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                                  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 [NO FEE REQUIRED]

                  For the fiscal year ended December 31, 1999.

                                       OR

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
              SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]

             For the transition period from _________ to _________.

                       Commission File Number: 33-29942-NY

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

                             NATIONS FLOORING, INC.
             [Exact name of registrant as specified in its charter]

     Delaware                    2836, 2835                     11-2925673
 (State or Other              (Primary Standard               (IRS Employer
   Jurisdiction            Industrial Classification       Identification Number
Of Incorporation or              Code Number)
   Organization)

100 Maiden Lane
New York, New York                                               10038
(Address of principal                                          (Zip Code)
 executive offices)


       Registrant's telephone number, including area code: (212) 898-8888

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

           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:


                                               Name of Each Exchange on
              Title of each Class                   Which Registered
              -------------------                   ----------------

                                      None

           SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

                         Common Stock, $0.001 par value
                              (Title of each class)

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 past 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 in response 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 in Part III of the Form 10-K or any amendment to this
Form 10-K [X]

As of March 15, 2000, the aggregate market value of the voting stock held by
non-affiliates (1,891,417 shares) of the registrant was $7,565,668 (based on the
last such date that quotes were available on July 7, 1997, of $4.00 per share).

As of March 15, 2000, there were 3,729,779 shares of Common Stock, $0.001 par
value per share, outstanding.

                       DOCUMENTS INCORPORATED BY REFERENCE
                                      None


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This Annual Report on Form 10-K contains forward-looking statements which
include risks and uncertainties. The Company's actual operations may differ
significantly from those discussed in the forward-looking statements. Factors
that might cause such a difference include, but are not limited to, leverage,
capital requirements, dependence on manufacturers and suppliers, relationships
with customers, dependence on key operating personnel, uncertainties related to
he Company's growth strategies and those discussed in Item 7- Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Item 13-Certain Relationships and Related Transactions.

                                    Part I.
Item 1. Business


The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information (including the Consolidated
Financial Statements and the Notes thereto) appearing elsewhere in this report.
References to the Company herein shall mean the Company, including the
operations of Nations Flooring, Inc. and its consolidated subsidiary, except to
the extent that the context requires otherwise.

The Company

         Nations Flooring, Inc. (the "Company" or "Nations") is engaged in the
business of selling floorcoverings, window treatments and certain related
products, primarily for the residential housing market. The Company subcontracts
the installation of its products with independent contractors. The practice of
subcontracting installation is typical within the industry.

         The Company had sales of $40.8 million in 1997, $45.0 million in 1998
and $58.1 million in 1999. Currently, the Company is engaged in business in Las
Vegas, Nevada (where its sales have made it the largest provider of
floorcoverings), St. George, Utah, Boise, Idaho and metropolitan Washington D.C.
The Company believes that its new home floorcovering sales represent
approximately 43.5%, 35.0% and 34.6% of the floorcovering sold for new homes in
the Las Vegas market in 1997, 1998 and 1999, respectively, based on market
information compiled by Home Builders Research, Inc.

         The Company sells approximately 59.7% of its products through its
Residential Contract Division, approximately 28.7% of its products through its
Residential Replacement Division, approximately 6.2% through its Commercial
Division and approximately 5.4% in other areas. Residential Contract Division
sales are effected primarily to or through new homebuilders who offer purchasers
a wide selection of basic grade floorcoverings as part of the unit cost.
Customers then visit the Company's new home design center and, with the
assistance of one of the Company's design consultants, choose from the basic
floorcoverings offered, or often from possible upgrades on floorcoverings, in
addition to purchasing wall coverings, window treatments and related products.
The Company sells to the commercial market including multi-family, office,
retail store and small hotel projects through its Commercial Division. Sales to
the residential replacement market represent the replacement of floorcoverings.
The significance of sales to this market increased in 1999 as the result of the
opening of new retail showrooms in Las Vegas and the Kemper acquisition, and the
Company hopes to continue to expand its sales to this market, and broaden its
product offerings, as the result of these and additional new showrooms and
through other strategic acquisitions.

Organizational History

         The Company was organized under the laws of the State of Delaware and
operates through its wholly owned subsidiary, Carpet Barn, Inc. ("CBI").

Industry Overview

         The floorcovering industry in the United States (which includes fixed
and non-fixed carpeting and natural stone, ceramic tile, vinyl, wood and
laminate flooring) is estimated to have steadily grown to approximately $27.5
billion in 1998. Despite this growth in size, the industry has remained
fragmented. The Company believes that no single floorcovering retailer,
including national and large retailers such as Home Depot and Carpet Max,
accounts for more than ten percent of the total market. The Company believes
that while chains and mass merchandisers do not dominate the floorcovering
industry, such companies do influence pricing, product selection and service
innovation and that small independent floorcovering retailers face competitive
disadvantages resulting from limited purchasing power, ineffective inventory
control and inadequate resources for sales, marketing and store management.


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         The carpet industry's two primary markets are residential (the market
primarily served by the Company) and commercial. A number of factors influence
overall sales levels in the carpet industry, including consumer spending on
durable goods, levels of discretionary spending, interest rates, housing
turnover, the condition of the residential construction industry and the
economy's overall strength.

Strategy

         The Company's objective is to maintain its position as the leading
provider of floorcoverings, window treatments and related products in the Las
Vegas builder and retail market and to become the leading provider of
floorcoverings, window treatments and related products in selected markets
throughout the United States. The Company is also seeking to become a leading
provider of floorcoverings in the commercial market in Las Vegas and in other
markets.

         The Company believes that significant opportunities exist for
floorcovering retailers that can achieve cost advantages and operating
efficiencies through selective acquisitions and internal growth. To take
advantage of these opportunities the Company is pursuing a strategy of acquiring
existing floorcovering businesses that are dominant competitors in their regions
and developing new stores in markets experiencing significant growth in
population and homebuilding that do not have a dominant floorcovering retailer.
The Company is reviewing various markets throughout the United States to
determine their desirability for expansion, and is in the process of negotiating
with acquisition candidates in some of those markets. In July 1999, the Company
acquired a residential contract and residential replacement business (4
locations with annual sales of approximately $7 million) in the metropolitan
Washington DC area. In addition, the Company acquired a small residential
replacement business in St. George, Utah in September 1998 and acquired a small
residential contract business in Boise, Idaho in November 1998. The Company is
also considering internal expansion through the opening of additional stores in
other sites in the southwestern United States where the Company believes it can
expand its relationships with regional homebuilders which it already services in
Las Vegas. However, there can be no assurance as to the viability of this
approach.

         The Company's strategy includes the following:

         Las Vegas Market

         Maintain New Home Market Share in Las Vegas; Increase Replacement Sales
Penetration. The Company intends to expand upon its existing base of customers
by increasing its sales for new home projects with homebuilders. Homebuilders
provide the Company's new home design center with the floor plans of all their
units. This allows the new home design center to then provide a home buyer with
alternatives specifically tailored to the floor plan of the customer's unit, as
well as one-stop shopping for home buyers with respect to their floor, wall and
window covering needs. The Company's new home design center is a significant
element in the Company's plan to enhance service to homebuilders and homebuyers.
Based on estimates of the Las Vegas Homebuilder's Association, the total new
homes market for carpet in Las Vegas is projected to grow at an annual rate of
5% to 10% over the next 10 years. There can be no assurance that the Las Vegas
market will grow as projected or that the Company will be able to increase or
maintain its market share.

         The Company's share of the Las Vegas residential contract market was
43.5% in 1997, 35.0% in 1998 and 34.6% in 1999. These changes resulted both from
competition from other floorcovering retailers and the shift to "in-house"
floorcovering sourcing and installation by certain Las Vegas area new home
builders. To reduce the Company's reliance on business generated by residential
contract sales in Las Vegas, the Company anticipated the increase in the
residential replacement market and opened new retail showrooms in Las Vegas and
entered the commercial flooring market in 1997 and acquired operations in Utah
and Idaho in 1998 and in Washington DC in July 1999.

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         Continue to Offer Superior Service. The Company believes that the most
important factor in its ability to compete is the quality of the customer
service it offers. The Company believes that it offers the highest quality
customer service in Las Vegas. This service begins with the offering of a full
range of floorcovering products and includes a policy, which the Company intends
to continue, of next-day installation and guarantee against carpet installation
defects for as long as the buyer owns the home (one year on all other products).
The Company also inspects all floorcovering installations in new homes before
the customer moves in and has created a customer service department to handle
all complaints and installation problems. Management believes these programs
have continued to have a positive effect on the Company's reputation with
builders and home buyers which enhances the Company's ability to be selected as
the floorcovering referral for subsequent new home developments and allow the
Company to gain customers for life. The Company also intends to continue to
offer what it believes is quality technical service and assistance to its
customers in both the new home and replacement sales markets. Employees of the
Company assist, as needed, in all phases of customers' projects, from
conceptualization, design and product selection to actual installation. In
addition, the Company's design center is staffed with specially trained design
consultants that are highly knowledgeable regarding the broad range of
decorating possibilities provided by the Company's products. The Company intends
to continue to hire salespersons with experience in floorcovering or related
trades, and to continue to train such salespersons with respect to its products
and services. The Company believes that such programs will have a positive
effect on results of operations, although there can be no assurance of this.

         Competitive Prices. A second factor affecting the Company's ability to
compete is the pricing of its products. Because of the volume of its purchases,
the Company receives what it believes to be favorable pricing from its
suppliers, including payment discounts from most suppliers and cooperative
marketing contributions from others, including DuPont, Monsanto and Allied. The
Company is able to pass these savings along to customers and thus generally is
able to offer the lowest prices in the region while maintaining a high profit
margin. The Company intends to continue to offer low prices and also to continue
its policy of offering to beat any competitor's price.

         Inventory Practices. In the Las Vegas market, the Company has been able
to maintain low warehousing costs by stocking small amounts of inventory while
at the same time providing its customers with next-day installation on purchases
in the Las Vegas market. The ability to maintain low warehousing costs is an
element in the Company's ability to offer what it believes are the lowest prices
in the region.

         These practices are dependent on the Company's ability to schedule
next-day "cut and drop" product deliveries from its suppliers. To date the
Company's suppliers have been able to satisfy its Las Vegas delivery
requirements with overnight shipments to the Company from distribution centers
maintained by such suppliers primarily in California, and the Company believes
that because of the volume of its purchases, it can continue to operate in Las
Vegas and certain other markets on this basis. However, there can be no
assurance in this regard, and any significant failure of suppliers to make
timely deliveries would adversely affect the Company's reputation among
customers.

         In other markets, the Company schedules its installations upon receipt
of the product from the supplier, therefore reducing the amount of inventory on
hand.

         Addition of New Products; Showrooms. The Company also plans to attract
and maintain customers by adding complementary products to its current
offerings. The Company targeted wall and window coverings and countertops and
wall tile as its first significant product extensions. These products accounted
for approximately $3.1 million in sales for 1999 as compared to approximately
$2.7 million in sales for 1998 and $1.7 million in sales in 1997. The Company is
anticipating further product expansion through the addition of area rugs and
through the addition of cleaning and maintenance programs, as well as the
expansion of sales of hard floorcoverings such as wood and tile and natural
stone for both flooring, countertops and wall tile. These new products will be
promoted by sales personnel at the Company's stores and through the Company's
advertising campaigns.

         The Company also seeks to increase market share and profit margins
through its operation of "showrooms" in its residential replacement facilities.
The showrooms provide customers the opportunity to consult with trained
personnel concerning the multitude of design possibilities utilizing the full
range of products offered by the Company. The Company operates a design center
in the Las Vegas area for new homebuyers who are selecting floorcoverings and
other products to be installed in their new homes. This design center was opened
in 1996 in response to requests by builders who are currently customers as well
as other major builders who have expressed a desire to use the Company, should
it open such a center. There can be no assurance that these showrooms will have
a positive impact on the Company's operations.


                                       4
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         Other Markets

         Pursuit of Selective Acquisitions and Development of New Stores. The
Company acquired a residential contract and residential replacement business in
the Washington, DC area in July 1999 to penetrate the homebuilder, retail and
commercial segments in the metropolitan Washington DC market. In 1998, the
Company acquired a small residential replacement business to penetrate the
retail and commercial segments and to service various homebuilders in St.
George, Utah and a small residential contract business in Boise, Idaho.

         The Company believes that, because of the fragmented nature of the
floorcovering industry, significant consolidation opportunities exist and that
the Company is well positioned to achieve financial and operational efficiencies
through selective acquisitions due to favorable working relationships with its
suppliers and major customers. The Company believes that any such acquisitions
will enable it to increase its sales while decreasing its general and
administrative costs as a percentage of such sales due to the creation of
substantial economies of scale. The Company intends to pursue acquisitions of
businesses that provide the same products and services as, or those
complementary to, the Company's existing business. The Company has identified a
number of markets that it intends to explore entering over the next several
years.

         Currently, the Company has signed letters of intent to purchase the
operations of companies located in Charleston and Hilton Head, South Carolina.
Each company has approximately $8 million in sales from its residential
contract, residential replacement and commercial markets. The purchase price for
the Charleston and Hilton Head operations are estimated at $5.0 million and $4.4
million, respectively. Both the Charleston and the Hilton Head operations are
located in high growth areas and are the dominant floorcovering provider in
their respective markets. The Company anticipates financing these purchases with
a portion of the proceeds of the proposed new financing agreement with Barbican
Capital Partners, LLC (see Item 7 - Management's Discussion and Analysis of
Financial Condition and Results of Operations) and anticipates completing these
acquisitions during the second quarter of 2000.

         The Company has also selectively targeted certain markets throughout
the United States where there is no dominant competitor for internal expansion
through the development of new stores. Targeted markets are, like Las Vegas,
experiencing high growth in population and home building. The Company believes
that it can duplicate its successful concepts in these high growth markets by
strengthening its relationships with its existing builders who are active in
these markets, and that it can compete in these markets through its demonstrated
ability to compete on service and price. Additionally, internal expansion which
increases the volume of the Company's purchases, and as a result its ability to
obtain favorable prices and terms from floorcovering suppliers that also supply
operations that the Company has acquired, can allow the Company to also benefit
those acquired operations through reduced product costs. However, there can be
no assurance that such expansion will be effected or, if effected that any new
facilities will be operated profitably.

         The Company contemplates that any residential replacement facilities it
opens will have a dedicated showroom area where customers can consult with
trained personnel concerning the multitude of design possibilities utilizing the
full range of products offered by the Company. The Company believes that the
clean, relaxed environment of these new facilities will increase the average
total sale price and gross margin for its sales, although there can be no
assurance in this regard.

         Expansion through the opening of new facilities in new markets requires
the Company to incur costs to lease or build and equip a facility. However, in
some markets the Company has been able to, and believes that in the future may
continue to be able to, obtain cooperative funding of such costs from suppliers
of the Company's products.


Operations

         Background. The Las Vegas, Nevada (Clark County) market is the location
of the Company's most significant operations. This market accounted for
approximately 100%, 98.6% and 88.6% of the Company's 1997, 1998 and 1999 sales,
respectively. Approximately 70.3%, 63.7% and 53.3% of its Nevada sales in 1997,
1998 and 1999, respectively, were to new homebuyers in the Las Vegas market.

         According to regional publications, the Las Vegas area is one of the
fastest growing in the country,. According to the Las Vegas Review Journal,
during 1999 an average of 5,000 persons relocated to Las Vegas each month, and
the Las Vegas (Clark County) population has increased to over 1.2 million. Such
statistics illustrate the high numbers of persons arriving in the Las Vegas area
and the potential strength of the retail floorcovering market.


                                       5

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         On July 1, 1999, the Company began operations in the Washington, DC
metropolitan area through its acquisition of the Kemper operations. This market
accounted for 7.3% of the Company's sales in 1999. Approximately 54.1% of the
Kemper sales are to new homebuyers. The remaining sales are replacement sales.

         The Washington, DC market in which the Company acquired a residential
contract and residential replacement business in July 1999 is expected to grow
over 7% over the next ten years and was rated as the "Best Place to Live" by
Money Magazine in 1998. The Company plans to increase the existing residential
contract and residential replacement business by opening a residential contract
design center and by redesigning its residential replacement showrooms and
opening up to two new residential replacement showrooms during 2000. In
addition, the Company believes that adding new flooring products in 2000 such as
ceramic tile and marble the Company will increase its sales in this market.

         The Company began operations in St. George, Utah, and Boise, Idaho
during 1998. These markets accounted for 0.5% and 3.9% of the Company's total
sales in 1998 and 1999, respectively.

         St. George, Utah, in which the Company acquired a small residential
replacement business in September 1998, is a resort community located in
southern Utah, two hours north of Las Vegas. The Company expects to increase the
residential replacement business in this market, and expand into the residential
contract and commercial markets during 2000.

         Boise, Idaho, in which the Company acquired a small residential
contract business in November 1998, is a fast growing community, the state
capital and is located near several resort towns. The city has been experiencing
an estimated annual population growth of approximately 4.1%, and is home to such
companies as Micron and Hewlett-Packard. Other major industries include
manufacturing, service, government and high tech. The Company expects to
increase the existing residential contract business and to expand into
residential replacement and commercial markets during 2000.

         Divisions. The Company primarily operates through three divisions, the
Residential Contract Division, the Residential Replacement Division and the
Commercial Division.

         Residential Contract Division. The Company's Residential Contract
Division is responsible for installation of floorcovering and related products
in newly built homes. Salespersons in this division deal with both homebuilders
and buyers. In servicing the new home market, the Company generally secures
contracts from builders to provide floorcovering in their new homes. In most
cases, when the builder sells a new home, the builder will direct the home buyer
to the Company, which allows the buyer to choose the floorcovering represented
by a standard allowance provided from the builder to the home buyer or to
upgrade from the standard selection by paying a higher price. The Company has
found that most homebuyers choose an upgraded floorcovering selection.

         The Company receives payment for its carpeting in new homes in one of
two ways. In most cases, the buyer directly pays the upgraded portion of a
carpet sale by generally paying the full upgrade amount with the order. In other
cases, the Company bills the upgraded portion of the job to the builder, who
then passes on the additional cost to the buyer as part of the total price of
the home; this method may allow buyers to finance their flooring upgrades
through their mortgage, with little incremental effect on monthly payments. The
builders' standard allowance and any billable upgrades is billed to the builder,
payable within thirty days of installation, and most of the Company's accounts
receivable result from residential contract billings to homebuilders.

         Through its Residential Contract Division, the Company has
relationships with most of the larger home builders in the Clark County area,
with its five largest customers accounting for $15.1 million, $16.5 million and
$18.1 million in sales in 1997, 1998 and 1999, respectively. During the past ten
years, the Residential Contract Division has accounted for Company sales ranging
from a low of $21.8 million in 1990 (56% of total Company sales) to a high of
$34.7 million in 1999 (60% of total Company sales). The Company's new homes
sales in Clark County as a percentage of its total sales was 70%, 63%, and 53%
in 1997, 1998 and 1999, respectively.

         Because the Residential Contract Division's sales are dependent on
sales of new homes, such sales are affected by population growth, mortgage
interest rates, and the other factors that generally affect the level of new
home construction and sales. However, because the Company also services the
residential replacement market, the adverse effects on the Company's sales by
downturns in the building cycle may be moderated by offsetting trends in the
redecoration of existing homes.


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         Residential Replacement Division. The Residential Replacement Division
is responsible for providing individual consumers who have existing homes with
new or replacement floorcoverings. The Company is one of the three largest
residential replacement retailers in the Las Vegas area, chiefly because of its
large selection, low prices, quick installation time and name recognition.
Customers contemplating purchasing flooring or window treatments will visit one
of the Company's retail showrooms strategically placed throughout Las Vegas.
Highly trained retail salespersons will then go to the customer's home to verify
measurements and confirm product selections. Due to the Company's "cut and drop"
program with its suppliers, installation is available at the customer's
convenience.

         Generally, the Company requires that Residential Replacement Division
buyers provide a deposit by cash, check or credit card when they place an order,
and that they pay the balance upon installation. For customers who wish to
finance their purchases, the Company refers such customers to a consumer finance
company, which issues a payment directly to the Company upon completion of
installation. The Company's sales in the residential replacement market were
$8,883,495, $11,108,620 and $16,656,866 in 1997, 1998 and 1999, respectively.
The increase in 1999 residential replacement sales occurred as a result of a
$2,955,416 increase in sales in Nevada, an increase of $651,639 in sales in Utah
and the Kemper acquisition which accounted for residential replacement sales of
$1,941,191. The Company believes that its retail showroom approach is the
primary reason for the increase in the Nevada and Utah sales by its Residential
Replacement Division.

         Commercial Division. The Commercial Division is responsible for
providing floorcovering and related products to the multi-family, office, retail
store and small hotel markets.

         Highly trained commercial salespersons call on potential commercial
customers including general contractors, developers and real estate brokers to
bid projects. Commercial projects have a duration ranging from one week to
several months. Short duration contracts are billed upon completion and others
are billed as they progress; all billings are payable on a net thirty-day basis.
The Company's sales in the commercial market were $1,557,670, $2,793,938 and
$3,614,414 in 1997, 1998 and 1999, respectively. The Company believes that it
can maintain or increase its sales in the Commercial Division during 2000,
however there can be no assurance of this.

         Other. The Company sells other products and services including window
treatments, countertop and wall tile and floor cleaning services. These products
and services are distributed much the same as other Company products. The
Company's sales in the other areas were $1,687,181, $2,724,205 and $3,136,369 in
1997, 1998 and 1999, respectively.

         Operating Business Segments. The Company sells floorcoverings and
related products through its residential contract, residential replacement and
commercial operating segments in Nevada, Utah, Idaho and metropolitan
Washington, DC. The Company believes that the economic and other characteristics
of its three operating segments meet the aggregation criteria outlined in
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information." Accordingly, segment information is
not presented since the Company's operating segments are aggregated for
reporting purposes.

Customers

         The Company has among its customers most of the larger home builders in
Clark County, Nevada, including Kaufman & Broad ("K&B") and American West Homes
("AWH"). The Company has developed its relationships with such builders over the
past 28 years. In 1997, 1998 and 1999, five customers accounted for
approximately 37%, 37%, and 31% of the Company's net sales, respectively. In
1997, 1998 and 1999, K&B accounted for 15.2%, 15.3% and 14.5% of net sales,
respectively. In 1997, 1998 and 1999, AWH accounted for 9.7%, 9.5%, and 5.8% of
net sales, respectively.

Suppliers

         The Company currently purchases its carpeting from suppliers outside
Nevada including suppliers located in Georgia and California. The Company
generally pays for its purchases within three weeks of delivery, allowing the
Company to procure substantial discounts from its suppliers. The Company's six
largest suppliers, which include Shaw Industries, Mohawk Industries and Beaulieu
United accounted for 77.4%, 80.1% and 74.2% of its total purchases in 1997, 1998
and 1999, respectively. The Company believes that one of its competitive
advantages is its strong relationship with such suppliers. While the Company
continues to have good relations with its suppliers, management believes that
the Company could find alternative sources of supply should any of the Company's
major suppliers cease doing business with it.


                                       7
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Marketing, Advertising and Merchandising

         The Company's advertising program includes television and radio
commercials and print advertising in local daily newspapers. Expenditures for
advertising and promotion, net of cooperative advertising contributions, were
approximately $586,000, $785,000 and $1,080,000 (representing 1.4%, 1.7%, and
1.9% of net sales) in 1997, 1998 and 1999, respectively. In its advertising, the
Company features its large selection, low prices and also features its guarantee
against carpet installation defects for as long as the buyer owns the home (one
year on all other products). The Company also receives cooperative advertising
contributions (up to 50% of the cost of qualifying advertisements depending on
the amount of the relevant products sold), from certain mills and yarn companies
by including in its advertising references to brand name yarns (such as DuPont,
Monsanto and Allied) or floorcoverings (such as Congoleum).

Training

         The Company strives to develop the technical and sales skills of its
store personnel to ensure that customers consistently receive knowledgeable and
courteous assistance. The Company's training programs are oriented toward
emphasizing the importance of customer service, improving selling skills and
creating realistic expectations. The Company provides training for its
entry-level personnel through an in-house training program, which combines
on-the-job training with formal presentations by the Company's suppliers
concerning their products. The suppliers' contributions in this regard evidence
their commitment to the sales and service efforts of the Company. In addition,
ongoing instruction is given to all sales and customer service personnel.

Competition

         The floorcovering industry is highly competitive and fragmented.
According to an industry publication, the nations ten largest floorcovering
retailers in terms of sales volume accounted for approximately 30% of all
floorcovering sales in the United States in 1998, although none of such
retailers dominated the market. In 1999, Clark County, Nevada had approximately
100 outlets through which carpet was sold.

         Companies in the floorcovering industry compete mainly through their
ability to provide service and selection at reasonable prices. The Company
competes with general merchandise and discount stores, home improvement centers
and specialty retailers operating on a local, regional and national basis. The
Company believes that its chief competitors are local and regional specialty
chains as well as homebuilders' in-house design centers. Competitors in the
builder market include Adams Brothers, DuPont Flooring Systems and Bairs Carpet
Valley. Competitors in the retail market include Carpet Max, Cloud Carpets and
Carpeteria.

         In addition to the local and regional specialty chains, the Company
competes with national and regional home improvement centers (such as Home Depot
and Home Base) and national department stores and specialty retailers (such as
Sears) which have branches in Las Vegas. Many of such regional and national
competitors have substantially greater financial resources than the Company. In
addition, expansion by certain regional home improvement center chains has led
to increased price competition for certain of the Company's products.

         While there is intense competition among providers of floorcoverings in
the Las Vegas, Nevada market, the Company has successfully competed for
customers on the basis of price, reliability and quality of product, breadth of
product line, service and the fact that the Company has been in business for 28
years.

Employees

         As of March 15, 2000, the Company employed approximately 210 persons,
divided among its accounting, administrative, buying, sales, customer service
and warehousing departments. A substantial portion of the compensation of
residential replacement sales personnel is commission-based. None of the
Company's employees is covered by a collective bargaining agreement. The Company
believes that its relationship with its employees is satisfactory.


                                       8
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Product Liability and Insurance

         The sale of the Company's retail products involves some risk of product
liability claims. The Company has obtained product liability insurance in the
amount of $1.0 million per occurrence with a $2.0 million aggregate limit. The
Company has a $4.0 million excess liability umbrella insurance policy. Effective
October 1999, the Company obtained directors and officers and employment
practices liability insurance in the amount of $3.0 million. There can be no
assurance that the coverage limits of the Company's insurance policy and/or any
rights of indemnification and contribution that the Company may have will offset
potential claims. A successful claim against the Company in excess of insurance
coverage and not subject to indemnification could have a material adverse effect
on the Company.


                                       9
<PAGE>

Item 2. Properties

         Through March 1999, the Company leased from C.B. Realty of Delaware,
Inc. ("Realty") the property at which the Company's original Las Vegas facility
is located. The property was leased under a lease, extended through April 1,
2004, having an annual rental of $120,000. The 44,000 square foot property
includes a retail and commercial showroom and a warehouse retail outlet. On
March 31, 1999, the Company acquired the ownership of Realty, which was owned by
certain stockholders of the Company, and as a result thereof acquired ownership
of the facility. See Item 13-Certain Relationships and Related Transactions.

         In August of 1999, the Company moved its administrative offices from
the above described location to an office complex at which the Company leases
approximately 11,000 square feet at an annual rental of approximately $180,000.

         The Company also leases additional facilities in Las Vegas, consisting
of four retail showrooms, an additional warehouse, and a new home design center,
containing a total of approximately 40,000 square feet at an annual rental of
approximately $545,000.

         The Company also leases facilities in the greater Washington, DC
metropolitan area, consisting of three retail showrooms and a combination
warehouse and administrative offices containing approximately 25,000 square feet
at an annual rental of $410,000.

         In addition, the Company also leases facilities in St. George, Utah and
Boise, Idaho containing a total of approximately 15,000 square feet at an annual
rent of approximately $85,000. The Company believes that its facilities are
adequate for their intended purposes.

         The Company maintains its principal executive offices within New York,
New York at 100 Maiden Lane.

Item 3. Legal Proceedings

         In December, 1999, BankBoston Development Company, LLC ("BankBoston")
filed a lawsuit in the United States District Court for the District of
Massachusetts against Philip Herman, Branin and the Company. In its complaint,
BankBoston alleges, purportedly on behalf of itself and other stockholders of
Millennium Services Corporation ("Millennium"), a company the majority of whose
common stock is owned by Branin, that Mr. Herman breached his fiduciary duties
to BankBoston in connection with its $500,000 investment in Millennium, that
Branin and the Company aided and abetted this breach and that all the defendants
engaged in fraudulent activities under federal securities laws, common law and
the Massachusetts blue sky laws in connection with the investment. The complaint
seeks damages of $1.5 million on the fiduciary duty claims and $500,000 on the
fraud claims, together with treble damages on the Massachusetts blue sky law
claim, interest, attorneys' fees and costs. The Company has filed an answer
denying the principal allegations in the complaint. The case is in the
pre-discovery preliminary stage, but the Company believes it has meritorious
defenses to the allegations in the complaint and intends to defend against such
allegations vigorously. Therefore, no liability has been recorded in the
consolidated financial statements as of December 31, 1999.


Item 4. Submission of Matters to a Vote of Security Holders

None


                                       10
<PAGE>


Part II.

Item 5. Market for the Registrant's Common Equity and Related Stockholder
        Matters.

         The Common Stock has been quoted on the "electronic bulletin board"
operated by the NASD under the symbol "CRPT" since May 1997 and, prior to that,
under the symbol "RAGC." No reported trading or quotes have been available since
July 7, 1997. The last sale price of the Common Stock on July 3, 1997 was $4.00
per share as reported by the Automated Confirmation Transaction Service.

         As of March 15, 2000, there were approximately 370 record holders of
the Common Stock. The Company has and intends to continue making payments of
dividends on its preferred stock. In addition, the Company has not and does not
intend to declare or pay dividends on its Common Stock for the foreseeable
future.


                                       11
<PAGE>


Item 6.  Summary Financial Information
(in thousands, except share and per share data)

The summary financial information presented below has been derived from the
financial statements of the Company and the Predecessor Business (as defined
below). This information should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto included elsewhere in this Annual
Report on Form 10-K. The results of operations of the Company are not comparable
to those of the Predecessor Business, due primarily to the amortization of
intangible assets and interest expense on the debt incurred in connection with
the Company's 1995 acquisition of the Predecessor Business. In addition, certain
information below is not shown for the Predecessor Business where such
information would not present a meaningful comparison. See Item 7-Management's
Discussion and Analysis of Financial Condition and Results of Operations.

<TABLE>
<CAPTION>
                                   Predecessor
                                     Business                             Nations Flooring, Inc.
                                   -----------------------------------------------------------------------------------------
                                    Pro Forma
                                      Period                    For Year
                                      Ended     Period Ended     Ended
                                     June 1,    December 31,  December 31,             Year Ended December 31,
                                                                           -------------------------------------------------
                                     1995 (1)     1995 (2)      1995 (3)       1996         1997        1998      1999 (6)
----------------------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>          <C>           <C>         <C>         <C>        <C>
Results of Operations
Net sales                             $  16,363      $ 23,980     $ 40,343      $ 42,414    $ 40,836    $ 45,000   $ 58,114
Operating income                          3,724         2,122        5,375         2,400       1,858       1,785      2,593
Dividends to preferred
  Stockholders of subsidiary                  -           203          339           538         559         466          -
Amortization of discount
  on preferred stock of subsidiary            -             -            -             -           -       1,543          -
Net income (loss)                         3,737           293        1,663            75       (652)      (1,794)      1,029
Pro forma income tax effect (5)           1,271
Pro forma net income after tax (5)        2,466
----------------------------------------------------------------------------------------------------------------------------
Earnings per Common Share
Income (loss) from continuing
  Operations
    Basic (4)                                        $   0.08     $   0.46      $   0.02    $  (0.18)   $  (0.52)  $    0.11
    Dilutive (4)                                     $   0.08     $   0.46      $   0.02    $  (0.18)   $  (0.52)  $    0.10
----------------------------------------------------------------------------------------------------------------------------
Assets and Capital
  Working capital (deficit)                          $ (3,767)                  $(10,777)   $ (8,062)   $ (2,722)  $ (3,098)
  Total assets                                         23,533                     22,383      21,462      22,130     26,589
  Long-term debt and capital lease obligations,
      less current maturities                           8,812                        111       1,842       4,036      3,801
  Related party debt, less current portion                  -                          -           -       2,500      2,000
Stockholders' equity                                    3,169                      3,416       2,763       6,225      7,889
----------------------------------------------------------------------------------------------------------------------------
Other Information
EBITDA (7)                                           $  2,788                   $  3,623    $  3,066    $  2,917   $  3,783
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
1) Information is presented for the Predecessor Business for the period from
   January 1, 1995 through June 1, 1995, the date of the acquisition of the
   Predecessor Business, which was accounted for as a reverse acquisition.
2) Information is presented for the Company for the period from June 2, 1995
   through December 31, 1995, subsequent to the acquisition of the Predecessor
   Business.
3) Pro Forma information for the year ended December 31, 1995 assumed the
   Company's acquisition of the Predecessor Business had been completed on
   January 1, 1995.
4) The net income per common share for the Predecessor Business are not
   presented as they are not comparable to those of the Company.
5) The Predecessor Business was taxed as an S corporation under Subchapter S of
   the Internal Revenue Code of 1986, as amended, (the "Code") so that in lieu
   of payment of income taxes at the corporate level the stockholders
   individually reported their pro rata share of the Predecessor Business' items
   of income, deduction, loss and credit. Pro forma income tax has been computed
   at an assumed rate of 34%.
6) Includes the results of operations of the Kemper acquisition from July 1,
   1999. See Note 2 of Notes to Consolidated Financial Statements.
7) EBITDA is computed as operating income plus depreciation and amortization.
   See Item 7. Management's Discussion and Analysis of Financial Condition and
   Results of Operations.


                                       12
<PAGE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

         The following discussion of the financial condition and results of
operations of the Company relates to the fiscal years ended December 31, 1997,
1998 and 1999 and should be read in conjunction with the Consolidated Financial
Statements and Notes thereto included elsewhere in this Annual Report on Form
10-K. All references to full years are to the applicable fiscal year of the
Company. The discussion of results includes discussions regarding EBITDA.

         EBITDA is used by management as a measure of performance and is defined
as operating income plus amortization and depreciation. Management believes it
is meaningful to readers as a measure of liquidity and allows investors to
evaluate the Company's liquidity using the same measure that is used by the
Company's management. The Company's calculation of EBITDA may or may not be
consistent with the calculation of EBITDA by other public companies. Management
views EBITDA as a meaningful supplemental measure to, but not a replacement of,
the primary measures of financial condition and results of operations and
accordingly, management's discussion of EBITDA should not be viewed as an
alternative to the discussions of results of operations or cash flows as
measured or presented under generally accepted accounting principles. In
addition, EBITDA does not take into effect changes in certain assets and
liabilities which can affect cash flow.

Results of Operations

         Fiscal Years Ended December 31, 1998 and 1999

         Total revenues increased by $13,113,394 from $45,000,387 for the year
ended December 31, 1998 to $58,113,781 for the year ended December 31, 1999,
representing an increase of 29.1%. The components of this increase are as
follows:

Residential Contract                                    $       6,332,507
Residential Replacement                                         5,548,246
Commercial                                                        820,476
Other                                                             412,165
                                                        -----------------
                                                        $      13,113,394
                                                        ==================

         In September and November of 1998 and in June 1999 the Company acquired
floorcovering operations in Utah, Idaho, and Washington, DC respectively, and in
January 1999, the Company opened two additional retail locations in Las Vegas.
Those operations accounted for $9,634,022 of the total increase in sales,
including residential contract sales of $3,622,326 and residential replacement
sales of $6,011,696. The remaining $3,479,372 increase is attributable
principally to higher residential contract sales and commercial sales in the Las
Vegas market. The Company's existing Las Vegas residential replacement
operations incurred small declines in sales, principally as the result of sales
diverted from those locations by the Company's new Las Vegas showrooms. Prices
for the Company's products were not significantly changed.

         Gross profit increased by $3,720,670 from $11,093,094 for the year
ended December 31, 1998 to $14,813,764 for the year ended December 31, 1999,
representing an increase of 33.5%. The Company's gross profit percentage
increased from 24.7% in 1998 to 25.5% in 1999 due principally to the Company's
debt restructuring completed in May 1998, which provided the Company with
greater liquidity and thus allowed it to take advantage of vendor offered early
payment discounts.

         Selling, general and administrative expenses increased by $2,855,518
from $8,175,710 for the year ended December 31, 1998 to $11,031,228 for the year
ended December 31, 1999. The inclusion of the Utah, Idaho and Washington, DC
operations acquired in 1998 and 1999 and the new retail locations opened in 1999
accounted for $2,363,270 of this increase. The remaining increase of $492,248 is
due to increases in general administrative expenses required to accommodate the
Company's expanded operations. This $492,248 increase was comprised primarily of
approximate increases in salaries of $141,000, supplies of $105,000, travel of
$88,000, insurance of $49,000 and bank charges of $29,000. As a percentage of
sales, selling, general and administrative expenses increased from 18.2% in 1998
to 19.0% in 1999.

         Amortization and depreciation expense increased from $1,132,331 in 1998
to $1,189,198 in 1999 primarily as a result of the Company's Kemper acquisition
in June 1999.


                                       13
<PAGE>


         As a result of the above changes operating income increased by $808,285
from $1,785,053 for the year ended December 31, 1998 to $2,593,338 for the year
ended December 31, 1999. Other income (expense) changed by $289,392 from
expenses of $284,811 for the year ended December 31, 1998 to income of $4,581
for the year ended December 31, 1999, primarily as a result of the effect of the
refinancing of the Company's debt in May 1998. Interest expense decreased from
$1,165,341 in 1998 to $1,015,447 in 1999. Interest expense was affected by (i)
higher average borrowings required to support the increases in the Company's
sales, offset by (ii) lower effective interest rates as the result of the
Company's May 1998 debt restructuring and (iii) the elimination of $1,000,000 of
related party debt, of which $500,000 was extinguished in December 1998 through
the issuance of preferred stock and $500,000 was extinguished in March 1999
through the merger with Realty.

         Income taxes increased from $120,000 in 1998 to $553,000 in 1999 due to
the increase in income before income taxes. Net income (loss) changed by
$2,823,297 from a net loss of $1,793,825 for the year ended December 31, 1998 to
net income of $1,029,472 for the year ended December 31, 1999 due to above
changes and to the classification of dividends on preferred stock of $466,000
which prior to the Company's reorganization in November 1998 were recorded as an
expense in arriving at net income. After the merger of CBH into the Company
those dividends became dividends paid by the parent company, which are charged
directly to retained earnings and are accounted for as a deduction from net
income (loss) in determining net income (loss) applicable to common
stockholders. Included in the net loss for 1998 is a one time charge of
$1,542,726 of amortization of the original discount on the preferred stock of
CBH resulting from the issuance of Nations' preferred stock for the CBH
preferred stock in the November 1998 reorganization (merger of CBH into
Nations), and the write off of unamortized debt issuance costs of $232,000
relating to the Company's debt refinance in May 1998 (approximately $1,694,000,
net of tax). Excluding these one-time charges, the net income (loss) for the
years ended December 31, 1998 and 1999 was approximately $(100,000) and
$1,030,000, respectively.

         EBITDA increased by $865,152 from $2,917,384 for the year ended
December 31, 1998 to $3,782,536 for the year ended December 31, 1999. This
increase in EBITDA was due primarily to the increases in sales and gross profit
previously discussed, offset in part by costs incurred in new locations in Las
Vegas, Utah and Myrtle Beach along with other general increases in corporate
administrative costs.

         Fiscal Years Ended December 31, 1997 and 1998

         Total revenues increased by $4,164,763 from $40,835,624 for the year
ended December 31, 1997 to $45,000,387 for the year ended December 31, 1998,
representing an increase of 10.2%. The components of this increase are as
follows:

Residential Contract                                         $        (333,654)
Residential Replacement                                              2,225,125
Commercial                                                           1,236,268
Other                                                                1,037,024
                                                             -----------------
                                                             $       4,164,763
                                                             ==================

         The increases in residential replacement, commercial and other sales
result from the Company's efforts, begun in fiscal 1997, to diversify its market
and sales. Since 1997, the growth in the Company's residential contract sales
has been adversely affected by increased competition, and an increase in
"in-house" sourcing and installation by Las Vegas area new home builders. To
reduce the Company's reliance on business generated by the residential contract
division, the Company opened new retail showrooms and opened a commercial
division. These openings contributed directly to the increased sales in these
areas. In addition, on September 18, 1998, the Company acquired Merrill's in St.
George, Utah and on November 16, 1998, the Company acquired Trinity in Boise,
Idaho. These acquisitions include residential contract, residential replacement
and commercial operations. Prices for the Company's products were not
significantly changed.

         Gross profit increased by $794,095 from $10,298,999 for the year ended
December 31, 1997 to $11,093,094 for the year ended December 31, 1998,
representing an increase of 7.7%. The gross profit percentage declined from
25.2% in 1997 to 24.7% in 1998. Liquidity constraints that existed before, and
were alleviated by the May 1998 refinancing of the Company's debt (see Note 4 of
Notes to Consolidated Financial Statements) prevented the Company from taking
advantage, during the first half of fiscal 1998, of early payment discounts
offered by vendors, and the absence of these discounts, together with certain
price concessions made to maintain or attract residential contract sales and
increases in installation costs, were the principal causes of the decline in the
gross profit percentage.


                                       14
<PAGE>


         Selling, general and administrative expenses increased by $942,713 (but
remained fairly constant as a percentage of revenues) from $7,232,997 for the
year ended December 31, 1997 to $8,175,710 for the year ended December 31, 1998.
This increase is due to the approximate increases in: (1) salaries and related
payroll taxes of $262,000, due primarily to an increase in the number of
employees and increases in pay levels during 1998, (2) rent expense of $199,000,
office and supplies expense of $166,000 and auto expense of $13,000 primarily
due to the opening of the new retail showrooms and locations in Arizona, Utah
and Idaho, (3) advertising of $199,000, (4) service fees of $84,000 relating to
the external finance programs offered to customers, (5) bad debt expense of
$25,000 and (6) security expenses of $35,000 in the Company's warehouse. These
increases were partially offset by the following approximate decreases in: (1)
workers compensation of $43,000, which resulted from the Company becoming a
member of a self insured group which is set up under the State's supervision,
(2) miscellaneous expenses of $40,000, (3) travel of $25,000 and (4)
professional expenses of $17,000.

         Amortization and depreciation expense decreased to $1,132,331 in 1998
from $1,207,883 in 1997.

         As a result of the above changes operating income decreased by $73,066
from $1,858,119 for the year ended December 31, 1997 to $1,785,053 for the year
ended December 31, 1998. Other expense decreased by $353,164 from $637,975 for
the year ended December 31, 1997 to $284,811 for the year ended December 31,
1998. The 1998 expense principally represented charges relating to the write off
of loan fees due to the May 1998 refinancing of $232,000. The 1997 charges
principally represent the write off of offering costs of $468,566,
pre-acquisition costs for uncompleted acquisitions of $83,131, lawsuit
settlement costs of $14,190 and write off of loan fees of $81,666. Interest
expense decreased to $1,165,341 in 1998 from $1,356,248 in 1997, due to
reductions in the Company's debt made in part with the proceeds of advances from
related parties, offset by the interest expense related to those advances and
interest of $224,280 relating to $534,000 of advances from unrelated lenders
outstanding from February 1997 to April 1997.

         Income tax expense (benefit) increased from $(43,000) in 1997 to
$120,000 in 1998 due to the increase in income before income taxes. Dividends to
preferred stockholders of subsidiary decreased from $559,200 in 1997 to $466,000
in 1998 due to the merger of the Company's CBH subsidiary into Nations in
November 1998. As a result of the merger the Company exchanged the preferred
stock of CBH for preferred stock of the Company; therefore, the dividends on the
preferred stock since the merger were charged directly to retained earnings. Net
loss increased by $1,141,521 from $652,304 for the year ended December 31, 1997
to $1,793,825 for the year ended December 31, 1998. Included in the net loss for
1998 is a one time charge of $1,542,726 of amortization of the original discount
on the preferred stock of CBH and the write off of unamortized debt issuance
costs of $232,000 relating to the Company's debt refinance in May 1998
(approximately $1,694,000, net of tax). Included in the net loss for 1997 are
one-time charges relating to write off of deferred offering costs,
pre-acquisition costs and loan fees, aggregating $633,363, (approximately
$418,000 net of tax). Excluding these one-time charges, the net losses for the
years ended December 31, 1997 and 1998 was approximately $234,000 and $100,000,
respectively.

         EBITDA decreased by $148,618 from $3,066,002 for the year ended
December 31, 1997 to $2,917,384 for the year ended December 31, 1998. This
decrease in EBITDA was primarily due to the costs of opening new locations in
Las Vegas and Arizona, partially offset by the increases in sales and gross
profit previously discussed.

Liquidity and Capital Resources

         Cash provided by (used in) operating activities was $2,541,577,
$(479,016) and $2,462,348 for the years ended December 31, 1997, 1998, and 1999
respectively. In each of 1997, 1998 and 1999 the cash provided by operations
differed significantly from net income, due to the inclusion of non-cash charges
in net income and certain significant changes in working capital items. The
changes in the working capital resulted in a working capital deficit of
$3,098,709 at December 31, 1999. Included in such deficit is $5,451,951, the
current portion of the amount due to Fleet Capital Corporation ("Fleet") under
the credit agreement (the "Credit Agreement") discussed below. The Company's
growth and acquisition strategy will require significant additional cash.

         For fiscal 1999, net income included significant non-cash charges of
amortization of $892,289 and depreciation of $296,909. Additionally, cash was
provided by increases in accounts payable of $613,348, accrued expenses of
$611,842, income taxes payable of $391,378 and customer deposits of $176,441.
These sources of cash from operations were partially offset by the increase in
accounts receivable and inventory. The increases in accounts payable, accrued
expenses, accounts receivable and inventory generally are the result of the
expansion of the Company's sales and operations.

                                       15
<PAGE>

         For fiscal 1998, net income included significant non-cash charges of
$1,542,726 for the amortization of the discount relating to CBH's preferred
stock, amortization of $909,600, depreciation of $222,731 and the write off of
loan fees and other of $291,361. Additionally, cash was provided by increases in
accrued expenses of $236,050 and customer deposits of $258,277. These sources of
cash from operations were partially offset by the use of cash to decrease
accounts payable as the result of and using the liquidity added by the May 1998
refinancing, and the increase in accounts receivable and inventory reflect
increased sales in the fourth quarter of 1998.

         For 1997, the cash provided by operations of $2,541,577 reflects the
inclusion in the net loss of significant non-cash charges of $1,000,063 for
amortization, $207,820 for depreciation and $468,566 for written-off offering
costs and cash inflows provided by increased in accounts payable and advances
from principal stockholder of $684,531 and $901,247, respectively.

         During the years ended December 31, 1997, 1998 and 1999, cash used in
investing activities was $319,885, $528,734 and $1,886,574, respectively, used
primarily to acquire the net assets of Kemper in 1999, to acquire the net assets
of the Company's Utah facility in 1998 and to purchase equipment and leasehold
improvements in all three years. Cash provided by (used in) financing activities
during such periods was $(2,326,599), $989,710 and $(459,795), respectively. The
1997 financing cash outflows reflected the use of cash to make payments on the
Company's credit facilities, partially funded (offset) by advances from both
stockholders and unrelated parties. The net financing cash inflows in 1998 were
principally the result of additional advances from stockholders or related
parties, as the payments required under the Company's credit facility were
effectively funded through the Company's May 1998 refinancing. The 1999 net
financing cash outflows reflect the funds used to pay the dividends on the
Company's preferred stock, partially offset by a net increase in credit facility
borrowings.

         As of the close of business on June 30, 1999, Carpet Barn, Inc. a
Delaware corporation ("CBI"), a wholly owned subsidiary of Nations Flooring,
Inc. ("Nations"), entered into an Asset Purchase Agreement (the "Kemper
Agreement") with DuPont Flooring Systems, Inc. (DuPont) (a wholly owned
subsidiary of E.I. DuPont De Nemours and Company) pursuant to which CBI acquired
certain assets of DuPont (the "Assets") for an aggregate purchase price of
$1,800,000 plus the assumption of certain liabilities. The source of such funds
was the working capital of CBI, including primarily funds borrowed pursuant to
Credit Facility with Fleet Capital Corporation.

         The Assets purchased by CBI under the Kemper Agreement consist of all
of the properties and assets previously used by DuPont in the business of
retailing, distributing and installation of residential floor covering products
and flooring systems under the "Kemper" name in the greater Washington D.C.
area.

         The operations of Kemper came under the control of Nations effective as
of July 1, 1999, and the acquisition was accounted for as a purchase.
Accordingly, Nations recorded the assets acquired and liabilities assumed, at
their fair values, and the results of Kemper's operations have been included in
Nations' results of operations commencing July 1, 1999. See Note 2 of Notes to
Consolidated Financial Statements.

         Under the terms of an Agreement and Plan of Merger (the Agreement)
filed with the State of Delaware on March 29, 1999, C.B. Realty of Delaware,
Inc. ("Realty") merged with and into Nations. In accordance with the Agreement,
each shareholder of Realty was issued 597.25 shares of Nations' common stock for
each share of Realty's common stock. A total of 59,725 shares of Nations' common
stock were issued.

         The Realty acquisition was accounted for as a purchase for financial
reporting purposes. Under generally accepted accounting principles, a purchase
business combination is recorded on the basis of the fair value of the
consideration paid (common stock issued) or the fair value of the net assets
acquired, whichever is more readily determinable. The common stock of Nations
has not been actively traded, and, in determining the number of shares of
Nations stock to be offered in the acquisition of Realty, the Board of Directors
of Nations, due to the related party ownership of Realty, determined to offer a
smaller number of shares than the number of shares that would have been implied
by the fair value of the assets acquired, resulting in an effective per share
value above the current fair value of Nations common stock, which would also be
antidilutive in nature and would therefore be beneficial to Nations.
Accordingly, the combination was recorded on the basis of the fair value of
Realty's net assets, which reflected recent appraisals of Realty's land and
building. For income tax purposes the combination was a tax free exchange, as a
result of which the assets of Realty were transferred to Nations at Realty's tax
basis. A deferred tax liability, for the future tax effects of the difference
between the fair value recorded for financial reporting purposes and such tax
basis, was recorded and included in the purchase price. See Note 2 of Notes to
Consolidated Financial Statements.


                                       16
<PAGE>


         Prior to the combination, Nations leased its principal Las Vegas
facility from Realty under an operating lease expiring in April 2004. The
results of operations for the years ended December 31, 1997, 1998 and 1999
include rent expense paid under such lease of $100,284, $115,071 and $30,000,
respectively. Additionally, at the time of the combination, Nations was indebted
to Realty under a 12% unsecured demand note in the amount of $500,000, and
Realty was indebted to Nations under a 10% installment note having a remaining
balance of $80,779. Both balances were eliminated in recording Nation's
acquisition of Realty.

         During May 1997, the Company received an unsecured advance from a
shareholder and director of the Company in the amount of $500,000. This advance
was repaid through the issuance of 500 shares of the Company's preferred stock
in December 1998. This advance bore interest at 12% per annum, payable monthly.
Total interest expense of $55,000 and $40,000 relating to this advance has been
reflected in the accompanying consolidated financial statements for the years
ended December 31, 1998 and 1997, respectively.

         In both August and November of 1997, and in February of 1998, the
Company received unsecured advances of $500,000 (an aggregate total of
$1,500,000) from Branin Investments, Inc. (Branin), which is 100% owned by the
Chairman of the Board and President of Nations. The 1998 advance bears interest
at 15% per annum, payable monthly, while the 1997 advances bear interest at 12%
per annum, payable monthly; all advances are due on demand. Branin agreed to
subordinate its rights to receive principal and interest payments to the
obligation owed pursuant to the Credit Facility with Fleet as described in Note
4 of Notes to Consolidated Financial Statements. Pursuant to such Credit
Facility, Branin can only receive payments out of excess cash flow, subject to
the terms and conditions contained within the Credit Facility. During 1998 and
1999, Branin received approximately $310,000 and $241,000 out of excess cash
flows, respectively. Due to these restrictions the aggregate advances of
$1,500,000 has been classified as long term at December 31, 1999. Total interest
expense of $25,000, $182,500 and $195,000 relating to these advances has been
reflected in the accompanying consolidated statement of operations for the years
ended December 31, 1997, 1998 and 1999 respectively.

         During 1997 and 1998, Branin made payments of the Company's preferred
dividends and made other non-interest bearing advances on behalf of the Company.
As of December 31, 1999 the Company was indebted to Branin in the amount of
$2,574,934 (including the foregoing $1,500,000) (see Notes 3(a) and 3(b) of
Notes to Consolidated Financial Statements). As of February 29, 2000, the
Company was indebted to Branin for $2,529,984. Because the Company and Branin
anticipate repayment of the non-interest bearing advances in the near term, no
stated interest rate exists on these advances and no interest has been imputed.

         On May 19, 1998, the Company, through its subsidiary CBI, entered into
a credit agreement (the "Credit Facility") with Fleet Capital Corporation
("Fleet"), pursuant to which Fleet advanced to CBI $5,000,000 under a term loan
and approximately $2,300,000 under a $5,000,000 revolving line of credit. The
term loan requires quarterly payments of $175,000. CBI pledged substantially all
of its assets to secure the Credit Facility and Nations has pledged all of the
common stock of CBI, to secure its guarantee of the Credit Facility. Fees
payable to Fleet totaled $125,000. In addition, a finder's fee of $100,000 was
paid to a person associated with Branin. The term and revolving portions of the
Credit Facility are due on May 18, 2003. All borrowings under the Credit
Facility bear interest payable monthly at the base rate per annum announced from
time to time by Fleet (5.94% at March 15, 2000) plus 2.75% and 3.25% per annum,
in connection with advances under the revolving line and the term loan,
respectively. The Credit Facility also contains provisions that excess cash flow
over certain defined levels will be used to repay principal under the term loan.
The Credit Facility contains covenants requiring CBI to maintain minimum levels
of tangible net worth and debt coverage. In connection with this Credit
Facility, Branin agreed that the notes payable to and advances from it (see
Notes 3(a) and (b) of Notes to the Consolidated Financial Statements) are
subject to certain subordination and payment limitation requirements.

         As a condition of consummating the debt refinancing, the Company
received an advance of $500,000 from Realty. See Item 13-Certain Relationships
and Related Transactions.

Amounts outstanding under the Credit Facility at December 31 are as follows:

                                             1998                  1999
                                       ------------------    ------------------

Revolving line of credit               $       3,812,213     $       4,751,951
Term loan                                      4,650,000             3,950,000



                                       17
<PAGE>


         The Company's business plan contemplates growth through acquisitions.
To accomplish this goal, the Company obtained from Barbican Capital Partners,
LLC ("Barbican") a commitment, subject to the completion of the lender's due
diligence and the preparation of a definitive agreement, to include still to be
agreed to financial covenants, for a $32,000,000 credit facility that includes a
$12,000,000 senior loan and a $20,000,000 mezzanine loan. The senior loan
includes a term loan not to exceed $4,000,000, with the balance of the
$12,000,000 to be structured as a revolving line of credit. The senior loan will
bear interest at LIBOR plus 4.5%. The agreement would require monthly principal
payments of approximately $65,000 on the term note. The mezzanine loan is
intended to be available to the Company to acquire target companies over the 18
month period commencing with the first closing under the facility. The mezzanine
loan will have an effective interest rate of 25% per annum, inclusive of fees
paid and require annual mandatory interest payments equal to the greater of 12%
per annum or the base rate plus 2%. In addition, the Company would grant to the
lender options to acquire up to 15% of the outstanding shares of the Company's
common stock at 110% of the fair market value of the common stock on the date
the options are granted. The Company will have an option to repurchase those
options. If the options are repurchased, the Company would then be required to
pay additional interest beginning at the date of the option repurchase, equal to
10% per annum on the outstanding amount of the mezzanine loan. The credit
facility would be for a five-year term, with options to extend the term for 2
additional one-year terms. The credit facility would be secured by substantially
all of the Company's assets. The credit facility would contain customary
representations, warranties, and events of default and remedies. The credit
facility also would contain provisions that excess cash flow over certain
defined levels will be used to accelerate payments of principal under the credit
facility. The commitment expires on May 31, 2000 and the arrangement is expected
to close on or before such date.

         The Company would use the borrowings available under the proposed
credit facility with Barbican to repay the indebtedness under the Fleet Credit
Facility and to continue to pursue its acquisition strategy, including the
financing of the proposed acquisitions described below. If the Company were to
so use the borrowings from Barbican, or were to obtain and so use other
alternative financing, certain unamortized debt acquisition costs classified as
intangible assets would be charged to expense. Such unamortized debt acquisition
costs totaled $176,835 at December 31, 1999.

         The Company opened several new locations in Las Vegas during 1999. A
portion of the initial capital costs for these locations was provided by the
Company's suppliers in exchange for agreements by the Company to feature the
suppliers' products at these facilities. The Company anticipates that a portion
of the capital requirements for any new locations will be funded by its
suppliers, although there can be no assurance that the Company will be able to
effect such an arrangement. Any new facilities will require additional resources
until they become profitable, and there can be no assurance as to the amount of
time required before they can become profitable, if ever.

         Currently, the Company has letters of intent to purchase the operations
of companies located in Charleston and Hilton Head, South Carolina. Each company
has approximately $8 million in sales from its residential contract, residential
replacement and commercial markets. The purchase price for the Charleston and
Hilton Head operations are estimated to be $5.0 million and $4.4 million,
respectively. Both the Charleston and the Hilton Head operations are located in
high growth areas and are the dominant floorcovering provider in their
respective markets. The Company anticipates financing these acquisitions with a
portion of the proceeds of the proposed new financing arrangement with Barbican
and anticipates completing these acquisitions during the second quarter of 2000.

         The Company believes that its cash flow from operations and funds
available from the Fleet Credit Facility or its replacement will be adequate to
fund existing operations for 2000. Although planned 2000 operations are not
projected to eliminate or reduce the Company's working capital deficit which
existed at December 31, 1999, the Company believes that the Fleet Credit
Facility or its replacement will allow it to operate with a working capital
deficit until such time as operations will eliminate it. However, the Company
believes that the Fleet Credit Facility will not be sufficient to allow the
Company to pursue its strategy of expansion and acquisitions. Additional capital
is needed for such expansion and acquisitions. As a result, the Company has been
pursuing the credit facility from Barbican described above, as well as other
sources of debt and equity capital. However, there can be no assurance that any
of these efforts will be successful. The failure to obtain these or alternative
capital resources would adversely affect the Company's pursuit of its growth
strategies.



                                       18
<PAGE>


Year 2000 Matters

The "Year 2000" problem refers to the potential for computational errors or
system malfunctions by computer hardware or software that fail to properly
recognize dates beginning with January 1, 2000, or which fail to recognize the
year 2000 as a leap year. In anticipation of this problem, the Company
instituted and followed a Year 2000 readiness program intended to identify,
evaluate and address our Year 2000 exposure.

At the time that this report was prepared, the Company had not experienced any
material Year 2000 problems with its products or internal systems, and was not
aware of any such problems experienced by its customers, vendors and other
service providers. As a result, no material adverse impact of the Year 2000
problem on the Company's business and operations was expected at the time of
this report, based upon the information then available. However, this
forward-looking statement may be impacted by the extent to which latent year
2000 problems remained undiscovered, or, in the case of Year 2000 problems with
business partners, undisclosed as of such date. Although the Company believes
that it is unlikely at the time of this report, there can be no assurance that
any such issued will not result in material cost to the Company or have a
material, adverse impact on its business, financial condition or results of
operations.

Other

         The Company believes that its revenues are not materially affected by
inflation and that any increased expenses due to inflationary pressures will be
offset, over time, by corresponding increases in prices it charges to its
customers.

         Effective January 1, 2000, the Company adopted a self-insurance program
for its employee health insurance. The plan has a stop loss reinsurance limit of
$20,000 per individual per year. Management does not believe that the costs of
the self-insurance program will be materially different than the prior program.

Item 7a Quantitative and Qualitative Disclosures about Market Risk

         Like virtually all commercial enterprises, the Company is exposed to
the risk ("market risk") that the cash flows to be received or paid relating to
certain financial instruments could change as a result of changes in interest
rate, exchange rates, commodity prices, equity prices and other market changes.
Market risk is attributed to all market risk sensitive financial instruments,
including long term debt.

         The Company does not engage in trading activities and does not utilize
interest rate swaps or other derivative financial instruments or buy or sell
foreign currency, commodity or stock indexed futures or options. Additionally,
with the exception of the Fleet credit facility, the interest on all of the
Company's debt is payable at fixed interest rates. Accordingly, the Company's
exposure to market risk is limited to the potential affect of changes in
interest rates on the cash flows (payments) relating to its variable rate debt
with is its debt with Fleet. Based upon the balance of the Fleet debt at
December 31, 1999, a hypothetical immediate and sustained increase of 1% in
Fleet's announced rate (which generally varies with the interest rates
established by the Federal Reserve Bank) would have the affect of increasing the
Company's interest expense by approximately $85,000 per year.


Item 8. Financial Statements and Supplementary Data

  CONSOLIDATED FINANCIAL STATEMENTS

    Consolidated balance sheets                                              F-3

    Consolidated statements of operations                                    F-4

    Consolidated statements of stockholders' equity                          F-5

    Consolidated statements of cash flows                              F-6 - F-7

    Notes to consolidated financial statements                        F-8 - F-18

Item 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

         None


                                       19
<PAGE>


                                 Part III.

Item 10. Directors and Executive Officers of the Registrant

         The following table sets forth certain information with respect to the
directors and executive officers of the Company.

Name                                Age   Position
----                                ---   --------

Philip A. Herman                     54   Chairman of the Board and President
Facundo Bacardi                      54   Director
John Katz                            61   Director
Paul Kramer                          67   Director
Andrew Levinson                      51   Director
William V. Poccia                    54   Secretary and Chief Financial Officer
Steven M. Chesin                     38   Chief Operating Officer
Jeffrey E. Wiens                     38   Corporate Controller


         The number of directors on the Board is presently fixed at five, whose
terms are perpetual.

         Philip A. Herman has been Chairman of the Board and President of the
Company since June 2, 1995. He also has served as a principal of Branin since
1994. Since 1999, Mr. Herman has been the Chief Executive Officer of CTA
Industries, Inc. (a thermal and acoustic insulation manufacturer).

         Facundo Bacardi has been a director of the Company since June 2, 1995
and is a member of the Stock Option Plan Committee. He also serves as a director
of Suramericana de Inversiones, S.A., an investment company located in Panama,
and has served in that capacity since 1990. Mr. Bacardi is also an heir to the
controllers of the Bacardi rum company, a worldwide manufacturer and one of the
largest family-owned companies in the world. He is currently an advisor to the
Board of Directors for Bacardi International, the holding company for all of the
Bacardi companies worldwide. From 1979 to 1991, Mr. Bacardi was in charge of the
manufacturing and distribution division for Central America.

         John Katz has been a director since March 1998. Mr. Katz also serves as
director of the Legends Fund, a series of mutual funds, which serve as
investment vehicles for variable annuities. Since 1991, Mr. Katz has been an
investment banker and business consultant. From 1975 to 1991, Mr. Katz held
various positions with Equitable Life Assurance Society and its subsidiaries,
including acting as Senior Vice President and the Executive Vice President of
Equitable Investment Corporation between 1986 and 1991.

         Paul Kramer has been a director since March 1998. Mr. Kramer also
serves as a director of SFX Entertainment, Inc. Since August 1994, Mr. Kramer
has been a principal of Kramer & Love, a consulting firm providing advisory
services in the areas of acquisitions and restructuring. Prior thereto, from
October 1992, Mr. Kramer also provided financial advisory services. From 1954 to
1968, Mr. Kramer was employed by, and from 1968 to 1992, was a partner in Ernst
& Young, the accounting firm.

         Andrew Levinson has been a director since January 2000. Mr. Levinson
has been a partner with Herzfeld & Rubin, PC, a law firm, since August 1996.
From January 1987 to August 1996, Mr. Levinson was a partner with Shereff,
Friedman, Hoffman and Goodman, LLP, a law firm. During 1999 and currently,
Herzfeld & Rubin, PC has rendered legal services to the Company.

         William Poccia has been Chief Financial Officer of the Company since
August 6, 1996. From October 1995 to August 1996, Mr. Poccia served as a
financial consultant to the Company in the employ of Branin. Prior to that time,
Mr. Poccia served as Director of Audit for Participants Trust Company, a
securities depository for mortgage-backed securities.

         Steven Chesin has been Senior Vice President and Chief Operating
Officer of Carpet Barn, Inc. since July 28, 1995. Prior to joining the Company,
Mr. Chesin served, as President of Steve's Floorcovering, Inc., a floorcovering
installation specialist and senior certified carpet inspector, from its founding
in 1977 to the Company's acquisition of Steve's in July 1995.


                                       20
<PAGE>


         Pursuant to an employment agreement dated as of July 1, 1998 between
Mr. Chesin and the Company, Mr. Chesin is serving as Senior Vice President and
Chief Operating Officer of Carpet Barn, Inc. for a three-year period, with
successive one-year automatic extensions to his employment unless either party
gives the other at least 90 days' notice of termination prior to the end of any
term. Pursuant to the agreement, Mr. Chesin's annual salary is $150,000 per year
and may be increased at the Company's discretion. Mr. Chesin is also eligible to
receive a bonus equal to two percent of the increase in EBITDA over the prior
fiscal year. Mr. Chesin will receive two months' severance pay, plus an
additional month's severance pay for each full year of employment that has
elapsed, if the agreement terminates due to Mr. Chesin's total disability.

         Jeffrey Wiens has been Corporate Controller of the Company since July
1995. From 1988 to July 1995, Mr. Wiens served in various capacities,
principally in the Minneapolis, Minnesota office of McGladrey & Pullen, LLP, the
Company's independent auditors, including serving as a member of the audit staff
from 1988 to July 1994 and as Manager from August 1994 to July 1995.

         Pursuant to an employment agreement amended as of June 15, 1998, the
Company has employed Mr. Wiens as its Corporate Controller for a three-year
period, with successive one-year automatic extensions of his employment unless
either party gives the other at least 90 days' notice of termination prior to
the end of any term. Pursuant to the agreement, Mr. Wiens' annual salary is
$100,000 per year and may be increased at the Company's discretion.


Item 11. Executive Compensation

Summary Compensation Table

         The following table sets forth for the fiscal years ended December 31,
1997, 1998 and 1999 the compensation for services in all capacities to the
Company of the persons who were at December 31, 1999 the Executive officers of
the Company who received salary and bonus in excess of $100,000.

<TABLE>
<CAPTION>
                                                   Annual Compensation   Other Annual        Long Term
                                                Salary $       Bonus $  Compensation $   Compensation (2)
                                                --------       -------  --------------   ----------------
<S>                                              <C>            <C>      <C>                   <C>
Philip A. Herman  (1)
  Chairman of the Board and President
    Year ended December 31, 1997                  13,269             0              0                 0
    Year Ended December 31, 1998                 108,493             0              0           300,000
    Year Ended December 31, 1999                 182,692        17,500              0           175,000

William V. Poccia
  Secretary and Chief Financial Officer
    Year ended December 31, 1997                 101,923             0              0                 0
    Year Ended December 31, 1998                 116,378             0              0           125,000
    Year Ended December 31, 1999                 138,654        12,500              0            75,000

Steven M. Chesin
  Chief Operating Officer
    Year ended December 31, 1997                 125,000        91,636              0                 0
    Year Ended December 31, 1998                 125,000        10,768              0            75,000
    Year Ended December 31, 1999                 138,654        12,500              0            75,000
</TABLE>

(1) Certain entities controlled by Mr. Herman received fees from the Company for
the years ended December 31, 1997, 1998 and 1999. See "Certain Transactions" and
in "Management's Discussion and Analysis of Financial Condition and Results of
Operations."

(2) Represents the number of common shares underlying stock options granted
during the year.

Director Compensation

         Compensation. Beginning with the fourth quarter of 1999, directors
receive quarterly fees of $3,000 each. Directors are eligible to participate in
the Company's 1997 Stock Option Plan.


                                       21
<PAGE>


1997 Stock Option Plan

         The Company adopted the 1997 Stock Option Plan (the "Option Plan") on
February 26, 1997, in order to provide an incentive to non-employee directors
and to officers and certain other key employees of and consultants to the
Company by making available to them an opportunity to acquire a proprietary
interest or to increase their proprietary interest in the Company. Shareholders
approved the adoption of the Option Plan on March 19, 1997. The Option Plan
provides for the award of options (each an "Award") representing or
corresponding to up to 1,250,000 shares of common stock of the Company. Any
Award issued under the Option Plan, which is forfeited, expires or terminates
prior to vesting or exercise will again be available for Award under the Option
Plan.

         The Option Plan is administered by the Committee, as defined in the
Option Plan. The Committee consists of Facundo Bacardi. The Committee has the
full power and authority, subject to the provisions of the Option Plan, to
designate participants, grant Awards and determine the terms of all Awards. The
Committee has the right to make adjustments with respect to Awards granted under
the Option Plan in order to prevent dilution of the rights of any holder.
Non-employee directors, including members of the Committee are not eligible to
receive discretionary Awards under the Option Plan but automatically receive
upon becoming such a director and each year thereafter non-qualified stock
options ("NQSO's") to purchase 10,000 shares of common stock of the Company at
an exercise price equal to the fair market value on the date of grant. Members
of the Committee are disinterested within the meaning of Section 16 of the
Securities Exchange Act of 1934, as amended, and outside directors within the
meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code").

         Options Issued Under the Option Plan. The terms of specific options are
determined by the Committee. Options granted may be NQSO's or incentive stock
options within the meaning of Code Section 422 ("ISO's"). The exercise price per
share for a non-qualified option is subject to the determination of the
Committee. Incentive stock options may not be granted at less than 100% of the
fair market value at the date of grant. Each option will be exercisable for the
period or periods specified in the option agreement, which will not exceed 10
years from the date of grant.

         Upon the exercise of an option, the option holder pays to the Company
the exercise price plus the amount of the required Federal and state withholding
taxes, if any. Options may be exercised and the withholding obligation may be
paid for with cash and, with the consent of the Committee, shares of common
stock of Nations Flooring, Inc., other securities (including options) or other
property. The period after termination of employment during which an option may
be exercised is as determined by the Committee. In the absence of any specific
determination by the Committee, the following rules will apply. The unexercised
portion of any option granted under the Option Plan will generally be terminated
(a) 30 days after the date on which the optionee's employment is terminated for
any reason other than (i) cause, (ii) retirement or mental or physical
disability or (iii) death; (b) immediately upon the termination of the
optionee's employment for cause; (c) three months after the date on which the
optionee's employment is terminated by reason of retirement or mental or
physical disability; or (d)(i) 12 months after the date on which the optionee's
employment is terminated by reason of the death of the employee, or (ii) three
months after the date on which the optionee shall die if such death shall occur
during the three-month period following the termination of the optionee's
employment by reason of retirement or mental or physical disability.


                                       22
<PAGE>

         During 1997, 1998 and 1999, options to purchase 1,040,000 shares of the
Company's common stock were granted to the directors, officers and employees of
the Company, of which 40,000 terminated and 1,000,000 are outstanding as of
December 31, 1999. No options have been exercised.

<TABLE>
<CAPTION>
                                    Options Granted in Last Fiscal Year
-------------------------------------------------------------------------------------------------------------
                                                                                     Potential realizable
                                                                                       value at assumed
                                                                                     annual rates of stock
                                                                                    price appreciation for
                              Individual grants                                           option term
-------------------------------------------------------------------------------    --------------------------

                      Number of    Percent of total
                      securities       options        Exercise
                      underlying      granted to       or base
                       options       employees in       price      Expiration
Name                 granted (#)     fiscal year       ($/Sh)         date            5% ($)      10% ($)
-------------------------------------------------------------------------------    --------------------------

<S>                        <C>                <C>            <C>       <C>              <C>          <C>
Phillip Herman             175,000            46.7%          3.15      7/01/09          375,184      923,941
William Poccia              75,000            20.0%          3.15      7/01/09          160,793      395,975
Steven Chesin               75,000            20.0%          3.15      7/01/09          160,793      395,975
</TABLE>


<TABLE>
<CAPTION>
                  Aggregated Option Exercises in Last Fiscal Year and FY-End Option Values
-------------------------------------------------------------------------------------------------------------

                                                   Number of securities            Value of unexercised
                                                 underlying unexercised           in-the-money options
                     Shares                      options at FY-End (#)              At FY-End ($)
                  acquired on      Value      ---------------------------------------------------------------
Name                exercise    realized ($)   Exercisable    Unexercisable    Exercisable   Unexercisable
-------------------------------------------------------------------------------------------------------------

<S>               <C>           <C>            <C>              <C>           <C>              <C>
Phillip Herman     0             0             100,000          375,000       125,000          267,500
William Poccia     0             0              41,667          158,333        52,083          111,667
Steven Chesin      0             0              25,000          125,000        31,250           70,000
</TABLE>


                                       23
<PAGE>



Item 12. Security Ownership of Certain Beneficial Owners and Management.

         The following table sets forth certain information as of March 1, 2000,
regarding (i) each person known by the Company to be the beneficial owner of
more than 5% of the outstanding shares of common stock, (ii) each director,
nominee and Named Executive Officer of The Company and (iii) all officers and
directors as a group. Unless otherwise indicated the address is deemed to be
that of the Company.

<TABLE>
<CAPTION>
Name and Address                                    Shares         Shares Under        Percentage
-----------------                                Beneficially       Exercisable        Ownership
                                                     Owned          Options (3)
                                               -----------------------------------------------------------
<S>                                                <C>                 <C>               <C>
Philip A. Herman (1)                                 397,388           100,000           12.4%
c/o Branin Investments, Inc.
100 Maiden Lane
New York, NY 10038

Facundo Bacardi (2)                                1,440,298            40,000           36.9%
c/o Branin Investments, Inc.
100 Maiden Lane
New York, NY 10038

William Poccia                                           675            41,667            1.1%
John Katz                                                  0            30,000               *
Paul Kramer                                                0            30,000               *
Andrew Levinson                                            0            10,000               *
Steven M. Chesin                                           0            25,000               *
Jeffrey E. Wiens                                           0             8,333               *

All Directors and Executive                        1,838,361           275,000           52.9%
Officers as group (7 persons)
</TABLE>

*    Less than 1%.

1)   Includes 340,139 shares held by Branin Investments, Inc. Excludes 43,943
     shares held by family members of Mr. Herman. Mr. Herman disclaims
     beneficial ownership of the shares held by such family members.

2)   Includes an aggregate of 1,440,798 shares held by various affiliates of Mr.
     Bacardi (including 941,900 shares held by Icarus Investments Ltd., 1,816
     shares held by Delphic Investments Ltd., 246,280 shares held by Global
     Recovery Assets, Int'l., 186,755 shares held by Designed Investments Ltd.
     and 63,547 shares held by Marvest, Inc.). Excludes 500 shares held by
     family members of Mr. Bacardi. Mr. Bacardi disclaims beneficial ownership
     of the shares held by such family members.

3)   Includes shares under options exercisable on December 31, 1999 and options
     which become exercisable within 60 days thereafter.


                                       24
<PAGE>


Item 13. Certain Relationships and Related Transactions.

         Branin, a principal stockholder of the Company, acted as advisor in
connection with the 1995 acquisition, and in that role became entitled to
receive a fee of approximately $650,000 upon the consummation of an underwritten
public offering.

         In June 1995, CBI agreed to pay for consulting services a) $35,000 per
month (reduced to $10,000 per month as of September 1996 and increased to
$20,000 per month beginning June 1998) to Branin and b) $5,000 per month through
August 1996, and at the rate of $12,500 per month beginning May 1997 through May
1998 to PAH. These agreements were entered into for the purpose of receiving
management advisory services regarding operations management, financing and
acquisitions. See Item 7-Management's Discussion and Analysis of Financial
Condition and Results of Operations-Liquidity and Capital Resources with respect
to these and other advances made by Branin on behalf of the Company and see Item
11-Executive Compensation.

         Under the terms of an Agreement and Plan of Merger (the Agreement)
filed with the State of Delaware on March 29, 1999, C.B. Realty of Delaware,
Inc. ("Realty") merged with and into Nations. In accordance with the Agreement,
each shareholder of Realty was issued 597.25 shares of Nations' common stock for
each share of Realty's common stock. A total of 59,725 shares of Nations' common
stock were issued.

         The acquisition was accounted for as a purchase for financial reporting
purposes. Under generally accepted accounting principles, a purchase business
combination is recorded on the basis of the fair value of the consideration paid
(common stock issued) or the fair value of the net assets acquired, whichever is
more readily determinable. The common stock of Nations has not been actively
traded, and, in determining the number of shares of Nations stock to be offered
in the acquisition of Realty, the Board of Directors of Nations, due to the
related party ownership of Realty, determined to offer a smaller number of
shares than the number of shares that would have been implied by the fair value
of the assets acquired, resulting in an effective per share value above the
current fair value of Nations common stock, which would also be antidilutive in
nature and would therefore be beneficial to Nations. Accordingly, the
combination was recorded on the basis of the fair value of Realty's net assets,
which reflected recent appraisals of Realty's land and building. For income tax
purposes the combination was a tax free exchange, as a result of which the
assets of Realty were transferred to Nations at Realty's tax basis. A deferred
tax liability, for the future tax effects of the difference between the fair
value recorded for financial reporting purposes and such tax basis, was recorded
and included in the purchase price. See Note 2 of Notes to Consolidated
Financial Statements.

         Prior to the combination, Nations leased its principal Las Vegas
facility from Realty under an operating lease expiring in April 2004. The
results of operations for the years ended December 31, 1997, 1998 and 1999
include rent expense paid under such lease of $100,284, $115,071 and $30,000,
respectively. Additionally, at the time of the combination, Nations was indebted
to Realty under a 12% unsecured demand note in the amount of $500,000, and
Realty was indebted to Nations under a 10% installment note having a remaining
balance of $80,779. Both balances have been eliminated in recording Nation's
acquisition of Realty.

         Realty was owned by four stockholders of the Company (including a
director and a relative of an officer), acquired the land and building
concurrently with the Company's 1995 acquisition.

         Payments of the CBH and Nations' preferred stock dividends had been
made by Branin on behalf of CBH and the Company in the amount of $564,200 during
1998. As a result of these payments, and management fees and other amounts
(including the foregoing $1,500,000) advanced from or due to Branin, the Company
was indebted to Branin for $2,574,934 at December 31, 1999 (see Notes 3(a) and
3(b) of Notes to Consolidated Financial Statements). As of February 29, 2000,
the Company was indebted to Branin for $2,529,984. Because the Company and
Branin anticipate repayment of the non-interest bearing advances in the near
term, no stated interest rate exists on these advances and no interest has been
imputed.

         During May 1997, the Company received an unsecured advance from a
shareholder and director of the Company in the amount of $500,000. This advance
was repaid through the issuance of 500 shares of the Company's preferred stock
in December 1998. This advance bore interest at 12% per annum, payable monthly.
Total interest expense of $40,000 and $55,000 relating to this advance has been
reflected in the accompanying consolidated financial statements for the years
ended December 31, 1997 and 1998, respectively.

         The Company's principal executive offices are located at 100 Maiden
Lane, New York, New York. Branin also occupies these offices.


                                       25
<PAGE>


Item 14. Exhibits and Reports on Form 8-K


         (a) Consolidated Financial Statements

               Consolidated balance sheets                                  F-3

               Consolidated statements of operations                        F-4

               Consolidated statements of stockholders' equity              F-5

               Consolidated statements of cash flows                  F-6 - F-7

               Notes to consolidated financial statements            F-8 - F-18


         (b) Reports on Form 8-K

                  None

         (c) Exhibits


             2.1    Agreement and Plan of Exchange, dated as of June 1, 1995,
                    among the Company, Carpet Barn Holdings, Inc. ("CBH") and
                    the holders of common Stock of CBH (incorporated by
                    reference from Exhibit 1 of the Company's Report on Form 8-K
                    (June 2, 1995) (the "June Form 8-K").

             2.2    Asset Purchase Agreement, dated as of June 1, 1995, between
                    Carpet Barn Acquisition Corp. ("CBAC") and Carpet Barn, Inc.
                    ("Carpet Barn") (Incorporated by reference from Exhibit 3 of
                    the June Form 8-K).

             2.3    Amendment, dated June 1, 1995, to Asset Purchase Agreement
                    (Incorporated by reference from Exhibit 4 of the June Form
                    8-K).

             3.1    Certificate of Incorporation, dated July 19, 1988, of the
                    Company (Incorporated by reference from Exhibit 3(a) of the
                    Company's Registration Statement on Form S-18 (33-29942-NY)
                    filed October 20, 1989 (the "1989 Registration Statement").

             3.2    By-laws of the Company (incorporated by reference from
                    Exhibit 3(b) of the 1989 Registration Statement).

             3.3    Amended and Restated Certificate of Incorporation of CBH
                    (incorporated by reference from Exhibit 3.3 of the Company's
                    Annual Report on Form 10-K for the period ended December 31,
                    1995 (the "Form 10-K")).

             3.4    Certificate of Amendment to Amended and Restated Certificate
                    of Incorporation of CBH (incorporated by reference from
                    Exhibit 3.4 of the Form 10-K).

             3.6    Certificate of Incorporation of Nations Flooring, Inc.
                    (incorporated by reference from Exhibit 3.6 of the Company's
                    Registration Statement on Form S-1 (333-19871) filed January
                    16, 1997 ("1997 Registration Statement").

             3.7    By-laws of Nations Flooring, Inc. (incorporated by reference
                    from Exhibit 3.7 of the 1997 Registration Statement).

             9.1    Voting Trust Agreement, dated May 30, 1995, between Philip
                    A. Herman and certain shareholders of the Company
                    (incorporated by reference from Exhibit 2 of the June Form
                    8-K).


                                       26
<PAGE>


             10.7   Terms of preferred stock, par value $.01 per share, stated
                    value $1,000 per share, of CBH (incorporated by reference
                    from Exhibit 12 of the June Form 8-K).

             10.8   Employment Agreement, dated as of July 28, 1995, between CBI
                    and Steven Chesin (incorporated by reference from Exhibit 1
                    of the Company's Report on Form 10-Q for the quarterly
                    period ended June 30, 1995 (the "June 1995 Form 10-Q).

             10.9   Form of Promissory Note issued in the offering of short-term
                    notes of CBH (incorporated by reference from Exhibit 11 of
                    the June Form 8-K).

             10.10  Lease, dated June 1, 1995, between CB Realty of Delaware,
                    Inc. ("CB Realty") and CBAC (incorporated by reference from
                    Exhibit 10.13 of the Form 10-K).

             10.11  First Amendment to Lease Agreement, dated August 1, 1995,
                    between CB Realty and CBAC (incorporated by reference from
                    Exhibit 10.14 of the Form 10-K).

             10.12  Promissory Note, dated June 1, 1995 from CB Realty in favor
                    of CBAC (incorporated by reference from Exhibit 10.15 of the
                    Form 10-K).

             10.13  Employment Agreement, dated as of May 28, 1996, between CBI
                    and Alan Ember. (incorporated by reference from Exhibit
                    10.15 of the 1997 Registration Statement).

             10.14  Credit Facility, dated May 19, 1998, between CBI and Fleet
                    Capital Corporation. (Incorporated by reference from
                    Exhibit1 of the June 1998 Form 10-Q.

             10.15  Agreement and Plan of Merger, dated March 23, 1999, between
                    the Registrant and Realty. (Incorporated by reference from
                    Exhibit 1 of Form 8-K dated March 29, 1999.

             10.16  Promissory Note dated May 19, 1998, between Realty and
                    MetLife. (Incorporated by reference from Exhibit 2 of Form
                    8-K\A-1 dated March 29, 1999.

             10.17  Commercial Deed of Trust, Security Agreement, Assignment of
                    Leases and Rents and Fixture Filing dated May 19, 1998 by
                    Realty in favor of MetLife. (Incorporated by reference from
                    Exhibit 3 of Form 8-K\A-1 dated March 29, 1999.

             10.18  Assignment of Rents and Leases dated May 19, 1998 between
                    Realty and MetLife. (Incorporated by reference from Exhibit
                    4 of Form 8-K\A-1 dated March 29, 1999.

             10.19  Loan Modification Agreement dated March 31, 1999 between the
                    Registrant and G.E. Capital. (Incorporated by reference from
                    Exhibit 5 of Form 8-K\A-1 dated March 29, 1999.

             10.20  Asset Purchase Agreement effective as of June 30, 1999 by
                    and among Carpet Barn and DuPont. (Incorporated by reference
                    from Exhibit 1 of Form 8-K dated June 30, 1999.

             27     Financial Data Schedule



                                       27
<PAGE>



                      NATIONS FLOORING, INC. AND SUBSIDIARY

                          CONSOLIDATED FINANCIAL REPORT

                                DECEMBER 31, 1999







 INDEPENDENT AUDITOR'S REPORT                                           F-2

 CONSOLIDATED FINANCIAL STATEMENTS

 Consolidated balance sheets                                            F-3

 Consolidated statements of operations                                  F-4

 Consolidated statements of stockholders' equity                        F-5

 Consolidated statements of cash flows                            F-6 - F-7

 Notes to consolidated financial statements                      F-8 - F-18



<PAGE>



                          INDEPENDENT AUDITOR'S REPORT


To the Board of Directors
Nations Flooring, Inc.
New York, New York

We have audited the accompanying consolidated balance sheets of Nations
Flooring, Inc. and subsidiary as of December 31, 1999 and 1998, and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the three years in the period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Nations Flooring,
Inc. and subsidiary as of December 31, 1999 and 1998 and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with generally accepted accounting principles.


/s/ McGladrey & Pullen, LLP


McGladrey & Pullen, LLP
Las Vegas, Nevada

March 1, 2000


                                      F-2
<PAGE>


NATIONS FLOORING, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1999


<TABLE>
<CAPTION>
ASSETS (Note 4)                                                                                       1998             1999
---------------                                                                             ----------------------------------
<S>                                                                                               <C>            <C>
Current Assets
  Cash                                                                                            $   212,183    $    328,162
  Accounts receivable, less allowance for doubtful
    accounts 1998 $310,000, 1999 $475,000 (Note 5)                                                  4,185,635       5,744,891
  Inventory                                                                                         1,319,148       2,241,453
  Related party note receivable (Note 2)                                                               79,940               -
  Prepaid expenses and other                                                                          258,087         545,810
  Deferred income taxes (Note 6)                                                                      119,000         151,000
                                                                                            ----------------------------------
                   Total current assets                                                             6,173,993       9,011,316
                                                                                            ----------------------------------

Property and Equipment, net (Note 1)                                                                  800,301       2,509,745
Intangible Assets, net (Note 1)                                                                    15,155,994      15,067,895
                                                                                            ----------------------------------
                                                                                                 $ 22,130,288    $ 26,588,956
                                                                                            ==================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
  Note payable (Note 4)                                                                          $  3,812,213      $4,751,951
  Current maturities of long-term debt (Note 4)                                                       751,000         808,000
  Accounts payable                                                                                  1,816,138       2,606,350
  Advances from principal stockholder (Note 3b)                                                       653,339         574,934
  Income taxes payable (Note 6)                                                                             -         391,378
  Accrued expenses                                                                                    519,043       1,226,017
  Customer deposits                                                                                 1,344,135       1,751,395
                                                                                            ----------------------------------
                       Total current liabilities                                                    8,895,868      12,110,025
                                                                                            ----------------------------------

Related Party Advance (Note 2)                                                                        500,000               -
Long-Term Debt, less current maturities (Note 4)                                                    4,035,539       3,800,620
Advances from and Notes Payable-Principal Stockholder,
    less current portion (Notes 3a and 3b)                                                          2,000,000       2,000,000
Deferred Income Taxes (Note 6)                                                                        474,000         789,000

Commitments and Contingencies (Notes 7 and 8)

Stockholders' Equity (Notes 1 and 9)
  Preferred stock, 12% cumulative; $.001 par value, authorized 1,000,000 shares;
    issued 1998 and 1999 5,160 shares; total liquidation
    preference of outstanding shares 1998 and 1999 $5,160,000                                               5               5
  Common stock, $.001 par value, authorized 20,000,000
    shares; issued 1998 3,670,054 shares; 1999 3,729,779 shares                                         3,670           3,730
Additional paid-in capital                                                                          8,398,143       9,652,241
Retained earnings (deficit)                                                                        (2,176,937)     (1,766,665)
                                                                                            ----------------------------------
                                                                                                    6,224,881       7,889,311
                                                                                            ----------------------------------
                                                                                                 $ 22,130,288     $26,588,956
                                                                                            ==================================
</TABLE>

See Notes to Consolidated Financial Statements.


                                      F-3
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31,  1997, 1998, and 1999

<TABLE>
<CAPTION>
                                                                                          1997            1998               1999
                                                                               -----------------------------------------------------
<S>                                                                                 <C>               <C>               <C>
Net sales (Note 5)                                                                  $ 40,835,624      $ 45,000,387      $58,113,781
Cost of sales                                                                         30,536,625        33,907,293       43,300,017
                                                                               -----------------------------------------------------
                Gross Profit                                                          10,298,999        11,093,094       14,813,764

Selling, general and administrative expenses:
  Related party consulting fees (Note 8)                                                 220,000           252,500          240,000
  Related party rent expense (Note 2)                                                    100,284           115,071           30,000
  Other                                                                                6,912,713         7,808,139       10,761,228
                                                                               -----------------------------------------------------
                                                                                       7,232,997         8,175,710       11,031,228
Amortization and depreciation                                                          1,207,883         1,132,331        1,189,198
                                                                               -----------------------------------------------------
  Operating Income                                                                     1,858,119         1,785,053        2,593,338

Other Income (expense):
  Other income (expense), net (Note 10)                                                 (637,975)         (284,811)           4,581
  Related party interest expense (Notes 2, 3a and 3c)                                    (65,000)         (274,500)        (210,000)
  Interest expense (Note 4)                                                           (1,291,248)         (890,841)        (805,447)
                                                                               -----------------------------------------------------

    Income (loss) before income taxes, dividends to preferred
      stockholders of subsidiary and amortization
      of discount on preferred stock of subsidiary                                      (136,104)          334,901        1,582,472

 Provision for income taxes (benefit) (Note 6)                                           (43,000)          120,000          553,000
                                                                               -----------------------------------------------------

    Income (loss) before dividends to preferred
      stockholders of subsidiary and amortization of
      discount on preferred stock of subsidiary                                          (93,104)          214,901        1,029,472

Dividends to preferred stockholders of subsidiary                                        559,200           466,000                -
Amortization of discount on preferred stock of subsidiary                                      -         1,542,726                -
                                                                               -----------------------------------------------------

  Net income (loss)                                                                     (652,304)       (1,793,825)       1,029,472

Dividends on preferred stock                                                                   -            98,200          619,200
                                                                               -----------------------------------------------------

Net income (loss) applicable to common stockholders                                 $   (652,304)      $(1,892,025)       $ 410,272
                                                                               =====================================================


Basic net income (loss) per common share (Note 1)                                   $      (0.18)      $     (0.52)       $    0.11
                                                                               =====================================================
Dilutive net income (loss) per common share (Note 1)                                $      (0.18)      $     (0.52)       $    0.10
                                                                               =====================================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-4
<PAGE>


NATIONS FLOORING, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years ended December 31, 1997, 1998 and 1999

<TABLE>
<CAPTION>
                                             Preferred Stock           Common Stock
                                            Shares                  Shares                  Paid-In
                                         Outstanding    Dollars   Outstanding   Dollars     Capital
                                         ------------------------------------------------------------

<S>                                      <C>            <C>       <C>          <C>       <C>
Balance, December 31, 1996                     -       $    -      3,787,647   $  3,788  $ 3,050,240

Net loss                                       -            -              -          -            -
                                         ------------------------------------------------------------

Balance, December 31, 1997                     -            -      3,787,647      3,788    3,050,240

Issuance of preferred stock (Note 1)       4,660            5              -          -    4,659,995

Issuance of preferred stock (Note 3c)        500            -              -          -      500,000

Issuance of common stock (Note 4)              -            -         27,657         27      193,573

Retirement of treasury stock                   -            -      (145,250)      (145)      (5,665)

Dividends on preferred stock                   -            -              -          -            -

Net loss                                       -            -              -          -            -
                                         ------------------------------------------------------------

Balance December 31, 1998                  5,160            5      3,670,054      3,670    8,398,143

Issuance of common stock (Note 2)              -            -         59,725         60    1,254,098

Dividends on preferred stock                   -            -              -          -            -

Net income                                     -            -              -          -            -
                                         ------------------------------------------------------------

Balance December 31, 1999                  5,160       $    5      3,729,779   $  3,730  $ 9,652,241
                                         ============================================================
</TABLE>


<TABLE>
<CAPTION>
                                              Retained
                                              Earnings      Treasury
                                              (Deficit)       Stock         Total
                                         -------------------------------------------

<S>                                         <C>           <C>         <C>
Balance, December 31, 1996                  $   367,392   $  (5,810)  $ 3,415,610

Net loss                                       (652,304)          -      (652,304)
                                         ------------------------------------------

Balance, December 31, 1997                     (284,912)     (5,810)    2,763,306

Issuance of preferred stock (Note 1)                  -           -     4,660,000

Issuance of preferred stock (Note 3c)                 -           -       500,000

Issuance of common stock (Note 4)                     -           -       193,600

Retirement of treasury stock                          -       5,810             -

Dividends on preferred stock                    (98,200)          -       (98,200)

Net loss                                     (1,793,825)          -    (1,793,825)
                                         ----------------------------------------

Balance December 31, 1998                    (2,176,937)          -     6,224,881

Issuance of common stock (Note 2)                     -           -     1,254,158

Dividends on preferred stock                   (619,200)          -      (619,200)

Net income                                    1,029,472           -     1,029,472
                                         ----------------------------------------

Balance December 31, 1999                 $  (1,766,665)   $      -   $ 7,889,311
                                         ==========================================
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-5
<PAGE>


NATIONS FLOORING, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1998, and 1999

<TABLE>
<CAPTION>
                                                                                  1997             1998              1999
                                                                       ------------------------------------------------------
<S>                                                                          <C>             <C>                 <C>
Cash Flows from Operating Activities
  Net income (loss)                                                          $   (652,304)   $ (1,793,825)       $ 1,029,472
  Depreciation                                                                    207,820         222,731            296,909
  Amortization                                                                  1,000,063         909,600            892,289
  Deferred income taxes                                                           155,656         120,000             98,000
  Provision for bad debts                                                         165,019         189,836            289,426
  Rent expense in lieu of note receivable payments from Realty                    100,284         115,071             30,000
  Amortization of discount on preferred stock of subsidiary                             -       1,542,726                  -
  Write off of deferred offering costs and other                                  647,553         291,361                  -
  Changes in assets and liabilities, net of business acquisitions:
    Increase in accounts receivable                                              (344,775)       (894,528)        (1,338,193)
    Increase in inventory                                                         (67,973)       (511,859)          (342,924)
    Increase in prepaid expenses and other                                       (241,405)         (3,311)          (240,003)
    Increase (decrease) in accounts payable                                       684,531      (1,118,599)           613,348
    Increase (decrease) in advances from principal stockholder                    901,247         (42,546)           (45,637)
    Increase in income taxes payable                                                    -               -            391,378
    Increase (decrease) in accrued expenses                                      (159,152)        236,050            611,842
    Increase in customer deposits                                                 145,013         258,277            176,441
                                                                       ------------------------------------------------------

            Net cash provided by (used in) operating activities              $  2,541,577     $  (479,016)       $ 2,462,348
                                                                       ------------------------------------------------------

Cash Flows from Investing Activities
  Advances to employees and related parties, net                             $     17,807     $   (35,777)       $   (30,839)
  Purchase of property and equipment                                             (254,561)       (323,139)          (306,149)
  Payments for acquisition of net assets of Kemper                                      -               -         (1,500,000)
  Payments for acquisition of net assets of Merrill's                                   -        (164,254)                 -
  Acquisition cost expenditures                                                   (83,131)         (5,564)           (49,586)
                                                                       ------------------------------------------------------

            Net cash used in investing activities                            $   (319,885)    $  (528,734)       $(1,886,574)
                                                                       ------------------------------------------------------
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-6
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1997, 1998, and 1999

<TABLE>
<CAPTION>
                                                                                 1997                1998              1999
                                                                      ---------------------------------------------------------
<S>                                                                         <C>                <C>                <C>
Cash Flows from Financing Activities
(Payments) advances on note payable                                         $ (3,480,128)      $ (2,935,943)      $  239,738
Proceeds from related party advance                                                    -            500,000                -
Proceeds from unrelated party advances                                           534,000                  -                -
Repayment of unrelated party advances                                           (534,000)                 -                -
Principal payments on long-term debt                                             (33,626)        (4,436,718)         (80,333)
Cash payment for deferred offering costs                                        (312,845)                 -                -
Proceeds from long-term debt                                                           -          5,000,000                -
Proceeds from note payable                                                             -          2,487,371                -
Proceeds from notes payable-principal stockholder                              1,000,000            500,000                -
Proceeds from stockholder advance                                                500,000                 -                -
Cash dividends paid on preferred stock                                                 -                 -         (619,200)
Debt issuance costs                                                                    -           (125,000)               -
                                                                      ---------------------------------------------------------

            Net cash provided by (used in) financing activities             $ (2,326,599)       $   989,710       $ (459,795)
                                                                      ---------------------------------------------------------
            Net increase (decrease) in cash                                     (104,907)           (18,040)         115,979

Cash, beginning                                                                  335,130            230,223          212,183
                                                                      =========================================================
Cash, ending                                                                 $   230,223        $   212,183       $  328,162
                                                                      =========================================================

CASH PAYMENTS FOR:
  Interest                                                                   $ 1,117,664        $   934,177       $  782,101
                                                                      =========================================================
  Income taxes, net of refunds, none in 1997,
    $203,296 in 1998 and none in 1999                                        $     3,388        $  (201,419)      $   63,390
                                                                      =========================================================

SUPPLEMENTAL SCHEDULE OF NONCASH
    INVESTING AND FINANCING ACTIVITIES
Preferred stock dividends paid through increase
  in advances from principal stockholder (Note 3b)                           $   559,200        $   564,200       $        -
Repayment of advance from stockholder through
  issuance of preferred stock                                                $         -        $   500,000       $        -
Loan fees added to note payable                                              $         -        $   136,332       $        -
Equipment acquired through financing agreement                               $    18,000        $    35,803       $   85,204
Realty merger (Note 2)                                                       $         -        $         -       $2,003,867
</TABLE>


See Notes to Consolidated Financial Statements.


                                      F-7
<PAGE>


NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies

Nature of business

Nations Flooring, Inc. (Nations or Company) was organized under the laws of the
State of Delaware.

The Company was also related, through common ownership, to C. B. Realty of
Delaware, Inc. (Realty) (see Note 2).

The Company sells floorcoverings and related products through its residential
contract, residential replacement and commercial operating segments in Nevada,
Utah, Idaho and metropolitan Washington, DC. The Company believes that the
economic and other characteristics of its three operating segments meet the
aggregation criteria outlined in Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information.
Accordingly, segment information is not presented since the Company's operating
segments are aggregated for reporting purposes. The Company grants credit
principally to new homebuilders.

A summary of the Company's significant accounting policies follows.

Principles of consolidation

The consolidated financial statements include the accounts of the Company and
its subsidiary, Carpet Barn, Inc. (CBI). All material intercompany accounts and
transactions are eliminated in consolidation. Prior to the merger on November
16, 1998 of Carpet Barn Holdings, Inc (CBH), a subsidiary of Nations, into
Nations, the dividends attributed to CBH preferred stock dividends were included
as dividends to preferred stockholders of subsidiary on the consolidated
statements of operations. As a result of the merger, the discount related to the
previously outstanding CBH preferred stock was charged against the results of
operations for the year ended December 31, 1998, in a manner similar to
dividends on subsidiary preferred stock.

Preferred stock

The holders of the 12% cumulative preferred stock of Nations have an aggregate
of 16% of the votes of the outstanding shares of the common stock of Nations.

In the event the Company is liquidated, no distributions shall be made to the
holders of shares of stock ranking junior to the preferred stock, unless, prior
thereto, the holders of shares of preferred stock shall have received a
liquidation preference payment of $1,000 per share plus all accrued and unpaid
dividends through the date of such payment. Also, until all accrued and unpaid
dividends and distributions on preferred stock have been paid in full, the
Company shall not declare or pay dividends on, make any other distributions on,
or redeem, purchase or otherwise acquire for consideration any shares of stock
ranking junior to the preferred stock.

The preferred stock may be redeemed at the option of the Board of Directors at a
call price per share equal to its stated value plus any accrued and unpaid
dividends through the date of redemption. If no call has been made, the Company
is required to call the preferred stock for redemption at the call price on a
date not later than seven days after the closing of an underwritten public
offering.

Use of estimates in the preparation of financial statements

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

Cash

During the periods presented, the Company maintained cash balances which, at
times, were in excess of federally insured limits. The Company has experienced
no losses in such accounts. At December 31, 1999 the Company's cash balances
were maintained at financial institutions in Nevada, Illinois, Utah and
Virginia.

Inventory

Inventory consists primarily of carpet and vinyl and is stated at the lower of
cost (first-in, first-out method) or market. Included in inventory is
work-in-process of $43,960 and $530,648 at December 31, 1998 and 1999,
respectively.



                                      F-8
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies (continued)

Property and equipment

Building, furniture and equipment, autos and trucks and leasehold improvements
are stated at cost, less accumulated depreciation and amortization. Depreciation
is provided on the straight-line and accelerated methods for financial reporting
purposes. Amortization is provided on the straight-line basis over the shorter
of the economic life of the asset or the lease term.

Property and equipment consist of the following at December 31:


<TABLE>
<CAPTION>
                                                                   Depreciation
                                                                      Lives               1998             1999
                                                                                 ---------------------------------

<S>                                                                 <C>                <C>             <C>
Land                                                                     -             $       -       $  664,000
Building                                                                 20                    -          781,000
Furniture and equipment                                                  7               951,255        1,351,635
Autos and trucks                                                         5               149,043          170,543

Leasehold improvements                                                 3 - 7                              491,492
                                                                                         352,019
                                                                                 ---------------------------------

                                                                                       1,452,317        3,458,670
Less accumulated depreciation and amortization                                                            948,925
                                                                                         652,016
                                                                                 ---------------------------------
Property and equipment, net                                                           $  800,301       $2,509,745
                                                                                 =================================
</TABLE>

The Company assesses the impairment of long-lived assets, identifiable
intangibles and costs in excess of net assets of business' acquired (goodwill),
by comparison to the projected undiscounted cash flows to be derived from the
related assets. The Company has concluded that no impairment in the carrying
amount of long-lived assets, identifiable intangibles and goodwill existed at
December 31, 1999.

Intangible assets

Intangible assets consist of the following at December 31:

                                                      1998             1999
                                               ---------------------------------

Goodwill                                           $17,192,326      $17,870,417
Covenants not-to-compete                               600,000          700,000
Debt issuance costs                                    261,332          292,904
                                               ---------------------------------
                                                    18,053,658       18,863,321
Less accumulated amortization                        2,897,664        3,795,426
                                               ---------------------------------
Intangible assets, net                             $15,155,994      $15,067,895
                                               =================================

Goodwill is being amortized by the straight-line method over fifteen to
twenty-five years.

The Company incurred financing costs related to bank financing (see Note 4).
These costs are being amortized on the effective interest method over the term
of the debt.

The Company has also entered into covenants not-to-compete in connection with
certain business acquisitions. The covenants are being amortized on the
straight-line method over the five-year terms of the agreements.

Income taxes

The Company provides for deferred taxes on a liability method whereby deferred
tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized
for taxable temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their tax bases.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of
management, it is more likely than not that some portion or all of the deferred
tax assets will not be realized. Deferred tax assets and liabilities are
adjusted for the effect of changes in tax laws and rates on the date of
enactment.


                                      F-9
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies (continued)

Vendor cooperative marketing and purchase discounts

The Company participates in various advertising and marketing programs with
suppliers. Certain of the Company's costs incurred in connection with these
programs are reimbursed. The Company records these reimbursements when earned.
The Company also records accounts payable net of anticipated purchase discounts.

Basic and dilutive net income (loss) per common share

Basic and dilutive net income (loss) per common share is computed based on net
income (loss) and the following weighted average number of common shares
outstanding:
                                    1997              1998            1999
                               ----------------    ------------   -------------

Basic shares                       3,642,397        3,670,054       3,714,848
Dilutive shares                    3,642,397        3,670,054       3,942,232

Dilutive net income (loss) per share reflects the effect of the inclusion of the
incremental shares issuable upon the exercise of outstanding stock options.
Dilutive net income (loss) per share for the years ended December 31, 1997 and
1998 is the same as the basic net income (loss) per share as the inclusion of
incremental shares for outstanding stock options would have been anti-dilutive.
Dividends on preferred stock, which totaled $0, $98,200 and $619,200 for the
years ended December 31, 1997, 1998 and 1999, respectively, reduced the earnings
available to common stockholders in the computation of earnings per share.

Revenue recognition

Revenue is recorded for commercial and retail floorcovering sales upon
installation.

Advertising

All costs related to marketing and advertising the Company's products are
expensed in the period incurred.

Advertising expense, net of cooperative advertising earned, was $585,668,
$784,736 and $1,080,494 for the years ended December 31, 1997, 1998 and 1999,
respectively.

Self Insurance

The Company is a member of a self-insured group for its workers compensation
coverage. Estimated costs resulting from any non-insured losses are accrued by a
charge to income when the incident that gives rise to the loss occurs. To date
there have been no non-insured losses.

Accounting for Stock-Based Compensation

The Company measures compensation expense related to the grant of stock options
and stock-based awards to employees and directors in accordance with the
provisions of Accounting Principles Board Opinion (APB) No. 25, under which
compensation expense, if any, is based on the difference between the exercise
price of an option, or the amount paid for an award, and the market price or
fair value of the underlying common stock at the date of the award or at the
measurement date for variable awards. Stock-based compensation arrangements
involving non-employees are accounted for under Statement of Financial
Accounting Standard No. 123, Accounting for Stock-Based Compensation, (SFAS 123)
under which such arrangements are accounted for based on the fair value of the
option or award.


                                      F-10
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. Nature of Business and Significant Accounting Policies (continued)

Fair value of financial instruments

The carrying amounts of financial instruments including cash, accounts
receivable, employee and other receivables, accounts payable, accrued expenses
and customer deposits approximate their fair values because of their short
maturities.

The carrying amounts of note payable, long-term debt and the related party note
receivable approximate their fair values because the interest rates on these
instruments are at market rates.

Although management expects a substantial portion of amounts due to stockholders
to be paid in the near term, it is not practicable to estimate the fair value of
these amounts, as they have no stated repayment terms. Management does not
believe fair value of such amounts, if determined, would differ materially from
their recorded amounts.

Reclassification

Certain 1998 balances have been reclassified to correspond to the balance sheet
classifications for 1999. These reclassifications had no effect on the
consolidated statements of operations or stockholders' equity.

Note 2. Acquisitions

Kemper

As of the close of business on June 30, 1999, CBI entered into an Asset Purchase
Agreement with DuPont Flooring Systems, Inc. (DuPont) (a wholly owned subsidiary
of E.I. DuPont De Nemours and Company) pursuant to which CBI acquired certain
assets of DuPont (the "Assets") for an aggregate purchase price of $1,800,000
plus the assumption of certain liabilities. The source of such funds was the
working capital of CBI, including funds borrowed pursuant to Credit Facility
with Fleet Capital Corporation.

The Assets purchased by CBI under the Agreement consist of all of the properties
and assets previously used by DuPont in the business of retailing, distributing
and installation of residential floor covering products and flooring systems
under the "Kemper" name in the greater Washington D.C. area.

The operations of Kemper came under the control of Nations effective July 1,
1999 and the acquisition was accounted for as a purchase. Accordingly, Nations
recorded the assets acquired and liabilities assumed, at their fair values, and
the results of Kemper's operations have been included in Nations' results of
operations commencing July 1, 1999. The net book value of the assets acquired by
Nations was approximately $1,308,000, comprised of current assets, principally
inventory and accounts receivable, of approximately $1,138,000, and equipment
and leasehold improvements of approximately $170,000. Nations assumed current
liabilities, comprised of accounts payable, accrued expenses and customer
deposits of approximately $467,000. Additionally, Nations acquired a receivable
from DuPont for cash equal to the customer deposits of approximately $231,000
previously transferred to DuPont by Kemper. The tangible assets acquired and
liabilities assumed were principally recorded at their book values, which
approximated their fair values, and the remaining purchase price of
approximately $729,000 was recorded as a covenant not-to-compete and goodwill.

The components of the purchase price and the allocation to the assets acquired
and assumed were as follows:

Components of purchase price:

  Cash paid
      Financed through borrowings under line of credit          $  1,500,000
      Financed through short term obligation to DuPont               300,000
                                                                -------------
                                                                   1,800,000
  Liabilities assumed                                                466,915
                                                                -------------
                                                                $  2,266,915
                                                                =============

Allocated to:

  Fair value of net tangible assets acquired                    $  1,307,591
  Receivable from DuPont to fund customer deposits                   230,819
  Covenant not-to-compete                                            100,000
  Goodwill                                                           628,505
                                                                -------------
                                                                $  2,266,915
                                                                =============


                                      F-11
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Acquisitions (continued)

Realty

Under the terms of an Agreement and Plan of Merger (the Agreement) filed with
the State of Delaware on March 29, 1999, Realty merged with and into Nations. In
accordance with the Agreement, each shareholder of Realty was issued 597.25
shares of Nations' common stock for each share of Realty's common stock. A total
of 59,725 shares of Nations' common stock were issued.

The acquisition was accounted for as a purchase for financial reporting
purposes. Under generally accepted accounting principles, a purchase business
combination is recorded on the basis of the fair value of the consideration paid
(common stock issued) or the fair value of the net assets acquired, whichever is
more readily determinable. The common stock of Nations has not been actively
traded, and, in determining the number of shares of Nations stock to be offered
in the acquisition of Realty, the Board of Directors of Nations, due to the
related party ownership of Realty, determined to offer a number of shares with
an effective per share value above the current fair value of Nations common
stock which would also be antidilutive in nature and would therefore be
beneficial to Nations. Accordingly, the combination was recorded on the basis of
the fair value of Realty's net assets, which reflect recent appraisals of
Realty's land and building.

For income tax purposes the combination was a tax-free exchange, as a result of
which the assets of Realty were transferred to Nations at Realty's tax basis. A
deferred tax liability, for the future tax effects of the difference between the
fair value recorded for financial reporting purposes and such tax basis, was
recorded and included in the purchase price.

The components of the purchase price and the allocation to the assets acquired
and assumed were as follows:

Components of purchase price:

  Common stock issued                                       $    1,254,158
  Deferred tax liability recorded                                  185,000
                                                            ---------------
                                                                 1,439,158
  Liabilities assumed                                              564,709
                                                            ---------------
                                                            $    2,003,867
                                                            ===============

Allocated to:

    Land and building                                       $    1,445,000
    Related party receivables                                      532,768
    Other                                                           26,099
                                                            ---------------
                                                            $    2,003,867
                                                            ===============

Prior to the combination, Nations leased its principal Las Vegas facility from
Realty under an operating lease expiring in April 2004. The results of
operations for the years ended December 31, 1997, 1998 and 1999 include rent
expense paid under such lease of $100,284, $115,071 and $30,000, respectively.

At the time of the combination, Nations was indebted to Realty under a 12%
unsecured demand note in the amount of $500,000, and Realty was indebted to
Nations under a 10% installment note having a remaining balance of $80,779. Net
interest expense of $37,000 and $15,000 relating to these notes has been
reflected in the accompanying consolidated statements of operations for the
years ended December 31, 1998 and 1999, respectively. Both balances have been
eliminated in recording Nations' acquisition of Realty.

Other

On September 18, 1998, the Company purchased the net assets of Merrill's Carpet
and Tile, Inc. (Merrill's) a floorcovering retailer located in St. George, Utah
pursuant to an asset purchase agreement. Under the purchase agreement, the
Company purchased substantially all the assets of Merrill's in exchange for
$200,000, of which approximately $164,000 was paid at closing. The acquisition
was accounted for as a purchase and operations of Merrill's subsequent to the
acquisition are included with those of the Company. Net assets purchased were
comprised of equipment of $50,000, and current assets, primarily inventory and
accounts receivable of $25,000. The remaining $125,000 of the purchase price was
allocated to goodwill and a covenant not-to-compete.

In November 1998, the Company purchased a small builder floorcovering business
in Boise, Idaho (Trinity) by agreeing to complete contracts in progress. The
operations of Trinity prior to its acquisition by the Company were
insignificant.


                                      F-12
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 2. Acquisitions (continued)

Pro Forma Information

The following pro forma information indicates what Nations' results of
operations for the years ended December 31, 1998 and 1999 would have been had
the above acquisitions taken place at January 1, 1998 and 1999, respectively.
This pro forma information is presented for illustrative purposes only, and is
not intended to necessarily indicate what the actual results of operations would
have been if the companies had been combined during those periods, or what the
future results of operations may be:

<TABLE>
<CAPTION>
                                                                             1998                  1999
                                                                       -----------------     -----------------

<S>                                                                    <C>                   <C>
Revenues                                                               $     51,300,854      $     61,445,071
Net income (loss) applicable to common stockholders                    $    (1,598,076)      $        613,034
Basic net income (loss) per share                                      $         (0.44)      $           0.17
Dilutive net income (loss) per share                                   $         (0.44)      $           0.16
</TABLE>

Note 3. Indebtedness to Stockholders

         (a) Notes payable - principal stockholder

In both August and November of 1997, and in February of 1998, the Company
received unsecured advances of $500,000 (an aggregate total of $1,500,000) from
Branin Investments, Inc. (Branin), which is 100% owned by the Chairman of the
Board and President of Nations. The 1998 advance bears interest at 15% per
annum, payable monthly, while the 1997 advances bear interest at 12% per annum,
payable monthly; all advances are due on demand. However, Branin has agreed to
subordinate its rights to receive principal and interest payments to the
obligation owed pursuant to the Credit Facility with Fleet as described in Note
4. Pursuant to such Credit Facility, Branin can only receive payments out of
excess cash flow, subject to the terms and conditions contained within the
Credit Facility. Due to these restrictions the aggregate advances of $1,500,000
has been classified as long term at December 31, 1998 and 1999. Total interest
expense of $25,000, $182,500 and $195,000 relating to these advances has been
reflected in the accompanying consolidated statements of operations for the
years ended December 31, 1997, 1998 and 1999, respectively.

         (b) Advances from principal stockholder

During the years ended December 31, 1997 and 1998, Branin made certain
non-interest bearing advances to the Company. Such advances are also subject to
the subordination and payment limitations described in (a) above. Activity in
the advances for the years ended December 31, 1998 and 1999 are as follows:

Balance, December 31, 1997                                           $1,291,285

Dividends on CBH and Nations preferred stock paid by Branin             564,200
Management fees payable to Branin (see Note 8)                           50,000
Common stock issued in lieu of interest obligation (see Note 4)        (193,600)
Interest on advances (see (a) above and Note 4)                         236,300
Payments to Branin                                                     (794,846)
                                                                     -----------

Balance, December 31, 1998                                           $1,153,339

Interest on advances (see (a) above)                                    195,000
Effect of Realty merger (Note 2)                                        (32,768)
Payments to Branin                                                     (240,637)
                                                                     -----------

Balance, December 31, 1999                                           $1,074,934
                                                                     ===========

Due to the subordination and payment limitations, $500,000 of the balance has
been classified as long term at December 31, 1998 and 1999.


                                      F-13
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 3. Indebtedness to Stockholders (continued)

         (c) Due to stockholder

During May 1997, the Company received an unsecured advance from a stockholder
and director of the Company in the amount of $500,000. This advance was repaid
through the issuance of 500 shares of the Company's preferred stock on December
1, 1998. This advance bore interest at 12% per annum, payable monthly. Total
interest expense of $40,000 and $55,000 relating to this advance has been
reflected in the accompanying consolidated statement of operations for the years
ended December 31, 1997 and 1998, respectively.

Note 4. Note Payable and Long-Term Debt

On May 19, 1998, the Company, through its subsidiary CBI, entered into a credit
agreement (the "Credit Facility") with Fleet Capital Corporation ("Fleet"),
pursuant to which Fleet advanced to CBI $5,000,000 under a term loan and
approximately $2,300,000 under a $5,000,000 revolving line of credit. The term
loan requires quarterly payments of $175,000. CBI pledged substantially all of
its assets to secure the Credit Facility and Nations has pledged all of the
common stock of CBI to secure its guarantee of the Credit Facility. Fees payable
to Fleet totaled $125,000. In addition, a finders fee of $100,000 was paid to a
person associated with Branin. The term and revolving portions of the Credit
Facility are due on May 18, 2003. All borrowings under the Credit Facility bear
interest, payable monthly, at the base rate per annum announced from time to
time by Fleet (6.16% at December 31, 1999) plus 2.75% and 3.25% per annum, in
connection with advances under the revolving line and the term loan,
respectively. The Credit Facility also contains provisions that excess cash flow
over certain defined levels will be used to repay principal under the term loan.
The Credit Facility contains covenants requiring CBI to maintain minimum levels
of tangible net worth and debt coverage. In connection with this Credit
Facility, Branin has agreed that the notes payable to and advances from it (see
Notes 3(a) and (b)) will be subject to certain subordination and payment
limitation requirements. As a condition of consummating the credit facility, the
Company received an advance of $500,000 from Realty (see Note 2).

Amounts outstanding under the Credit Facility at December 31 are as follows:

                                               1998                 1999
                                          ----------------     ----------------

Revolving line of credit                  $     3,812,213      $     4,751,951
Term loan                                       4,650,000            3,950,000

The Company's business plan contemplates growth through acquisitions. To
accomplish this goal, the Company obtained from Barbican Capital Partners, LLC
(Barbican) a commitment, subject to the completion of the lender's due diligence
and the preparation of a definitive agreement, to include still to be agreed to
financial covenants, for a $32,000,000 credit facility that includes a
$12,000,000 senior loan and a $20,000,000 mezzanine loan. The senior loan
includes a term loan not to exceed $4,000,000, with the balance of the
$12,000,000 to be structured as a revolving line of credit. The senior loan will
bear interest at LIBOR plus 4.5%. The agreement would require monthly principal
payments of approximately $65,000 on the term note. The mezzanine loan is
intended to be available to the Company to acquire target companies over the 18
month period commencing with the first closing under the facility. The mezzanine
loan will have an effective interest rate of 25% per annum, when considering
fees paid and require annual mandatory interest payments equal to the greater of
12% per annum or the base rate plus 2%. In addition, the Company would grant to
the lender options to acquire up to 15% of the outstanding shares of the
Company's common stock at 110% of the fair market value of the common stock on
the date the options are granted. The Company will have an option to repurchase
those options. If the options are repurchased, the Company would then be
required to pay additional interest beginning at the date of the option
repurchase, equal to 10% per annum on the outstanding amount of the mezzanine
loan. The credit facility would be for a five-year term, with options to extend
the term for 2 additional one-year terms. The credit facility would be secured
by substantially all of the Company's assets. The credit facility would contain
customary representations, warranties, and events of default and remedies. The
credit facility also would contain provisions that excess cash flow over certain
defined levels will be used to accelerate payments of principal under the credit
facility. The commitment expires on May 31, 2000 and the arrangement is expected
to close on or before such date.

The Company would use the borrowings available under the proposed credit
facility with Barbican to repay the indebtedness under the Fleet Credit Facility
and to make additional acquisitions over the next 2 years. If the Company were
to so use the borrowings from Barbican, or were to obtain and so use other
alternative financing, certain unamortized debt acquisition costs classified as
intangible assets would be charged to expense. Such unamortized debt acquisition
costs totaled $176,835 at December 31, 1999.


                                      F-14
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 4. Note Payable and Long-Term Debt (continued)

The Company received advances from unrelated parties of $534,000 during February
1997. These advances bore interest at the rate of 12% per annum, payable
monthly. These advances were repaid in April 1997. In addition to the repayment
of the principal, the lenders were to receive $213,600 in shares of common stock
of the Company as additional interest. All parties, except one who continued his
election to receive Company common stock and one who elected to receive cash,
agreed to allow Branin to acquire the right to receive the common stock of the
Company, and as a result $189,600 of the obligation was reclassified as due to
Branin. The total $193,600 payable through the issuance of shares of common
stock (which included the $189,600 payable to Branin as a result of the
assumption described above), was satisfied in August 1998 through the issuance
of 27,657 shares of the Company's common stock, including 27,086 shares issued
to Branin, representing the number of common shares the lenders would have
received under the terms of the original agreement. Total interest expense of
$224,280 relating to these advances has been reflected in the accompanying
consolidated statement of operations for the year ended December 31, 1997.

In conjunction with the Realty merger (see Note 2), the Company assumed a
mortgage note payable with a financial institution secured by the Company's land
and building. The note, which has a balance due at December 31, 1999 of $460,540
bears interest at 9% and is due in monthly payments of principal and interest
totaling $5,690 with the balance due May 2003.

CBI also has long-term notes payable of $136,539 and $198,080 outstanding at
December 31, 1998 and 1999, respectively. The notes bear interest at an
approximate average of 12.9% and mature between September 2000 and December
2003.

Aggregate maturities required on the long-term debt are due in future years as
follows at December 31, 1999:

           2000                                    $       808,000
           2001                                            797,559
           2002                                            761,854
           2003                                          1,091,207
           2004                                          1,150,000
                                                  ----------------
                                                   $     4,608,620
                                                  =================

Note 5. Major Customers

Sales for the Company include sales to, and accounts receivable due from, the
following major customers:

<TABLE>
<CAPTION>
                                                     Percent to Total Sales                     Percent to Total Accounts
                                                     Year Ended December 31,                   Receivable at December 31,
                                                     -----------------------                   --------------------------
Customer                                    1997             1998              1999              1998             1999
--------                                    ----             ----              ----              ----             ----
<S>                                         <C>              <C>                <C>               <C>              <C>
A                                           15%              15%                15%               11%              15%
B                                           10%              10%                 6%               2%                3%
</TABLE>


                                      F-15
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 6. Income Taxes

The provision for income taxes (benefit) for the years ended December 31 is
comprised of the following:

                                        1997            1998          1999
                                  --------------   -------------  -------------

Current expense (benefit)         $  (198,656)     $         -    $   455,000
Deferred tax expense                   155,656         120,000         98,000
                                  ---------------------------------------------
                                  $   (43,000)     $   120,000    $   553,000
                                  =============================================


Net deferred tax liabilities consist of the following components as of December
31:

                                                      1998           1999
                                                 ------------   -------------
Deferred tax liabilities:
      Property and equipment                     $     4,000    $    390,000
      Intangibles                                    470,000         399,000
                                                 ----------------------------
                                                     474,000         789,000
                                                 ----------------------------

Deferred tax assets:
      Allowance for doubtful accounts                105,000         139,000
      Accrued expenses                                14,000          12,000
                                                 ----------------------------
                                                     119,000         151,000
                                                 ----------------------------
                                                 $   355,000    $    638,000
                                                 ============================

No valuation reserve was considered necessary at December 31, 1998 and 1999 as
management believes it is more likely than not that the deferred tax assets will
be realized in future years due to either offsetting deferred tax liabilities or
taxes attributable to future taxable income. The deferred tax liabilities are
inclusive of the deferred tax liability recorded in 1999 as a result of the
Realty merger, (see Note 2).

Note 7. Lease Commitments

The Company has entered into agreements to rent retail and warehouse space under
separate operating leases expiring through December 2006. Monthly lease payments
are net of taxes, insurance and utilities, and total approximately $106,000. The
monthly base rent will be adjusted annually to predetermined amounts, or to
reflect any increases in the Consumer Price Index. Approximate future minimum
lease commitment under these leases at December 31, 1999 is as follows:


         2000                                              $ 1,191,000
         2001                                                  928,000
         2002                                                  678,000
         2003                                                  610,000
         2004                                                  461,000
       Thereafter                                              198,000
                                                         -------------
                                                           $ 4,066,000
                                                         =============

Total rent expense under the above leases for the years ended December 31, 1997,
1998 and 1999 was $279,482, $463,867 and $1,170,868, respectively.

Note 8. Commitments, Contingencies and Related Party Transactions

Consulting agreements

In June 1995, the Company orally agreed to pay for consulting services of a)
$35,000 per month (reduced to $10,000 per month as of September 1996 and
increased to $20,000 per month beginning June 1998) to Branin and b) $5,000 per
month through August 1996, and $12,500 per month from May 1997 through May 1998,
to PAH, a company controlled by the Chairman of the Board and President of
Nations. These agreements were entered into for the purpose of receiving
management advisory services regarding operations management, financing, and
acquisitions.


                                      F-16
<PAGE>





NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 8. Commitments, Contingencies and Related Party Transactions (continued)

Financing advisory fees

Branin acted as advisor to the Company in certain financing and equity
transactions consummated in 1995. In consideration of these advisory services
Branin is entitled to fees of approximately $650,000 only payable upon the
consummation of an underwritten public offering of the Company's common stock.
No amounts have been recorded in the accompanying consolidated financial
statements for these fees.

Other

Also see Notes 1, 2, 3 and 4 for additional related party transactions.

Litigation

In December, 1999, BankBoston Development Company, LLC (BankBoston) filed a
lawsuit in the United States District Court for the District of Massachusetts
against Philip Herman, Branin and the Company. In its complaint, BankBoston
alleges, purportedly on behalf of itself and other stockholders of Millennium
Services Corporation (Millennium), a company the majority of whose common stock
is owned by Branin, that Mr. Herman breached his fiduciary duties to BankBoston
in connection with its $500,000 investment in Millennium, that Branin and the
Company aided and abetted this breach and that all the defendants engaged in
fraudulent activities under federal securities laws, common law and the
Massachusetts blue sky laws in connection with the investment. The complaint
seeks damages of $1.5 million on the fiduciary duty claims and $500,000 on the
fraud claims, together with treble damages on the Massachusetts blue sky law
claim, interest, attorneys' fees and costs. The Company has filed an answer
denying the principal allegations in the complaint. The case is in the
pre-discovery preliminary stage, but the Company believes it has meritorious
defenses to the allegations in the complaint and intend to defend against such
allegations vigorously; therefore, no liability has been recorded in the
consolidated financial statements as of December 31, 1999.

The Company is also subject to various legal proceedings and claims that arise
in the ordinary course of business. The Company believes that the amount of any
ultimate liability with respect to these actions in the aggregate or
individually will not materially affect the results of operations, cash flows or
financial position of the Company.

Note 9. Stock Option Plan

On March 19, 1997 the Company's stockholders adopted the 1997 Stock Option Plan
(the "Option Plan") to provide an incentive to non-employee directors and to
officers and certain other key employees of and consultants to the Company by
making available to them an opportunity to acquire common stock in the Company.
The Option Plan provides for the award of options representing or corresponding
up to 1,250,000 shares of common stock. The terms of specific options are
determined by the Committee as defined in the Option Plan. The exercise price
for a non-qualified option is subject to the determination of the Committee.
Incentive stock options may not be granted at less than 100 percent of the fair
value of the common stock on the date of the grant. The options expire at
varying dates not to exceed 10 years from the date of grant. Any award issued
under the Option Plan which is forfeited, expires or terminates prior to vesting
or exercise will again be available under the Option Plan.

A summary of the status of the Company's fixed stock option plan as of December
31, 1998 and 1999, and activity during the years ending on those dates is
presented below:

<TABLE>
<CAPTION>
                                                 1997                            1998                          1999
                                      ---------------------------     ---------------------------    --------------------------
                                                     Weighted-                       Weighted-                     Weighted-
Fixed Options, all of which had                       Average                         Average                       Average
Exercise prices equal to market                      Exercise                        Exercise                       Exercise
Value on the grant date                 Shares         Price            Shares         Price           Shares        Price
------------------------------------- ------------ --------------     ------------ --------------    ------------ -------------

<S>                                        <C>              <C>           <C>               <C>          <C>              <C>
Outstanding at beginning of year                -        $     -           40,000       $   7.00         595,000      $   2.17
Granted                                    50,000           7.60          585,000           2.00         405,000          3.15
Exercised                                       -              -                -              -               -             -
Forfeited                                  10,000          10.00           30,000           5.33               -             -
                                      --------------------------      --------------------------     --------------------------
Outstanding at end of year                 40,000       $   7.00          595,000       $   2.17       1,000,000      $   2.57
                                      ===========================     ===========================    ==========================

Options exercisable at year-end            40,000       $   7.00           70,000       $   3.43         275,000      $   2.49
                                      ===========================     ===========================    ==========================
Weighted-average minimum fair value
of options granted during the year
                                                        $   2.19                        $   0.87                      $   1.46
                                                   ==============                  ==============                 =============
</TABLE>



                                      F-17
<PAGE>

NATIONS FLOORING, INC AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 9. Stock Option Plan (continued)

All options vest over a three-year period, with the exception of options granted
to directors whose options vest immediately.

The Company accounts for the grant of employee and director stock options using
the intrinsic value model of APB No. 25. Management believes use of the minimum
value method is appropriate as the Company's common stock has not been quoted or
traded since July 1997. The following table summarizes the effect on the
Company's consolidated financial statements if compensation expense for the
grant of such options had been measured using the minimum value requirements of
SFAS 123:


<TABLE>
<CAPTION>
                                                                         1997                   1998                 1999
                                                                   ------------------    -------------------    ---------------

<S>                                                                <C>                   <C>                    <C>
Option life, in years                                                             10                     10                 10
Risk free interest rate                                                        5.47%                  5.85%              6.45%
Dividends                                                                          0                      0                  0
Compensation expense                                               $         115,600     $          150,441     $      287,304
Net income (loss)                                                  $       (767,904)     $      (1,944,266)     $      742,168
Net income (loss) applicable to common stockholders                $       (767,904)     $      (2,042,466)     $      122,968
Basic and dilutive net income (loss) per common share              $          (0.21)     $           (0.56)     $         0.03
</TABLE>

The following table summarizes information about fixed stock options outstanding
at December 31, 1999:

<TABLE>
<CAPTION>
                                                        Options Outstanding                         Options Exercisable
                                          ------------------------------------------------    ---------------------------------
                                                              Weighted-
                                                               average       Weighted-                           Weighted-
                                                              remaining       average                             average
                                               Number        contractual      exercise           Number          exercise
Range of exercise prices                    outstanding         life           price           exercisable         price
------------------------                  ----------------- -------------- ---------------    -------------- ------------------

<S>                                            <C>            <C>               <C>              <C>                 <C>
          $    2.00                            575,000        8.3 years         $ 2.00           225,000             $ 2.00
          $    3.15                            405,000        9.5 years         $ 3.15            30,000             $ 3.15
          $    4.00                             10,000        7.5 years         $ 4.00            10,000             $ 4.00
          $  10.00                              10,000        7.2 years         $10.00            10,000             $10.00

</TABLE>


Note 10. Other Income (Expense)

Other income (expense) consists of the following at December 31:

<TABLE>
<CAPTION>
                                                                                        1997          1998         1999
                                                                              ------------------------------------------
<S>                                                                              <C>            <C>            <C>
Miscellaneous income, primarily interest                                         $    9,578     $    6,550     $  4,581
Write off of:
  Deferred offering costs                                                          (468,566)             -            -
  Pre-acquisition costs                                                             (83,131)             -            -
  Loan fees and other                                                               (81,666)     (291,361)            -
Lawsuit settlement                                                                  (14,190)             -            -
                                                                              ------------------------------------------
                                                                                 $ (637,975)    $(284,811)     $  4,581
                                                                              ==========================================
</TABLE>


                                      F-18
<PAGE>



                            SIGNATURES

         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of New York, State of New York, on the 27th day of March, 2000.

                                  NATIONS FLOORING, INC.

                                  By: /s/ Philip A. Herman
                                      --------------------------
                                      Philip A. Herman
                                      Chairman of the Board and President

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


<TABLE>
<CAPTION>
Signature                             Titles                                                                  Date
---------                             ------                                                                  ----
<S>                                   <C>                                                                     <C>
/s/ Philip A. Herman                  Chairman of the Board and President                                     March 27, 2000
--------------------------
Philip A. Herman

/s/ Facundo Bacardi                   Director                                                                March 27, 2000
--------------------------
Facundo Bacardi

/s/ John Katz                         Director                                                                March 27, 2000
--------------------------
John Katz

/s/ Paul Kramer                       Director                                                                March 27, 2000
--------------------------
Paul Kramer

/s/ Andrew Levinson                   Director                                                                March 27, 2000
--------------------------
Andrew Levinson

/s/ William Poccia                    Chief Financial Officer and Secretary (Principal Financial and          March 27, 2000
--------------------------            Accounting Officer)
William Poccia
</TABLE>



<PAGE>


                           Exhibit Index


          Exhibit   Name
          -------   ----

             2.1    Agreement and Plan of Exchange, dated as of June 1, 1995,
                    among the Company, Carpet Barn Holdings, Inc. ("CBH") and
                    the holders of common stock of CBH (incorporated by
                    reference from Exhibit 1 of the Company's Report on Form 8-K
                    (June 2, 1995) (the "June Form 8-K").

             2.2    Asset Purchase Agreement, dated as of June 1, 1995, between
                    Carpet Barn Acquisition Corp. ("CBAC") and Carpet Barn, Inc.
                    ("Carpet Barn") (incorporated by reference from Exhibit 3 of
                    the June Form 8-K).

             2.3    Amendment, dated June 1, 1995, to Asset Purchase Agreement
                    (incorporated by reference from Exhibit 4 of the June Form
                    8-K).

             3.1    Certificate of Incorporation, dated July 19, 1988, of the
                    Company (incorporated by reference from Exhibit 3(a) of the
                    Company's Registration Statement on Form S-18 (33-29942-NY)
                    filed October 20, 1989 (the "1989 Registration Statement").

             3.2    By-laws of the Company (incorporated by reference from
                    Exhibit 3(b) of the 1989 Registration Statement).

             3.3    Amended and Restated Certificate of Incorporation of CBH
                    (incorporated by reference from Exhibit 3.3 of the Company's
                    Annual Report on Form 10-K for the period ended December 31,
                    1995 (the "Form 10-K")).

             3.4    Certificate of Amendment to Amended and Restated Certificate
                    of Incorporation of CBH (incorporated by reference from
                    Exhibit 3.4 of the Form 10-K).

             3.6    Certificate of Incorporation of Nations Flooring, Inc.
                    (incorporated by reference from Exhibit 3.6 of the Company's
                    Registration Statement on Form S-1 (333-19871) filed January
                    16, 1997 ("1997 Registration Statement").

             3.7    By-laws of Nations Flooring, Inc. (incorporated by reference
                    from Exhibit 3.7 of the 1997 Registration Statement).

             9.1    Voting Trust Agreement, dated May 30, 1995, between Philip
                    A. Herman and certain shareholders of the Company
                    (incorporated by reference from Exhibit 2 of the June Form
                    8-K).


<PAGE>


             10.7   Terms of preferred stock, par value $.01 per share, stated
                    value $1,000 per share, of CBH (incorporated by reference
                    from Exhibit 12 of the June Form 8-K).

             10.8   Employment Agreement, dated as of July 28, 1995, between CBI
                    and Steven Chesin (incorporated by reference from Exhibit 1
                    of the Company's Report on Form 10-Q for the quarterly
                    period ended June 30, 1995 (the "June 1995 Form 10-Q).


             10.9   Form of Promissory Note issued in the offering of short-term
                    notes of CBH (incorporated by reference from Exhibit 11 of
                    the June Form 8-K).

             10.10  Lease, dated June 1, 1995, between CB Realty of Delaware,
                    Inc. ("CB Realty") and CBAC (incorporated by reference from
                    Exhibit 10.13 of the Form 10-K).

             10.11  First Amendment to Lease Agreement, dated August 1, 1995,
                    between CB Realty and CBAC (incorporated by reference from
                    Exhibit 10.14 of the Form 10-K).

             10.12  Promissory Note, dated June 1, 1995 from CB Realty in favor
                    of CBAC (incorporated by reference from Exhibit 10.15 of the
                    Form 10-K).

             10.13  Employment Agreement, dated as of May 28, 1996, between CBI
                    and Alan Ember. (incorporated by reference from Exhibit
                    10.15 of the 1997 Registration Statement).

             10.14  Credit Facility, dated May 19, 1998, between CBI and Fleet
                    Capital Corporation. (Incorporated by reference from
                    Exhibit1 of the June 1998 Form 10-Q.

             10.15  Agreement and Plan of Merger, dated March 23, 1999, between
                    the Registrant and Realty. (Incorporated by reference from
                    Exhibit 1 of Form 8-K dated March 29, 1999.

             10.16  Promissory Note dated May 19, 1998, between Realty and
                    MetLife. (Incorporated by reference from Exhibit 2 of Form
                    8-K\A-1 dated March 29, 1999.

             10.17  Commercial Deed of Trust, Security Agreement, Assignment of
                    Leases and Rents and Fixture Filing dated May 19, 1998 by
                    Realty in favor of MetLife. (Incorporated by reference from
                    Exhibit 3 of Form 8-K\A-1 dated March 29, 1999.

             10.18  Assignment of Rents and Leases dated May 19, 1998 between
                    Realty and MetLife. (Incorporated by reference from Exhibit
                    4 of Form 8-K\A-1 dated March 29, 1999.

             10.19  Loan Modification Agreement dated March 31, 1999 between the
                    Registrant and G.E. Capital. (Incorporated by reference from
                    Exhibit 5 of Form 8-K\A-1 dated March 29, 1999.

             10.20  Asset Purchase Agreement effective as of June 30, 1999 by
                    and among Carpet Barn and DuPont. (Incorporated by reference
                    from Exhibit 1 of Form 8-K dated June 30, 1999.

             27     Financial Data Schedule