CASULL ARMS CORP, SB-2/A, 1997-01-14

CASULL ARMS CORP
SB-2/A, 1997-01-14
ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 14, 1997

REGISTRATION NO. 333-16911

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM SB-2

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------

CASULL ARMS CORPORATION

(Name of Small Business Issuer in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 3484 83-0317822
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)
</TABLE>

456 FAIRVIEW ROAD
PO BOX 1629
AFTON, WYOMING 83110
(307) 886-0200
(Address and telephone number of principal executive offices
and principal place of business or intended principal place of business)

RICHARD J. CASULL
CHIEF EXECUTIVE OFFICER
CASULL ARMS CORPORATION
456 FAIRVIEW ROAD
PO BOX 1629
AFTON, WYOMING 83110
(307) 886-0200

(Name, address and telephone number of agent for service)
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COPIES OF ALL COMMUNICATIONS TO:

ALAN I. ANNEX, ESQ. ARTHUR DON, ESQ.
WILLIAM N. HADDAD, ESQ. CHRISTINA E. WAHLIG, ESQ.
Camhy Karlinsky & Stein LLP D'ANCONA & PFLAUM
1740 Broadway, Sixteenth Floor 30 North LaSalle Street
New York, New York 10019-4315 Suite 2900
(212) 977-6600 Chicago, Illinois 60602
(312) 580-2000

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APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as practicable
after this Registration Statement becomes effective.

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. / /

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,
please check the following box. /X/
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CALCULATION OF REGISTRATION FEE

(SEE FOLLOWING PAGE.)
------------------------------

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>
CALCULATION OF REGISTRATION FEE

<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED BE REGISTERED PER UNIT (1) OFFERING PRICE (1) FEE
<S> <C> <C> <C> <C>
Units, each consisting of
1 share of Common Stock and
1 Redeemable Common Stock
Purchase Warrant(2)..................... 1,265,000 $6.10 $ 7,716,500 $2,338
Common Stock issuable upon exercise of
Redeemable
Warrants................................ 1,265,000 $9.00 $ 11,385,000 $3,450
Representative's Warrants(3).............. 110,000 $.001 $ 110 --
Common Stock issuable upon exercise of
Representative's Warrants(4)............ 110,000 $7.20 $ 792,000 $240
Warrants issuable upon exercise of
Representative's Warrants(4)............ 110,000 $0.12 $ 13,200 $4
Common Stock issuable upon exercise of
warrants issuable upon exercise of
Representative's Warrants(4)............ 110,000 $9.00 $ 990,000 $300
Total..................................... $ 20,896,810 $6,332(5)
</TABLE>

(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(a) under the Securities Act of 1933 (the "Act").

(2) Includes 165,000 shares of Common Stock and/or 165,000 Redeemable Warrants
issuable upon exercise of the Underwriters' Over-Allotment Option.

(3) No registration fee required pursuant to Rule 457 under the Act.

(4) Pursuant to Rule 416 under the Act there are also being registered such
additional securities as may become issuable pursuant to the antidilution
provisions of the Redeemable Common Stock Purchase Warrants or the
Representative's Warrants.

(5) Previously paid.

<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.
<PAGE>

SUBJECT TO COMPLETION, DATED JANUARY 14, 1997

[LOGO]

1,100,000 SHARES OF COMMON STOCK PAR VALUE $0.01 PER SHARE
AND 1,100,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
(AS UNITS, EACH CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT)

This Prospectus relates to an offering (this "Offering") of 1,100,000 shares
of common stock, par value $0.01 per share ("Common Stock"), and 1,100,000
Redeemable Common Stock Purchase Warrants (the "Warrants") initially as units,
consisting of one share of Common Stock and one Warrant, of Casull Arms
Corporation (the "Company"). Such shares of Common Stock and Warrants are
sometimes hereinafter collectively referred to as the "Securities." The shares
of Common Stock and the Warrants offered hereby may only be purchased in the
Offering together as a unit, on the basis of one share of Common Stock and one
Warrant, but are separately transferable immediately upon issuance. See
"Description of Securities."

Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an initial exercise price of $ per share (150% of the initial
public offering price per share of Common Stock), at any time over a forty-eight
month period commencing on the first day of the thirteenth calendar month after
the date of this Prospectus. The Warrant exercise price is subject to adjustment
under certain circumstances. Commencing on the first day of the thirteenth
calendar month after the date of this Prospectus, the Warrants are subject to
redemption by the Company at $0.10 per Warrant on thirty (30) days' prior
written notice to the warrantholders if the closing bid price of the Common
Stock as reported on the Nasdaq SmallCap Market ("Nasdaq SCM") averages an
amount equal to or in excess of $ per share (300% of the initial public
offering price per share of Common Stock), for any twenty (20) trading days
within a period of thirty (30) consecutive trading days ending on the fifth
trading day prior to the notice of redemption. Unexercised Warrants expire on
the fifth anniversary date of this Prospectus. See "Description of Securities."

Prior to this Offering, there has been no public market for the Common Stock
or the Warrants, and there is no assurance that any such market will develop or
be maintained after the completion of this Offering or, if developed, that it
will be sustained. After completion of this Offering, there will be no public
market for the Securities as units. It is currently estimated that the initial
public offering price will be $6.00 per share of Common Stock and $0.10 per
Warrant. See "Underwriting" for the factors considered in determining the public
offering price. The Company has applied for listing of the Common Stock and the
Warrants on the Nasdaq SCM under the proposed symbols CASU AND CASUW,
respectively.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING AT PAGE 6 AND
"DILUTION" AT PAGE 13. THESE ARE SPECULATIVE SECURITIES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL
OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS(1) PROCEEDS TO COMPANY(2)
<S> <C> <C> <C>
Per Unit............................... $ $ $
Per Share............................ $ $ $
Per Warrant.......................... $ $ $
Total(3)............................... $ $ $
</TABLE>

(1) Excludes (i) additional compensation payable to National Securities
Corporation, the representative (the "Representative") of the several
underwriters (the "Underwriters"), in the form of a non-accountable expense
allowance equal to 3% of the gross proceeds of this Offering, and (ii) the
value of five-year warrants (the "Representative's Warrants") to purchase an
aggregate of 110,000 shares of Common Stock and/or 110,000 Warrants, at an
exercise price of $ per share (120% of the Price to Public of the Common
Stock), and $ per warrant (120% of the Price to Public of the Warrants),
respectively, that will be sold to the Representative at a nominal price. In
addition, the Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of 1933,
as amended. See "Underwriting."

(2) Before deducting estimated expenses of $350,000 payable by the Company,
excluding the non-accountable expense allowance payable to the
Representative.

(3) The Company has granted the Underwriters an option, exercisable within 45
days after the date of this Prospectus, to purchase up to 165,000 shares of
Common Stock and/or 165,000 Warrants solely to cover over-allotments (the
"Over-allotment Option"), if any. The Over-allotment Option may be exercised
to purchase shares of Common Stock or Warrants or any combination thereof.
If such option is exercised in full, the total Price to Public, Underwriting
Discount and Commissions, and Proceeds to the Company will be $ ,
$ and $ , respectively. See "Underwriting."

The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and adopted by the Underwriters, and subject to
approval of certain legal matters by their counsel and subject to certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
this Offering and to reject any order in whole or in part. It is expected that
delivery of the Securities offered hereby will be made against payment in
Seattle, Washington on or about , 1997.

NATIONAL SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS , 1997.

2
<PAGE>

The Registrant will include pictures in the inside front cover and back
cover of the printed Prospectus of the following prototypes designed by Richard
J. Casull which the Company expects to manufacture: (i) two rifles chambered in
30 Casull and 308 Winchester, respectively; (ii) three revolvers chambered in a
454 cartridge, 32 cartridge and 22 cartridge, respectively; (iii) the 30 Casull
and 22 Casull Rifle Cartridges and (iv) the Casull Bolt and Cartridge System.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements and such other periodic reports as the
Company deems appropriate or as may be required by law.

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

454 Casull is a registered trademark of Richard J. Casull, who has
exclusively licensed the use of such trademark to Freedom Arms, Inc. until
February 1, 1998. "Casull Arms" and the Company's bullet logo are trademarks of
the Company. All other marks are trademarks of their respective owners.

3
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO, AND
SHOULD BE READ IN CONJUNCTION WITH, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS (INCLUDING THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS.
EACH PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY.
UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS: (I) ASSUMES NO
EXERCISE OF THE OVER-ALLOTMENT OPTION, (II) EXCLUDES SHARES OF COMMON STOCK
ISSUABLE UPON EXERCISE OF THE WARRANTS AND (III) EXCLUDES SECURITIES ISSUABLE
UPON EXERCISE OF THE REPRESENTATIVE'S WARRANTS. SEE "MANAGEMENT'S DISCUSSION AND
ANALYSIS OR PLAN OF OPERATION."

THE COMPANY

GENERAL

Casull Arms Corporation (the "Company"), a development stage company,
intends to design, manufacture and sell high quality firearms designed by
Richard J. Casull ("Casull"), a nationally known firearms designer with more
than 40 years of experience in the industry. The Company has entered into an
exclusive licensing agreement (the "License Agreement") with Casull for the
rights, with certain exceptions, to all of his present and future patents and
other intellectual property, which rights will serve as the basis for the
Company's products.

The Company's firearms, most of which will be sold under the Casull
trademark, will initially consist of 45 caliber, 32 caliber and 22 caliber
single-action revolvers and the newly designed Casull Rifle and Cartridge System
(the "Rifle") which will be manufactured in various calibers. The Company will
seek to position the majority of its products at the high end of their
respective markets because the Company believes that the expected superior power
and accuracy of the Company's products will fill a perceived void in the
firearms market for high quality firearms for use by gun enthusiasts and
hunters. In addition, the Company intends to pursue potential sales to military
and police organizations. The Company does not plan to manufacture any firearms
included on the Bureau of Alcohol Tobacco and Firearms' list of assault weapons.

The Company plans to construct a manufacturing facility which is expected to
have an annual production capacity of 10,000 -- 12,000 units of firearms. The
manufacturing facility is projected to begin operations within 18 months from
commencement of construction and is expected to be fully operational within two
years from the closing of this Offering. In addition to providing manufacturing
space, the facility will likely contain a retail showroom and custom shop in
which management plans to produce collectors editions and specially engraved
firearms. The manufacturing facility's initial output will be sold domestically,
although emphasis may also be placed on developing foreign markets.

The Company intends to order production equipment which will be computer
numerically controlled ("CNC") to ensure speed and repeatability of the
manufacturing process. The CNC milling centers, CNC lathes, and CNC barrel
forging machine are sophisticated machinery that will be installed by the
manufacturer and will be operated by machinists who will be trained by the
manufacturer.

The Company was incorporated under the laws of the State of Delaware on July
23, 1996. It maintains its principal executive offices at 456 Fairview Road,
P.O. Box 1629, Afton, Wyoming 83110 and its telephone number is 307-886-0200.

3
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Securities Offered.............. 1,100,000 shares of Common Stock and 1,100,000 Warrants to
purchase one share of Common Stock per Warrant. The Common
Stock and Warrants are being offered hereby as units but
will be separately tradeable immediately following this
Offering. After completion of this Offering there will be
no public market for the Securities as units.
Terms of Warrants............... Each Warrant entitles the holder to purchase one share of
Common Stock at an initial exercise price of $ per
share (150% of the initial public offering price per share
of Common Stock). Commencing on the first day of the
thirteenth month from the date of this Prospectus, the
Warrants will be subject to redemption, subject to the
prior written consent of the Underwriter, at a price of
$0.10 per Warrant on 30 days' written notice provided the
average closing bid price of the Common Stock equals or
exceeds $ (300% of the initial public offering
price per share of Common Stock) for any 20 trading days
within a period of 30 consecutive trading days ending on
the fifth trading day prior to the date of the notice of
redemption. Unexercised Warrants expire on the fifth
anniversary date of this Prospectus. See "Description of
Securities."
Common Stock Outstanding Before
this Offering(1).............. 1,707,083 shares of Common Stock.
Securities to be Outstanding
After this Offering(1)(2)..... 2,807,083 shares of Common Stock and 1,100,000 Warrants.
Proposed Nasdaq SmallCap
Symbols....................... Common Stock: CASU
Redeemable Warrants: CASUW
Use of Proceeds................. For purchase of land; construction of manufacturing plant;
and acquisition of machinery and equipment. See "Use of
Proceeds."
Risk Factors and Dilution....... The purchase of the Securities offered hereby involves a
high degree of risk and immediate and substantial
dilution. Prospective investors should review carefully
and consider the information set forth under "Risk
Factors" and "Dilution."
</TABLE>

THE SECURITIES OFFERED HEREBY ARE SPECULATIVE AND INVOLVE A HIGH DEGREE OF
RISK AND SHOULD NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF
THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."

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(1) Includes 1,133,333 shares of Redeemable Common Stock which are subject to
redemption (the "Redeemable Common Stock") if this Offering is not
consummated by March 31, 1997. (See "Description of Securities-- Common
Stock"). Excludes 300,000 shares of Common Stock reserved for issuance upon
exercise of options available for future grant under the Company's Stock
Option Plan (the "Stock Option Plan"). See "Management--Stock Option Plan."

(2) Does not include (i) 1,100,000 shares of Common Stock issuable upon exercise
of the Warrants sold in this Offering, (ii) 165,000 shares of Common Stock
and/or Warrants which the Underwriters have the option to purchase to cover
over-allotments, (iii) 110,000 shares of Common Stock issuable upon exercise
of the Representative's Warrants, (iv) Warrants to purchase 110,000 shares
of Common stock issuable upon exercise of the Representative's Warrants and
(v) 110,000 shares of Common Stock issuable upon exercise of the Warrants
underlying the Representative's Warrants.

4
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SUMMARY FINANCIAL INFORMATION

The summary financial information set forth below is derived from and should
be read in conjunction with the financial statements, including the notes
thereto, appearing elsewhere in this Prospectus.

<TABLE>
<CAPTION>
FOR THE PERIOD
JULY 23, 1996
(DATE OF INCORPORATION)
THROUGH OCTOBER 21,
1996(3)
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<S> <C>
ACTUAL
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STATEMENT OF OPERATIONS DATA
Revenues............................................................ $ --
General and administrative expenses................................. (21,804)
Net loss............................................................ (21,804)
Net loss per common share........................................... $ (.02)
Weighted average number of common shares outstanding(4)............. 1,306,867
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 21, 1996(3)
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<S> <C> <C>
AS
ACTUAL ADJUSTED(1)(2)
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BALANCE SHEET DATA
Working capital............................................... $ 260,649 $ 8,908,349
Total assets.................................................. 3,550,375 8,948,075
Total liabilities............................................. 114,804 24,804
Redeemable Common Stock....................................... 3,400,000 --
Stockholders' equity.......................................... 35,571 8,923,271
</TABLE>

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(1) As adjusted to give effect to the issuance of the Securities offered hereby
at an assumed initial public offering price of $6.00 per share of Common
Stock and $0.10 per Warrant and the receipt and initial application of the
estimated net proceeds of $5,487,700 therefrom. See "Use of Proceeds."
Assumes no exercise of the Over-allotment Option or the Representative's
Warrants. See "Underwriting."

(2) As adjusted to give effect to the removal of restrictions on cash and
investments of $2,160,000 and $1,090,000, respectively, and the termination
of the redemption feature of the Redeemable Common Stock in conjunction with
the issuance of the Securities offered hereby. See the financial statements
of the Company and notes thereto.

(3) The Company plans to adopt a fiscal year which begins on July 1 and ends on
June 30.

(4) See note 2 to the Company's financial statements.

TO CALIFORNIA RESIDENTS ONLY:

California residents can only purchase the Securities if they have a minimum
gross income of $65,000 during the last tax year and expect to have (based on a
good faith estimate) a minimum gross income of $65,000 during the current tax
year and have a net worth (at fair market value but excluding home equity, home
furnishings and automobile) of $100,000, or have a net worth of $250,000.

5
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK AND WARRANTS OFFERED HEREBY IS HIGHLY
SPECULATIVE IN NATURE AND INVOLVES A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. AN INVESTMENT SHOULD ONLY BE MADE BY PERSONS WHO CAN
AFFORD TO LOSE THEIR ENTIRE INVESTMENT IN THE COMPANY. THEREFORE, EACH
PROSPECTIVE INVESTOR SHOULD, PRIOR TO MAKING AN INVESTMENT, CONSIDER VERY
CAREFULLY THE FOLLOWING RISK FACTORS, AS WELL AS OTHER INFORMATION SET FORTH
ELSEWHERE IN THIS PROSPECTUS.

ABSENCE OF OPERATING HISTORY; DEVELOPMENT STAGE ENTITY; GOING CONCERN
OPINION. The Company is in the development stage and does not currently have
facilities to manufacture firearms. There is no guarantee that the Company will
be able to commence firearms manufacturing within its projected timetable or
that its products will be readily accepted in the marketplace. None of the
products discussed throughout this Prospectus have been manufactured in quantity
and the discussion is based on the use of prototypes only. In the absence of an
operating history, the Company remains vulnerable to a variety of business risks
generally associated with young, rapidly growing companies. The likelihood of
success of the Company must be considered in light of the problems, expenses,
complications, and delays frequently encountered in connection with the
development of new businesses. The Company does not expect to have revenues for
at least approximately 18 months following the completion of this Offering.

The report of Price Waterhouse LLP on the Company's financial statements
included herein contains an explanatory paragraph stating that the Company's
financial statements have been prepared assuming that the Company will continue
as a going concern and that the Company's ability to commence operations is
dependent on obtaining adequate financial resources through a contemplated
public offering or other financing which raises substantial doubt about its
ability to continue as a going concern.

DEPENDENCE ON LICENSED PATENTS AND TRADEMARKS. The Company has entered into
a License Agreement with Casull for rights to his present and future patents and
other intellectual property, with the exception of (i) U.S. Pat. No. 5,048,216,
generally referred to as the "barrel forcing cone bushing," (ii) the "454
Casull" trademark, registered in connection with ammunition, licensed
exclusively to Freedom Arms Inc. until February 1, 1998, and (iii) a black
powder mini-revolver manufactured by North American Arms. The Company's success
will depend in part on its ability to obtain and enforce patent protection for
its products, enforce patent rights which it presently licenses, and operate
without infringing the property rights of others. The Company presently holds an
exclusive license in three pending patent applications relating to the Company's
business as described in this Prospectus. The Company also holds an exclusive
license to eight utility patents relating to firearms and one design patent for
a belt buckle. There can be no assurance that patent applications to which the
Company holds rights will result in the issuance of patents, or that any issued
patents will provide commercially significant protection to the Company's
technology and products. In addition, there can be no assurance that others will
not independently develop substantially equivalent proprietary information not
covered by patents to which the Company holds rights or obtain access to the
Company's know-how, or that others will not claim to have or will not be issued
patents which may prevent the sale of one or more of the Company's products. The
Company intends to apply for the trademark rights to the "Casull" name, in
connection with the Company's products, but no assurance can be given that such
trademark rights will be obtained.

The Company will rely upon a combination of contractual arrangements and
patent, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third-parties from whom the Company licenses intellectual
property. There can be no assurance that the steps taken by the Company in this
regard will be adequate to deter misappropriation of proprietary information or
that the Company will be able to detect unauthorized use and take appropriate
steps to enforce its intellectual property rights.

DEPENDENCE ON KEY PERSONNEL. The success of the Company is dependent on the
efforts and abilities of Casull. If the Company were to lose the services of
Casull before a qualified replacement could be obtained, its business could be
materially and adversely affected. In such event, no assurance can be given

6
<PAGE>

that an adequate replacement could be obtained. The Company is in the process of
obtaining a $3,000,000 key-man life insurance policy on Casull. No assurance can
be given, however, that the Company will be able to obtain a key-man life
insurance policy on acceptable terms.

Casull can terminate the License Agreement if the Company fails to pay to
Casull the royalties due him, or if the Company fails to keep or perform any
other material provision thereof, or if the Company files for protection under
federal or state bankruptcy laws, or is placed in the hands of a receiver or
trustee in bankruptcy. The Company may cure such default within 60 days of the
receipt of written notice from Casull. In the event the License Agreement is
canceled by Casull with cause, the licenses granted to the Company under the
License Agreement will terminate. See "Business--License Agreement with Casull."

GOVERNMENTAL REGULATION. The Company will be subject to extensive federal,
state, local and foreign firearms regulations. Among the federal firearms laws
under which the Company will be regulated are THE GUN CONTROL ACT OF 1968 (the
"GCA"), THE NATIONAL FIREARMS ACT (the "NFA"), THE ARMS EXPORT CONTROL ACT (the
"AECA") and THE FEDERAL FIREARMS ACT (the "FFA"). The Company plans to be in
compliance with all regulatory and licensing requirements of the GCA, NFA and
FFA. The Company currently does not export any firearms, and thus is not subject
to the requirements of AECA. However, the Company intends to apply for all
licenses necessary to export firearms.

The purchase of firearms is subject to federal, state, and local
governmental regulations. The applicable federal laws are the GCA, NFA and FFA.
These laws generally prohibit the private ownership of fully automatic weapons
and place certain restrictions on the interstate sale of firearms unless certain
licenses are obtained. The Company does not currently intend to manufacture
fully automatic weapons, and is in the process of obtaining all necessary
licenses under these federal laws. From time to time, congressional committees
review proposed bills relating to the regulation of firearms. These proposed
bills generally seek either to restrict or to ban the sale, and in some cases
the ownership, of various types of firearms, or to impose a mandatory waiting
period prior to their purchase. Several states and many local municipalities
currently have laws in effect similar to the aforementioned legislation or other
laws which have the effect of discouraging the sale of ownership of firearms.

The Brady Law, mandating a nationwide 5-day waiting period prior to the
purchase of a handgun, was signed into law in November 1993, and became
effective February 28, 1994. The Company believes that, because its anticipated
customers will be sportsmen, hunters, gun collectors, and law enforcement
agencies, and since approximately 26 states already had enacted some form of a
waiting period prior to purchase, the Brady Law will not have a significant
effect on the Company's sales of firearms. The "Crime Bill" took effect on
September 13, 1994, but the Company believes that none of its products will be
banned as so-called "assault weapons" under the "Crime Bill". However, there can
be no assurance that the regulation of firearms will not become more restrictive
in the future and that any such restrictions would not have a material effect on
the business of the Company.

PROSPECT OF CIVIL LIABILITY; INADEQUATE INSURANCE COVERAGE. Personal
injuries and property damage allegedly resulting from use of products that have
been or may be developed and sold by the Company may expose the Company to
potential liability from claims. The Company is not currently a defendant in any
product liability or personal injury lawsuit; however, there can be no assurance
that such claims will not arise in the future based on past, present or future
services or products offered by the Company. The Company currently does not
maintain liability insurance coverage. Prior to the Company producing any
firearms the Company will attempt to obtain product liability insurance
coverage. There can be no assurance that the Company will be able to obtain
coverage on acceptable terms or that any such insurance will provide adequate
coverage against any potential claims. Moreover, even if the Company maintains
adequate insurance, any successful claims could materially and adversely affect
the reputation and prospects of the Company.

7
<PAGE>

COMPETITION. The markets in which the Company operates are highly
competitive. The Company believes that competition in the firearms industry is
based primarily on quality, product innovation, product image, price and
customer service and support. The Company's competitors will vary according to
product line. Certain of these competitors will be subsidiaries of large
corporations with substantially greater financial resources than those of the
Company. The Company believes that it is not prevented from selling a gun which
contains a 454 cartridge; however, the Company's ability to market such firearms
may be hindered by its inability to use the "454 Casull" trademark until the
expiration on February 1, 1998 of the exclusivity of the license granted by
Casull to Freedom Arms, Inc. The mini-revolvers to be manufactured by the
Company will compete against similar small firearms produced by North American
Arms and other manufacturers. These mini-revolvers will be subject to the same
high standard of quality to which the Company's other products will be subject.
Most of the companies that compete for this segment of the market manufacture
firearms that are sold at lower prices. The Company will manufacture the Rifle
(chambered for the Casull cartridge) as well as rifles chambered for
conventional cartridges. The rifles chambered for conventional cartridges will
compete with rifles produced by larger manufacturers, such as Weatherby and
Remington, and smaller manufacturers, such as Dakota Arms, and custom gunsmiths.
There can be no assurance that additional competitors will not enter the markets
in which the Company expects to compete.

NEW PRODUCT INTRODUCTIONS. The Company's success is dependent upon its
ability to design and deliver new products. As is typical with new products,
demand for and market acceptance of new products introduced by the Company are
subject to uncertainty. Achieving market acceptance for new products may require
substantial marketing and other efforts and the expenditure of significant funds
to create customer demand. There can be no assurance that the Company's efforts
will be successful. In addition, the failure of new products to gain sufficient
market acceptance could adversely affect the image of the Casull brand name and
demand for other Casull products.

RELIANCE ON CERTAIN SUPPLIERS AND DISTRIBUTORS. The Company expects to
utilize various raw materials, including steel, lead, plastics and wood in the
manufacture of its products for which the Company may rely on one or several
suppliers. The Company does not expect to have long-term purchase contracts with
any of these suppliers. Alternative sources, including foreign sources, exist
for each of these materials from which the Company could obtain such raw
materials. Nonetheless, the Company cannot give any assurance that supply
relationships with alternative sources can be established or that such
relationships could provide a timely and sufficient quantity or quality of
materials. In addition, the Company may incur additional costs in sourcing raw
materials from alternative suppliers.

The Company plans to distribute its products primarily through firearms
dealers. Federal law requires the licensing of firearms dealers. Because the
Company will only be permitted by applicable law to make retail firearm sales to
local Wyoming residents, the major method of distribution will be through
entities that possess federal firearms licenses ("FFL"). FFLs are issued by the
Bureau of Alcohol Tobacco and Firearms ("BATF"). The number of FFL holders has
decreased substantially in the past four years. This decrease in FFL holders is
believed to have been caused by an increase in licensing requirements by the
BATF. If BATF licensing requirements are further restricted or other laws are
enacted which otherwise hinder firearm sales, the number of FFL holders may
decrease, thus decreasing the Company's ability to distribute its products.

MANAGEMENT OF GROWTH AND ATTRACTION OF QUALIFIED PERSONNEL. The Company's
business may grow significantly over the next several years. To enable such
growth, the Company intends to add numerous new personnel in several areas. The
Company is currently planning the construction of its principal facility and, if
growth continues, the Company may need to further expand its facilities and
enhance its related systems and operations. The Company may not succeed in
attracting and retaining qualified personnel, particularly including management,
marketing and other skilled personnel, to its principal facility in the small
town of Afton, Wyoming. There can be no assurance that the Company will continue
to grow or be

8
<PAGE>

effective in managing its future growth or expanding its facilities and
operations. Any failure to manage growth, expand its operations or attract and
retain qualified personnel could have a material adverse effect on the Company's
business, operating results or financial condition.

WARRANTS; FUTURE FINANCINGS. The holders of the Warrants will have the
opportunity to profit from a rise in the price of the Common Stock. The
existence of the Warrants may adversely affect the terms on which the Company
can obtain additional equity financing in the future and the holders can be
expected to exercise them when the Company would, in all likelihood, be able to
obtain additional capital by offering additional shares of its unissued Common
Stock on terms more favorable to the Company than the terms provided by these
Warrants.

POTENTIAL ADVERSE EFFECT OF REDEMPTION OF THE WARRANTS. The Warrants are
redeemable by the Company at a price of $0.10 per Warrant commencing 13 months
from the date of this Prospectus, provided that (i) 30 days prior written notice
is given to the holders of the Warrants, and (ii) the closing bid price per
share of the Common Stock as reported on the Nasdaq SCM for any 20 trading days
within a period of 30 consecutive trading days, ending on the fifth day prior to
the date of the notice of redemption, has been at least 300% of the initial
public offering price per share of Common Stock. The holders of the Warrants
will automatically forfeit their rights to purchase the shares of Common Stock
issuable upon exercise of such Warrants unless their Warrants are exercised
before they are redeemed. Notice of redemption of the Warrants could force the
holders to exercise their Warrants and pay the exercise price at a time when it
may be disadvantageous for them to do so, to sell the Warrants at the market
price when they might otherwise wish to hold the Warrants, or to accept the
redemption price which is likely to be substantially less than the market value
of the Warrants at the time of redemption. See "Description of Securities--
Redeemable Warrants."

CURRENT PROSPECTUS AND STATE BLUE SKY REGISTRATION REQUIRED TO EXERCISE
WARRANTS. Holders will have the right to exercise the Warrants and purchase
shares of Common Stock only if a current prospectus relating to such shares is
then in effect and only if the shares are qualified for sale under the
securities laws of the applicable state or states, or there is an exemption from
the applicable qualification requirements. The Company has undertaken and
intends to file and keep effective and current a prospectus which will permit
the purchase and sale of the Common Stock underlying the Warrants, but there can
be no assurance that the Company will be able to do so. Although the Company
intends to qualify for sale the shares of Common Stock underlying the Warrants
in those states in which the Securities are to be offered, no assurance can be
given that such qualification will occur. Holders of the Warrants may be
deprived of any value if a prospectus covering the shares issuable upon the
exercise thereof is not kept effective and current or if such underlying shares
are not, or cannot be, registered in the applicable states. Although the Company
does not presently intend to do so, the Company reserves the right to call the
Warrants for redemption whether or not a current prospectus is in effect or such
underlying shares are not, or cannot be, registered in the applicable states.
See "Description of Securities--Redeemable Warrants."

NO PRIOR PUBLIC TRADING MARKET; POSSIBLE ILLIQUIDITY OF TRADING
MARKET. Prior to this Offering there has been no public trading market for the
Common Stock or the Warrants and there can be no assurance that an active public
market for the Securities will be developed or sustained after this Offering.
The Company has applied for listing of the Common Stock and Warrants on the
Nasdaq SCM. If the Company should be unable to maintain the standards for
continued quotation on the Nasdaq SCM, the Common Stock and Warrants could be
subject to removal from the Nasdaq SCM. Trading, if any, in the Common Stock and
Warrants would therefore be conducted in the over-the-counter market on an
electronic bulletin board established for securities that do not meet the Nasdaq
SCM listing requirements or in what are commonly referred to as the "pink
sheets." As a result, an investor would find it more difficult to dispose of, or
to obtain accurate quotations as to the price of, the Company's Securities. In
addition, depending on several factors including the future market price of the
Common Stock or Warrants, the Securities could become subject to the so-called
"penny stock" rules that impose additional sales practice and market-making

9
<PAGE>
requirements on broker-dealers who sell and/or make a market in such securities,
which could affect the ability or willingness of broker-dealers to sell and/or
make a market in the Securities and the ability of purchasers of the Securities
to sell such Securities in the secondary market.

LIMITS ON SECONDARY TRADING. Under the blue sky laws of most states, public
sales of Common Stock and Warrants after this Offering by persons other than the
Company in "non-issuer transactions" must either be qualified under applicable
blue sky laws, or exempt from such qualification requirements. By virtue of
conditions imposed by the Department of Corporations of the State of California
as a condition of qualifying the offer and sale of the Securities in this
Offering in California, purchasers of the Securities in this Offering in
California must meet certain investor suitability standards and will not be able
to resell Securities publicly (and there cannot be any public trading of the
Common Stock and Warrants in California) for at least 90 days after the closing
of this Offering. At that time, the Company intends to apply for an exemption
permitting secondary trading, and if the exemption is granted, secondary trading
in California may commence. Blue sky authorities in other states may impose
other restrictions on the secondary trading of Common Stock and Warrants in
those states. In many states, secondary trading of the Common Stock and Warrants
will be permitted only by virtue of an exemption so long as information about
the Company is published in a recognized manual such as manuals published by
Moody's Investor Service or Standard & Poor's Corporation. The Company intends
to apply for listing in a recognized manual and will attempt to be listed in a
recognized manual as soon after the closing of this Offering as practicable.
There will, however, be some period of time after the date of this Prospectus
during which purchasers of the Securities will not be able to resell shares of
Common Stock and Warrants in the states in which secondary trading is exempted
by virtue of a recognized manual exemption.

As a result of these or other restrictions that might be imposed, purchasers
in this Offering, existing stockholders and future stockholders may be
restricted or prohibited from selling the Common Stock or the Warrants in
particular states as a result of applicable blue sky laws. Purchasers of the
Securities should consult with their broker, counsel and other advisers to
determine whether there are any resale restrictions on public resale of the
Common Stock or the Warrants in the states in which they reside. These
restrictions may have the effect of reducing the liquidity of the Common Stock
or Warrants and could adversely affect the market price of the Common Stock or
the Warrants.

CONTROL BY CURRENT STOCKHOLDERS. When this Offering is completed, current
stockholders will beneficially own 1,707,083 shares or 61% of the Common Stock
outstanding. Of that number, Mr. Casull will beneficially own 71,875 shares or
2.6% of the Common Stock outstanding, and all officers and directors as a class
will beneficially own 1,041,750 shares or 37% of the Common Stock outstanding.
As a result, these stockholders acting in concert will have the ability to elect
or remove any or all of the Company's directors and to control substantially all
corporate activities involving the Company, including tender offers, mergers,
proxy contests and consolidations or other purchases of Common Stock that could
give stockholders of the Company the opportunity to realize a premium over the
then prevailing market price for their shares of Common Stock.

FUTURE CAPITAL NEEDS; UNCERTAINTY OF ADDITIONAL FUNDING. The Company
believes that its existing resources, together with the estimated net proceeds
of this Offering, will satisfy its cash requirements for the next 12 months. If
the Company experiences unanticipated cash requirements during the next 12
months, however, and in any event thereafter, the Company may require
substantial additional capital to fund its operations. The Company may seek such
additional funding through public or private financing or collaborative or other
arrangements with third parties. There can be no assurance that additional funds
will be available on acceptable terms. If additional funds are raised by issuing
equity securities, substantial dilution to existing shareholders, including
purchasers of the Securities offered hereby, may result. If adequate funds are
not available, the Company may be required to delay, scale back or eliminate one
or more of its strategies, or to obtain funds through entering into arrangements
with third parties that may

10
<PAGE>
require the Company to relinquish certain exclusive rights that the Company
might not otherwise relinquish. See "Management's Discussion and Analysis or
Plan of Operation."

ANTI-TAKEOVER PROVISIONS. Certain provisions of the Company's Certificate
of Incorporation and Bylaws, as well as the Delaware General Corporation law,
could discourage a third party from attempting to acquire, or make it more
difficult for a third party to acquire, control of the Company without approval
of the Company's board of directors. Such provisions could also limit the price
that certain investors might be willing to pay in the future for shares of the
Common Stock. Such provisions also could delay, deter, or prevent a merger,
consolidation, proxy contest, tender offer, or other business combination or
change of control involving the Company that some or a majority of the Company's
stockholders might consider to be in their best interest, including offers or
attempted takeovers that might otherwise result in such stockholders receiving a
premium over the market price for the Common Stock.

POSSIBLE VOLATILITY OF STOCK OR WARRANT PRICE. The stock market has, from
time to time, experienced significant price and volume fluctuations that may be
unrelated to the operating performance of particular companies. In addition, the
market price of the Securities, like the stock prices of many publicly-traded
companies, may prove to be highly volatile. Announcements of innovations or new
commercial products by the Company or its competitors, developments or disputes
concerning proprietary rights, regulatory developments in the United States or
in foreign countries, as well as period-to-period fluctuations in financial
results, among other factors, may have a significant impact on the market price
of the Securities.

ARBITRARY OFFERING PRICE OF THE SECURITIES AND EXERCISE PRICE OF THE
WARRANTS. The offering price of the Securities and the exercise price of the
Warrants are completely arbitrary and are not based upon the Company's assets,
book value, cash flow, potential earnings or any other established criteria of
value. The initial public offering price for the Securities and the exercise
price of the Warrants were determined by negotiations between the Company and
the Representative, and should not be regarded as indicative of any future
market price of the Common Stock or the Warrants. Among the factors considered
in determining the initial public offering price were the history and prospects
of the Company and the industry in which it will operate, the previous
experience of the Company's executive officers and the general condition of the
securities markets at the time of this Offering. On October 21, 1996, the
Company completed a private placement (the "Private Placement") and raised
$3,400,000 from the sale of 1,133,333 shares of the Redeemable Common Stock. The
Company agreed that it would not use more than 10% of the proceeds of the
Private Placement to effect its business objectives unless it raises an
additional $5 million of equity capital. The Company agreed that if it does not
raise at least $5 million of additional equity capital on or before March 31,
1997, it will offer the Private Placement investors the right to sell their
Common Stock back to the Company for at least 90% of the amount paid therefor.
Since the Company must raise $5 million by March 31, 1997, it may take this into
account in the pricing of this transaction. See "Underwriting."

REPRESENTATIVE'S INFLUENCE ON THE MARKET. A significant amount of the
Securities offered hereby may be sold to customers of the Representative. Such
customers may subsequently engage in transactions for the sale or purchase of
such Securities through or with the Representative. If it participates in the
market, the Representative may exert a dominating influence on the market, if
one develops, for the Securities described in this Prospectus. Such market
making activity may be discontinued at any time. The price and liquidity of the
Common Stock and the Warrants may be significantly affected by the degree, if
any, of the Representative's participation in such market. See "Description of
Securities" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALES. Sales of shares of Common Stock by
existing shareholders, or by holders of the Warrants, under Rule 144 of the
Securities Act or otherwise could have an adverse effect on the trading price of
the Common Stock or the Warrants. The Company has agreed with the Representative
to cause all holders of the shares of Common Stock outstanding prior to this
Offering to execute lock-up agreements with the Representative that restrict the
sale or disposition of shares of Common Stock for 18 months from the date of
this Prospectus without the prior written consent of the Representative. The

11
<PAGE>

Representative may consent to a waiver of this lock-up period without prior
public notice. Subject to this lock-up restriction, of the 2,807,083 shares of
Common Stock that will be outstanding after this Offering, the 1,100,000 shares
of Common Stock sold in this Offering (or 1,265,000 shares in the event the
Underwriters exercise their Over-allotment Option in full) will be freely
tradeable without restriction under the Securities Act, 573,750 shares will be
eligible for sale under Rule 144 on August 7, 1998 and 1,133,333 shares will be
eligible for sale under Rule 144 on October 21, 1998. See "Description of
Securities" and "Shares Eligible for Future Sale."

ABSENCE OF DIVIDENDS. The Company has not paid any dividends on its Common
Stock and does not expect to do so in the foreseeable future.

IMMEDIATE SUBSTANTIAL DILUTION. The purchasers of the Securities will incur
immediate and substantial dilution of approximately $2.83 or approximately 47%
per share of Common Stock in the pro forma net tangible book value of each share
of Common Stock from the initial public offering price. See "Dilution."

POSSIBLE ADVERSE EFFECTS OF AUTHORIZATION OF PREFERRED STOCK. The Company's
Certificate of Incorporation provides that up to 1,000,000 shares of Preferred
Stock may be issued by the Company from time to time in one or more series. The
Board of Directors is authorized to determine the rights, preferences,
privileges and restrictions granted to and imposed upon any wholly unissued
series of Preferred Stock and to fix the number of shares of any series of
Preferred Stock and the designation of any such series, without any vote or
action by the Company's stockholders. The Board of Directors may authorize and
issue Preferred Stock with voting or conversion rights that could adversely
affect the voting power or other rights of the holders of Common Stock. In
addition, the potential issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company, may
discourage bids for the Common Stock at a premium over the market price of the
Common Stock and may adversely affect the market price of the Common Stock. See
"Description of Securities--Preferred Stock."

12
<PAGE>
USE OF PROCEEDS

The gross proceeds from the sale of the Securities offered hereby will be
$6,710,000 ($7,716,500, if the Over-allotment Option is exercised in full), and
the net proceeds to be received by the Company from the sale of the Securities
offered hereby, after deducting the Underwriters' discounts and commissions and
all other applicable expenses, are estimated to be $5,487,700 ($6,363,355, if
the Over-allotment Option is exercised in full). The Company currently
anticipates applying such proceeds approximately as follows:

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PERCENTAGE
DOLLAR OF NET
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
- ------------------------------------------------------------------ ------------ -------------
<S> <C> <C>
Purchase of Land.................................................. $ 120,000 2.2%
Construction of Manufacturing Plant............................... 800,000 14.6%
Acquisition of Machinery & Equipment.............................. 4,567,700 83.2%
------------ -----
Total............................................................. $ 5,487,700 100.0%
</TABLE>

The above figures represent the Company's best estimate based upon its
present plans and certain assumptions regarding general economic conditions and
the Company's future revenues and expenditures. The Company, therefore, reserves
the right to reallocate the net proceeds of this Offering among the various
categories set forth above as it, in its sole discretion, deems necessary or
advisable.

Any additional net proceeds realized from the exercise of the Over-allotment
Option or the Warrants will be added to the Company's working capital.
The Company believes that the estimated net proceeds to be received by the
Company from this Offering, together with funds from the Private Placement and
from future operations, will be sufficient to meet the Company's working capital
requirements for a period of at least 12 months following the date of this
Prospectus. Thereafter, if the Company has insufficient funds for its needs,
there can be no assurance that additional funds can be obtained on acceptable
terms, if at all. If necessary funds are not available, the Company's business
would be materially and adversely affected.

Prior to expenditure, the net proceeds will be invested in short-term
interest-bearing securities or money market funds.

DIVIDEND POLICY

The Company currently anticipates that it will retain all available funds
for use in its business. The Company's future dividend policy will depend upon
the Company's earnings, capital requirements, financial condition and other
relevant factors.

13
<PAGE>
DILUTION

The Company had a pro forma net tangible book value of $3,420,649, or $2.00
per share of Common Stock, as of October 21, 1996, based upon 1,707,083 shares
of Common Stock outstanding. Pro forma net tangible book value per share is
equal to the Company's total tangible assets less its total liabilities, divided
by the total number of shares of its Common Stock outstanding assuming the
termination of the redemption feature of the Redeemable Common Stock upon
closing of the Company's initial public offering. After giving effect to the
sale of the 1,100,000 shares of Common Stock and 1,100,000 Warrants offered
hereby at an initial public offering price of $6.00 per share of Common Stock
and $0.10 per Warrant and the initial application of the net proceeds therefrom
(after deducting estimated underwriting discounts and commissions and all other
expenses of this Offering), the pro forma net tangible book value of the Common
Stock as of October 21, 1996 would have been $8,908,349 or $3.17 per share. This
would represent an immediate increase in pro forma net tangible book value of
$1.17 per share to existing stockholders and an immediate dilution of $2.83 per
share or 47% to new investors. Dilution is determined by subtracting pro forma
net tangible book value per share after the offering made by this Prospectus
from the amount paid by new investors per share of Common Stock. The following
table illustrates this dilution on a per share basis (assuming $0.10 is
attributed to the Warrants):

<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $ 6.00
Pro forma net tangible book value per share prior to this
Offering (1).............................................. $ 2.00
Increase attributable to new investors...................... $ 1.17
Pro forma net tangible book value per share after this
Offering(2)................................................. $ 3.17
---------

Dilution per share to new investors........................... $ 2.83
---------
---------
</TABLE>

If the Over-allotment Option is exercised in full, the increase in net pro
forma tangible book value per share as of October 21, 1996 attributable to new
investors would be $1.29, the pro forma net tangible book value per share of
Common Stock after this Offering would be $3.29 and the dilution per share to
new investors would be $2.71 or 45%.

The following table summarizes, on a pro forma basis, the number of shares
of Common Stock purchased, the percentage of total consideration paid, and the
average price per share paid by the existing stockholders and new investors in
the offering made by this Prospectus assuming the termination of the redemption
feature of the Redeemable Common Stock upon closing of the Company's initial
public offering. The calculation below is based on an initial public offering
price of $6.00 per share of Common Stock (before deducting the underwriting
discounts and commissions and all other estimated expenses of the offering
payable by the Company and assumes no exercise of the Over-allotment Option).

<TABLE>
<CAPTION>
SHARES TOTAL
PURCHASED CONSIDERATION AVERAGE
--------------------- ------------------------ PRICE
NUMBER % NUMBER % PER SHARE
---------- --- ------------- --- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders(3)........... 1,707,083 61% $ 3,457,375 34% $ 2.03
New Investors...................... 1,100,000 39% 6,600,000 66% $ 6.00
---------- --- ------------- --- -----
Total.............................. 2,807,083 100% $ 10,057,375 100%
</TABLE>

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

(1) Pro forma net tangible book value per share prior to this Offering excludes
deferred registration costs of $14,922. See the financial statements of the
Company and the notes thereto.

(2) Pro forma net tangible book value per share after this Offering assumes the
initial application of estimated net proceeds to the Company of $5,487,700.
See "Use of Proceeds."

(3) Assumes that securities received in exchange for 333,333 shares of Common
Stock at a subscribed price of $1,000,000 are sold for cash. The estimated
fair market value of such securities on October 21, 1996 was $1,090,000.

14
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
October 21, 1996 (i) on an actual basis, (ii) on a pro forma basis to give
effect to the automatic termination of the redemption feature of the Redeemable
Common Stock upon closing of the Company's initial public offering and (iii) the
capitalization on such date as adjusted to give effect to the issuance and sale
of the 1,100,000 shares of Common Stock and 1,100,000 Warrants offered hereby by
the Company and the anticipated application of the estimated net proceeds
therefrom, assuming an initial public offering price of $6.00 per share of
Common Stock and $0.10 per Warrant and no exercise of the Over-allotment Option:

<TABLE>
<CAPTION>
OCTOBER 21, 1996(2)
------------------------------------------
<S> <C> <C> <C>
ACTUAL PRO FORMA AS ADJUSTED(1)
------------ ------------ --------------
Redeemable Common Stock, 1,133,333 shares of Common Stock
designated with redemption feature issued and
outstanding at October 21, 1996; none isued and
outstanding, pro forma and as adjusted.................. $ 3,400,000 $ -- $ --
Stockholders' Equity:
Preferred Stock, par value $0.01 share; 1,000,000 shares
authorized, no shares issued and outstanding.......... -- -- --
Common Stock, par value $0.01 per share; 10,000,000
shares authorized; 573,750 shares (excluding 1,133,333
shares of Redeemable Common Stock) issued and
outstanding actual; 1,707,083 shares outstanding pro
forma; 2,807,083 shares outstanding, as adjusted...... 5,738 17,071 28,071
Additional paid-in capital.............................. 51,637 3,440,304 8,917,004
Accumulated deficit..................................... (21,804) (21,804) (21,804)
------------ ------------ --------------
Total stockholders' equity.............................. 35,571 3,435,571 8,923,271
------------ ------------ --------------
Total capitalization.................................... $ 3,435,571 $ 3,435,571 $ 8,923,271
------------ ------------ --------------
------------ ------------ --------------
</TABLE>

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

(1) As adjusted to give effect to the issuance of 1,100,000 shares of Common
Stock and 1,100,000 Warrants offered by the Company at an assumed initial
public offering price of $6.00 per share of Common Stock and $0.10 per
Warrant and the receipt and initial application of the estimated net
proceeds to the Company of $5,487,700. See "Use of Proceeds."

(2) The Company plans to adopt a fiscal year which begins on July 1 and ends on
June 30.

15
<PAGE>
SELECTED FINANCIAL DATA

The selected financial data presented below for the Company's statement of
operations for the period July 23, 1996, the Company's date of incorporation,
through October 21, 1996, and the balance sheet as of October 21, 1996, are
derived from the Company's financial statements audited by Price Waterhouse LLP
which appear elsewhere in this Prospectus. The information set forth below
should be read in conjunction with the Company's financial statements and the
"Plan of Operations" included herein.

<TABLE>
<CAPTION>
FOR THE PERIOD FROM
JULY 23, 1996
(DATE OF INCORPORATION)
THROUGH OCTOBER 21,
1996(3)
-------------------------
<S> <C>
STATEMENTS OF OPERATIONS DATA
Revenues............................................................................... $ --
Expenses:
General and administrative expenses.................................................. 21,804
-----------
Net loss............................................................................... $ (21,804)
-----------
-----------
Net loss per common share.............................................................. $ (.02)
-----------
-----------
Weighted average number of common shares outstanding(4)................................ 1,306,867
-----------
-----------
</TABLE>

<TABLE>
<CAPTION>
OCTOBER 21, 1996(3)
------------------------------
<S> <C> <C>
AS
ACTUAL ADJUSTED(1)(2)
------------ ----------------
BALANCE SHEET DATA
Cash.............................................................................. $ 285,453 7,933,153
Working capital................................................................... 260,649 8,908,349
Total assets...................................................................... 3,550,375 8,948,075
Total liabilities................................................................. 114,804 24,804
Redeemable Common Stock........................................................... 3,400,000 --
Stockholders' equity.............................................................. 35,571 8,923,271
</TABLE>

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

(3) The Company plans to adopt a fiscal year which begins on July 1 and ends on
June 30.

(4) See note 2 to the Company's financial statements.

16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION

OVERVIEW

On July 23, 1996 the Company was created and on October 14, 1996 it acquired
the rights to manufacture and sell high quality firearms designed by Casull. At
that time, the Company began to assemble a management team and develop a
strategic marketing plan focusing on the introduction of the Company's products
to a variety of consumers. The Company anticipates distributing its products
domestically through a network of wholesalers and retail dealers who have
federal firearms licenses. On October 14, 1996, the Company entered into an
exclusive license agreement with Casull for all of the rights, with certain
exceptions, to his present and future patents and other intellectual property.

The Company has several of its management team in place. The management team
includes a Chief Executive Officer and President. It is anticipated that a Chief
Financial Officer, Vice President of Sales, Vice President of Administration and
Marketing and a Vice President of Manufacturing will be hired within 18 months
of the date of this Prospectus. The Company's marketing plan was developed by an
outside consultant and will be implemented by the President and Vice President
of Sales.

Although the Company is in the development stage and does not expect any
revenues for 18 months, the Company believes there will be significant interest
in the Company's prototypes.

PLAN OF OPERATION

Since the Company was formed on July 23, 1996 it has focused primarily on
raising capital, producing prototypes, hiring the management team, marketing its
future products in industry trade magazines and preparing for the shooting,
hunting, outdoor trade show and conference (the "SHOT" show) which will be held
in January, 1997. The Company's cost for appearing at the SHOT show will be
approximately $100,000.

During the 18 months following this Offering, the Company expects to
purchase land currently identified, construct a manufacturing facility, acquire
and install machine tool equipment, tool the equipment for manufacturing, hire
and train production employees and produce test products. Design and
construction of the facility will begin as soon thereafter as possible.

Once the Company has engaged a general contractor, the Company will focus
upon the acquisition and tooling of appropriate machine tools. The Company has
solicited proposals from several machine tool suppliers requesting
recommendations for specific machine tools and suggesting manufacturing
procedures best suited for the recommended equipment. Following the completion
of this Offering, the Company will order a barrel forging machine which will
produce hammer forged rifle and handgun barrels, CNC machining centers, CNC
turning centers and CNC screw machines. These machines are the major pieces of
equipment involved in the manufacturing process and allow for the longest lead
time between order and delivery. From month 3 to month 6 additional
manufacturing equipment will be ordered. Lead time between ordering and delivery
is important to insure that equipment is delivered to avoid production delays.
Equipment ordered as provided above will be ready for delivery beginning in the
tenth month. Delivery, assembly and testing of the machine tools will take
approximately two months.

Beginning in month 2 after the date of this Prospectus, the Company will
begin to hire employees and secure the management team previously described. The
first employee to be hired will be a machinist who will assist Casull with
research and development, assist in evaluating equipment and tooling, and assist
in producing detailed working drawings of various firearm parts. Once hired, the
Vice President of Manufacturing will be responsible for the manufacturing
process. This person's responsibilities will include the scheduling of product
flow and the planning of raw material acquisitions. Production workers will be
hired as equipment is installed and becomes ready for operation. These
individuals will receive on-the-job training from the machine tool
representatives and their supervisors.

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Between month 6 and month 9 the Company will submit a proposal to Afton,
Wyoming to obtain an economic development grant for job training. If obtained,
this grant may reimburse up to $100,000 of expenses incurred by the Company for
job training. There can be no assurances, however, that the Company will be able
to attract and retain employees with the necessary skills. See "Risk Factors--
Management of Growth and Attraction of Qualified Personnel."

Beginning in month 14 and proceeding through month 18, the Company will
finish tooling the equipment and produce pre-production test firearms. These
firearms will be subjected to rigorous performance testing and quality control.
This procedure is necessary to insure quality firearms.

RESULTS OF OPERATIONS

NET LOSS. The Company reported a net loss of $21,804 or $0.02 per common
share for its initial period of operations from inception (July 23, 1996) to
October 21, 1996. The loss is primarily the result of having no sales generated
for that period as compared to costs and expenses incurred pertaining primarily
to the organizational and developmental activities of the Company to date.

REVENUES. Revenues from July 23, 1996 through October 21, 1996 were $0.

COSTS AND EXPENSES. Costs and expenses from July 23, 1996 through October
21, 1996 totalled $21,804.

LIQUIDITY AND CAPITAL RESOURCES

Capital for the operations of the Company to date has been provided by sale
of Common Stock to the founders of the Company and to purchasers in the private
placement completed on October 21, 1996 (the "Private Placement"). On August 7,
1996, the Company sold 573,750 shares of Common Stock, at a purchase price of
$0.10 per share, to 14 investors. These funds have been or will be used to fund
the organizational activities of the Company.

The Company raised $3,400,000 from the Private Placement with the sale of
1,133,333 shares of Common Stock. The Company agreed that it would not use more
than 10% of the proceeds of the Private Placement to effect its business
objectives unless it raises an additional $5 million of equity capital. The
Company agreed with the purchasers of the Common Stock in the Private Placement
that if it does not raise at least $5 million of additional equity capital on or
before March 31, 1997 it will offer such purchasers the right to sell their
Common Stock back to the Company for at least 90% of the amount paid therefor.
Assuming the completion of this Offering, the Company expects to use the net
proceeds of the Private Placement for working capital and general corporate
purposes.

The Company believes that the estimated net proceeds to be received by the
Company from this Offering, together with funds from the Private Placement and
from future operations, will be sufficient to meet the Company's working capital
requirements for a period of at least 12 months following the date of this
Prospectus. Thereafter, if the Company has insufficient funds for its needs,
there can be no assurance that additional funds can be obtained on acceptable
terms, if at all.

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BUSINESS

GENERAL

The Company plans to construct a manufacturing facility which is expected to
have an annual production capacity of 10,000 -- 12,000 units of firearms. The
manufacturing facility is projected to begin operations within 18 months from
commencement of construction and is expected to be fully operational within two
years from the closing of this Offering. In addition to providing manufacturing
space, the facility will likely contain a retail showroom and custom shop in
which management plans to produce collectors editions and specially engraved
firearms in the custom shop. The manufacturing facility's initial output will be
sold domestically, emphasis may also be placed on developing foreign markets.

The Company intends to order production equipment which will be computer
numerically controlled ("CNC") to ensure speed and repeatability of the
manufacturing process. The CNC milling centers, CNC lathes and CNC barrel
forging machine are sophisticated machines that will be installed by the
manufacturer and will be operated by machinists who will be trained by the
manufacturer.

INDUSTRY OVERVIEW

According to a 1995 survey conducted by the National Sporting Goods
Association, the U.S. market for the firearms and hunting industry was
approximately $3.0 billion. A National Rifle Association study conducted in 1995
indicated that there were approximately 230 million firearms owned by
approximately 60-65 million people. According to American Sports Data
Incorporated, in 1994 approximately 20 million people participated in hunting,
approximately 20 million participated in target shooting and approximately 5
million participated in trap and skeet shooting. The Bureau of Alcohol Tobacco
and Firearms estimates that total U.S. production of firearms was approximately
5.2 million units in 1994.

In May 1996, the Company commissioned the preparation of a marketing plan by
Professor Michael Darling, a marketing professor at the Leonard Stern School of
Business of New York University. This marketing plan included a situation
analysis consisting of market data, consumer behavior information, retail
structure and a detailed competitive analysis. The results of the situation
analysis indicated the following: (i) the market for firearms in the United
States is large and growing; (ii) shooting sports are popular, evidenced by the
20 million Americans who hunt and the 20 million who target shoot; (iii) market
interest among women is growing; and (iv) gun owners typically own several guns.

The markets for handguns and rifles and hunting-related products are large,
mature markets that the Company believes have historically been relatively
stable and have exhibited modest growth over the past three years. Although
firearms may be used for decades with proper maintenance, the Company feels that

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the used firearms after-market has traditionally not undercut the new firearms
market significantly. The reason for this is in part because of demand by
collectors for used firearms and in part because of continuing demand for
improved products. The Company believes that much of the demand in the new
firearms market comes from repeat buyers who are motivated by new calibers and
technological advancements.

From 1985 to 1994 the U.S. production of rifles increased slightly while
sales of revolvers decreased slightly. However, the U.S. production of
semi-automatic pistols has increased substantially. In 1994 U.S. rifle
production was approximately 1.3 million units and revolver production exceeded
550,000 units.

The firearms industry has witnessed few innovative improvements in rifle
design since the turn of the century. Different rifle features have been
introduced, but, in general, cartridges, calibers, and mechanisms have remained
unchanged. As a result, the Company believes that consumer interest in rifles
have stagnated.

RICHARD J. CASULL

Casull enjoys a reputation within the firearms industry as a talented and
innovative firearms designer. In the Shootist Newsletter (May 1993), Alan
Taylor, a noted firearms expert, describes Casull as "the [firearms] design
genius of today". Casull has more than 40 years of experience in the firearms
industry and has been featured in numerous articles in U.S. magazines and also
in magazines published in Germany and Japan. For this reason Casull's reputation
in the firearms industry will be beneficial to the Company.

In the early 1950's Casull set out to build a high powered handgun. His
experiments began with loading "hot" ammunition for the 45 long Colt. The
pressures generated by these loads were generally too high for the quality of
existing handguns. In 1957, Casull developed a handgun chambered for a 454
cartridge while attempting to engineer and design a revolver to exceed the
strength requirements associated with the expected pressures. The strength and
design of this revolver allowed Casull to experiment with triplex loads which
generated over 50,000 pounds of pressure per square inch and still maintained a
safety factor. With the energy and velocity generated by the 454 cartridge,
Casull elevated the handgun to a level equal to high powered hunting rifles. A
handgun chambered for a 454 cartridge is capable of taking all big game animals
including "Africa's big five." The 454 Casull is currently produced by Freedom
Arms, Inc. under an exclusive license from Casull.

Casull also designed a mini-revolver that is accurate and easily fits into
the palm of the hand. The mini-revolver is currently manufactured and sold by
North American Arms. The Company expects to sell a mini-revolver of similar or
better design.

LICENSE AGREEMENT WITH RICHARD J. CASULL

On October 14, 1996, the Company entered into the License Agreement with
Casull, the Company's Chief Executive Officer, whereby Casull granted to the
Company the exclusive worldwide right to utilize any of the present or future
intellectual property developed by Casull not already licensed under prior
agreement. Products which other entities have the right to build include (i) a
design for a revolver chambered in a 454 cartridge and manufactured by Freedom
Arms and (ii) a black powder mini-revolver manufactured by North American Arms.
All other Casull products will be available for the Company to manufacture on an
exclusive basis. The License Agreement provides that the Company will pay Casull
a salary of $100,000 per year and 5% of the Company's revenues from products
utilizing the intellectual property or bearing the "Casull" name; provided that
Casull will be paid a minimum annual royalty of $40,000 and a maximum annual
royalty of $400,000 per calendar year. This fee is payable to Casull for the
remainder of his life. The royalty payments due under the License Agreement will
cease upon the death of Casull; however, if Casull's wife, Mrs. Geraldine
Casull, should survive Casull, the royalty payments will continue until the
earlier of ten years from the date the first royalty payment is made to Casull
pursuant to

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the License Agreement or the death of Mrs. Casull. In the event that Casull's
employment with the Company is terminated, the Company will cease payment of the
salary to Casull; however, the minimum annual royalty and the maximum annual
royalty will increase from $40,000 to $120,000 and from $400,000 to $500,000,
respectively. Casull may terminate the License Agreement if the Company fails to
pay to Casull the royalties due him, or if the Company fails to keep or perform
any other material provision of the License Agreement, or if the Company files
for protection under Federal or state bankruptcy laws, or is placed in the hands
of a receiver or trustee in bankruptcy. The Company may cure such default within
60 days of the receipt of written notice from Casull. In the event the License
Agreement is canceled by Casull with cause, the licenses granted to the Company
under the License Agreement will terminate.

PRODUCTS

The Company plans initially to manufacture four different types of firearm
products in two industry categories: revolvers (large frame, small frame and
mini-revolvers) and rifles. It is contemplated that these firearms will be made
available in several styles based upon caliber, barrel length and other
features.

REVOLVERS

A revolver is a handgun which has a cylinder that holds the ammunition in a
series of chambers which are successively aligned with the barrel of the gun
during each firing cycle. A cartridge is the casing that holds the bullet and
gun powder in place within the rifle.

LARGE FRAME

The Company expects to produce large frame revolvers primarily chambered for
a 454 cartridge. The 454 cartridge is a 45 caliber magnum revolver cartridge
that is approximately 60% more powerful than the 44 magnum. In addition to being
chambered in the 454 cartridge, other 45 caliber ammunition can be fired by
interchanging cylinders. The Company expects that cylinders for the large frame
revolver will be chambered to fire 45 ACP, 45 Winchester magnum and 45 long Colt
cartridges. The Company plans to sell interchangeable cylinders which will be
sold as accessories to the large frame revolver. Although the 45 caliber will be
the backbone of manufacturing and marketing for the large frame revolver, it can
be successfully chambered in any caliber, from 22 long rifle up to 50 AE (Action
Express). The Company believes that it is not prevented from selling a gun which
contains a 454 cartridge; however, the Company's ability to market such firearms
may be hindered by its inability to use the "454 Casull" trademark until the
expiration on February 1, 1998 of the exclusivity of the license granted by
Casull to Freedom Arms, Inc.

SMALL FRAME

Casull has designed a small frame revolver that is approximately 80% of the
size of the large frame revolver. The prototype small frame revolver is
currently chambered in 32 H&R magnum and is believed to be an ideal size for 22
long rifle and 22 magnum. When chambered in 22 caliber, the small frame revolver
can be sold with a 22 long rifle cylinder and 22 magnum cylinder which allow
either cartridge to be fired.

MINI-REVOLVER

Casull has two mini-revolver designs that the Company intends to produce.
The designs include a double action revolver with an enclosed hammer, a fold up
trigger and a manual safety. The other mini-revolver is a single action firearm.
These revolvers are designed to chamber either the 22 long rifle or the 22
Winchester magnum cartridge.

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RIFLES

A rifle is a long gun with spiral grooves cut into the interior of the
barrel to give the bullet a stabilizing spin after it leaves the barrel.

THE CASULL RIFLE.

The Rifle will differ from the conventional rifle, providing, management
believes, a more powerful and more accurate weapon. It has been engineered to
propel a bullet at greater velocities than conventional rifles without
significantly increasing pressures. This increase in efficient utilization of
energy is achieved by using a short fat cartridge.

The short fat cartridge system has advantages over current cartridges. The
short fat cartridge effectuates powder burning in the cartridge rather than
burning as it is pushed down the barrel. The result is that energy is focused
solely on propelling the bullet rather than propelling the bullet and the
powder.

In contrast, long narrow cartridges promote powder burning to occur both in
the cartridge and in the barrel, consequently reducing the amount of energy
applied to the bullet, thereby negatively affecting the velocity of a given
load.

Perhaps one of the most significant problems in developing a short fat
cartridge is the required bolt size. Traditionally, the bolt's diameter had to
be substantially greater than the diameter of the cartridge head. This was
necessary so that the extractor could connect to the case head exterior notch
and extract the shell. Casull believes he has solved this problem by designing a
case which is based on an interior extraction. The Casull bolt inserts into a
recessed area of the cartridge head and connects to an interior extraction ring.
This inside extraction method allows the bolt to be the same size as the case.
Thus a short fat cartridge may be used without having a prohibitively large
bolt.

CHARACTERISTICS OF THE CASULL RIFLE

SUPERIOR VELOCITIES. The efficient use of energy generated by the Rifle
creates superior velocities. In test firings of the 30 caliber Rifle
prototype conducted by Casull, superior velocities of 3,450 feet per second
were obtained using a 200 grain bullet.

BARREL LIFE. In addition to superior velocities, it is believed that the
Casull system increases barrel life. In conventional rifles, barrel wear
occurs because much of the powder is burned in the barrel, resulting in high
temperatures generated from the burning gun powder. The Rifle has been
designed to minimize the amount of powder burned in the barrel, increasing
the useful life of the barrel.

SAFETY CONSIDERATIONS. Conventional cartridges are designed to protrude
from the chamber allowing the extractor to attach to the cartridge rim. The
area where the cartridge extends beyond the chamber is vulnerable to
cracking, which can result in blow-backs. The Rifle, however, is designed so
that the cartridge is entirely inserted into the chamber. This design tends
to seal all gases in the chamber and thereby reduces the possibility of a
blow-back.

THE FLASH TUBE. It is believed that the Rifle can be further enhanced by
the use of a flash tube to achieve front ignition just behind the bullet. A
flash tube is a small cylindrical tube that fits in the interior of the case
and over the primer flash hole. As the primer detonates, the powder column
is ignited from just behind the bullet, and the powder column burns from the
bullet backwards. The advantage to this is that no powder burns in the
barrel, which eliminates the added weight of unburned and burning powder
being pushed down the barrel along with the bullet. The result is higher
velocities because less mass is being propelled.

The use of a flash tube also appears to improve the efficiency of the
Rifle. Without a flash tube, the powder at the bottom of the case (or by the
flash tube hole above the primer) is ignited first. Because the powder
column is narrow and the burning powder causes increased pressure, a slow

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burning powder should be used. Consequently, this powder is pushed down the
barrel, weighing on the bullet and negatively affecting its velocity. The
use of a flash tube, then, enhances the ability of the Rifle to use energy
efficiently.

RELOADING SIMPLICITY. The Rifle allows for simplicity and precision in
reloading. Casull has designed the Casull Cartridge System and flash tube
with manufacturing and reloading in mind. The case will be made of brass
with a stainless steel head. The stainless steel head not only provides
great strength around the primer pocket but is also conducive to increased
case life. Cases and ammunition will be manufactured for a flash tube and
will also be configured without the flash tube. Those cases designed to be
used with a flash tube will have a deep primer pocket. The flash tube will
be inserted through the primer pocket and held in place by the primer.

HAMMER FORGED BARRELS

In addition to manufacturing firearms, the Company intends to manufacture
hammer forged barrels to be sold as replacement barrels in used rifles. The
Company will acquire a precision hammer forging machine designed specifically to
produce hammer forged firearm barrels. In the opinion of some firearms experts,
hammer forging creates one of the highest quality rifle barrels available today.
Many of the high quality rifles available on the market today come with hammer
forged barrels.

It is management's belief that there is no current source for consumers to
acquire hammer forged barrels to be used in replacing the barrels on used
rifles. The Company will manufacture and sell hammer forged barrels to satisfy
this market. In addition to supplying hammer forged barrels to consumers, the
Company will use these barrels in producing revolvers and the Rifle.

The barrels produced by the Company will be marketed under the "Casull"
name, which is well-known as a result of Casull's affiliation with other noted
barrel makers. The Casull barrels will be for all types of calibers from 22 up
to 45. In addition, the barrels could be chambered at the plant for a specific
cartridge. Thus, for example, a barrel can be made to shoot a 22 caliber bullet
yet it can be chambered for one of several cartridges such as a 222
Remington-TM-, 223 Remington-TM-, 22 PPC-TM-, 225 Winchester-TM-, 22-250
Remington-TM- and various other cartridges. The Company will have the capability
of supplying barrels for most of the common calibers and chambers for most
cartridges.

PRODUCT DEVELOPMENT

The Company intends to introduce other products. Casull has also designed
reloading equipment, dies, presses and shell holders for certain cartridges.
Moreover, the Company will seek to manufacture or license a clothing-line under
the Casull name. These and other paraphernalia may be manufactured by or for the
Company with the intent to increase the awareness of the Casull brand in the
marketplace. The License Agreement provides that Casull will bear the costs
associated with developing prototypes. Once a prototype has been created, the
Company will incur research and development costs to develop manufacturing
procedures and methods for each product.

MANUFACTURING

The primary raw material which will be used in the manufacturing of the
Company's products is stainless steel. Aluminum, other steels and wood will be
used in the process. The stainless steel and the other metal products will be
available from various steel mills and steel distributors throughout the
country. Wood and other materials used in handgun grips and rifle stocks are
also available from various mills and distributors. The Company will purchase
raw materials from the suppliers that offer both favorable pricing and quality
materials.

The raw materials will then be developed with state of the art equipment.
The majority of the production equipment will be computer-operated and capable
of performing many functions at high

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speeds. The machinery to be acquired by the Company will have the ability to
manufacture 10,000 to 12,000 units per year. Although computer-controlled, the
equipment will still require constant monitoring by machinists for tool wear and
quality.

Prior to final finishing, firearms will be assembled and test-fired in order
to insure that the firearms function properly and operate safely. Much of the
final assembly and finishing of the firearms will be performed by craftsmen who
will insure that the firearm functions properly and that the aesthetics are of
fine quality.

MARKETING STRATEGY

The Company's management has identified several potential candidates for the
position of Vice President of Marketing. This individual will be responsible for
product packaging, advertising, customer relations and customer service. In
addition to the Vice President of Marketing, the Company expects to engage
manufacturers' representatives to sell the products. The Company is negotiating
with Star Valley Marketing, Inc. to provide for the marketing of the Company's
products in North America. Star Valley Marketing, Inc. is associated with 51
independent manufacturers' representatives who presently represent companies
such as Beretta-TM- and Swarovski Optics-TM-. These representatives deal
directly with over 2,500 licensed firearms dealers nationwide.

DOMESTIC DISTRIBUTION. Manufacturers' representatives will be instrumental
in the promotion of the Company's products. They will introduce the new products
to the dealer and will serve as liaison between the dealers and the Company. As
representatives of the product, they will also play a very important part in
trade shows such as the Shot Show, the Safari Club Show and the Nuremberg Gun
Show. Manufacturers' representatives will provide a medium for the efficient
dissemination of information and the introduction of new products, such as the
Rifle, to the market.

INTERNATIONAL DISTRIBUTION. In addition to addressing the demands of the
U.S. market, the Company will seek to export products to foreign markets. Prior
to exporting any product, the Company must obtain an exportation license from
the Bureau of Alcohol Tobacco and Firearms, and must get approval from the State
Department. The Company will apply for these licenses and approvals during the
period that the manufacturing facility is being built. This will permit the
exporting of products and the development of foreign markets during the early
stages of production.

The Company expects that its products will be marketable for use in the
following markets:

RECREATIONAL SHOOTING. Recreational shooting, which includes target
shooting, silhouette shooting, action shooting and plinking is on the increase
in the U.S. Action shooting such as "cowboy shooting" has become popular. Cowboy
shooting requires the use of a single action revolver and a lever action rifle
over a predetermined course. The Company believes that the large and small frame
revolvers are ideal for these types of shooting activities.

HUNTING. The Company expects that the revolvers and the Rifle will be
popular hunting firearms. A handgun chambered in a 454 cartridge has taken
"Africa's big five." The Company believes that the combination of high velocity,
flat trajectory, increased accuracy, and impact energy contributes to an
outstanding hunting firearm. Both the Rifle and the revolvers are believed to
possess these qualities.

COMPETITIVE SHOOTING. The Company anticipates that the Rifle and the
revolvers will be favorably received by silhouette shooters. In the
International Handgun Metallic Silhouette Association's 1995 World Championship,
a majority of the shooters used guns designed by Casull. In the Centerfire
Revolver International Class, 43 of the top 47 shooters used a firearm designed
by Casull and manufactured by Freedom Arms, Inc. In the Rimfire Revolver
International Class, 17 of the top 20 shooters used a firearm designed by Casull
and manufactured by Freedom Arms, Inc. The Company plans on selling some, but
not all, of the firearms used by the top shooters in those competitions.

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Management believes the Rifle will improve competitive shooting, especially
in the long distance accuracy shooting arena which includes events such as the
Camp Perry competition. Long distance events are those which involve shooting
distances of 1,000 yards or more. It is expected that the Rifle will be in high
demand in these events because of the "flat" trajectory and high velocity. These
factors improve accuracy by decreasing the effect of wind and gravity on the
bullet over a specified distance.

COLLECTORS. In order to attract the gun collectors market, the Company
plans to open a custom shop. The custom shop will provide customers with the
ability to customize the Company's products with such items as exotic grips,
woods and engraving. Additionally, the custom shop will produce limited edition
runs of each new product introduced and commemorative special editions.

MILITARY & POLICE. The Company believes that the velocity, trajectory, and
terminal energy of a bullet fired from the Rifle will make it useful in military
and/or police service.

INTELLECTUAL PROPERTY

The Company has entered into a License Agreement with Casull for rights to
his present and future patents and other intellectual property, with the
exception of (i) the U.S. Pat. No. 5,048,216, generally referred to as the
"barrel forcing cone bushing", (ii) the "454 Casull" trademark, registered in
connection with ammunition, which the Company has exclusively licensed to
Freedom Arms, Inc. through February 1, 1998 and (iii) a black powder
mini-revolver manufactured by North American Arms.

The Company will rely upon a combination of contractual arrangements,
patent, copyright and trademark laws to protect its proprietary rights and the
proprietary rights of third parties from whom the Company licenses intellectual
property. There can be no assurance that the steps taken by the Company in this
regard will be adequate to deter misappropriation of proprietary information or
that the Company will be able to detect unauthorized use and take appropriate
steps to enforce its intellectual property rights. All intellectual property
developed by Casull will be assigned to the Company.

COMPETITION

The markets in which the Company will operate are highly competitive. The
Company believes that competition in the firearms industry is based primarily on
quality, product innovation, product image, price, customer service and support.

The Company's competitors will vary according to product line. Certain of
these competitors are subsidiaries of large corporations with substantially
greater financial resources than the Company.

The Company believes that it is not prevented from selling a gun which
contains a 454 cartridge; however, the Companys' ability to market such firearms
may be hindered by its inability to use the "454 Casull" trademark until the
expiration on February 1, 1998 of the exclusivity of the license granted by
Casull to Freedom Arms, Inc.

The Company will manufacture the Rifle (chambered for the Casull cartridge)
and rifles chambered for conventional cartridges. Management believes that the
technology of the Rifle will place it in the high end of the market. The rifles
chambered for conventional cartridges will compete with rifles produced by large
manufacturers, such as Weatherby and Remington, smaller manufacturers such as
Dakota Arms, Lazzeroni Arms Company and custom gunsmiths.

The Company's large frame revolver will compete directly with Freedom Arms'
single action revolver. The primary difference between the Company's revolver
and Freedom Arms' revolver is the action. Casull has designed a new action that
prevents the firing pin from resting on the cartridge when the hammer is down.
The new action may prevent accidental discharge of the gun, if dropped or if the
hammer is mistakenly hit. Such accidental discharges have occurred in other
revolvers that do not have this feature.

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<PAGE>

The Company's revolvers are expected to have distinctive cosmetic features such
as the grips, barrel design and other such variations.

GOVERNMENT REGULATION

The Company will be subject to extensive federal, state, local and foreign
firearms regulations. Among the Federal firearms laws to which the Company will
be subject are THE GUN CONTROL ACT OF 1968 (the "GCA"), THE NATIONAL FIREARMS
ACT (the "NFA"), THE ARMS EXPORT CONTROL ACT (the "AECA") and THE FEDERAL
FIREARMS ACT (the "FAA"). The Company plans to be in compliance with all
regulatory and licensing requirements of the GCA, NFA and FAA. The Company
currently does not export any firearms, and consequently is not subject to the
requirements of AECA. However, it is the Company's intention to obtain all
licenses necessary to export firearms.

The purchase of firearms is subject to federal, state, and local
governmental regulations. The applicable federal laws are the NFA and the FFA.
These laws generally prohibit the private ownership of fully automatic weapons
and place certain restrictions on the interstate sale of firearms unless certain
licenses are obtained. Currently, the Company does not intend to manufacture
fully automatic weapons, and is in the process of obtaining all necessary
licenses under these federal laws. From time to time, congressional committees
review proposed bills relating to the regulation of firearms. These proposed
bills generally seek either to restrict or to ban the sale, and in some cases
the ownership, of various types of firearms, or to impose a mandatory waiting
period prior to their purchase. Several states and many local municipalities
currently have laws in effect similar to the aforementioned legislation or other
laws which have the effect of discouraging the sale or ownership of firearms.

The Brady Law, mandating a nationwide 5-day waiting period prior to the
purchase of a handgun, was signed into law in November 1993, and became
effective February 28, 1994. The Company believes that, because its customers
are expected to be sportsmen, hunters, gun collectors, and law enforcement
agencies, and since approximately 26 states already have enacted some form of a
waiting period prior to purchase, the Brady Law will not have a significant
effect on the Company's sales of firearms. The "Crime Bill" took effect on
September 13, 1994, but the Company believes that none of its products appear to
qualify as "assault weapons" under the "Crime Bill." However, there can be no
assurance that the regulation of firearms will not become more restrictive in
the future and that any such restrictions would not have a material effect on
the business of the Company.

INSURANCE

The Company currently does not maintain liability insurance coverage. Prior
to producing any firearms, the Company will attempt to obtain product liability
insurance coverage. There can be no assurance that the Company will be able to
obtain adequate liability insurance coverage.

LEGAL PROCEEDINGS

The Company is currently not a party to any legal proceedings.

EMPLOYEES

As of the date of this Prospectus, the Company has no employees. However,
the Company anticipates that its operations over the next twelve months will
require approximately 8 employees, the majority of which will be members of the
management team.

PROPERTIES

Immediately upon the closing of this Offering, the Company intends to
purchase from International Financial Group of Wyoming, Inc. ("IFG"), an entity
controlled by Allan R. Tessler, land upon which the manufacturing facility will
be built. The land, located in Afton, Wyoming, consists of 10 acres and will be
purchased by the Company from IFG for $120,000. This amount approximates (i) the
price IFG paid for the land, (ii) IFG's transaction costs incurred for the
purchase and sale of the land and (iii) interest at the rate of 6% on the
purchase price of the land during the term of IFG's ownership of the land.

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<PAGE>
MANAGEMENT

DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES

The executive officers, directors and other significant employees of the
Company are as follows:

<TABLE>
<CAPTION>
NAME AGE POSITION(S)
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>

Allan R. Tessler..................................... 60 Chairman of the Board

Richard J. Casull.................................... 64 Chief Executive Officer, Chief Operating Officer and
Director

David M. Myers....................................... 43 President and Director

David R. Markin...................................... 65 Director

Andrea L. Tessler.................................... 33 Director

Marshall Kiev........................................ 28 Director
</TABLE>

Directors hold office until the next annual meeting of stockholders and
until their respective successors have been elected and qualified. Executive
officers are chosen by and serve at the discretion of the Board of Directors.
Both Mr. Casull and Mr. Myers, the executive offices of the Company, intend to
devote their full time efforts to the Company.

ALLAN R. TESSLER, has served as Chairman of the Board of the Company since
its inception. Mr. Tessler also serves as Co-Chief Executive Officer and
Co-Chairman of the Board of Data Broadcasting Corporation ("DBC"), a distributor
of stock market and relevant information to individual investors, since June
1992 and has served as Chairman of the Board and CEO of International Financial
Group, Inc., an international merchant banking firm since 1987. He was Chairman
of the Board of Great Dane Holdings, Inc. ("Great Dane"), a diversified holding
company until December 1996, Enhance Financial Services Group Inc. ("Enhance), a
municipal bond reinsurer, and Jackpot Enterprises, Inc. ("Jackpot"), a gaming
machine route operator. From December 1991 through September 1993 Mr. Tessler
was Chairman of the Board and CEO of Ameriscribe Corporation, a national
provider of facilities management services. Mr. Tessler also serves on the
boards of The Limited, Inc., Allis-Chalmers Corporation and New T&T DBC Limited,
a joint-venture between DBC and New T&T Hong Kong Limited, a wholly-owned
subsidiary of Wharf Communications Investments, Ltd. Mr. Tessler was appointed
to serve on the restructuring team formed to address the financial problems of
Financial News Network Inc. ("FNN"), and in that capacity served as Co-Chief
Executive Officer of FNN from October 1990 until June 1992. On June 26, 1992,
the effective date of FNN's plan or reorganization under Federal bankruptcy
laws, DBC was spun off from FNN. Mr. Tessler currently serves as a director of
the FNN Estate, having been named to the board in June 1991. From October 1990
until September 1992, Mr. Tessler also served as a Co-Chief Executive Officer of
Infotechnology, Inc., an integrated information technology and communications
concern. Allan R. Tessler is the father of Andrea L. Tessler.

RICHARD J. CASULL has served as Chief Executive Officer, Chief Operating
Officer and a Director of the Company since its inception. Mr. Casull has over
forty years of experience in the firearms industry, and for the last five years
has been a self-employed firearms designer and consultant. He began his career
working with firearms experts such as P.O. Ackley, Bill Mayne and Jack Fulmer.
He has successfully introduced various handguns and rifles to companies such as
Freedom Arms, North American Arms, Rocky Mountain Arms and Western State Arms.

DAVID M. MYERS has served as President and a Director of the Company since
its inception. He is a Certified Public Accountant currently licensed to
practice in Wyoming, and from 1991 to the present, Mr. Myers has been a private
practicing accountant specializing in consulting and tax. From 1990 to 1991, he
was employed by Coopers & Lybrand as a Senior Tax Manager. Prior thereto, Mr.
Myers was a Senior

27
<PAGE>

Manager at KPMG Peat Marwick from 1978 to 1990. Mr. Myers has also served as an
accounting instructor at the University of Utah. Mr. Myers received his Master
of Professional Accountancy degree and his B.S. degree from the University of
Utah.

DAVID R. MARKIN has served as a Director of the Company since its inception.
Mr. Markin was the President and Chairman of the Board of Checker Motors
Corporation, a manufacturer, insurer, and operator of transportation equipment,
from 1970 until December 1996 and President of Great Dane from 1989 until
December 1996. Mr. Markin served as a director of FNN from July 1991 until June
1992, and as a director of Infotech from July 1991 until September 1992. Mr.
Markin also serves as a director of Jackpot, DBC and Enhance.

ANDREA L. TESSLER has served as a Director of the Company since its
inception. Ms. Tessler is a Managing Director of FH Capital Advisors, Inc., a
private merchant banking concern, and Senior Vice President of Family Management
Corporation, a registered investment advisory firm, located in New York City,
which provides financial counsel to high net worth individuals and families.
Since September of 1989, Ms. Tessler has been affiliated with Nathan & Lewis
Securities, Inc. (a "broker-dealer") as a registered representative. Prior to
her co-founding of Family Management, she was an independent financial services
representative licensed with Integrated Resources Equity Corporation (a
"broker-dealer") from 1987 to 1989. From 1985 to 1986 she was employed by E.F.
Hutton Corp. as a financial planner. Ms. Tessler received her B.A. degree in
Economics from Cornell University. Andrea L. Tessler is the daughter of Allan R.
Tessler.

MARSHALL KIEV has served as a Director of the Company since its inception.
Mr. Kiev is a Managing Director of FH Capital Advisors, Inc., a private merchant
banking concern and Vice President of Family Management Corporation, a
registered investment advisory firm, located in New York City, which provides
financial counsel to high net worth individuals and families. Since September of
1989, Mr. Kiev has been affiliated with Nathan & Lewis Securities, Inc. (a
"broker-dealer") as a registered representative. Mr. Kiev is a Director of The
Social Psychiatry Research Institute, serves on the Board of Trustees of the I.
Edward Kiev Library Foundation and serves on the Board of the National Council
for Arts and Science at George Washington University. He received his M.B.A.
degree in Finance and his B.A. degree in Sociology from New York University.

DIRECTOR COMPENSATION

Non-employee directors will receive a fee of $2,500 for each meeting of the
Board attended and $250 for each meeting of any committee of the Board attended,
and reimbursement of their actual expenses. The Company's cash compensation of
non-employee directors will not exceed $10,000 in any fiscal year, in addition
to reimbursement of their actual expenses. In addition, pursuant to the Stock
Option Plan, each non-employee director will receive an annual grant of options
to purchase 10,000 shares of Common Stock on the last trading day in January at
the average of the closing bid and ask price of the Common Stock as reported on
NASDAQ SCM. This grant of options will begin in February 1997.

EXECUTIVE COMPENSATION

The Company has not paid any compensation during 1996. The Company expects
that Mr. Myers, the Company's President, will be paid an annual salary of at
least $100,000 during 1997. The Company expects that Casull, the Company's Chief
Executive Officer, will be paid an annual salary of at least $100,000 during
1997. Casull will also receive royalties from the Company in accordance with the
License Agreement, dated October 14, 1996, entered into between Casull and the
Company. Casull will be paid 5% of the Company's revenues from products
utilizing the Intellectual Property or bearing the "Casull" name, provided that
Casull be paid a minimum annual royalty of $40,000 and a maximum annual royalty
of $400,000. In the event that Casull's employment with the Company terminates,
the minimum and

28
<PAGE>
maximum annual royalty will increase from $40,000 to $120,000 and from $400,000
to $500,000, respectively. See "Business--License Agreement with Richard J.
Casull."

MANAGEMENT AGREEMENT

FH Capital Advisors, Inc. (the "Advisor") and the Company entered into a
management agreement which term begins upon the closing of this Offering and
expires 30 days after either party gives written notice of termination to the
other. The agreement provides that the Advisor will provide to the Company such
reasonable advice, service, consultation and assistance as the Company will seek
from Advisor with respect to the Company's business affairs and will perform
such other services related to the business affairs of the Company as the Board
of Directors shall reasonably request. The services to be performed by the
Advisor will be performed by certain officers of the Advisor or such other
person designated by the Advisor and approved by the Board of Directors. The
agreement provides for a management fee of $5,000 per month. The Advisor will
bear the expense for rent, telephone, utilities, office furniture, equipment and
machinery and other office expenses of Advisor relating to the performance by
Advisor of its duties hereunder. The Company will be responsible for all other
expenses incurred by Advisor relating to the performance by Advisor of its
duties. See "Certain Transactions."

INDEMNIFICATION OF OFFICERS AND DIRECTORS

The Company's by-laws require the Company to indemnify its officers and
directors to the fullest extent allowed by law. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to directors,
officers and controlling persons of the Company, the Company has been advised
that in the opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Company of expenses incurred or paid by a director, officer
or controlling person of the Company in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate 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.

STOCK OPTION PLAN

A total of 300,000 shares of Common Stock are reserved for issuance under
the Stock Option Plan (the "Plan"), and none of such options will be granted
prior to the closing of the Offering. The Plan provides for the award of
options, which may either be incentive stock options ("ISOs") within the meaning
of Section 422A of the Internal Revenue Code of 1986, as amended (the "Code") or
non-qualified options ("NQOs") which are not subject to special tax treatment
under the Code. The Plan is administered by the Board or a committee appointed
by the Board (the "Administrator"). Officers, directors, employees of, and
consultants to, the Company or any parent or subsidiary corporation selected by
the Administrator are eligible to receive options under the Plan. Subject to
certain restrictions, the Administrator is authorized to designate the number of
shares to be covered by each award, the terms of the award, the dates on which
and the rates at which options or other awards may be exercised, the method of
payment and other terms.

The exercise price for ISOs cannot be less than the fair market value of the
stock subject to the option on the grant date (110% of such fair market value in
the case of ISOs granted to a stockholder who owns more than 10% of the
Company's Common Stock). The exercise price of a NQO shall be fixed by the
Administrator at whatever price the Administrator may determine in good faith.
Unless the Administrator determines otherwise, options generally have a 10-year
term (or five years in the case of ISOs granted to a participant owning more
than 10% of the total voting power of the Company's capital stock). Unless the
Administrator provides otherwise, options terminate upon the termination of a
participant's employment,

29
<PAGE>
except that the participant may exercise an option to the extent it was
exercisable on the date of termination for a period of time after termination.

Generally, awards must be exercised by cash payment to the Company of the
exercise price. However, the Administrator may allow a participant to pay all or
a portion of the exercise price by means of a promissory note, stock or other
lawful consideration. The Plan also allows the Administrator to provide for
withholding and employment taxes payable by a participant to the Company upon
exercise of the award. Additionally, the Company may make cash grants or loans
to participants relating to the participant's withholding and employment tax
obligations and the income tax liability incurred by a participant upon exercise
of an award.

In the event of any change in the outstanding shares of Common Stock by
reason of any reclassification, recapitalization, merger, consolidation,
reorganization, spin-off, split-up, issuance of warrants, or rights or
debentures, stock dividend, stock split or reverse stock split, cash dividend,
property dividend or similar change in the corporate structure, the aggregate
number of shares of Common Stock underlying any outstanding options may be
equitably adjusted by the Administrator in its sole discretion.

The Administrator may, at any time, modify, amend or terminate the Plan as
is necessary to maintain compliance with applicable statutes, rules or
regulations; provided, however, that the Administrator may condition the
effectiveness of any such amendment on the receipt of stockholder approval as
may be required by applicable statute, rule or regulation. In addition, the Plan
may be terminated by the Board of Directors as it shall determine in its sole
discretion, in the absence of stockholder approval; provided, however, that any
such termination will not adversely alter or impair any option awarded under the
Plan prior to such termination without the consent of the holder thereof.

30
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth as of October 21, 1996, and as adjusted to
reflect the sale of shares offered hereby, certain information regarding the
ownership of shares of Common Stock by: (i) each person known to the Company to
be a beneficial owner of more than 5% of the outstanding shares of Common Stock;
(ii) each director, and (iii) all directors and executive officers as a group.

<TABLE>
<CAPTION>
NUMBER OF PERCENT PERCENTAGE TO
SHARES OWNED BE OWNED
DIRECTORS, NAMED PERSONS, BENEFICIALLY BEFORE AFTER
AND 5% STOCKHOLDERS(1) OWNED(2) OFFERING(3) OFFERING(4)
- ---------------------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Allan R. Tessler(5)....................................................... 383,333 22.5% 13.7%
Richard J. Casull......................................................... 71,875 4.2% 2.6%
David M. Myers............................................................ 71,875 4.2% 2.6%
David R. Markin........................................................... 383,333 22.5% 13.7%
Andrea L. Tessler......................................................... 82,334 4.8% 2.9%
Marshall Kiev............................................................. 49,000 2.9% 1.7%
All executive officers and directors as a group........................... 1,041,750 61% 37.1%
</TABLE>

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

(1) All addresses are c/o Casull Arms Corporation, 3490 Clubhouse Drive, P.O.
Box 7443, Jackson, Wyoming 83001.

(2) Beneficial Ownership has been determined in accordance with Rule 13d-3 under
the Exchange Act and unless otherwise indicated, represents shares for which
the beneficial owner has sole voting and investment power. The percentage of
class is calculated in accordance with Rule 13d-3.

(3) Based upon a total number of shares of Common Stock outstanding of
1,707,083. Includes 1,133,333 shares of Redeemable Common Stock which shares
are subject to redemption for at least 90% of the amount paid therefor by
the holders of such shares if the Company does not raise at least $5 million
of additional equity capital on or before March 31, 1997.

(4) Based upon a total number of shares of Common Stock outstanding of
2,807,083.

(5) Includes 50,000 shares of Common Stock owned by International Financial
Group of Wyoming, Inc. which is controlled by Allan R. Tessler.

CERTAIN TRANSACTIONS

Since the Company's inception there have not been any material transactions
between it and any of its affiliates, except as set forth herein.

In August 1996, the Company sold 573,750 shares of Common Stock to the
Company's founders for $0.10 per share. Of such shares, 71,875 shares were
purchased by Casull, 71,875 shares were purchased by David M. Myers, 50,000
shares were purchased by International Financial Group of Wyoming, Inc. which is
controlled by Allan R. Tessler, 50,000 shares were purchased by David R. Markin,
49,000 shares were purchased by Marshall Kiev and 82,334 shares were purchased
by Andrea L. Tessler.

In October 1996, the Company completed the Private Placement pursuant to
which it sold 34 units for $100,000 per unit to qualified investors. Each unit
consisted of 33,333 shares of Common Stock. Allan R. Tessler and David R.
Markin, directors of the Company, each purchased 10 units in the Private
Placement. Mr. Tessler paid for the units with common stock of a publicly traded
company which had a market value in excess of $1,000,000. The Company's ability
to liquidate the shares is contingent on the closing of this Offering. Mr.
Tessler has agreed to pay the amount by which the market value of such shares is
below $1,000,000 at the time the Company sells such shares.

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<PAGE>
On October 14, 1996, the Company entered into the License Agreement with
Casull, the Company's Chief Executive Officer, whereby Casull granted to the
Company the exclusive worldwide right to utilize any of the present or future
intellectual property developed by Casull not already licensed under a prior
agreement. The agreement provides that the Company will pay Casull a salary of
$100,000 per year and 5% of the Company's revenues from products utilizing the
intellectual property or bearing the "Casull" name; provided that Casull will be
paid a minimum annual royalty of $40,000 and a maximum annual royalty of
$400,000 per calendar year. This fee will be payable to Casull for the remainder
of his life. The royalty payments due hereunder will cease upon the death of
Casull, however, if Casull's wife, Mrs. Geraldine Casull, survives Casull, the
royalty payments will continue until the earlier of ten years from the date the
first royalty payment is made to Casull pursuant to the agreement or the death
of Mrs. Casull. In the event that Casull's employment with the Company is
terminated, the minimum annual royalty and the maximum annual royalty will
increase from $40,000 to $120,000 and from $400,000 to $500,000, respectively.

The Company has entered into a management agreement with FH Capital
Advisors, Inc. The management agreement provides that Marshall Kiev and Andrea
Tessler, directors of the Company, will provide advice, service, consultation
and assistance to the Company on behalf of FH Capital Advisors, Inc. The
agreement provides for a management fee of $5,000 per month. The Company will
also be responsible for certain expenses incurred by FH Capital Advisors
relating to the performance of its duties.

Immediately upon the closing of this Offering, the Company intends to
purchase from International Financial Group of Wyoming, Inc., an entity
controlled by Mr. Allan Tessler, the land upon which the manufacturing facility
will be built. The land located in Afton, Wyoming consists of 10 acres and will
be purchased by the Company from IFG for $120,000. This amount approximates (i)
the price IFG paid for the land, (ii) IFG's transaction costs incurred for the
purchase and sale of the land and (iii) interest at the rate of 6% on the
purchase price of the land during the term of IFG's ownership of the land.

All future transactions, including loans, between the Company and its
officers, directors, principal stockholders and affiliates will be approved by a
majority of the Board of Directors, including a majority of the independent and
disinterested outside directors on the Board of Directors, and will be on terms
no less favorable to the Company than could be obtained from unaffiliated third
parties.

32
<PAGE>
DESCRIPTION OF SECURITIES

The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock and 1,000,000 shares of Preferred Stock.

COMMON STOCK

The Company's authorized common stock consists of 10,000,000 shares of
Common Stock. As of November 25, 1996, there were issued and outstanding
1,707,083 shares of Common Stock. The 1,133,333 shares of Redeemable Common
Stock sold in the Private Placement are subject to redemption for at least 90%
of the amount paid therefor by the holders of such shares if the Company does
not raise at least $5 million of additional equity capital on or before March
31, 1997. The holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets available therefor at such time and in such
amounts as the Board may, from time to time, determine. Each stockholder is
entitled to one vote for each share of Common Stock held of record, on all
matters submitted to a vote of stockholders. As is permitted by Delaware law,
there will not be cumulative voting in connection with the election of
directors. Holders of Common Stock have no preemptive rights or rights to
convert their Common Stock into any other securities under the Company's charter
documents. There are no sinking fund provisions applicable to the Common Stock.
Upon liquidation, dissolution or winding up of the Company, the assets legally
available for distribution to stockholders are distributable ratably among the
holders of the Common Stock outstanding at that time. All outstanding shares of
Common Stock are, and the Common Stock to be outstanding upon completion of this
Offering will be, fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue up to 1,000,000 shares of undesignated
Preferred Stock. The Board of Directors has the authority to issue the
undesignated Preferred Stock in one or more series and to fix the rights,
preferences, privileges and restrictions granted to or imposed upon any wholly
unissued shares of undesignated Preferred Stock, as well as to fix the number of
shares constituting any series and the designation of such series, without any
further vote or action by the stockholders. The Board of Directors, without
stockholder approval, may issue Preferred Stock with voting and conversion
rights which could materially adversely affect the voting power of the holders
of Common Stock. The issuance of Preferred Stock could also decrease the amount
of earnings and assets available for distribution to holders of Common Stock. In
addition, the issuance of Preferred Stock may have the effect of delaying,
deferring or preventing a change in control of the Company. At present, the
Company has no plans to issue any shares of Preferred Stock. See "Risk
Factors--Possible Adverse Effects of Authorized Preferred Stock."

REDEEMABLE WARRANTS

The following is a brief summary of certain provisions of the Warrants, but
such summary does not purport to be complete and is qualified in all respects by
reference to the actual text of the Warrant Agreement between the Company and
Continental Stock Transfer & Trust Company (the "Warrant Agreement"). A copy of
the Warrant Agreement has been filed as an exhibit to the Registration Statement
of which this Prospectus is a part. See "Additional Information."

EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase, at any time over a period of four years commencing thirteen
months after the date of this Prospectus, one share of Common Stock at a price
of $ per share, exercised subject to adjustment in accordance with the anti-
dilution and other provisions referred to below. The holder of any Warrant may
exercise such Warrant by surrendering the certificate representing the Warrant
to the Warrant Agent, with the subscription form thereon properly completed and
executed, together with payment of the exercise price. Commencing one year after
the date of this Prospectus, the Warrants may be exercised at any time in whole
or in part at the applicable exercise price until expiration of the Warrants. No
fractional shares will be issued upon expiration of the Warrants.

33
<PAGE>
The exercise price of the Warrants bears no relationship to any objective
criteria of value and should in no event be regarded as an indication of any
future market price of the securities offered hereby.

ADJUSTMENTS. The exercise price and the number of shares of Common Stock
purchasable upon the exercise of the Warrants are subject to adjustment upon the
occurrence of certain events, including stock dividends, stock splits,
combination or reclassifications of the Common Stock, or sale by the Company of
shares of its Common Stock or other securities convertible into Common Stock at
a price below the then applicable exercise price of the Warrants. Additionally,
an adjustment would be made in the case of a reclassification or exchange of
Common Stock, consolidation or merger of the Company with or into another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation), or sale of all or substantially all of the assets of the
Company in order to enable Warrantholders to acquire the kind and number of
shares of stock or other securities or property receivable in such event by a
holder of the number of shares of Common Stock that might have been purchased
upon the exercise of the Warrant.

REDEMPTION PROVISIONS. Commencing on the first day of the thirteenth
calendar month after the date of this Prospectus, the Warrants are subject to
redemption at $0.10 per Warrant on 30 day's prior written notice to the warrant
holders if the average closing bid price of the Common Stock as reported on the
NASDAQ SCM equals or exceeds $ per share (300% of the initial public offering
price per share of Common Stock), for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth trading day
prior to the date of the notice of redemption. In the event the Company
exercises the right to redeem the Warrants, such Warrants will be exercisable
until the close of business on the business day immediately preceding the date
for redemption fixed in such notice. If any Warrant called for redemption is not
exercised by such time, it will cease to be exercisable and the holder will be
entitled only to the redemption price. If the Company gives notice of its
intention to redeem, a holder would be forced to exercise his or her Warrant
before the date specified in the redemption notice or accept the redemption
price.

TRANSFER, EXCHANGE AND EXERCISE. The Warrants are in registered form and,
if not earlier redeemed, may be presented to the Warrant Agent for transfer,
exchange or exercise at any time on or prior to their expiration at the close of
business on the fifth anniversary date of this Prospectus, at which time the
Warrants become wholly void and of no value. If a market for the Warrants
develops, the holder may sell the Warrants instead of exercising them. There can
be no assurance, however, that a market for the Warrants will develop or
continue.

WARRANTHOLDER NOT A STOCKHOLDER. The Warrants do not confer upon holders
any voting, dividend or other rights as stockholders of the Company.

MODIFICATION OF WARRANT. The Company and the Warrant Agent may make such
modifications to the Warrant as they deem necessary or desirable that do not
adversely affect the interests of the Warrant holders. The Company may, in its
sole discretion, lower the exercise price of the Warrants for a period of not
less than thirty (30) days on not less than thirty (30) days prior written
notice to the Warrant holders and the Representatives. No other modification may
be made to the Warrants without the consent of two-thirds of the Warrant
holders.

CURRENT PROSPECTUS. The Warrants are not exercisable unless, at the time of
the exercise, the Company has a current prospectus covering the shares of Common
Stock issuable upon exercise of the Warrants, and such shares have been
registered, qualified or deemed to be exempt under the securities or "blue sky"
laws of the state of residence of the exercising holder of the Warrants.
Although the Company will use its best efforts to have all the shares of Common
Stock issuable upon exercise of the Warrants registered or qualified on or
before the exercise date and to maintain a current prospectus relating thereto
until the expiration of the Warrants, there can be no assurance that it will be
able to do so.

34
<PAGE>
SEPARATELY TRADEABLE. The Warrants will be separately tradeable immediately
upon issuance. Although the Securities will not knowingly be sold to purchasers
in jurisdictions in which the Securities are not registered or otherwise
qualified for sale, purchasers may buy Warrants in the aftermarket or may move
to jurisdictions in which the shares underlying the Warrants are not so
registered or qualified during the period that the Warrants are exercisable. In
such event, the Company would be unable to issue shares to those persons
desiring to exercise their Warrants, and holders of Warrants would have no
choice but to attempt to sell the Warrants in a jurisdiction where such sale is
permissible or allow them to expire unexercised.

TRANSFER AGENT AND REGISTRAR

The Company's Transfer Agent, Warrant Agent and Registrar is Continental
Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004.

SHARES ELIGIBLE FOR FUTURE SALE

Prior to this Offering, there has been no public market for the Common Stock
or Warrants. No prediction can be made of the effect, if any, that future market
sales of shares of Common Stock or Warrants, or the availability of such shares
or Warrants for sale, will have on the prevailing market price of the Common
Stock or Warrants following this offering. Nevertheless, sales of substantial
amounts of such shares or Warrants in the open market following this offering
could adversely affect the prevailing market price of the Common Stock or
Warrants.

Upon completion of this Offering, the Company will have issued and
outstanding 2,807,803 shares of Common Stock. The 1,100,000 shares of Common
Stock sold in this Offering (or a maximum of 1,265,000 shares in the event the
Over-allotment Option is exercised in full) and, commencing on the first day of
the thirteenth calendar month after the date of this Prospectus, up to 1,100,000
shares of Common Stock issuable upon exercise of the Warrants (or a maximum of
1,265,000 shares in the event the Underwriters exercise their over-allotment
option in full), subject to any applicable state law registrations and secondary
trading (see "Risk Factors Limits on Secondary Trading; Possible Illiquidity of
Trading Market"), will be freely tradeable without restriction under the
Securities Act, except that any shares purchased by an "affiliate" of the
Company (as that term is defined in Rule 144 under the Securities Act) will be
subject to the resale limitations of Rule 144.

The remaining 1,707,083 shares of Common Stock outstanding upon completion
of this Offering are "restricted securities" as that term is defined in Rule
144. As described below, Rule 144 permits resales of restricted securities
subject to certain restrictions. On the date of this Prospectus, 573,750 of such
1,707,083 shares will be eligible for sale under Rule 144 on August 7, 1998 and
the remaining 1,333,333 shares will be eligible for sale under Rule 144 on
October 21, 1998.

In general, under Rule 144, as currently in effect, a person (or persons
whose shares are required to be aggregated) who has beneficially owned, for at
least two years, shares of Common Stock that have not been registered under the
Securities Act or that were acquired from an "affiliate" of the Company (in a
transaction or chain of transactions not involving a public offering) is
entitled to sell, within any three-month period, a number of shares of Common
Stock which does not exceed the greater of 1% of the number of then outstanding
shares or the average weekly reported trading volume during the four calendar
weeks preceding the sale. Sales under Rule 144 are also subject to certain
notice requirements and to the availability of current public information about
the Company, and must be made in unsolicited brokers' transactions or to a
market maker. A person (or persons whose shares are aggregated) who is not an
"affiliate" of the Company under the Securities Act during the three months
preceding a sale, and who has beneficially owned such shares for at least three
years, is entitled to sell such shares under Rule 144(k), without regard to the
requirements discussed above, other than the requirement that such sales be made
in unsolicited brokers' transactions.

Each of the Company's officers and directors and all of its existing
stockholders have agreed that for a period of 18 months from the date of this
Prospectus they will not sell any of the Company's securities without the prior
written consent of the Representative.

35
<PAGE>
UNDERWRITING

The Over-allotment Option may be exercised to purchase units (each
consisting of one share of Common Stock and one Warrant) or shares of Common
Stock or Warrants or any combination thereof.

The Underwriters named below (the "Underwriters"), for whom National
Securities Corporation ("National") is acting as the representative (the
"Representative"), have severally agreed, subject to the terms and conditions of
the Underwriting Agreement among the Company and the Representative (the
"Underwriting Agreement"), to purchase from the Company and the Company has
agreed to sell to the Underwriters, the Securities set forth in the table below
at the price set forth on the cover page of this Prospectus under "Proceeds to
Company."

<TABLE>
<CAPTION>
NUMBER OF SHARES OF NUMBER OF
UNDERWRITER COMMON STOCK WARRANTS
- ----------------------------------------------------------- ------------------- -----------
<S> <C> <C>
National Securities Corporation............................
Total..............................................
</TABLE>

The Underwriting Agreement provides that the obligations of the Underwriters
to purchase such Securities are subject to certain conditions. The Underwriters
are committed to purchase all of the Securities offered by this Prospectus, if
any are purchased.

The Representative has advised the Company that the Underwriters propose to
offer the Securities to the public at the initial public offering price set
forth on the cover page of this Prospectus, and to selected dealers at such
price less a concession not in excess of $ per share and $ per
Warrant. Such dealers may reallow a concession not in excess of $ per
share of Common Stock and $ per Warrant to other dealers. After the
initial public offering of the Common Stock and Warrants, the public offering
price, the concessions to selected dealers and the reallowance to other dealers
may be changed by the Representative.

The Underwriters have been granted an Over-allotment Option, expiring at the
close of business 45 days after the date of this Prospectus, to purchase from
the Company up to 165,000 shares of Common Stock and/or 165,000 Warrants at the
public offering price per share of Common Stock and Warrant, respectively
offered hereby, less underwriting discounts and the non-accountable expense
allowance for the sole purpose of covering over-allotments, if any. To the
extent such option is exercised, each Underwriter will become obligated, subject
to certain conditions, to purchase approximately the same percentage of such
Securities as the percentage it was obligated to purchase pursuant to the
Underwriting Agreement. The Underwriters may exercise the option only to cover
over-allotments, if any, incurred in the sales of the Securities.

Upon the exercise of any Warrants more than one year after the date of this
Prospectus, which exercise was solicited by the Representative, and to the
extent not inconsistent with the guidelines of the National Association of
Securities Dealers, Inc. and the Rules and Regulations of the Commission, the
Company has agreed to pay the Representative a commission which shall not exceed
5% of the aggregate exercise price of such Warrants in connection with bona fide
services provided by the Representative relating to any warrant solicitation. In
addition, the individual must designate the firm entitled to payment of such
warrant solicitation fee. No compensation, however, will be paid to the
Representative in connection with the exercise of the Warrants if (a) the market
price of the Common Stock is lower than the exercise price, (b) the Warrants are
held in a discretionary account, or (c) the Warrants are exercised in an
unsolicited transaction. Unless granted an exemption by the Commission from Rule
10b-6 under the Exchange Act, the Representative will be prohibited from
engaging in any market-making activities or solicited brokerage activities with
regard to the Company's securities for the period from nine business days (or
other such applicable periods as Rule 10b-6 may provide) prior to any
solicitation of the exercise of the Warrants until the later of the termination
of such solicitation activity (by waiver or otherwise) of any right that the
Representative may have to receive a fee. As a result, the Representative may be
unable

36
<PAGE>

to continue to provide a market for the Common Stock or Warrants during certain
periods while the Warrants are exercisable. If the Representative has engaged in
any of the activities prohibited by Rule 10b-6 during the periods described
above, the Representative undertakes to waive unconditionally its rights to
receive a commission on the exercise of such Warrants.

The Representative has informed the Company that it does not expect sales to
discretionary accounts by the Underwriters to exceed five percent of the
Securities offered hereby.

The Underwriting Agreement provides for reciprocal indemnification between
the Company and its controlling persons on the one hand, and the Underwriters
and their respective controlling persons on the other hand, against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments the Underwriters may be required to make in respect thereof.

The Company has agreed to pay the Representative a non-accountable expense
allowance equal to three percent (3%) of the gross proceeds received by the
Company from the sale of the Securities.

The Company and the holders of its Common Stock prior to this Offering have
entered into lock-up agreements. See "Shares Eligible For Future Sale."

In connection with this Offering the Company has agreed to sell to the
Representative, for nominal consideration, warrants to purchase from the Company
up to 110,000 shares of Common Stock and/or 110,000 warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $ per share of Common Stock (120% of the initial
public offering price per share of Common Stock), and $ per warrant (120% of
the initial public offering price per Warrant) for a four-year period commencing
on the first anniversary of the issuance of such warrants. The warrants issuable
upon exercise of the Representative's Warrants are the same as the Warrants
offered hereby, except that they are exercisable at a price of $ per
share of Common Stock ( % of the exercise price of the Warrants offered
hereby). The Representative's Warrants may not be sold, transferred, assigned or
hypothecated for a period of one year following the date of this Prospectus,
except to officers or directors of the Representative, Underwriters or members
of the selling group. The Representative's Warrants provide for adjustments in
the number of shares of Common Stock and Warrants issuable upon the exercise
thereof and in the exercise price of the Representative's Warrants as a result
of certain events, including subdivisions and combinations of the Common Stock.
The Representative's Warrants grant to the holders thereof certain rights of
registration for the securities issuable upon exercise of the Representative's
Warrants.

The Company has agreed that National may designate one person to attend all
board of directors' meetings as an observer. Such person shall be entitled to
attend all such meetings and to receive all notices and other correspondence and
communications sent by the Company to members of its board of directors. The
Company shall reimburse such designee of National for their out-of-pocket
expenses incurred in connection with their attendance at the Company's board of
directors' meetings.

Prior to this Offering, there has been no public market for the Common Stock
or the Warrants. Accordingly, the initial public offering price was determined
by negotiations between the Company and the Representative and does not
necessarily bear any relationship to the Company's asset values, net worth, and
other established criteria of value. Among the factors considered in determining
the initial public offering price were the history and the prospects of the
Company and the industry in which it will compete, the past and present
operating results of the Company and the trends of such results, the Company's
plan of operation, an assessment of the Company's management, the Company's
capital structure, and the general condition of the securities markets at the
time of the offering.

The Company has applied for listing of the Common Stock and the Warrants on
the NASDAQ SCM under the symbols CASU and CASUW, respectively.

37
<PAGE>
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to copies
of each such agreement, which are filed as exhibits to the registration
statement of which this Prospectus is a part. See "Additional Information."

LEGAL MATTERS

Certain legal matters in connection with the Securities offered hereby will
be passed upon for the Company by Camhy Karlinsky & Stein LLP, New York, New
York. Alan I. Annex, a partner of such firm, is the Secretary of the Company. In
addition, two partners of Camhy Karlinsky & Stein LLP may be deemed to be the
beneficial owners of 30,000 shares of the Company's Common Stock. Certain legal
matters in connection with this offering will be passed upon for the
Underwriters by D'Ancona & Pflaum, 30 North LaSalle Street, Suite 2900, Chicago,
Illinois 60602.

EXPERTS

The financial statements of the Company for the period July 23, 1996 (date
of incorporation) through October 21, 1996 included in this Prospectus have been
so included in reliance on the report (which contains an explanatory paragraph
relating to the Company's ability to continue as a going concern as described in
Notes 1 and 3 to such financial statements) of Price Waterhouse LLP, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended
with respect to the Common Stock and Warrants offered hereby. This Prospectus,
which constitutes a part of the Registration Statement, omits certain of the
information contained in the Registration Statement and the exhibits and
schedules thereto on file with the Commission pursuant to the Securities Act and
the rules and regulations of the Commission thereunder. For further information
with respect to the Company and the Common Stock and Warrants, reference is
hereby made to such Registration Statement, exhibits and schedules, which may be
obtained from the Commission upon payment of the fees prescribed by the
Commission by writing to the Securities and Exchange Commission, Public
Reference Section, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. Statements contained herein concerning the provisions of documents filed
with, or incorporated in, the Registration Statement as exhibits are necessarily
summaries of such provisions and documents and each such statement is qualified
in its entirety by reference to the copy of the applicable document filed with
the Commission.

38
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

INDEX TO FINANCIAL STATEMENTS

REPORT OF INDEPENDENT ACCOUNTANTS.......................................................................... F-2

FINANCIAL STATEMENTS

Balance Sheet--October 21, 1996 and pro forma October 21, 1996 (unaudited)............................... F-3

Statement of Operations for the period July 23, 1996 (date of incorporation) through October 21, 1996.... F-4

Statement of Redeemable Common Stock and Stockholders' Equity for the period July 23, 1996 (date of
incorporation) through October 21, 1996 and pro forma October 21, 1996 (unaudited)..................... F-5

Statement of Cash Flows for the period July 23, 1996 (date of incorporation) through October 21, 1996.... F-6

NOTES TO FINANCIAL STATEMENTS.............................................................................. F-7
</TABLE>

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders
of Casull Arms Corporation

In our opinion, the accompanying balance sheet and the related statements of
operations, of redeemable common stock and stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Casull
Arms Corporation (a development stage entity) at October 21, 1996, and the
results of its operations and its cash flows for the period July 23, 1996 (date
of incorporation) through October 21, 1996 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.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Notes 1 and 3 to the
financial statements, the Company's ability to commence operations is dependent
on obtaining adequate financial resources through a contemplated public offering
or other financing, which raises substantial doubt about its ability to continue
as a going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.

Price Waterhouse LLP
New York, New York
November 25, 1996

F-2
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

BALANCE SHEET

<TABLE>
<CAPTION>
PRO FORMA
OCTOBER 21, OCTOBER 21,
1996 1996
------------ ------------
<S> <C> <C>
(UNAUDITED)
ASSETS
ASSETS:
Cash.............................................................................. $ 285,453 $ 285,453
------------ ------------
Total current assets............................................................ 285,453 285,453
Restricted cash....................................................................... 2,160,000 2,160,000
Restricted investments................................................................ 1,090,000 1,090,000
Deferred registration costs........................................................... 14,922 14,922
------------ ------------
Total assets.................................................................... $ 3,550,375 $ 3,550,375
------------ ------------
------------ ------------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accrued expenses.................................................................. $ 24,804 $ 24,804
------------ ------------
Total current liabilities....................................................... 24,804 24,804
Payable to director................................................................... 90,000 90,000
------------ ------------
REDEEMABLE COMMON STOCK, 1,133,333 shares of Common Stock designated with redemption
feature issued and outstanding; none outstanding on a pro forma basis at October 21,
1996 (unaudited).................................................................... 3,400,000 --

STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value, 1,000,000 shares authorized, no shares issued
and outstanding................................................................. -- --
Common stock, $0.01 par value, 10,000,000 shares authorized, 573,750 (excluding
1,133,333 shares of Redeemable Common Stock) and 1,707,083 shares issued and
outstanding at October 21, 1996 and October 21, 1996 on a pro forma basis
(unaudited), respectively....................................................... 5,738 17,071
Additional paid in capital........................................................ 51,637 3,440,304
Deficit accumulated during the development stage.................................. (21,804) (21,804)
------------ ------------
Stockholders' equity.............................................................. 35,571 3,435,571
Commitments and contingencies (Note 5)................................................ -- --
------------ ------------
Total liabilities, redeemable common stock and stockholders' equity............. $ 3,550,375 3,550,375
------------ ------------
------------ ------------
</TABLE>

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

F-3
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

STATEMENT OF OPERATIONS

FOR THE PERIOD JULY 23, 1996 (DATE OF INCORPORATION)
THROUGH OCTOBER 21, 1996

<TABLE>
<S> <C>
Revenues........................................................................ $ --
Expenses:
General and administrative expenses......................................... 21,804
---------
Net loss........................................................................ $ (21,804)
---------
---------
Net loss per common share....................................................... $ (.02)
---------
---------
Weighted average number of common shares outstanding............................ 1,306,867
---------
---------
</TABLE>

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

F-4
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

STATEMENT OF REDEEMABLE COMMON STOCK AND STOCKHOLDERS' EQUITY

FOR THE PERIOD JULY 23, 1996 (DATE OF INCORPORATION)
THROUGH OCTOBER 21, 1996

<TABLE>
<CAPTION>
STOCKHOLDERS' EQUITY
---------------------------------------------------------------
DEFICIT
REDEEMABLE ACCUMULATED
COMMON STOCK COMMON STOCK ADDITIONAL DURING THE
------------------------- --------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT SHARES AMOUNT CAPITAL STAGE TOTAL
----------- ------------ ---------- --------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of stock on August 7,
1996 to Initial Stockholders
for cash.................... -- -- 573,750 $ 5,738 $ 51,637 -- $ 57,375
Issuance of stock in October,
1996 to Private Placement
Stockholders for stock...... 333,333 $ 1,000,000 -- -- -- -- --
Issuance of stock in October,
1996 to Private Placement
Stockholders for cash....... 800,000 2,400,000 -- -- -- -- --
Net loss for the period July
23, 1996 (date of
incorporation) through
October 21, 1996............ -- -- -- -- -- $ (21,804) (21,804)
----------- ------------ ---------- --------- ------------ ------------ ------------
Balance at October 21, 1996... 1,133,333 3,400,000 573,750 5,738 51,637 (21,804) 35,571
Pro forma effect of
termination of redemption
feature of Redeemable Common
Stock upon completion of
initial public offering
(unaudited)................. (1,133,333) (3,400,000) 1,333,333 11,333 3,388,667 -- 3,400,000
----------- ------------ ---------- --------- ------------ ------------ ------------
Pro forma balance at October
21, 1996 (unaudited)........ -- $ -- 1,707,083 $ 17,071 $ 3,440,304 $ 21,804 $ 3,435,571
----------- ------------ ---------- --------- ------------ ------------ ------------
----------- ------------ ---------- --------- ------------ ------------ ------------
</TABLE>

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

F-5
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

STATEMENT OF CASH FLOWS

FOR THE PERIOD JULY 23, 1996 (DATE OF INCORPORATION)
THROUGH OCTOBER 21, 1996

<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss...................................................................... $ (21,804)
Adjustments to reconcile net loss to net cash used in operating activities:
Changes in assets and liabilities:
Deferred registration costs............................................... (14,922)
Accrued expenses.......................................................... 24,804
----------
Net cash used in operating activities....................................... (11,922)
----------

Cash flows from financing activities:
Proceeds from issuance of common stock........................................ 2,457,375
Restriction on proceeds received from issuance of common stock................ (2,160,000)
----------
Net cash provided by financing activities................................... 297,375
----------
Net increase in cash and cash at end of period.............................. $ 285,453
----------
----------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES

During the period, Casull Arms Corporation issued Common Stock in exchange
for investment securities with an estimated fair market value of $1,090,000.

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

F-6
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

NOTES TO FINANCIAL STATEMENTS

1. ORGANIZATION AND OPERATIONS

Casull Arms Corporation (the "Company") was incorporated in the State of
Delaware on July 23, 1996 for the purpose of manufacturing and selling unique,
high quality firearms. In August 1996, the Company issued an aggregate of
573,750 shares of Common Stock for an aggregate purchase price of $57,375 or
$0.10 per share. In October 1996, the Company issued an aggregate of 1,133,333
shares of Common Stock for an aggregate purchase price of $3,400,000 or $3.00
per share. Proceeds received from the October 1996 Common Stock issuance are
subject to certain restrictions (See Note 2). The Company is currently in the
development stage, and in the process of raising capital. All activity of the
Company to date relates to its formation and proposed financing.

The Company's ability to commence operations is contingent upon obtaining
adequate financial resources through a contemplated public offering (the
"Proposed Offering") or financing. Note 3 discusses the details of the Proposed
Offering.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

RESTRICTED CASH: Under the terms of the Company's October 1996 Common Stock
issuance, the Company has agreed that it will not use more than 10% of the
proceeds of such issuance to effect its business objectives until it raises an
additional $5 million of equity capital. If the Company does not raise at least
$5 million of additional equity capital on or before March 31, 1997,
stockholders who purchased shares in October 1996 have the right to sell their
shares back to the Company for at least 90% of the amounts paid. Accordingly,
the Company has reflected 90% of the proceeds of the October 1996 Common Stock
issuance as restricted cash.

RESTRICTED INVESTMENTS: Restricted investments represent marketable
securities (the "Securities") received in exchange for shares issued by the
Company in October 1996. Under the terms of its agreement with the stockholder,
the Company has agreed that it will not sell the Securities until the Company
raises an additional $5 million of equity capital. If the Company does not raise
at least $5 million of additional equity capital on or before March 31, 1997,
the stockholder has the right to sell his shares back to the Company for at
least 90% of the amount subscribed. Restricted investments are carried at quoted
market price (See Note 5).

NET LOSS PER COMMON SHARE: Net loss per common share is computed based upon
the weighted average number of shares outstanding for the period. Pursuant to
the requirements of the Securities and Exchange Commission, shares issued by the
Company within one year of the date of the initial public offering at prices
below the proposed offering price have been included in the calculation of
weighted average shares outstanding as if they were outstanding for all periods
using the treasury stock method.

USE OF ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of some assets and
liabilities and, in some instances, the reported amounts of revenue and expenses
during the reporting period. Actual results could differ from those estimates.

FAIR VALUE OF FINANCIAL INSTRUMENTS: The carrying value of cash
equivalents, and accounts payable and accrued expenses approximates fair value
due to the relatively short maturity of these instruments.

F-7
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

UNAUDITED PRO FORMA INFORMATION: The unaudited pro forma information at
October 21, 1996 included in the balance sheet and the statement of redeemable
common stock and stockholders' equity reflects the automatic termination of the
redemption feature of the Redeemable Common Stock upon the closing of the
Company's anticipated initial public offering assuming the closing of such
offering prior to March 31, 1997 (See Note 4).

3. PROPOSED PUBLIC OFFERING OF SECURITIES

The Proposed Public Offering of Securities (the "Proposed Offering") calls
for the Company to offer for public sale (i) 1,100,000 units (the "Units"), each
Unit consisting of one share of the Company's Common Stock, $0.01 par value, and
one Redeemable Common Stock Purchase Warrant (the "Warrants"), each Warrant
entitling the holder to purchase from the Company one share of Common Stock at
an exercise price of 150% of the initial public offering price commencing on the
first day of the thirteenth calendar month after the date of the Prospectus (the
"Effective Date") and ending five years from the Effective Date. Commencing one
year after the Effective Date, the Warrants will be subject to redemption by the
Company upon 30 days notice, at a price of $0.10 per Warrant, only in the event
that the reported closing bid price of the Common Stock is at least 300% of the
initial public offering price per share of Common Stock for any twenty trading
days within a period of thirty consecutive trading days ending on the fifth
trading day prior to the notice of redemption.

In connection with the Proposed Offering, the Company intends to pay
additional compensation to the representatives (the "Representatives") of the
several underwriters (the "Underwriters") of the Proposed Offering, in the form
of (i) a non-accountable expense allowance of 3% of the gross proceeds of the
Proposed Offering and (ii) warrants to purchase up to 110,000 shares of Common
stock and/or 110,000 warrants (the "Representative's Warrants"), at an exercise
price of 120% of the initial public offering price per share of Common Stock and
per Warrant, respectively. The Representative's Warrants will be exercisable for
a period of four years commencing on the first day of the thirteenth calendar
month after the Effective Date.

The Company has granted the Underwriters an option, exercisable within 45
days from the Effective Date, to purchase up to 165,000 shares of Common Stock
and/or 165,000 additional Warrants. This option is solely for the purpose of
covering over-allotments, if any.

As of October 21, 1996, the Company had incurred $14,922 of deferred
registration costs relating principally to legal and registration expenses
incurred in connection with the Proposed Offering. Upon consummation of the
Proposed Offering, these costs as well as additional expenses to be incurred
will be charged to equity. Should the Proposed Offering prove to be
unsuccessful, these costs will be charged to operations.

4. CAPITAL STOCK

The Company's Certificate of Incorporation authorizes the issuance of
10,000,000 shares of Common Stock. Upon completion of the Proposed Offering
(assuming no exercise of the Underwriters' Over-allotment option or the
Representative's Warrants), there will be 5,792,917 authorized but unissued
shares of Common Stock available for issuance (after reserving 1,400,000 shares
for the issuance of Common Stock in connection with the Warrants and for future
grants under the Company's Stock Option Plan). The

F-8
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. CAPITAL STOCK (CONTINUED)
Company's Board of Directors has the power to issue any or all of the authorized
but unissued Common Stock without stockholder approval. To the extent that
additional shares of Common Stock are issued, dilution to the interests of the
Company's stockholders participating in the Proposed Offering may occur.

Stockholders who purchased shares in the October 1996 Common Stock issuance
have the right to sell their shares back to the Company for at least 90% of the
amount paid therefor if the Company does not raise at least $5 million of
additional equity capital on or before March 31, 1997. Shares issued in the
October 1996 Common Stock issuance are reflected in the October 21, 1996 balance
sheet as Redeemable Common Stock.

The Board of Directors of the Company is empowered, without stockholder
approval, to issue up to 1,000,000 shares of Preferred Stock with dividend,
liquidation, conversion, voting or other rights which could adversely affect the
voting power or other rights of the holders of the Company's Common Stock.

5. RELATED PARTY TRANSACTIONS

In connection with its issuance of shares of Common Stock in October 1996,
the Company received payment from a director in the form of marketable
securities (the "restricted investments") for 333,333 shares of Common Stock at
a subscription price of $1,000,000. The market value of the restricted
investments received at that date approximated $1,090,000. The restricted
investments cannot be sold by the Company until the Effective Date of the
Proposed Offering. If the Public Offering is successful, the Company intends to
sell the restricted investments on an open market. Any excess of proceeds
received from the sale over $1,000,000 will be refunded to the director; any
deficit between the proceeds and $1,000,000 will be paid to the Company by the
director in cash. At October 21, 1996 the Company had recorded a liability to
the director of $90,000 which represents the excess of the market value of the
restricted investments over $1,000,000.

Two of the Company's directors are officers and directors of FH Capital
Advisors, Inc. ("FH Capital"). Effective November 1, 1996, FH Capital will
receive $5,000 per month for financial consulting services. The agreement with
FH Capital is cancellable by the Company on 30 days written notice.

The Company has entered into the License Agreement with the Chief Executive
Officer of the Company, for the rights to use certain intellectual property
developed by him. Under terms of the agreement, the Company will pay to the
Chief Executive Officer a royalty of 5% of the Company's revenues subject to an
annual minimum of $40,000 and an annual maximum of $400,000. This royalty is
payable to the Chief Executive Officer for ten years from the date of the first
royalty payment or until his death, whichever is later. In the event that the
Chief Executive Officer's employment with the Company is terminated, royalty
payments will be adjusted to a minimum of $120,000 and a maximum of $500,000.

Immediately upon closing of the proposed Offering, the Company intends to
purchase land from a director which will serve as the site for the manufacturing
facility.

6. STOCK OPTION PLAN

The Company has reserved 300,000 shares of Common Stock for issuance under
its stock option plan (the "Plan"). Officers, directors, employees and
consultants to the Company are eligible to receive options (the "Options") under
the plan. There were no such Options issued or outstanding at October 21, 1996.

F-9
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

6. STOCK OPTION PLAN (CONTINUED)
The Plan provides for Options that are intended to qualify either as
incentive stock options ("ISO") within the meaning of Section 422 of the
Internal Revenue Code of 1986 (the "Code"), as amended, or as non-qualified
stock options ("NQO") which are not subject to special tax treatment under the
Code.

The exercise price for ISO's granted under the Plan must be at least equal
to the fair market value of the stock subject to the option on the date of grant
or, in the case of ISO's granted to the holder of 10% or more of the Company's
Common Stock, at least 110% of the fair market value of such shares on the date
of the grant. The exercise price of all NQO's granted under the Plan shall be
determined by the Plan Administrator. The maximum exercise period for which the
Options may be granted is ten years from the date of the grant (five years in
the case of ISO's granted to an individual owning more than 10% of the Company's
Common Stock).

F-10
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH OTHER
INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON
IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY OFFER OR SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO
THE DATE HEREOF.

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

TABLE OF CONTENTS

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 6
Use of Proceeds........................................................... 13
Dividend Policy........................................................... 13
Dilution.................................................................. 14
Capitalization............................................................ 15
Selected Financial Data................................................... 16
Management's Discussion and Analysis or Plan of Operation................. 17
Business.................................................................. 19
Management................................................................ 27
Principal Stockholders.................................................... 31
Certain Transactions...................................................... 31
Description of Securities................................................. 33
Shares Eligible for Future Sale........................................... 35
Underwriting.............................................................. 36
Legal Matters............................................................. 38
Experts................................................................... 38
Additional Information.................................................... 38
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.

[LOGO]

1,100,000 SHARES OF COMMON STOCK
AND 1,100,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
(AS UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE WARRANT)

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

PROSPECTUS

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

NATIONAL SECURITIES
CORPORATION
, 1997

ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

Section 102(b) of the Delaware General Corporations Law (the "DGCL") permits
a provision in the certificate of incorporation of each corporation organized
thereunder eliminating or limiting, with certain exceptions, the personal
liability of a director to the corporation or its stockholders for monetary
damages for certain breaches of fiduciary duty as a director. The Certificate of
Incorporation of the Registrant eliminates the personal liability of directors
to the fullest extent permitted by the DGCL.

Section 145 of the DGCL ("Section 145"), in summary, empowers a Delaware
corporation, within certain limitations, to indemnify its officers, directors,
employees and agents against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement, actually and reasonably incurred by them
in connection with any nonderivative suit or proceeding, if they acted in good
faith and in a manner they reasonably believed to be in or not opposed to the
best interest of the corporation, and, with respect to a criminal action or
proceeding, had no reasonable cause to believe their conduct was unlawful.

With respect to derivative actions, Section 145 permits a corporation to
indemnify its officers, directors, employees and agents against expenses
(including attorneys' fees) actually and reasonably incurred in connection with
the defense or settlement of such action or suit, provided such person meets the
standard of conduct described in the preceding paragraph, except that no
indemnification is permitted in respect of any claim where such person has been
found liable to the corporation, unless the Court of Chancery or the court in
which such action or suit was brought approves such indemnification and
determines that such person is fairly and reasonably entitled to be indemnified.

Reference is made to Article Eight of the Certificate of Incorporation of
the Registrant for the provisions which the Registrant has adopted relating to
indemnification of officers, directors, employees and agents, which provides for
the indemnification of such persons to the full extent permitted by Delaware
law.

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 foregoing provisions, or otherwise, the Registrant
has been informed that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable.

Reference is also made to Section 8(b) of the Underwriting Agreement filed
as Exhibit 1.1 to this Registration Statement which provides for the
indemnification of the Company, its controlling persons, directors and certain
of its officers by the Underwriters against certain liabilities, including
liabilities under the securities laws.

Prior to the close of this Offering, the Registrant will have purchased
directors' and officers' liability insurance.

II-1
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The estimated expenses to be incurred in connection with the offering are as
follows:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 8,060
NASD filing fee................................................... $ 3,160
NASDAQ listing fee................................................ $ 8,107
Blue Sky expenses and legal fees.................................. $ 40,000
Printing and engraving expenses................................... $ 60,000
Registrar and transfer agent fees and expenses.................... $ 7,000
Accounting fees and expenses...................................... $ 40,000
Legal fees and expenses........................................... $ 150,000
Miscellaneous fees and expenses................................... $ 33,673
---------
TOTAL............................................................. $ 350,000
---------
---------
</TABLE>

ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.

<TABLE>
<CAPTION>
AGGREGATE
CLASS OF DATE OF TITLE OF NUMBER PURCHASE FORM OF
PURCHASERS SALE SECURITIES OF SHARES PRICE CONSIDERATION
- ------------------- ----------- ----------------- ----------- ---------- -----------------
<S> <C> <C> <C> <C> <C>
14 Founders 8/7/96 Common Stock 573,750 $ 57,375 Cash
10 Investors 10/21/96 Common Stock 800,000 2,400,000 Cash
1 Investor 10/21/96 Common Stock 333,333 1,000,000 Common Stock
</TABLE>

The sales of all of the aforementioned securities were made in reliance upon
the exemption from the registration provisions of the Act afforded by section
4(2) thereof and/or Regulation D promulgated thereunder, as transactions by an
issuer not involving a public offering. To the best of the Registrant's
knowledge, the purchasers of the securities described above acquired them for
their own account and not with the view to any distribution thereof to the
public. The Registrant did not engage a placement agent for sale of any of the
aforementioned securities.

II-2
<PAGE>
ITEM 27. EXHIBITS.

The following exhibits are filed as part of this Registration Statement:

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>

1 Form of Underwriting Agreement*

3.1 Certificate of Incorporation, as amended*

3.2 By-Laws of the Registrant*

4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental Stock
Transfer & Trust Co., including form of Redeemable Warrant Certificate*

4.2 Form of Representative's Warrant Agreement including Form of Representative's Warrant*

4.3 Specimens of Registrant's Common Stock and Redeemable Warrant Certificate

5 Opinion and Consent of Camhy Karlinsky & Stein LLP

10.1 1996 Stock Option Plan

10.2 License Agreement between Registrant and Richard J. Casull*

10.3 Management Agreement between Registrant and FH Capital Advisors, Inc.

11.1 Statement re: computation of per share earnings

23.1 Consent of Camhy Karlinsky & Stein LLP--included in Exhibit 5

23.2 Consent of Price Waterhouse LLP

23.3 Consent of Professor Michael Darling

24.1 Power of Attorney (contained on page II-5 of this Registration Statement)*
</TABLE>

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

* Previously filed

ITEM 28. UNDERTAKINGS.

The 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.

The Registrant has agreed to indemnify the Underwriter and its officers,
directors, partners, employees, agents and controlling persons as to any losses,
claims, damages, expenses or liabilities arising out of any untrue statement or
omission of a material fact contained in the registration statement. The
Underwriter has agreed to indemnify the Registrant and its directors, officers
and controlling persons as to any losses, claims, damages, expenses or
liabilities arising out of any untrue statement or omission in the registration
statement based on information relating to the Underwriter furnished by it for
use in connection with the registration statement.

Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, 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 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 director, officer
or controlling

II-3
<PAGE>
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 appropriate 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 Registrant hereby also undertakes:

(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in the volume and
price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the
effective registration statement;

(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.

(2) That, for the purpose of determining liability under the Securities Act
of 1933, each such post-effective amendment 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.

(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.

(4) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant under Rule 424(b)(1), or (4) or 497(h) under
the Securities Act as part of this registration statement as of the time the
Commission declared it effective.

(5) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.

II-4
<PAGE>
SIGNATURES

In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and has authorized this Registration
Statement to be signed on its behalf by the undersigned in the City of Jackson,
State of Wyoming on January 14, 1997.

CASULL ARMS CORPORATION

BY: /S/ ALLAN R. TESSLER
-----------------------------------------
Allan R. Tessler
CHAIRMAN OF THE BOARD

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Allan R. Tessler as his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do separately and
perform each and every act and thing requisite and necessary to be done, as
fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

In accordance with the requirements of the Securities Act of 1933, this
Registration Statement on Form SB-2 has been signed below by the following
persons in the capacities and on the dates stated:

SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------

/s/ ALLAN R. TESSLER
- ------------------------------ Chairman of the Board January 14, 1997
Allan R. Tessler
Chief Executive Officer,
* Chief Operating
- ------------------------------ Officer and Director January 14, 1997
Richard J. Casull (Principal
Executive Officer)
President, Chief Financial
* Officer and
- ------------------------------ Director (Principal January 14, 1997
David M. Myers Financial and
Principal Accounting
Officer)
*
- ------------------------------ Director January 14, 1997
David R. Markin
*
- ------------------------------ Director January 14, 1997
Andrea L. Tessler
*
- ------------------------------ Director January 14, 1997
Marshall Kiev

* Attorney in fact

/s/ ALLAN R. TESSLER
- ------------------------------ January 14, 1997
Allan R. Tessler

II-5
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT PAGE NO.
- ----------- ---------------------------------------------------------------------------------------------- -------------
<C> <S> <C>

1 Form of Underwriting Agreement*

3.1 Certificate of Incorporation, as amended*

3.2 By-Laws of the Registrant*

4.1 Form of Redeemable Warrant Agreement to be entered into between Registrant and Continental
Stock Transfer & Trust Co., including form of Redeemable Warrant Certificate*

4.2 Form of Representative's Warrant Agreement including Form of Representative's Warrant*

4.3 Specimens of Registrant's Common Stock and Redeemable Warrant Certificate

5 Opinion and Consent of Camhy Karlinsky & Stein LLP

10.1 1996 Stock Option Plan

10.2 License Agreement between Registrant and Richard J. Casull*

10.3 Management Agreement between Registrant and FH Capital Advisors, Inc.

11.1 Statement re: computation of per share earnings

23.1 Consent of Camhy Karlinsky & Stein LLP--included in Exhibit 5

23.2 Consent of Price Waterhouse LLP

23.3 Consent of Professor Michael Darling

24.1 Power of Attorney (contained on page II-5 of this Registration Statement)*
</TABLE>

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

* Previously Filed.

<PAGE>

NUMBER SHARES

INCORPORATED UNDER THE LAWS SEE REVERSE FOR
OF THE STATE OF DELAWARE CERTAIN DEFINITIONS

CASULL ARMS CORPORATION

CUSIP 148726 10 2

THIS CERTIFIES that

is the owner of

FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
PAR VALUE $.01 PER SHARE, OF

CASULL ARMS CORPORATION

transferable on the books of the Corporation by the holder hereof in person or
by duly authorized attorney upon surrender of this certificate properly
endorsed.

This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.

WITNESS the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.

Dated:

[SEAL]

SECRETARY CHAIRMAN OF THE BOARD

CERTIFICATE OF STOCK

COUNTERSIGNED AND REGISTERED:

CONTINENTAL STOCK TRANSFER & TRUST COMPANY

(JERSEY CITY, NJ) TRANSFER AGENT
AND REGISTRAR

BY:

AUTHORIZED OFFICER

<PAGE>

The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:

TEN COM - as tenants in common UNIF GIFT MIN ACT - _______Custodian_______
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors

JT TEN - as joint tenants with right of Act_________________________
survivorship and not as tenants (State)
in common

Additional abbreviations may also be used though not in the above list.

For Value Received,_______________hereby sell, assign and transfer unto

PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
/ /

- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)

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

- --------------------------------------------------------------------------Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint

- -----------------------------------------------------------------------Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.

Dated____________________

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

------------------------------------------------------------
NOTICE: THE SIGNATURE(S) TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE
WHATEVER.

Signature(s) Guaranteed:

- ------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND
LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN
AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

VOID DECEMBER 5, 2001

REDEEMABLE WARRANT CERTIFICATE TO
PURCHASE ONE SHARE OF COMMON STOCK

NUMBER CASULL ARMS CORPORATION WARRANTS

CUSIP 148726 11 0

THIS CERTIFIES THAT, FOR VALUE RECEIVED

or its registered assigns (the "Registered Holder") is the owner of the number
of Redeemable Warrants (the "Warrants") specified above. Each Warrant initially
entitles the Registered Holder to purchase, subject to the terms and conditions
set forth in this Certificate and the Warrant Agreement (as hereinafter
defined), one fully paid and nonassessable share of Common Stock, par value $.01
per share, of Casull Arms Corporation, a Delaware corporation (the "Company"),
at any time between December 5, 1996 (the "Initial Warrant Exercise Date"), and
the Expiration Date (as hereinafter defined) upon the presentation and surrender
of this Warrant Certificate with the Subscription Form on the reverse hereof
duly executed, at the corporate office of Continental Stock Transfer & Trust
Company, as Warrant Agent, or its successor (the "Warrant Agent"), accompanied
by payment of $9.00 per share, subject to adjustment [150% of the initial public
offering price per share of Common Stock] (the "Exercise Price"), in lawful
money of the United States of America in cash or by check made payable to the
Warrant Agent for the account of the Company.

This Warrant Certificate and each Warrant represented hereby are issued
pursuant to and are subject in all respects to the terms and conditions set
forth in the Warrant Agreement (the "Warrant Agreement"), dated 1996, by and
between the Company, National Securities Corporation ("National") and the
Warrant Agent.

In the event of certain contingencies provided for in the Warrant
Agreement, the Exercise Price and the number of shares of Common Stock subject
to purchase upon the exercise of each Warrant represented hereby are subject to
modification or adjustment.

Each Warrant represented hereby is exercisable at the option of the
Registered Holder, but no fractional interests will be issued. In the case of
the exercise of less than all the Warrants represented hereby, the Company shall
cancel this Warrant Certificate upon the surrender hereof and shall execute and
deliver a new Warrant Certificate or Warrant Certificates of like tenor, which
the Warrant Agent shall countersign, for the balance of such Warrants.

The term "Expiration Date" shall mean 5:00 p.m. (New York time) on the
date which is five (5) years after the Initial Warrant Exercise Date. If each
such date shall in the State of New York be a holiday or a day on which the
banks are authorized to close, then the Expiration Date shall mean 5:00 p.m.
(New York time) the next following day which in the State of New York is not a
holiday or a day on which the banks are authorized to close.

The Company shall not be obligated to deliver any securities pursuant to
the exercise of this Warrant unless a registration statement under the
Securities Act of 1933, as amended (the "Act"), with respect to such
securities is effective or an exemption thereunder is available. The Company has
covenanted and agreed that it will file a registration statement under the
Federal securities laws, use its best efforts to cause the same to become
effective, use its best efforts to keep such registration statement current, if
required under the Act, while any of the Warrants are outstanding, and deliver a
prospectus which complies with Section 10(a)(3) of the Act to the Registered
Holder exercising this Warrant. This Warrant shall not be exercisable by a
Registered Holder in any state where such exercise would be unlawful.

This Warrant Certificate is exchangeable, upon the surrender hereof by the
Registered Holder at the corporate office of the Warrant Agent, for a new
Warrant Certificate or Warrant Certificates of like tenor representing an equal
aggregate number of Warrants, each of such new Warrant Certificates to represent
such number of Warrants as shall be designated by such Registered Holder at the
time of such surrender. Upon due presentment and payment of any tax or other
charge imposed in connection therewith or incident thereto, for registration of
transfer of this Warrant Certificate at such office, a new Warrant Certificate
or Warrant Certificates representing an equal aggregate number of Warrants will
be issued to the transferee in exchange therefor, subject to the limitations
provided in the Warrant Agreement.

Prior to the exercise of any Warrant represented hereby, the Registered
Holder shall not be entitled to any rights of a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends or
other distributions, and shall not be entitled to receive any notice of any
proceedings of the Company, except as provided in the Warrant Agreement.

Subject to the provisions of the Warrant Agreement, this Warrant may be
redeemed at the option of the Company, at a redemption price of $.10 per
Warrant, at any time commencing after 199 , provided that the
average closing bid price for the Common Stock as reported by the Nasdaq Small
Cap Market, if the Company Stock is then traded on the Nasdaq Small Cap Market
(or the average closing sale price, if the Common Stock is then traded on the
Nasdaq National Market or a national securities exchange), shall have equaled or
exceeded $ per share (150% of the Initial public offering price per share of
Common Stock) for any twenty (20) trading days within a period of thirty (30)
consecutive trading days ending on the fifth trading day prior to the Notice of
Redemption, as defined below (subject to adjustment in the event of any stock
splits or other similar events) and National has given its prior written consent
to such redemption. Notice of redemption (the "Notice of Redemption") shall be
given not later than the thirtieth (30th) day before the date fixed for
redemption, or as provided in the Warrant Agreement. On and after the date fixed
for redemption, the Registered Holder shall have no rights with respect to the
Warrants except to receive the $.10 per Warrant upon surrender of this Warrant
Certificate.

Upon circumstances, National may be entitled to receive an aggregate of
five percent (5%) of the Exercise Price of the Warrants represented hereby, if
it is engaged as a Warrant solicitation agent by the Company.

Prior to due presentment for registration of transfer hereof, the Company
and the Warrant Agent may deem and treat the Registered Holder as the absolute
owner hereof and of each Warrant represented hereby (notwithstanding any
notations of ownership or writing hereon made by anyone other than a duly
authorized officer of the Company or the Warrant Agent) for all purposes and
shall not be affected by any notice to the contrary, except as provided in the
Warrant Agreement.

This Warrant Certificate shall be governed by and construed in accordance
with the laws of the State of New York without giving effect to conflicts of
laws.

This Warrant Certificate is not valid unless countersigned by the Warrant
Agent.

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be
duly executed, manually or in facsimile by two of its officers thereunto duly
authorized and a facsimile of its corporate seal to be imprinted hereon.

Dated: , 1996 CASULL ARMS CORPORATION

ATTEST: BY:

BY:

[SEAL]

SECRETARY CHAIRMAN OF THE BOARD

COUNTERSIGNED:

CONTINENTAL STOCK TRANSFER & TRUST COMPANY,

(JERSEY CITY, NJ)

AS WARRANT AGENT

BY:

AUTHORIZED OFFICER

<PAGE>

SUBSCRIPTION FORM

To Be Executed by the Registered Holder
in Order to Exercise Warrants

The undersigned Registered Holder hereby irrevocably elects to exercise
Warrants represented by this Warrant Certificate, and to purchase the securities
issuable upon the exercise of such Warrants, and requests that certificates for
such securities shall be issued in name of

PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER

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

----------------------------------------------------------------
(please print or type name and address)

and be delivered to

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

---------------------------------------------------------------
(please print or type name and address)

and if such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, that a new Warrant Certificate for the balance of such
Warrants be registered in the name of, and delivered to, the Registered Holder
at the address stated below.

IMPORTANT: PLEASE COMPLETE THE FOLLOWING

1. The exercise of this Warrant was solicited by: . / /
--------------------------

2. The exercise of this Warrant was not solicited. . / /
-------------------------

Dated:
----------------------------------

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

------------------------------------
Address

------------------------------------
Social Security or
Taxpayer Identification Number

------------------------------------
Signature Guaranteed

ASSIGNMENT

To Be Executed by the Registered Holder
in Order to Assign Warrants

FOR VALUE RECEIVED, , hereby sells, assigns and
---------------------
transfers unto

PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER

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

-----------------------------------------------------------------
(please print or type name and address)

of the Warrants
- -----------------------------------------------------------------
represented by this Warrant Certificate, and hereby irrevocably constitutes and
appoints

Attorney to transfer
- ------------------------------------------------------------
this Warrant Certificate on the books of the Company, with full power of
substitution in the premises.

Dated:
------------------------------------

------------------------------------ ----------------------------------
Signature Guaranteed

THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS WARRANT CERTIFICATE IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER AND MUST BE
GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15.

<PAGE>

January 3, 1997

Casull Arms Corporation
456 Fairview Road
Afton, Wyoming 83110

Re: REGISTRATION STATEMENT ON FORM SB-2

Ladies and Gentlemen:

You have requested our opinion in connection with the above-captioned
Registration Statement on Form SB-2 to be filed by Casull Arms Corporation, a
Delaware corporation (the "Company"), with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, as amended (the "Act"),
and the rules and regulations promulgated thereunder (the "Rules"). The
Registration Statement relates to the offering of up to 1,265,000 shares (the
"Shares") of common stock, par value $.01 per share (the "Common Stock")
1,265,000 warrants (the "Warrants"); 1,265,000 shares of Common Stock
underlying the Warrants; 110,000 Representative's Warrants; 110,000 shares of
Common Stock issuable upon exercise of Representative's Warrants; 110,000
Warrants issuable upon exercise of Representative's Warrants; and 110,ooo
shares of Common Stock issuable upon exercise of warrants issuable upon
exercise of Representative's Warrants.

We have examined such records and documents and have made such
examination of law as we considered necessary to form a basis for the
opinions set forth herein. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to
us as originals, and the conformity with the originals of all documents
submitted to us as copies thereof.

Based upon such examination, it is our opinion that when there has been
compliance with the Act and applicable state securities laws and when the
Underwriting Agreement, a form of which will be filed as an exhibit to the
Registration Statement, is duly and validly executed and delivered, the
Common Stock and Warrants, when issued, delivered and paid for in the manner
described in such Underwriting Agreement, will be validly issued, fully paid
and nonassessable.

We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinions" in the Registration Statement. In so doing, we do not admit that we
are in the category of persons whose consent is required under Section 7 of the
Act or under the Rules.

Very truly yours,

/s/ CAMHY KARLINSKY & STEIN LLP
Camhy Karlinsky & Stein LLP

<PAGE>
CASULL ARMS CORPORATION
1996 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN

1. PURPOSE

The purpose of this Stock Option Plan (the "Plan") is to encourage and
enable key employees (which term, as used herein, shall include officers), and
directors (other than members of the Committee, as hereinafter defined), of
Casull Arms Corporation or a parent (if any) or subsidiary thereof
(collectively, unless the context otherwise requires, the "Corporation"),
consultants, and advisors to the Corporation, and other persons or entities
providing goods or services to the Corporation to acquire a proprietary interest
in the Corporation through the ownership of common stock of the Corporation. As
used herein, the term "parent" or "subsidiary" shall mean any present or future
corporation which is or would be a "parent corporation" or "subsidiary
corporation" of the Corporation as the term is defined in section 424 of the
Internal Revenue Code of 1986, as amended (the "Code") (determined as if the
Corporation were the employer corporation). Such directors, consultants,
advisors, and other persons or entities providing goods or services to the
Corporation and entitled to receive options hereunder are hereinafter
collectively referred to as the "Associates," and the relationship of the
Associates to the Corporation is hereinafter referred to as "association with"
the Corporation. An employee or Associate to whom an option has been granted is
referred to as a "Grantee". Such ownership will provide such Grantees with a
more direct stake in the future welfare of the Corporation and encourage them to
remain employed by or associated with the Corporation. It is also expected that
the Plan will encourage qualified persons to seek and accept employment or
association with the Corporation.

2. ADMINISTRATION

(a) The Plan shall be administered by a Stock Option Committee (the
"Committee"), consisting of at least two members of the Board of Directors of
the Corporation who are disinterested persons within the meaning of Rule
16(b)-3(c)(2)(i) promulgated under the Securities Exchange Act of 1934, as
amended from time to time.

(b) A majority of the members of the Committee shall constitute a quorum,
and the action of a majority of the members of the Committee present at a
meeting at which a quorum is present, as well as actions taken pursuant to the
unanimous written consent of all of the members of the Committee without holding
a meeting, shall be deemed to be actions of the Committee. All actions of the
Committee and all interpretations and decisions made by the Committee with
respect to any question arising under the Plan shall be final and conclusive and
shall be binding upon the Corporation and all other interested parties.

(c) Subject to the terms and conditions of the Plan and such limitations
as the Board of Directors may from time to time impose, the Committee shall be
responsible for the overall

<PAGE>

management and administration of the Plan and shall have such authority as shall
be necessary or appropriate in order to carry out its responsibilities,
including, without limitation, the authority to (i) interpret and construe the
Plan and to determine the terms of all options granted pursuant to the Plan,
including, but not limited to, the persons to whom, and the time or times at
which grants shall be made, the number of options to be included in the grants,
the number of options which shall be treated as incentive stock options (in the
case of options granted to employees) as described in section 422 of the Code,
the number of options which do not qualify as incentive stock options
("nonqualified options"), and the terms and conditions thereof; (ii) to adopt
rules and regulations and to prescribe forms for the operation and
administration of the Plan; and (iii) to take any other action not inconsistent
with the provisions of the Plan that it may deem necessary or appropriate.

3. ELIGIBILITY AND PARTICIPATION

(a) Key employees and Associates are eligible to receive options. Each
option shall be granted, and the number of shares subject thereto shall be
determined by the Committee.

(b) Directors who are not officers of the Corporation, including, without
limitations, Directors who serve as members of the Committee, shall receive as
formula grants, on an annual basis on the last trading day of each January,
starting January, 1997, stock options for 10,000 shares of the Corporation's
common stock, at an exercise price equal to the fair market value of the stock
on the date of grant. The fair market value shall be determined in accordance
with Section 8 hereof.

4. SHARES SUBJECT TO THE PLAN

(a) Options shall be evidenced by written agreements which shall, among
other things (i) designate the option as either an incentive stock option or a
nonqualified stock option, (ii) specify the number of shares covered by the
option; (iii) specify the exercise price, determined in accordance with
paragraph 7 hereof, for the shares subject to the option; (iv) specify the
option period determined in accordance with paragraph 6 hereof; (v) set forth
specifically or incorporate by reference the applicable provisions of the Plan;
and (vi) contain such other terms and conditions consistent with the Plan as the
Committee may, in its discretion, prescribe.

(b) The stock to be offered and delivered under the Plan, pursuant to the
exercise of an option, shall be shares of the Corporation's authorized common
stock and may be unissued shares or reacquired shares, as the Committee may from
time to time determine. Subject to adjustment as provided in paragraph 13
hereof, the aggregate number of shares to be delivered under the Plan shall not
exceed three hundred thousand (300,000) shares of common stock. If an option
expires or terminates for any reason during the term of the Plan prior to the
exercise thereof in full, the shares subject to but not delivered under such
option shall be available for options thereafter granted.

-2-

<PAGE>

5. INCENTIVE STOCK OPTIONS

(a) An option designated by the Committee as an "incentive stock option"
is intended to qualify as an "incentive stock option" within the meaning of
section 422 of the Code. An incentive stock option shall be granted only to an
employee of the Corporation.

(b) No incentive stock option shall provide any person with a right to
purchase shares to the extent that such right first becomes exercisable during a
prescribed calendar year and the sum of (i) the fair market value (determined as
of the date of grant) of the shares subject to such incentive stock option which
first become available for purchase during such calendar year, plus (ii) the
fair market value (determined as of the date of grant) of all shares subject to
incentive stock options previously granted to such person under all plans of the
Corporation first become available for purchase during such calendar year
exceeds $100,000.

(c) Without prior written notice to the Committee, a Grantee may not
dispose of shares acquired pursuant to the exercise of an incentive stock option
until after the later of (i) the second anniversary of the date on which the
incentive stock option was granted, or (ii) the first anniversary of the date on
which the shares were acquired; provided, however, that a transfer to a trustee,
receiver, or other fiduciary in any insolvency proceeding, as described in
section 422(c)(3) of the Code, shall not be deemed to be such a disposition.
The optionee shall make appropriate arrangements with the Corporation for any
taxes which the Corporation is obligated to collect in connection with any
disposition of shares acquired pursuant to the exercise of an incentive stock
option, including any Federal, state or local withholding taxes.

(d) Should Section 422 of the Code be amended during the term of the Plan,
the Committee may modify the Plan consistently with such amendment.

6. TERM OF OPTION PERIOD

The term during which options may be granted under the Plan shall expire on
December 15, 2006 and the option period during which each option may be
exercised shall, subject to the provisions of paragraph 12 hereof, be during
such period, expiring not later than the tenth anniversary (the fifth
anniversary in the case of incentive stock options granted to a person who owns
(within the meaning of section 424(d) of the Code) more than 10 percent of the
total combined voting power of all classes of stock of the Corporation at the
time such option is granted) of the date the option is granted, as may be
determined by the Committee.

7. OPTION PRICE

The price at which shares may be purchased upon exercise of a particular
option shall be such price as may be fixed by the Committee but in no event less
than the minimum required in order to comply with any applicable law, rule or
regulation and, in the case of incentive stock options, shall not be less than
100 percent, or in the case of incentive stock options granted to

-3-

<PAGE>

an optionee who is a 10 percent stockholder (within the meaning of paragraph 6
hereof), shall not be less than 110 percent, of the fair market value (as
defined in paragraph 8) of such shares on the date such option is granted.

8. STOCK AS FORM OF EXERCISE PAYMENT

At the discretion of the Committee, a Grantee who owns shares of the
Corporation's common stock may elect to use such shares, with the value thereof
to be determined as the fair market value of such shares on the day prior to the
date of exercise of the option, to pay all or part of the option price required
under the Plan. As used herein, fair market value shall be deemed to be the
closing price on such day of the Corporation's common stock (if the
Corporation's common stock is then traded on a national securities exchange or
in the NASDAQ National Market System or Small-Cap Market System) or, if not so
traded, the average of the closing bid and asked prices thereof on such day.

9. EXERCISE OF OPTIONS

(a) Each option granted shall be exercisable in whole or in part at any
time, or from time to time, during the option period as the Committee may
provide in the terms of such option; provided that the election to exercise an
option shall be made in accordance with applicable federal and state laws and
regulations.

(b) No option may at any time be exercised with respect to a fractional
share.

(c) No shares shall be delivered pursuant to the exercise of any option,
in whole or in part, until qualified for delivery under such securities laws and
regulations as may be deemed by the Committee to be applicable thereto, until
such shares are listed on each securities exchange on which the Corporation's
common stock may then be listed, until, in the case of the exercise of an
option, payment in full of the option price is received by the Corporation in
cash or stock as provided in paragraph 8 and until payment in cash of any
applicable withholding taxes is received by the Corporation. Unless prior to
the exercise of the option the shares of the Corporation's common stock issuable
upon such exercise have been registered with the Securities and Exchange
Commission pursuant to the Securities Act of 1933, the notice of exercise shall
be accompanied by a representation or agreement of the individual exercising the
option to the Corporation to the effect that such shares are being acquired for
investment and not with a view to the resale or distribution thereof or such
other documentation as may be required by the Corporation unless in the opinion
of counsel to the Corporation such representation, agreement, or documentation
is not necessary to comply with said Act. No holder of an option, or such
holder's legal representative, legatee, or distributee shall be or be deemed to
be a holder of any shares subject to such option unless and until a certificate
or certificates therefor is issued in his name.

-4-

<PAGE>

10. ACCELERATION OF VESTING

(a) An option shall automatically be vested and immediately exercisable in
full upon the occurrence of any of the following events:

(i) Any person within the meaning of Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, other than the Corporation, has become the
beneficial owner, within the meaning of Rule 13d-3 under such Act, of 30
percent or more of the combined voting power of the Corporation's then
outstanding voting securities, unless such ownership by such person has
been approved by the Board of Directors immediately prior to the
acquisition of such securities by such person;

(ii) The first day on which shares of the Corporation's common stock
are purchased pursuant to a tender offer or exchange offer, unless such
offer is made by the corporation or unless such officer has been approved
or not opposed by the Board of Directors;

(iii) The stockholders of the Corporation have approved an agreement
to merge or consolidate with or into another corporation (and the
Corporation is not the survivor of such merger or consolidation) or an
agreement to sell or otherwise dispose of all or substantially all of the
Corporation's assets (including a plan of liquidation), unless the Board of
Directors has resolved that options shall not automatically vest; or

(iv) During any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the
Corporation cease for any reason to constitute at least a majority thereof,
unless the election or the nomination for the election by the Corporation's
stockholders of each new director was approved by a vote of at least a
majority of the directors then still in office who were directors at the
beginning of the period.

(b) Other than upon the occurrence of any of the events described in
paragraph 10(a), the Committee shall have the authority at any time or from time
to time to accelerate the vesting of any individual option and to permit any
stock option not theretofore exercisable to become immediately exercisable.

11. TRANSFER OF OPTIONS

Options granted under the Plan may not be transferred except by will or the
laws of descent and distribution and, during the lifetime of the Grantee to whom
granted, may be exercised only by such or by such Grantee's guardian or legal
representative.

12. TERMINATION OF EMPLOYMENT

(a) Except as specifically provided in this paragraph 12, an option shall
be exercisable only if the Grantee has maintained continuous status as an
employee of the Corporation or as an

-5-

<PAGE>

Associate since the date of grant of such option. If the Grantee's status as an
employee of the Corporation or as an Associate is terminated by the Corporation
for any reason whatsoever, including death, Disability, Retirement, or with or
without cause, that part of the Option that has already vested shall be
exercisable for the lesser of (i) three (3) months from the date of such
termination of employment or (ii) the balance of such Option's term. In no
event, however, shall any option be exercisable after five years from the date
it was granted. Nothing in the Plan or in any option shall confer upon any
Grantee the right to continue in the employ of or association with the
Corporation or interfere in any way with the right of the Corporation to
terminate the employment or association of a Grantee at any time. The
Committee's determination that a Grantee's employment or association has
terminated and the date thereof shall be final and conclusive on all persons
affected thereby.

(b) The Committee may, if it determines that to do so would be in the
Corporation's best interests, provide in a specific case or cases for the
exercise of options which would otherwise terminate upon termination of
employment or association with the Corporation for any reason, upon such terms
and conditions as the Committee determines to be appropriate.

(c) In the case of a Grantee on an approved leave of absence, the
Committee may, if it determines that to do so would be in the best interests of
the Corporation, provide in a specific case for continuation of options during
such leave of absence, such continuation to be on such terms and conditions as
the Committee determines to be appropriate. Leaves of absence for such period
and purposes conforming to the personnel policy of the Corporation as may be
approved by the Committee shall not be deemed terminations or interruptions of
employment.

13. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION

(a) If the Corporation's outstanding common stock is hereafter changed by
reason of reorganization, merger, consolidation, recapitalization,
reclassification, stock split-up, combination, or exchange of shares or the
like, or dividends payable in shares of the Corporation's common stock, an
appropriate adjustment shall be made by the Board upon recommendation of the
Committee in the aggregate number of shares available under the Plan and in the
number of shares and price per share subject to outstanding options. If the
Corporation shall be reorganized, consolidated, or merged with another
corporation, or if all or substantially all of the assets of the Corporation
shall be sold or exchanged, the holder of an option shall, after the occurrence
of such a corporate event, be entitled to receive upon the exercise of his
option the same number and kind of shares of stock or the same amount of
property, cash, or securities as he would have been entitled to receive upon the
happening of any such corporate event as if he had exercised such option and had
been, immediately prior to such event, the holder of the number of shares
covered by such option. All adjustments made pursuant to this paragraph to the
terms or conditions of an incentive stock option shall be subject to the
requirements of section 424 of the Code.

-6-

<PAGE>

(b) Any adjustment in the number of shares shall apply proportionately to
only the unexercised portion of any option granted hereunder. If fractions of a
share would result from any such adjustment, the adjustment shall be revised to
the next higher whole number of shares.

14. TERMINATION, MODIFICATION, AND AMENDMENT

(a) The Plan shall terminate 10 years from the earlier of the date of its
adoption by the Board of Directors or the date on which the Plan is approved by
the stockholders of the Corporation and no option shall be granted after
termination of the Plan.

(b) The Plan may from time to time be terminated, modified, or amended by
the affirmative vote of the holders of a majority of the outstanding shares of
the Corporation entitled to vote thereon.

(c) The Board of Directors may at any time terminate the Plan or from time
to time make such modifications or amendments of the Plan as it may deem
advisable including, without limitation, modifications to reflect changes in
applicable law; provided, however, that the Board of Directors shall not (i)
modify or amend the Plan in any way that would disqualify any incentive stock
option issued pursuant to the Plan as an incentive stock option as defined in
section 422 of the Code or (ii) without approval by the affirmative vote of the
holders of a majority of the outstanding shares of the Corporation entitled to
vote thereon, increase (except as provided by paragraph 14) the maximum number
of shares as to which options may be granted under the Plan.

(d) No termination, modification, or amendment of the Plan, may, without
the consent of the Grantee, adversely affect the rights conferred by such
option.

15. EFFECTIVE DATE

The Plan shall become effective upon the adoption by the Board of
Directors, subject to the approval by the affirmative vote of the holders of a
majority of the outstanding shares of the Corporation present, in person, or by
proxy, at a stockholders meeting duly held within one year following adoption of
the Plan by the Board of Directors. All options granted prior to the date of
such stockholder approval shall be subject to such approval.

-7-

<PAGE>
MANAGEMENT AGREEMENT

AGREEMENT, dated as of December 1, 1996, between Casull Arms Corporation, a
Delaware corporation with offices at Casull Arms Corporation, c/o Mr. Allan R.
Tessler, Chairman of the Board, 3490 North Clubhouse Drive, Jackson, Wyoming
83001 (the "Company"), and FH Capital Advisors, Inc., a New York corporation
with offices at 477 Madison Avenue, New York, New York 10022 ("Advisor").

1. (a) Advisor agrees that throughout the term of this Agreement as
specified in Section 7 (the "Term") it shall provide to the Company such
reasonable advice, service, consultation, and assistance as the Company shall
seek from Advisor with respect to the Company's business affairs and shall
perform such other services related to the business affairs of the Company as
the Board of Directors of the Company shall reasonably request. Such advice,
service, consultation, and assistance may be, with limitation, in the areas
listed under the heading "Areas(s)" on Schedule A hereto.

(b) The parties hereto agree that services to be provided by Advisor
for the Company hereunder are to be performed by the person listed on Schedule A
hereto or such other or additional persons as shall be designated by Advisor
from time to time and approved by the Board of Directors of the Company (all of
such persons are hereinafter collectively referred to as the "Principals").
Each Principal may, without limitation, provide services in the area(s) listed
on Schedule A hereto. The

<PAGE>

Principals shall be required by Advisor to devote to the providing of services
to the Company hereunder that amount of time which is reasonably necessary in
order for Advisor to meet its obligations hereunder. In the case of those
Principals who are also members of the Board of Directors of the Company or any
committee of the Board of Directors of the Company, such time shall be in
addition to time spent at meetings of these entities.

2. Advisor agrees that the service which it is to provide to the Company
hereunder shall be performed at the reasonable direction of the Board of
Directors of the Company as implemented by the Company's senior management
consistent with the other applicable provisions of this Agreement. Advisor
agrees that it shall function in an advisory and consultative capacity and that
the Board of Directors of the Company and the duly appointed officers of the
Company shall be responsible for the management of the Company and the
implementation of any advice or other services rendered by Advisor hereunder.
Advisor assumes no responsibility under this Agreement other than to render the
services called for hereunder in good faith, and shall not be responsible for
any action of the Board of Directors of the Company or any of the duly appointed
officers of the Company in following or declining to follow any advice or
recommendations of Advisor. Neither Advisor nor any of the Principals shall be
liable to the Company except by reason of acts constituting bad faith, willful
misconduct or gross negligence of their duties.

<PAGE>

3. (a) During the Term, the Company agrees to pay to Advisor a
management fee (the "Fee") for the services to be performed by Advisor, as
provided herein, compensation at the rate of $5,000 per month. Any portion of
the Fee which is not paid on a current basis shall accrue and become payable at
such time as the Company has sufficient funds to do so.

(b) Advisor shall bear the expense for rent, telephone, utilities,
office furniture, equipment and machinery and other office expenses of Advisor
relating to the performance by Advisor of its duties hereunder. The Company
shall be responsible for all other expenses arising out of the Advisor's
performance of its duties hereunder.

4. Subject to Section 3(b) and the first sentence of Section 5, the
company agrees to indemnify and hold harmless Advisor and the Principals from
and against any and all losses, claim, damages, liabilities and expenses, joint
and several (which shall include, but not be limited to, counsel fees and any
and all expenses whatsoever incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation), as and when
incurred, to which any of them may become subject under any statute, under
common law, or otherwise, relating to, based upon or arising out of Advisor's or
any Principal's activities under this Agreement or any act or omission by
Advisor or any Principal in connection with their respective obligations under
this Agreement, provided, however, that the Company shall not be liable in

<PAGE>

any such case to the extent that any such loss, claim, damage, liability or
expense is found in a final judgment by a court of competent jurisdiction, not
subject to further appeal, to have resulted from the bad faith, willful
misconduct or gross negligence of Advisor or one or more of the Principals.

5. (a) Advisor shall bear all of the costs and expenses of the personal
compensation and employment benefits, if any,of the Principals. The Principals
shall not be entitled to any compensation or benefit from the Company for
services performed for the Company in any capacity, except (i) for fees for
serving on the Board of Directors of the Company or any committee of the Board
of Directors of the Company, (ii) as approved by the Board of Directors, or
(iii) as otherwise expressly provided herein.

(b) It is expressly understood between the parties hereto that
Advisor shall be an independent contractor. It is also expressly agreed that
Advisor shall be solely responsible for the withholding and payment of any and
all taxes and other sums required to be withheld or paid with respect the
compensation of the Principals, if any, pursuant to any and all state, federal
or other laws in connection with the rendering of services by Advisor hereunder.

6. Advisor agrees, on behalf of itself and its employees and
representatives, including without limitation the Principals, that all
memoranda, notes, records or other documents relating to the Company made or
compiled by Advisor or its employees or representatives in the fulfillment of
Advisor's obligations under this Agreement or

<PAGE>

otherwise shall be the Company's property and shall be delivered to the Company
upon request. Advisor shall not knowingly use, for itself or others, or divulge
to others, other than in the ordinary course of the Company's business, any
secret or confidential information, knowledge or data of the Company obtained by
it as a result of its performance of this Agreement, unless authorized by the
Company.

7. (a) The Term shall commence upon the closing of the initial public
offering of the Company and shall expire 30 days after such date as either party
gives written notice of termination to the other.

(b) Upon termination of this agreement, the Company agrees that it
shall make payment to Advisor of the pro rata portion of the Fee attributable to
the period through the date on which this Agreement terminates.

8. This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes any existing agreements between
them concerning such subject matter, and may be modified only by a written
instrument duly executed by each party.

9. Any notice or other communication required or permitted to be given
hereunder shall be in writing and shall be mailed by certified mail, return
receipt requested, or delivered against receipt to the party to whom it is to be
given at the address of such party set forth in the preamble to this Agreement
(or to such other address as the party shall have furnished in writing in
accordance with the provisions of

<PAGE>

this Section 9). Any notice or other communication given by certified mail
shall be deemed given at the time of certification thereof, except for a notice
changing a party's address, which shall be deemed given at the time of the
receipt thereof.

10. Any waiver by either party of a breach of any provisions of this
Agreement shall not operate as or be construed to be a waiver of any other
breach of such provisions or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions shall not be considered a waiver or
deprive that party of that right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing.

11. The provisions of this Agreement shall be binding upon and inure to
the benefit of the parties thereto and their respective successors and assigns.

12. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York, without giving effect to conflict of laws.

<PAGE>

IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.

CASULL ARMS CORP.

BY: /s/ Allan R. Tessler
-----------------------
Allan R. Tessler
Chairman of the Board

FH CAPITAL ADVISORS, INC.

BY: /s/ Marshall Kiev
-----------------------
Marshall Kiev
Managing Director

<PAGE>

SCHEDULE A

AREAS

1. Executive Management
2. Financial Analysis
3. Facilities Management
4. Management Information Systems

PERSONS

1. Andrea Tessler
2. Marshall Kiev

<PAGE>
EXHIBIT 11
----------

Casull Arms Corporation
Computation of net loss per common share

October 21, 1996
--------------------------------------
Days Weighted Avg.
Shares Outstanding(1) Shares Outstanding (2)
---------- -------------- ----------------------
<S> <C> <C> <C>
Shares issued to founders on
August 7, 1996 573,750 75 472,871

Cheap stock consideration for shares
issued to founders 564,188 16 99,198

Shares issued in private placement
through October 1996 1,133,333 27 336,264

Cheap stock consideration for shares
issued in private placement 566,666 64 398,534
---------------------
Weighted average shares
outstanding 1,306,867

Net loss for period $ (21,804)
---------------------

Net loss per common share $ (0.02)
=====================
</TABLE>

(1) Days outstanding for shares issued in private placement represents weighted
average days outstanding for private placement share issuances which
occurred in September and October, 1996.

(2) Weighted average shares based on days for the period July 23, 1996 (date of
incorporation) through October 21, 1996.

<PAGE>
EXHIBIT 23.2

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form SB-2 of our report dated November 25, 1996
relating to the financial statements of Casull Arms Corporation, which
appears in such Prospectus. 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 Waterhouse LLP has not prepared or
certified such "Selected Financial Data."

/s/ PRICE WATERHOUSE LLP
PRICE WATERHOUSE LLP

New York, New York
January 9, 1997

<PAGE>

EXHIBIT 23.3

January 7, 1997

Casull Arms Corporation
456 Fairview Road
Afton, Wyoming 83110

Attention: Board of Directors

Re: Casull Arms Coropration

Dear Sir/Madam:

I hereby consent to the use of the results and conclusions of the
marketing plan, prepared on behalf of Casull Arms Corporation, in the Form
SB-2 Registration Statement prepared in connection with the initial public
offering of Casull Arms Corporation.

Sincerely,

/s/ Michael Darling
-----------------------
Michael Darling