guns - dubbed Showstoppers in the underworld - are smuggled into Britain from abroad - before being snapped up on the cheap by drug dealers and crime clan enforcers across Scotland.
And detectives are investigating whether one of the guns was used in the shooting of a 41-year-old in Glasgow 10 days ago.
Showstoppers are replica Smith & Wesson Colt 45 revolvers designed to fire blanks. But experts yesterday confirmed they are easily converted into deadly weapons capable of firing 9mm bullets.
A source close to Chapman said: "Guys are queuing up for one of his guns and he's doing a roaring trade because they're so cheap.
"He flogs them for as little as s100 for the gun parts, which can be reactivated into a live-firing gun within a few minutes.
"Billy's sales pitch to customers is that the guns have been smuggled home by soldiers from Iraq and Afghanistan.
"Wherever he gets them from, he's always got a steady supply because he can get you a weapon within a couple of hours."
Sunday Mail investigators watched this week as Chapman, based in the east end of Glasgow, sold a handgun to a customer in the Merchant City area.
During the three-minute deal, Chapman was constantly watching for police before pulling the gun, wrapped in plastic, from under his jacket and taking the cash.
Looking edgy, he was taped telling one buyer: "Don't worry. I can get you rounds for this.
"You can get the barrel drilled out easily and you're sorted."
Our team watched as Chapman, dressed in skip cap and shellsuit, scuttled around pubs and bookies' shops in the east end arranging deals on his mobile phone.
We recorded him telling another customer: "I've just sold one so give me a few hours and I'll sort you out."
We watched Chapman as he met one thug outside a William Hill bookmaker in the city's High Street, before disappearing into a quiet lane to hand over the weapon.
Our underworld source, who handed over one of Chapman's guns to our investigators, said: "He's selling plenty of these because they're a cheap answer to people's problems.
"You know you're not buying a state of the art handgun. It's a crude but deadly after a few tweaks.
"The barrel comes filled with lead, which needs drilled out. Other parts, such as the handle and trigger, are really easy to get hold of and you're basically ready to go.
"These things are probably only good for one or two shots- but that's all you need.
"For s100, you just dump it afterwards anyway. No wonder they're going like hotcakes."
Last night, one of Britain's leading firearms experts confirmed the Colt could easily be converted into a deadly weapon.
But ballistics expert David Dyson said those buying the guns for gangland hits were also putting their own safety at risk.
For safety reasons, the Sunday Mail has decided not to reveal the exact details of easily the replica firearm could be transformed into a weapon capable of firing live ammunition.
Dyson said: "This is a very crude attempt at a cheap handgun and it would be possible to convert it into a live-firing weapon. But because it appears to be made of alloy, there is a risk that if converted, the barrel or cylinder could explode with the massive force of live ammunition.
"So obviously there will be a risk to whoever is trying to fire it.
"You are never going to get a perfect weapon converting something like this. But there will be enough force for a couple of shots."
Gun crime continues to grow in Scotland and recent figures revealed that operations by armed police have soared to record levels.
The number of call-outs has nearly tripled since the mid-1990s to more than 500, according to figures released earlier this year for 2007-2008.
The report by HM Inspectorate of Constabulary revealed there were 548 armed police operations in Scotland, up from just 190 in 1996-97.
The highest number - 284 - was in the area covered by Scotland's largest force, Strathclyde Police, where organised crime is most prevalent.
There were 114 operations in Grampian, while in Lothian and Borders, there were 75.
In Tayside, there were 35, up from 12 the previous year, and in Central Scotland there were 13, up from four.
There were also 13 in the Northern Constabulary area, up from four, 12 in Fife and two in Dumfries and Galloway.
Earlier Scottish Executive statistics, published in October 2009, showed armed raids in Scotland had soared by 40 per cent in a year.
Firearms were used in 91 robberies, up from 65 in only 12 months, and in six post offi ce raids, up from two the previous year.
Glasgow has seen some of the worst gun incidents as rival crime clans battle for control of the city's lucrative drugs market.
Ten days ago, police launched a major inquiry after a 41-year-old was shot by a lone gunman in Dale Path, in the city's Bridgeton area.
The victim is seriously ill in hospital after being targeted almost two weeks ago.
Police are carrying out door-to-door inquiries and are studying CCTV footage in a bid to identify the gunman.
A spokeswoman said: "No arrests have been made and inquiries are continuing."
The deadly capability of DIY handguns was revealed earlier this year when aspiring glamour model Caroline Igoe was jailed for murdering boyfriend Martyn Barclay on the doorstep of their Edinburgh home.
Igoe, 32, killed her lover with a single shot because she was furious at him for heading out for a night's drinking.
Part-time model Igoe blasted Martyn, 26, in the head with a blank-firing pistol which had been crudely converted to take live ammo.
Police found the German-made Umarerx Reck 9mm would only shoot one bullet at a time and was prone to misfiring.
Igoe - who has links to drug dealers - calmly walked back indoors and carried on surfing her Bebo internet site after the shooting, leaving her dying lover to be found by a passer-by.
She was jailed for life, with a minimum term of 20 years, after a four-week trial at the High Court in Glasgow in May.
Recent figures from Strathclyde Police revealed 82 firearms were recovered in the last year. They said the most significant haul came last October when Operation Lockdown smashed a massive Glasgow drugs gang.
Drugs worth almost s9million were seized along with a massive haul of weapons following the 15-month surveillance operation.
Officers recovered two machine guns, along with seven shotguns, 11 rifles, eight handguns and 3,400 rounds of ammunition.
London's Metropolitan Police have revealed that one replica gun sold as a starting pistol is behind a surge in gangland shootings in the capital.
The Met said the Olympic BBM 9mm revolver, converted by criminals to fire real bullets, makes up 40 per cent of the live-firing guns seized by the force last year.
Police sources said firearms offi cers were able to convert an Olympic to shoot live rounds within 24 hours using a basic DIY toolkit.
The killing of 11-year-old schoolboy Rhys Jones in Liverpool in 2007 shocked Britain and led to renewed calls for tighter gun laws.
It also highlighted the access city gangs had to firearms and converted weapons. Everton fan Rhys was walking home from football practice when he was shot in the back as he crossed a pub car park - the innocent victim of a fight between rival gangs.
Thug Sean Mercer, 18, a member of the Croxteth Crew gang, was jailed for life the folowing year for the murder.
Detectives, who raided several homes during the investigation, discovered the .455 Smith and Wesson handgun used to kill Rhys and a converted replica Walther PPK handgun hidden in a loft.