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

                                   FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the fiscal year ended December 31, 1997

                              OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

    For the transition period from             to  
                                   ----------      ----------

    Commission file number    0-23385

                               BRASS EAGLE INC.
            (Exact name of registrant as specified in its Charter)

                Delaware                                 71-0578572
     State or other jurisdiction of                   (I.R.S. Employer   
     incorporation or organization)                Identification Number)

1203A North Sixth Street, Rogers, Arkansas                  72756
 (Address of principal executive offices)                 (Zip Code)

              Registrant's telephone number, including area code
                                (501) 621-4390

          Securities registered pursuant to Section 12(b) of the Act
                                        
                                     NONE

          Securities registered pursuant to Section 12(g) of the Act

                                 Common Stock
                           $.01 par value per share
                               (Title of Class)
<PAGE>
 
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months  (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.    Yes [X]      No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference to Part III of this Form 10-K or any amendment to this
Form 10-K.  [X]

The aggregate market value of the voting and non-voting common equity held by
nonaffiliates of the registrant was $46,732,219 at March 2, 1998.

7,225,121 shares of the registrant's common stock were outstanding as of March
2,  1998.

                      DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the Annual Report to Shareholders for the year ended December
31, 1997 (the "1997 Annual Report") are incorporated by reference into Parts I
and II of this report.

     Portions of the Proxy Statement for the May 20, 1998, Annual Meeting of
Shareholders of the Company (the "1998 Proxy Statement") are incorporated by
reference into Part III of this report.

                                      -2-
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Special Note Regarding Forward-Looking Statements
-------------------------------------------------

     Certain statements in this filing and elsewhere (such as in other filings
by the Company with the Securities and Exchange Commission ("SEC"), press
releases, presentations by the Company or its management and oral statements)
may constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995.  Such statements may include, among
other things, statements regarding the Company's financial position, results of
operations, market position, product development, regulatory matters, growth
opportunities and growth rates, acquisition and divestiture opportunities, and
other similar forecasts and statements of expectation.  Words such as "expects,"
"anticipates," "intends," "plans," "believes," "seeks," "estimates" and
"should," and variations of these words and similar expressions, are intended to
identify these forward-looking statements.  Such statements are not statements
of historical fact.  Rather, they are based on the Company's estimates,
assumptions, projections and current expectations, and are not guarantees of
future performance.  The Company disclaims any obligation to update or revise
any forward-looking statement based upon the occurrence of future events, the
receipt of new information, or otherwise. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors which may
cause the actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements.  Factors that could
cause the Company's actual results to differ materially from the results,
projections and expectations expressed in the forward-looking statements
include, among others, the following possibilities: (i) intensifying
competition, including specifically the intensification of price competition,
the entry of new competitors and the introduction of new products by new and
existing competitors; (ii) failure to obtain new customers or retain existing
customers; (iii) inability to carry out marketing and sales plans; (iv) loss of
key executives; (v) general economic and business conditions which are less
favorable than expected; and (vi) unanticipated changes in industry trends.

                                    PART I

ITEM 1:   BUSINESS

GENERAL

     Brass Eagle, including its predecessor organizations, has manufactured air
powered guns for over 100 years.  The Company, operating as Daisy Manufacturing
Company, Inc., began manufacturing paintball guns as a device to mark trees and
cattle for commercial purposes in the early 1970's.  Daisy manufactured
paintball guns under contract for the Nelson Paint Company and remained active
in this market until 1993.  In 1993, Daisy began manufacturing, marketing and
distributing paintball products for sports and recreational use under a royalty
arrangement with Brass Eagle, Inc., a Mississauga, Ontario, Canada company,
("BEI").  In October 1995, Daisy purchased certain assets, patents, and
trademarks, including the Brass Eagle name, from BEI (the "BEI Acquisition"),
and from 1993 to September 1997 sold paintball products through its Brass Eagle

                                      -3-
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division.  In September 1997, Daisy changed its name to Brass Eagle Inc.
Pursuant to a corporate reorganization effected November 24, 1997, the Company
transferred all of its non-paintball related assets, operations, and liabilities
to a newly created subsidiary, Daisy Manufacturing Company, all the stock of
which was spun-off to existing Company shareholders.

     The Company believes that it is a worldwide leader in the design,
manufacture, marketing, and distribution of paintball products, including
paintball guns, paintballs, and accessories.  Based on market data compiled in
part by the Company and management's industry knowledge, the Company believes it
is the only manufacturer with a full line of products that address step-by-step
price points for beginner, recreational, and competition level paintball
participants, and that it is the only manufacturer to offer paintball products
to consumers through easily accessible channels such as mass merchandisers and
major sporting goods retailers.  As a result of these initiatives, Brass Eagle
provides a large consumer base with high quality paintball products and
accessories that sell for substantially less than those of its competitors.
Based on this market analysis and industry knowledge, the Company believes that
these advances have significantly broadened the paintball industry's consumer
base, increased the overall number of paintball participants, and heightened the
general awareness of and excitement for the sport.

     Approximately 80% of the Company's sales are to national and regional mass
merchandisers, such as Kmart, Wal*Mart, and Meijer, and major sporting goods
retailers, such as The Sports Authority, Dick's Sporting Goods, and Jumbo
Sports.  Wal*Mart and Kmart each accounted for over 10% of the Company's  sales
in 1997.  The Company's products also are sold through sporting goods
distributors, specialty distributors of paintball products, and paintball
specialty shops.

     While more sales of the Company's paintball products occur in the spring
and fall, the Company does not believe that seasonality has had a material
effect on the Company's operations to date.
 
     The Company believes that paintball, as an extreme sport, is positioned to
experience substantial growth as the sport becomes available to a broader
consumer group.  Based on published industry data compiled in part by the
Company and management's knowledge of the industry, the Company believes that
total paintball expenditures, including paintball guns, paintballs, accessories,
and playing field fees, were approximately $250.0 million for 1997 and projects
these expenditures to increase substantially in the near future. Historically,
paintball was played primarily by avid enthusiasts, generally with relatively
expensive, high-end paintball guns and accessories. Enthusiasts typically
obtained their equipment from a highly fragmented base of catalogue distributors
and specialty retailers. Recently, an increasingly broader group of players,
including corporate groups, youth leagues, church organizations, and others,
have begun participating in paintball. These beginner and recreational players
often purchase paintball guns and accessories at mass merchandise stores or
sporting goods stores and play paintball several times per year. Based on market
data compiled in part by the Company and management's knowledge of the industry,
the Company believes that its strategy of providing a full range of products at
various price and performance points
 
                                      -4-
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has contributed significantly to the broadening of the industry's consumer base,
the increase in the overall number of paintball participants, and the growing
acceptance of the sport.

     A key component in the continued growth of paintball is the availability of
playing facilities. Historically, these facilities have consisted of commercial
and private fields, typically located outside urban centers and in rural areas
and used primarily by paintball enthusiasts.  In order to further develop the
market for paintball in more densely populated areas, the Company intends to
promote a modular paintball field concept that can be played in a relatively
small, self-contained area that can easily be adapted or designed to fit into
existing family amusement centers such as go-cart tracks, batting cages and
miniature golf courses or as a stand-alone facility.  The Company recently began
marketing a version of this concept under the HyperBall/TM/ name. In addition,
the Company believes that a significant number of field operators are upgrading
their facilities to cater to the growing number of beginner and recreational
players. Many operators are constructing "scenario fields" where mock
battlefields, forts, and other props are utilized to provide a fun, exciting,
fantasy-like experience.

GEOGRAPHIC SEGMENTS

     Note 13 (Geographic Segments) of notes to the financial statements in the
Company's Annual Report to shareholders is incorporated by reference.

 PRODUCTS

     The Company offers a full line of paintball products, including paintball
guns, paintballs, and accessories at various price points.

     Paintball Guns.  The Company designs and manufactures a full product line
of paintball guns with a variety of performance characteristics.  There are
three primary classifications of paintball guns:  12 gram, pump action, and
semi-automatic.  The 12 gram paintball gun, such as the Company's Talon model,
is a direct descendent of the original "splotch marker" used to mark cattle and
trees before the advent of the sport of paintball.  These paintball guns use 12
gram CO\\2\\ jets, are actuated using a pump action, and usually have a small
paintball capacity.  Pump action paintball guns, such as the Company's
Tigershark, differ from a 12 gram paintball gun in that they use a refillable
cylinder as a power source and a hopper to feed multiple paintballs into the
chamber.  While a pump action gun needs to be cocked before each shot, a semi-
automatic paintball gun needs to be cocked only once before firing the first
shot.  Thereafter, it fires automatically after each trigger pull.  Depending
upon the skill and equipment of the paintball participant, some semi-automatic
paintball guns can be fired in excess of 14 times per second. Most organized
paintball tournaments are played exclusively with semi-automatic paintball guns.
The Company currently offers four semi-automatic paintball pistols and guns:
Eagle, Stingray, Raptor, and Rainmaker/TM/.

                                      -5-
<PAGE>
 
     Paintballs.  Paintballs are made of a gelatinous material and the paint is
non-toxic, biodegradable, and washable. Paintballs are manufactured using an
encapsulation process requiring special equipment and certain technical
knowledge.  Brass Eagle sells its paintballs in multiple colors in packages of
200, 500, and 2,500.  The Company purchases all of its paintball requirements
from Goldcaps, Inc. ("Goldcaps"), a subsidiary of IVAX Corp. of Miami, Florida
("IVAX"), through an exclusive worldwide distribution arrangement entered into
July 1995. Under this agreement, the Company purchases paintballs at a fixed
price per unit, which is subject to change upon thirty days notice from
Goldcaps.  This agreement extends through August 1999, but is terminable prior
to that time upon one year's notice and contains certain provisions which
prohibit the Company from selling any competing products during the term of the
agreement.

     The Company is aware of only four manufacturers of the gelatin encapsulated
paintballs necessary for paintball play.  The Company believes that the cost of
equipment and the knowledge required for the encapsulation process have
historically been significant barriers to the entry of additional paintball
suppliers.  Accordingly, there can be no assurance that additional paintball
suppliers will exist in the future.  Despite the contractual arrangements
discussed above, there can be no assurance that these suppliers will continue to
be able to supply sufficient quantities of their products in order to meet the
Company's current needs or to support any growth in sales by the Company.  The
Company's success will depend, in part, on its ability to maintain relationships
with its current paintball suppliers and on the ability of these and the
Company's other suppliers to satisfy its product requirements.  Failure of a key
supplier to meet the Company's product needs on a timely basis or loss of a key
supplier could have a material adverse effect on the Company and its prospects.

     Accessory Products.  Brass Eagle markets a broad product line of paintball
accessories complementary to its paintball guns and paintballs.  These accessory
products include facemasks, paintball hoppers, cleaning squeegees, and
refillable CO\\2\\ tanks.  Facemasks, a requirement for safe paintball play, are
a primary component of the Company's accessory product line.  The Company's
facemasks are designed to provide full facial and ear protection.
 
     The Company has entered into a strategic alliance with a producer of
facemasks, Leader Industries ("Leader") of Montreal, Quebec, Canada, pursuant to
which the Company has agreed to serve as such producer's exclusive worldwide
distributor of such products (except in Canada, where such producer also sells
its products).  This agreement extends through August 31, 1999, but is
terminable prior to that time on six months' notice, and also contains certain
provisions which prohibit the Company from selling any competing products within
its distribution territory during the term of the agreement.  Despite this
contractual arrangement, there can be no assurance that this supplier will
continue to be able to supply sufficient quantities of its products in order to
meet the Company's current needs or to support any growth in sales by the
Company.  The Company's success will depend, in part, on its ability to maintain
relationships with its current suppliers and on the ability of these suppliers
to satisfy its product requirements.  Failure of a key supplier to meet the
Company's product needs on a timely basis or loss of a key supplier could have a
material adverse effect on the Company and its prospects.

                                      -6-
<PAGE>
 
SALES AND DISTRIBUTION

     Brass Eagle's sales and distribution strategy is unique in the paintball
industry.  Unlike its competitors, Brass Eagle makes its products readily
available to mainstream consumers through mass merchandisers, major sporting
goods retailers, and specialty retailers.

     To facilitate its sales and distribution strategy, the Company maintains a
sales and marketing staff, including senior management and in-house sales and
marketing personnel, and retains nine independent manufacturers sales
representative organizations to service the United States market.  The sales
representatives generally offer various lines of sporting goods and have
established relationships with retailers in the Company's targeted distribution
channels.  Sales representatives operate under standard contracts in defined
geographic territories and are contractually prohibited from selling
competitors' paintball products.

     The Company's products are distributed internationally by a UK-based
supplier of paintball guns and accessories primarily to European specialty
retailers.  Additionally, the Company sells its products directly to other
organizations, such as the Army Air Force Exchange Service.

GROWTH STRATEGIES

     The Company has developed the following growth strategies to capitalize on
its strong brand name, successful products, and operating capabilities:

     .    EXPAND PENETRATION OF NEW AND EXISTING MARKETS. Brass Eagle's sales
          and marketing programs are aimed at increasing its presence in its
          existing markets and expanding into new markets. The Company believes
          significant opportunities exist for increased market penetration to
          mass merchandisers. In addition, the Company expects to increase sales
          to wholesale distributors, which supply Brass Eagle products to
          specialty retailers and international markets. The Company also has a
          direct sales program to reach consumers with unique, branded
          accessories and apparel, and intends to pursue aggressively new
          markets, such as family amusement centers and parks, using concepts
          such as HyperBall and shooting booths.

     .    INCREASE PARTICIPATION IN THE SPORT OF PAINTBALL. Based on market data
          compiled in part by the Company and management's knowledge of the
          industry, the Company believes that its increased marketing efforts
          and heightened media exposure are helping to promote and grow the
          sport of paintball. Through high visibility promotion campaigns, such
          as the Company's "Ballin' on the Beach at Spring Break '97" in Panama
          City Beach, Florida, professional paintball tournament coverage on
          ESPN, MTV's Road Rules, and other televised programs, paintball is
          being introduced to a broader group of potential participants. The
          Company is involved in numerous paintball events and promotions and
          currently sponsors the National Professional Paintball League ("NPPL")

                                      -7-
<PAGE>
 
          and two professional paintball teams. In addition, the Company has
          been featured and advertises in paintball-related publications. The
          Company currently is marketing a modular field concept under the
          HyperBall/TM/ name in a variety of urban areas through an exclusive
          North and South American licensing agreement with WDP Europe, Limited,
          the Company's European distributor. High speed modular games such as
          HyperBall/TM/ provide the beginner, recreational, and competition
          level participant with convenient access to playing fields and the
          opportunity to participate in an exciting new paintball activity. The
          modular field concept has been widely accepted in the competition
          segment with the introduction of HyperBall/TM/ in 1996 at the World
          Paintball Championships in Orlando, Florida, and the Company believes
          that it will continue to be an important part of bringing the sport to
          people of all skill levels. The Company has licensed modular fields
          operated under the HyperBall/TM/ name in Newberg, New York, Mantua,
          New Jersey, and Lansing, Illinois, and anticipates that it will
          license several additional locations over the next 12 months.

     .    INCREASE INTERNATIONAL SALES OF PAINTBALL PRODUCTS. The Company
          believes that international markets for paintball products and
          accessories present significant opportunities for growth.

     .    INCREASE PRODUCT SALES THROUGH STEP-BY-STEP PRICE SEGMENTATION. Brass
          Eagle offers four paintball guns to consumers at price points from $35
          for beginner products to $110 for recreational products and in 1997
          introduced the Raptor and the Rainmaker/TM/, which will satisfy the
          demands of competition-level paintball participants. The Company
          believes that by offering products spanning a wide range of price
          points it is able to meet the needs of new paintball consumers as well
          as recreation and competition players as they move to more
          sophisticated products. The Company intends to continue to focus on
          research and development to ensure that Brass Eagle is able to offer
          high quality paintball products at step-by-step price points.

     .    EVALUATE STRATEGIC ACQUISITIONS. The Company may, when and if the
          opportunity arises, acquire other businesses involved in activities or
          having product lines that are compatible with those of the Company.

     .    WIDELY RECOGNIZED BRAND NAME AND DISTINCTIVE PRODUCTS. The Company
          promotes its brand name and image through focused marketing programs,
          including sponsorship of professional paintball teams and creative
          advertising in a variety of U.S. and international paintball
          publications. The Company's brand name and products also receive
          further promotion through frequent editorial references in these
          paintball publications.

MANUFACTURING; STRATEGIC ALLIANCES; BACKLOG

     The Company designs all of its paintball guns and, in cooperation with
Leader and certain of its other key suppliers, facemasks and other accessory
items.  The Company designs all tooling and dies necessary for the production of
paintball guns, and has non-exclusive contracts with a 

                                      -8-
<PAGE>
 
number of suppliers to provide all necessary components using the Company's
tooling and dies.

     The Company works closely with a variety of vendors to meet its production
needs, including machine shops, die casters, and injection molders.  Although
the Company has established relationships with its principal suppliers and
manufacturing sources, it does not have long-term contracts with any vendors
other than Goldcaps and Leader, nor does it maintain multiple simultaneous
relationships with vendors for parts, tooling, supplies, or services critical to
its manufacturing processes.  The Company believes that alternative vendors are
available if necessary and consequently does not believe that the loss of any of
these vendors would have a material adverse effect on the Company and its
prospects.  The Company's contractual relationships with its principal
suppliers and manufacturing sources, other than Goldcaps and Leader, are
pursuant to the Company's standard form purchase agreements. The Company
continually reviews its vendor relationships with regard to cost, delivery, and
quality.

COMPETITION

     The Company believes that paintball competes in the extreme sports segment
of the sports and recreation industry, which is highly competitive.  This
industry includes mountain biking, snowboarding, alpine and cross-country snow
skiing, water skiing, in-line skating, and skateboarding.  The Company believes
that it competes primarily on the basis of price and product performance.  There
can be no assurance, however, that any number of new competitors, some of which
may have significantly greater financial and organizational resources than the
Company, will not emerge in the future as the market for paintball products
develops further, or that the present competitors of the Company will not be
able to compete more successfully in the future. In order for the Company to
maintain or grow its market share and profitability, it must continue to develop
the market for paintball while competing successfully with others in the extreme
sports segment of the sports and recreation industries, as well as with other
current and potential paintball product manufacturers.

INTELLECTUAL PROPERTY

     Due to considerations relating to, among other things, cost, delay, or
adverse publicity, there can be no assurance that the Company will elect to
enforce its intellectual property rights. The Company has not been and is not
currently a party to any material intellectual property litigation.

     The Company currently holds patents in the United States and Canada on most
of its paintball guns and has a patent pending in the United States on the new
Rainmaker/TM/ paintball gun. There can be no assurance that current or future
patent protection will prevent competitors from offering competing products,
that any issued patents will be upheld, or that patent protection will be
granted in any or all of the countries in which applications are currently
pending or granted on the breadth of the description of the invention. The
Company also has trademark registrations for its name and the name of its
products in the United States and both registrations and applications in Canada.

                                      -9-
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Although the Company believes that patents are useful in maintaining the
Company's competitive position, it considers other factors, such as the
Company's brand name, ability to design innovative products, technical and
marketing expertise, and customer service to be its primary competitive
advantages.

     The Company's competitors have also obtained and may continue to obtain
patents on certain features of their products, which may prevent or discourage
the Company from offering such features on its products, which, in turn, could
result in a competitive disadvantage to the Company.

ENVIRONMENTAL MATTERS

     The Company is subject to Federal, state, and local laws, regulations, and
ordinances that (i) govern activities or operations that may have adverse
environmental effects (such as emissions to air, discharges to water, and the
generation, handling, storage, transportation, treatment, and disposal of solid
and hazardous wastes) or (ii) impose liability for cleaning up or remediating
contaminated property (or the costs therefor), including damages from spills,
disposals, or other releases of hazardous substances or wastes in certain
circumstances without regard to fault.  The Company's manufacturing operations
routinely involve the handling of small amounts of chemicals and wastes, some of
which are or may be regulated as hazardous substances.  The Company has not
incurred, and does not expect to incur, any significant expenditures or
liabilities for environmental matters.  As a result, the Company believes that
its environmental obligations will not have a material adverse effect on its
operations or financial position.

GOVERNMENT REGULATION

     Paintball products are within the jurisdiction of the United States
Consumer Products Safety Commission (the "CPSC") and other Federal, state, and
foreign regulatory bodies.  Under CPSC regulations, a manufacturer of consumer
goods is obligated to notify the CPSC if, among other things, the manufacturer
becomes aware that one of its products has a defect that could create a
substantial risk of injury.  If the manufacturer has not already undertaken to
do so, the CPSC may require a manufacturer to recall a product, which may
involve product repair, replacement, or refund.  The Company is unaware of any
activity by the CPSC in the area of paintball products regarding the Company or
any competitor of the Company.

     The Company understands that certain local and foreign jurisdictions have
legislation that prohibits retailers from selling certain product categories
that are or may be sufficiently broad to include paintball guns.  Although the
Company is not aware of any state or Federal initiatives to enact comparable
legislation, there can be no assurance that such legislation will not be enacted
in the future.

     The American Society of Testing Materials ("ASTM"), a non-governmental
self-regulating association, has been active in developing voluntary standards
regarding paintball fields, paintball 

                                      -10-
<PAGE>
 
face protection, and paintball guns. Company representatives are active on the
relevant ASTM subcommittees and in developing the relevant safety standards. The
Company does not believe that any current or pending ASTM standards will have a
material adverse effect on the Company's cost of doing business.

     Adverse publicity relating to the sport of paintball, or publicity
associated with actions by the CPSC or others expressing concern about the
safety or function of the Company's products or competitors products (whether or
not such publicity is associated with a claim against the Company or results in
any action by the Company or the CPSC) could have a material adverse effect on
the Company's reputation, brand image, or markets, any of which could have a
material adverse effect on the Company or its prospects.

EMPLOYEES

     As of December 31, 1997, the Company employed approximately 59 full-time
employees. In addition, the Company utilizes additional temporary personnel in
its assembly operations to meet production demand when necessary.  The Company
is not a party to any labor agreements and none of its employees is represented
by a labor union.  The Company considers its relationship with its employees to
be excellent.

YEAR 2000 ISSUES

     The Company is aware of the year 2000 issue and has recognized the need to
ensure that its computer operations and operating systems will not be adversely
affected by the year 2000 prior to processing information which will include
dates in the year 2000.  During 1997, the Company upgraded its primary business
enterprise system to a version that is year 2000 compliant and does not
anticipate any significant cost to be incurred related to year 2000 compliance
issues. However, there can be no assurance that the systems of other companies,
including customers and suppliers on which the Company's systems interact and
transmit data will be timely converted or that any such failure to convert by
another company would not have an adverses effect on the Company's systems.

ITEM 2:   PROPERTIES

     The Company leases approximately 6,400 square feet of space for its sales
and administrative offices in Rogers, Arkansas, a 32,000 square foot
manufacturing facility located in Granby, Missouri, and a 40,000 square foot
warehousing facility located in Neosho, Missouri, pursuant to three separate
leases, all of which expire in December 1999.  The Company, through an agreement
with the Granby Economic Development Council, holds an option to acquire the
four-acre parcel upon which the Company's manufacturing facility is located.
There would be no cost to the Company for this acquisition provided the Company
employs 25 people at the time the option is exercised.

                                      -11-
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ITEM 3:   LEGAL PROCEEDINGS

     Due to the risks associated with the misuse of paintball products, the
Company anticipates that it will be a defendant in product liability lawsuits
from time to time.  At this time, there are no material product liability
lawsuits pending against the Company.  To date, all claims and lawsuits against
the Company either have been, or are expected to be, resolved without any
material or adverse effect on the Company and its prospects.

     In addition, the Company, Daisy and certain other entities and individuals,
including certain of the Company's distributors, were named as defendants in an
action filed by Powerball, Inc., d/b/a TASO ("TASO") on November 12, 1997.  The
plaintiff filed an amended complaint on December 18, 1997, reducing the amount
of compensatory damages requested and eliminating its request for punitive
damages.  TASO, which is one of the Company's distributors, has alleged that the
Company and the other defendants have engaged in unlawful secret and
discriminatory pricing practices in violation of California law.  The company
believes that the claim is without merit and that it will be resolved without
any material cost or material adverse effect on the Company and its prospects.

ITEM 4:   SUBMISSION OF MATTERS TO A VOTE AND SECURITY HOLDERS

     None.

                       EXECUTIVE OFFICERS OF THE COMPANY

     The following table lists the names and ages of all Executive Officers of
the Registrant, and all positions and offices with the Registrant presently held
by each person named.  All of the Executive Officers listed below have been in
managerial positions with the Registrant since its inception, except J.R. Brian
Hanna, who joined the Company in December, 1997.  Prior to joining the Company,
Mr. Hanna served as Vice President - Finance, Chief Financial Officer of
Aermotor Pumps, Inc., a Delaware corporation.
 
NAME                    AGE               POSITION
----                    ---               --------
 
E. Lynn Scott            44  President, Chief Executive Officer, Director
J.R. Brian Hanna         45  Vice President - Finance, Chief Financial Officer,
                             and Treasurer
Charles L. Prudhomme     46  Vice President - Marketing and Business Development
Steven R. DeMent         40  Vice President - Operations
Steven R. Cherry         41  Vice President - Brand Development
Daniel L. Obergfell      37  Vice President - Sales
 

                                      -12-
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                                    PART II

ITEM 5:   MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
          RELATED STOCKHOLDER MATTERS

     The Company granted non-contingent options to purchase the following number
of shares of Common Stock at a price of $0.56 per share to the persons listed
herein on the dates specified:
 
     Marvin Griffin          44,662 on August 20, 1997
     E. Lynn Scott           22,331 on August 20, 1997
     Bob DeGarmo             11,165 on February 20, 1997
                             11,165 on August 20, 1997
     Steven R. DeMent        11,165 on August 20, 1997
     John D. Flynn           11,165 on September 4, 1997

     These grants were made in reliance on the exemption from registration set
forth in Section 4(2) of the Securities Act.

     Subsequent to the period covered by this report, the Company effected an
initial public offering (the "Offering") of its Common Stock, par value $.01 per
share, pursuant to a Registration Statement on Form S-1 (File No. 333-36179)
that was declared effective by the Securities and Exchange Commission on
November 25, 1997.  The Offering commenced on November 26, 1997. The initial
closing of the Offering occurred on December 2, 1997 with respect to 2,275,000
shares of Common Stock offered by the Company.  A subsequent closing occurred on
December 8, 1997 with respect to an additional 341,250 shares of common stock
which had been reserved for over-allotments.  The managing underwriters of the
Offering were McDonald and Company Securities, Inc. and Dain Bosworth
Incorporated.

     The following table summarizes the number of shares of common stock and
aggregate offering price of the shares registered for the account of the Company
and the amount and aggregate offering price sold through the date of this
report:
 
                        For the Account of the Company
      -----------------------------------------------------------------
                           Aggregate
                         Offering Price                   Aggregate
        Amount             of Amount                  Offering Price of
      Registered           Registered    Amount Sold     Amount Sold
      ----------           ----------    -----------     -----------
 
       2,616,250          $28,778,750      2,616,250     $28,778,750

                                      -13-
<PAGE>
 
     The following table summarizes the gross proceeds to the Company, the
expenses incurred for the Company's account, and the net proceeds to the Company
in connection with the issuance and distribution of common stock by the Company
in the Offering:
 
     Gross proceeds:                            $28,778,750
                                                -----------
 
     Underwriting discounts and commissions:      2,014,513
     Finders' fees:                                       0
     Expenses paid to or for underwriters:          100,000
     Other expenses:                                961,237
                                                -----------
 
     Total expenses:                              3,075,750
                                                -----------
 
     Net proceeds:                              $25,703,000
                                                ===========
 

The following table summarizes the amounts of net Offering proceeds to the
Company used for the purposes listed, through the date of this report:

                                                                Amount
                                                              -----------
 
     Funding distribution of divisional equity to Daisy:      $11,578,559
     Construction of plant, building and facilities:                    0
     Purchase and installation of machinery and equipment:              0
     Purchases of real estate:                                          0
     Acquisition of other businesses:                                   0
     Repayment of indebtedness:                                 1,500,000
     Working capital:                                           2,624,441
     Temporary investments:                                    10,000,000
 

     Other pertinent information required by this Item appears in the 1997
Annual Report at page 29, which information is incorporated herein by reference.

ITEM 6:   SELECTED FINANCIAL DATA

     The information required by this Item appears in the 1997 Annual Report at
page 1, which information is incorporated herein by reference.

                                      -14-
<PAGE>
 
ITEM 7:   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS OF OPERATIONS

     The information required by this Item appears in the 1997 Annual Report at
pages 13-16, which information is incorporated herein by reference.

ITEM 7A:  QUANTITATIVE AND QUALITATIVE DISCLOSURES
          ABOUT MARKET RISK

     The Company is exposed to market risk from changes in interest rates.  The
Company does not use financial instruments for trading or other speculative
purposes and is not a party to any leveraged financial instruments.

     A discussion of the Company's accounting policies for financial instruments
is included in Note 1 (Summary of Significant Accounting Policies) of Notes to
Financial Statements of the Company's 1997 Annual Report to stockholders, and
such information is incorporated herein by reference.

     The Company also maintains debt investments classified as available-for-
sale and carried at their quoted market value.  These short-term investments
result from excess cash on hand.

ITEM 8:   FINANCIAL STATEMENTS

     The Financial Statements required by this Item appear in the 1997 Annual
Report at pages 17-28,  which information is incorporated herein by reference.

ITEM 9:   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
          ACCOUNTING AND FINANCIAL DISCLOSURE

          None

                                   PART III

ITEM 10:  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

     Pursuant to general instruction G(3) of the instructions to Form 10-K,
information concerning the Company's executive offices is included under the
caption "Executive Officers of the Company" at the end of Part I of this Report.
The remaining information required by this Item appears under the caption
"Election of Directors, Nominees" in the 1998 Proxy Statement and under the
caption "Section 16(a) Beneficial Ownership Reporting Compliance" in the 1998
Proxy Statement, which information is incorporated herein by reference.

                                      -15-
<PAGE>
 
ITEM 11:  EXECUTIVE COMPENSATION

     The information required by this Item appears under the caption
"Compensation of Directors and Executive Officers" in the 1998 Proxy Statement,
which information is incorporated herein by reference.

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
          AND MANAGEMENT

     The information required by this Item appears under the caption  "Principal
Stockholders" in the 1998 Proxy Statement and under the caption "Equity
Ownership of Directors and Executive Officers" in the 1998 Proxy Statement,
which information is incorporated herein by reference.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     The information required by this Item appears under the heading "Certain
Transactions" in the 1998 Proxy Statement, which information is incorporated
herein by reference.

                                    PART IV

ITEM 14:  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
          ON FORM 8-K

     The following documents are filed as a part of this Report:

     1.   Financial Statements.
          -------------------- 

     The following financial statements of the registrant included on pages 17-
     28 of the 1997 Annual Report and the Report of Independent Auditors on page
     16 thereof are incorporated herein by reference. Page references are to
     page numbers in the Annual Report.

          Report of Independent Auditors

          Balance Sheets as of December 31, 1996 and 1997

          Statements of Operations for the years ended December 31, 1995, 1996,
          and 1997

          Statements of Cash Flows for the years ended December 31, 1995,
          1996,and 1997

          Notes to Consolidated Financial Statements

                                      -16-
<PAGE>
 
     2.   Financial Statement Schedules.
          ----------------------------- 

     All schedules are omitted because they are not applicable or the required
     information is shown in the financial statements or notes thereto.

     3.   Exhibits and Executive Compensation Plans.
          ----------------------------------------- 

     The following exhibits are filed with this Report or are incorporated
     herein by reference to previously filed material.

Exhibit No.
-----------

3(i)            Restated Certificate of Incorporation (incorporated by reference
                to Exhibit 3(i) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

3(ii)           By-Laws as currently in effect (incorporated by reference to
                Exhibit 3(ii) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(i)           Assignment, Assumption and Indemnification Agreement effective
                as of November 24, 1997 between Registrant and Daisy
                Manufacturing Company (incorporated by reference to Exhibit
                10(i) to Form 10-Q for the quarter ended September 30, 1997, in
                0-23385).

10(ii)          Distributor Agreement between Goldcaps, Inc. and Registrant
                dated July 28, 1995 (incorporated by reference to Exhibit 10(ii)
                to Registration Statement No. 333-36179).

10(iii)         Distributor Agreement between Leader Industries and Registrant
                dated August 31, 1995 (incorporated by reference to Exhibit
                10(iii) to Registration Statement No. 333-36179).

10(iv)          International Agency Agreement between WDP Ltd. and Registrant
                dated June 19, 1996 (incorporated by reference to Exhibit 10(iv)
                to Registration Statement No. 333-36179).

10(v)           Lease Agreement between R.L. Brown Investments and Registrant
                dated June 5, 1997 (incorporated by reference to Exhibit 10(v)
                to Registration Statement No. 333-36179).

10(vi)          Lease Agreement between Granby Apparel, Inc. and Registrant
                dated December 11, 1995 (incorporated by reference to Exhibit
                10(vi) to Registration Statement No. 333-36179).

                                      -17-
<PAGE>
 
10(vii)         Lease Agreement between Ozark Terminal, Inc. and Registrant
                dated December 9, 1997

10(viii)        Administrative Service Agreement between Daisy Manufacturing
                Company and Registrant (incorporated by reference to Exhibit
                10(viii) to Form 10-Q for the quarter ended September 30, 1997,
                in 0-23385).

10(ix)          Employment Agreement between E. Lynn Scott and Registrant dated
                as of September 15, 1997 (incorporated by reference to Exhibit
                10(ix) to Registration Statement No. 333-36179).

10(x)           1997 Stock Option Plan (incorporated by reference to Exhibit
                10(iii) to Form 10-Q for the quarter ended September 30, 1997,
                in 0-23385).

10(xi)          Employee Stock Purchase Plan (incorporated by reference to
                Exhibit 10(iv) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(xii)         Indemnification Agreement between Marvin W. Griffin and
                Registrant dated as of November 24, 1997 (incorporated by
                reference to Exhibit 10(v) to Form 10-Q for the quarter ended
                September 30, 1997, in 0-23385).

10(xiii)        Indemnification Agreement between E. Lynn Scott and Registrant
                dated as of November 24, 1997 (incorporated by reference to
                Exhibit 10(vi) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(xiv)         Form of Continuing Guaranty (incorporated herein by reference to
                Exhibit 10(xiv) to Registration Statement No. 333-36179).

10(xv)          Tax Allocation Agreement between Brass Eagle Inc. and Daisy
                Manufacturing Company dated November 24, 1997 (incorporated by
                reference to Exhibit 10(vii) to Form 10-Q for the quarter ended
                September 30, 1997, in 0-23385).

11              Statement of Computation of Earnings Per Share.

13              Portions of the Company's Annual Report.

24              Powers of Attorney

27              Financial Data Schedule

Listed below are the executive compensation plans and arrangements currently in
effect and which are required to be filed as exhibits to this Report.

          -     Employment Agreement between E. Lynn Scott and Brass Eagle, Inc.

                                      -18-
<PAGE>
 
          -     1997 Stock Option Plan

          -     Employee Stock Purchase Plan

     4.   Reports on Form 8-K.
          --------------------

          None

                                      -19-
<PAGE>
 
                                  SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                              BRASS EAGLE INC.
                                (Registrant)

                              By:
                                 -----------------------------------------------
                                    E. Lynn Scott
                                    President and Chief Executive Officer
Date:        _________, 1998

     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

                                    President, Chief Executive    March __, 1998
-------------------------------     Officer, and Director
E. Lynn Scott                       (Principal Executive Officer)


                                    Chairman of the Board of      March __, 1998
-------------------------------     Directors
Marvin W. Griffin              

                                    Director                      March __, 1998
-------------------------------
Anthony J. Dowd                

                                    Director                      March __, 1998
-------------------------------
Stephen J. Schaubert           

                                    Director                      March __, 1998
-------------------------------
H. Gregory Wold               

                                    Vice President - Finance,     March __, 1998
-------------------------------     Chief Financial Officer,
J.R. Brian Hanna                    and Treasurer
                                    (Principal Financial and
                                    Accounting Officer)

                                      -20-
<PAGE>
 
                                 EXHIBIT INDEX

     The following exhibits are filed with this Report or are incorporated
herein by reference to previously filed material:

 Number in
Exhibit Table                            Exhibit
-------------                            -------

3(i)            Restated Certificate of Incorporation (incorporated by reference
                to Exhibit 3(i) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

3(ii)           By-Laws as currently in effect (incorporated by reference to
                Exhibit 3(ii) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(i)           Assignment, Assumption and Indemnification Agreement effective
                as of November 24, 1997 between Registrant and Daisy
                Manufacturing Company (incorporated by reference to Exhibit
                10(i) to Form 10-Q for the quarter ended September 30, 1997, in
                0-23385).

10(ii)          Distributor Agreement between Goldcaps, Inc. and Registrant
                dated July 28, 1995 (incorporated by reference to Exhibit 10(ii)
                to Registration Statement No. 333-36179).

10(iii)         Distributor Agreement between Leader Industries and Registrant
                dated August 31, 1995 (incorporated by reference to Exhibit
                10(iii) to Registration Statement No. 333-36179).

10(iv)          International Agency Agreement between WDP Ltd. and Registrant
                dated June 19, 1996 (incorporated by reference to Exhibit 10(iv)
                to Registration Statement No. 333-36179).

10(v)           Lease Agreement between R.L. Brown Investments and Registrant
                dated June 5, 1997 (incorporated by reference to Exhibit 10(v)
                to Registration Statement No. 333-36179).

10(vi)          Lease Agreement between Granby Apparel, Inc. and Registrant
                dated December 11, 1995 (incorporated by reference to Exhibit
                10(vi) to Registration Statement No. 333-36179).

10(vii)         Lease Agreement between Ozark Terminal, Inc. and Registrant
                dated December 9, 1997.

10(viii)        Administrative Service Agreement between Daisy Manufacturing
                Company and Registrant (incorporated by reference to Exhibit
                10(viii) to Form 10-Q for the quarter 


                                     -21-
<PAGE>
 
                ended September 30, 1997, in 0-23385).

10(ix)          Employment Agreement between E. Lynn Scott and Registrant dated
                as of September 15, 1997 (incorporated by reference to Exhibit
                10(ix) to Registration Statement No. 333-36179).

10(x)           1997 Stock Option Plan (incorporated by reference to Exhibit
                10(iii) to Form 10-Q for the quarter ended September 30, 1997,
                in 0-23385).

10(xi)          Employee Stock Purchase Plan (incorporated by reference to
                Exhibit 10(iv) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(xii)         Indemnification Agreement between Marvin W. Griffin and
                Registrant dated as of November 24, 1997 (incorporated by
                reference to Exhibit 10(v) to Form 10-Q for the quarter ended
                September 30, 1997, in 0-23385).

10(xiii)        Indemnification Agreement between E. Lynn Scott and Registrant
                dated as of November 24, 1997 (incorporated by reference to
                Exhibit 10(vi) to Form 10-Q for the quarter ended September 30,
                1997, in 0-23385).

10(xiv)         Form of Continuing Guaranty (incorporated herein by reference to
                Exhibit 10(xiv) to Registration Statement No. 333-36179).

10(xv)          Tax Allocation Agreement between Brass Eagle Inc. and Daisy
                Manufacturing Company dated November 24, 1997 (incorporated by
                reference to Exhibit 10(vii) to Form 10-Q for the quarter ended
                September 30, 1997, in 0-23385).

11              Statement of Computation of Earnings Per Share.

13              Portions of the Company's Annual Report.

24              Powers of Attorney

27              Financial Data Schedule.

                                     -22-