CASULL ARMS CORP, POS AM, 1998-02-17

CASULL ARMS CORP
POS AM, 1998-02-17
ORDNANCE & ACCESSORIES, (NO VEHICLES/GUIDED MISSILES)

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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 17, 1998

REGISTRATION NO. 333-16911
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

POST-EFFECTIVE AMENDMENT NO. 3
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
P.O. 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.
WILLIE E. DENNIS, ESQ. TIANNE BATAILLE, 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 this Form is a post-effective amendment filed pursuant to Rule 462(d)
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. / /

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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[LOGO]

750,000 SHARES OF COMMON STOCK PAR VALUE $0.01 PER SHARE AND
750,000 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 shares of common
stock, par value $0.01 per share ("Common Stock"), and 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 this Offering together as a unit, on the
basis of one share of Common Stock and one Warrant (the "Units"). See
"Description of Securities."

The Securities will become separately tradeable at such time as National
Securities Corporation (the "Representative") may determine, provided, however,
that such determination shall not be made prior to the delivery of the Company's
audited financial statements to the Representative which reflect the receipt of
the proceeds of this Offering (the "Separation Date"). The Company has
covenanted to provide such audited financial statements no later than thirty
(30) days from the closing of this Offering. See "Risk Factors."

Each Warrant entitles the registered holder thereof to purchase one share of
Common Stock at an initial exercise price of $6.00 per share, at any time over a
forty-eight month period commencing on March 1st, 1999. The Warrant exercise
price is subject to adjustment under certain circumstances. Commencing on March
1st, 2000, the Warrants are subject to redemption by the Company at a price of
$0.05 per Warrant upon thirty (30) days prior written notice to the
warrantholders if the average closing bid price of the Common Stock equals or
exceeds $8.25 per share, 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 Units, 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 the Separation Date, there will be
no public market for the Securities as Units. See "Underwriting" for a
description of the factors considered in determining the public offering price.
The Company anticipates that the Units will be quoted on the OTC Electronic
Bulletin Board under the symbol CSLLU and that after the Separation Date the
Common Stock and the Warrants will be quoted on the OTC Electronic Bulletin
Board under the symbol CSLL and CSLLW, respectively.

THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS" BEGINNING AT PAGE 7 AND
"DILUTION" AT PAGE 15. 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............................... $5.50 $0.55 $4.95
Per Share............................ $5.40 $0.54 $4.86
Per Warrant.......................... $0.10 $0.01 $0.09
Total(3)............................... $4,125,000 $412,500 $3,712,500
</TABLE>

(1) Excludes (i) additional compensation payable to the Representative in the
form of a non-accountable expense allowance equal to 1.8% of the gross
proceeds of this Offering, and (ii) the value of five-year warrants (the
"Representative's Warrants") to purchase up to an aggregate of 75,000 shares
of Common Stock and/or 75,000 Warrants, at an exercise price of $6.48 per
share, and $0.12 per warrant, respectively, that will be sold to the
Representative at a nominal price. In addition, the Company has agreed to
indemnify the Representative 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 112,500 shares of
Common Stock and/or 112,500 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 $4,743,750,
$474,375 and $4,269,375, respectively. See "Underwriting."
------------------------------

The Securities are being offered by the Underwriters, subject to prior sale,
when, as and if delivered to and accepted 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 February , 1998.

NATIONAL SECURITIES CORPORATION

THE DATE OF THIS PROSPECTUS IS FEBRUARY , 1998.

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[LOGO]

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.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
AND/OR THE WARRANTS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING".

454 Casull is a registered trademark of Richard J. Casull, who has licensed
the use of such trademark, on a non-exclusive basis, to Freedom Arms, Inc. and
the Company. "Casull Arms" and the Company's bullet logo are trademarks of the
Company. All other marks are trademarks of their respective owners.

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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 a 22 caliber double-action revolver, 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 or sell any firearms included on the Bureau of Alcohol Tobacco
and Firearms' list of assault weapons.

The Company plans to outsource the production of its revolvers to qualified
manufacturers. The Company has identified several manufacturers capable of
producing the firearms, and expects that outsourced manufacturing will begin in
the spring of 1998. The Company plans to begin the construction of its own
manufacturing facility within one year after the closing of this Offering.

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
4.3 million units in 1995.

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.

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distribution network with major firearms dealers; (iv) increasing consumer
awareness and market penetration throughout the Company's market areas.

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.

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THE OFFERING

<TABLE>
<S> <C>
Securities Offered(1)........... 750,000 shares of Common Stock and 750,000 Warrants to
purchase one share of Common Stock per Warrant. The Common
Stock and Warrants are being offered hereby as units but
will become separately tradeable at such time as the
Representative may determine, provided, however, that such
determination shall not be made prior to the delivery of
the Company's audited financial statements to the
Representative which reflect the receipt of the proceeds
of this Offering. The Company has convenanted to provide
such audited financial statements within thirty (30) days
of the closing of this Offering. After the Separation Date
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 $6.00 per
share at any time over a forty-eight month period
commencing on March 1, 1999. Commencing on March 1, 2000,
the Warrants will be subject to redemption by the Company,
at a price of $0.05 per Warrant upon thirty (30) days
prior written notice to the Warrantholders if the average
closing bid price of the Common Stock equals or exceeds
$8.25 per share 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(2).............. 1,707,083 shares of Common Stock.
Securities to be Outstanding
After the Offering(1)(2)(3)... 2,457,083 shares of Common Stock and Warrants to purchase
750,000 shares of Common Stock
</TABLE>

<TABLE>
<S> <C>
Proposed OTC Electronic Bulletin
Board Symbols................. Units: CSLLU
Common Stock: CSLL
Redeemable Warrants: CSLLW

Use of Proceeds................. Acquisition of machinery, tooling and equipment; purchase
of inventory; purchase of land; construction of a
manufacturing facility; marketing and product development.
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>

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(1) Assumes no exercise of the Underwriter's over-allotment option. See
"Underwriting."

(2) 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."

(3) Does not include up to (i) 750,000 shares of Common Stock issuable upon
exercise of the Warrants sold in this Offering, (ii) 75,000 shares of Common
Stock issuable upon exercise of the Representative's Warrants, (iii)
Warrants to purchase 75,000 shares of Common stock issuable upon exercise of
the Representative's Warrants and (iv) 75,000 shares of Common Stock
issuable upon exercise of the Warrants underlying the Representative's
Warrants.

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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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>
DECEMBER 31, 1997(1)
----------------------------
(UNAUDITED)
----------------------------
ACTUAL AS ADJUSTED(3)
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<S> <C> <C>
BALANCE SHEET DATA
Working capital................................................. $ 2,653,323 $ 6,283,027
Total assets.................................................... 3,412,752 6,450,099
Total liabilities............................................... 369,708 118,755
Stockholders' equity............................................ 3,043,044 6,331,344
</TABLE>

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(1) The Company's fiscal year begins on July 1 and ends on June 30.

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

(3) As adjusted to give effect to the issuance of the Securities offered hereby
at an assumed initial offering price of $5.40 per share of Common Stock and
$.10 per Warrant (after deducting estimated underwriting discounts and
commissions and all other expenses of this Offering). Assumes no exercise of
the Representative's Warrants. See "Underwriting."

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.

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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. The Company is in
the development stage and does not currently manufacture or sell firearms. There
is no guarantee that the Company will be able to manufacture and sell firearms
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 6 months
following the closing of this Offering.

DEPENDENCE ON LICENSED PATENTS AND TRADEMARKS. The Company has entered into
a License Agreement with Richard J. Casull ("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," and (ii) a black powder mini-revolver manufactured by North American
Arms. The "454 Casull" trademark, registered in connection with ammunition, is
licensed on a non-exclusive basis to Freedom Arms Inc. and the Company. 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 upon 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 a federal trademark registration to the "Casull" name, in connection with
the Company's products, but no assurance can be given that such federal
trademark registration 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 that
an adequate replacement could be obtained. The Company will obtain a $1,000,000
key-man life insurance policy on Casull prior to the completion of the Offering.
No assurance can be given, however, that the Company will be able to obtain a
key-man life insurance policy on acceptable terms.

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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 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 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", which bans the sale
of assault weapons, took effect on September 13, 1994, however the Company
believes that none of its products will be banned as "assault weapons" under the
"Crime Bill". There can be no assurance, however, 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.

Though not currently required by law, there is a trend in the firearms
industry to provide secure methods of storing firearms. In 1997 President
Clinton called for legislation requiring firearms be sold with a trigger-locking
device or in a lockable container. Although no legislation has been introduced
by Congress, several of the major firearms producers have begun selling firearms
with trigger-locking devices or locking containers. The Company intends to sell
all its firearms with either a trigger-locking device or in a locking container.

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

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adequate insurance, any successful claims could materially and adversely affect
the reputation and prospects of the Company.

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 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) and expects to manufacture rifles chambered for
conventional cartridges. The rifles chambered for conventional cartridges would
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.

DEPENDENCE ON THIRD-PARTY MANUFACTURERS AND SUPPLIERS. The Company will be
dependent upon third parties to manufacture and supply its products. Currently,
the Company is in discussions with manufacturers, however, no assurance can be
given that the Company will be able to enter into an agreement with a
third-party manufacturer or that such agreement will be maintained. Any failure
by such manufacturer to fulfill its obligations, or the failure by the Company
to secure an alternative third-party manufacturer at comparable prices, if
necessary, would have a material adverse effect on the Company. The Company does
not expect to maintain supply agreements with more than one third-party supplier
for identical parts, but instead expects to purchase pursuant to purchase orders
in the ordinary course of business. The Company will be substantially dependent
on the ability of its manufacturers and suppliers to, among other things, meet
the Company's performance and quality specifications. Failure by the Company's
manufacturers and suppliers to comply with these and other requirements could
have a material adverse effect on the Company. Furthermore, there can be no
assurance that the Company's manufacturers and suppliers will dedicate
sufficient production capacity to meet the Company's scheduled delivery
requirements or that the Company's suppliers or manufacturers will have
sufficient production capacity to satisfy the Company's requirements during any
period of sustained demand. Their failure to supply, or delay in supplying, the
Company with products could have a material adverse effect on the Company. See
"Business-- Manufacturing."

DEPENDENCE ON THIRD-PARTY DISTRIBUTORS. 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

9
<PAGE>
decrease, thus decreasing the Company's ability to distribute its products.
There can be no assurance that the Company will successfully distribute its
products or that firearms dealers will agree to distribute its products. See
"Business--Marketing Strategy."

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 may not succeed in attracting and retaining qualified personnel,
particularly including management, marketing and other skilled personnel, to its
headquarters in Afton, Wyoming. There can be no assurance that the Company will
continue to grow or be 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. Commencing on March
1, 2000, the Warrants are redeemable by the Company at a price of $0.05 per
Warrant upon thirty (30) days prior written notice if the average closing bid
price of the Common Stock equals or exceeds $8.25 per share for any 20 trading
days within a period of 30 consecutive trading days ending on the fifth trading
day prior to the notice of redemption. 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 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; LISTING ON OTC ELECTRONIC BULLETIN BOARD;
ILLIQUIDITY OF TRADING MARKET. Prior to this Offering, there has been no public
trading market for the Units, 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 Units, Common Stock and the Warrants will be
quoted on the OTC Electronic Bulletin Board, an NASD sponsored and operated
inter-dealer automated quotation system for equity securities. The OTC
Electronic Bulletin Board was introduced seven years ago as an alternative to

10
<PAGE>
the NQB Pink Sheets published by the National Quotation Bureau Incorporated for
the trading of over-the-counter securities. There can be no assurance that the
OTC Electronic Bulletin Board will be recognized by the brokerage community as
an acceptable alternative to quotation on NASDAQ or in the NQB Pink Sheets. In
the absence of such recognition, the liquidity and stock price of the Securities
in the secondary market may be adversely affected, and there can be no assurance
that a public market for the Securities will develop or, if developed, that it
will be sustained. In addition, depending on several factors including the
future market price of the Common Stock or Warrants or the failure of the
Company to deliver audited financial statements reflecting the receipt of the
proceeds from this Offering to the Representative, the Securities could become
subject to the so-called "penny stock" rules that impose additional sales
practice and market-making 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 the Units, 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
Units, 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 Units, Common
Stock and Warrants in those states. In many states, secondary trading of the
Units, 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 Units, 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 Units, 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
Units, Common Stock or the Warrants in the states in which they reside. These
restrictions may have the effect of reducing the liquidity of the Units, Common
Stock or Warrants and could adversely affect the market price of the Units,
Common Stock or the Warrants.

CONTROL BY CURRENT STOCKHOLDERS. Upon the closing of the Offering, current
stockholders will beneficially own 1,707,083 shares or 69.3% of the Common Stock
outstanding. Of that number, Mr. Casull will beneficially own 71,875 shares or
2.9% of the Common Stock outstanding, and all officers and directors as a class
will beneficially own 1,041,750 shares or 42.4% 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.

11
<PAGE>
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 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. 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. The Representative
and the Company have sought to effectuate a public offering of securities since
December 1996, and efforts with respect to a larger public offering in 1997 on a
"firm commitment" and a "best efforts" basis were not successful. In September
1997, the Company filed a suit against the Representative for failure to deliver
on an alleged promise to

12
<PAGE>

raise capital through a public offering, which suit was dismissed without
prejudice in November 1997 pursuant to a tolling agreement. 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 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 1,707,083 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 after the closing of
this Offering without the prior written consent of the Representative. The
Representative may consent to a waiver of this lock-up period without prior
public notice. Of the 2,457,083 shares of Common Stock that will be outstanding
following the closing of this Offering, the 750,000 shares of Common Stock sold
in this Offering will be freely tradeable without restriction or further
registration under the Act. Following the 18 month period, the remaining
1,707,083 shares of Common Stock will be eligible for sale subject to the manner
of sales, volume, notice and information requirements of Rule 144. The Warrants
are not exercisable until March 1, 1999. Thereafter up to 750,000 shares of
Common Stock may be issued upon exercise of the Warrants. Any shares of Common
Stock acquired upon exercise of the Warrants, subject to any applicable state
law registrations and secondary trading limitations, will generally be freely
tradeable to the same extent as the shares of the Common Stock sold in the
Offering. 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 $2.82 or approximately 52%
per share of Common Stock in the as adjusted net tangible book value of each
share of Common Stock from this Offering. 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."

13
<PAGE>
USE OF PROCEEDS

The gross proceeds from the sale of the Securities offered hereby will be
$4,125,000 ($4,743,750, 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 Underwriter's discounts and commissions and
all other applicable expenses, are estimated to be approximately $3,288,250
($3,833,987 if the Over-allotment Option is exercised in full). The Company
currently anticipates applying such proceeds approximately as follows:

<TABLE>
<CAPTION>
APPROXIMATE
APPROXIMATE PECENTAGE
DOLLAR OF NET
APPLICATION OF PROCEEDS AMOUNT PROCEEDS
- -------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Purchase of Land...................................................................... $ 125,000 3.8%
Construction of Plant................................................................. 400,000 12.1%
Acquisition of Machinery, Tooling & Equipment......................................... 1,538,250 46.8%
Inventory............................................................................. 775,000 23.6%
Marketing............................................................................. 300,000 9.1%
Product Development................................................................... 150,000 4.6%
------------ -----
Total................................................................................. $ 3,288,250 100.0%
</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 intends to use the remaining net proceeds in the amount of
approximately $3,000,000 received from the sale of common stock in a private
placement (the "Private Placement") of the Company in October 1996 for the
acquisition of machinery, tooling and equipment, the purchase of inventory,
marketing, product development and general corporate purposes, including working
capital.

The Company believes that the estimated net proceeds to be received by the
Company from this Offering, together with the remaining net proceeds 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 closing of this Offering. 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.

14
<PAGE>
DILUTION

The Company had a net tangible book value of $2,701,640 or $1.58 per share
as of December 31, 1997, based upon 1,707,083 shares of Common stock
outstanding. The net tangible book value per share is equal to the Company's
total tangible assets less its liabilities divided by the total number of shares
of its Common Stock outstanding prior to the Offering. After giving effect to
the sale of 750,000 shares of Common Stock and 750,000 Warrants offered hereby
at an initial public offering price per share of $5.40 per share of Common Stock
and $.10 per Warrant, the proforma net tangible book value of the Common Stock
as of December 31, 1997 (after deducting estimated underwriting discounts and
commissions and all other estimated expenses of the Offering payable by the
Company) would have been $6,331,344 or $2.58 per share. This would represent an
immediate increase in net tangible book value of $1.00 per share and an
immediate dilution of $2.82 or 52%. The following tables illustrate this
dilution on a per share basis (assuming $.10 is attributed to the Warrants):

<TABLE>
<S> <C> <C>
Assumed initial offering price per share................................. $ 5.40
Net tangible book value per share prior to the Offering(1)............. $ 1.58
Increase attributable to new investors................................. $ 1.00
Pro forma net tangible book value per share after the Offering(2)........ $ 2.58
-----

Dilution per share to new investors...................................... $ 2.82
-----
-----
</TABLE>

The following tables summarize 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 the new investors in the Offering
made by this Prospectus. The calculation below is based on an initial public
offering price of $5.40 per share of Common Stock (before deducting underwriting
discounts and commissions and all other estimated expenses of the Offering
payable by the Company).

<TABLE>
<CAPTION>
AVERAGE
PRICE PER
SHARES PURCHASED TOTAL CONSIDERATION SHARE
--------------------- ------------------------ -----------
<S> <C> <C> <C> <C> <C>
NUMBER % NUMBER %
---------- --- ------------- ---
Existing Stockholders..................................... 1,707,083 69% $ 3,457,375 46% $ 2.03
New Investors............................................. 750,000 31% 4,050,000 54% $ 5.40
---------- --- ------------- --- -----
2,457,083 100% $ 7,507,375 100%
</TABLE>

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

(1) Net tangible book value per share excludes deferred registration costs of
$341,404. See the financial statements of the Company and the notes thereto.

(2) Pro forma net tangible book value per share after the Offering (after
deducting estimated underwriting discounts and commissions and all other
expenses of the Offering).

15
<PAGE>
CAPITALIZATION

The following table sets forth the capitalization of the Company as of
December 31, 1997 on an actual basis, and the capitalization on such date as
adjusted to give effect to the issuance and sale of the Securities offered by
the Company hereby (after deducting estimated underwriting discounts and
commissions and all other estimated expenses of this Offering payable by the
Company), assuming an initial public offering price of $5.40 per share of Common
Stock and $0.10 per Warrant:

<TABLE>
<CAPTION>
DECEMBER 31, 1997(1)
----------------------------
<S> <C> <C>
UNAUDITED
----------------------------

<CAPTION>
ACTUAL AS ADJUSTED(2)
------------ --------------
<S> <C> <C>
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; 1,707,083
shares issued and outstanding actual; 2,457,083 shares outstanding (as
adjusted)....................................................................... 17,071 24,571
Additional paid-in capital........................................................ 3,440,304 6,721,104
Accumulated deficit............................................................... (414,331) (414,331)
------------ --------------
Total stockholders' equity........................................................ 3,043,044 6,331,344
------------ --------------
Total capitalization............................................................ $ 3,043,044 $ 6,331,344
------------ --------------
------------ --------------
</TABLE>

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

(1) The Company has adopted a fiscal year which begins on July 1 and ends on
June 30.

(2) As adjusted to give effect to the issuance of Securities offered hereby at
an assumed initial offering price of $5.40 per share of Common Stock and
$.10 per Warrant (after deducting estimated underwriting discounts and
commissions and all other estimated expenses of this Offering payable by the
Company). See "Use of Proceeds." Assumes no exercise of the Representative's
Warrants. See "Underwriting."

16
<PAGE>
SELECTED FINANCIAL DATA

The following selected financial data as of June 30, 1997 and for the period
then ended have been derived from the Company's audited financial statements.
The balance sheet data as of December 31, 1997 and the statement of operations
data for the six months then ended have been derived from unaudited financial
statements. In the opinion of management, the unaudited financial statements
include all material adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the financial position and results of
operations for the period presented. 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>
JULY 23,
1996
(INCEPTION) SIX MONTHS JULY 23, 1996
TO ENDED (INCEPTION) TO
JUNE 30, DECEMBER 31, DECEMBER 31,
1997(1) 1997 1997
------------ -------------- --------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA
Revenues...................................... $ -- $ -- $ --
Expenses:
General and administrative expenses......... 275,651 262,751 538,402
Other income:
Interest and dividend income................ 62,935 61,136 124,071
------------ -------------- --------------
Net loss...................................... $ (212,716) $ (201,615) $ (414,331)
------------ -------------- --------------
------------ -------------- --------------
Net loss per common share..................... $ (0.14) $ (0.12)
------------ --------------
------------ --------------
Weighted average number of common shares
outstanding(2).............................. 1,468,155 1,707,083
------------ --------------
------------ --------------
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1997(1)
----------------------------
JUNE 30, 1997 (UNAUDITED)
------------- ----------------------------
ACTUAL ACTUAL AS ADJUSTED(3)
------------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA
Cash................................................................. $ 39,855 $ 3,023,031 $ 6,401,782
Working capital...................................................... (241,672) 2,653,323 6,283,027
Total assets......................................................... 3,916,186 3,412,752 6,450,099
Total liabilities.................................................... 671,527 369,708 118,755
Stockholders' (deficit) equity....................................... (155,341) 3,043,044 6,331,344
</TABLE>

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

(1) The Company's fiscal year begins on July 1 and ends on June 30.

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

(3) As adjusted to give effect to the issuance of the Securities offered hereby
at an assumed initial offering price of $5.40 per share of Common Stock and
$.10 per Warrant (after deducting estimated underwriting discounts and
commissions and all other expenses of this Offering payable by the Company).
Assumes no exercise of the Representative's Warrants. See "Underwriting."

17
<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, President and a Chief Financial Officer. The
Company's marketing plan was developed by an outside consultant and will be
implemented by the President and upon engagement of a Vice President of Sales.

Although the Company is in the development stage and does not expect any
revenues for 6 months following the date of this Prospectus, 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 on raising
capital, producing prototypes, engineering, identifying manufacturing suppliers,
hiring the management team, and marketing its product line.

The Company has identified suppliers that have the ability and the capacity
to manufacture the Company's products. The Company is currently in discussions
with suppliers to manufacture the mini-revolver. The suppliers were selected
because of their experience in manufacturing firearms and their ability to
manufacture most of the revolver parts within their facilities. Additionally,
the suppliers will be required to produce all parts and finish the mini-revolver
to the Company's specifications. It is expected that pre-production run and all
testing of the mini-revolver will be completed during the 6 month period
following the closing of this Offering. Production and sales of the
mini-revolver will immediately follow the pre-production and testing period. The
Company will not accept any part or gun that is not produced to its required
quality and appearance standards. During the months following the closing of
this Offering, the Company expects to enter into a definite agreement relating
to the production of the mini-revolver.

During the pre-production period of the mini-revolver, the Company will
obtain production pricing for the large and small frame revolvers. It is
anticipated that the same suppliers which produce the mini-revolver will also
manufacture many of the components of the large and small frame revolvers. The
Company has identified various other suppliers to manufacture the frame,
backstrap, grips and other components of its revolvers. The suppliers identified
are machine shops that have state of the art computer numeric controlled (CNC)
machine tool equipment that insures accuracy and high speed volume in the
manufacturing process. These suppliers will be required to have equipment such
as CNC machining centers, CNC turning centers and CNC screw machines. The
Company will supply the various tools to its manufacturers to be used within the
manufacturing process. Within 12 months after the closing of this Offering, it
is expected that the Company will enter into agreements with specific suppliers
for the large and small frame revolvers.

The Company will incur substantial expenditures for tooling, machinery and
equipment. The Company will be required to pay for the tooling cost of its
suppliers. Tooling generally includes the cost of dies, molds, fixtures and
special tools to machine the various components of the firearms. The majority of
these assets, which will be owned by the Company, will have long lives and can
be used by different suppliers.

18
<PAGE>
The machinery and equipment to be purchased will be used in completion and
finishing revolvers and the production of rifles. The Company has trade secrets
regarding the assembly of the large and small frame revolver and the rifle that
may require certain procedures to be performed in-house.

The Company has completed the engineering of and the manufacturing blue
prints for the mini-revolver and has accepted a proposal from an engineering
firm to engineer and develop the manufacturing blue prints for the large and
small frame revolvers. All of the engineering and manufacturing blue prints of
the Company's revolvers should be completed within two months following the
closing of this Offering.

The Company began to market its products in 1997. The Company participated
in the Shooting, Hunting and Outdoor Trade Show ("SHOT") in January 1997 and in
January 1998. SHOT is one of the largest shooting trade shows in the world. The
Company has approved and implemented a marketing plan that includes specific
plans to market the mini-revolver and its other products. Following the closing
of the Offering, the Company intends to hire a full time Vice President of
Marketing and Vice President of Sales. These individuals will be responsible for
implementing the Company's marketing and sales plan. The Company will use
manufacturer representatives as a sales conduit to firearm dealers.

The Company intends to manufacture the Rifle in its own facility. Management
believes that this is necessary to maintain quality and keep confidential the
trade secrets associated with the manufacturing and production of the Rifle.

The Company anticipates constructing a manufacturing facility capable of
producing the rifles within one year after the closing of this Offering. The
manufacturing facility will also provide space for administrative offices, a
retail showroom and a custom shop in which management plans to produce
collectors editions and specially engraved firearms.

RESULTS OF OPERATIONS

NET LOSS. The Company reported a net loss of $414,331 from its inception on
July 23, 1996 to December 31, 1997. 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 December 31, 1997 were $0.

INTEREST AND DIVIDEND INCOME. Interest and dividend income from July 23,
1996 through December 31, 1997 was $124,071.

COSTS AND EXPENSES. Costs and expenses from July 23, 1996 through December
31, 1997 totalled $538,402.

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 other purchasers in two
private placements. 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. In
October 1996 the Company raised $3,400,000 from the Private Placement with the
sale of 1,133,333 shares of Common Stock. See "Certain Transactions."

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 closing of this
Offering. 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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<PAGE>
BUSINESS

GENERAL

The Company's firearms, most of which will be sold under the Casull
trademark, will initially consist of a 22 caliber double action mini-revolver,
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 or sell any firearms included on the Bureau of Alcohol Tobacco
and Firearms' list of assault weapons.

The Company has identified suppliers that have the ability and the capacity
to manufacture the Company's products. The Company is currently in discussions
with suppliers to manufacture the mini-revolver. The suppliers were selected
because of their experience in manufacturing firearms and their ability to
manufacture most of the revolver parts within their facilities. Additionally,
the suppliers will be required to produce all parts and finish the mini-revolver
to the Company's specifications. It is expected that pre-production run and all
testing of the mini-revolver will be completed during the six month period
following the closing of this Offering. Production and sales of the
mini-revolver will immediately follow the pre-production and testing period. The
Company will not accept any part or gun that is not produced to its required
quality and appearance standards. During the months following the closing of
this Offering, the Company expects to enter into a definite agreement relating
to the production of the mini-revolver.

During the pre-production period of the mini-revolver, the Company will
obtain production pricing for the large and small frame revolvers. It is
anticipated that the same suppliers which produce the mini-revolver will also
manufacture many of the components of the large and small frame revolvers. The
Company has identified various other suppliers to manufacture the frame,
backstrap, grips and other components of its revolvers. The suppliers identified
are machine shops that have state of the art computer numeric controlled (CNC)
machine tool equipment that insures accuracy and high speed volume in the
manufacturing process. These suppliers will be required to have equipment such
as CNC machining centers, CNC turning centers and CNC screw machines. The
Company will supply the various tools to its manufacturers to be used within the
manufacturing process. Within twelve months after the closing of this Offering,
it is expected that the Company will enter into agreements with specific
suppliers for the large and small frame revolvers.

The Company's objective is to become an international provider of high
quality firearms. The Company intends to achieve its objective by (i) utilizing
the name "Casull" which is well recognized within the firearms industry; (ii)
producing a varied line of firearm products designed by Casull; (iii)
establishing a distribution network with major firearms dealers; (iv) increasing
consumer awareness and market penetration throughout the Company's market areas.

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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.

INDUSTRY OVERVIEW

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
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
has 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

21
<PAGE>

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 a non-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 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 (mini-revolvers, large frame and
small frame) and rifles. It is contemplated that these firearms will be made
available in several styles based upon caliber, barrel length and other
features. The Company plans to outsource the production of its revolvers to
qualified manufacturers.

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.

MINI-REVOLVER

Casull has two mini-revolvers designs that the Company intends to produce.
The initial mini-revolver to be produced by the Company is similar to an old
fashion "baby hammerless." This double action revolver features a fold-up
trigger, hammer encased in the frame and a lever (when operated) that blocks the
hammer from contacting the firing pin. When the lever action is operated the
mini-revolver can not

22
<PAGE>
discharge a cartridge. This lever is not intended to replace firearm safety,
rather to assist in safe handling. The Company will introduce this revolver
chambered for 22 long rifle cartridges and intends to introduce a similar
revolver chambered for 22 Winchester magnum cartridge. The other mini-revolver
is a single action firearm. Firearms similar to this single action revolver have
been produced by other manufactures including North American Arms.

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).

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.

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.

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<PAGE>
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
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.

PRODUCT DEVELOPMENT

The Company intends to introduce other products, including a rifle chambered
for conventional cartridges. 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 Company has identified suppliers that have the ability and the capacity
to manufacture the Company's products. The Company is currently in discussions
with suppliers to manufacture the mini-

24
<PAGE>

revolver. The suppliers were selected because of their experience with
manufacturing firearms and their ability to manufacture most of the revolver
parts in their facilities. Additionally, the suppliers will be required to
produce all parts and finish the mini-revolver to the Company's specifications.
It is expected that pre-production run and all testing of the mini-revolver will
be completed during the 6 month period following the closing of this Offering.
Production and sales of the mini-revolver will immediately follow the
pre-production and testing period. The Company will not accept any part or gun
that is not produced to its required quality and appearance standards. During
the months following the closing of this Offering, the Company expects to enter
into a definite agreement relating to the production of the mini-revolver.

MARKETING STRATEGY

The Company's Management has identified several potential candidates for the
positions of Vice President of Marketing and Vice President of Sales. The Vice
President of Marketing will be responsible for product packaging, advertising,
customer relations and customer service. The Vice President of Sales will be
responsible for training and supervising manufacturer's representatives to sell
the Company's products. The Company has had preliminary discussions with various
manufacturers and has identified various representatives to assist the Company
in the sales of its products. These manufacturing representatives deal directly
with over 2,500 licensed firearms dealers nationwide.

PRICING. The Company estimates that the retail price of (i) the
mini-revolver will be approximately $400, (ii) the small frame and large frame
revolver will be approximately $1,600 and $2,000, respectively and (iii) the
Casull Rifle will be approximately $3,000.

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.

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<PAGE>
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 qualitie

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.

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", and (ii) a black powder mini-revolver
manufactured by North American Arms. The "454 Casull" trademark, registered in
connection with ammunition, is licensed on a non-exclusive basis to Freedom
Arms, Inc. and the Company.

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.

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<PAGE>
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 initial product that the Company expects to bring to market is a 22
caliber double action mini-revolver. The Company does not know of any products
that are currently being manufactured that have the appearance or expected
quality of its mini-revolver. However, North American Arms manufactures a single
action mini-revolver that is approximately the same size as the Company's
mini-revolver. The Company's mini-revolver differs from the mini-revolver
manufactured by North American Arms in that it has a trigger that folds up into
the frame, grips that are larger and shaped differently, and a hammer that is
enclosed in the frame. The North American Arms revolver is currently priced
lower than the expected price of the Company's mini-revolver.

The Company will manufacture the Rifle (chambered for the Casull Cartridge)
and expects to manufacture 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 would
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. 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.

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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 5 employees. However, the
Company anticipates that its operations over the next twelve months will require
approximately 25 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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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..................................... 61 Chairman of the Board

Richard J. Casull.................................... 66 Chief Executive Officer and Director

David M. Myers....................................... 44 President, Chief Operating Officer, Chief Financial
Officer and Director

David R. Markin...................................... 66 Director

Andrea L. Tessler.................................... 34 Director

Marshall Kiev........................................ 29 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. He is also Chairman of the Board of 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., and Allis-
Chalmers Corporation. 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 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 has been President and Chairman of the Board of Checker Motors
Corporation, a manufacturer, insurer, and operator of transportation equipment
since 1970. He was President of Great Dane from 1989 until December 1996. Mr.
Markin also serves as a director of Jackpot, DBC and Enhance.

29
<PAGE>
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 March at an
exercise price equal to the average of the closing bid and ask price of the
Common Stock as quoted on the OTC Electronic Bulletin Board on the date of
grant. This grant of options will begin in March 1998.

EXECUTIVE COMPENSATION

The Company did not pay any compensation prior to September 15, 1997. The
Company began paying Mr. Myers, the Company's President, and Mr. Casull, the
Company's Chief Executive Officer, each an annual salary of $100,000 on
September 15, 1997. Mr. 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 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

30
<PAGE>
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, 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.

31
<PAGE>
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.

32
<PAGE>
PRINCIPAL STOCKHOLDERS

The following table sets forth as of February 1, 1998, 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 THIS
AND 5% STOCKHOLDERS(1) OWNED(2) OFFERING(3) OFFERING (4)
- ---------------------------- ----------- ------------- ---------------
<S> <C> <C> <C>
Allan R. Tessler(5)....................................................... 383,333 22.5% 15.6%
Richard J. Casull......................................................... 71,875 4.2% 2.9%
David M. Myers............................................................ 71,875 4.2% 2.9%
David R. Markin........................................................... 383,333 22.5% 15.6%
Andrea L. Tessler......................................................... 82,334 4.8% 3.5%
Marshall Kiev............................................................. 49,000 2.9% 2.0%
All executive officers and directors as a group........................... 1,041,750 61% 42.4%
</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.

(4) Based upon a total number of shares of Common Stock outstanding of
2,457,083.

(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. Allan R. Tessler is the father of 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.

33
<PAGE>
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.

34
<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 December 1, 1997, there were issued and outstanding
1,707,083 shares of Common Stock. 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 the closing 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."

UNITS

Each Unit consists of one share of Common Stock and one Warrant, each
Warrant entitles the holder to purchase one share of Common Stock. The
Securities will become separately tradeable at such time as the Representative
may determine, provided, however, that such determination shall not be made
prior to the delivery of the Company's audited statements to the Representative
which reflect receipt by the Company of the proceeds of this Offering. The
Company has covenanted to provide such audited financial statements within
thirty (30) days of the closing of this Offering. After the Separation Date,
there will be no public market for the Securities as Units.

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."

35
<PAGE>

EXERCISE PRICE AND TERMS. Each Warrant entitles the registered holder
thereof to purchase, at any time over a period of four years commencing March 1,
1999, one share of Common Stock at a price of $6.00 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.

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 March 1, 2000, the Warrants are
subject to redemption by the Company at a price of $0.05 per Warrant on 30 day's
prior written notice to the warrant holders if the average closing bid price of
the Common Stock equals or exceeds $8.25 per share, 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 the completion of this Offering, 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

36
<PAGE>
"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.

SEPARATELY TRADEABLE. The Warrants will become separately tradeable at such
time as the Representative shall determine, provided, however, that such
determination shall not be made prior to the delivery of the Company's audited
financial statement which reflect receipt by the Company of the proceeds of the
Offering. The Company has covenanted to provide such audited financial
statements within thirty (30) days from the closing of this Offering. 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.

REPRESENTATIVE WARRANTS

The Company has also agreed to sell to the Representative, for nominal
consideration, warrants (the "Representative Warrants") to purchase from the
Company up to 75,000 shares of Common Stock and/or 75,000 Warrants. Such shares
of Common Stock and Warrants may be purchased together as a unit, or seperately,
by the Representative. See "Underwriting."

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 Units, the
Common Stock or Warrants. No prediction can be made of the effect, if any, that
future market sales of the Units, the shares of Common Stock or Warrants, or the
availability of such Units, shares of Common Stock or Warrants for sale, will
have on the prevailing market price of the Units, the Common Stock or Warrants
following this offering. Nevertheless, sales of substantial amounts of such
Units, shares of Common Stock or Warrants in the open market following this
offering could adversely affect the prevailing market price of the Units, the
Common Stock or Warrants. There will be no public market for the Securities as
Units after the Units become separately tradeable, which shall be at such time
as the Representative may determine, provided, however, that such determination
shall not be made prior to the delivery of the Company's audited financial
statements which reflect receipt by the Company of the proceeds of the Offering.

The Company will have issued and outstanding following the closing of this
Offering 2,457,083 shares of Common Stock, respectively of which the 750,000
shares of Common Stock sold in this Offering 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
Warrants are not exercisable until March 1, 1999. Thereafter up to 750,000
shares of Common Stock may be issued upon exercise of the Warrants. Any shares
of Common Stock acquired upon exercise of the Warrants, subject to any
applicable state law registrations and secondary trading (see "Risk Factors
Limits on Secondary Trading; Possible Illiquidity of Trading Market"), will
generally be freely tradeable to the same extent as the shares of the Common
Stock sold in the Offering (as described above).

37
<PAGE>

The Representative's Warrants are not exercisable until the first
anniversary of the date of this Prospectus. Thereafter up to 75,000 shares of
Common Stock may be issued upon exercise of the Representative's Warrants
(subject to adjustment as described under "Underwriting") and up to an
additional 75,000 shares of Common Stock may be issued upon exercise of Warrants
that may be acquired pursuant to the Representative's Warrants.

The remaining 1,707,083 shares of Common Stock outstanding upon the closing
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. The Company has agreed with the Representative
to cause all holders of the restricted securities to execute lock-up agreements
with the Representative that restrict the sale or disposition of shares of
Common Stock for 18 months from the closing date of this Offering without the
prior written consent of the Representative (the "Lock-Up Period"). Beginning
after the expiration of the Lock-Up Period, (or earlier upon the prior written
consent of the Representative) the restricted securities may be sold in the
public market subject to Rule 144.

In general, under Rule 144, a person (or persons whose shares are
aggregated), who has beneficially owned shares for at least one year, including
a person who may be deemed an Affiliate of the Company, may sell within any
three month period, a number of shares of Common Stock that does not exceed the
greater of (1) 1% of the then outstanding shares of Common Stock of the Company
(approximately 24,571 shares immediately after this Offering) or (ii) the
average weekly trading volume in the Common Stock as reported through the OTC
Electronic Bulletin Board during the four calendar weeks preceding the sale.
Sales under Rule 144 are also subject to certain restrictions relating to manner
of sale, notice and the availability of current public information about the
Company. In addition, under Rule 144(k), a person who is not an Affiliate of the
Company at any time (90) days preceding a sale, and who has beneficially owned
shares for at least two years, would be entitled to sell such shares immediately
following this offering without regard to the volume limitations, manner of sale
provisions or notice or other requirements of Rule 144.

Any employee, officer or director or consultant to the Company who purchased
his or her shares pursuant to a written compensatory plan or contract may be
entitled to rely on the resale provisions of Rule 701. Rule 701 permits
affiliates to sell their Rule 701 shares under Rule 144 without complying with
the holding period requirements of Rule 144. Rule 701 further provides that
non-affiliates may sell such shares in reliance on Rule 144 without having to
comply with the public information, volume limitation or notice provisions of
Rule 144. In both cases, a holder of Rule 701 shares is required to wait until
90 days after the date of this Prospectus before selling such shares.

38
<PAGE>
UNDERWRITING

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.............................. 750,000 750,000
-------- -----------
Total................................................. 750,000 750,000
-------- -----------
-------- -----------
</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 offering of the Securities are made for delivery when, as and if
accepted by the Underwriters and subject to prior sale and to withdrawal,
cancellation, or modification of the offer without notice. The Underwriters
reserve the right to reject any order for the purchase of the Securities.

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 112,500 shares of Common Stock and/or 112,500 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 after March 1, 1999, which exercise was
solicited by the Representative, and to the extent not inconsistent with the
guidelines of the National Association of Securities Dealers and the Rules and
Regulations of the Commission, the Company has agreed to pay the Representative
a commission of 5% of the aggregate exercise price of such Warrants. However, no
compensation 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 where the holder of the
Warrant has not stated in writing that the transaction was solicited and has not
designated in writing the Representative as soliciting agent. Unless granted an
exemption by the Commission from its Rule 101 under Regulation M promulgated
under the Act, the Representative and any soliciting broker-dealers will be
prohibited from engaging in any market-making activities or solicited brokerage
activities with regard to the Securities for the period from five business days
(or such applicable periods as Rule 101 under Regulation M may provide) prior to
any solicitation of the exercise of the Warrants until the later of the

39
<PAGE>
termination of such solicitation activity or the termination (by waiver or
otherwise) of any right the Representative may have to receive a fee for the
exercise of the Warrants following such solicitation. As a result, the
Representative and any soliciting broker-dealers may be unable to continue to
provide a market for the Common Stock or Warrants during certain periods while
the Warrants are exercisable as described above, unless the Representative has
undertaken 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 1.8% 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 75,000 shares of Common Stock and/or 75,000 warrants (the
"Representative's Warrants"). The Representative's Warrants are initially
exercisable at a price of $6.48 per share of Common Stock, and $0.12 per warrant
for a four-year period commencing on the first anniversary of the date of this
Prospectus. The shares of Common Stock and warrants underlying the
Representative's Warrants may be purchased together as a unit, or separately, by
the Representative. The warrants issuable upon exercise of the Representative's
Warrants are the same as 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 out-of-pocket expenses
incurred in connection with attendance at the Company's board of directors'
meetings.

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 a copy
of each such agreement which are filed as exhibits to the Registration Statement
of which this Prospectus is a part for a more complete description thereof.

In connection with this Offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market prices of the Securities.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase the Commons Stock and/or Warrants for the purpose of stabilizing their
respective market prices. The Underwriters also may create a short position for
the account of the Underwriters by selling more Securities in connection with
the Offering than they are committed to purchase from the Company, and in such
case may purchase Securities in the open market following the closing of the
Offering to cover all or a portion of such short

40
<PAGE>
position. The Underwriters may also cover all or a portion of such short
position, up to 112,500 shares of Common Stock and/or 112,500 Warrants, by
exercising the over-allotment option referred to above. In addition, the
Representative may impose "penalty bids" under contractual arrangements with the
Underwriters whereby it may reclaim from an Underwriter (or dealer participating
in the Offering) for the account of other Underwriters, the selling concession
with respect to the Securities that are distributed in the Offering but
subsequently purchased for the account of the Underwriters in the open market.
Any of the transactions described in this paragraph may result in the
maintenance of the prices of the Securities at a level above which might
otherwise prevail in the open market. None of the transactions described in this
paragraph is required, and, if they are undertaken, they may be discontinued at
any time.

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 this Offering.

The units will be quoted on the OTC Electronic Bulletin Board under the
symbol CSLLU and after the Separation Date the Common Stock and the Warrants
will trade on the OTC Electronic Bulletin Board under the symbols CSLL and
CSLLW, respectively.

In November 1996, the Company filed a registration statement with respect to
a public offering of a principal amount of $8,540,000 of securities to be sold
on a "firm commitment" basis through the Representative. In May 1997, the
Company revised the offering to seek a minimum principal amount of $2,196,000 on
a "best efforts" basis. In July 1997, the "best efforts" offering expired
without achieving the minimum number of sales. On September 26, 1997 the Company
filed in the United States District Court for the District of Wyoming a seven
count complaint against National and Robert A. Shuey, III, an individual
formerly associated with National as an independent contractor. The complaint,
which was served upon National in early October 1997, alleges that National and
Robert A. Shuey, III failed to deliver on an alleged promise to the Company that
National and Robert A. Shuey, III could raise capital for the Company through an
initial public offering of stock. The complaint asserts a variety of causes of
action, including claims for breach of contract, fiduciary duties, negligence
and fraud and seeks both actual damages and punitive damages. On November 4,
1997 the Company voluntarily dismissed its complaint without prejudice pursuant
to a tolling agreement entered into by both the Company and National. Pursuant
to the terms of the tolling agreement, the Representative agreed to waive
statute of limitation defenses that include or incorporate the time period
between September 26, 1997 through March 31, 1998. Additionally, the
Representative agreed to refrain from initiating prior to March 31, 1998 any
claim in a court of law against the Company, unless the Company reinstates its
claims before this time.

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.

41
<PAGE>
EXPERTS

The financial statements of the Company as of June 30, 1997 and for the
period July 23, 1996 (date of incorporation) through June 30, 1997 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in auditing and accounting.

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. The Commission maintains an Internet web site that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission. The address of that site
is http://www.sec.gov.

42
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

INDEX TO FINANCIAL STATEMENTS

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

FINANCIAL STATEMENTS

Balance Sheet -- June 30, 1997 and December 31, 1997 (unaudited)......................................... F-3

Statement of Operations for the period July 23, 1996 (inception) through June 30, 1997, for the six
months ended December 31, 1997 (unaudited) and for the period July 23, 1996 (inception) through
December 31, 1997 (unaudited).......................................................................... F-4

Statement of Redeemable Common Stock and Stockholders' (Deficit) Equity for the period July 23, 1996
(inception) through June 30, 1997 and for the six months ended December 31, 1997 (unaudited)........... F-5

Statement of Cash Flows for the period July 23, 1996 (inception) through June 30, 1997, for the six
months ended December 31, 1997 (unaudited) and for the period July 23, 1996 (inception) through
December 31, 1997 (unaudited).......................................................................... 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' (deficit) equity and of
cash flows present fairly, in all material respects, the financial position of
Casull Arms Corporation (a development stage entity) at June 30, 1997, and the
results of its operations and its cash flows for the period July 23, 1996 (date
of incorporation) through June 30, 1997 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.

PRICE WATERHOUSE LLP
NEW YORK, NEW YORK
NOVEMBER 4, 1997

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

BALANCE SHEET

JUNE 30, DECEMBER 31,
1997 1997
---------- -------------
(UNAUDITED)
ASSETS
ASSETS:
Cash and cash equivalents............. $ 39,855 $3,023,031
---------- -------------
Total current assets.............. 39,855 3,023,031
Restricted cash......................... 2,160,000 --
Restricted investments.................. 1,390,000 --
Equipment............................... -- 48,317
Deferred registration costs............. 326,331 341,404
---------- -------------
Total assets...................... $3,916,186 $3,412,752
---------- -------------
---------- -------------

LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS' (DEFICIT)
EQUITY

LIABILITIES:
Accounts payable and accrued
expenses............................ $ 281,527 $ 369,708
---------- -------------
Total current liabilities......... 281,527 369,708
Payable to director..................... 390,000 --
---------- -------------

REDEEMABLE COMMON STOCK, 1,133,333
shares of Common Stock designated with
redemption feature issued and
outstanding at June 30, 1997 and none
outstanding at December 31, 1997...... 3,400,000 --

STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred stock, $0.01 par value,
1,000,000 shares authorized, no
shares issued and outstanding....... -- --
Common stock, $0.01 par value,
10,000,0000 shares authorized,
573,750 (excluding 1,133,333 shares
of Redeemable Common Stock) and
1,707,083 shares issued and
outstanding at June 30, 1997 and
December 31, 1997, respectively..... 5,738 17,071
Additional paid in capital............ 51,637 3,440,304
Deficit accumulated during the
development stage................... (212,716) (414,331)
---------- -------------
Stockholders' (deficit) equity........ (155,341) 3,043,044
Commitments and contingencies (Note
5).................................... -- --
---------- -------------
Total liabilities and stockholders'
(deficit) equity.................... $3,916,186 $3,412,752
---------- -------------
---------- -------------

The accompanying notes are an integral part of these financial statements

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

<TABLE>
<CAPTION>
JULY 23, 1996
(INCEPTION) SIX MONTHS JULY 23, 1996
TO ENDED (INCEPTION) TO
JUNE 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Revenues.................................................... $ -- $ -- $ --
Expenses:
General and administrative expenses....................... 275,651 262,751 538,402
------------- ----------------- -----------------
Other income:
Interest and dividend income.............................. 62,935 61,136 124,071
------------- ----------------- -----------------
Net loss.................................................... $ (212,716) $ (201,615) $ (414,331)
------------- ----------------- -----------------
------------- ----------------- -----------------
Net loss per common share (basic and diluted)............... $ (0.14) $ (0.12)
------------- -----------------
------------- -----------------
Weighted average number of common shares outstanding (basic
and diluted).............................................. 1,468,155 1,707,083
------------- -----------------
------------- -----------------
</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' (DEFICIT) EQUITY

<TABLE>
<CAPTION>
STOCKHOLDERS' (DEFICIT) 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 June
30, 1997................... -- -- -- $ (212,716) (212,716)
----------- ------------- ---------- --------- ------------ ------------ ------------
Balance at June 30, 1997..... 1,133,333 3,400,000 573,750 5,738 51,637 (212,716) (155,341)
Net loss for the Six Months
Ended December 31, 1997
(unaudited)................ -- -- -- -- -- (201,615) (201,615)
Release of restrictions on
redeemable common stock
(unaudited)................ (1,133,333) (3,400,000) 1,133,333 11,333 3,388,667 -- 3,400,000
----------- ------------- ---------- --------- ------------ ------------ ------------
Balance at December 31, 1997
(unaudited)................ -- $ -- 1,707,083 $ 17,071 $ 3,440,304 $ (414,331) $ 3,043,044
----------- ------------- ---------- --------- ------------ ------------ ------------
----------- ------------- ---------- --------- ------------ ------------ ------------
</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

<TABLE>
<CAPTION>
JULY 23, 1996
(INCEPTION) JULY 23, 1996
TO SIX MONTHS ENDED (INCEPTION) TO
JUNE 30, 1997 DECEMBER 31, 1997 DECEMBER 31, 1997
------------- ----------------- -----------------
<S> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Cash flows from operating activities:
Net loss................................................ $ (212,716) $ (201,615) $ (414,331)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation.......................................... -- 900 900
Changes in assets and liabilities
Deferred registration costs......................... (326,331) (15,073) (341,404)
Accounts payable and accrued expenses............... 281,527 88,181 369,708
------------- ----------------- -----------------
Net cash used in operating activities................. (257,520) (127,607) (385,127)
------------- ----------------- -----------------
Cash flows from investing activities:
Capital expenditures.................................... -- (49,217) (49,217)
------------- ----------------- -----------------
Cash flows from financing activities:
Proceeds from issuance of common stock.................. 2,457,375 1,000,000 3,457,375
Restriction on proceeds received from issuance of common
stock................................................. (2,160,000) 2,160,000 --
------------- ----------------- -----------------
Net cash provided by financing activities............. 297,375 3,160,000 3,457,375
------------- ----------------- -----------------
Net increase (decrease) in cash and cash
equivalents........................................... 39,855 2,983,176 3,023,031
Cash and cash equivalents at beginning of period.......... -- 39,855 --
------------- ----------------- -----------------
Cash and cash equivalents at end of period................ $ 39,855 $ 3,023,031 $ 3,023,031
------------- ----------------- -----------------
------------- ----------------- -----------------
</TABLE>

SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES

In October 1996 the Company issued Common Stock in exchange for investment
securities with an estimated fair value of $1,390,000 at June 30, 1997. In
December 1997, the Company sold such securities on an open market (see Note 6).

In August 1997, the Company received waivers of the restrictions on the
proceeds from issuance of Common Stock.

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
$.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 were
subject to certain restrictions (See Note 5). 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 is seeking to obtain additional financial resources through a
contemplated public offering (the "Proposed Offering"). Note 4 discusses the
details of the Proposed Offering. In the event the Proposed Offering is not
consummated, the Company believes its current financial resources are adequate
to meet its obligations as they come due until at least June 30, 1998.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

CASH EQUIVALENTS: The Company considers all highly liquid investments with
an original maturity of three months or less at the time of purchase to be cash
equivalents.

RESTRICTED CASH: Under the terms of the Company's October 1996 Common Stock
issuance, the Company had initially agreed that it would not use more than 10%
of the proceeds of such issuance to effect its business objectives until it
raised an additional $5 million of equity capital or, if the Company did not
raise at least $5 million of additional equity capital, stockholders who
purchased shares in October 1996 would 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 at June 30, 1997. In August 1997, the Company received written
waivers of the restrictions on the proceeds received from the October 1996
Common Stock issuance and the redemption feature of such common stock from the
stockholders who purchased shares in October 1996.

RESTRICTED INVESTMENTS AND 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 initially agreed that it would not sell the Securities
until the Company raised an additional $5 million of equity capital. In August
1997, the Company received a written waiver releasing such restriction on the
Securities. At June 30, 1997, the Securities were classified as available for
sale and carried at quoted market price. In December 1997, the Company sold the
Securities on an open market (See Note 6).

EQUIPMENT: Equipment is stated at cost. Depreciation is provided on the
straight-line method over the estimated useful life of the assets, none of which
exceeds five years.

NET LOSS PER COMMON SHARE: Effective December 31, 1997, the Company adopted
statement of Financial Accounting Standards No. 128, "Earnings per Share" ("FAS
128") which requires presentation of basic earnings per share ("Basic EPS" or
"net loss per common share") and diluted earnings per share ("Diluted EPS" or
"net loss per share - assuming dilution"). Basic EPS is computed by dividing the
net loss attributable to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period. The computation
of Diluted EPS does not assume conversion, exercise or contingent exercise of

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

securities that would have an antidilutive effect on earnings. For the period
from July 23, 1996 (inception) to June 30, 1997 and for the six months ended
December 31, 1997, the Company had no potential common shares outstanding. The
adoption of FAS 128 did not have a significant effect on earnings per share for
the period from July 23, 1996 (inception) to June 30, 1997. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin 98, the Company has
considered nominal issuances, as defined, noting no such issuances during the
periods for which a statement of operations is presented.

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 and cash
equivalents, and accounts payable and accrued expenses approximates fair value
due to the relatively short maturity of these instruments.

UNAUDITED INTERIM INFORMATION: The information presented as of December 31,
1997 and for the six month period then ended has not been audited. In the
opinion of management, the unaudited interim financial information includes all
adjustments, consisting only of normal recurring adjustments, necessary to
present fairly the Company's financial position as of December 31, 1997, and the
results of its operations and its cash flows for the six month period then
ended.

NEW ACCOUNTING PRONOUNCEMENTS: In June 1997, the Financial Accounting
Standards Board issued Statement of Accounting Standards No. 130, "Reporting
Comprehensive Income" ("FAS 130"), which requires the presentation of the
components of comprehensive income in a company's financial statements for
reporting periods beginning subsequent to December 15, 1997. Comprehensive
income is defined as the change in a company's equity during a financial
reporting period from transactions and other circumstances from nonowner sources
(including cumulative translation adjustments, minimum pension liabilities and
unrealized gains/losses on available for sale securities). The adoption of FAS
130 is not expected to have a material impact on the Company's financial
statements.

3. EQUIPMENT

Equipment consists of the following at December 31, 1997:

<TABLE>
<CAPTION>
Computer equipment................................................. $ 7,216
<S> <C>
Production equipment............................................... 42,001
---------
Total equipment.................................................. 49,217
Less-accumulated depreciation...................................... 900
---------
Equipment, net................................................... $ 48,317
---------
---------
</TABLE>

4. PROPOSED PUBLIC OFFERING OF SECURITIES

The Proposed Public Offering of Securities (the "Proposed Offering") calls
for the Company to offer for public sale 750,000 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

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

4. PROPOSED PUBLIC OFFERING OF SECURITIES (CONTINUED)

Warrant entitling the holder to purchase from the Company one share of Common
Stock at an exercise price of $6.00 per share, at any time over a 48 month
period commencing on the first day of the thirteenth calendar month after the
closing of the Offering (the "Closing Date") and ending five years from the
Closing Date. Commencing two years after the Closing Date, the Warrants will be
subject to redemption by the Company, in whole and not in part, upon 30 days
notice, at a price of $.05 per Warrant, only in the event that the reported
closing bid price of the Common Stock is at least $8.25 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 "Representative") of the
several underwriters (the "Underwriters") of the Proposed Offering, in the form
of (i) a non-accountable expense allowance of 1.8% of the gross proceeds of the
Proposed Offering and (ii) warrants to purchase up to 75,000 shares of Common
Stock and/or 75,000 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 closing of the Offering.

The Company has granted the Underwriters an option, exercisable within 45
days from the Effective Date, to purchase up to 112,500 shares of Common Stock
and/or 112,500 additional Warrants. This option is solely for the purpose of
covering over-allotments, if any.

As of June 30, 1997 and December 31, 1997, the Company had incurred $326,331
and $341,404, respectively, of deferred registration costs relating principally
to professional fees, printing charges 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.

5. 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 6,492,917 authorized but unissued
shares of Common Stock available for issuance (after reserving 1,050,000 shares
for the issuance of Common Stock in connection with the Warrants and for future
grants under the Company's Stock Option Plan). The 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.

Initially, stockholders who purchased shares in the October 1996 Common
Stock issuance had the right to sell their shares back to the Company for at
least 90% of the amount paid if the Company did not raise at least $5 million of
additional equity capital. In August 1997, the Company received written waivers
of the restrictions on the proceeds received from the October 1996 Common Stock
issuance and the redemption feature of such common stock from these
stockholders. Shares issued in the October 1996 Common Stock issuance are
reflected in the June 30, 1997 balance sheet as redeemable common stock and in
the December 31, 1997 balance sheet as Common Stock.

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

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

5. CAPITAL STOCK (CONTINUED)

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.

6. 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 "Investments") for 333,333 shares of Common Stock at a
subscription price of $1,000,000. The market value of the Investments received
at that date approximated $1,090,000. Initially, the Investments could not be
sold by the Company until the Company raised an additional $5 million in equity
capital. In August 1997, the Company received a written waiver releasing such
restriction on the Investments and in December 1997, the Company sold the
Investments on an open market. The excess of proceeds received from the sale
over $1,000,000 was refunded to the director. At June 30, 1997, the Company had
recorded a liability to the director of $390,000, which represents the excess of
the market value of the Investments over $1,000,000 at such date.

Two of the Company's directors are officers and directors of FH Capital
Advisors, Inc. ("FH Capital"). On December 1, 1996, the Company and FH Capital
entered into a management agreement whereby FH Capital will receive $5,000 per
month, beginning upon the closing of the Proposed Offering, for financial
consulting services. The agreement with FH Capital is cancelable by the Company
on 30 days written notice.

The Company has entered into a 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, beginning in September 1997, of 5% of the
Company's revenues subject to an annual minimum of $40,000 and an annual maximum
of $400,000. The 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, however, if the Chief Executive Officer's wife should survive, royalty
payments shall continue until the earlier of ten years from the date of the
first royalty payment or her death. 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.

7. 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 June 30, 1997 or
December 31, 1997.

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.

F-10
<PAGE>
CASULL ARMS CORPORATION
(A DEVELOPMENT STAGE ENTITY)

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

7. STOCK OPTION PLAN (CONTINUED)

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 Incentive Stock Options granted to an individual owning more than
10% of the Company's Common Stock).

F-11
<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.............................................................. 7
Use of Proceeds........................................................... 14
Dividend Policy........................................................... 14
Dilution.................................................................. 15
Capitalization............................................................ 16
Selected Financial Data................................................... 17
Management's Discussion and Analysis or Plan of Operation................. 18
Business.................................................................. 20
Management................................................................ 29
Principal Stockholders.................................................... 33
Certain Transactions...................................................... 33
Description of Securities................................................. 35
Shares Eligible for Future Sale........................................... 37
Underwriting.............................................................. 39
Legal Matters............................................................. 41
Experts................................................................... 42
Additional Information.................................................... 42
Index to Financial Statements............................................. F-1
</TABLE>

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

UNTIL MARCH , 1998 (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]

750,000 SHARES OF COMMON STOCK
AND 750,000 REDEEMABLE
COMMON STOCK PURCHASE WARRANTS
(AS UNITS, EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE WARRANT)

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

PROSPECTUS

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

NATIONAL SECURITIES
CORPORATION
FEBRUARY , 1998

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS

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................................................ $ 1000
Blue Sky expenses and legal fees.................................. $ 40,000
Printing and engraving expenses................................... $ 100,000
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................................... $ 780
---------
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 Warrant Agreement to be entered into between Registrant and Continental Stock Transfer & Trust
Co., and Underwriter including Form of Redeemable Warrant Certificate*

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

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

4.4 Specimens of Registrant's Unit 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 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*
</TABLE>

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

* Previously filed

ITEM 28. UNDERTAKINGS.

The Registrant hereby undertakes to provide to the Representative 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 Representative 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
Representative 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 Representative 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.

II-3
<PAGE>
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 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 this Post-Effective Amendment No. 3 to the
Registration Statement and has authorized this Post-Effective Amendment No. 3 to
the Registration Statement to be signed on its behalf by the undersigned in the
City of Jackson, State of Wyoming on February 17, 1998.

CASULL ARMS CORPORATION

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

In accordance with the requirements of the Securities Act of 1933, Post
Effective Amendment No. 3 to the Registration Statement 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 February 17, 1998
Allan R. Tessler

Chief Executive Officer,
* Chief Operating
- ------------------------------ Officer and Director February 17, 1998
Richard J. Casull (Principal
Executive Officer)

President, Chief Financial
Officer and
* Director (Principal
- ------------------------------ Financial and February 17, 1998
David M. Myers Principal Accounting
Officer)

*
- ------------------------------ Director February 17, 1998
David R. Markin

*
- ------------------------------ Director February 17, 1998
Andrea L. Tessler

*
- ------------------------------ Director February 17, 1998
Marshall Kiev

*By: /s/ ALLAN R. TESSLER
-------------------------
ATTORNEY-IN-FACT

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*

4.4 Specimen of Registrant's Unit 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 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*
</TABLE>

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

* Previously Filed.

<PAGE>

NUMBER UNITS
U

CASULL ARMS CORPORATION

See Reverse For 148726 20 1
Certain Definitions

UNITS CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE WARRANT TO
PURCHASE ONE SHARE OF COMMON STOCK

This Certifies that:

is the owner of Units

Each Unit ("Unit") consists of one (1) share of common stock, par value
$.01 per share ("Common Stock"), of Casull Arms Corporation, a Delaware
corporation (the "Company"), and one (1) Redeemable Common Stock Purchase
Warrant ("Warrant") each to purchase one (1) share of Common Stock for $6.00
per share (subject to adjustment) until 5:00 p.m., New York City Time, on
January , 2003 the "Expiration Date"). The Common Stock and Warrants
comprising the Units represented by this certificate are not transferable
separately prior to the date National Securities Corporation ("National") may
determine, provided, however, that such determination shall not be made prior
to the delivery of the Company's audited financial statements to National
which reflect the receipt of the proceeds of the Company's initial public
offering. The terms of the Warrants are governed by a Warrant Agreement dated
as of January , 1998 the "Warrant Agreement") between the Company, National
and Continental Stock Transfer & Trust Company, as Warrant Agent (the
"Warrant Agent"), and are subject to the terms and provisions contained
therein all of which terms and provisions the holder of this certificate
consents to by acceptance hereof. Copies of the Warrant Agreement are on file
at the office of the Warrant Agent at and are available to any
Warrant holder on written request and without cost. The Warrant shall be void
unless exercised before 5:00 p.m., New York City Time on the Expiration Date.

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

DATED CASULL ARMS CORPORATION

/s/ Richard J. Casull [SEAL] /s/ Allan R. Tessler

Chief Executive Officer Chairman of the Board
and Assistant Secretary

<PAGE>

CASULL ARMS CORPORATION

The Corporation will furnish without charge to each stockholder who so
requests, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights.

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 UNIT GIFT MIN ACT--______Custodian_______
TEN ENT -- as tenants by the entireties (Cust) (Minor)
JT TEN -- as joint tenants with right under Uniform Gifts to Minors
of survivorship and not as Act_______________
tenants in common (State)

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 Units represented by the within Certificate, and do hereby irrevocably
constitute and appoint

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

Dated,
-----------------------

--------------------------------------------
NOTICE: The signature to this assignment must
correspond with the name as written upon the
face of the Certificate in every particular
without alteration or enlargement or any
change whatever.

<PAGE>

Exhibit 5

February 17, 1998

Casull Arms Corporation
456 Fairview Road
Afton, Wyoming 83110

Re: REGISTRATION STATEMENT ON FORM SB-2 (No. 333-16911)

Ladies and Gentlemen:

You have requested our opinion with respect to certain matters in
connection with the above-captioned Registration Statement, as amended, 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 750,000
shares (the "Shares") of common stock, par value $.01 per share (the "Common
Stock") 750,000 Redeemable Common Stock Purchase Warrants (the "Warrants");
750,000 shares of Common Stock underlying the Warrants; 75,000 warrants to be
sold to National Securities Corporation (the "Representative's Warrants");
75,000 shares of Common Stock issuable upon exercise of Representative's
Warrants; 75,000 warrants issuable upon exercise of Representative's
Warrants; and 75,000 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 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>
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 4, 1997
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."

PRICE WATERHOUSE LLP

New York, New York
February 17, 1998