<PAGE>

                                  United States
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

             [ X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

                 For the quarterly period ended March 31, 2001.

            [ ] TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

         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                                         11-2925673
--------------------------------------------------------------------------------
       (State or other                                    (IRS Employer
jurisdiction of incorporation)                       Identification Number)


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

                                 (212) 898-8855
--------------------------------------------------------------------------------
                           (Issuer's telephone number)


--------------------------------------------------------------------------------
               (Former name, former address or former fiscal year,
                         if changed since last report)


Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act 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.   X   Yes ____ No
                                                           ---

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 3,729,779 shares of Common Stock, par
value $.001 per share, were outstanding at May 15, 2001.


<PAGE>

                           INDEX


<TABLE>
<CAPTION>
                                                                          Page
Part I - Financial Information

Item 1. Financial Statements
<S>                                                                       <C>
      Consolidated balance sheets                                                 3
      Consolidated statements of operations                                       4
      Consolidated statements of cash flows                                   5 - 6
      Notes to consolidated financial statements                             7 - 11

Item 2.  Management's Discussion and Analysis of
         Financial Condition and Results of Operations                      12 - 15

Part II - Other Information

Item 1.  Legal Proceedings                                                       16
Item 4.  Submission of Matters to a Vote of Security Holders                     16
Item 6.  Exhibits and Reports on Form 8-K                                        16

Signatures                                                                       17
</TABLE>

                                       2

<PAGE>

NATIONS FLOORING, INC.  AND SUBSIDIARY

Consolidated Balance Sheets

<TABLE>
<CAPTION>
                                                                                                        March 31,
                                                                                     December 31,         2001
ASSETS (Note 3)                                                                          2000          (unaudited)
---------------                                                                    ----------------------------------
<S>                                                                                <C>                 <C>
Current Assets
  Cash                                                                                    $  447,400      $  516,342
  Accounts receivable, less allowance for doubtful
    accounts 2000 $475,000, 2001 $535,000                                                  5,662,949       5,894,486
  Inventory                                                                                2,012,077       2,379,977
  Prepaid expenses and other                                                                 538,255         572,123
  Income taxes receivable                                                                     72,905          75,087
  Deferred income taxes                                                                      230,000         272,000
                                                                                   ----------------------------------
                   Total current assets                                                    8,963,586       9,710,015
                                                                                   ----------------------------------
Property and Equipment, net (Note 1)                                                       2,763,731       2,703,067
Intangible Assets, net (Note 1)                                                           14,193,305      13,989,023
                                                                                   ----------------------------------
                                                                                        $ 25,920,622     $26,402,105
                                                                                   ==================================
Liabilities and Stockholders' Equity
Current Liabilities
  Note payable (Note 3)                                                                  $ 7,782,156     $ 7,577,792
  Current maturities of long-term debt (Note 3)                                              106,000         106,285
  Accounts payable                                                                         4,138,895       5,510,305
  Accrued expenses                                                                         1,489,930       1,154,330
  Customer deposits                                                                        1,252,967       1,104,203
                                                                                   ----------------------------------
                       Total current liabilities                                          14,769,945      15,452,915
                                                                                   ----------------------------------

Long-Term Debt, less current maturities (Note 3)                                             504,657         481,103
Advances from and Note Payable-Principal Stockholder (Note 2)                              2,731,858       2,785,615
Deferred Income Taxes                                                                        651,000         651,000

Commitments and Contingencies (Note 3)
Stockholders' Equity (Note 1)
  Preferred stock, 12% cumulative; $.001 par value, authorized 1,000,000 shares;
    issued 5,160 shares; total liquidation
    preference of outstanding shares $5,160,000                                                    5               5
  Common stock, $.001 par value, authorized 20,000,000
    shares; issued and outstanding 3,729,779 shares                                            3,730           3,730
Additional paid-in capital                                                                10,203,291      10,203,291
Retained earnings (deficit)                                                              (2,943,867)     (3,175,554)
                                                                                   ----------------------------------
                                                                                           7,263,159       7,031,472
                                                                                   ----------------------------------
                                                                                        $ 25,920,622     $26,402,105
                                                                                   ==================================
</TABLE>


See Notes to Consolidated Financial Statements

                                       3
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY


<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three Months Ended March 31,

                                                                                    2000                   2001
                                                                            -------------------------------------------
<S>                                                                       <C>                      <C>
   Net sales                                                              $           14,279,691   $        15,142,283
   Cost of sales                                                                      10,915,443            11,400,376
                                                                            -------------------------------------------
       Gross profit                                                                    3,364,248             3,741,907

   Selling, general and administrative expenses:
     Related party consulting fees                                                        60,000                60,000
     Other                                                                             3,036,764             3,186,659
                                                                            -------------------------------------------
                                                                                       3,096,764             3,246,659
                                                                            -------------------------------------------
   Amortization and depreciation                                                         354,919               306,501
                                                                            -------------------------------------------
     Operating income (loss)                                                            (87,435)               188,747

   Other Income (expense):
     Other income (expense), net                                                           1,823                   153
     Related party interest expense (Note 2)                                            (48,750)              (83,757)
     Interest expense                                                                  (214,237)             (224,030)
                                                                            -------------------------------------------
       Loss before income taxes                                                        (348,599)             (118,887)

    Provision for income tax benefit                                                   (118,000)              (42,000)
                                                                            -------------------------------------------
   Net loss                                                                            (230,599)              (76,887)

   Dividends on preferred stock                                                          154,800               154,800
                                                                            -------------------------------------------
   Net loss applicable to common stockholders                             $            (385,399)   $         (231,687)
                                                                            ===========================================
   Basic and Dilutive net loss
     per common share (Note 1)                                            $               (0.10)   $            (0.06)
                                                                            ===========================================
</TABLE>


See Notes to Consolidated Financial Statements.

                                       4
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Three Months ended March 31,

                                                                                              2000             2001
                                                                                     ------------------------------------
<S>                                                                                  <C>                 <C>
Cash Flows from Operating Activities
  Net loss                                                                             $      (230,599)  $      (76,887)
  Depreciation                                                                                  112,543          102,219
  Amortization                                                                                  242,376          204,282
  Deferred income taxes                                                                          16,000         (42,000)
  Provision for bad debts                                                                        73,410           59,750
  Changes in assets and liabilities
    (Increase) decrease in accounts receivable                                                  177,288        (291,287)
    (Increase) decrease in inventory                                                            231,975        (367,900)
    Increase in prepaid expenses and other                                                    (176,893)         (33,869)
    Increase in refundable income taxes                                                       (127,125)          (2,182)
    Increase in accounts payable                                                                450,997        1,371,410
    Increase (decrease) in advances from principal stockholder                                 (14,850)           53,757
    Decrease in income taxes payable                                                          (391,378)             --
    Increase (decrease) in accrued expenses                                                      95,788        (335,599)
    Increase (decrease) in customer deposits                                                      9,422        (148,764)
                                                                                     ------------------------------------

            Net cash provided by operating activities                                  $        468,954  $       492,930
                                                                                     ------------------------------------

Cash Flows from Investing Activities
  Purchase of property and equipment                                                   $      (160,746)  $      (41,555)
  Acquisition cost expenditures                                                                (27,290)             --
                                                                                     ------------------------------------

            Net cash used in investing activities                                      $      (188,036)  $      (41,555)
                                                                                     ------------------------------------

Cash Flows from Financing Activities
  (Payments) advances on note payable                                                  $         20,041  $     (204,365)
  Principal payments on long-term debt                                                         (24,387)         (23,268)
  Cash dividends paid on preferred stock                                                      (154,800)        (154,800)
                                                                                     ------------------------------------

            Net cash used in financing activities                                      $      (159,146)  $     (382,433)
                                                                                     ------------------------------------

            Net increase in cash                                                       $        121,772  $        68,942
Cash, beginning                                                                                 328,162          447,400
                                                                                     ------------------------------------
Cash, ending                                                                           $        449,934  $       516,342
                                                                                     ====================================

</TABLE>


See Notes to Consolidated Financial Statements.

                                       5
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY

<TABLE>
<CAPTION>

CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (unaudited)
Three Months ended March 31,

                                                                                              2000             2001
                                                                                     ------------------------------------
<S>                                                                                  <C>                 <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

  Cash payments for:
    Interest                                                                           $        163,469  $       237,415
    Income taxes                                                                       $        384,503  $         4,194
</TABLE>



See Notes to Consolidated Financial Statements.

                                       6
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

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 sells floorcoverings and related products through its residential
contract, residential replacement and commercial operating segments in Nevada,
Utah, Idaho, South Carolina 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.

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.

Basis of presentation

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In management's opinion, the accompanying consolidated financial statements
reflect all material adjustments (consisting only of normal recurring accruals)
necessary for a fair statement of the results for the interim periods presented.
The results for the interim periods are not necessarily indicative of the
results which will be reported for the entire year.

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.


                                       7

<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

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

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, 2000 and March 31, 2001 the
Company's cash balances were maintained at financial institutions in Nevada,
Illinois, South Carolina, Idaho 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 $461,079 and $539,161 at December 31, 2000 and March 31,
2001, respectively.

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, 2000 and March
31, 2001:

<TABLE>
<CAPTION>

                                                                        Depreciation      December 31,     March 31,
                                                                            Lives            2000            2001
                                                                                   ---------------------------------
<S>                                                                     <C>               <C>            <C>
Land                                                                          --        $   645,400     $   645,400
Building                                                                      20            781,000         781,000
Furniture and equipment                                                       7           1,539,568       1,570,179
Autos and trucks                                                              5             218,208         218,208
Leasehold improvements                                                       3 -7           954,214         965,158
                                                                                   ---------------------------------
                                                                                          4,138,390       4,179,945
Less accumulated depreciation and amortization                                            1,374,659       1,476,878
                                                                                   ---------------------------------
Property and equipment, net                                                             $ 2,763,731     $ 2,703,067
                                                                                   =================================
</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, 2000 and March 31, 2001.

Intangible assets

Intangible assets consist of the following at December 31, 2000 and March 31,
2001:

<TABLE>
<CAPTION>
                                                           December 31,       March 31,
                                                               2000             2001
                                                        ---------------------------------
<S>                                                     <C>                <C>
Goodwill                                                    $17,864,367      $17,864,367
Covenants not-to-compete                                        125,000          125,000
Debt issuance costs                                             292,904          292,904
                                                        ---------------------------------
                                                             18,282,271       18,282,271
Less accumulated amortization                                 4,088,966        4,293,248
                                                        ---------------------------------
Intangible assets, net                                      $14,193,305      $13,989,023
                                                        =================================

</TABLE>


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

The Company incurred financing costs related to bank financing (see Note 3).
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.


                                       8

<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

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


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.

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 loss per common share

Basic and dilutive net loss per common share is computed based on net loss and
the following weighted average number of common shares outstanding for the three
months ended March 31:

<TABLE>
<CAPTION>

                                             2000              2001
                                         -------------     -------------
<S>                                         <C>               <C>
Basic shares                                3,729,779         3,729,779
Dilutive shares                             3,729,779         3,729,779
</TABLE>


Dilutive net loss per share reflects the effect of the inclusion of the
incremental shares issuable upon the exercise of outstanding stock options.
Dilutive net loss per share for the three months ended March 31, 2000 and 2001
is the same as the basic net loss per share as the inclusion of incremental
shares for outstanding stock options would have been anti-dilutive. Dividends on
preferred stock, which totaled $154,800 for both the three months ended March
31, 2000, and 2001, 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 $254,482 and
$371,186 for the three months ended March 31, 2000 and 2001, 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.

The company has also adopted a self insurance program for its employee health
insurance. The plan has a stop loss reinsurance limit of $20,000 per individual
insured per year.


                                       9
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

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


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.

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 and long-term debt 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.

Note 2.  Advances From and Note Payable - Principal Stockholder

The Company has an unsecured note payable totaling $2,785,615 from Branin
Investments, Inc. (Branin), which is 100% owned by Philip A. Herman, who until
his resignation on August 18, 2000 was the Chairman of the Board and President
of Nations. Prior to his resignation, this note payable consisted of interest
and non-interest bearing advances. The note bears interest at 13% per annum,
payable monthly and is due at the earlier of May 2003 or the date on which the
Company completes a public offering of its equity securities or a refinancing of
its bank debt owed pursuant to the Credit Facility with Fleet as described in
Note 3. In addition, Branin has agreed to subordinate its rights to receive
principal and interest payments to the obligation under the Credit Facility. In
light of these terms the entire note has been classified as long term at
December 31, 2000 and March 31, 2001. Total interest expense of $48,750 and
$83,757 relating to the amounts owed to Branin has been reflected in the
accompanying consolidated statements of operations for the three months ended
March 31, 2000 and 2001, respectively. Accrued interest of $241,676 and $325,433
is included in the balance of Advances from and Note Payable-Principal
Stockholder at December 31, 2000 and March 31, 2001.


Note 3.  Note Payable and Long-Term Debt

The Company, through its subsidiary CBI, has a credit agreement (the "Credit
Facility") with Fleet Capital Corporation ("Fleet"), consisting of a $5,000,000
term loan and a $5,000,000 revolving line of credit. Advances on the revolving
line of credit are further limited by the company's levels of eligible accounts
receivable and inventory. The term loan requires quarterly payments of $175,000.
CBI has 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. 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
(5.15% at March 31, 2001) plus 2.75% and 3.25% per annum, in connection with
advances under the revolving line and 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 financial covenants which, among others, requires CBI to maintain
minimum levels of tangible net worth and debt coverage. In connection with this
Credit Facility, Branin has agreed that the advances from and notes payable to
Branin (see Note 2) will be subject to certain subordination and payment
limitation requirements.


                                       10

<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATMENTS

Note 3.  Note Payable and Long-Term Debt (continued)

At December 31, 2000, the Company was in violation of certain financial
covenants related to the Credit Facility. The Company was not in violation of
any financial covenants related to the Credit Facility as of March 31, 2001.
Fleet has not waived the December 31, 2000 violations, and subsequent compliance
with covenants does not constitute a waiver under the credit facility, and
accordingly the portions of the term note due beyond March 31, 2002, totaling
$2,375,000 have been reflected as currently due. Fleet has not notified the
Company of its intent to demand payment of amounts outstanding under the Credit
Facility and although there can be no assurance in this regard, the Company
believes Fleet will continue to make funds available under the Credit Facility.


Amounts outstanding under the Credit Facility are as follows:

<TABLE>
<CAPTION>
                                                December 31,      March 31,
                                                    2000            2001
                                               --------------- ----------------
<S>                                             <C>            <C>
Revolving line of credit                          $ 4,532,156      $ 4,502,792
Term loan                                         $ 3,250,000      $ 3,075,000
</TABLE>


At March 31, 2001, the Company had no availability under the term loan and
approximately $100,000 available under the revolving line of credit.

The Company has a mortgage note payable with a financial institution secured by
the Company's land and building of $432,572 and $425,179 outstanding at December
31, 2000 and March 31, 2001, respectively. The note 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 obligations including capital leases of $178,085 and
$162,210 outstanding at December 31, 2000 and March 31, 2001, respectively. The
notes bear interest at an approximate average of 13% and mature between June
2001 and September 2005.

The Company is actively seeking a credit relationship to replace the Fleet
Credit Facility, if needed and provide the Company additional working capital.
In addition, the Company plans to raise equity funds to further its acquisition
strategy. On March 22, 2001, the Company signed an agreement with an underwriter
to use its best efforts in a proposed $1,000,000 private placement of
convertible debt, to be followed by a public offering with expected gross
proceeds of approximately $15,000,000. There can be no assurance that such
contemplated replacement financing or equity offering will be completed or that
the funds raised will be sufficient to execute the Company's strategy.



                                       11

<PAGE>


Item 2.     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
            AND RESULTS OF OPERATIONS

         This Report on Form 10-Q 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
the Company's growth strategies and those discussed below.

         The following discussion of the financial condition and results of
operations of the Company relates to the three months ended March 31, 2000 and
2001 and should be read in conjunction with the financial statements and notes
thereto included elsewhere in this Report.

         The discussion of results includes discussions regarding EBITDA. EBITDA
is used by management as a measure of performance and is defined as operating
income excluding the effects of depreciation and amortization. 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 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 Quarters Ended March 31, 2000 and 2001

         Total revenues increased by $862,591 to $15,142,282 for the three
months ended March 31, 2001 from $14,279,691 for the three months ended March
31, 2000, representing an increase of 6%. This increase in revenues is believed
to be a natural result of the Company's increased efforts in advertising and
marketing. Prices for the Company's products were not significantly changed. The
components of this increase are as follows:


<TABLE>
<S>                                                                  <C>
Residential Contract                                                  $ 189,438
Residential Replacement
                                                                        628,365
Commercial
                                                                        166,088
Other                                                                  (121,300)
                                                                      ---------
                                                                      $ 862,591
                                                                      =========
</TABLE>


         Gross profit increased by $377,659 to $3,741,907 for the three months
ended March 31, 2001 from $3,364,248 for the three months ended March 31, 2000,
representing an increase of 11.2%. This increase resulted primarily from the
increase in sales volume and from an increase in the gross profit percentage
(24.7% in 2001 and 23.6% in 2000). The increase in gross profit percentage is
due to management's continuing efforts to maximize gross profit in all areas of
the business.

         Selling, general and administrative expenses increased by $149,895 to
$3,246,659, for the three months ended March 31, 2001 from $3,096,764 for the
three months ended March 31, 2000. During the first quarter of 2000, the Company
started work on an operation in Myrtle Beach, S.C., which opened in July, 2000.
The inclusion of the Myrtle Beach operation accounted for $88,458 of this
increase. The remaining increase of $61,437 was comprised primarily of
approximate increases in rent of $50,000, and advertising of $94,000 partially
offset by approximate decreases in professional fees of $83,000. As a percentage
of sales, selling, general and administrative expenses decreased to 21.4% in
2001 from 21.6% in 2000.

         Amortization and depreciation expense decreased to $306,501 in 2001
from $354,919 in 2000, due to the expiration of certain intangible assets in the
second quarter of 2000.


                                       12

<PAGE>


         As a result of the above changes operating income (loss) changed by
$276,182 to income of $188,747 for the three months ended March 31, 2001 from a
loss of $87,435 for the three months ended March 31, 2000. Interest expense
increased by $44,800 to $307,787 for the three months ended March 31, 2001 from
$262,987 for the three months ended March 31, 2000. The primary reason for the
increase in interest expense was the consolidation of advances to Branin into an
interest bearing note in August 2000. Income tax benefit changed by $76,000 to a
benefit of $42,000 in 2001 from a benefit of $118,000 in 2000 due to the
decrease in loss before income taxes. Net loss changed by $153,713 to a loss of
$76,886 for the three months ended March 31, 2001 from a loss of $230,599 for
the three months ended March 31, 2000.

         EBITDA increased by $229,540 to $495,201 for the three months ended
March 31, 2001 from $265,661 for the three months ended March 31, 2000. This
increase in EBITDA was due primarily to increased sales volume and the related
increase in gross profit.

Liquidity and Capital Resources

         Cash provided by operating activities was $468,954 and $492,930 for the
three months ended March 31, 2000 and 2001, respectively. In the three months
ended March 31, 2001 operations provided positive cash flows despite the net
loss due to the inclusion of non-cash charges in net loss and certain
significant changes in working capital items. The changes in the working capital
resulted in a working capital deficit of $5,742,900 at March 31, 2001 as
compared to a working capital deficit of $5,806,362 at December 31, 2000.
Included in such deficit is $7,577,792, 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 2001, net loss included significant non-cash charges of
amortization of $204,282 and depreciation of $102,219. Additionally, cash was
provided by increases in accounts payable of $1,371,410. The increase in
accounts payable reflects the use of trade credit to partially finance the net
loss for the quarter ended March 31, 2001. These sources of cash from operations
were partially offset by the use of cash to increase inventory by $367,900,
accounts receivable by $291,287 and to reduce accrued expenses by $335,599 and
customer deposits by $148,764. The increase in accounts receivable was due to a
temporary slowdown in the collection on open accounts. The increase in inventory
was partially due to the conversion of one of the Las Vegas retail stores into a
warehouse outlet.

         For 2000, net loss included significant non-cash charges of
amortization of $242,376 and depreciation of $112,543. Additionally, cash was
provided by decreases in accounts receivable of $177,288 and inventory of
$231,975, increases in accounts payable of $450,997, accrued expenses of $95,788
and customer deposits of $9,422. The declines in accounts receivable and
inventory from December 31, 1999 reflect the decline in sales between the
quarter ended March 31, 2000 and the quarter ended December 31, 1999. The
increase in accounts payable reflects the use of trade credit to partially
finance the net loss for the quarter ended March 31, 2000. These sources of cash
from operations were partially offset by the use of cash to reduce the year end
tax liability of $391,378 and the amount owed to the Company's principal
stockholder of $14,850 and the increase in prepaid expenses and other of
$176,893 due primarily to a deposit made against fees owed to Barbican (see
below) and to reflect the tax benefit of $127,125.

         During the three months ended March 31, 2000 and 2001, cash used in
investing activities was $188,036 and $41,555, respectively, used primarily to
purchase equipment and leasehold improvements. Cash used in financing activities
during such periods was $159,146 and $382,433, respectively, used primarily to
make payments on the Company's credit facilities and to pay the dividends on the
Company's preferred stock.

         The Company has an unsecured note payable totaling $2,785,615 from
Branin Investments, Inc. (Branin), which is 100% owned by Philip A. Herman, who
until his resignation on August 18, 2000 was the Chairman of the Board and
President of Nations (see Note 2 of Notes to Consolidated Financial Statements).
As of April 30, 2001, the Company was indebted to Branin for $2,813,534. Prior
to his resignation, this note payable consisted of interest and non-interest
bearing advances. The note bears interest at 13% per annum, payable monthly and
is due at the earlier of May 2003 or the date on which the Company completes a
public offering of its equity securities or a refinancing of its bank debt owed
pursuant to the Credit Facility with Fleet as describe in Note 3. In addition,
Branin has agreed to subordinate its rights to receive principal and interest
payments to the obligation under the Credit Facility. In light of these terms
the entire note has been classified as long term at December 31, 2000 and March
31, 2001. Total interest expense of $48,750 and $83,757 relating to the amounts
owed to Branin has been reflected in the accompanying consolidated statements of
operations for the three months ended March 31, 2000 and 2001, respectively.
Accrued interest of $241,676 and $325,433 is included in the balance of Advances
from and Note Payable-Principal Stockholder at December 31, 2000 and March 31,
2001.


                                       13

<PAGE>


         The Company had an oral consulting agreement with Branin for certain
management advisor services. The agreement called for monthly payments of
$20,000. Effective May 1, 2001, the agreement was mutually terminated.

         The Company, through its subsidiary CBI, has a credit agreement (the
"Credit Facility") with Fleet Capital Corporation ("Fleet"), consisting of a
$5,000,000 term loan and a $5,000,000 revolving line of credit. The term loan
requires quarterly payments of $175,000. CBI has 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. 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 (5.15% at March 31, 2001)
plus 2.75% and 3.25% per annum, in connection with advances under the revolving
line and 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 financial covenants
which, among others, requires CBI to maintain minimum levels of tangible net
worth and debt coverage. In connection with this Credit Facility, Branin has
agreed that the advances from and notes payable to Branin (see Note 2 of Notes
to Consolidated Financial Statements) will be subject to certain subordination
and payment limitation requirements.

             At December 31, 2000, the Company was in violation of certain
financial covenants related to the Credit Facility. The Company was not in
violation of any financial covenants related to the Credit Facility as of March
31, 2001. Fleet has not waived the December 31, 2000 violations, and subsequent
compliance with covenants does not constitute a waiver under the credit
facility, and accordingly the portions of the term note due beyond March 31,
2002, totaling $2,375,000 have been reflected as currently due. Fleet has not
notified the Company of its intent to demand payment of amounts outstanding
under the Credit Facility and although there can be no assurance in this regard,
the Company believes Fleet will continue to make funds available under the
Credit Facility.

Amounts outstanding under the Credit Facility are as follows:

<TABLE>
<CAPTION>
                                                  December 31,      March 31,
                                                      1999            2000
                                               --------------- ----------------
<S>                                               <C>              <C>
Revolving line of credit                          $ 4,532,156      $ 4,502,792
Term loan                                         $ 3,250,000      $ 3,075,000
</TABLE>


         At March 31, 2001, the Company had no availability under the term loan
and approximately $100,000 available under the revolving line of credit.

         The Company has a mortgage note payable with a financial institution
secured by the Company's land and building of $432,572 and $425,179 outstanding
at December 31, 2000 and March 31, 2001, respectively. The note 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 obligations including capital leases of $178,085
and $162,210 outstanding at December 31, 2000 and March 31, 2001, respectively.
The notes bear interest at an approximate average of 13% and mature between June
2001 and September 2005.

         The Company is actively seeking a credit relationship to replace the
Fleet Credit Facility, if needed and provide the Company additional working
capital. In addition, the Company plans to raise equity funds to further its
acquisition strategy. The Company is currently in discussion with an underwriter
to negotiate a commitment to underwrite a future offering by the Company. There
can be no assurance that such contemplated replacement financing or equity
offering will be completed or that the funds raised will be sufficient to
execute the Company's strategy.

         During 2000, the Company opened one location in Myrtle Beach, S.C. The
Company funded this new location with its existing working capital. A portion of
the initial capital costs for this location was provided by the Company's
suppliers in exchange for agreements by the Company to feature the suppliers'
products at this facility. 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.


                                       14

<PAGE>


         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 2001. Although planned 2001 operations are not
projected to eliminate or reduce the Company's working capital deficit which
existed at March 31, 2001, 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, since the Company was in
violation of certain covenants and since Fleet has not waived those violations,
there can be no assurance that Fleet will continue to advance funds under the
Credit Facility.

         The Company recognizes that additional capital is needed to fund its
acquisition and growth strategy as well as any working capital requirements not
provided by Fleet. Accordingly, the Company is in negotiations with lenders to
obtain a credit relationship to replace Fleet if needed. In addition, the
Company is seeking to raise equity funds to further its acquisition strategy. On
March 22, 2001, the Company signed an agreement with an underwriter to use its
best efforts in a proposed $1,000,000 private placement of convertible debt, to
be followed by a public offering with expected gross proceeds of approximately
$15,000,000. There can be no assurance that any of these efforts will be
successful. The failure to obtain working capital financing to replace or
supplement the Fleet facility, if needed, and the failure to obtain additional
debt or equity capital would adversely affect the Company's pursuit of its
growth strategies.

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.

Item 3     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 Fleet. Based upon the balance of the Fleet debt at March 31, 2001, 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 $75,000 per year.



                                       15

<PAGE>


PART II. OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS

         In December, 1999, BankBoston Development Company, LLC ("BankBoston"),
an affiliate of Fleet Boston Financial, filed a lawsuit in the United States
District Court for the District of Massachusetts against Philip Herman (former
Chairman of the Board and President of the Company), Branin Investments, Inc.
(Branin) (100% owned by Philip A. Herman) 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 BankBoston's $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 discovery 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, 2000 and March 31, 2001.


ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

(a)         Exhibits

                  None

(b)      Reports on Form 8-K.

                  None



                                       16

<PAGE>



                                   SIGNATURES


Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant had duly caused this report to be signed by the undersigned,
thereunto duly authorized.




May 21, 2001                               /s/ Facundo Bacardi
                                           -------------------------------------
                                           Facundo Bacardi
                                           Chairman of the Board and President
                                           (Principal Executive Officer)

May 21, 2001                               /s/ William V. Poccia
                                           -------------------------------------
                                           William V. Poccia
                                           Executive Vice President of Finance
                                           and Secretary (Principal Financial
                                           and Accounting Officer)








                                       17