1179, Hamilton, Bermuda;
and the address of THIN International N.V. is Landhuis Joonchi, Koya
Richard J. Beaujan z/n, P. O. Box 837, Curacao, Netherlands Antilles.

(2) Based on 14,402,404 shares of Common Stock outstanding prior to the
Offering and 20,402,404 shares of Common Stock outstanding after the
Offering. Calculation of percentage of beneficial ownership assumes the
exercise of all options and warrants exercisable within 60 days of the
date hereof only by the respective named shareholder.

(3) The Company expects that such persons will not make any purchases in the
Offering.

(4) Pursuant to a Management Agreement, Centre Capital Investors II, L.P.,
Centre Partners Offshore Investors II, L.P. and Centre Capital Tax-exempt
Investors II, L.P. have delegated voting and investment power with
respect to the Common Stock beneficially owned by them to Centre
Management; accordingly, the aggregate security ownership of those Centre
Entities is reflected for Centre Management as well.
(5) As general partner of Centre Partners Coinvestment, L.P. and general
partner of the general partner of Centre Capital Investors II, L.P.,
Centre Partners Offshore Investors II, L.P. and Centre Capital Tax-exempt
Investors II, L.P., Centre Partners II LLC ("Centre Partners") is
reflected as beneficially owning the Common Stock owned by those Centre
Entities. In addition, pursuant to certain co-investment arrangements,
Centre Partners has been delegated voting and investment power with
respect to an additional 571,181 shares of Common Stock.

(6) Mr. GH Thyssen-Bornemisza, a Swiss national resident in Monaco and
chairman of TBG Holdings N.V., may be deemed to have sole voting and
dispositive power over the Common Stock owned by THIN International. THIN
International has granted the Underwriters

51
<PAGE>

an option to purchase up to 900,000 shares of Common Stock to cover over-
allotments. The number of shares to be sold in the Offering and the
beneficial ownership after the Offering assumes that the Underwriters do not
exercise any portion of such option. If such option were exercised in full,
the number of outstanding shares of Common Stock owned by THIN International
would be 2,067,978, constituting 10.1% of the shares outstanding after the
Offering.

(7) Excludes 9,519,099 shares of Common Stock for which Centre Management has
been delegated voting and investment power and 11,165,241 shares of Common
Stock for which Centre Partners is reflected as having beneficial
ownership. Mr. L. Pollack is a Managing Director of each of Centre
Management and Centre Partners and, as such, may be deemed to have voting
and investment power over such shares of Common Stock. Mr. L. Pollack
disclaims any beneficial ownership of such shares of Common Stock.

(8) Excludes 9,519,099 shares of Common Stock for which Centre Management has
been delegated voting and investment power and 11,165,241 shares of Common
Stock for which Centre Partners is reflected as having beneficial
ownership. Mr. Kagan is a Managing Director of each of Centre Management
and Centre Partners and, as such, may be deemed to have voting and
investment power over such shares of Common Stock. Mr. Kagan disclaims any
beneficial ownership of such shares of Common Stock.

(9) Includes 9,005 shares of Common Stock held in a 401(k) plan for the
benefit of Mr. Perekslis, over which Mr. Perekslis has delegated voting
and investment authority to Centre Partners pursuant to certain co-
investment arrangements.

(10) Excludes 9,519,099 shares of Common Stock for which Centre Management has
been delegated voting and investment power and 11,165,241 shares of Common
Stock for which Centre Partners is reflected as having beneficial
ownership. Mr. B. Pollack is a Managing Director of each of Centre
Management and Centre Partners and, as such, may be deemed to have voting
and investment power over such shares of Common Stock. Mr. B. Pollack
disclaims any beneficial ownership of such shares of Common Stock.
Includes 7,504 shares of Common Stock held in a 401(k) plan for the
benefit of Mr. B. Pollack, over which Mr. B. Pollack has delegated voting
and investment authority to Centre Partners pursuant to certain co-
investment arrangements.

(11) Includes 10,506 shares of Common Stock held in a 401(k) plan for the
benefit of Mr. Zepf, over which Mr. Zepf has delegated voting and
investment authority to Centre Partners pursuant to certain co-investment
arrangements.

(12) Excludes 9,519,099 shares of Common Stock for which Centre Management has
been delegated voting and investment power and 11,165,241 shares of Common
Stock for which Centre Partners is reflected as having beneficial
ownership, for which Messrs. L. Pollack, Kagan and B. Pollack may be
deemed to have voting and investment power based on their serving as a
Managing Director of such entities. Messrs. L. Pollack, Kagan and B.
Pollack disclaim beneficial ownership of such shares of Common Stock.
Includes 27,015 shares of Common Stock held in 401(k) plans for the
benefit of Messrs. Perekslis, B. Pollack and Zepf, over which each such
individual has delegated voting and investment authority to Centre
Partners pursuant to certain co-investment arrangements.

52
<PAGE>

DESCRIPTION OF CAPITAL STOCK

The authorized capital stock of the Company consists of 68,060,000 shares of
Class A Common Stock, par value $0.000006 per share, 2,200,000 shares of Class
B Non-voting Common Stock, par value $0.000006 per share ("Class B Common
Stock"), and 200,000 shares of preferred stock, par value $0.10 per share (the
"Preferred Stock"). Upon completion of the Offering, 20,402,404 shares of
Common Stock will be issued and outstanding, no shares of Class B Common Stock
will be issued and outstanding and no shares of Preferred Stock will be issued
and outstanding. The following summary of certain provisions of the Company's
capital stock describes the material provisions, but does not purport to be
complete and is subject to, and qualified in its entirety by, the Certificate
of Incorporation and the By-laws of the Company that are included as exhibits
to the Registration Statement of which this Prospectus forms a part and by the
provisions of applicable law.

Certain provisions described herein may have the effect of impeding
shareholder actions with respect to certain business combinations and the
election of new members to the Board. As such, the provisions could have the
effect of discouraging open market purchases of the Common Stock because they
may be considered disadvantageous by a shareholder who desires to participate
in a business combination or elect a new director.

COMMON STOCK AND CLASS B COMMON STOCK

Holders of shares of Common Stock are entitled to vote on all matters on
which shareholders generally are entitled to vote, with each share of Common
Stock entitled to one vote. Holders of Common Stock are not entitled to
cumulate votes in the election of Directors. Holders of shares of Class B
Common Stock are not entitled to vote on any matter submitted to a vote of
stockholders, except as may be explicitly required by statute in particular
situations. Each share of Class B Common Stock is convertible at any time for
no additional consideration, at the option of its holder and upon notice to
the Company of such election, into one share of Common Stock. Holders of
Common Stock or Class B Common Stock are not entitled to preemptive rights.

Holders of shares of Common Stock and Class B Common Stock are entitled to
receive ratably such dividends as may be declared by the Board out of funds
legally available for such purpose, subject to the rights of the holders of
any Preferred Stock that may be outstanding. No dividends may be declared or
paid in cash or property on any share of any class of common stock, unless
simultaneously the same dividend is declared or paid on each share of the
other class of common stock.

Upon liquidation, dissolution or winding-up of the Company, the holders of
Common Stock and Class B Common Stock are entitled to share ratably in all
assets available for distributions after payment in full of liabilities and
preferences applicable to the holders of any then outstanding Preferred Stock.
There are no redemption or sinking fund provisions applicable to the Common
Stock or Class B Common Stock. All outstanding shares of Common Stock are, and
all shares of Common Stock to be outstanding upon completion of the Offering
will be, fully paid and nonassessable. The rights, preferences and privileges
of holders of Common Stock and Class B Common Stock are subject to the terms
of any series of Preferred Stock that the Company may issue in the future.

TRANSFER AGENT AND REGISTRAR

The Company has appointed State Street Bank and Trust Company as its
transfer agent and registrar for the Common Stock.

PREFERRED STOCK

The Company has 200,000 authorized shares of Preferred Stock, 10,000 shares
of which have been designated Senior Preferred Stock and 5,000 shares of which
have been designated Junior Preferred Stock. As of November 1, 1996, no shares
of Senior Preferred Stock and no shares of Junior Preferred Stock had been
issued and no other shares of Preferred Stock were outstanding. Immediately
following the consummation of the

53
<PAGE>

Offering and the application of the net proceeds therefrom, the Company
intends, by resolution of the Board of Directors, to eliminate the designation
of the Senior Preferred Stock and Junior Preferred Stock.

The Board has the authority without any further action by the Company's
shareholders to issue any or all of the authorized shares of Preferred Stock
in one or more series and to establish the voting powers and the designations,
preferences and relative, participating, optional or other special rights, and
qualifications or restrictions thereof, including dividend rights, conversion
rights, terms of redemption, liquidation preferences, sinking fund terms and
the number of shares constituting any series, as are stated in the resolution
adopted by the Board providing for the establishment of such series and as are
permitted by the Delaware General Corporation Law. The issuance of Preferred
Stock pursuant to this authority could adversely affect the holders of Common
Stock and Class B Common Stock and could have the effect of delaying,
deferring or preventing a change in control of the Company. The Company has no
present plans to issue any shares of Preferred Stock. See "Risk Factors--
Effect of Certain Charter Provisions on the Value of the Common Stock."

MATERIAL PROVISIONS OF THE CERTIFICATE OF INCORPORATION AND BY-LAWS AND
STATUTORY PROVISIONS

The Certificate of Incorporation, as amended, and By-laws contain certain
provisions that could make more difficult the acquisition of the Company by
means of a tender offer, a proxy contest or otherwise.

Effective upon completion of the Offering, the Board will be classified into
three classes, each of which, after a transitional arrangement, will serve for
three years, with one class being elected each year. The number of directors
may be increased or decreased from time to time by the Board of Directors or
the shareholders of the Company in such manner as may be prescribed in the By-
laws.

The By-laws provide that any vacancy on the Board shall be filled only by
the remaining directors then in office, even if the remaining Directors
constitute less than a quorum, and that directors so appointed will serve for
the remainder of the term of the class in which the vacancy occurred rather
than until the next annual meeting of stockholders.

The By-laws provide that shareholders seeking to bring business before or to
nominate directors at any annual meeting of shareholders must provide timely
notice thereof in writing. To be timely, a shareholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
the Company not less than 60 days nor more than 90 days prior to such meeting
or, if less than 70 days' notice was given for the meeting, within ten days
following the date on which such notice was given. The Bylaws also will
specify certain requirements for a shareholder's notice to be in proper
written form. These provisions will restrict the ability of shareholders to
bring matters before the shareholders or to make nominations for directors at
meetings of shareholders.

Limitations on Liability and Indemnification of Officers and Directors. The
Delaware Law provides that a corporation may limit the liability of each
director to the corporation or its shareholders for monetary damages except
for liability: (i) for any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) for acts or omissions not in good faith
or that involve intentional misconduct or a knowing violation of law; (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases; and (iv) for any transaction from which the director derives an
improper personal benefit. The Company's Certificate of Incorporation provides
that no director of the Company shall be personally liable to the Company or
its shareholders for monetary damages for breach of fiduciary duties as a
director except in the circumstances specified in the foregoing clauses (i),
(ii), (iii) and (iv). The effect of these provisions is to eliminate the
rights of the Company and its shareholders (through shareholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for certain breaches of fiduciary duty as a director (including breaches
resulting from grossly negligent conduct). This provision in the Certificate
of Incorporation does not exonerate the directors from liability under federal
securities laws nor does it limit the availability of non-monetary relief in
any action or proceeding against a director. In addition, the Certificate of
Incorporation provides that the Company shall, to the fullest extent permitted
by Delaware Law, indemnify its officers and directors against

54
<PAGE>

liabilities, costs and expenses as provided by Delaware Law. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or others pursuant to the foregoing
provisions, the Company has been informed that in the opinion of the
Commission, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable.

SHARES ELIGIBLE FOR FUTURE SALE

Upon the completion of the Offering there will be 20,402,404 shares of
Common Stock and no shares of Class B Common Stock outstanding. Of these
shares, the 6,000,000 shares of Common Stock sold in the Offering plus any
additional shares sold upon exercise of the Underwriters' over-allotment
option will be freely tradeable in the public market without restriction or
further registration under the Securities Act (unless held by an "affiliate"
of the Company as that term is defined in the Securities Act), in which case
such shares will be subject to the resale limitations of Rule 144. All the
remaining outstanding shares of Common Stock will be "restricted securities"
under the Securities Act and may not be sold unless they are registered or
unless an exemption from registration, such as the exemptions provided by Rule
144 is available. Certain of the affiliates of the Company are entitled to
certain registration rights as described below.

In general, under Rule 144 as currently in effect, an affiliate of the
Company, or a person (or persons whose shares are aggregated) who has
beneficially owned "restricted securities" for at least two years, is entitled
to sell within any three-month period a number of shares that does not exceed
the greater of: (i) one percent of the outstanding Common Stock or (ii) the
average weekly trading volume in the Common Stock reported through the Nasdaq
National Market (or exchange on which the Common Stock is traded) during the
four calendar weeks preceding the date on which notice of such sale is filed
with the Commission pursuant to Rule 144. Sales under Rule 144 are also
subject to certain provisions regarding the manner of sale, notice
requirements and the availability of current public information about the
Company. A person (or persons whose shares are aggregated) who is not an
affiliate of the Company for at least 90 days prior to a proposed transaction
and who has beneficially owned restricted securities for at least three years
is entitled to sell such shares under Rule 144(k) without regard to the
limitations described above. THIN International has held its shares of Common
Stock for more than three years and the Company believes that, following the
termination of the 180-day holdback period referred to below, THIN
International may be eligible to sell such shares pursuant to Rule 144(k).

The Centre Entities, THIN International and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering collectively will beneficially own an aggregate of
14,402,404 shares of Common Stock, as well as the Company have agreed not to
offer, sell or otherwise dispose of any of their shares of Common Stock for a
period of 180 days without the prior written consent of Montgomery Securities.
See "Underwriting."

Prior to the Offering, there has been no public market for the Common Stock.
Although the Common Stock has been approved for quotation on the Nasdaq
National Market, there is no assurance that a viable public market for the
Common Stock will develop or be sustained after the Offering. Future sales of
substantial amounts of Common Stock in the public market could adversely
affect market prices of the Common Stock.

REGISTRATION RIGHTS

The Company has granted certain registration rights to the Centre Entities,
THIN International and their respective permitted assignees, with respect to
shares of Common Stock held by such entities.

THIN Registration Rights Agreement. As described above, in connection with
the Recapitalization, the Company, THIN International and the Centre Entities
entered into the THIN Registration Rights Agreement, pursuant to which THIN
International was granted certain demand registration rights exercisable on no
more than two occasions as well as certain "piggyback" registration rights
with respect to their Common Stock. The

55
<PAGE>

demand registration rights become exercisable on July 31, 2001. In the THIN
Registration Rights Agreement THIN International has agreed not to effect any
public sale or distribution of any of its shares of Common Stock during the
15-day period prior to, and during the 90-day period (or the 180-day period,
if so requested in good faith by the Underwriters) beginning on, the date any
registration statement filed by the Company is declared effective other than
pursuant to such registration statement. In connection with the Offering, the
Underwriters have requested, and THIN International has agreed, that THIN
International not effect any such distribution (except in connection with the
Offering) for 180 days from the date of this Prospectus. See "Underwriting."

Centre Registration Rights Agreement. In the Centre Registration Rights
Agreement, Centre Entities were granted certain demand registration rights
exercisable on no more than ten occasions as well as certain "piggyback"
registration rights.The Centre Entities have agreed not to effect any public
sale or distribution of any of their shares of Common Stock during the 15-day
period prior to, and during the 90-day period (or the 180-day period, if so
requested in good faith by the Company's underwriter) beginning on, the date
any registration statement filed by the Company is declared effective other
than pursuant to such registration statement. In connection with the Offering,
the Centre Entities have agreed not to effect any such distribution for 180
days from the date of this Prospectus. See "Underwriting."

56
<PAGE>

UNDERWRITING

The Underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Lazard Freres & Co. LLC and The Robinson-Humphrey Company, Inc.
(the "Representatives"), have severally agreed, subject to the terms and
conditions in the underwriting agreement (the "Underwriting Agreement"), by
and among the Company, the Selling Shareholder and the Underwriters, to
purchase from the Company the number of shares of Common Stock indicated below
opposite their respective names, at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are
committed to purchase all the shares of Common Stock, if they purchase any.

<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Montgomery Securities..............................................
Lazard Freres & Co. LLC............................................
The Robinson-Humphrey Company, Inc.................................
---------
Total............................................................ 6,000,000
=========
</TABLE>

The Representatives have advised the Company and the Selling Shareholder
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow selected dealers a concession of not more than $ per
share; and the Underwriters may allow, and such dealers may reallow, a
concession of not more than $ per share to certain other dealers. After the
initial public offering, the public offering price and other selling terms may
be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.

The Selling Shareholder has granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 900,000 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to
be purchased by the Underwriters. To the extent that the Underwriters exercise
such over-allotment option, the Underwriters will be committed, subject to
certain conditions, 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 made in connection with the
Offering.

The Underwriting Agreement provides that the Company and the Selling
Shareholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.

The Centre Entities, THIN International and the Company's officers and
directors who are also shareholders of the Company and who, immediately
following the Offering (assuming no exercise of the Underwriters' over-
allotment option), collectively will beneficially own an aggregate of
14,402,404 shares Common Stock, as well as the Company, have agreed that for a
period of 180 days from the date of this Prospectus they will not, without the
prior written consent of Montgomery Securities, directly or indirectly, issue,
offer for sale, sell, solicit an offer to sell, contract or grant an option to
sell, pledge, transfer, establish an open put equivalent position or otherwise
sell or dispose of any equity securities of the Company or any options or
warrants to acquire equity securities of the Company, subject to limited
exceptions. In evaluating any request for a waiver of the lock-up period,
Montgomery Securities would consider, in accordance with customary practice,
all relevant facts and circumstances at the time of the request, including,
without limitation, the recent trading market for the Common

57
<PAGE>

Stock, the size of the request and, with respect to a request by the Company
to issue additional equity securities, the purpose of such an issuance.

Lazard Freres & Co. LLC ("Lazard") rendered financial advisory services to
THIN International in connection with the Recapitalization. Lazard has
received a fee for such services which will be increased based on
consideration received by THIN International from sales of its holdings of
Common Stock, including sales in the Offering.

Under Rule 2720 of the Conduct Rules ("Rule 2720") of the National
Association of Securities Dealers, Inc. (the "NASD"), the Company may be
considered an "affiliate" of Lazard because "persons associated" with Lazard
(as such terms are defined in the Bylaws of the NASD) may be deemed to
beneficially own more than 10% of the voting securities of the Company.
Messrs. Lester Pollack and Jonathan H. Kagan, directors of the Company and
Managing Directors of Centre Management, each serve as managing directors of
Lazard and, as such, are "persons associated" with Lazard, which is a member
of the NASD. Due to the beneficial ownership of the Common Stock by the Centre
Entities, and the status of Messrs. Pollack and Kagan as "persons associated
with a member," the Company may be considered an "affiliate" of Lazard under
the definition of that term under Rule 2720(b)(1)(B). See "Principal
Shareholders" and "Management--Executive Officers and Directors." As a result,
the Offering is being conducted in accordance with Rule 2720, which provides
that, among other things, when an NASD member participates in the underwriting
of an affiliate's equity securities, the initial offering price can be no
higher than that recommended by a "qualified independent underwriter" meeting
certain standards ("QIU"). In accordance with this requirement, Montgomery
Securities has assumed the responsibilities of acting as QIU and will
recommend a maximum initial offering price in compliance with the requirements
of Rule 2720. In connection with the Offering, Montgomery Securities is
performing due diligence investigations and reviewing and participating in the
preparation of this Prospectus and the Registration Statement of which this
Prospectus forms a part. Montgomery Securities will receive no additional
compensation for performing the services of a QIU.

The Representatives have informed the Company that the Underwriters do not
expect to make sales of Common Stock offered by this Prospectus to accounts
over which they exercise discretionary authority in excess of 5% of the number
of shares of Common Stock offered hereby.

Prior to the Offering, there has been no public trading market for the
Common Stock. Consequently, the initial public offering price of the Common
Stock has been determined by negotiations between the Company, and the
Representatives. Among the factors to be considered in such negotiations were
the history of, and the prospects for, the Company and the industry in which
the Company competes, an assessment of the Company's management, its financial
condition, its past and present earnings and the trend of such earnings, the
prospects for future earnings of the Company, the present state of the
Company's development, the general condition of the economy and the securities
markets at the time of the offering and the market prices of and demand for
publicly traded common stock of comparable companies in recent periods.

LEGAL MATTERS

Certain legal matters relating to the Common Stock being offered hereby and
to the Offering will be passed upon by Sidley & Austin, New York, New York and
Venable, Baetjer, Howard & Civiletti LLP, Washington, D.C., counsel for the
Company. Certain legal matters in connection with the Offering will be passed
upon for the Underwriters by Cleary, Gottlieb, Steen & Hamilton, New York, New
York.

58
<PAGE>

INDEPENDENT ACCOUNTANTS

The consolidated financial statements and schedule of the Company for the
years ended March 31, 1995 and 1996 appearing in this Prospectus have been
audited by Arthur Andersen LLP, independent accountants, as of the dates and
for the periods indicated in its reports thereon, appearing elsewhere herein.
Such consolidated financial statements and schedule of the Company have been
included herein in reliance on the reports of Arthur Andersen LLP, independent
accountants, given on the authority of said firm as experts in accounting and
auditing.

The consolidated statements of income, changes in stockholders' equity and
cash flows for the year ended March 31, 1994 included in this Prospectus have
been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.

CHANGE IN INDEPENDENT ACCOUNTANTS

PREVIOUS INDEPENDENT ACCOUNTANTS

On March 16, 1995, the Company dismissed Price Waterhouse LLP as its
independent accountants. The report of Price Waterhouse LLP on the Company's
financial statements for the fiscal year ended March 31, 1994 contained no
adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principle. In connection with its
audit for the fiscal year ended March 31, 1994 and through March 16, 1995,
there have been no disagreements with Price Waterhouse LLP on any matter of
accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements if not resolved to the
satisfaction of Price Waterhouse LLP would have caused them to make reference
thereto in their report on the financial statements for the fiscal year ended
March 31, 1994. The decision to dismiss Price Waterhouse LLP was approved by
the Company's Board of Directors. A copy of a letter from Price Waterhouse LLP
indicating their agreement with the foregoing statement is filed as an exhibit
to this Registration Statement.

CURRENT INDEPENDENT ACCOUNTANTS

The Company engaged Arthur Andersen LLP as its new independent accountants
as of March 16, 1995.

During the fiscal year ended March 31, 1994 and through March 16, 1995, the
Company did not consult with Arthur Andersen LLP on items which (i) were or
should have been subject to Statement on Auditing Standards No. 50 or (ii)
concerned the subject matter of a disagreement or reportable event with Price
Waterhouse LLP.

59
<PAGE>

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock being offered
hereby. This Prospectus, which constitutes a part of the Registration
Statement, does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto. Statements contained in this
Prospectus concerning the provisions of agreements or documents filed with the
Registration Statement as exhibits are not necessarily complete, and each such
statement is qualified in its entirety by reference to the copy of the
applicable agreement or document filed as an exhibit to the Registration
Statement. Upon the consummation of this offering, the Company will be subject
to the informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and, in accordance therewith, will file reports
and other information with the Commission. The Registration Statement and the
exhibits and schedules thereto filed by the Company with the Commission, as
well as such reports and other information filed by the Company with the
Commission, may be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549; at its Chicago Regional Office, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and at its New York Regional Office, Seven World
Trade Center, 13th Floor, New York, New York 10048. Copies of such material
can be obtained from the public reference section of the Commission, 450 Fifth
Street, N.W., Washington D.C. 20549, at prescribed rates. Such material may
also be accessed electronically by means of the Commission's home page on the
Internet at http://www.sec.gov. The Company intends to furnish to its
shareholders annual reports containing audited consolidated financial
statements and a report thereon by the Company's independent accountants and
will make available quarterly reports containing unaudited consolidated
financial information for the first three quarters of each fiscal year.

60
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

INDEX TO FINANCIAL STATEMENTS

<TABLE>
<S> <C>
Report of Arthur Andersen LLP............................................. F-2
Report of Price Waterhouse LLP............................................ F-3
Consolidated Balance Sheets of the Company as of March 31, 1995 and 1996
and
September 30, 1996....................................................... F-4
Consolidated Statements of Income for the Fiscal Years Ended March 31,
1994, 1995 and 1996 and for the Six Months Ended September 30, 1995 and
1996 .................................................................... F-5
Consolidated Statements of Changes in Stockholders' Equity for the Fiscal
Years Ended March 31, 1994, 1995 and 1996 and for the Six Months Ended
September 30, 1995 and 1996.............................................. F-6
Consolidated Statements of Cash Flows for the Fiscal Years Ended March 31,
1994, 1995 and 1996 and for the Six Months Ended September 30, 1995 and
1996..................................................................... F-7
Notes to Consolidated Financial Statements................................ F-8
</TABLE>

F-1
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To Firearms Training Systems, Inc.:

We have audited the accompanying consolidated balance sheets of FIREARMS
TRAINING SYSTEMS, INC. (a Delaware corporation) AND SUBSIDIARIES as of March
31, 1995 and 1996 and the related consolidated statements of income, changes
in 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 financial statements referred to above present fairly,
in all material respects, the financial position of Firearms Training Systems,
Inc. and subsidiaries as of March 31, 1995 and 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.

ARTHUR ANDERSEN LLP

Atlanta, Georgia

May 17, 1996
(except with respect to the
matters discussed in Notes 1, 2,
3, 4, 5 and 10 as to which the
date is November 1, 1996)

F-2
<PAGE>

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of Firearms Training Systems, Inc.

In our opinion, the accompanying consolidated statement of income, of
changes in stockholders' equity and of cash flows for the year ended March
31, 1994 present fairly, in all material respects, the results of
operations and cash flows of Firearms Training Systems, Inc. and its
subsidiary for the year ended March 31, 1994, in conformity with generally
accepted accounting principles. 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 audit. We
conducted our audit of these statements in accordance with generally
accepted auditing standards which 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, assessing the accounting principles used and significant
estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable
basis for the opinion expressed above. We have not audited the consolidated
financial statements of Firearms Training Systems, Inc. for any period
subsequent to March 31, 1994.

As discussed in Note 10 to the financial statements, in 1996 the Company
retroactively restated its reporting entity to include the accounts of
Firearms Training Systems, Ltd.

PRICE WATERHOUSE LLP

Atlanta, Georgia
June 8, 1994, except as to the stock split
described in Note 10 and the third paragraph of
Note 10, which are as of November 1, 1996

F-3
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)

ASSETS

<TABLE>
<CAPTION>
MARCH 31,
--------------- SEPTEMBER 30,
1995 1996 1996
------- ------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents..................... $ 2,328 $ 8,121 $ 951
Accounts receivable, net of allowance for
doubtful accounts of $51, $75, and $75 at
March 31, 1995 and 1996 and September 30,
1996, respectively........................... 3,785 10,092 10,772
Inventories................................... 7,819 12,836 12,612
Prepaid expenses and other current assets..... 928 655 1,360
Deferred income taxes......................... 918 866 1,243
------- ------- --------
Total current assets........................ 15,778 32,570 26,938
Property and equipment, net..................... 769 1,144 1,373
Escrow and other deposits....................... 270 106 53
Other assets.................................... -- -- 6,264
------- ------- --------
$16,817 $33,820 $ 34,628
======= ======= ========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
Accounts payable.............................. $ 1,416 $ 3,619 $ 2,841
Accrued liabilities........................... 2,864 5,207 6,523
Income taxes payable.......................... -- 1,305 1,326
Deferred revenue-advanced billings............ 3,494 1,455 1,258
Deferred warranty revenue and reserves........ 347 768 1,056
Current maturities of long-term debt.......... -- -- 3,075
------- ------- --------
Total current liabilities................... 8,121 12,354 16,079
------- ------- --------
Long-term debt, less current maturities......... -- -- 105,795
------- ------- --------
Other noncurrent liabilities.................... 212 204 198
------- ------- --------
Commitments and contingencies (Notes 4, 8 and
10)
Stockholders' equity:
Preferred stock, $0.10 par value; 200,000
shares authorized, no shares issued and out-
standing..................................... -- -- --
Class A common stock, $0.000006 par value;
68,060,000 shares authorized; 49,800,000
shares issued and outstanding at March 31,
1995 and 1996 and 14,402,404 issued and out-
standing, at September 30, 1996.............. -- -- --
Class B non-voting common stock, $0.000006 par
value; 2,200,000 shares authorized; no shares
issued and outstanding....................... -- -- --
Additional paid-in capital.................... 1,931 1,931 36,991
Warrants...................................... -- -- 930
Accumulated earnings (deficit)................ 6,553 19,343 (125,353)
Cumulative foreign currency translation ad-
justment..................................... -- (12) (12)
------- ------- --------
Total stockholders' equity (deficit)........ 8,484 21,262 (87,444)
------- ------- --------
$16,817 $33,820 $ 34,628
======= ======= ========
</TABLE>

The accompanying notes are an integral part of these consolidated balance
sheets.

F-4
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)

<TABLE>
<CAPTION>
FISCAL SIX MONTHS ENDED
YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------ ------------------
1994 1995 1996 1995 1996
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues........................ $20,534 $29,164 $65,439 $ 27,089 $ 39,138
Cost of revenues................ 9,651 14,230 30,902 14,204 17,980
------- ------- ------- -------- --------
Gross profit.................... 10,883 14,934 34,537 12,885 21,158
------- ------- ------- -------- --------
Operating expenses:
Selling, general and
administrative expenses...... 6,066 8,169 12,087 5,367 7,513
Research and development ex-
penses....................... 2,048 2,296 2,781 1,242 1,831
Depreciation and amortiza-
tion......................... 297 330 386 196 203
------- ------- ------- -------- --------
Total operating expenses.... 8,411 10,795 15,254 6,805 9,547
------- ------- ------- -------- --------
Operating income................ 2,472 4,139 19,283 6,080 11,611
------- ------- ------- -------- --------
Other income (expense), net:
Interest income (expense),
net.......................... (98) 12 165 35 (1,833)
Nonrecurring recapitalization
expenses..................... -- -- -- -- (1,120)
Other income (expense), net... (126) 66 (93) (27) (39)
------- ------- ------- -------- --------
Total other income (ex-
pense), net................ (224) 78 72 8 (2,992)
------- ------- ------- -------- --------
Income before income taxes...... 2,248 4,217 19,355 6,088 8,619
Provision for income taxes...... 730 1,387 6,565 2,126 3,281
------- ------- ------- -------- --------
Net income...................... $ 1,518 $ 2,830 $12,790 $ 3,962 $ 5,338
======= ======= ======= ======== ========
Pro forma net income per common
share (Note 2)................. $ 0.09 $ 0.18 $ 0.80 $ 0.25 $ 0.33
======= ======= ======= ======== ========
Pro forma weighted average
common shares outstanding (Note
2)............................. 16,055 16,055 16,055 16,055 16,055
======= ======= ======= ======== ========
</TABLE>

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

F-5
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)

<TABLE>
<CAPTION>
CLASS B CUMULATIVE
NON-VOTING FOREIGN
PREFERRED STOCK CLASS A COMMON STOCK COMMON STOCK ADDITIONAL ACCUMULATED CURRENCY
----------------- ------------------------------------- PAID-IN EARNINGS TRANSLATION
SHARES AMOUNT SHARES AMOUNT SHARES AMOUNT CAPITAL WARRANTS (DEFICIT) ADJUSTMENT TOTAL
------- -------- ------------- --------------- ------ ---------- -------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, March
31, 1993........ -- $ -- 49,800,000 $ -- -- $ -- $ 1,801 $-- $ 2,205 $ -- $ 4,006
Net income...... -- -- -- -- -- -- -- -- 1,518 -- 1,518
------- -------- ------------- ------- ---- ----- ------- ---- --------- ----- --------
Balance, March
31, 1994........ -- -- 49,800,000 -- -- -- 1,801 -- 3,723 -- 5,524
Net income...... -- -- -- -- -- -- -- -- 2,830 -- 2,830
Capital
contribution... -- -- -- -- -- -- 130 -- -- -- 130
------- -------- ------------- ------- ---- ----- ------- ---- --------- ----- --------
Balance, March
31, 1995........ -- -- 49,800,000 -- -- -- 1,931 -- 6,553 -- 8,484
Net income...... -- -- -- -- -- -- -- -- 12,790 -- 12,790
Foreign currency
translation
adjustment..... -- -- -- -- -- -- -- -- -- (12) (12)
------- -------- ------------- ------- ---- ----- ------- ---- --------- ----- --------
Balance, March
31, 1996........ -- -- 49,800,000 -- -- -- 1,931 -- 19,343 (12) 21,262
Net income
(unaudited).... -- -- -- -- -- -- -- -- 5,338 -- 5,338
Common Stock
issued in
connection with
the
Recapitalization
(Note 10)...... -- -- 11,165,241 -- -- -- 36,000 -- -- -- 36,000
Common Stock
retired in
connection with
the
Recapitalization
(Note 10)...... -- -- (46,832,022) -- -- -- (1,816) -- (150,034) -- (151,850)
Common Stock
issued to
Management in
connection with
the
Recapitalization
(Note 10)...... -- -- 269,185 -- -- -- 876 -- -- -- 876
Warrants issued
in connection
with the
Recapitalization
(Note 10)...... -- -- -- -- -- -- -- 930 -- -- 930
------- -------- ------------- ------- ---- ----- ------- ---- --------- ----- --------
Balance,
September 30,
1996
(unaudited)..... -- $ -- 14,402,404 $ -- -- $ -- $36,991 $930 $(125,353) $ (12) $(87,444)
======= ======== ============= ======= ==== ===== ======= ==== ========= ===== ========
</TABLE>

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

F-6
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)

<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED MARCH 31, SEPTEMBER 30,
------------------------------- -----------------
1994 1995 1996 1995 1996
--------- --------- --------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income................ $ 1,518 $ 2,830 $ 12,790 $ 3,962 $ 5,338
--------- --------- --------- ------- --------
Adjustments to reconcile
net income to net cash
provided by (used in) op-
erating activities:
Depreciation and
amortization............ 297 330 386 196 350
Stock grant.............. -- -- -- -- 120
Deferred income taxes.... -- (515) 52 -- (377)
Changes in assets and
liabilities:
Accounts receivable,
net.................... (1,828) 1,884 (6,307) (4,644) (680)
Related-party balances,
net.................... 324 -- -- -- --
Inventories............. (1,978) (4,125) (5,017) (1,670) 224
Prepaid expenses and
other current assets... (11) (876) 273 14 (705)
Escrow and other
deposits............... -- (270) 164 349 53
Accounts payable........ 69 (96) 1,777 (398) (778)
Accrued liabilities..... 1,978 886 2,769 (95) 1,316
Income taxes payable.... 260 (676) 1,305 691 21
Deferred revenue-
advanced billings...... (733) 2,397 (2,039) (780) (197)
Deferred warranty
revenue and reserves... 997 197 421 191 288
Noncurrent liabilities.. 167 45 (8) (4) (6)
--------- --------- --------- ------- --------
Total adjustments...... (458) (819) (6,224) (6,150) (371)
--------- --------- --------- ------- --------
Net cash provided by
(used in) operating
activities............ 1,060 2,011 6,566 (2,188) 4,967
--------- --------- --------- ------- --------
Cash flows from investing
activities:
Additions to property and
equipment, net........... (405) (191) (761) (421) (432)
--------- --------- --------- ------- --------
Cash flows from financing
activities:
Net borrowings
(repayments) of line of
credit................... 762 (876) -- 904 --
Borrowings of long-term
debt..................... -- -- -- -- 110,000
Repayments of long-term
debt..................... -- -- -- -- (200)
Repayments of related-
party notes payable...... (1,075) -- -- -- --
Proceeds from sale of
common stock............. -- -- -- -- 36,756
Repurchase of common
stock.................... -- -- -- -- (151,850)
Other assets.............. -- -- -- -- (6,411)
--------- --------- --------- ------- --------
Net cash (used in)
provided by financing
activities............ (313) (876) -- 904 (11,705)
--------- --------- --------- ------- --------
Effect of changes in for-
eign exchange rates....... -- -- (12) -- --
--------- --------- --------- ------- --------
Net increase (decrease) in
cash...................... 342 944 5,793 (1,705) (7,170)
Cash, beginning of period.. 1,042 1,384 2,328 2,328 8,121
--------- --------- --------- ------- --------
Cash, end of period........ $ 1,384 $ 2,328 $ 8,121 $ 623 $ 951
========= ========= ========= ======= ========
Supplemental disclosures of
cash paid for:
Interest................. $ 117 $ 48 $ 11 $ 1 $ 130
========= ========= ========= ======= ========
Income taxes............. $ 584 $ 2,100 $ 4,809 $ 1,012 $ 3,541
========= ========= ========= ======= ========
Supplemental disclosure of
noncash transactions:
Capital contribution
recorded for forgiveness
of
related-party payable... $ -- $ 130 $ -- $ -- $ --
========= ========= ========= ======= ========
</TABLE>

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

F-7
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

1. ORGANIZATION AND NATURE OF BUSINESS

Firearms Training Systems, Inc. ("FATS" or the "Company"), a Delaware
corporation, was incorporated in 1984. The Company was a wholly owned
subsidiary of THIN International N.V. (previously Firearms Training Systems
International N.V.) ("THIN International"), a Netherlands Antilles
corporation, until July 31, 1996, at which time approximately 79.0% of the
outstanding stock of the Company was sold to a group of entities (the "Centre
Entities") managed by Centre Partners Management LLC, in connection with a
recapitalization and stock purchase and sale agreement (the
"Recapitalization") (Note 10).

FATS is engaged in the development, manufacture, sale, and servicing of
small and supporting arms training simulators and simulated firearms. The
Company's products include weapon simulators for military, law enforcement,
sport shooting, hunter education, and public training as well as for vessel
weapons training. The Company's customers include military and law enforcement
agencies primarily throughout the United States ("U.S."), Europe and Asia.

The Company has five wholly owned subsidiaries (the "Subsidiaries").
F.A.T.S. Foreign Sales Corporation was organized in April 1995 to act as agent
with respect to export sales of products and services outside the United
States. Firearms Training Systems, Ltd. ("FATS U.K."), previously a wholly
owned subsidiary of THIN International (Note 10), performs maintenance work on
certain British contracts and some weapons simulator manufacturing work. The
operations of FATS U.K. and the Company's remaining three subsidiaries are not
currently significant to the consolidated financial position or results of
operations of the Company.

THIN International is a holding company with no separate operations.
Accordingly, the consolidated statements of income reflect all of the costs of
doing business related to the Company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and the Subsidiaries. All significant intercompany transactions and balances
have been eliminated.

Foreign Currency Translation

The assets and liabilities of the Company's foreign subsidiaries are
translated into U.S. dollars using current exchange rates in effect at the
balance sheet date, and revenues and expenses are translated at average
monthly exchange rates. The resulting translation adjustments are recorded in
a separate component of stockholders' equity, net of related income taxes.

Revenue Recognition

Substantially all revenue is derived from the sale of small and supporting
arms training simulators and accessories. Revenue is primarily recognized upon
shipment. A significant portion of the Company's revenues are derived from
shipments under contract with various governmental agencies. Such contracts
generally specify pricing terms by product and provide for shipment of the
Company's simulators and other products over an extended period of time, with
billings related to the shipment schedule. These contracts generally do not
include reimbursement of product development costs, and the Company does not
utilize percentage of completion accounting due to the nature of the
contractual arrangements. Advanced billings related to contracts are recorded
as deferred revenue and are recognized primarily as units are delivered.
Amounts billed for extended warranties are recorded as deferred revenue and
are recognized as income over the lives of the service agreements, which
generally range from one to three years.

F-8
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Restricted Cash

In accordance with the terms of an escrow agreement with an agent of the
Company, an escrow account is used to ensure contract performance by the
Company under certain foreign contracts. The cash included in the escrow
account is restricted and is paid out over a scheduled term. The balance in
the escrow account has been classified in the accompanying financial
statements as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------- 1996
1995 1996 (UNAUDITED)
---- ---- -------------
<S> <C> <C> <C>
Prepaid expenses and other current assets............ $146 $157 $124
Escrow and other deposits............................ 257 86 33
---- ---- ----
Total.............................................. $403 $243 $157
==== ==== ====
</TABLE>

Inventories

Inventories consist primarily of projectors, computer hardware, simulators,
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>
MARCH 31, SEPTEMBER 30,
-------------- 1996
1995 1996 (UNAUDITED)
------ ------- -------------
<S> <C> <C> <C>
Raw materials................................... $3,286 $ 6,620 $ 5,470
Work in progress................................ 3,390 5,556 6,406
Finished goods.................................. 1,143 660 736
------ ------- -------
$7,819 $12,836 $12,612
====== ======= =======
</TABLE>

Property and Equipment

Property and equipment are stated at cost. Major property additions,
replacements, and betterments are capitalized, while maintenance and repairs
which do not extend the useful lives of these assets are expensed currently.
Depreciation is provided using the straight-line method for financial
reporting purposes and accelerated methods for income tax purposes.

The detail of property and equipment is as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
---------------- 1996
1995 1996 (UNAUDITED) USEFUL LIVES
------- ------- ------------- --------------------
<S> <C> <C> <C> <C>
Machinery and equip-
ment................... $ 1,134 $ 1,704 $ 1,749 Five years
Demonstration equip-
ment................... 536 602 881 Three years
Furniture and fixtures.. 563 572 547 Five years
Vehicles................ 255 371 367 Three years
Leasehold improvements.. 2 2 34 Remaining lease term
------- ------- -------
2,490 3,251 3,578
Less accumulated
depreciation and
amortization........... (1,721) (2,107) (2,205)
------- ------- -------
$ 769 $ 1,144 $ 1,373
======= ======= =======
</TABLE>

F-9
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Long-Lived Assets

Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets to be Disposed Of" requires that long-
lived assets and certain identifiable intangibles to be held and used by an
entity be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When
events or changes in circumstances occur related to long-lived assets, the
Company estimates the future cash flows expected to result from the use of the
asset and its eventual disposition. Having found no instances whereby the sum
of expected future cash flows (undiscounted and without interest charges) was
less than the carrying amount of the asset thus requiring the recognition of
an impairment loss, management believes that the long-lived assets in the
accompanying balance sheets are appropriately valued.

Accrued Liabilities

Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
------------- 1996
1995 1996 (UNAUDITED)
------ ------ -------------
<S> <C> <C> <C>
Sales commissions, bonuses and agents commis-
sion......................................... $ 937 $2,347 $ 1,444
Professional fees............................. 888 484 99
Unvouchered accounts payable.................. 459 1,568 1,399
Accrued interest.............................. -- -- 1,809
Other......................................... 580 808 1,772
------ ------ -------
$2,864 $5,207 $ 6,523
====== ====== =======
</TABLE>

Unvouchered accounts payable represent accruals for products and services
received but for which the Company has not yet been billed.

Noncurrent Liabilities

Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for
Leases," requires the straight-line recognition of escalating future minimum
lease payments. The Company has escalating rents in connection with the lease
of its manufacturing and office facility located near Atlanta, Georgia. In
addition, the Company received six months of free rent during the initial
period of the lease. The escalating rents and the free rents are recognized on
a straight-line basis over the term of the lease. Accrued rental expense
associated with the straight-line recognition of escalating rents of
approximately $211,000, $204,000, and $198,000 at March 31, 1995 and 1996 and
September 30, 1996, respectively, is included in noncurrent liabilities in the
accompanying balance sheets.

Stock-Based Compensation Plans

The Company accounts for its stock-based compensation plans under Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees"
("APB No. 25"). The Company has adopted the disclosure option of SFAS No. 123,
"Accounting for Stock-Based Compensation." SFAS No. 123 requires that
companies which do not choose to account for stock-based compensation as
prescribed by this statement shall disclose the pro forma effects on earnings
and earnings per share as if SFAS No. 123 had been adopted. Additionally,
certain other disclosures are required with respect to stock compensation and
the assumptions used to determine the pro forma effects of SFAS No. 123.

Research and Development Activities

The Company expenses research and development costs as incurred. Research
and development costs included in the accompanying statements of income
include salaries, wages, benefits, general and administrative, prototype
equipment, project supplies and other related costs directly associated with
research and development activities.

F-10
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

Financial Instruments

SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires disclosure of the following information about the fair value of
certain financial instruments for which it is practicable to estimate that
value. For purposes of this disclosure, the fair value of a financial
instrument is the amount at which the instrument could be exchanged in a
current transaction between willing parties other than in a forced sale or
liquidation. The financial instruments of the Company consist primarily of
cash and cash equivalents, accounts receivable, and accounts payable at March
31, 1995 and 1996 and September 30, 1996. The Company considers all highly
liquid investments with original maturities of three months or less to be cash
equivalents. In management's opinion, the carrying amounts of these financial
instruments approximate their fair values due to the immediate or short-term
maturity of these financial instruments at March 31, 1995 and 1996 and
September 30, 1996.

Pro Forma Net Income Per Common Share

Pro forma net income per common share is computed using the weighted average
number of shares of common stock and dilutive common stock equivalent shares
("CSEs") from warrants and from stock options (using the treasury stock
method). Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin No. 83, common stock and CSEs issued at prices below the expected
public offering price during the 12-month period prior to the Company's
expected initial public offering (the "Offering") (Note 3) have been included
in the calculation as if they were outstanding for all periods prior to the
Offering, regardless of whether they are dilutive. Accordingly, the shares
issued in the Recapitalization (Note 10), all shares issuable upon exercise of
stock options granted (Note 5), and all shares issuable upon exercise of
warrants (Note 4) are included in the earnings per share calculations for all
periods presented. As the Company also repurchased shares in connection with
the Recapitalization, the effect of the repurchased shares is also included in
the earnings per share calculations for all periods presented.

Stock Split

In connection with the Recapitalization (Note 10), the Company effected a
100,000-for-one stock split subsequent to fiscal year-end. In anticipation of
the Offering, the Company effected another stock split of 1.66-for-one
subsequent to fiscal year-end. All references in the accompanying financial
statements to number of shares and per share amounts of the Company's common
stock have been retroactively restated to reflect the increased number of
common shares outstanding from both the 100,000-for-one stock split and the
1.66-for-one stock split.

Preferred Stock

The Company has 200,000 authorized shares of Preferred Stock, 10,000 shares
of which have been designated Senior Preferred Stock with a par value of $0.10
per share and a stated liquidation value of $1,000 per share, and 5,000 shares
of which have been designated Junior Preferred Stock with a par value of $0.10
per share and a stated liquidation value of $1,000 per share. No shares of
preferred stock have been issued and no shares were outstanding at March 31,
1995 and 1996 and September 30, 1996.

Income Taxes

The Company is a C corporation for U.S. federal income tax reporting
purposes and accounts for income taxes under the provisions of SFAS No. 109,
"Accounting for Income Taxes," which requires the use of an asset and
liability method of accounting for deferred income taxes. Under SFAS No. 109,
deferred tax assets or liabilities at the end of each period are determined
using the tax rate expected to apply to taxable income in the period in which
the deferred tax asset or liability is expected to be settled or realized.

F-11
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

Use of Estimates

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

Interim Unaudited Data for the Six Months Ended September 30, 1995 and 1996

In the opinion of management, the unaudited condensed consolidated financial
statements contain all the normal and recurring adjustments necessary to
present fairly the consolidated financial position of the Company and its
subsidiaries at September 30, 1996 and the consolidated results of the
Company's operations and their cash flows for the six months ended September
30, 1995 and 1996.

3. THE OFFERING

The Company plans to proceed with the Offering as described elsewhere in
this Prospectus with the anticipation of raising approximately $82.1 million
in capital net of underwriting discount and estimated expenses. The Company
anticipates using the net proceeds to the Company to pay off the senior
subordinated bridge notes (the "Bridge Notes") (Note 4), fund the contingent
payment to THIN International (Note 10), pay for the settlement of the
outstanding warrants (Note 4), and reduce a portion of the senior bank debt
(Note 4). There can be no assurance that the Offering can be completed at the
anticipated price, or at all. There are significant potential risks associated
with the purchase of shares in the Offering. See "Risk Factors" elsewhere in
this Prospectus related to the proposed offering for a discussion of these
risks.

4. BORROWINGS

Former Revolver Agreement

The Company had a revolving credit agreement with a bank (the "Former
Revolver Agreement") which allowed the Company to borrow a maximum of
$6,000,000 based on certain asset levels defined in the Former Revolver
Agreement. At March 31, 1995 and 1996 the Company had no outstanding
borrowings under the Former Revolver Agreement. The Former Revolver Agreement
was terminated subsequent to year-end in connection with the Company's
obtaining the financing discussed below.

The Company had outstanding irrevocable standby letters of credit in the
principal amount of approximately $1,663,000, $825,000 and $847,000 at March
31, 1995 and 1996 and September 30, 1996, respectively, in connection with the
performance of certain sales contracts.

NationsBank Credit Agreement

On July 31, 1996, the Company entered into a credit agreement with a
consortium of financial institutions (the "NationsBank Credit Agreement"). The
NationsBank Credit Agreement allows the Company to borrow up to an aggregate
of $85.0 million in three components:

(1) Revolving credit facility with an aggregate principal amount of up to
$15.0 million (which includes a $7.5 million letter-of-credit
subfacility and a $2.0 million swing line subfacility) (the
"NationsBank Revolving Credit Facility"). The NationsBank Revolving
Credit Facility matures and is payable July 31, 2002. At September 30,
1996, the Company had no outstanding borrowings under this facility.

(2) A term loan with an aggregate principal amount of up to $30.0 million,
with quarterly principal payments ranging from $200,000 to $1,750,000,
commencing September 30, 1996 and maturing July 31, 2002 (the "Tranche
A Loan"). At September 30, 1996, $29.8 million was outstanding under
the Tranche A Loan.

F-12
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

(3) A term loan with an aggregate principal amount of up to $40.0 million,
with quarterly principal payments ranging from $125,000 to $9,350,000,
commencing December 31, 1996 and maturing July 31, 2003 (the "Tranche B
Loan"). At September 30, 1996, $40.0 million was outstanding under the
Tranche B Loan.

The Tranche A Loan and the NationsBank Revolving Credit Facility bear
interest at the Company's option of either:

(a) The greater of (i) prime plus 1.25% to 1.75% (based on the Company's
leverage ratio and certain other factors defined in the NationsBank
Credit Agreement) or (ii) the federal funds rate plus 1.75% to 2.25%
(based on the Company's leverage ratio and certain other factors
defined in the NationsBank Credit Agreement) or

(b) A function of the Eurodollar rate plus 2.25% to 2.75% (based on the
Company's leverage ratio and certain other factors defined in the
NationsBank Credit Agreement).

The Tranche B Loan bears interest at the Company's option of either:

(a) The greater of (i) prime plus 2.5% (based on the Company's leverage
ratio and certain other factors defined in the NationsBank Credit
Agreement) or (ii) the federal funds rate plus 3.0% (based on the
Company's leverage ratio and certain other factors defined in the
NationsBank Credit Agreement) or

(b) A function of the Eurodollar rate plus 3.5% (based on the Company's
leverage ratio and certain other factors defined in the NationsBank
Credit Agreement).

The Company elected the Eurodollar rate for the Tranche A Loan and Tranche B
Loan, effective August 5, 1996 for a period of ninety days. At September 30,
1996, the interest rates were 8.39% for the Tranche A Loan and 9.14% for the
Tranche B Loan. The interest rate at September 30, 1996 for the NationsBank
Revolving Credit Facility was 10.0%.

The NationsBank Credit Agreement also calls for a commitment fee of 0.5% per
year, paid quarterly, on the unused portion of the NationsBank Revolving
Credit Facility and a yearly fee of $100,000. In addition, the Company paid
approximately $2,716,000 in bank transaction fees (including the initial
yearly fee) related to consummating the NationsBank Credit Agreement.

The borrowings under the NationsBank Credit Agreement are secured by
substantially all of the Company's assets, a pledge of all of the common
shares of the Company, and a pledge of 65% of the capital stock of the
Company's foreign subsidiaries. The NationsBank Credit Agreement also contains
restrictive covenants which, among other things, limit borrowings and capital
expenditures; require certain leverage, fixed charge, and interest coverage
ratios, as defined, to be maintained; and require a minimum net worth, as
defined. Initial borrowings under the NationsBank Credit Agreement were
approximately $76.0 million.

Bridge Notes

Also in July 1996, the Company received $40.0 million from the sale of
Bridge Notes to a financing institution. The Bridge Notes mature on July 31,
2004 and bear interest at a face rate of 12.5% to 13.0%, payable quarterly. At
September 30, 1996, $40.0 million was outstanding under the Bridge Notes.

F-13
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
The Bridge Notes required the Company to take action on or before September
30, 1996 to obtain other permanent financing. The proceeds of such refinancing
are to be used to repay the Bridge Notes. If such financing is not obtained
and the Bridge Notes have not been redeemed by December 30, 1996, the Company
is required to issue to the holders of the Bridge Notes junior preferred stock
with a stated liquidation value, as defined, of $5 million in exchange for $5
million of the outstanding principal balance of the Bridge Notes. The junior
preferred stock may be put to the Centre Entities, at a date no later than
January 30, 1998, for $5 million plus all accrued and unpaid dividends. In
addition, the junior preferred stock is convertible at the holder's option
into Class A common stock at a conversion price of approximately $3.22,
subject to adjustment for antidilution, through January 31, 1998. The junior
preferred stock earns cumulative dividends of 14.0% per annum, calculated
quarterly, subject to certain restrictions included in the certificate of
designation, including the presence of outstanding debt and senior preferred
stock. No junior preferred stock has been issued as of September 30, 1996.

If additional amounts remain outstanding under the Bridge Notes after the
issuance of the junior preferred stock, the Company is required to issue to
the holders senior preferred stock with a stated liquidation value, as
defined, of $10 million in exchange for $10 million of the outstanding
principal balance of the Bridge Notes. The senior preferred stock carries a
mandatory redemption clause which requires the Company to redeem the senior
preferred stock on a pro rata basis based on the amount of any prepayment of
the outstanding Bridge Notes until July 31, 2006, at which time all of the
outstanding senior preferred stock shall be redeemed. The redemption price of
the senior preferred stock is $10 million plus all accrued and unpaid
dividends. The senior preferred stock earns cumulative dividends at 14.0% per
annum, calculated quarterly. No senior preferred stock has been issued as of
September 30, 1996.

The agreement under which the Bridge Notes were issued contains restrictive
covenants which, among other things, limit borrowings and require certain
leverage and interest coverage ratios to be maintained. In the event the
Company prepays the Bridge Notes as contemplated in the Offering, a 3.25% fee
will be incurred on the balance prepaid.

Use of Proceeds

Proceeds from the NationsBank Credit Agreement and the Bridge Notes were
used by the Company to repurchase stock from THIN International in connection
with the Recapitalization (Note 10).

Warrants

In connection with the Bridge Notes, the Company entered into a warrant
escrow agreement which requires the Company to release from escrow warrants
for between 288,434 and 2,019,034 shares of common stock (in any combination
of voting or nonvoting as the holder may elect), contingent upon how and when
the Bridge Notes are repaid and the senior preferred stock is redeemed. If any
of the Bridge Notes or senior preferred stock remain outstanding after the
first anniversary of the date of issuance of the Bridge Notes, all warrants
will be issued to the holders of the Bridge Notes and Preferred Stock. The
warrants are exercisable at the earlier of July 31, 1997 or the effective date
of the Offering through July 31, 2006 at an exercise price of approximately
$0.0006 per share of common stock. In connection with the issuance of the
Bridge Notes, the Company deposited certain warrants to purchase shares of
Common Stock in escrow, including warrants to purchase 288,434 shares of
Common Stock at a nominal price that would be delivered to NationsBridge if
the Offering is consummated as anticipated. NationsBridge and the Company have
agreed that these warrants will be redelivered to the Company and cancelled in
exchange for a payment of approximately $4.0 million from the net proceeds
from the sale of Common Stock received by the Company in the Offering
(assuming the Offering is completed at $15.00 per share). If the Company
repays the Bridge Notes with proceeds from the Offering prior to December 30,
1996, no

F-14
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
additional warrants will be issued. The fair value of these warrants at the
date of grant is estimated to be approximately $3.22 per share, which is the
price paid per share by the Centre Entities in connection with the
Recapitalization (Note 10). The effective interest rate of the Bridge Notes,
taking into consideration the issuance of such warrants, would be
approximately 12.8% to 13.3%.

Fees and Expenses

The Company capitalized approximately $6,205,000 of fees and expenses
incurred in connection with the NationsBank Credit Agreement and the Bridge
Notes. The fees were paid to the bank upon consummation of the transaction and
the expenses consisted primarily of legal, accounting and other miscellaneous
expenses. The fees and expenses are being amortized over the life of the
related debt. The capitalized fees and expenses have been included in other
assets, net of accumulated amortization, in the accompanying balance sheets.

5. STOCK-BASED COMPENSATION PLAN

Subsequent to year-end, the Company adopted the Firearms Training Systems,
Inc. Stock Option Plan (the "Plan"). The Company has reserved a total of
2,490,000 shares of Class A common stock for issuance under the Plan under
three different nonqualified option series. The Plan provides for antidilution
in the event of certain defined circumstances. The Plan will be administered
by a committee (the "Committee") designated by the board of directors of the
Company. The price of options granted will be determined at the date of grant.

Series A Options

Options under this series will be available for grant to officers and other
employees. The options are generally exercisable as follows: (i) 50% on the
third anniversary of the option issue date (the "option date"), (ii) 25% on
the fourth anniversary of the option date, and (iii) 25% on the fifth
anniversary of the option date. The options expire on the seventh anniversary
of the option date. In the event of termination of the optionee's employment
for any reason other than cause (as defined in the Plan) prior to the third
anniversary of the option date, 16.7% of the options shall be exercisable for
each anniversary of the option date prior to the optionee's termination date.
In the event of termination of the optionee's employment for cause, all of the
optionee's outstanding options are terminated.

Series B Options

Options under this series will be available for grant to officers and other
employees. The options are generally exercisable on the ninth anniversary but
are subject to acceleration based on defined earnings targets. The options
expire after the ninth anniversary of the option date. In the event of
termination of the optionee's employment for any reason other than cause (as
defined in the Plan), options shall be exercisable to the extent they are
exercisable on the effective date of the optionee's termination. In the event
of termination of the optionee's employment for cause, all of the optionee's
outstanding options are terminated.

Series C Options

Options under this series will be available for grant to nonemployee
directors. The options are generally exercisable one-third per year on a
cumulative basis beginning on the first anniversary of the option date. The
options expire on the seventh anniversary of the option date. In the event the
optionee ceases to be a director, options shall be exercisable to the extent
they are exercisable on the effective date of the optionee's ceasing to be a
director.

SFAS No. 123

During 1995, the Financial Accounting Standards Board issued SFAS No. 123
which defines a fair value based method of accounting for an employee stock
option or similar equity instrument and encourages all entities to adopt that
method of accounting for all of their employee stock compensation plans.
However, it also allows

F-15
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
an entity to continue to measure compensation cost for those plans using the
method of accounting prescribed by APB No. 25. Entities electing to remain
with the accounting in APB No. 25 must make pro forma disclosures of net
income and, if presented, earnings per share, as if the fair value based
method of accounting defined in SFAS No. 123 had been applied.

On September 18, 1996, in connection with the Recapitalization (Note 10),
the Company granted options to purchase a total of 1,742,834 shares of common
stock (Series A options for 846,517 shares of common stock, Series B options
for 846,517 shares of common stock, and Series C options for 49,800 shares of
common stock), at an exercise price of approximately $3.25 per share, the fair
value of the Company's common stock on the date of grant. The fair value of
the common stock on the date of grant was determined by the Board of Directors
based upon an appraisal prepared by an independent appraisal firm.

The Company has elected to account for its stock-based compensation plans
under APB No. 25; however, the Company has computed for pro forma disclosure
purposes the value of all options granted for the six months ended September
30, 1996 using the Black-Scholes option-pricing model as prescribed by SFAS
No. 123 using the following weighted average assumptions used for grants for
the six months ended September 30, 1996:

<TABLE>
<CAPTION>
Series A Series B Series C
-------- -------- --------
<S> <C> <C> <C>
Risk free interest rate.............................. 6.63% 6.79% 6.46%
Expected dividend yield.............................. 0% 0% 0%
Expected lives (in years)............................ 4.75 7.00 3.00
Expected volatility.................................. 56.12% 56.12% 56.12%
</TABLE>

The total value of options granted for the six months ended September 30,
1996 was computed as approximately $3,204,000, which would be amortized on a
pro forma basis over the vesting period of the options. If the Company had
accounted for the Plan in accordance with SFAS No. 123, the Company's net
income and net income per share would be decreased by the following pro forma
amounts on an annual basis (net of tax):

<TABLE>
<CAPTION>
PRO
FORMA
CHARGE
--------
<S> <C>
Net income.......................... $362,000
Pro forma net income per share...... $0.02
</TABLE>

The following table sets forth the exercise price range, number of shares,
weighted average exercise price, and remaining contractual lives by groups of
similar price and grant date:

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE NUMBER OF WEIGHTED CONTRACTUAL
PRICE RANGE SHARES AVERAGE PRICE LIFE
----------- --------- ------------- -----------
<S> <C> <C> <C> <C>
Series A..................... $3.25 846,517 $3.25 7
Series B..................... 3.25 846,517 3.25 9
Series C..................... 3.25 49,800 3.25 7
</TABLE>

No options were exercisable September 27, 1996.

F-16
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

6. INCOME TAXES

The significant components of income tax expense are as follows (in
thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
-----------------------------
1994 1995 1996
------------------ ---------
<S> <C> <C> <C>
Current:
Federal income tax expense.................. $ 651 $ 1,596 $ 5,686
Foreign income tax expense.................. 5 76 385
State income tax expense.................... 145 230 442
Deferred income tax (benefit) expense......... (71) (515) 52
------- --------- ---------
$ 730 $ 1,387 $ 6,565
======= ========= =========
</TABLE>

For the six months ended September 30, 1995 and 1996, the Company recorded
income tax expense of approximately $2,126,000 and $3,281,000, respectively.

A reconciliation of recorded income taxes with the amount computed at the
statutory rate is as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL YEAR ENDED MARCH 31,
------------------------------
1994 1995 1996
--------- --------- ---------
<S> <C> <C> <C>
Tax at statutory federal rate.............. $ 764 $ 1,436 $ 6,774
State taxes, net of federal income tax
benefit................................... 89 82 404
Research and development tax credit........ (120) (100) (100)
Foreign sales corporation benefit.......... -- -- (639)
Other...................................... (3) (31) 126
-------- --------- ---------
Total.................................. $ 730 $ 1,387 $ 6,565
======== ========= =========
</TABLE>

The tax effects of temporary differences that give rise to significant
portions of the deferred tax asset are as follows (in thousands):

<TABLE>
<CAPTION>
MARCH 31,
---------
1995 1996
---- ----
<S> <C> <C>
Inventory reserves................................................ $306 $380
Deferred revenue.................................................. 214 372
Accrued liabilities............................................... 318 156
Other............................................................. 80 (42)
---- ----
Net deferred taxes................................................ $918 $866
==== ====
</TABLE>

The Company's management has determined that it will be able to fully
utilize the deferred tax assets.

7. CONCENTRATION OF REVENUES

F-17
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
attributable to sales to law enforcement authorities in the U.S. and 43.3%
were attributable to sales to military and law enforcement authorities
internationally. Sales to public sector customers are subject to a
multiplicity of detailed regulatory requirements and public policies. Such
contracts may be conditioned upon the continuing availability of public funds,
which in turn depends upon lengthy and complex budgetary procedures, and may
be subject to certain pricing constraints. Moreover, U.S. government contracts
and those of many international government customers may generally be
terminated for a variety of factors when it is in the best interests of the
government. There can be no assurance that these factors or others unique to
government contracts will not have a material adverse effect on the Company's
future results of operations and financial condition.

For the year ended March 31, 1996, the Company's five largest customers
accounted for approximately 67.4% of the Company's total revenues. For any
period, a "Major Customer" is defined as a customer from which the Company
generated more than 10% of its revenues for that period. The following table
summarizes information about the Company's Major Customers for the years ended
March 31, 1994, 1995, and 1996:

<TABLE>
<CAPTION>
AGGREGATE PERCENT OF
REVENUES TOTAL
MAJOR CUSTOMERS (000'S) REVENUES
----------------------------------------------- --------- ---------
<C> <S> <C> <C>
1994 British Ministry of Defense.................... $6,225 30.3%
Finanza........................................ 3,336 16.3
U.S. Air Force (including certain other
components of the Department of Defense)...... 3,246 15.8
1995 British Ministry of Defense.................... 8,660 29.7
Singapore Army................................. 3,935 13.5
U.S. Air Force (including certain other
components of the Department of Defense)...... 3,546 12.2
Swiss Army..................................... 3,212 11.0
1996 U.S. Marine Corps ............................. 17,371 26.5
Royal Netherlands Army......................... 8,279 12.7
U.S. Army...................................... 6,610 10.1
</TABLE>

At March 31, 1995 and 1996, the Company had approximately $628,000 and
$3,999,000, respectively, in outstanding accounts receivable related to
revenues recognized from Major Customers for the related year.

Given the nature of the Company's contracts, revenues attributable to
specific customers are likely to vary from year to year, and a significant
customer in one year may not be a significant customer in a subsequent year.
In order to reach its growth objectives, the Company will be required to seek
contracts from new domestic and international customers as well as orders from
existing customers for additional types of simulated firearms or increased
quantities of previously ordered systems and simulated weapons. A significant
decrease in demand by or the loss of one or more significant customers could
have a material adverse effect on the Company's results of operations or
financial condition.

F-18
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
contracts obtained by the Company in the future may also be cost-reimbursement
type contracts rather than fixed-price contracts, which may not take into
account certain costs of the Company such as interest on indebtedness. There
can be no assurance that changes in the type of government contracts and other
contracts entered into by the Company in the future will not have a material
adverse effect on future results of operations or financial condition of the
Company.

A significant portion of the Company's sales are made to customers located
outside the U.S., primarily in Europe and Asia. In fiscal 1994, 1995 and 1996,
66.1%, 66.3% and 43.3% of the Company's revenues, respectively, were derived
from sales to customers located outside the U.S. The Company expects that its
international customers will continue to account for a substantial portion of
its revenues in the near future. Sales to international customers may be
subject to political and economic risks, including political instability,
currency controls, exchange rate fluctuations and changes in import/export
regulations and tariff rates. In addition, various forms of protectionist
trade legislation have been and in the future may be proposed in the U.S. and
certain other countries. Any resulting changes in current tariff structures or
other trade and monetary policies could adversely affect the Company's sales
to international customers. Political and economic factors have been
identified by the Company with respect to certain of the markets in which it
competes. There can be no assurance that these factors will not result in
defaults by customers in making payments due to the Company, in reductions in
the purchases of the Company's products by international customers or in
foreign currency exchange losses. In certain cases, the Company has reduced
certain of the risks associated with international contracts by obtaining bank
letters of credit to support the payment obligations of its customers and/or
by providing in its contracts for payment in U.S. dollars.

8. COMMITMENTS AND CONTINGENCIES

Operating Leases

The Company leases its manufacturing and operating facilities and office
equipment under operating leases with terms in excess of one year. Rent
expense under noncancelable operating leases was approximately $424,000,
$522,000 and $552,000 for the years ended March 31, 1994, 1995, and 1996,
respectively, and approximately $243,000 and $272,000 for the six months ended
September 30, 1995 and 1996, respectively.

At March 31, 1996, future minimum payments under noncancelable operating
leases were as follows (in thousands):

<TABLE>
<CAPTION>
FISCAL
YEARS ENDED
MARCH 31,
-----------
<S> <C>
1997................................. $ 574
1998................................. 597
1999................................. 582
2000................................. 574
2001................................. 580
Thereafter............................. 4,100
------
$7,007
======
</TABLE>

F-19
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Transition Bonus Agreements

In March 1996, the Company entered into agreements with 13 employees to pay
a transition bonus at the earlier of the six-month anniversary of the
Recapitalization (Note 10) or the employee's termination date. The total of
these agreements is $400,000, and is being recognized as expense over six
months commencing with the effective date of the Recapitalization.

Government Agency Review

The Company is subject to review and regulation by various government
agencies as a result of the nature of its business involving the import and
export of firearms.

The Company is subject to the export licensing jurisdiction of the U.S.
Department of State (the "State Department") and the U.S. Department of
Commerce (the "Commerce Department") with respect to the temporary or
permanent export of certain of its products and the import of certain other
products based on, respectively, the Arms Export Control Act and the Export
Administration Act (which, though expired, is carried out by Presidential
Executive Order issued under the auspices of the International Emergency
Economic Powers Act). Difficult questions of interpretation arise from time to
time as to whether particular products or information are subject to State
Department or Commerce Department Regulation or require licenses under either
set of controls. In addition to application to transfers of information and
products to customers, such regulations also may from time to time require a
license for the transfer of technical information from the Company to its
foreign subsidiaries, such as information necessary to enable a subsidiary to
modify simulated weapons for use in systems being supplied by the subsidiary
to customers. The Company attempts to remain in full compliance with such
requirements, but certain infractions may have occurred from time to time in
connection with the transfer of information to a subsidiary which the Company
is currently voluntarily bringing to the attention of the State Department.
The Company believes that transfers of such nature prior to September 10, 1996
will not be at issue with the State Department; however, the State Department
is expected to assert that transfers subsequent to September 10, 1996 required
separate State Department licenses. The Company intends to apply for an
appropriate authorization. The respective jurisdictional statutes provide the
State Department and the Commerce Department with the discretion to change
their policies with respect to whether particular products can be licensed for
export to particular countries. In addition, in certain circumstances, export
licenses and other authorizations may be revoked, suspended or amended without
notice. Such events have occurred with respect to other companies subject to
export licensing requirements relating to defense articles and defense
services in connection with the State Department's implementation of the Arms
Export Control Act. Such events have also occurred with respect to the
Commerce Department's implementation of the Export Administration Act. Each of
the State Department and the Commerce Department has the authority in certain
circumstances to debar persons or deny them export privileges. Such action may
be taken for, among other reasons, commission of civil violations, including
infractions of the nature described above, and criminal offenses in connection
with exports. Any loss, suspension or revocation of the Company's export
licenses could have a material adverse effect on the Company's future results
of operations and financial condition. The Company does not believe that any
previous infractions which may have occurred in connection with the transfer
of information to a subsidiary will have a material adverse effect on its
financial condition, results of operations, or the conduct of its business.

Legal

The Company is involved in various legal actions arising in the normal
course of business. In the opinion of management, the ultimate resolution of
these matters will not have a material adverse effect on the Company's
financial position or results of operations.

F-20
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
In July 1994, the Company disclosed to the Federal Election Commission (the
"FEC") that violations of the Federal Election Campaign Act ("FECA") may have
occurred with respect to a total of $8,500 in political contributions made on
behalf of candidates for Congressional election. As disclosed by the Company,
Mr. Jody Scheckter, who was then the President of the Company, was reimbursed
by the Company for personal contributions ranging from $500 to $2,000 over the
period from October 1989 through June 1993. Mr. Scheckter promptly reimbursed
the Company for these amounts and contends that he had previously been unaware
that the reimbursements had occurred. In October 1994, the FEC found reason to
believe that the Company, Mr. Scheckter and a secretarial employee who had
processed the reimbursements had knowingly and wilfully violated provisions of
the FECA. Counsel for the three respondents contested the FEC's finding.
Although the Company cannot predict how or when the matter will be resolved,
the statutory procedures provide for an attempt at conciliation, including
payment of civil penalties in the event that the FEC determines there is
probable cause to believe a violation has occurred. Failing such resolution,
the FEC may institute a civil action seeking civil penalties or refer the
matter to the U.S. Attorney General for possible criminal prosecution. The
Company does not believe that the ultimate resolution of the matter will have a
material adverse effect on its financial condition, results of operations or
the conduct of its business.

9. INDUSTRY SEGMENT AND GEOGRAPHIC INFORMATION

The Company operates in one industry segment--the manufacture, sale, and
service of small and supporting arms training simulators. The Company sells its
products throughout the world and operates primarily in the U.S. Export sales
are handled through the Company's international sales corporation and, to a
lesser extent, through certain foreign subsidiaries. Operations of the
subsidiaries outside of the U.S. are not material. Geographic financial
information on international sales is as follows (in thousands):

<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED MARCH 31, ENDED SEPTEMBER 30,
----------------------------- -------------------
1994 1995 1996 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
International sales:
Europe.................. $ 11,518 $ 12,599 $ 26,252 $ 9,861 $ 12,125
Asia.................... -- 3,935 1,165 507 408
Other................... 2,063 2,808 911 460 1,151
--------- --------- --------- --------- ---------
Total................. $ 13,581 $ 19,342 $ 28,328 $ 10,828 $ 13,684
========= ========= ========= ========= =========
</TABLE>

10. THE RECAPITALIZATION

In connection with the Recapitalization:

. The Company effected a 100,000-for-one stock split, resulting in
49,800,000 shares of Class A common stock outstanding and owned by THIN
International (including the 1.66-for-one stock split).

. The Company sold a total of 11,165,241 shares of Class A common stock and
Class B non-voting common stock to the Centre Entities for $36.0 million
(the "Stock Sale"). The shares of Class B non-voting common stock were
subsequently converted to Class A common stock.

F-21
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 30, 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

. The Company obtained $116.0 million in borrowings (including certain
warrants) under the NationsBank Credit Agreement and the Bridge Notes
(collectively, the "Borrowings") (Note 4).

. Proceeds from the Borrowings and the Stock Sale were then used to
repurchase 46,832,022 shares of common stock from THIN International for
approximately $151.9 million, of which $15.0 million was placed in escrow
for up to two years pending the occurrence of certain events as defined
in the escrow agreement. The repurchased shares were canceled by the
Company. A contingent payment of $19.3 million in cash will be made to
THIN International upon consummation of the Offering as contemplated.

. The Company also sold 232,333 shares to management at fair market value,
granted 36,852 shares to the new President, and granted stock options for
1,742,834 shares at fair market value (Note 5).

As a result of the Recapitalization as described above, THIN International
retained approximately 20.6% of the outstanding shares of the Company and the
Centre Entities owned approximately 77.5% of the Company.

Prior to the Recapitalization, FATS U.K. was a wholly owned subsidiary of
THIN International for all periods presented. Prior to the Recapitalization,
THIN International contributed FATS U.K. to the Company and FATS U.K. became a
wholly owned subsidiary of the Company. The accompanying financial statements
have been retroactively restated at historical cost to reflect the
consolidation of FATS U.K. into the Company. A significant majority of FATS
U.K.'s operations involve intercompany sales to the Company, and such sales
have been eliminated in these consolidated statements. Remaining operations of
FATS U.K. are not material.

In addition, THIN International paid bonuses to certain employees of the
Company for services performed for THIN International in connection with the
repurchase of shares of common stock from THIN International. Such bonuses have
not been reflected in the accompanying financial statements, as they relate
solely to services performed for the benefit of THIN International and provide
no ongoing benefit to the Company.

The Company's indebtedness and the related covenants will have several
important effects on its future operations, including, but not limited to, the
following:

. 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.

. The Company's ability to obtain additional financing in the future for
working capital, capital expenditures, research and development,
acquisitions, general corporate purposes, or other purposes may be
limited.

. 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 anticipates completing the Drop Down Transaction whereby all the
operating assets of the Company will be contributed to a newly formed
subsidiary (the "Drop Down Subsidiary"). The purpose of the Drop Down
Transaction is to effect the release of the pledge of the outstanding shares of
Common Stock granted under the NationsBank Credit Agreement in connection with
the Recapitalization in substitution for a pledge of shares of capital stock of
the Drop Down Subsidiary. The Drop Down Transaction will have no impact on the
consolidated financial statements of the Company since the Drop Down Subsidiary
is wholly-owned, and the financial covenants applicable to the Company and its
subsidiaries will remain essentially unchanged.

F-22
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)

The following pro forma information reflects the effects of (a) the
Recapitalization and (b) use of the proceeds of the Offering to repay debt:

<TABLE>
<CAPTION>
PRO FORMA FOR THE RECAPITALIZATION
-----------------------------------------
YEAR ENDED SIX MONTHS ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
----------------- -------------------
(UNAUDITED)
<S> <C> <C>
Net income................... $ 4,267 $ 3,455
================= =================
Earnings per share........... $ 0.27 $ 0.22
================= =================
<CAPTION>
PRO FORMA FOR THE RECAPITALIZATION
AND THE OFFERING
-----------------------------------------
YEAR ENDED SIX MONTHS ENDED
MARCH 31, 1996 SEPTEMBER 30, 1996
----------------- -------------------
(UNAUDITED)
<S> <C> <C>
Net income................... $ 9,082 $ 5,767
================= =================
Earnings per share........... $ 0.42 $ 0.26
================= =================
</TABLE>

The pro forma information for the effects of the Recapitalization was
computed using interest rates on variable rate debt in effect at the time the
Recapitalization was completed, resulting in additional interest expense,
including amortization of deferred financing costs, of $12.9 million and $4.3
million for the year ended March 31, 1996 and the six months ended September
30, 1996, respectively, less the related income tax effect. The pro forma
information for the Recapitalization and the Offering includes the effects of
the Recapitalization, and the sale of 6,000,000 shares of Common Stock in the
Offering and application of $57.1 million of the proceeds of the Offering to
repay indebtedness incurred in the Recapitalization, resulting in a reduction
of interest expense, including amortization of deferred financing costs, of
$7.3 million and $3.6 million for the year ended March 31, 1996 and the six
months ended September 30, 1996, respectively, less the related income tax
effect. The pro forma net income and earnings per share data do not include
approximately $1.1 million of expenses related to the recapitalization incurred
in the period ended September 30, 1996, as well as an extraordinary loss of
approximately $3.6 million, net of tax, expected to be incurred upon repayment
of indebtedness if the Offering is completed as anticipated before December 30,
1996, as such expenses will not have a continuing impact on operations. The
extraordinary loss will be comprised of (1) $591,000, net of tax, recorded as a
discount against the Bridge Notes for the fair value of the warrants attached
to the Bridge Notes (Note 4); (2) approximately $825,000, net of tax, which
relates to a fee in connection with the Bridge Notes; and (3) approximately
$2.2 million, net of tax, related to the write-off of capitalized transaction
fees on the Bridge Notes and a pro rata portion of capitalized transaction fees
on the Tranche A Loan and Tranche B Loan. The pro forma information may not be
indicative of what results of operations would have been had the
Recapitalization and the Offering occurred at the beginning of the respective
periods.

In September, 1996, the Company has entered into a Management Shares
Agreement with Centre Partners Management LLC, the Centre Entities and those
executive officers who either: (i) have been awarded options pursuant to the
Stock Option Plan; (ii) have been awarded shares of common stock; or (iii) have
purchased shares of common stock from the Company (the "Management Holders").
Pursuant to the Management Shares Agreement, Centre Partners Management LLC, on
behalf of the Centre Entities, has "bring along rights" pursuant to which it
has the right to require the Management Holders to sell a pro rata portion of
their shares in connection with a sale to an unaffiliated third party of 5% or
more of the common stock held by the Centre

F-23
<PAGE>

FIREARMS TRAINING SYSTEMS, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, 1996 (INFORMATION AS OF
SEPTEMBER 1996 AND FOR THE SIX MONTHS ENDED SEPTEMBER 30, 1995 AND 1996 IS
UNAUDITED)
Entities. The Management Holders have similar "tag along" rights pursuant to
which they can participate in a sale by the Centre Entities of 5% or more of
the outstanding shares of common stock to an unaffiliated third party. Each
Management Holder, other than the President, has the right to require the
Centre Entities to purchase his shares of common stock at the lesser of fair
market value or his acquisition price if his employment is terminated within
six months of the date of the Agreement (September 18, 1996) other than for
cause. The Centre Entities also have agreed to assist the Management Holders in
registering proportionate amounts of the common stock held by such Management
Holders if the Centre Entities exercise any rights to register common stock
under the Centre Registration Rights Agreement. The Management Shares Agreement
terminates: (i) with respect to the Centre Entities, at such time as they hold
less than 10.0% of the outstanding shares of common stock; and (ii) ten years
from the date of the agreement, if not sooner terminated.

Also in September, 1996, the Board of Directors adopted an Executive
Severance Benefit Plan (the "Executive Severance Plan") that provides severance
pay and benefits to five designated executive officers of the Company in the
event any such designated executive's employment with the Company terminates
for any reason other than Cause (as defined in the Executive Severance Plan)
prior to September 30, 1997. The severance benefit payable under the Executive
Severance Plan is equal to: (i) three times the monthly salary of the
terminated executive if such termination of employment occurs prior to July 31,
1997; (ii) two times the monthly salary if such termination of employment
occurs during August 1997; and (iii) an amount equal to the monthly salary if
such termination of employment occurs during September 1997.

Additionally, in September, 1996, the Company hired a new President and Chief
Executive Officer (the "President"). The Company has entered into an employment
agreement with the President with an initial term expiring March 31, 2002, with
automatic one-year extensions thereafter unless terminated by either party.
Pursuant to the agreement, the President is employed at an annual base salary
of $350,000, subject to review and annual increases as approved by the Board of
Directors. The President is also eligible for annual bonuses based on the
Company reaching targeted EBITDA levels for each fiscal year, with a maximum of
$225,000 in bonus payable for each fiscal year (or such greater amount as
determined by the Board of Directors). In connection with the signing of the
employment agreement, the President received a bonus of $155,000, was granted
36,852 shares of common stock, and was granted options (Note 5). The Company
also agreed to pay the President's reasonable expenses for relocating to the
Atlanta area. Pursuant to the employment agreement, the President agreed to
purchase 61,420 shares of common stock at approximately $3.25 per share. The
President is also subject to a covenant not to compete with the Company during
his employment with the Company or any period during which he receives payments
from the Company pursuant to the employment agreement and for a period of two
years thereafter. The Company recorded an expense of approximately $120,000
during September related to the stock granted to the President.

F-24
<PAGE>

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

No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with the Of-
fering other than those contained in this Prospectus and, if given or made,
such information or representations must not be relied upon as having been au-
thorized by the Company or any of the Underwriters. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any securi-
ties other than the shares of Common Stock to which it relates or an offer to,
or a solicitation of, any person in any jurisdiction where such offer or so-
licitation would be 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 affairs of the Company, or that information
contained herein is correct as of any time, subsequent to the date hereof.

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

TABLE OF CONTENTS

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

<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 8
Use of Proceeds.......................................................... 14
Dividend Policy.......................................................... 15
Capitalization........................................................... 16
Dilution................................................................. 17
Selected Financial Data.................................................. 18
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 20
Business................................................................. 28
Management............................................................... 40
Certain Transactions..................................................... 47
Recapitalization......................................................... 47
Principal Shareholders................................................... 51
Description of Capital Stock............................................. 53
Shares Eligible for Future Sale.......................................... 55
Underwriting............................................................. 57
Legal Matters............................................................ 58
Independent Accountants.................................................. 59
Change in Independent Accountants........................................ 59
Additional Information................................................... 60
Index to Financial Statements............................................ F-1
</TABLE>

Until , 1996 (25 days after the date of this Prospectus), all dealers
effecting transactions in the registered securities, whether or not partici-
pating in this distribution, may be required to deliver a Prospectus. This de-
livery requirement is in addition to the obligation of dealers to deliver a
Prospectus when acting as underwriters and with respect to their unsold allot-
ments or subscriptions.

6,000,000 SHARES

[LOGO] Fats Training

FIREARMS TRAINING SYSTEMS, INC.

CLASS A COMMON STOCK

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

PROSPECTUS

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

Montgomery Securities

Lazard Freres & Co. llc

The Robinson-Humphrey
Company, Inc.

, 1996

- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION

Set forth below is an estimate (except for the Securities and Exchange
Commission Registration Fee, the NASD Filing Fee and the Nasdaq National
Market Fee) of the fees and expenses, all of which are payable by the
Registrant (including the fees and expenses, other than underwriting discounts
and commissions, of the Selling Shareholders), other than underwriting
discounts and commissions, in connection with the registration and sale of the
Common Stock being registered.

<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee............ $ 35,690
NASD Filing Fee................................................ 10,850
Nasdaq National Market Fee..................................... 34,750
Blue Sky Fees and Expenses..................................... 5,000
Accounting Fees and Expenses................................... 550,000
Fees of Registrar and Transfer Agent........................... 5,000
Legal Fees and Expenses........................................ 500,000
Printing and Mailing Expenses.................................. 300,000
Miscellaneous.................................................. 168,470
----------
Total...................................................... $1,600,000
==========
</TABLE>

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section 145 of the General Corporation Law of the State of Delaware permits
a Delaware corporation to indemnify certain persons, including officers and
directors and former officers and directors, and to purchase insurance with
respect to liability arising out of their capacity or status as officers and
directors. Such law provides further that the indemnification permitted
thereunder shall not be deemed exclusive of any other rights to which officers
and directors may be entitled under the Delaware corporation's bylaws, any
agreement or otherwise. Article Eleventh of the Company's Certificate of
Incorporation, as amended, included in Exhibits 3.01, 3.02 and 3.03 hereto,
and Article VI of the Company's By-laws, included in Exhibit 3.06 hereto,
provide, in general, that the Company shall indemnify its directors and
officers to the extent permitted by the General Corporation Law of the State
of Delaware. The Company has insurance providing for indemnification of
officers and directors of the Company and certain other persons against
liabilities and expenses incurred by any of them in certain stated proceedings
and under certain stated conditions.

In addition, Section 102(b)(7) of the General Corporation Law of the State
of Delaware permits a corporation to limit the liability of its directors
subject to certain exceptions. In accordance with Section 102(b)(7), Article
Eleventh of the Company's Certificate of Incorporation, as amended, provides
that no director of the Company shall be personally liable to the Company or
any of its shareholders except for (i) any breach of the directors' duty of
loyalty to the Company or its shareholders; (ii) acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law;
(iii) unlawful payments of dividends or unlawful stock repurchases or
redemptions as provided in Section 174 of the General Corporation Law of the
State of Delaware or (iv) any transaction from which the director derived an
improper personal benefit.

The Underwriting Agreement provides for indemnification by the Underwriters
of the Registrant, its directors and officers and the Selling Shareholders,
and by the Registrant and the Selling Shareholder of the Underwriters, for
certain liabilities, including liabilities arising under the Securities Act.

II-1
<PAGE>

ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES

The following, which gives effect to the 100,000-for-one stock split
effected by the Company on July 30, 1996 and the 1.66-for-one stock split
anticipated to be effected by the Company in October 1996, sets forth certain
information with respect to all securities of the Company sold by the Company
within the past three years:

1. On July 31, 1996, in connection with the Recapitalization, the Company
sold to the Centre Entities 11,165,241 shares, consisting of 3,898,430
shares of Class A Common Stock and 7,266,811 shares of Class B non-voting
Common Stock, for aggregate consideration of $36.0 million in cash.
Exemption for such transaction from registration under the Securities Act
is claimed in reliance on the exemption provided under Section 4(2) of the
Securities Act on the basis that the sales were transactions not involving
any public offering.

2. On July 31, 1996, in connection with the Recapitalization, the Company
sold to NationsBridge, L.L.C. senior subordinated bridge notes due July 31,
2004 in aggregate principal amount equal to $40.0 million and, in
connection with such sale, entered into arrangements for the issuance of
warrants (which warrants are being reacquired by the Company in connection
with the Offering) to purchase shares of Common Stock at a nominal price
(consisting of warrants to purchase 288,434 shares of Common Stock based on
the Offering being completed as contemplated in this Registration
Statement). NationsBridge, L.L.C. paid aggregate consideration of $40.0
million in cash (less certain fees) in the sale. Exemption for such
transaction from registration under the Securities Act is claimed in
reliance on the exemption provided under Section 4(2) of the Securities Act
on the basis that the sales were transactions not involving any public
offering.

3. On September 17, 1996, the Company issued 7,266,811 shares of its
Class A Common Stock to Centre Capital Investors II, L.P., in exchange for
7,266,811 shares of the Company's Class B non-voting Common Stock at the
election of the shareholder for no additional consideration. Exemption for
such transaction from registration under the Securities Act is claimed in
reliance on the exemption provided under Section 3(a)(9) of the Securities
Act.

4. On September 18, 1996, the Company issued to Peter A. Marino, its
President and Chief Executive Officer, the following securities pursuant to
an employment agreement dated September 18, 1996: (i) 36,852 shares as a
signing bonus; and (ii) options to purchase 707,160 shares of Common Stock
at an exercise price of approximately $3.25 per share.

Mr. Marino also purchased 61,420 shares of Common Stock for aggregate
consideration of $199,800 in cash. Exemption for such transactions from
registration under the Securities Act is claimed in reliance on the
exemption provided under Section 4(2) of the Securities Act.

5. On September 18, 1996, the Company sold an aggregate of 170,913 shares
of Common Stock to five officers of the Company other than Mr. Marino for
aggregate consideration of approximately $555,984 in cash. Exemption for
such transactions from registration under the Securities Act is claimed in
reliance on the exemption from registration under Section 4(2) of the
Securities Act.

6. On September 18, 1996, the Company awarded options (excluding the
options awarded to Mr. Marino discussed above) to purchase an aggregate of
1,035,674 shares of Common Stock at an exercise price of approximately
$3.25 per share to five executive officers, approximately 30 other key
employees and two outside directors. The options were issued in
consideration of the individuals' service as employees or directors of the
Company. Exemption for such transactions from registration under the
Securities Act is claimed in reliance on the exemption from registration
under Section 4(2) of the Securities Act.

II-2
<PAGE>

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) Exhibits

The following documents are filed with this registration statement as
exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
*1.01 -- Form of Underwriting Agreement.
*2.01 -- Recapitalization and Stock Purchase and Sale Agreement, dated
as of June 5, 1996, among THIN International N.V. (formerly
known as Firearms Training Systems International N.V.), the
Company, Centre Capital Investors II, L.P., Centre Partners
Coinvestment L.P., Centre Parallel Management Partners, L.P.,
Centre Capital Offshore Investors II, L.P., Centre Capital
Tax-exempt Investors II, L.P., State Board of Administration
of Florida and Centre Partners Management LLC.
*2.02 -- Letter Agreement, dated July 9, 1996, amending the
Recapitalization and Stock Purchase and Sale Agreement filed
as Exhibit 2.01.
*2.03 -- First Amendment, dated as of July 31, 1996, to the
Recapitalization and Stock Purchase and Sale Agreement filed
as Exhibit 2.01.
*2.04 -- Letter Agreement, dated November 1, 1996, from the Company to
THIN International N.V. regarding payment of the Contingent
Payment pursuant to the Recapitalization and Stock Purchase
and Sale Agreement.
*3.01 -- Certificate of Incorporation of the Company, dated May 4,
1984.
*3.02 -- Certificate for Renewal and Revival of Certificate of
Incorporation of the Company, dated September 21, 1993.
*3.03 -- Certificate of Amendment of Certificate of Incorporation of
the Company, dated July 30, 1996.
*3.04 -- Certificate of Designations of Senior Preferred Stock of the
Company, dated July 31, 1996.
*3.05 -- Certificate of Designations of Junior Preferred Stock of the
Company, dated July 31, 1996.
*3.06 -- By-laws of the Company.
*3.07 -- Certificate of Amendment of Certificate of Incorporation of
the Company, dated October 31, 1996.
*4.01 -- Certificate of Designations of Senior Preferred Stock of the
Company, dated July 31, 1996 (filed as Exhibit 3.04).
*4.02 -- Certificate of Designations of Junior Preferred Stock of the
Company, dated July 31, 1996 (filed as Exhibit 3.05).
*5.01 -- Opinion of Sidley & Austin.
*10.01 -- Credit Agreement, dated as of July 31, 1996, among the
Company, NationsBank, N.A. (South) and the other Lenders
named therein.
*10.01-01 -- First Amendment, dated as of October 28, 1996, to Credit
Agreement, dated as of July 31, 1996, among the Company,
NationsBank N.A. (South) and the other Lenders named therein.
*10.02 -- Tranche A Term Note, dated July 31, 1996, issued by the
Company in favor of NationsBank, N.A. (South).
*10.02-01 -- Schedule identifying Tranche A Term Notes substantially
identical in all material respects to Exhibit 10.02.
*10.03 -- Tranche B Term Note, dated July 31, 1996, issued by the
Company in favor of NationsBank, N.A. (South).
*10.03-01 -- Schedule identifying Tranche B Term Notes substantially
identical in all material respects to Exhibit 10.03.
*10.04 -- Revolving Credit Note, dated July 31, 1996, issued by the
Company in favor of NationsBank, N.A. (South).
*10.04-01 -- Schedule identifying Revolving Credit Notes substantially
identical in all material respects to Exhibit 10.04.
</TABLE>

II-3
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
*10.05 -- Swingline Note, dated July 31, 1996, issued by the Company in
favor of NationsBank,
N.A. (South).
*10.06 -- Pledge and Security Agreement, dated as of July 31, 1996,
between the Company, and
NationsBank, N.A. (South).
*10.07 -- Option to Lease, dated May 4, 1993, between the Company and
Technology Park/Atlanta,
Inc.
*10.08 -- Lease, dated May 4, 1993, between the Company and Technology
Park/Atlanta, Inc.
*10.09 -- First Amendment to Lease Agreement, dated December 21, 1993,
between the Company
and Technology Park/Atlanta, Inc., amending the Lease filed
as Exhibit 10.08.
*10.10 -- Second Amendment to Lease Agreement, dated December 21, 1995,
between the Company and Schneider Atlanta, L.P., amending the
Lease filed as Exhibit 10.08.
*10.11 -- United States Government Contract M67854-94-C-2014, awarded
August 4, 1994, between the Company and the U.S. Marine
Corps.
*10.12 -- Management Shares Agreement, dated as of September 18, 1996,
between the Company
and Peter A. Marino, Robert B. Terry, Robert F. Mecredy,
David A. Apseloff, Greg Echols and Juan de Ledebur.
*10.13 -- Firearms Training Systems, Inc. Stock Option Plan.
*10.14 -- Stock Option Agreement Series A, dated as of September 18,
1996 between the Company
and Peter A. Marino.
*10.14-01 -- Schedule identifying Stock Option Agreements Series A
substantially identical in all
material respects to Exhibit 10.14
*10.15 -- Stock Option Agreement Series B, dated as of September 18,
1996 between the Company
and Peter A. Marino.
*10.15-01 -- Schedule identifying Stock Option Agreements Series B
substantially identical in all
material respects to Exhibit 10.15
*10.16 -- Stock Option Agreement Series C, dated as of September 18,
1996 between the Company
and William J. Bratton.
*10.16-01 -- Schedule identifying Stock Option Agreement Series C
substantially identical in all
material respects to Exhibit 10.16.
*10.17 -- Registration Rights Agreement, dated as of July 31, 1996,
between the Company and the
Institutional Holders set forth on Schedule I thereto.
*10.18 -- Registration Rights Agreement, dated as of July 31, 1996,
among the Company, THIN
International N.V. (formerly known as Firearms Training
Systems International N.V.) and
the Institutional Holders set forth on Schedule I thereto.
*10.19 -- Firearms Training Systems, Inc., Executive Severance Benefit
Plan.
*10.20 -- Employment Agreement, dated as of September 18, 1996, between
the Company and
Peter A. Marino.
*10.21 -- Form of Agreement to Limit Future Competition entered into
with each member of senior
management of the Company.
*10.21-01 -- Schedule identifying Agreements to Limit Future Competition
substantially identical in all
material respects to Exhibit 10.21.
*10.22 -- Form of Transition Bonus Agreement entered into with 13
employees of the Company.
</TABLE>

II-4
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
*10.22-01 -- Schedule identifying Transition Bonus Agreements
substantially identical in all material
respects to Exhibit 10.22.
*10.23 -- License Agreement, dated October 31, 1991 by and between
Microware Systems Corporation and the Company.
*11.01 -- Statement Regarding Computation of Pro Forma Net Income Per
Common Share.
*16.01 -- Letter of Price Waterhouse LLP Regarding Change in
Accountants.
*21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Price Waterhouse LLP, dated November 21, 1996.
23.02 -- Consent of Arthur Andersen, LLP, dated November 21, 1996.
*24.01 -- Powers of Attorney (set forth on page II-5 of the
Registration Statement).
*27.01 -- Financial Data Schedule.
</TABLE>
- --------

* Previously filed with Initial Registration Statement on Form S-1 on
September 30, 1996, Amendment No. 1 on November 5, 1996 or Amendment No. 2
on November 18, 1996.

(b) Financial Statement Schedules.

Schedule II--Valuation and Qualifying Accounts and Report of Independent
Public Accountants as to Schedules (set forth on pages II-6 and II-7 of the
Registration Statement).

ITEM 17. UNDERTAKINGS

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 14 above, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such directors, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of competent jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, (i) the information
omitted from the form of prospectus filed as part of this Registration
Statement in reliance upon Rule 430A under the Securities Act and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (ii) each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.

II-5
<PAGE>

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULES

We have audited, in accordance with generally accepted auditing standards,
the financial statements of FIREARMS TRAINING SYSTEMS, INC. (a Delaware
corporation) AND SUBSIDIARIES included in this Registration Statement and have
issued our report thereon dated May 17, 1996 (except with respect to the
matters discussed in Notes 1, 2, 3, 4, 5, and 10 as to which the date is
November 1, 1996). Our audits were made for the purpose of forming an opinion
on the basic financial statements taken as a whole. The schedule listed in
Item 16(b) is the responsibility of the company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.

ARTHUR ANDERSEN LLP

Atlanta, Georgia
May 17, 1996

II-6
<PAGE>

SCHEDULE II

FIREARMS TRAINING SYSTEMS, INC. AND SUBSIDIARIES

VALUATION AND QUALIFYING ACCOUNTS

FOR THE FISCAL YEARS ENDED MARCH 31, 1994, 1995, AND 1996

<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO COSTS BALANCE AT
BEGINNING AND END OF
OF PERIOD EXPENSES DEDUCTIONS (1) PERIOD
---------- --------- -------------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended March 31,
1994:
Allowance for doubtful
accounts..................... $58 $26 $(13) $71
Fiscal year ended March 31,
1995:
Allowance for doubtful
accounts..................... 71 1 (21) 51
Fiscal year ended March 31,
1996:
Allowance for doubtful
accounts..................... 51 24 -- 75
</TABLE>
- --------
(1) Adjustment of allowance based on analysis of receivable balances.

II-7
<PAGE>

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS AMENDMENT TO THE REGISTRATION STATEMENT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNDER DULY AUTHORIZED, IN THE CITY OF
SUWANEE, STATE OF GEORGIA ON NOVEMBER 21, 1996.

Firearms Training Systems, Inc.
(Registrant)

/s/ Peter A. Marino
by: _________________________________
Peter A. Marino
President and Chief Executive
Officer (Principal Executive
Officer)

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS AMENDMENT
TO THE REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.

SIGNATURE TITLE DATE

/s/ Peter A. Marino President and Chief
_______________________________ Executive Officer and November 21,
Peter A. Marino Director 1996

/s/ David A. Apseloff Treasurer, Chief Financial
_______________________________ Officer and Assistant November 21,
David A. Apseloff Secretary (Principal 1996
Financial and Accounting
Officer)

* Director
_______________________________ November 21,
William J. Bratton 1996

II-8
<PAGE>

SIGNATURE TITLE DATE

* Director
_______________________________ November 21,
Craig I. Fields 1996

* Director
_______________________________ November 21,
Jonathan H. Kagan 1996

/s/ Scott Perekslis Director
_______________________________ November 21,
Scott Perekslis 1996

* Director
_______________________________ November 21,
Bruce G. Pollack 1996

* Director and Chairman of the
_______________________________ Board November 21,
Lester Pollack 1996

* Director
_______________________________ November 21,
Paul J. Zepf 1996
- --------
* Executed by attorney-in-fact pursuant to power of attorney granted September
30, 1996.

/s/ Scott Perekslis
- -------------------------------
By: Scott Perekslis
Attorney-in-Fact

II-9
<PAGE>

GRAPHIC APPENDIX PAGE

The top of the inside facing cover has the company's logo, a marksman in
crosshairs over the acronym "FATS " with the word "Training" along the righthand
side.

There is a full color photograph of two hostage rescue team members
participating in a hostage situation.

The graphic text below the photograph reads, "FATS (TM) SIMULATORS BRIDGE THE
GAP BETWEEN SKILLS TRAINING AND TACTICAL APPLICATIONS."

At the bottom of the inside front cover is the stabilization language which
has been electronically transmitted.

The front cover page folds out to reveal a gray bullseye which is overlaid
with graphic text and four color pictures.

The Company's logo appears at the top left hand corner of the foldout. There
is a headline banner across the top of the foldout stating, "TRAIN AS CLOSE TO
THE ACTUAL SITUATION AS POSSIBLE."

The center photograph is of six soldiers in combat fatigues aiming simulated
small and supporting arms at a combat training situation.

The center photograph is captioned at the bottom: "FATS (TM) systems are used
by military organizations around the world."

The left hand graphic text reads, "Firearms Training Systems, Inc. is the
leading worldwide producer of interactive simulation systems designed to provide
training in the handling and use of small and supporting arms."

The right hand graphic text reads, "Firearms Training Systems, Inc. is a
training company which uses advanced technologies in close collaboration with
its customers to meet their training needs."

The bottom portion of the front foldout contains three color photographs with
two graphic text sentences separating them.

The left hand photograph is of a law enforcement officer pointing a simulated
hand gun at a potential aggressor in a training session.

The center photograph is of a camouflaged hunter aiming a simulated shotgun at
ducks in a simulated hunting scene.

The right hand photograph depicts technicians testing a simulated firearm.

The text separating these photographs reads, "The Company has an inventory of
180 simulated firearms which accurately replicate the fit, function and feel of
the original firearms."

The rear inside cover page has a red box with text reading, "THE GLOBAL LEADER
IN INTERACTIVE SIMULATORS FOR SMALL AND SUPPORTING ARMS TRAINING."

The center portion of the rear inside cover is a color graphic map of the
globe. The Company's logo appears on the map with lines leading to each country,
appearing in red, in which Firearms Training Systems, Inc. has sold at least one
FATS (TM) systems. The caption beneath the map reads, "Firearms Training
Systems, Inc. has sold at least one FATS(TM) System in each of the countries
indicated in red above since 1984. Since the beginning of fiscal 1995, revenues
from sales of FATS(TM) systems to customers in Canada, Italy, Mexico, the
Netherlands, Singapore, Switzerland and United Kingdom have constituted over 70%
of total international revenues of the Company. During this period, systems were
sold to customers in 12 additional countries for total revenues of approximately
$2.7 million."

At the bottom of the inside rear cover is the Company's logo over the
Company's name.
<PAGE>

Exhibits and Financial Statement Schedules

Index to Exhibits

The following documents are filed with this registration statement as
exhibits.

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <C> <S>
*10.05 -- Swingline Note, dated July 31, 1996, issued by the
Company in favor of NationsBank,
N.A. (South).
*10.06 -- Pledge and Security Agreement, dated as of July 31, 1996,
between the Company, and
NationsBank, N.A. (South).
*10.07 -- Option to Lease, dated May 4, 1993, between the Company
and Technology Park/Atlanta,
Inc.
*10.08 -- Lease, dated May 4, 1993, between the Company and
Technology Park/Atlanta, Inc.
*10.09 -- First Amendment to Lease Agreement, dated December 21,
1993, between the Company
and Technology Park/Atlanta, Inc., amending the Lease
filed as Exhibit 10.08.
*10.10 -- Second Amendment to Lease Agreement, dated December 21,
1995, between the Company and Schneider Atlanta, L.P.,
amending the Lease filed as Exhibit 10.08.
*10.11 -- United States Government Contract M67854-94-C-2014,
awarded August 4, 1994, between the Company and the U.S.
Marine Corps.
*10.12 -- Management Shares Agreement, dated as of September 18,
1996, between the Company
and Peter A. Marino, Robert B. Terry, Robert F. Mecredy,
David A. Apseloff, Greg Echols and Juan de Ledebur.
*10.13 -- Firearms Training Systems, Inc. Stock Option Plan.
*10.14 -- Stock Option Agreement Series A, dated as of September
18, 1996 between the Company
and Peter A. Marino.
*10.14-01 -- Schedule identifying Stock Option Agreements Series A
substantially identical in all
material respects to Exhibit 10.14
*10.15 -- Stock Option Agreement Series B, dated as of September
18, 1996 between the Company
and Peter A. Marino.
*10.15-01 -- Schedule identifying Stock Option Agreements Series B
substantially identical in all
material respects to Exhibit 10.15
*10.16 -- Stock Option Agreement Series C, dated as of September
18, 1996 between the Company
and William J. Bratton.
*10.16-01 -- Schedule identifying Stock Option Agreement Series C
substantially identical in all
material respects to Exhibit 10.16.
*10.17 -- Registration Rights Agreement, dated as of July 31, 1996,
between the Company and the
Institutional Holders set forth on Schedule I thereto.
*10.18 -- Registration Rights Agreement, dated as of July 31, 1996,
among the Company, THIN
International N.V. (formerly known as Firearms Training
Systems International N.V.) and
the Institutional Holders set forth on Schedule I
thereto.
*10.19 -- Firearms Training Systems, Inc., Executive Severance
Benefit Plan.
*10.20 -- Employment Agreement, dated as of September 18, 1996,
between the Company and
Peter A. Marino.
*10.21 -- Form of Agreement to Limit Future Competition entered
into with each member of senior
management of the Company.
*10.21-01 -- Schedule identifying Agreements to Limit Future
Competition substantially identical in all
material respects to Exhibit 10.21.
*10.22 -- Form of Transition Bonus Agreement entered into with 13
employees of the Company.
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C> <C>
*10.22-01 -- Schedule identifying Transition Bonus Agreements
substantially identical in all material respects to Exhibit
10.22.
*10.23 -- License Agreement, dated October 31, 1991 by and between
Microware Systems Corporation and the Company.
*11.01 -- Statement Regarding Computation of Pro Forma Net Income Per
Common Share.
*16.01 -- Letter of Price Waterhouse LLP Regarding Change in
Accountants.
*21.01 -- Subsidiaries of the Company.
23.01 -- Consent of Price Waterhouse LLP, dated November 21, 1996.
23.02 -- Consent of Arthur Andersen, LLP, dated November 21, 1996.
*24.01 -- Powers of Attorney (set forth on page II-5 of the
Registration Statement).
*27.01 -- Financial Data Schedule.
</TABLE>
- --------

* Previously filed with Initial Registration Statement on Form S-1 on
September 30, 1996, Amendment No. 1 on November 5, 1996 or Amendment No. 2
on November 18, 1996.

<PAGE>

EXHIBIT 23.01

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated June 8, 1994, except as
to the stock split described in Note 10 and the third paragraph of Note 10,
which are as of November 1, 1996, relating to the financial statements of
Firearms Training Systems, Inc. and its subsidiary, which appears in such
Prospectus. We also consent to the application of such report to the Financial
Statement Schedule for the year ended March 31, 1994 listed under Item 16(b)
of this Registration Statement when such Schedule is read in conjunction with
the financial statements referred to in our report. The audit referred to in
such report also included this schedule. We also consent to the references to
us under the headings "Experts" and "Selected Financial Data" in such
Prospectus. However, it should be noted that Price Warehouse LLP has not
prepared or certified such "Selected Financial Data."

Price Waterhouse LLP

Atlanta, Georgia

November 21, 1996

<PAGE>

EXHIBIT 23.02

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

As independent public accountants, we hereby consent to the use of our
reports and to all references to our firm included in or made a part of this
Registration Statement.

Arthur Andersen LLP

Atlanta, Georgia

November 21, 1996