RAGAR CORP, S-1/A, 1997-05-16

RAGAR CORP
S-1/A, 1997-05-16
HOME FURNITURE, FURNISHINGS & EQUIPMENT STORES

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<PAGE>

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 16, 1997

REGISTRATION NO. 333-19871

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

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------

AMENDMENT NO. 2
TO

FORM S-1

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933
------------------------
NATIONS FLOORING, INC.

(Exact Name of Registrant as Specified in its Charter)

<TABLE>
<S> <C> <C>
DELAWARE 2836, 2835 11-2925673
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Organization) Industrial Classification Code Number) Identification Number)
</TABLE>

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

100 MAIDEN LANE
NEW YORK, NEW YORK 10038
(212) 898-8888
(Address, Including Zip Code and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)

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

PHILIP A. HERMAN
Chairman of the Board and President
Nations Flooring, Inc.
100 Maiden Lane
New York, New York 10038
(212) 898-8888
(Name, Address, Including Zip Code, and Telephone Number, Including
Area Code, of Agent For Service)

------------------------------
COPIES TO:

<TABLE>
<S> <C>
ANDREW J. LEVINSON JAMES R. TANENBAUM
Herzfeld & Rubin, P.C. Stroock & Stroock & Lavan LLP
40 Wall Street 180 Maiden Lane
New York, New York 10005 New York, New York 10038
(212) 344-5500 (212) 806-5400
</TABLE>

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

APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.

If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: / /

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
------------------------

THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THE REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.

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<PAGE>
NATIONS FLOORING, INC.
CROSS-REFERENCE SHEET
Showing Location in Prospectus of
Information Required by Items of Form S-1

<TABLE>
<CAPTION>
REGISTRATION STATEMENT ITEM AND HEADING CAPTION OR LOCATION IN PROSPECTUS
----------------------------------------------------- -----------------------------------------------------
<C> <S> <C>

1. Forepart of the Registration Statement and Outside
Front Cover of Prospectus.......................... Outside Front Cover Page

2. Inside Front and Outside Back Cover.................. Inside Front and Outside Back Cover Pages

3. Summary Information, Risk Factors
and Ratio of Earnings to Fixed Charges............. Prospectus Summary; Risk Factors

4. Use of Proceeds...................................... Use of Proceeds

5. Determination of Offering Price...................... Outside Front Cover Page; Underwriting

6. Dilution............................................. Dilution

7. Selling Security Holders............................. Not Applicable

8. Plan of Distribution................................. Outside Front Cover Page; Underwriting

9. Description of Securities to be
Registered......................................... Description of Capital Stock; Dividend Policy; Shares
Eligible for Future Sale

10. Interests of Named Experts
and Counsel........................................ Not Applicable

11. Information with Respect to the
Registrant......................................... Outside Front Cover Page; Prospectus Summary; Risk
Factors; Dividend Policy; Selected Financial Data;
Management's Discussion and Analysis of Financial
Condition and Results of Operations; Business;
Certain Transactions; Principal Stockholders and
Holdings of Management; Financial Statements

12. Disclosure of Commission Position on Indemnification
for Securities Act
Liabilities........................................ Not Applicable
</TABLE>
<PAGE>

SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 16, 1997

INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
PROSPECTUS

2,000,000 SHARES

NATIONS FLOORING, INC.

COMMON STOCK

All of the shares of common stock, par value $.001 per share (the "Common
Stock"), are being sold by Nations Flooring, Inc. (the "Company"). Prior to this
offering (the "Offering"), there has been a limited public market for the Common
Stock of the Company. See "Price Range of Common Stock." It is currently
anticipated that the public offering price (the "Offering Price") will be
between $6.00 and $8.00 per share. For a discussion of factors considered in
determining the public offering price, see "Underwriting." Application has been
made to list the Common Stock on the American Stock Exchange under the symbol
"NFI."

Following the completion of the Offering, the directors and executive
officers of the Company and entities controlled by them, including Branin
Investments, Inc. ("Branin"), a company controlled by Philip A. Herman, the
Company's Chairman of the Board and President, will beneficially own 35.5% of
the outstanding Common Stock. See "Principal Stockholders and Holdings of
Management."

THE COMMON STOCK OFFERED HEREBY IS SPECULATIVE AND INVOLVES A HIGH DEGREE OF
RISK. SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.

---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) ISSUER(2)
<S> <C> <C> <C>
Per Share....................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>

(1) Does not reflect additional compensation to be received by the Underwriters
in the form of: (i) a non-accountable expense allowance equal to $
($ if the over-allotment option is exercised in full); and (ii)
warrants granted by the Company to the Underwriters to purchase 200,000
shares of Common Stock at a price equal to $ per share (the
"Underwriters' Warrants"); and does not include a finder's fee to be paid to
a third party in the amount of 20,000 shares of Common Stock upon the
completion of the Offering. The Company has agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."

(2) Before deducting expenses of the Offering payable by the Company, estimated
at $500,000, excluding the Underwriters' non-accountable expense allowance.
See "Underwriting."

(3) The Company has granted the Underwriters a 30-day option to purchase up to
an aggregate of 300,000 additional shares of Common Stock, on the same terms
and conditions set forth above, solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Issuer will be $ ,
$ and $ , respectively. See "Underwriting."

The shares of Common Stock are being offered by the Underwriters, on the
terms and conditions set forth above, when, as and if delivered to and accepted
by the Underwriters, subject to the rights of the Underwriters to reject any
order in whole or part and certain other conditions. It is expected that
delivery of the certificates will be made at the offices of Chatfield Dean &
Co., 7935 E. Prentice Avenue, Suite 200, Greenwood Village, Colorado, on or
about , 1997.

CHATFIELD DEAN & CO.

SUNCOAST CAPITAL CORP.

The date of this Prospectus is , 1997.
<PAGE>
AVAILABLE INFORMATION

The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (the "Registration
Statement") under the Securities Act with respect to the securities offered by
this Prospectus. This Prospectus does not contain all of the information set
forth in the Registration Statement, certain parts of which are omitted in
accordance with the rules and regulations of the Commission. For further
information with respect to the Company and this offering, reference is made to
the Registration Statement, including the exhibits filed therewith, which may be
inspected without charge at the Commission's principal office at 450 Fifth
Street, N.W., Washington, DC 20549 and at the Commission's regional offices: in
New York, Seven World Trade Center, 13th Floor, New York, New York 10048; and in
Chicago, Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Such information can also be obtained on the
internet at the Commission's website (http://www.sec.gov). Copies of the
Registration Statement may be obtained from the Commission at its principal
office upon payment of prescribed fees. Such information can also be inspected
and copied at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. Statements contained in this Prospectus as to the contents
of any contract or other document are not necessarily complete and, where the
contract or other document has been filed as an exhibit to the Registration
Statement, each such statement is qualified in all respects by reference to the
applicable document filed with the Commission.

The Company is currently subject to the periodic reporting and other
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and in accordance therewith is required to file reports and
other information with the Commission. Such reports and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at its principal offices.

The Company intends to furnish its stockholders with annual reports
containing audited consolidated financial statements and an opinion expressed
thereon by the Company's independent certified public accountants.

CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES
OF THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."

2
<PAGE>
PROSPECTUS SUMMARY

THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY, AND SHOULD BE READ IN
CONJUNCTION WITH, THE MORE DETAILED INFORMATION (INCLUDING THE FINANCIAL
STATEMENTS AND THE NOTES THERETO) APPEARING ELSEWHERE IN THIS PROSPECTUS. EACH
PROSPECTIVE INVESTOR IS URGED TO READ THIS PROSPECTUS IN ITS ENTIRETY. UNLESS
OTHERWISE INDICATED, THE INFORMATION INCLUDED IN THIS PROSPECTUS ASSUMES (I) THE
CONSUMMATION OF A MERGER (THE "MERGER"), APPROVED BY STOCKHOLDERS ON MARCH 19,
1997, PURSUANT TO WHICH THE COMPANY WILL REINCORPORATE IN DELAWARE AND CHANGE
ITS NAME TO "NATIONS FLOORING, INC.", (II) THE EFFECT OF A ONE-FOR-FOUR REVERSE
STOCK SPLIT OF THE COMPANY'S COMMON STOCK EFFECTED PRIOR TO THE DATE OF THIS
PROSPECTUS (WHICH SPLIT IS BEING EFFECTED PURSUANT TO THE TERMS OF THE AGREEMENT
RELATING TO THE MERGER AND WILL HAVE THE EFFECT THAT EACH HOLDER OF ONE SHARE OF
COMMON STOCK OF THE COMPANY'S PREDECESSOR WILL OWN IN PLACE THEREOF ONE-FOURTH
( 1/4) OF A SHARE OF COMMON STOCK OF THE COMPANY) AND (III) THAT THE
UNDERWRITER'S OVER-ALLOTMENT OPTION IS NOT EXERCISED. REFERENCES TO THE COMPANY
HEREIN SHALL MEAN THE COMPANY, INCLUDING THE OPERATIONS OF NATIONS FLOORING,
INC. AND ITS CONSOLIDATED SUBSIDIARIES, AND THE OPERATIONS OF THEIR
PREDECESSORS, EXCEPT TO THE EXTENT THAT THE CONTEXT REQUIRES OTHERWISE.

THE COMPANY

BUSINESS

Nations Flooring, Inc. (the "Company") is engaged in the business of selling
and installing floor coverings and selling wall coverings, window treatments and
certain related products, primarily for the residential housing market.
Currently, the Company is engaged in business in Las Vegas, Nevada, where its
sales of $40.3 million, $42.4 million and $9.2 million in 1995, 1996 and the
three months ended March 31, 1997, respectively, have made it the largest seller
and installer of floor coverings in such market. The Company believes that its
sales represent approximately 63% of the new homes sold in the Las Vegas new
home market and are approximately 3.5 times those of its nearest competitor,
based on 1995 construction data, the latest such information available. From its
three facilities in Las Vegas, the Company sells approximately 72% of its
products to the new home market to or through new homebuilders through its New
Housing Division and approximately 28% of its products to the retail replacement
market directly to individual homeowners through its Replacement Sales Division.
New Housing Division sales are effected primarily to or through new home
builders who offer purchasers a wide selection of basic grade floor coverings 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
possible upgrades on floor coverings, in addition to purchasing wall coverings,
window treatments and related products. The Company believes that its new retail
design center located in Las Vegas will also enable it to continue to broaden
its product lines and expand the sales of its Replacement Sales Division. The
Company has also recently established a Commercial Division, which is its first
entry into the commercial market, including multi-family, office, retail store
and small hotel projects.

The Company believes that the retail floor covering industry is highly
fragmented, with no single floor covering retailer, including national and large
regional chains, accounting for more than ten percent of the total market. Most
floor covering retailers operate a single store generating less than $1 million
in annual sales. The Company believes that small independent floor covering
retailers face competitive disadvantages resulting from limited purchasing
power, ineffective inventory control and inadequate resources for sales,
marketing and store management. Accordingly, the Company believes that
significant opportunities exist for floor covering retailers that can achieve
cost advantages and operating efficiencies through selective acquisitions and
internal growth.

3
<PAGE>

their desirability for expansion. The Company is also in the process of
negotiating with acquisition candidates in some of those markets and has
recently entered into a non-binding letter of intent to acquire the assets of
Nonn's Flooring, Inc., a floor covering retailer with two stores located in the
Madison, Wisconsin area. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources." The
Company also anticipates opening two new "big-box" facilities in Phoenix,
Arizona in 1997 and is actively exploring the possibility of developing
additional stores in other sites in the southwestern United States where the
Company can build on its relationships with regional homebuilders. The planned
"big-box" facilities will have between 40,000 and 60,000 square feet
per facility and will focus on retail sales of all product lines in a
warehouse-type setting, as well as having a dedicated design center area. The
Company believes that the "big-box" format will enable it to quickly capture a
significant market share by offering customers a pleasant shopping environment
in which to fulfill all of their floor and wall covering and related needs on a
cash-and-carry or next-day installed basis. However, there can be no assurance
as to the viability of this approach.

The Company intends to increase its business in Las Vegas through continued
advertising and marketing efforts, and recently opened a new retail facility and
a new home design center in other areas of Las Vegas. The Company's main
facility is located centrally, and the additional retail branch is located in an
area of Las Vegas with a large concentration of mature homes. Additional retail
centers in similar areas are being contemplated. The Company intends to actively
seek to increase its retail replacement sales through increased consumer
advertising, enhanced marketing, the opening of one or more new retail locations
and the addition of new products. See "Business--Strategy."

ORGANIZATIONAL HISTORY

The Company was organized under the laws of Delaware on December 26, 1996 as
a wholly-owned subsidiary of Ragar Corp., which was organized under the laws of
the State of New York on July 19, 1988. Prior to the date of this Prospectus,
Ragar Corp. will merge into the Company, which was organized solely for the
purpose of effecting the Merger. The directors and executive officers of the
Company are the directors and executive officers of Ragar Corp. before the
Merger.

Ragar Corp. had no substantial operations prior to the acquisition of Carpet
Barn Holdings, Inc. ("CBH"). On June 2, 1995, Ragar Corp. acquired all of the
common stock of CBH in exchange (the "Exchange") for the issuance to the holders
of common stock of CBH of an aggregate of 3,304,437 shares of Ragar common
stock, pursuant to an Agreement and Plan of Exchange, dated as of June 1, 1995
(the "Exchange Agreement"), among Ragar Corp., CBH and the CBH stockholders. The
Company's only substantial operation, CBH and its wholly-owned subsidiary,
Carpet Barn, Inc. ("CBI"), a Delaware corporation organized on January 9, 1995,
were formed for the purpose of acquiring the assets and operations of Carpet
Barn, Inc., a Nevada corporation ("Carpet Barn" or the "Predecessor Business"),
a retail carpet sales and installation business located in Las Vegas, Nevada.
Concurrently with completing the Exchange, the Company completed the acquisition
(the "Acquisition") of substantially all of the assets of Carpet Barn pursuant
to that certain Asset Purchase Agreement, dated as of June 1, 1995 (the
"Purchase Agreement"), between CBI and Carpet Barn.

The Company's principal executive offices are located at 100 Maiden Lane,
New York, New York 10038 and its telephone number is (212) 898-8888.

4
<PAGE>
THE OFFERING

<TABLE>
<S> <C>
Common Stock offered................ 2,000,000 shares
Common Stock to be outstanding after
the Offering(1)................... 5,662,397 shares

Use of Proceeds..................... The Company intends to apply the net proceeds
received by it in the Offering for the partial
repayment of the Company's bank indebtedness, to
redeem a portion of the outstanding preferred stock
issued by CBH, to repay amounts advanced by Branin
Investments, Inc., an affiliate of the Company, and
for general corporate and working capital
requirements. See "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and
Results of Operations--Liquidity and Capital
Resources" and "Certain Transactions."

Risk Factors........................ The Common Stock offered hereby is speculative and
involves a high degree of risk, including such
factors as the Company's capital requirements for
its growth strategy, leverage, dependence on
certain suppliers and manufacturers, dependence on
customers, lack of geographical diversity,
competition and other factors. See "Risk Factors."
Proposed American Stock Exchange
Symbol............................ "NFI"
</TABLE>

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(1) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon the exercise of employee stock options, of which 595,000 shares are
subject to options to be granted at the Offering Price upon completion of
the Offering, under the Company's 1997 Stock Option Plan (the "Option Plan")
and (ii) 200,000 shares of Common Stock issuable upon the exercise of the
Underwriters' Warrants. See "Management--1997 Stock Option Plan" and
"Underwriting."

THIS PROSPECTUS 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, THOSE DISCUSSED IN "RISK FACTORS"
AND IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS."

5
<PAGE>
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. This
information should be read in conjunction with the Financial Statements and the
Notes thereto included elsewhere in this Prospectus. 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 Acquisition. In addition, certain
information below is not shown for the Predecessor Business where such
information would not present a meaningful comparison. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."

<TABLE>
<CAPTION>
NATIONS FLOORING, INC.
PREDECESSOR BUSINESS ----------------------------------------------------------
-------------------------------------------- PERIOD PRO FORMA
PERIOD ENDED FOR YEAR THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED DECEMBER ENDED YEAR ENDED ENDED MARCH 31,
--------------------------------- JUNE 1, 31, DECEMBER DECEMBER ---------------------
1992 1993 1994 1995(1) 1995(2) 31, 1995(3) 31, 1996 1996 1997
----------- --------- --------- --------- --------- ----------- ----------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $ 28,994 $ 34,530 $ 42,507 $ 16,363 $ 23,980 $ 40,343 $ 42,414 $ 9,765 9,209
Gross margin.............. 8,167 9,598 10,841 5,018 6,017 11,035 11,092 2,680 2,375
Income from operations.... 1,375 1,096 5,548 3,229 2,103 5,356 2,367 799 413
Dividends to preferred
stockholders of
subsidiary.............. 203 339 538 124 140
Net income (loss)......... 925 1,114 4,888 3,737 280 1,647 53 130 (131)
Net income (loss) per
common share(4)......... 0.08 0.45 0.01 0.04 (0.03)
Supplemental net income
per common share(5)..... 0.15 0.47 0.22 0.08 0.04
Weighted average common
shares outstanding(4)... 3,645,791 3,639,732 3,773,097 3,659,541 3,773,097
Pro forma income tax
effect(6)............... 315 379 1,662 1,271
Pro forma net income after
taxes(6)................ 610 735 3,226 2,466
</TABLE>

<TABLE>
<CAPTION>
ACTUAL
------------------------
DECEMBER 31,
------------------------
1995 1996
------------ ----------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)........................................................................... $ (3,757) $ (10,748)
Total assets........................................................................................ 24,326 23,144
Long-term debt and capital lease obligations, less current maturities............................... 8,812 111
Stockholders' equity................................................................................ 3,969 4,194

AS ADJUSTED(7)

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

MARCH 31, 1997
--------------------------

<S> <C> <C>
(UNAUDITED)

BALANCE SHEET DATA:
Working capital (deficit)........................................................................... $ (10,554) $ (1,114)

Total assets........................................................................................ 22,415 22,947

Long-term debt and capital lease obligations, less current maturities............................... 103 103

Stockholders' equity................................................................................ 4,063 15,995

</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, which
was accounted for as a reverse acquisition of the Company by CBH.

(2) Information is presented for the Company for the period from June 2, 1995
through December 31, 1995, due to the Acquisition.

(3) Gives effect to the Acquisition and the Financing (as defined herein) as if
such transactions had occurred on January 1, 1995. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and the Financial Statements.

(4) The weighted average common shares outstanding and net income per common
share for the Predecessor Business are not presented as they are not
comparable to those of the Company.

(5) Supplemental net income per common share has been calculated using the
number of shares used to calculate net income per common share, plus
1,262,810 shares which would be required to be issued to repay $7,640,000
of the indebtedness outstanding with First Source Financial, LLP, plus
522,314 shares which would be required to be issued to redeem $3,160,000 of
preferred stock issued by CBH. In calculating supplemental net income per
common share, net income has been adjusted to eliminate (i) the after-tax
effects of the interest expense on the indebtedness to be repaid, and (ii)
the charge against net income for the dividends on the CBH preferred stock
to be redeemed. See "Use of Proceeds" and Note 1 of the Notes to the
Financial Statements.

(6) 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%.

(7) Gives effect to the net proceeds of the Offering at the assumed Offering
Price of $7.00 per share and the redemption of the remaining shares of CBH
preferred stock, owned by Facundo Barcardi, a director of the Company, in
exchange for shares of preferred stock of the Company. See "Use of
Proceeds."

6
<PAGE>
RISK FACTORS

AN INVESTMENT IN THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF
RISK. IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, THE FOLLOWING
RISK FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE SHARES OF COMMON STOCK BEING OFFERED HEREBY.

GROWTH STRATEGY

The Company is subject to various risks associated with its growth strategy.
To take advantage of the opportunities presented by the consolidation trend in
the floor covering industry the Company is pursuing a two-pronged growth
strategy. In markets in which the Company will pursue growth through
acquisition, the Company will seek to acquire existing floor covering businesses
that are dominant competitors in their region, such as the Company's proposed
acquisition of Nonn's Flooring, Inc. in the Madison, Wisconsin market. In other
selected markets, where there is no dominant floor covering retailer and the
Company believes it could expand its strong relationships with regional
homebuilders, the Company will pursue growth through the development of new
facilities. The Company's growth strategy involves several risks, including the
risk that the Company will be unable to identify suitable acquisition candidates
or to integrate and manage them effectively once acquired. The process of
integrating acquired businesses into the Company's operations may result in
unforeseen difficulties and may require a disproportionate amount of resources
and management attention. The Company's future operating results will depend
significantly upon its ability to successfully open and operate new stores and
acquire and integrate floor covering retailers. The Company's success will
depend on such factors as the difficulties, complications and delays frequently
encountered in connection with the acquisition or development of a new business,
including, but not limited to, competition, the need to develop and expand
customer support capabilities and market expertise, market acceptance and
additional sales and marketing expense. The Company has not determined the
funding requirements of its growth strategy. Limited capital resources currently
exist for the Company's strategy and the proceeds of this Offering are not
expected to provide material resources for this purpose. There can be no
assurance that the Company will be able to expand its market presence in its
current locations or successfully enter other markets or that any such expansion
will be profitable or as profitable as existing operations. If the Company's
management is unable to manage growth effectively, its business, results of
operations and financial condition could be materially and adversely affected.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management--Directors and Executive Officers" and
"--Key Employees."

LEVERAGE AND CREDIT AGREEMENT DEFAULTS

The Company is highly leveraged and is subject to the risks associated with
a highly leveraged company. The Company's ratio of indebtedness for borrowed
money to stockholders' equity at March 31, 1997 was 2.8:1. There can be no
assurance that acceptable financing for future acquisitions or for the
integration and expansion of existing business can be obtained. The Company
incurred significant indebtedness in connection with the Acquisition pursuant to
a credit facility (the "Credit Agreement") with First Source Financial, LLP
("First Source"). The Company currently depends on the Credit Agreement for its
working capital needs. The Company is in violation of certain financial
covenants under the credit facility and there can be no assurance that First
Source will continue to advance funds under the facility or that it will
continue to refrain from accelerating the debt. The Company anticipates repaying
a portion of its indebtedness to First Source out of the net proceeds of the
Offering and is in discussions with other lenders to provide another credit
facility. On February 19, 1997, CBI signed a commitment letter for a $12,500,000
credit facility with Finova Capital Corporation (the "Finova Facility"). The
commitment letter expires June 15, 1997 and is conditioned upon the negotiation
and execution of the customary documentation and the completion of this
Offering. The proceeds of the Finova Facility would be used to repay any
remaining borrowings under the First Source Credit Agreement after the
application of the use of proceeds from this Offering. Remaining proceeds, if
any, will be used for general corporate purposes, including acquisitions. There
can be no assurance that the Company will be able to obtain the Finova

7
<PAGE>

Facility. If the Company is unable to obtain the Finova Facility, it will
continue to explore other financing alternatives that may be available to it.
However, there can be no assurance as to the timing or terms of any such
alternative financing. See "Use of Proceeds" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Liquidity and Capital
Resources."

CAPITAL REQUIREMENTS

The Company's growth strategy will require significant capital resources.
The Company's future capital requirements will also depend on many other
factors, including cash flow from operations, competing market developments and
the Company's ability to market its products and services successfully. Capital
will be needed to effect acquisitions, including the proposed acquisition of
Nonn's Flooring, Inc. See "Business--Strategy." Capital is also needed for the
effective integration, operation and expansion of such businesses once acquired,
as well as for the operation and expansion of the Company's newly developed
facilities. Moreover, although the Company funded all of the initial capital
costs of developing its two new Las Vegas facilities with monies provided by
suppliers, and anticipates that the capital costs for additional new facilities
will be provided in part by suppliers, based in each case on expected sales of
their products, there can be no assurance that such funds will be available or
will be adequate for this purpose. In addition, the inventory and other costs
associated with potential acquisitions and with opening "big-box" facilities are
substantially higher than those for the stores opened in Las Vegas. Accordingly,
while the Offering may provide a small amount of capital needed to pursue its
aggressive growth and acquisition strategy, the Company will need to raise
additional capital through the issuance of long-term or short-term indebtedness
or the issuance of its equity securities in private or public transactions,
which could result in dilution of existing equity positions, increased interest
and amortization expense, or decreased income to fund future expansion. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

DEPENDENCE ON SUPPLIERS AND MANUFACTURERS

The Company relies primarily on several independent high volume carpet
manufacturers for the production of its floor coverings, including Shaw
Industries, Inc. ("Shaw"), Mohawk Industries, Alladin Mills, Inc. and Tuftex (a
division of Queen Carpet Corp.). During 1996, the Company's top six suppliers
accounted for $16,746,000 or 86.5% of the Company's floor covering purchases.
Although these manufacturers have been reliable, high-quality producers, there
can be no assurance that in the future these manufacturers will be willing or
able to meet the Company's requirements on a timely basis or that their pricing
policies will remain competitive. Furthermore, certain of these suppliers and
manufacturers have recently entered the retail and/or commercial market and will
compete, directly or indirectly, with the Company. See "Business --Suppliers"
and "--Competition."

ABSENCE OF SIGNIFICANT AMOUNTS OF INVENTORY

The Company has to date operated with very little inventory, relying instead
on its ability to obtain deliveries from manufacturers on the date of scheduled
installation of the carpeting or other floor covering, which has kept the
Company's inventory and warehousing costs low. The Company's policy of next-day
installation on purchases in the Las Vegas market is dependent on its ability to
schedule next-day "cut and drop" product deliveries from its suppliers, since it
currently maintains very low inventory levels. To date the Company's suppliers
have been able to satisfy its 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 and would have material adverse
effects on the Company's business. See "Business-- Strategy."

8
<PAGE>
DEPENDENCE ON AND RELATIONSHIP WITH CUSTOMERS

The Company's top five customers, located primarily within Clark County,
Nevada, accounted for approximately 37%, 31% and 36% of the Company's net sales
in 1994, 1995 and 1996, respectively. The Company has retained the majority of
its pre-Acquisition customers, including all of its top 20 pre-Acquisition
customers. By remaining competitive on prices and service, the Company has been
successful in retaining these customers and attracting new customers, despite
the fact that certain members of management of the Predecessor Business did not
remain with the Company. However, there can be no assurance that in the future,
these customers will continue to do business with the Company. Loss of any major
customer or a material reduction in sales attributable to a major customer would
have a material adverse effect upon the Company.

LIMITED EXPERIENCE OF EXECUTIVE OFFICERS WITH FLOOR COVERING BUSINESS

Prior to June 2, 1995, the Company was a development stage enterprise and
its primary activities were limited to locating an acceptable acquisition
candidate. On June 2, 1995, the Company consummated the Acquisition.
Accordingly, the Company and its executive officers, other than the Chief
Operating Officer of CBI have been involved in the carpet business only since
the Acquisition in June 1995. To date, the Company has not completed any further
acquisitions of floor covering retailers.

DEPENDENCE ON KEY OPERATING PERSONNEL

The success of the Company is largely dependent on the skills, experience
and efforts of its operating management. These managers include the persons in
charge of the Company's existing retail operations in Las Vegas and the planned
Phoenix, Arizona facilities, the Company's design center and the working
relationships with homebuilders and carpet installers. The Company maintains key
man life insurance policies on Philip Herman, Steve Chesin and Alan Ember in the
amount of $1 million each. The loss of the services of any of the members of the
Company's operating management could have a material adverse effect on the
Company's business and prospects. Competition for such personnel is intense.
While certain of these employees have employment agreements with the Company,
there can be no assurance that the Company will be successful in retaining such
personnel. The Company believes that its future success will also depend in part
upon its ability to attract, retain and motivate additional qualified personnel.
There can be no assurance that such personnel will be available to the Company.
See "Management--Key Employees."

CERTAIN REFINANCING CHARGES

In connection with the consummation of the Offering, the Company will redeem
the $4,660,000 of preferred stock of CBH outstanding. Because such preferred
stock was issued at a discount of $1,542,726 to its stated value, the Company
will record a one-time charge against net income in that amount in the period in
which the redemption occurs. The Company will also record a charge against net
income of $468,125, representing unamortized debt issuance costs at March 31,
1997, in connection with the First Source debt being refinanced out of the
proceeds of the Offering and the Finova Facility. Moreover, in connection with
the repayment of the First Source debt, the Company will be subject to a
prepayment penalty of 2% (declining to 1% on June 2, 1997 and to zero on June 2,
1998) of the then applicable revolving loan commitment ($157,500 as of March 31,
1997.) See "Capitalization" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."

CONFLICTS OF INTEREST

The Company has engaged in various transactions with persons or entities
affiliated with the Company. A significant number of these transactions have
been with Branin, a company of which Philip Herman, the Company's Chairman of
the Board and President, is president and principal owner. Rather

9
<PAGE>

than employing Company personnel to provide executive management- and
acquisition-related services, the Company in the past utilized the services of
Branin, a merchant banking company engaged primarily in arranging acquisitions
and financing of business entities, in exchange for the payment of certain
consulting and similar fees. These fees included a fee, payable upon
consummation of the Offering, of approximately $650,000 for its role as advisor
to the Company in obtaining certain financing for the Acquisition. Branin has
agreed to waive this amount in exchange for increasing its management consulting
fee to $20,000 per month upon completion of the Offering. Branin currently
receives fees in the amount of $10,000 per month (reduced from $40,000 per month
(which included a $5,000 per month payment to PAH Marketing, Inc., another
entity controlled by Mr. Herman) prior to September 1, 1996) for management
consulting services it provides the Company. Furthermore, as of May 15, 1997
Branin had advanced approximately $605,500 to the Company to pay dividends to
the preferred stockholders of CBH. There are no specific repayment terms for
this advance. However, approximately $300,000 is expected to be repaid out of
the proceeds of the Offering. In addition, C.B. Realty, Inc., which is owned by
David Herman, a son of Mr. Herman, along with Michael Mindlin, Gary Peiffer and
Facundo Bacardi, directors of the Company, owns the property previously owned by
Carpet Barn and leases such property to the Company. In connection with its
acquisition of the property, C.B. Realty, Inc., borrowed $288,000 from the
Company, payable over three years with interest at 10% per annum. The balance
remaining unpaid on such loan as of May 15, 1997 was approximately $189,773. In
November 1996, the Company appointed a committee of independent directors,
currently consisting of Gary Peiffer and Michael Mindlin, which must approve any
related party transaction involving Mr. Herman or any other related party. See
"Use of Proceeds," "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Management,"
"Certain Transactions" and "Principal Stockholders and Holdings of Management."

CONTROL OF THE COMPANY

The Company's directors and executive officers currently own beneficially
approximately 69.5% of the outstanding shares of Common Stock and will continue
to beneficially own 35.5% following the Offering. Since there are no cumulative
voting rights provided for in the Company's Certificate of Incorporation, these
persons are in a position to effectively control the election of the members of
the Board of Directors, control most corporate actions, including the merger or
sale of the Company or its assets, generally direct the affairs of the Company
and prevent a change in control of the Company. Pursuant to the Credit
Agreement, the officers and directors of the Company must continue to hold a
majority of the Company's outstanding shares. Furthermore, the shares held by
the Company's directors and officers are held in a voting trust (the "Voting
Trust") with Philip Herman as sole trustee. The Voting Trust will expire at the
earlier of (i) May 30, 2005 or (ii) upon repayment of all outstanding
obligations to First Source under the Credit Agreement. See "Principal
Stockholders and Holdings of Management."

HIGHLY COMPETITIVE BUSINESS

The floor covering market is extremely competitive. While the Company is
currently the dominant firm in the Las Vegas floor covering market, there is a
potential for new entrants seeking to penetrate the Company's market share. In
recent months the Company has experienced growing competition in the Las Vegas
market. Outside the Las Vegas market, the Company's primary competitors offer
substantially similar services as the Company, and some may have greater market
recognition and greater financial, technical, marketing and human resources than
the Company. Shaw, a company with significantly greater capital resources than
the Company, is the Company's greatest potential competitor and one of the
Company's primary suppliers. Shaw is both a manufacturer and, through recent
acquisitions, including the acquisition of a floor covering chain with stores in
the Phoenix area, a significant retailer in the carpet and floor covering
industry. To date, Shaw has not entered the Las Vegas or Madison, Wisconsin
markets, but in the future may enter Las Vegas, Madison, Wisconsin or other
markets where the Company may

10
<PAGE>
establish a presence. There can be no assurance that the Company will be able to
compete successfully against existing companies or any new entrants to the
marketplace. See "Business--Competition."

CYCLICAL NATURE OF FLOOR COVERING INDUSTRY; SINGLE MARKET

The retail floor covering industry historically has been cyclical and the
overall levels of sales are influenced by a number of factors, including
consumer behavior and confidence in spending for durable goods, the level of
personal discretionary spending, interest rates, turnover in housing, the
condition of the residential and commercial construction industries (including
new housing starts and level of commercial construction) and the overall
strength of the economy. During cyclical economic downturns, which adversely
affect interest rates, housing turnover and residential and commercial
construction, the industry can be expected to experience a general decline in
sales and profitability, and such decline may be greater than the decline
experienced by the economy generally. A prolonged economic downturn would have a
material adverse effect on the Company.

Currently, approximately 72% of the Company's sales are through its New
Housing Division and 28% of sales are through its Replacement Sales Division.
The Company's performance will be dependent to a significant extent upon the
levels of new residential construction, residential replacement and remodeling
spending and non-residential construction, all of which are affected by such
factors as interest rates, inflation and employment. The level of new
residential construction in Clark Country, Nevada, the Company's sole current
market, declined in the year ended December 31, 1995, as compared to the prior
year. Declines in new residential and non-residential construction and
remodeling activity may have a materially adverse effect on the Company's
financial condition and results of operations. The Company is currently pursuing
the establishment of retail facilities in the Phoenix, Arizona market area in
1997. However, there can be no assurance that the Company will be able to
establish a facility in such market, or, if established, what its prospects will
be. See "Business."

RISKS GENERALLY ASSOCIATED WITH RETAILING

The Company is a specialty retailer of floor covering, primarily to or
through new home builders. As such, the Company is subject to various business
risks generally associated with the retailing industry. Such risks include
changes in consumer tastes, spending habits, national, regional or local
economic conditions and population and traffic patterns, any of which could
adversely affect the Company's future sales, expenses and profitability. There
can be no assurance that the Company will be able to successfully anticipate and
respond to changing conditions affecting consumer acceptance of its merchandise.
See "Business."

TAXES RELATING TO CERTAIN FLOOR COVERING INSTALLERS

On September 5, 1996, the Nevada Department of Employment, Training and
Rehabilitation notified the Company that it had made a determination that the
Company had failed to pay unemployment taxes with respect to certain floor
covering installers. The Company appealed the decision, and an appeals hearing
was held on February 5, 1997. The appeals referee agreed with the State of
Nevada, and classified the installers as employees. The decision ordered no
retroactive taxes or penalties; however, the Company will become responsible for
such unemployment taxes for periods beginning April 1, 1997.

The Company believes, based in part on a prior determination by such
Department classifying the Predecessor Business's installers as independent
contractors, that these installers are not employees of the Company and the
Company is not subject to these payments. Many, though not all, of the Company's
competitors also treat installers working under similar arrangements as
independent contractors. The Company will continue to vigorously defend its
position and intends to appeal the above decision to the Board of Review on or
before the expiration of its time to appeal. A more substantial cost would be
incurred by the Company if the installers were to be regarded as employees of
the Company for Federal withholding purposes. To date, there has been no
indication that the Federal government intends to

11
<PAGE>

require the Company to treat these installers as employees of the Company.
However, there can be no assurance that the Federal government will not pursue
such action in the future. The amount of any potential liability is unknown, but
the Company believes that any adverse outcome will not be material.

TERMINATION OF MARK SZPORKA

The employment of Mark Szporka, as the Company's Chief Financial Officer,
was terminated by the Company in August 1996. In connection with such
termination and pursuant to the terms of Mr. Szporka's employment agreement, the
Company has repurchased 145,250 shares of Common Stock from Mr. Szporka for the
aggregate amount of $5,810, an amount established in such employment agreement.
These shares had been placed in escrow at the completion of the Acquisition in
June 1995 and would have been released to Mr. Szporka if the Company had met
certain operating targets set out in his employment agreement. Mr. Szporka has
commenced a suit against the Company and its directors alleging wrongful and
unlawful termination. Subject to the consent of the defendants in the suit, the
court has granted the Company's motion to dismiss the case so that the dispute
may be adjudicated through arbitration as provided in Mr. Szporka's employment
agreement. The Company believes it has meritorious defenses to such allegations
and intends to defend the matter vigorously. To the extent this action is
unfavorably resolved it could have a materially adverse effect on the financial
condition of the Company. See "Management--Employment Agreements."

SECURITIES AND EXCHANGE COMMISSION INQUIRY

In a letter dated March 11, 1997, the Company received notice from the
Securities and Exchange Commission, Division of Enforcement (the "Commission"),
that an informal inquiry into the Company as to certain accounting and other
matters was being conducted. The Company was requested to voluntarily provide
and has provided the Commission with certain documents, as outlined in that
letter. The Commission's letter to the Company states that this inquiry is
confidential and should not be construed as an indication by the Commission or
its staff that any violation of law has occurred, or as a reflection upon any
person, entity or security.

Management of the Company intends to fully cooperate with the Commission's
informal inquiry. No specific allegations have been made; therefore, no
conclusion can be reached as to what impact, if any, this inquiry may have on
the Company or its operations. However, the commencement or announcement of a
formal investigation by the Commission would have a material adverse effect on
the Company's business, financial condition, future results of operations and
ability to obtain adequate financing. See "--No Assurance of Public Market;
Volatility of Stock Price."

INDOOR AIR QUALITY

The effect of carpeting and other floor covering products on indoor air
quality has been the subject of debate in recent years. Although there is some
question within the industry as to whether emissions from carpeting pose a
health hazard, there can be no assurance that researchers will not detect
hazardous levels of emissions from carpeting. The discovery of adverse health
effects resulting from carpeting, or the public perception thereof, could have a
material adverse effect on the Company's operations.

MANAGEMENT INFORMATION SYSTEMS

The Company is currently completing the implementation of computerized
management information systems. Since the Acquisition, the Company has spent
approximately $170,000 implementing and upgrading management information
systems. The Company believes the systems in place at the time of the
Acquisition were inadequate and that the new management information systems
adequately meet its current management and reporting needs. However, if the
Company successfully implements its growth strategy, there can be no assurance
that the new management information systems will be adequate to meet its needs
in new markets. If the system is not sufficient for the Company's future needs,
the Company

12
<PAGE>
will be required to expend additional resources to upgrade the system and may
experience delays, increased costs and other inefficiencies as a result of any
such inadequacy.

NO ANTICIPATED DIVIDENDS

The Company has not previously paid any dividends on its Common Stock and
for the foreseeable future intends to continue its policy of retaining any
earnings to finance the development and expansion of its business. Furthermore,
pursuant to the Credit Agreement, CBH and CBI are prohibited from declaring
dividends or making other distributions on their capital stock, with certain
exceptions. See "Dividend Policy" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."

DILUTION

Purchasers of the Common Stock offered hereby will incur an immediate and
substantial dilution in net tangible book value per share of the Common Stock
from the Offering Price. See "Dilution."

AUTHORIZATION OF PREFERRED STOCK

The Company's certificate of incorporation authorizes the issuance of
preferred stock with such designation, rights and preferences as may be
determined from time to time by the Board of Directors. Accordingly, the Board
of Directors is empowered, without stockholder approval, to issue preferred
stock with dividend, liquidation, conversion, voting or other rights which could
adversely affect the voting power or other rights of the holders of the
Company's Common Stock. In the event of issuance, the preferred stock could be
utilized, under certain circumstances, as a method of discouraging, delaying or
preventing a change in control of the Company that might be considered desirable
by stockholders. Concurrently, with the consummation of the Offering, the
Company anticipates issuing $2.0 million stated value of its preferred stock to
Facundo Bacardi, a director of the Company, in exchange for $1.5 million of
preferred stock of CBH and to repay advances of $500,000 made by Mr. Bacardi to
the Company in May 1997. Although the Company has no current intention of
issuing any other shares of its preferred stock, there can be no assurance that
the Company will not do so in the future. See "Description of Capital Stock--
Preferred Stock."

NO ASSURANCE OF PUBLIC MARKET; VOLATILITY OF STOCK PRICE

Prior to the Offering, there has been a limited public trading market for
the Common Stock. The Common Stock has been traded in the over-the-counter
market on the "electronic bulletin board" since September 1995. There can be no
assurance that a regular trading market for the Common Stock will develop after
the Offering or that, if developed, it will be sustained. In addition, there has
been significant volatility in the market price of securities of emerging
companies that often have been unrelated to the operating performance of such
companies and there can be no assurance that the market price will not decline
below the Offering Price herein. The Company believes that factors such as
failure to meet securities analysts' performance expectations and quarterly
variations in financial results could cause the market price of the Common Stock
to fluctuate substantially. These market fluctuations may adversely affect the
price of and market for the Common Stock. Furthermore, the commencement or
announcement of a formal investigation into the Company's affairs by the
Commission would have a material adverse effect on the market price of the
Common Stock and may result in the suspension of trading on the exchange on
which the Company's securities are then listed. See "Price Range of Common
Stock" and "Underwriting."

SHARES ELIGIBLE FOR FUTURE SALE

13
<PAGE>

addition, 13,750 shares, including the 12,500 shares sold by the Company in its
initial public offering in 1990, are freely tradeable without restriction or
further registration under the Securities Act. Approximately 1,459,291
additional shares are available for immediate sale under Rule 144. The holders
of 204,835 of these shares available for immediate sale under Rule 144 have
agreed not to sell such shares prior to the second anniversary of the Offering
without the consent of the Underwriters and the Company, provided that 25% of
such shares shall be permitted to be sold after the first anniversary of the
Offering and an additional 25% of such shares shall be permitted to be sold
after the eighteen-month anniversary of the Offering. In addition, the holders
of 205,664 of the shares available for immediate sale have agreed not to sell
such shares prior to the first anniversary of the Offering, and the holders of
122,726 of the shares available for immediate sale have agreed not to sell such
shares prior to the six-month anniversary of the Offering. In addition, 3,718
shares will become eligible for sale pursuant to Rule 144 in August, 1997. No
predictions can be made as to the effect, if any, that the perception or
announcement of future sales or actual market sales of shares by existing
stockholders or the availability of such shares for future sale will have on the
market price of shares of Common Stock prevailing from time to time. The
prevailing market price of the Common Stock after the Offering could be
adversely affected by future sales of substantial amounts of Common Stock by
existing stockholders. Moreover, such sales by existing stockholders could
result in a change in control of the Company. See "Certain Transactions,"
"Shares Eligible for Future Sale" and "Underwriting."

14
<PAGE>
USE OF PROCEEDS

The aggregate net proceeds from the sale of the shares of Common Stock being
offered by the Company in the Offering, after deducting estimated offering
expenses and underwriting discounts and commissions, will be approximately $12.1
million (approximately $14.0 million if the Underwriter's over-allotment option
is exercised in full), assuming a public Offering Price of $7.00 per share, the
mid-point of the estimated range of the public Offering Price.

Approximately $7.64 million of the net proceeds to the Company will be used
to repay a portion of the indebtedness outstanding under its revolving credit
facility with First Source, which bears interest at the base rate of First
National Bank of Chicago from time to time in effect plus 2.25% per annum
(currently 10.75% per annum) and has a final maturity date of May 31, 1999.
Approximately $3,160,000 of the net proceeds will be used to redeem shares of
the preferred stock issued by CBH. The remaining CBH preferred stock, which is
held by Facundo Bacardi, a director of the Company, will be redeemed in exchange
for shares of preferred stock of the Company having substantially the same
economic terms as the CBH preferred stock. Approximately $300,000 of the net
proceeds will be used to repay amounts advanced by Branin. Remaining net
proceeds will be allocated to general corporate and working capital purposes.
Net proceeds received by the Company as a result of the over-allotment option by
the Underwriters will be added to the Company's working capital. Pending such
uses, the Company will invest the proceeds in interest bearing securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources" and "Certain Transactions."

PRICE RANGE OF COMMON STOCK

The Common Stock has been quoted on the "electronic bulletin board" operated
by the NASD under the symbol "RAGC" since September 1995. The following table
sets forth, for the periods indicated, the high and low bid prices before and
after adjustment for the one-for-four reverse stock split, of the Common Stock
as reported on the "electronic bulletin board" operated by the NASD. Such
over-the-counter quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
In connection with the Offering, application is being made to have the Company's
Common Stock listed on the American Stock Exchange under the symbol "NFI."

<TABLE>
<CAPTION>
ACTUAL AS ADJUSTED(1)
-------------------- --------------------
<S> <C> <C> <C> <C>
HIGH LOW HIGH LOW
--------- --------- --------- ---------
Fiscal Year 1997:

First Quarter.................................................................. $ 3.38 $ 1.00 $ 13.52 $ 4.00
Second Quarter (through May 15, 1997).......................................... 3.25 1.00 13.00 4.00

Fiscal Year 1996:

First Quarter.................................................................. 5.25 4.00 21.00 16.00
Second Quarter................................................................. 5.25 3.00 21.00 12.00
Third Quarter.................................................................. 3.75 2.25 15.00 9.00
Fourth Quarter................................................................. 3.75 2.25 15.00 9.00

Fiscal Year 1995:

Third Quarter.................................................................. 3.00 3.00 12.00 12.00
Fourth Quarter................................................................. 4.75 3.00 19.00 12.00
</TABLE>

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

(1) Adjustments reflect the arithmetical effect of the one-for-four reverse
stock split. The actual adjustments that would have occurred to the prices
for a share of the Common Stock as a result of the one-

15
<PAGE>
for-four reverse stock split cannot be calculated, and "as adjusted" prices
are not intended to imply that the one-for-four reverse stock split will
effect a proportionate adjustment in the price of the Common Stock.

As of May 15, 1997, there were approximately 369 record holders of the
Common Stock. The last sale price of the Common Stock on April 7, 1997 was $1.00
($4.00 as adjusted) per share as reported by the Automated Confirmation
Transaction Service.

DIVIDEND POLICY

The Company has not paid any dividends on its Common Stock to date. The
payment of dividends, if any, in the future is within the discretion of the
Board of Directors and will depend on the Company's earnings, its capital
requirements and financial condition. It is the present intention of the Board
of Directors to retain all earnings, if any, for use in the Company's business
operations and, accordingly, the Board of Directors does not expect to declare
or pay any dividends in the foreseeable future. In addition, pursuant to the
Company's Credit Agreement with First Source, CBH and CBI are prohibited from
declaring dividends or making other distributions on their capital stock,
provided that CBI may pay dividends needed in order to permit (i) the payment by
CBH of dividends on its preferred stock, so long as (A) no default exists under
the Credit Agreement and (B) CBI's net worth (after giving effect to such
payment) is at least equal to its net worth on June 2, 1995 and (ii) the
redemption by CBH of its preferred stock, so long as (A) no default exists under
the Credit Agreement and (B) CBI's net worth (after giving effect to such
payment) is at least $7,000,000. In conjunction with a covenant waiver obtained
from First Source, the Company agreed to limit certain payments with respect to
outstanding securities of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."

16
<PAGE>
DILUTION

The net tangible book value (deficit) of the Common Stock at March 31, 1997
was $(13,675,335) or $(3.61) per share. After giving effect to the sale of
2,000,000 shares of Common Stock in the Offering and the application of those
proceeds (see "Capitalization") (after deductions of estimated offering expenses
and underwriting discounts and commissions) the pro forma net tangible book
value (deficit) at March 31, 1997 would have been $(1,330,210) or $(0.23) per
share. This represents an immediate increase in net tangible book value of $3.38
per share to existing stockholders and an immediate dilution of net tangible
book value of $7.23 per share to new investors purchasing shares in the
Offering.

The following table illustrates the per share dilution:

<TABLE>
<S> <C> <C>
Assumed Offering Price per share.......................... $ 7.00
Net tangible book value (deficit) per share before the
Offering............................................ $ (3.61)
Increase per share attributable to new investors...... 3.38
---------
Pro forma net tangible book value (deficit) per share
after the Offering (1).................................. (0.23)
---------
Dilution per share to new investors (2)................... 7.23
---------
---------
</TABLE>

The following table sets forth for existing stockholders and for new
investors the number and percentage of total outstanding shares of Common Stock
purchased, the total consideration and percentage of total consideration paid to
the Company, and the average price per share paid:

<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing Stockholders.................................. 3,787,647 65.4% $ 3,866,020 21.6% $ 1.02
New Investors.......................................... 2,000,000 34.6% 14,000,000 78.4% 7.00
---------- ----- ------------- -----
Total............................................ 5,787,647 100.0% $ 17,866.020 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>

The foregoing table does not reflect the impact of (i) 1,250,000 shares of
Common Stock reserved for issuance upon the exercise of employee stock options,
of which 595,000 shares are subject to options to be granted at the Offering
Price upon completion of the Offering, under the Option Plan, (ii) the
Underwriters' Warrants to purchase 200,000 shares of Common Stock at $8.40 per
share, (iii) the exercise of the Underwriters' over-allotment option, (iv) the
finders fees to be paid to a third party in the amount of 20,000 shares of
Common Stock or (v) shares of Common Stock to be issued for the unsecured
advances received in the amount of $534,000 during February 1997 payable in
shares of Common Stock of the Company. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations--Liquidity and Capital
Resources," "Management--1997 Stock Option Plan" and "Underwriting."

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

(1) Net tangible book value (deficit) per share is determined by dividing the
net tangible book value (deficit) of the Company (tangible assets less
liabilities) by the number of shares of Common Stock outstanding after
giving effect to the redemption of the preferred stock issued by CBH and
repayment of indebtedness outstanding under the Company's revolving credit
facility.

(2) Dilution is determined by subtracting pro forma net tangible book value
(deficit) per share after the Offering from the assumed $7.00 price per
share.

17
<PAGE>
CAPITALIZATION

The following table sets forth the consolidated capitalization of the
Company at (i) March 31, 1997 and (ii) as adjusted to (a) give effect to the
sale of 2,000,000 shares of Common Stock by the Company in the Offering,
assuming an Offering Price of $7.00 per share, the mid-point of the estimated
range, after deducting estimated offering expenses and underwriting discounts,
and the anticipated application by the Company of the net proceeds received by
it and (b) the redemption of the remaining shares of CBH preferred stock, owned
by Facundo Barcardi, a director of the Company, in exchange for shares of
preferred stock of the Company. See "Use of Proceeds."

<TABLE>
<CAPTION>
AT MARCH 31, 1997
-------------------------
<S> <C> <C>
ACTUAL AS ADJUSTED(1)
--------- --------------

<CAPTION>
(IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
First Source note payable and credit facility (2)............................. $ 10,624 $ 3,141
Other notes payable........................................................... 669 169
Minority interest: Preferred stock of subsidiary, $.01 par value ($1,000
stated value), 12% cumulative; 5,500 shares authorized; 4,660 shares issued,
0 shares as adjusted........................................................ 3,117 --
Stockholders' equity:
Preferred Stock, $.001 par value; 1,000,000 shares authorized; 0 shares issued
and outstanding; 2,000 shares as adjusted................................... -- 2,000
Common Stock, $.001 par value; 20,000,000 shares authorized; 3,787,647 shares
issued; 5,787,647 shares as adjusted (3).................................... 4 6
Additional paid-in capital.................................................... 3,862 15,960
Less cost of treasury stock (145,250) shares.................................. (6) (6)
Retained earnings (deficit) (4)............................................... 203 (1,965)
--------- -------
Total stockholders' equity.................................................... 4,063 15,995
--------- -------
Total capitalization.......................................................... 18,473 19,305
--------- -------
--------- -------
</TABLE>

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

(1) Gives effect to the net proceeds of the Offering and the redemption of the
remaining shares of CBH preferred stock, owned by Facundo Barcardi, a
director of the Company, in exchange for shares of preferred stock of the
Company. See "Use of Proceeds."

(2) $7,640,000 of the proceeds of the Offering will be used to repay a portion
of the First Source indebtedness. The remaining First Source indebtedness
along with the prepayment penalty will be funded by the expected Finova
Facility. See "Risk Factors--Leverage and Credit Agreement Defaults" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."

(3) Does not include (i) 1,250,000 shares of Common Stock reserved for issuance
upon exercise of employee stock options, of which 595,000 shares are subject
to options to be granted at the Offering Price upon completion of the
Offering, under the Option Plan (ii) 200,000 shares of Common Stock reserved
for issuance upon exercise of the Underwriters' Warrants, (iii) the finders
fee to be paid to a third party in the amount of 20,000 shares of Common
Stock or (iv) shares of Common Stock to be issued for the unsecured advance
received in the amount of $534,000 during February 1997 payable in shares of
Common Stock of the Company. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resouces," "Management--1997 Stock Option Plan" and "Underwriting."

(4) The CBH preferred stock to be redeemed with the proceeds of the Offering and
the CBH preferred stock held by Facundo Barcardi, a director of the Company,
to be redeemed in exchange for shares of preferred stock of the Company will
be redeemed at its stated value, which represents a premium over the amount
at which such preferred stock is carried in the financial statements of the
Company. In accordance with generally accepted accounting principles, the
Company will record a charge against net income, in the period in which the
redemption occurs, for such premiums. The Company will also record a charge
against net income for certain unamortized debt issuance costs associated
with the portion of the First Source indebtedness to be repaid with the
proceeds of this Offering. Such amounts were $1,542,726 and $468,125,
respectively, at March 31, 1997.

18
<PAGE>
SELECTED FINANCIAL DATA

(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

The selected financial data presented below have been derived from the
financial statements of the Company and the Predecessor Business and are
qualified by reference to, and should be read in conjunction with, the Financial
Statements and the Notes thereto included elsewhere in this Prospectus. The
financial statements of Nations Flooring, Inc. and Subsidiaries as of December
31, 1995 and 1996 and for the period from June 2, 1995 (commencement of
operations) through December 31, 1995, and the year ended December 31, 1996
together with the report thereon of McGladrey & Pullen, LLP, independent public
accountants, are included elsewhere in this Prospectus. The financial statements
of Carpet Barn as of December 31, 1994 and for the period from January 1, 1995
through June 1, 1995 and for the year ended December 31, 1994, together with the
report thereon of McGladrey & Pullen, LLP, independent public accountants, are
included elsewhere in this Prospectus. The selected historical financial data
for the three month period ended March 31, 1996 and 1997 have been derived from
unaudited consolidated financial statements and include, in the opinion of
management, all normal recurring adjustments necessary to present fairly the
data for such periods. The operating results for the three-month period are not
necessarily indicative of the results that may be expected for a full year. 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 Acquisition. In
addition, certain information below is not shown for the Predecessor Business
where such information would not present a meaningful comparison. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."

<TABLE>
<CAPTION>
NATIONS FLOORING, INC.
PREDECESSOR BUSINESS ----------------------------------------------------------
-------------------------------------------- PERIOD PRO FORMA
PERIOD ENDED FOR YEAR THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED DECEMBER ENDED YEAR ENDED ENDED MARCH 31,
--------------------------------- JUNE 1, 31, DECEMBER DECEMBER ---------------------
1992 1993 1994 1995(1) 1995(2) 31, 1995(3) 31, 1996 1996 1997
----------- --------- --------- --------- --------- ----------- ----------- ---------- ---------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................. $ 28,994 $ 34,530 $ 42,507 $ 16,363 $ 23,980 $ 40,343 $ 42,414 $ 9,765 9,209
Gross margin.............. 8,167 9,598 10,841 5,018 6,017 11,035 11,092 2,680 2,375
Income from operations.... 1,375 1,096 5,548 3,229 2,103 5,356 2,367 799 413
Dividends to preferred
stockholders of
subsidiary.............. 203 339 538 124 140
Net income (loss)......... 925 1,114 4,888 3,737 280 1,647 53 130 (131)
Net income (loss) per
common share(4)......
... 0.08 0.45 0.01 0.04 (0.03)
Supplemental net income
per common share(5)..... 0.15 0.47 0.22 0.08 0.04
Weighted average common
shares outstanding(4)... 3,645,791 3,639,732 3,773,097 3,659,541 3,773,097
Pro forma income tax
effect(6)............... 315 379 1,662 1,271
Pro forma net income after
taxes(6)................ 610 735 3,226 2,466
</TABLE>

AS ADJUSTED(7)

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

MARCH 31, 1997
--------------------------

<S> <C> <C>
(UNAUDITED)

BALANCE SHEET DATA:
Working capital (deficit)........................................................................... $ (10,554) $ (1,114)

Total assets........................................................................................ 22,415 22,947

Long-term debt and capital lease obligations, less current maturities............................... 103 103

Stockholders' equity................................................................................ 4,063 15,945

</TABLE>

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

(2) Information is presented for the Company for the period from June 2, 1995
through December 31, 1995, due to the Acquisition.

(4) The weighted average common shares outstanding and net income per common
share for the Predecessor Business are not presented as they are not
comparable to those of the Company.

19
<PAGE>

(5) Supplemental net income per common share has been calculated using the
number of shares used to calculate net income per common share plus
1,262,810 shares which would be required to be issued to repay $7,640,000
of the indebtedness outstanding with First Source Financial, LLP, plus
522,314 shares which would be required to be issued to redeem $3,160,000 of
preferred stock issued by CBH. In calculating supplemental net income per
common share, net income has been adjusted to eliminate (i) the after-tax
effects of the interest expense on the indebtedness to be repaid, and (ii)
the charge against net income for the dividends on the CBH preferred stock
to be redeemed. See "Use of Proceeds" and Note 1 of the Notes to the
Financial Statements.

20
<PAGE>
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, 1996,
1995, and 1994 and the three-month periods ended 1997 and 1996 and should be
read in conjunction with the preceding Selected Financial Data and the Financial
Statements and Notes thereto included elsewhere in this Prospectus. All
references to full years are to the applicable fiscal year of the Company. All
discussion of 1994 financial information relates to financial results of Carpet
Barn. Discussion of information for 1995 relates to the pro forma consolidated
financial results of the Company and Carpet Barn for that period.

Predecessor Business results have been adjusted for comparative purposes in
the following discussions. Compensation to the owner of the Predecessor Business
has been adjusted as the former owner is not involved in the Company's
operations and has been replaced by individuals with employment agreements at
salaries considerably less than the former owner's compensation level. Foreign
currency contracts have also been removed from the discussion of results from
operations as the Predecessor Business speculated in these contracts only during
1994 and had no positions at either the beginning or end of such year. The
Company is not and has no intention of being involved in these types of
speculative investments. Due to the fact that the Predecessor Business was an S
corporation, the amount of owner's compensation and/or dividends were directly
related to personal income tax considerations. Therefore, the amount of
compensation and dividends paid each year by the Predecessor Business to the
former owner varied as his personal earnings increased or decreased.

RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1997 COMPARED TO THREE MONTHS ENDED MARCH 31,
1996.

Total revenues decreased by $506,951 to $9,258,004 for the three months
ended March 31, 1997 from $9,764,955 for the three months ended March 31, 1996,
representing a decrease of 5.2%. This decrease is attributable primarily to a
decrease in New Housing Division sales for the first three months of 1997 as
compared to first three months of 1996. During the first quarter of 1997, it is
estimated that new home unit sales volume decreased by approximately 2.7% in the
Las Vegas market place. The decrease in revenues was also affected by a decrease
in Replacement Sales Division sales due to increased competition in the Las
Vegas market.

Gross profit decreased by $255,167 to $2,424,861 for the three months ended
March 31, 1997 from $2,680,028 for the three months ended March 31, 1996,
representing a decrease of 9.5%. Also, the gross profit percentage declined from
27.6% in 1996 to 25.8% in 1997. This decline in gross profit percentage is due
to the above mentioned decline in sales and to increased competition in the Las
Vegas market.

Selling, general and administrative expenses increased by $126,921 to
$1,688,936 for the three months ended March 31, 1997 from $1,562,015 for the
three months ended March 31, 1996. This increase is due to the following
approximate changes: (1) increases in salaries and related payroll taxes of
$233,000, due primarily to an increase in the number of employees, (2)
professional expenses associated with the annual audit and required public
filings of $50,000, (3) an increase in advertising expense of $47,000 and (4) an
increase in rent expense of $45,000 and telephone expense of $31,000 primarily
due to the opening of the new home design center and an additional retail
location. These increases were partially offset by (1) a decrease in workers'
compensation expense due to a reduction in the modification rate and a refund of
approximately $132,000 and (2) a decrease in management and consulting fees of
$95,000.

Amortization and depreciation expense increased to $323,104 for the three
months ended March 31, 1997 from $319,015 for the three months ended March 31,
1996, primarily due to increased depreciation expense on equipment purchases in
1996 and 1997.

21
<PAGE>

Operating income decreased by $386,177 to $412,821 for the three months
ended March 31, 1997 from $798,998 for the three months ended March 31, 1996.
Although interest expense decreased by only $12,852 from $414,993 in 1996 to
$402,141 in 1997, included in interest expense in 1997 is a non-cash charge of
$106,800 relating to advances received in February 1997 as further described in
"Liquidity and Capital Resources." The reduction in interest expense of
$119,652, after adjusting for the non-cash interest on these advances, is due to
principal payments made on debt obligations. The provision for income taxes
decreased by $129,750 due to the net loss for the three months ended March 31,
1997. Dividends to holders of CBH preferred stock increased to $139,800 for the
three months ended March 31, 1997 from $124,200 for the three months ended March
31, 1996 due to the Company's subsidiary CBH's issuance of additional shares of
preferred stock in early 1996. Net income(loss) decreased by $260,218 to
$(130,654) for the three months ended March 31, 1997 from $129,564 for the three
months ended March 31, 1996. These decreases were due principally to the
above-mentioned decrease in sales/gross profit, increases in selling, general
and administrative expenses and increases in dividends to holders of CBH
preferred stock partially offset by corresponding decreases in interest expense
and income taxes.

FISCAL YEARS ENDED DECEMBER 31, 1996 (ACTUAL) AND 1995 (ON A PRO FORMA
BASIS).

To facilitate the comparison between years ended December 31, 1996 and 1995,
the 1995 results have been adjusted on a pro forma basis assuming the
acquisitions described in Note 2 to the Financial Statements had occurred on
January 1, 1995.

<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS
JANUARY 1, NATIONS NATIONS
1995 FLOORING, INC. PRO FORMA FLOORING INC.
TO JUNE 1, JUNE 2, 1995 TO PRO FORMA YEAR ENDED YEAR ENDED
1995 DECEMBER 31, 1995 ADJUSTMENTS(1) DECEMBER 31, 1995 DECEMBER 31, 1996
-------------- ----------------- --------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Sales......................... $ 16,363 $ 23,980 $ -- $ 40,343 $ 42,414
Gross margin.................. 5,018 6,017 -- 11,035 11,092
Selling, general and
administrative............... 1,280 3,229 42(a) 4,551 7,469
Amortization and
depreciation................. 14 685 429(b) 1,128 1,256
Operating income.............. 3,724 2,103 (471) 5,356 2,367
Other income (expense)........ 13 (1,365) (989)(c) (2,341) (1,459)
Income taxes.................. -- 255 774(d) 1,029 317
Dividends to preferred
stockholders of subsidiary... -- 203 136(e) 339 538
Net income.................... 3,737 280 (2,370) 1,647 53
</TABLE>

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

(1) The pro forma adjustments reflect the following additional expenses that
would have been incurred had the Acquisition taken place on January 1, 1995:
(a) related party rent expense of $42; (b) amortization and depreciation of
$429; (c) interest expense of $989; (d) corporate income taxes of $774
computed at an assumed rate of 34%; and (e) minority interest in preferred
stock of $136. No compensation was received by the owner of the Predecessor
Business for the period January 1 to June 1, 1995. The pro forma adjustments
for income taxes takes into account that the Predecessor Business was an S
corporation for income tax reporting purposes.

Total revenues increased by $2,071,758 to $42,414,364 for the ended December
31, 1996 from $40,342,606 for the year ended December 31, 1995, representing an
increase of 5.1%. This increase is attributable primarily to an increase in new
home sales for fiscal 1996 compared to fiscal 1995 and to a lesser extent, the
increase in contract prices to new home buyers. During 1996 it is estimated that
new homes unit sales volume increased by approximately 8.6% in the Las Vegas
market place. These increases were offset by a decrease in replacement sales due
to increased competition in the Las Vegas market.

22
<PAGE>

The gross margin increased by $56,680 to $11,092,440 for the year ended
December 31, 1996 from $11,035,760, for the year ended December 31, 1995,
representing an increase of 0.5%. However, the gross margin percentage declined
from 27.4% in 1995 to 26.2% in 1996. This decline in gross margin percentage
reflects the fact that increased revenues resulted primarily from an increase in
new home sales, which generally have a lower gross margin than replacement
sales. This is offset by increases in contract prices to new home buyers, which
began to take effect to April 1996, offset by price increases from the Company's
vendors.

Selling, general and administrative expenses increased by $2,918,299 to
$7,469,568 for the year ended December 31, 1996 from $4,551,269 for the year
ended December 31, 1995. This increase is due to the following changes: (1)
increases in salaries and related payroll taxes of $1,617,000, due primarily to
an increase in the number of employees, (2) an increase in promotion and travel
and entertainment expenses of $130,000, (3) professional expenses associated
with the annual audit and required public filings of $174,000, (4) an increase
in advertising expense of $258,000, (5) an increase in insurance expenses of
$122,000, (6) an increase in bad debt expenses of $352,000 and (7) an increase
in rent expense of $139,000 primarily due to the opening of the new home design
center and an additional retail location.

Amortization and depreciation expense increased to $1,256,000 in 1996 from
$1,128,000 in 1995, primarily due to increased depreciation expense on equipment
purchases in 1996 and 1995.

Operating income decreased by $2,988,964 to $2,367,102 for the year ended
December 31, 1996 from $5,356,066 for the year ended December 31, 1995. Interest
expense decreased to $1,478,000 in 1996 from $2,381,000 in 1995 due to principal
payments made on debt obligations. Dividends to preferred stockholders of
subsidiary increased to $538,000 in 1996 from $339,000 in 1995 due to the
issuance by CBH, the Company's subsidiary, of additional shares of preferred
stock in late 1995 and early 1996. Net income decreased by $1,594,316 to $53,248
for the year ended December 31, 1996 from $1,647,564 for the year ended December
31, 1995. These decreases were due principally to the above-mentioned increases
in selling, general and administrative expenses partially offset by
corresponding decreases in interest expense, dividends to preferred stockholders
of subsidiary and income taxes.

23
<PAGE>
FISCAL YEARS ENDED DECEMBER 31, 1995 AND 1994 (ON A PRO FORMA BASIS)

To facilitate the comparison between the years ended December 31, 1995 and
1994, the results of both years have been adjusted on a pro forma basis assuming
the acquisitions described in Note 2 to the Financial Statements occurred on
January 1, 1994 and carried through the year ended December 31, 1995.

<TABLE>
<CAPTION>
PREDECESSOR
BUSINESS
YEAR ENDED PRO FORMA
DECEMBER 31, PRO FORMA YEAR ENDED
1994 ADJUSTMENTS(1) DECEMBER 31, 1994
----------------- -------------- -----------------
<S> <C> <C> <C>
(IN THOUSANDS)
Sales...................................................... $ 42,507 $ -- $ 42,507
Gross margin............................................... 10,841 -- 10,841
Selling, general and administrative........................ 5,265 (1,930)(a) 3,335
Amortization and depreciation.............................. 28 1,100(b) 1,128
Operating income........................................... 5,548 830 6,378
Other income (expense)..................................... (660) (1,681)(c) (2,341)
Income taxes............................................... -- 1,376(d) 1,376
Dividends to preferred stockholders of subsidiary.......... -- 339(e) 339
Net income................................................. 4,888 (2,566) 2,322
</TABLE>

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

(1) The pro forma adjustments reflect the following additional expenses that
would have been incurred had the Acquisition taken place on January 1, 1994:
(a) remove compensation of $2,030 paid to the owner of the Predecessor
Business and add related party rent expense of $100; (b) add amortization
and depreciation of $1,100; (c) other income (expense) of $2,337 reduced to
eliminate the effect of loss on sale of securities of $656; (d) corporate
income taxes of $1,376 computed at an assumed rate of 34%; and (e) add
minority interest in preferred stock of $339. The pro forma adjustments for
income taxes take into account that the Predecessor Business was an S
corporation for income tax reporting purposes.

Total revenues decreased from $42,506,987 for the year ended December 31,
1994 to $40,342,606 for the year ended December 31, 1995, representing a
decrease of 5.1%. The decrease can be attributed to a decrease in sales for new
tract homes partially offset by an increase in the replacement sales business.
During 1995, it is estimated that new home unit sales volume decreased by
approximately 5.6% in the Las Vegas marketplace.

Although total revenues decreased, gross margin grew from $10,841,351 in
1994 to $11,035,760 in 1995 due to an increase in the gross margin percentage
from 25.5% in 1994 to 27.4% in 1995. This increase in gross margin percentage
can be attributed to an increase in higher margin replacement sales business.

Selling, general and administrative expenses increased by $1,215,847 from
$3,335,422 in 1994 to $4,551,269 in 1995. This increase is due to the following
approximate changes: (1) increases in salaries and related payroll taxes of
$288,000 due primarily to an increase in the number of employees, (2) an
increase in the modification rate for workers' compensation due to the change in
ownership on June 2, 1995 resulting in an increase of $220,000, (3) professional
fees associated with the acquisition and required public filings of $305,000 and
(4) related party payments consisting of consulting fees and rents of $315,000.

Operating income decreased by $1,021,438 from $6,377,504 in 1994 to
$5,356,066 in 1995. Net income decreased by $674,150 from $2,321,714 in 1994 to
$1,647,564 in 1995. These decreases were due to the above-mentioned increases in
selling, general and administrative expenses, partially offset by the increase
in gross margin.

24
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES

Cash provided by operating activities was $4,308,342 and $3,357,073 for the
year ended December 31, 1996 and the period ended December 31, 1995,
respectively, and $832,900 and $546,380 for the three month periods ended March
31, 1997 and 1996, respectively. At March 31, 1997, the Company had a working
capital deficit of $(10,553,823). Included in such deficit is $10,624,272 due to
First Source under the credit agreement (the "Credit Agreement") discussed
below. The Company's growth and acquisition strategy will require significant
additional cash.

The results of operations of the Company have been impacted as a result of
the restructuring of the Company after the Acquisition. The Acquisition resulted
in amortization expense and interest expense of approximately $85,000 and
$198,000 per month, respectively. Subsequent to payment of the Company's
subordinated debt in April 1996 as described below, interest expense has
averaged $113,000 per month. Prior to the Acquisition, the Predecessor Business
had a positive tangible net worth in contrast to the Company, which has had a
negative tangible net worth due to the increase in intangibles and debt
resulting from the Acquisition. The Company is highly leveraged and is subject
to the risks associated with a highly leveraged Company. The Company's ratio of
indebtedness for borrowed money to stockholders equity at March 31, 1997 was
2.8:1.

In June 1995, in order to consummate its acquisition of Carpet Barn, the
Company, through its indirect subsidiary CBI, entered into the Credit Agreement
with First Source (the "Financing"), pursuant to which First Source advanced to
CBI approximately $15,200,000 in term and revolving loans secured by
substantially all of CBI's assets, CBH pledged to First Source all of the common
stock of CBI to secure CBI's obligations under the Credit Agreement and CBH
guaranteed CBI's debt obligations to First Source under the Credit Agreement.
Fees and expenses paid to First Source amounted to $402,000, in addition to
incurring other acquisition fees of $510,619. The Credit Agreement contains
covenants that limit CBI's ability to upstream monies to CBH needed to pay
principal and interest on the $1,940,000 aggregate principal amount of its 12%
subordinated notes (which were retired at par on May 1, 1996) issued by CBH in
connection with the Acquisition (the "Notes") and to pay dividends on the
preferred stock, par value $.01 per share, stated value $1,000 per share (the
"CBH Preferred Stock"), of CBH. The term portion of the Credit Agreement is due
May 31, 1999 and the revolving portion is due May 31, 1997, subject to extension
in certain circumstances to May 31, 1999. All borrowings under the Credit
Agreement bear interest at the base rate per annum announced from time to time
by The First National Bank of Chicago (8.50% at May 12, 1997) plus 2.25% per
annum (currently 10.75% per annum), payable monthly. As of April 30, 1997, the
Company had borrowed approximately $2,840,000, leaving approximately $160,000
available from First Source under a $3,000,000 working capital note and had no
availability from First Source under a $14,000,000 revolving note that had an
outstanding balance and commitment of $7,875,000. The Company received unsecured
advances from unrelated parties totalling $534,000 during February 1997, which
enabled it to make the principal payment of $875,000 due to First Source on
February 28, 1997. These advances bear interest at the rate of 12% per annum,
payable monthly. Additionally, if the advance is repaid within three months of
the date of the advance, the lender will receive 40% of the dollar amount of the
advance in shares of Common Stock of the Company. This amount increases by 20%
for each additional three month period the advance is outstanding, capping at
100% if the advance is not repaid within nine months. The per share value of the
shares of Common Stock issued to satisfy this obligation will be based on the
average bid price of the Common Stock for the 30-day period prior to the payment
date and is being accrued over the life of the debt. Interest expense of
$112,140 relating to these advances has been reflected in the Company's
financial statements as of March 31, 1997.

The Credit Agreement contains covenants requiring CBI to maintain minimum
levels of tangible net worth, working capital and various ratios. During the
period from June 2, 1995, (commencement of operations) through December 31,
1996, the Company has failed to meet the following financial covenants: (1)
adjusted net worth at June 2, 1995, (2) quarterly and annual interest coverage
ratios through December 31, 1995 and (3) substantially all of the financial
covenants for the year ended December 31, 1996 and the

25
<PAGE>

three months ended March 31, 1997. On April 15, 1996 First Source waived,
through June 1, 1996, the covenant violations occurring prior to such time and
agreed to negotiate in good faith to amend such covenants by June 1, 1996 so
that the Company could reasonably expect to be in compliance with the amended
covenants based on its operating and cash flow budgets. In connection with
obtaining the waiver the Company agreed to limit certain payments, including
principal payments of CBH's subordinated debt, with the exception that such
payments could be made from the proceeds of newly acquired capital, if any.
Payments of the CBH preferred stock dividends have been made by Branin on behalf
of the Company in the amount of $46,600 per month. Consequently, as of May 15,
1997, the Company was obligated to Branin in the amount of approximately
$605,500. Because the Company and Branin anticipate repayment of these advances
in the near future, no stated interest rate exists on these advances and no
interest has been imputed.

The Company had certain discussions with First Source in an effort to amend
such covenants but was unable to reach an agreement with First Source. The
discussions are not continuing at present, and the Company believes that the
covenants are not likely to be amended. Moreover, the waiver period has not been
extended beyond June 1, 1996, and, therefore, the Company has been in violation
of the covenants since June 1, 1996. To date, First Source has allowed the
Company to borrow up to the full capacity under the original terms of the Credit
Agreement, and the Company has received no indication from First Source that it
intends to exercise its right under the Credit Agreement to accelerate the
maturity of the debt. Because First Source has maintained its right to
accelerate the maturity of the debt due to the covenant violations, the Company
has classified the debt as current on the December 31, 1996 and March 31, 1997
consolidated balance sheet.

If First Source chooses to accelerate the maturity of the debt or if the
Company were to obtain alternate financing certain unamortized debt acquisition
costs classified as intangible assets would be charged to expense. Such
unamortized debt acquisition costs totaled $468,125 at March 31, 1997.
Additionally, the Credit Agreement contains a prepayment penalty clause
requiring the Company to pay 2% of the then applicable revolving loan
commitment, as defined in the Credit Agreement, if the Company chooses to
terminate the Credit Agreement prior to June 1, 1997, 1% between June 2, 1997
and June 1, 1998 and none thereafter.

The Company is currently exploring other options which are available to it.
On February 19, 1997, CBI signed a commitment letter for a $12,500,000 credit
facility with Finova Capital Corporation. The Finova Facility would include a
revolving line of credit in the amount of $5.5 million secured by eligible
accounts receivable and inventory. The Finova Facility would also include a term
loan portion of $7.0 million due in three years, amortized on a five year
straight line basis. The revolving line of credit would bear interest at
Citibank N.A.'s reference rate (8.50% as of April 15, 1997) plus 1% per annum,
and the term loan would bear interest at such reference rate plus 2% per annum.
In addition, the Finova Facility would be further secured by CBI's present and
future tangible and intangible assets, would include a pledge of CBI's stock and
be guaranteed by CBH and the Company. The commitment expires June 15, 1997 and
is conditioned upon the negotiation and execution of the customary documentation
and the completion of this Offering. The loan agreement for the Finova Facility
would contain customary representations, warranties, events of default and
remedies. The proceeds of the Finova Facility would be used to repay any
remaining borrowings under the First Source Credit Agreement after the
application of the net proceeds from this Offering. Remaining proceeds, if any,
will be used for general corporate purposes, including acquisitions. If the
Company is unable to obtain the Finova Facility, it will continue to explore
other financing alternatives that may be available to it.

During the three months ended March 31, 1997, cash used in investing
activities was $40,927. Cash used in financing activities during such period was
$911,224, used primarily to make principal payments on the Credit Agreement and
to retire the Notes, offset by proceeds received from the unsecured advances in
February 1997.

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Immediately prior to the consummation of the Exchange and the Financing, CBH
privately sold an aggregate principal amount of $1,940,000 of its 12%
subordinated notes (the "Subordinated Notes") in a private placement (the "Note
Offering"), together with shares of CBH Common Stock, raising $1,940,000, and
privately sold an aggregate of 2,715 shares of CBH Preferred Stock (the
"Preferred Stock Offering"), together with shares of CBH Common Stock, of which
2,215 shares of CBH Preferred Stock were sold for an aggregate cash proceeds of
$2,215,000 and which 500 shares were issued in exchange for services rendered in
connection with the Acquisition. The Subordinated Notes bore interest at 12% per
annum payable monthly. The first half of the principal due on November 30, 1995
was satisfied by the Company making principal payments of $560,000 and the
exchange of $820,000 of the Notes for 820 shares of 12% CBH Preferred Stock,
together with shares of Common Stock. In addition, $1,125,000 was raised in
connection with the sale of 1,125 shares of such 12% CBH Preferred Stock,
together with shares of Common Stock ($605,000 of which was raised in November
1995 and $520,000 of which was raised in May 1996). The proceeds were used to
make principal payments on the Subordinated Notes in November 1995 and May 1996.
In connection with the issuance of the 12% CBH Preferred Stock and Subordinated
Notes, the Company issued 687,611 shares of Common Stock. The shares of 12% CBH
Preferred Stock pay cumulative dividends, payable monthly, at an annual rate of
12% of the stated value thereof and are redeemable upon completion of the
Offering by the Company.

CBH contributed the monies it raised in the Note Offering and the Preferred
Stock Offering to CBI in order for CBI to complete the Acquisition. In
connection with the Preferred Stock Offering and the Financing, a finder's fee
of $445,000 was paid to Michael H. Mindlin, a director of the Company. Branin,
which beneficially owns 313,103 shares of Common Stock of the Company and which
is controlled by Philip A. Herman, Chairman, President and a stockholder of the
Company, will be entitled to receive a fee equal to 3% of the aggregate proceeds
from the Note Offering, the Preferred Stock Offering and the Credit Agreement
upon the consummation of the Offering. The total of such fees would be
approximately $650,000. Branin has agreed to waive such fee in exchange for
increasing its management consulting fee discussed in the next two sentences to
$20,000 per month, effective upon completion of the Offering. In addition, CBI
entered into consulting arrangements with (a) Branin, pursuant to which CBI paid
$35,000 per month to Branin and (b) PAH Marketing, Inc. ("PAH"), a company
controlled by Philip A. Herman, pursuant to which CBI paid $5,000 per month to
PAH. These arrangements were modified as of September 1, 1996 to provide for
payments to Branin of $10,000 per month and to discontinue payments to PAH. As
of April 15, 1997, CBI owed Branin and PAH $1,000 in respect of these
obligations. In addition, CBI entered into a consulting agreement with Capital
Vision Group, Inc. ("Capital"), a company controlled by Lawrence Fleischman, a
former director and stockholder of the Company, pursuant to which it paid $5,000
per month to Capital from June 1995 through January 1996. These agreements were
entered into for the purpose of receiving management advisory services in the
areas of operations management, financing and acquisitions. See "Management,"
"Certain Transactions" and "Principal Stockholders and Holdings of Management."

Immediately following the Exchange, the Company contributed to CBH
approximately $860,000 in cash, net of expenses (constituting substantially all
of its net assets). CBH, in turn, contributed such cash to CBI in order for CBI
to complete the Acquisition (together with funds provided to it in the Financing
and funds provided to it by CBH from funds raised in the Note Offering and the
Preferred Stock Offering). In connection with the Exchange, the Company agreed
to issue to designees of Gro-Vest Management Consultants, Inc. ("G-V") an
aggregate of 36,313 shares of Common Stock (constituting 1% of the outstanding
shares of Common Stock of the Company) as an advisory fee for G-V's role in
facilitating the consummation of the Exchange, conditioned on G-V's obtaining,
by July 31, 1995, lock-up agreements limiting sales of Common Stock by the
holders of at least 75% of the 250,000 shares of outstanding Common Stock,
subject to registration rights granted to such holders on September 23, 1994 in
a private offering. The requisite lock-up agreements were obtained but have
since expired.

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The Company opened two new locations in Las Vegas during 1996. The initial
capital costs for these two locations were provided in full 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 substantial 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. Primarily because of the larger store size and
significant inventory commitment, the investment required to open "big-box"
facilities will be substantially greater than the investment required to open
the two new Las Vegas facilities. While the Company anticipates that a portion
of the costs will be funded by the suppliers, a significant portion of such
costs will be borne by the Company. Moreover, these 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.

As of February 25, 1997, the Company entered into a letter of intent (the
"Letter of Intent"), pursuant to which it may purchase the assets of Nonn's
Flooring, Inc. ("Nonn's"), a floor covering retailer with two stores located in
the Madison, Wisconsin area, for a purchase price of $3,000,000 in cash, subject
to adjustment under certain circumstances (the "Purchase"). The Purchase is
subject to the negotiation and execution of a definitive agreement and to the
Company's satisfactory completion of its due diligence investigation. The Letter
of Intent contemplates that upon completion of the Purchase, employment
agreements will be entered into between the Company and Kenneth Nonn and Janet
Meier, who are both executive officers of Nonn's. The Company's ability to
complete the Purchase is dependent on its consummation of the financing
contemplated by the Finova Facility or the consummation of alternative financing
arrangements that will provide sufficient cash resources to enable the Company
to repay the borrowings under the First Source Credit Agreement and to pay the
cash price of the Purchase.

The Company believes that cash flow generated by operations has been
sufficient for the Company's working capital needs for 1996, and is likely to be
sufficient for the Company's working capital needs during 1997. Cash flow from
operations should be sufficient to cover operating expenses and should be
maintained or enhanced by the Company utilizing its business strategies.
However, the Company's growth and acquisition strategy will require substantial
cash for capital costs. See "Business--Strategy."

EFFECT OF ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET ADOPTED

EARNINGS PER SHARE.

Effective for financial statements issued after December 15, 1997, the
Company will be required to implement FASB Statement No. 128, EARNINGS PER
SHARE. Statement No. 128 establishes standards for computing and presenting
earnings per share ("EPS"), and applies to entities with publicly held common
stock or potential common stock. Statement No. 128 replaces the presentation of
basic EPS and also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital structures.
The Company has not determined what effect, if any, Statement No. 128 will have
on the Company's EPS presentation.

INFLATION

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.

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BUSINESS

INTRODUCTION

The Company is engaged in the business of selling and installing floor
coverings and selling wall coverings, window treatments and certain related
products, primarily for the residential housing market. Currently, the Company
is engaged in business in Las Vegas, Nevada, where its sales of $40.3 million,
$42.4 million and $9.2 million in 1995, 1996 and the three months ended March
31, 1997 respectively, have made it the largest seller and installer of floor
coverings in such market. The Company believes that its sales represent
approximately 63% of the new homes sold in the Las Vegas market and are
approximately 3.5 times those of its nearest competitor, based on 1995
construction data, the latest such information available. From its three
facilities in Las Vegas, the Company sells approximately 72% of its products to
the new home market to or through new home builders through its New Housing
Division and approximately 28% of its products to the retail replacement market
directly to individual homeowners through its Replacement Sales Division. New
Housing Division sales are effected primarily to or through new home builders
who offer purchasers a wide selection of basic grade floor coverings 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 possible
upgrades on floor coverings, in addition to purchasing wall coverings, window
treatments and related products. The Company believes that its new retail design
center located in Las Vegas will also enable it to continue to broaden its
product lines and expand the sales of its Replacement Sales Division. The
Company has also recently established a Commercial Division, which is its first
entry into the commercial market, including multi-family, office, retail store
and small hotel projects.

The Company believes that the retail floor covering industry is highly
fragmented, with no single floor covering retailers, including national and
large regional chains, accounting for more than ten percent of the total market.
Most floor covering retailers operate a single store generating less than $1
million in annual sales. The Company believes that small independent floor
covering retailers face competitive disadvantages resulting from limited
purchasing power, ineffective inventory control and inadequate resources for
sales, marketing and store management. Accordingly, the Company believes that
significant opportunities exist for floor covering 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 floor covering 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 floor covering
retailer. The Company is reviewing various markets throughout the United States
to determine their desirability for expansion. The Company is also in the
process of negotiating with acquisition candidates in some of those markets and
has recently entered into a non-binding letter of intent to acquire the assets
of Nonn's Flooring, Inc., a floor covering retailer with two stores located in
the Madison, Wisconsin area. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital Resources."
The Company also anticipates opening two new "big-box" facilities in Phoenix,
Arizona in 1997 and is actively exploring the possibility of developing
additional stores in other sites in the southwestern United States where the
Company can build on its relationships with regional homebuilders. The planned
"big-box" facilities will have between 40,000 and 60,000 square feet per
facility and will focus on retail sales of all product lines in a warehouse-type
setting, as well as having a dedicated design center area. The Company believes
that the "big-box" format will enable it to quickly capture a significant market
share by offering customers a pleasant shopping environment in which to fulfill
all of their floor and wall covering and related needs on a cash-and-carry or
next-day installed basis. However, there can be no assurance as to the viability
of this approach.

The Company intends to increase its business in Las Vegas through continued
advertising and marketing efforts, and recently opened a new retail facility and
a new home design center in other areas of

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Las Vegas. The Company's main facility is located centrally, and the additional
retail branch is located in an area of Las Vegas with a large concentration of
mature homes. Additional retail centers in similar areas are being contemplated.
The Company intends to actively seek to increase its retail replacement sales
through increased consumer advertising, enhanced marketing, the opening of one
or more new retail locations and the addition of new products.

INDUSTRY OVERVIEW

The retail floor covering industry in the United States (which includes
fixed and non-fixed carpeting and marble, ceramic tile, vinyl and wood flooring)
is estimated to have grown from approximately $11.2 billion in 1991 to
approximately $14.5 billion in 1995, up 29% over the 1991 level but only up 0.1%
over the 1994 level. Carpet and area rugs accounted for 68.7% of total dollar
sales in the industry in 1995 versus 69.4% in 1994. Despite this growth in size,
the industry has remained fragmented. The Company believes that no single floor
covering retailer, including national and large retailers such as Color Tile,
Home Depot and New York Carpet World, accounts for more than ten percent of the
total market. The Company believes that while chains and mass merchandisers do
not dominate the floor covering industry, such companies do influence pricing,
product selection and service innovation. According to the most recent figures
available, U.S. floor covering sales volume reached approximately 2.5 billion
square yards in 1995, down 0.4% from the prior year. By product sector, change
in sales volume in 1995 as compared to 1994 is as follows: carpet and area rugs
declined by 1.7%, hardwood flooring increased by 5.6%, ceramic floor and wall
tile increased by 5.2%, and vinyl sheet and floor tile decreased by 2.4%.

The carpet industry's two primary markets are residential and commercial,
with the residential market (the market currently served by the Company)
accounting for approximately 75% of industry sales in 1995 and the commercial
market accounting for approximately 25% of such sales. 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 floor coverings, wall coverings, window treatments and related products in
the Las Vegas residential market and to become the leading provider of floor
coverings, wall coverings, window treatments and related products in selected
markets throughout the United States. The Company is also seeking to become a
leading provider of floor coverings in the commercial market in Las Vegas and in
other markets. 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 increase its business in Las Vegas through
continued advertising and marketing efforts, and recently opened a new retail
facility and a new home design center in other areas of Las Vegas. The Company's
main facility is located centrally, and the additional retail branch is located
in an area of Las Vegas with a large concentration of mature homes. Additional
retail centers in similar areas are being contemplated. The Company intends to
actively seek to increase its retail replacement sales through increased
consumer advertising, enhanced marketing, the opening of one or more new retail
locations and the addition of new products.

The Company also intends to expand upon its existing base of customers by
increasing its sales for new home projects with residential developers.
Homebuilders provide the Company's new home design center with the floor plans
of all the 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

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<PAGE>

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 home buyers. Based on estimates of the
Las Vegas Homebuilder's Association, over the next 10 years, the total new homes
market for carpet in Las Vegas is projected to grow at an annual rate of 5% to
10%. For 1996, the Company believes it has maintained its share of the market
for floor covering for new homes in the Las Vegas market with sales growth of
7.5% over the prior year. However, there can be no assurance that the Las Vegas
market will grow as projected or that the Company will be able to retain its
market share.

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 floor covering products. In addition, the Company intends to continue
its policy of next-day installation and of guaranteeing free repairs on carpets
it has installed for homeowners and home buyers for as long as they own their
homes. The Company also inspects all floor covering 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 begun to have a very positive effect on the Company's reputation
with builders and home buyers. 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 floor covering 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 very 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 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.

ADDITION OF NEW PRODUCTS; DESIGN CENTERS. The Company also intends to
attract and maintain customers by adding complementary products to its current
offerings. The Company has targeted wall and window coverings as its first
significant product extensions and is anticipating further growth through the
addition of area rugs and through cleaning and maintenance programs, as well as
expansion of sales of hard floor coverings such as wood and tile. These new
lines will be promoted by sales personnel at the Company's stores and through
the Company's advertising campaigns. To that end, the Company has recently hired
a manager to implement these sales and marketing programs.

The Company further intends to increase market share and gross profit
margins through its operation of "design centers" in its retail sales
facilities. The design centers 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 has also opened a
design center in the Las Vegas area for new home buyers who are selecting floor
coverings and other products to be installed in their new homes. This design
center has been opened 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. The design center primarily showcases
higher price and higher profit margin products, particularly area rugs, hard
floor surfaces, such as wood and tile, and window and wall coverings. Early
results from operation of the new home design center show an average increased
sale of approximately $1,000 per new home sale.

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These sales have a significantly higher gross profit margin. However, there can
be no assurance that the design center will continue to have a positive impact
on the Company's operations.

INVENTORY PRACTICES. In the Las Vegas market, the Company has been able to
maintain low warehousing costs by stocking small amounts of inventory. At the
same time, the Company has been able to provide its customers with next-day
installation on purchases in the Las Vegas market. 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 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.

OTHER MARKETS

PURSUIT OF SELECTIVE ACQUISITIONS AND DEVELOPMENT OF NEW STORES. The Company
believes that because of the fragmented nature of the marketplace for floor
covering and related sales, significant consolidation opportunities exist, and
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,
including the potential acquisition of Nonn's discussed below, 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.

The Company has also selectively targeted certain markets throughout the
southwestern United States where there is no dominant competitor for expansion
through the development of new stores. The Company has entered into an
employment agreement with Alan Ember, the former district manager of CarpetMAX,
to develop stores in Phoenix, Arizona and other markets in the southwestern
United States. Like Las Vegas, these areas are experiencing high growth in
population and home building. Expansion into these markets will be financed in
part by the suppliers of the Company's products, with such funding being applied
to the construction costs associated with the new facilities. 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. Additionally, the Company believes that it can compete
in these markets through its demonstrated ability to compete on service and
price. Furthermore, expansion of the Company should generate an increase in the
Company's buying power due to higher volume purchasing. Where the Company
expands into new markets through acquisition of existing companies, this should
allow the Company to provide lower prices than the stores could provide on a
stand-alone basis. However, there can be no assurance that such expansion will
be effected or, if effected, that any new facilities will be operated
profitably.

BIG-BOX STORE FORMAT. The Company's strategy for entering new markets
includes opening "big-box" stores with 40,000 to 60,000 square feet of
warehouse-type space stocked with significant inventories of the full range of
the Company's products, as well as customer service offices, which, among other
things, will provide customers with access to independent contractors who can
install these products on a next-day basis. These stores are intended to satisfy
all of a customer's floor, wall and window covering needs and to serve the
cash-and-carry market as well as the customers requiring installation service.
The Company believes that these stores can enable it quickly to achieve
meaningful market share in markets that do not have dominant competitors.
However, the Company's strategy in this regard is untested, and there can be no
assurance that such stores can be operated profitably or can achieve the market
penetration the Company anticipates.

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In markets in which the Company intends to create "big-box" facilities, the
Company believes it can achieve next-day installation through the maintenance of
broad inventories from which purchases can be made on the spot by
"do-it-yourselfers" or which can be installed in a timely manner by independent
installation contractors who will maintain customer service offices on the
Company's premises. Maintenance of sufficient inventories in these facilities
will require a substantial amount of working capital, which will adversely
affect financial performance relative to the results of the Company's current
practices. The Company believes that these adverse effects will be fully offset
by economies of scale that can be achieved in cost of goods sold, delivery costs
and other operating costs, although there can be no assurance in this regard.

The Company contemplates that any retail facilities it opens, whether or not
in the "big-box" format, will have a dedicated design center 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,
including child care/ entertainment centers, will increase the average total
sale price and gross margin for its sales, although there can be no assurance in
this regard.

PROPOSED ACQUISITION OF NONN'S FLOORING. On February 25, 1995, the Company
entered into a non-binding letter of intent to acquire the assets of Nonn's for
a cash price of $3 million, subject to adjustment to the extent that the net
assets of Nonn's at closing are greater than or less than $1,382,000. Additional
payments of $166,667 per year will be required by the Company if Nonn's meets
certain performance targets. Upon completion of the acquisition, it is
anticipated that the Company will enter into three-year employment agreements
with Kenneth Nonn and Janet Meier, who have been executive officers of Nonn's
since its inception. The acquisition is subject to the negotiation and execution
of definitive agreements and the satisfactory completion of the Company's due
diligence investigation of Nonn's.

Nonn's is engaged principally in the sale of floor covering in the
commercial and residential markets in the Madison, Wisconsin area. Nonn's, which
was established in 1985, operates out of a 50,000 square foot facility in
Middleton, Wisconsin and a 5,000 square foot facility in Sauk City, Wisconsin,
approximately 25 miles away from Madison. Nonn's revenues for 1996 were nearly
$12.5 million, representing approximately a 20% share of the Madison floor
covering market, making Nonn's one of the two largest floor covering sellers in
such market. Approximately half of Nonn's sales are to the commercial market,
with the remaining half being divided between new home and residential
replacement sales. Nonn's employs 70 persons, including 40 unionized floor
covering installers.

OPERATIONS

BACKGROUND. The Company operates its business in Las Vegas, Clark County,
Nevada, where its sales represent approximately 63% of the residential floor
covering sales. At this time, all of the Company's operations are located in
this area.

The Las Vegas area is one of the fastest growing in the country, according
to regional publications. According to the Las Vegas Chamber of Commerce, during
1996, an average of 6,500 persons relocated to Las Vegas each month, and the Las
Vegas population has grown by approximately 7.6% in the one-year period between
1995 and 1996, with a similar percentage increase in the number of households
during that time. More than 40% of persons in Las Vegas have resided there for
only five years or less, and two-thirds of the area's residents own their own
homes. The above statistics underscore the high numbers of persons arriving in
the Las Vegas area and the potential strength of the retail floor covering
market.

The Phoenix market, into which the Company anticipates expanding through the
development of new stores, is the third fastest growing community in the United
States, according to regional publications. According to such publications, an
average of nearly 7,000 people relocate to the Phoenix area every month, and
building permits have remained steady over the last three years at a rate of
25,000 single family building permits issued per year. Because no single
retailer dominates the Phoenix floor covering market,

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the Company believes that its strategies should enable it to quickly become a
successful retailer in the Phoenix market, although there can be no assurance in
this regard. See "--Strategy."

DIVISIONS. The Company operates through two divisions, the New Housing
Division and the Replacement Sales Division. A Commercial Division, serving the
multi-family, office, retail store and small hotel markets is being developed.

NEW HOUSING DIVISION. The Company's New Housing Division is responsible for
installation of carpeting in newly built homes. Salespersons in this division
deal with both home builders and buyers. In servicing the new home market, the
Company generally secures contracts from builders to carpet 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 color of carpeting
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 home buyers choose an upgraded carpet 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 amount with the order. In other cases, the
Company bills the upgraded portion of the job to the builder, who then passes on
the carpet's additional cost to the buyer as part of the total price of the
home; this method may allow buyers to finance their flooring through their
mortgage, with little incremental effect on monthly payments. Most of the
Company's accounts receivable result from builders' standard allowances and are
due within thirty days of installation.

Through its New Housing Division, the Company has relationships with most of
the larger tract home builders in the Clark County area, with its five largest
customers accounting for $15.9 million, $12.3 million and $15.4 million in sales
in 1994, 1995, and 1996, respectively. During the past six years, the New
Housing 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 $30.8 million in 1996
(72.2% of total Company sales). The Company estimates that its sales to new
homes in Clark County as a percentage of its total sales was 77%, 74% and 73% in
1994, 1995 and 1996, respectively.

Because the Division's sales are dependent on sales of new homes, such sales
are affected by interest rates prevailing in the home industry and by building
activity generally. Because the Company also services the carpet replacement
market, the adverse effects on the Company's sales by downturns in the business
cycle have been moderated.

REPLACEMENT SALES DIVISION. The Replacement Sales Division is responsible
for providing individual consumers who have existing homes with new or
replacement floor coverings. The Company is one of the top three retailers in
such consumer replacement sales in the Las Vegas area, chiefly because of its
large selection, low prices and quick installation time.

Customers contemplating purchasing flooring or window and wallcoverings will
visit one of the Company's retail design centers. Highly trained 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 replacement carpet 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 check directly to the Company upon completion of installation. The
Company's sales in the replacement sales market grew by $715,127 from $9,763,024
in 1994 to $10,478,151 in 1995. Although sales in the replacement sales market
during 1996, at $8,789,047, have fallen behind the pace set in previous years,
the Company believes that its retail design center approach can significantly
expand sales by its Replacement Sales Division, although there can be no
assurances in this regard.

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<PAGE>
CUSTOMERS

The Company has among its customers most of the larger home builders in
Clark County, Nevada, including Lewis Homes of Nevada, Inc. ("Lewis"), American
West Homes ("AWH") and Pardee Construction Company of Nevada. The Company has
developed its relationships with such builders over the past 24 years. In 1994,
1995 and 1996, five customers accounted for approximately 37%, 31% and 36% of
the Company's net sales, respectively. In 1994, 1995 and 1996, Lewis accounted
for 12.7%, 11.3% and 14.2% of net sales, respectively. In 1994, 1995 and 1996,
AWH accounted for 12.1%, 8.1% and 9.6% 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, Aladdin Mills, Inc. and Tuftex (a division of
Queen Carpet Corp.) accounted for 74.3%, 87.8% and 86.5% of its total purchases
in 1994, 1995 and 1996, 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.

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 were approximately $349,000, $332,000 and $598,000 (representing
0.8%, 0.8% and 1.4% of net sales) in 1994, 1995 and 1996, respectively. The
Company spent 35% of its 1996 advertising budget on print advertising (including
pre-printed newspaper inserts and print advertisements), and 65% on television
and radio advertising. The Company features in its advertising its large
selection and low prices and also features its free repair guarantee on
installation for as long as buyers own their homes. The Company also receives
cooperative advertising contributions, of up to 50% of the cost of qualifying
advertisements depending on the amount of the relevant products sold, from mills
and yarn companies by including in its advertising references to brand name
yarns (such as DuPont, Monsanto and Allied) or floor coverings (such as
Congoleum). The Company has located its main store on a centrally located,
heavily traveled street.

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 and improving selling skills. 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 floor covering industry is highly competitive and fragmented. According
to an industry publication, the nation's ten largest floor covering retailers in
terms of sales volume accounted for approximately 20% of all floor covering
sales in the United States in 1994, although none of such retailers dominated
the market. In 1995, Clark County, Nevada had approximately 104 outlets through
which carpet was sold.

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Companies in the floor covering 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 include
Carpeteria, Carpets Galore, Cloud Carpets, Carpet Max, Albright and Adams
Brothers, all of which have stores located in Las Vegas.

In addition to the local and regional specialty chains, the Company competes
with national and regional home improvement centers (such as Home Depot and
Payless Cashways) and national department stores and specialty retailers (such
as Sears and Color Tile) 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.

A significant new entrant into the retail floor covering market in the
United States is Shaw Industries, Inc., the largest domestic manufacturer of
carpeting. To date, Shaw has not entered the Las Vegas or Madison markets but
has entered the Phoenix market.

While there is intense competition among providers of floor coverings 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
and service and the fact that the Company has been in business for 25 years.

EMPLOYEES

As of May 15, 1997, the Company employed approximately 130 persons, divided
among its accounting, administrative, buying, sales and warehousing departments.
A substantial portion of the compensation of 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.

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 recently obtained a $4.0 million excess liability umbrella insurance
policy. 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.

PROPERTIES

The Company rents the property on which its principal Las Vegas operating
facility is located at an annual rent of approximately $100,000. See "Certain
Transactions." On such 44,000 square foot property the Company has located three
contiguous warehouses, a retail facility and administrative offices. The Company
has leased two additional facilities in Las Vegas, consisting of a retail
facility and the design center, containing a total of 9,446 square feet at an
annual rental of $111,610.

Prior to June 2, 1995, the Company maintained its business office at 134
West 72nd Street, New York, New York, using these offices on a rent-free basis.
The Company has changed its principal executive offices within New York, New
York to 100 Maiden Lane. These offices are also used on a rent-free basis.

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<PAGE>
LEGAL PROCEEDINGS

NEVADA DEPARTMENT OF EMPLOYMENT, TRAINING AND REHABILITATION DETERMINATION

On September 5, 1996, the Nevada Department of Employment, Training and
Rehabilitation notified the Company that it had made a determination that the
Company had failed to pay unemployment taxes with respect to certain floor
covering installers. The Company appealed the decision, and an appeals hearing
was held on February 5, 1997. The appeals referee agreed with the State of
Nevada, and classified the installers as employees. The decision ordered no
retroactive tax or penalties; however, the Company will become responsible for
such unemployment taxes for periods beginning April 1, 1997.

The Company believes, based in part on a prior determination by such
Department classifying the Predecessor's installers as independent contractors,
that these installers are not employees of the Company and the Company is not
subject to these payments. Many, though not all, of the Company's competitors
also treat carpet installers working under similar arrangements as independent
contractors. The Company will continue to vigorously defend its position and
intends to appeal the above decision to the Board of Review on or before the
expiration of its term to appeal. A more substantial cost would be incurred by
the Company if the installers were to be regarded as employees of the Company
for Federal withholding purposes. To date, there has been no indication that the
Federal government intends to require the Company to treat these carpet
installers as employees of the Company. However, there can be no assurance that
the Federal government will not pursue such action in the future. The amount of
any potential liability is unknown, but the Company believes that any adverse
outcome will not be material.

TERMINATION OF MARK SZPORKA

SECURITIES AND EXCHANGE COMMISSION INQUIRY

In a letter dated March 11, 1997, the Company received notice from the
Commission, that an informal inquiry into the Company as to certain accounting
and other matters was being conducted. The Company was requested to voluntarily
provide and has provided the Commission with certain documents, as outlined in
that letter. The Commission's letter to the Company states that this inquiry is
confidential and should not be construed as an indication by the Commission or
its staff that any violation of law has occurred, or as a reflection upon any
person, entity or security.

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.

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<PAGE>
MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

The following table sets forth certain information with respect to the
directors and executive officers of the Company. The Company's prospects are
also substantially dependent on certain key employees. See "--Key Employees."

<TABLE>
<CAPTION>
NAME AGE POSITION
- -------------------------------------------- --- ------------------------------------------
<S> <C> <C>

Philip A. Herman............................ 51 Chairman of the Board and President
Gary Peiffer................................ 46 Secretary and Director
Michael Mindlin............................. 55 Director
Facundo Bacardi............................. 51 Director
William Poccia.............................. 51 Chief Financial Officer
</TABLE>

The number of directors on the Board is presently fixed at five.

PHILIP A. HERMAN has been Chairman of the Board and President of the Company
since June 2, 1995, the date of consummation of the Exchange and the
Acquisition. Mr. Herman is also sole Voting Trustee of the voting trust that
holds a majority of the Company's outstanding shares of common stock. Pursuant
to the Voting Trust, Mr. Herman has sole power to vote all shares held in the
Voting Trust. The Voting Trust will terminate on the earlier of (i) May 30,
2005, or (ii) upon repayment of all outstanding obligations to First Source
under the Credit Agreement. See "Principal Stockholders and Holdings of
Management." He also has served as a principal of Branin since 1994. From 1992
to 1994, Mr. Herman served as a principal of Americorp Securities, Inc.
("Americorp"), a retail brokerage firm, and from 1989 to 1992 he served as
principal of PAH Marketing Consultants Inc., a consulting firm. In January 1995,
Mr. Herman and PAH entered into a consent decree, without admitting any
violation of law, with the Federal Trade Commission ("FTC") pursuant to which
Mr. Herman and PAH paid $40,000 to the FTC and consented to being enjoined from
participating in certain telemarketing related activities.

GARY PEIFFER has been Secretary and a director of the Company since June 2,
1995. Mr. Peiffer has served as Vice Chairman of the Board, General Counsel and
a director of The Aegis Consumer Funding Group, Inc. ("Aegis"), a
publicly-traded automobile finance company since January 1994. Prior to joining
Aegis, Mr. Peiffer was a senior partner at the law firm of Jeffer, Hopkinson,
Vogel, Coomber & Peiffer from January 1983 through December 1993.

MICHAEL MINDLIN has been a director of the Company since June 2, 1995. From
1992 to February 1997, he served as President of Americorp. Prior to that time,
Mr. Mindlin served as Chief Operating Officer of Aegis.

FACUNDO BACARDI has been a director of the Company since June 2, 1995. 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.

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.

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<PAGE>
SUMMARY COMPENSATION TABLE

The following table sets forth for the fiscal years ended December 31, 1996
and 1995, the compensation for services in all capacities to the Company of the
person who was at December 31, 1996 and 1995 the President of the Company. No
executive officers of the Company received salary and bonus in excess of
$100,000 during the fiscal years ended December 31, 1996 and 1995.

<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------------------------
<S> <C> <C> <C>
OTHER ANNUAL
NAME AND PRINCIPAL POSITION SALARY $ BONUS $ COMPENSATION $(1)
- ----------------------------------------------------- --------- --------- -----------------
Philip A. Herman..................................... 0 0 0
Chairman of the Board and President
</TABLE>

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

(1) Certain entities controlled by Mr. Herman received fees from the Company for
the fiscal years ended December 31, 1996 and 1995 in the aggregeate amounts
of $360,000 and $280,000, respectively, as set forth herein under "Certain
Transactions" and in "Management's Discussion and Analysis of Financial
Condition and Results of Operations."

EXECUTIVE COMPENSATION

COMPENSATION. Prior to the Exchange, no officer or director of the Company
received remuneration from the Company. Directors do not currently receive fees
or other remuneration from the Company. The Company is currently contemplating
entering into an employment agreement with Mr. Herman pursuant to which Mr.
Herman will initially receive no base salary but may receive bonuses and may be
granted a base salary in the future, within the discretion of the Board of
Directors. William Poccia, Chief Financial Officer of the Company, is being
remunerated by the Company at the rate of $100,000 per year.

BONUS PLAN. In June 1995, the Company initiated a Management Bonus Program
(the "Bonus Plan") pursuant to which the Company could make available for
bonuses to certain members of management of the Company (including Steven Chesin
and Jeffrey Wiens) an aggregate amount equal to 2% of the Earnings Before Income
Taxes (as defined below) of the Company for each fiscal year, with the Company's
management to have the right to determine how such bonus amount would be
allocated among its members. If all of the members of the Company's management
issued a written statement recommending allocation, the bonus would be allocated
as such; and if no written statement was issued, the President of the Company
could allocate the bonus in his discretion. "Earnings Before Income Taxes" meant
earnings before income taxes of the Company for the relevant fiscal year. There
were no bonuses paid in 1995 or 1996. The Bonus Plan was terminated in October
1996. Those officers eligible for bonuses under the Bonus Plan will be eligible
to participate in the Option Plan.

EMPLOYMENT AGREEMENTS

MARK SZPORKA. Pursuant to a five-year employment agreement, dated as of
June 2, 1995, Mr. Szporka was employed as the Company's Chief Financial Officer
at an annual salary of $120,000 per year, subject to annual pay increases at the
Company's discretion. This employment was terminated for cause by the Company by
letter dated August 5, 1996. Pursuant to his employment agreement, Mr. Szporka
was entitled to participate in the Bonus Plan as a member of "management" for
any fiscal year during which he had been employed for at least six months. Mr.
Szporka's termination and severance provisions were comparable to those for Mr.
Chesin. In addition, Mr. Szporka, under the terms of his employment agreement,
purchased at $0.001 per share 72,625 shares of Common Stock on June 1, 1995. The
difference between the amount paid and market value of the shares was recognized
as additional Acquisition costs. Also, pursuant to the employment agreement,
145,250 shares of Common Stock ("Escrow Shares") were deposited into an escrow
account on June 1, 1995. All dividends on and voting rights of the Escrow Shares
belonged to the Company until such time as the Escrow Shares would be released
from escrow. Upon the

39
<PAGE>
first anniversary of Mr. Szporka's employment and each of the following four
such anniversaries, 29,050 of the Escrow Shares were to be released to Mr.
Szporka together with all rights and privileges thereto. In the event the
Company did not meet certain operating goals, as described in the employment
agreement, the Company had the right to repurchase those shares at $.01 per
share. As of December 31, 1995, Mr. Szporka's right to receive 17,030 of the
Escrow Shares was canceled because the Company did not meet certain operating
goals described in the employment agreement during the operating period then
ended. As a result of the Company's termination of Mr. Szporka's employment for
cause, it became entitled to repurchase the 145,250 Escrow Shares from Mr.
Szporka for $.01 per share. Such repurchase was effected in October 1996.

On September 11, 1996, Mr. Szporka sued the Company and its subsidiaries and
the Company's directors in District Court in Clark County, Nevada alleging that
his employment agreement was wrongfully terminated, that the Company violated
duties of good faith and fair dealing with him and that he was tortiously
discharged. He seeks unspecified compensatory damages in excess of $10,000,
punitive damages, injunctive and declaratory relief, attorney's fees and costs
and such other relief as the court deems just and equitable. Subject to the
consent of the other defendants in the suit, the court has granted the Company's
motion to dismiss the case so that the dispute may be adjudicated through
arbitration as provided in Mr. Szporka's employment agreement. The Company
believes that it has meritorious defenses and intends to vigorously pursue them.
Moreover, the Company is considering whether it has counterclaims against Mr.
Szporka.

KEY EMPLOYEES

The Company believes that the following employees of the Company are of
special value to the Company's existing floor covering business and to the
implementation of its growth strategy.

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 Floor Covering, Inc., a carpet installer, from
its founding in 1977, when Mr. Chesin was only 15 years old, to the Company's
acquisition of Steve's in July 1995.

Pursuant to an employment agreement, dated as of July 28, 1995, between Mr.
Chesin and the Company, Mr. Chesin is serving as Senior Vice President and Chief
Operating Officer of Carpet Barn 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. His
current salary has been increased to $125,000 per year from its initial $75,000
level and is subject to annual pay increases at the Company's discretion. Mr.
Chesin was eligible to participate in the Bonus Plan until its termination in
October 1996. Mr. Chesin's employment is terminable for cause which includes the
Company's failure (a "Target Failure") to achieve net income equal to or greater
than (a) 75% of the projected net income for any fiscal quarter or (b) 85% of
the projected net income for any two consecutive fiscal quarters. 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 a Target Failure or Mr. Chesin's total disability.

JEFFREY WIENS has been 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, dated as of July 5, 1995, the Company has employed Mr.
Wiens as its Controller for a two-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' salary has been increased to $75,000 per year from its
initial $50,000 level and is subject to annual pay increases at the Company's
discretion. Until its termination, Mr Wiens was entitled to participate in the
Bonus Plan.

40
<PAGE>

ALAN EMBER has extensive experience in the floor covering industry and was
recently hired by the Company to develop retail facilities in Phoenix and other
markets in the southwestern United States. Mr. Ember's responsibilities includes
merchandising, marketing, advertising, sales training and program development.
From September, 1994 until he was hired by the Company, Mr. Ember was the
Divisional President of CarpetMAX in Phoenix, Arizona and was responsible for
the entire operation of that division. Prior to that, from November 1993, Mr.
Ember was the General Manager for Carpeteria in Tuscon. From March 1993, Mr.
Ember served as General Manager for Broadway Carpet, also in Tuscon. From
September 1992, he was the carpet division and advertising manager for Tile City
in Pittsburgh, Pennsylvania. Prior to that, Mr. Ember was the General Manager
for Apollo Carpet in Tuscon, Arizona.

Pursuant to an employment agreement dated May 28, 1996 between Mr. Ember and
the Company, Mr. Ember is serving as Senior Vice President of Carpet Barn for a
three-year period with successive one-year automatic extensions unless either
party gives the other at least 90 days notice of termination prior to the end of
any term. His current salary is $125,000 per year plus a bonus of 25% of
Earnings Before Interest and Taxes, as defined in the employment agreement
("EBIT"), for the entity managed by Mr. Ember, payable in Common Stock of the
Company 15 days after the Company's financial statements are finalized. Mr.
Ember's employment is terminable for cause, which includes the failure (a
"Target Failure") to achieve EBIT equal to or greater than (a) 75% of the
projected EBIT in any fiscal quarter, or (b) 85% of the projected EBIT for any
two consecutive fiscal quarters, in each case for the entity managed by Mr.
Ember. Mr. Ember will receive two months severance pay, plus one additional
month severance pay for each full year of employment, if the agreement
terminates due to a Target Failure or Mr. Ember's total disability.

JUDY HIGHTOWER has been the design services manager at Carpet Barn, Inc.
since joining the Company in October 1995. Ms. Hightower established the
Company's first window and wallcovering division and was also responsible for
designing, implementing and opening the Company's new design center and retail
facility in Las Vegas. From 1991 until she joined the Company, Ms. Hightower
provided similar design services to several large home builders in the Las Vegas
area.

ROBERT SMITH has extensive experience in operating and managing floor
covering warehouses and distribution centers and was hired by the Company to
manage and operate its warehouses and the distribution of its products in the
Las Vegas market. From January 1995 until he joined the Company in June 1996, Mr
Smith was the Director of Broadloom Installation for Giant Carpet in Moonachie,
New Jersey, where he supervised and coordinated the installation of carpeting
for thirty-eight retail stores. Prior to that, from March 1991, Mr. Smith was
the Terminal Manager and Operations Consultant for Apex Express, Inc., located
in New York, New York. In that capacity, Mr. Smith managed the warehousing,
delivery and assembly of office furniture and exercise equipment and designed
and implemented delivery and in-house assembly programs for United Stationers in
Edison, New Jersey.

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. Stockholders 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. 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 Gary Peiffer, Michael Mindlin, and Facundo
Bacardi. The Committee has the full power and authority, subject to the
provisions of the Option Plan, to designate participants, grant Awards and

41
<PAGE>
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 or upon
stockholder approval of the plan and each year thereafter non-qualified stock
options ("NQSO's) to purchase 10,000 shares of Common Stock 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, 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.

The Company has to date agreed to grant options to purchase 595,000 shares
of Common Stock under the Option Plan, upon the consummation of the Offering, at
an exercise price equal to the Offering Price, including options to purchase
300,000 and 125,000 shares, respectively, to Mr. Herman and Mr. Poccia and
options to purchase 10,000 shares each to Messrs. Bacardi, Mindlin and Peiffer.
Eligible persons may receive grants under the Option Plan in the future at the
discretion of the Compensation Committee.

42
<PAGE>
CERTAIN TRANSACTIONS

Branin, a principal stockholder of the Company, acted as advisor in
connection with the Financing as well as the concurrent private offerings of
Notes and Preferred Stock of CBH. Branin acted as advisor to the Financing
between CBI and First Source and for its role became entitled to receive a fee
of 3% of the aggregate proceeds received by CBI from the Credit Agreement upon
the consummation of the Offering. On June 2, 1995, CBH completed the concurrent
offerings in the aggregate amount of $4,655,000 consisting of $1,940,000 in
Notes from the Note Offering at a per Note unit price of $200,000 and $2,715,000
from the Preferred Stock Offering consisting of 2,715 shares of Preferred Stock
at a per share price of $1,000 and a per Preferred Stock unit price of $250,000.
For each Preferred Stock unit sold, the Company issued 36,313 shares of Common
Stock, and for each Note unit sold, the Company issued 15,910 shares of Common
Stock, for an aggregate of 548,683 shares of Common Stock issued in such Note
Offering and Preferred Stock Offering. Branin became entitled to receive a fee
of 3% of the aggregate proceeds from the Note Offering, the Preferred Stock
Offering and the Credit Agreement upon the consummation of the Offering. Philip
A. Herman, the Chairman of the Board and President of the Company, is the
principal of Branin. The total of such fees would be approximately $650,000.
Branin has agreed to waive such fees in exchange for increasing its management
consulting fees described in the next paragraph, to $20,000 per month, effective
upon completion of the Offering. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations-- Liquidity and Capital
Resources."

In connection with the Preferred Stock Offering and the Financing, a
finder's fee of $445,000 was paid to Michael H. Mindlin, a director of the
Company. In addition, CBI entered into consulting arrangements with (a) Branin,
pursuant to which CBI was obligated to pay $35,000 per month to Branin and (b)
PAH Marketing, Inc. ("PAH"), a company controlled by Philip A. Herman, pursuant
to which CBI was obligated to pay $5,000 per month to PAH. These arrangements
were modified as of September 1, 1996 to provide for payment obligations to
Branin of $10,000 per month and to discontinue obligations to PAH. As of May 15,
1997, CBI owed Branin and PAH $11,000 in respect of these obligations. In
addition, CBI entered into a consulting agreement with Capital Vision Group,
Inc. ("Capital"), a company controlled by Lawrence Fleischman, a former director
and stockholder of the Company, pursuant to which it paid $5,000 per month to
Capital from June 1995 through January 1996. These agreements were entered into
for the purpose of receiving management advisory services in the areas of
operations management, financing and acquisitions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."

C.B. Realty, Inc. ("CB Realty"), which is owned by four stockholders of the
Company (Gary Peiffer, Michael Mindlin, Facundo Bacardi and David Herman, a son
of Philip Herman), acquired the land and building (the "Property") previously
owned by the Predecessor Business, concurrently with the Company's acquisition
of the assets of the Predecessor Business. In connection with such purchase of
the Property, the Company loaned $288,000 to CB Realty, payable over a
three-year period in monthly installments of $9,293, including interest at a
rate of 10% per annum. CB Realty simultaneously entered into a lease agreement
with the Company pursuant to which the Company leased the land and building in
which it conducts its operations for a three year term with annual lease
payments of approximately $100,000. Shortly before the completion of the
Acquisition, environmental studies revealed certain contamination of the
groundwater flowing below the Property. First Source, the lender providing the
acquisition financing for the Company's purchase of the assets of the
Predecessor Business, refused to provide the financing if the Property were
included in the assets purchased. First Source did, however, approve the
acquisition of the Property by CB Realty with funds borrowed from CBI and the
leasing of the Property to CBI by CB Realty. A subsequent appraisal as of the
time of completion of the Acquisition valued the Property at $1.325 million. The
appraisal was expressly conditioned on, among other things, the absence of
environmental problems. In light of the known environmental risk to CB Realty,
its principals were only willing to pay $288,000 for the Property, which price
was acceptable to First Source. The Company has received a legal opinion to the
effect that the ownership structure of the Property provides substantial
protection for

43
<PAGE>

the Company from environmental law liability with respect to the Property. As of
May 15, 1997, the balance remaining on such loan was $189,700.

On July 28, 1995, the Company purchased Steve's Floor Covering, Inc.
("Steve's"), a floor covering repairer, installer, cleaner and retailer from
Steven Chesin, the Chief Operating Officer of CBI, pursuant to an asset purchase
agreement (the "Steve's Agreement"). Under the Steve's Agreement, the Company
purchased substantially all of the assets of Steve's in exchange for
approximately $266,000. Mr. Chesin entered into an employment agreement with CBI
in connection therewith. The revenues of Steve's are not expected to have a
significant impact on the Company's results of operations. In 1994, the last
full year prior to the Company's acquisition of Steve's, Steve's had total
revenues of $686,480 and employed 25 people. See "Management--Employment
Agreements."

In May 1996, the Company incurred a liability to Branin of $46,600 as a
result of interest and dividend payments on CBH securities made by Branin on
behalf of CBH. Further dividend payments of $46,600 per month thereafter have
been made by Branin on these securities, resulting in an obligation to Branin as
of May, 15, 1997 in the amount of $605,500 in respect of these dividend
payments. In May 1996, Branin paid the Company approximately $6,000 for
consulting services rendered to Branin by employees of the Company.

In May 1997, Facundo Bacardi advanced $500,000 to the Company. In addition,
Mr. Bacardi purchased $1.5 million of CBH Preferred Stock in June 1995. It is
anticipated that such unsecured, non-interest bearing advance will be repaid and
such CBH Preferred Stock will be redeemed concurrently with the consummation of
the Offering through the issuance of $2.0 million of preferred stock of the
Company having economic terms substantially the same as those of the CBH
Preferred Stock.

The Company's executive offices are located at 100 Maiden Lane, New York,
New York. These offices are rented by Branin, which also occupies these offices.
Branin does not charge the Company rent for this space.

44
<PAGE>
PRINCIPAL STOCKHOLDERS AND
HOLDINGS OF MANAGEMENT

The following table sets forth certain information as of April 15, 1997,
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. In addition, the table below reflects the effect of sales
of Common Stock in the Offering.

<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OUTSTANDING SHARES
AND NATURE OF ------------------------------
BENEFICIAL PRIOR TO THE AFTER THE
NAME & ADDRESS OF BENEFICIAL OWNER OWNERSHIP OFFERING OFFERING(2)
- ---------------------------------------------- ------------------- --------------- -------------
<S> <C> <C> <C>

Philip A. Herman(1)........................... 2,303,173 63.2% 6.8%
c/o Branin Investments, Inc.
100 Maiden Lane
New York, NY 10038

Branin Investments, Inc.(3)................... 313,103 8.6 5.6
100 Maiden Lane
New York, NY 10038

Facundo Bacardi(4)(5)......................... 1,435,996 39.4 25.5

Icarus Investments, Ltd.(4)(6)................ 878,854 24.1 15.6

Michael Mindlin(4)(7)......................... 144,200 4.0 2.6

Gary Peiffer(4)(8)............................ 34,963 * *

William Poccia(4)............................. 0 * *

All Directors and Executive
Officers as group (5 persons):.............. 2,303,173 63.2 35.5
</TABLE>

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

* Less than one percent

(1) Includes an aggregate of 2,303,173 shares issued to Mr. Herman as voting
trustee pursuant to a Voting Trust Agreement, dated May 30, 1995, among Mr.
Herman and certain stockholders of the Company, which shares Mr. Herman is
deemed to beneficially own 72,500 of such shares are held in the Voting
Trust for the benefit of Mr. Herman and 313,103 of such shares are held in
the Voting Trust for the benefit of Branin, of which Mr. Herman is a
principal. Excludes 726 shares held by each of Richard and Ruth Herman and
15,615 shares held by David Herman, all members of the immediate family of
Mr. Herman. Mr. Herman disclaims beneficial ownership of the shares held by
such family members.

(2) Gives effect to the Offering and assumes the termination of the Voting Trust
upon the repayment of all outstanding indebtedness under the Credit
Agreement.

(3) Excludes 72,500 shares held through the Voting Trust for the benefit of Mr.
Herman.

(4) Addresses are c/o Nations Flooring, Inc, 100 Maiden Lane, New York, New York
10038.

(5) Includes an aggregate of 1,218,121 shares held by various affiliates of Mr.
Bacardi (including 878,854 shares held by Icarus Investments Ltd., 76,256
shares held by each of Stylish Investments Ltd. and Delphic Investments
Ltd., and 186,755 shares held by Designed Investments Ltd.). All of such
shares are held in the Voting Trust.

45
<PAGE>

(6) Excludes shares held by Mr. Bacardi and his other affiliates. Mr. Bacardi
has sole voting and dispositive power with respect to the shares of Common
Stock owned by this entity. All of such shares are held in the Voting Trust.

(7) Includes 144,200 shares held by Mr. Mindlin's spouse, as to which he
disclaims beneficial ownership. All of such shares are held in the Voting
Trust.

(8) All of such shares are held in the Voting Trust.

46
<PAGE>
DESCRIPTION OF CAPITAL STOCK

COMMON STOCK

The Company is authorized to issue 20,000,000 shares of Common Stock. As of
April 15, 1997, there were an aggregate of 3,642,397 shares of Common Stock
outstanding, held of record by approximately 368 holders. The holders of Common
Stock are entitled to one vote for each share held of record on all matters to
be voted on by stockholders. There is no cumulative voting with respect to the
election of directors, with the result that the holders of more than 50% of the
shares voting for the election of directors can elect all of the directors then
up for election. The holders of Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled to share ratably in all
assets remaining which are available for distribution to them after payment of
liabilities and after provision has been made for each class of stock having
preference over the Common Stock. Holders of shares of Common Stock, as such,
have no conversion, preemptive or other subscription rights, and there are no
redemption provisions applicable to the Common Stock. All of the outstanding
shares of Common Stock are fully paid and nonassessable.

PREFERRED STOCK

The Company is authorized to issue 1,000,000 shares of preferred stock, par
value $.001 per share. No shares of the preferred stock are currently
outstanding. The Board of Directors of the Company has the authority at any time
and from time to time to establish and designate one or more additional series
of preferred stock, to fix the number of shares of any series (which number may
vary between series) and to fix the dividend rights and preferences, the
redemption price and terms, liquidation rights, sinking fund provisions (if
any), conversion provisions (if any), and the voting powers (if any). The Board
of Directors, without stockholder approval, could issue preferred stock with
voting and conversion rights that could adversely affect the voting power of
holders of the Common Stock. Certain companies have used the issuance of
preferred stock as an anti-takeover device and the Board of Directors of the
Company could, without stockholder approval, issue preferred stock with certain
voting, conversion and/or redemption rights that could discourage any attempt to
obtain control of the Company in a transaction not approved by the Board of
Directors. Concurrently with the consummation of the Offering, the Company
intends to issue $2.0 million of its preferred stock to Facundo Bacardi, a
director of the Company, to redeem the $1.5 million of CBH Preferred Stock held
by him and to repay $500,000 of advances made by him to the Company in May 1997.
The economic terms of such preferred stock will be substantially the same as
those of the CBH Preferred Stock being redeemed. Although the Company has no
current intention to issue any additional shares of preferred stock, there can
be no assurance that the Company will not do so in the future.

The Preferred Stock of Subsidiary reflected in the Company's balance sheet
is CBH Preferred Stock, which, for accounting purposes, is treated as a minority
interest in the Company. The CBH Preferred Stock pays dividends monthly at a
rate of 12% per annum. The Company must redeem the CBH Preferred Stock upon the
consummation of the Offering. Holders of the CBH Preferred Stock have voting
rights equal to ten percent of the votes of the outstanding stock of CBH and
vote together with the holders of CBH common stock as a single class in all
matters submitted to stockholder vote.

DELAWARE ANTI-TAKEOVER LAW

The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law ("DGCL"). Section 203 provides, with certain exceptions,
that a Delaware corporation may not engage in certain business combinations with
a person or affiliate or associate of such person who is an "interested
stockholder" for a period of three years from the date such person became an
interested stockholder unless: (i) the transaction resulting in the acquiring
person's becoming an interested stockholder, or the

47
<PAGE>
business combination, is approved by the board of directors of the corporation
before the person becomes an interested stockholder; (ii) the interested
stockholder acquires 85% or more of the outstanding voting stock of the
corporation in the same transaction which makes it an interested stockholder
(excluding certain employee stock option plans); or (iii) on or after the date
the person becomes an interested stockholder, the business combination is
approved by the corporation's board of directors and by the holders of at least
66 2/3% of the corporation's outstanding voting stock at an annual or special
meeting, excluding shares owned by the interested stockholder. An "interested
stockholder" is defined as any person that is (x) the owner of 15% or more of
the outstanding voting stock of the corporation or (y) an affiliate or associate
of the corporation and was the owner of 15% or more of the outstanding voting
stock of the corporation at any time within the three year period immediately
prior to the date on which it is sought to be determined whether such person is
an interested stockholder. Under Delaware law, the Company could have opted out
of Section 203 but elected to be subject to its provisions.

CERTAIN MARKET INFORMATION

The Company has applied for listing of the Common Stock for trading on the
American Stock Exchange. Prior to this offering there has been a limited public
trading market for the Common Stock which has traded since September 1995 on
NASD'S Electronic Bulletin Board with negligible trading volume.

LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS

DGCL Section 102(b)(7) enables a corporation to eliminate or limit personal
liability of members of its board of directors for violation of a director's
fiduciary duty of care. However, the elimination of limitation may not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of law, payment of a dividend
or approval of a stock repurchase which was deemed illegal, or where a director
obtains an improper personal benefit.

The Company's Certificate of Incorporation provides that a director of the
Company shall, to the maximum extent permitted by Section 102(b)(7) or any
successor provision or provisions, have no personal liability to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director.

DGCL Section 145 permits a corporation organized under Delaware law to
indemnify directors and officers with respect to any matter in which the
director or officer acted in good faith and in a manner he reasonably believed
to be not opposed to the best interests of the company, and, with respect to any
criminal action, he had reasonable cause to believe his conduct was lawful.

The Company's Certificate of Incorporation provides that any director or
officer of the Company involved in any action, suit or proceeding, whether
civil, criminal, administrative, or investigative, the basis of which is alleged
action or inaction by such director or officer while acting in the official
capacity as director or officer of the Company or as director, trustee, officer,
employee, or agent of another entity at the request of the Company, shall be
indemnified and held harmless by the Company to the fullest extent permitted by
DGCL 145 or any successor provision or provisions, against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. Such indemnification as to such action or inaction shall be made by
the Company only upon a determination as to whether the indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the Common Stock is Corporate Stock
Transfer, located in Denver, Colorado.

48
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE

The shares sold in the Offering (other than shares which may be purchased by
"affiliates" of the Company) will be freely tradeable without restriction or
further registration under the Securities Act. In addition, 13,750 shares,
including the 12,500 shares sold by the Company in its initial public offering
in 1990 (other than shares which may be purchased by affiliates of the Company),
are freely tradeable without restriction or further registration under the
Securities Act. Approximately 1,459,291 additional shares are available for
immediate sale under Rule 144. The holders of 204,835 of these shares available
for immediate sale under Rule 144 have agreed not to sell such shares prior to
the second anniversary of the Offering without the consent of the Underwriters
and the Company provided that 25% of such shares shall be permitted to be sold
after the first anniversary of the Offering and an additional 25% of such shares
shall be permitted to be sold after the eighteen month anniversary of the
Offering. In addition, the holders of 205,664 of the shares available for
immediate sale have agreed not to sell such shares prior to the first
anniversary of the Offering, and the holders 122,726 of the shares available for
immediate sale have agreed not to sell such shares prior to the six-month
anniversary of the Offering. In addition, 3,718 shares will become eligible for
sale pursuant to Rule 144 in August 1997. No predictions can be made as to the
effect, if any, that market sales of shares by existing stockholders or the
availability of such shares for future sale will have on the market price of
shares of Common Stock prevailing from time to time. The prevailing market price
of the Common Stock after the offering could be adversely affected by future
sales of substantial amounts of Common Stock by existing stockholders.

In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated), including an affiliate, who has beneficially owned
restricted shares for at least one year from the later of the date such
restricted shares were acquired from the Company and (if applicable) the date
they were acquired from an affiliate, is entitled to sell within any three-month
period a number of shares that does not exceed the greater of 1% of the then
outstanding shares of Common Stock (56,424 shares based on the number of shares
to be outstanding immediately after this offering) or the average weekly trading
volume in the public market during the four calendar weeks preceding the date on
which notice of the sale is filed with the Commission. Sales under Rule 144 are
also subject to certain requirements as to the manner and notice of sale and the
availability of public information concerning the Company.

Affiliates may sell shares not constituting restricted shares in accordance
with the foregoing volume limitations and other restrictions, but without regard
to the two-year holding period. Restricted shares held by affiliates of the
Company eligible for sale in the public market under Rule 144 are subject to the
foregoing volume limitations and other restrictions.

Further, under Rule 144(k), if a period of at least two years has elapsed
between the later of the date restricted shares were acquired from the Company
and the date they were acquired from an affiliate of the Company, and the person
was not an affiliate for at least three months prior to the sale, such person
would be entitled to sell the shares immediately without regard to volume
limitations and the other conditions described above.

No predictions can be made as to the effect, if any, that market sales of
shares of existing stockholders or the availability of such shares for future
sale will have on the market price of shares of Common Stock prevailing from
time to time. The prevailing market price of Common Stock after the offering
could be adversely affected by future sales of substantial amounts of Common
Stock by existing stockholders. Moreover, such sales by existing stockholders
could result in a change in control of the Company.

49
<PAGE>
UNDERWRITING

Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and the Representative of the
several underwriters (the "Underwriters"), the Company has agreed to sell to the
Underwriters 2,000,000 shares of Common Stock. Under certain circumstances, this
amount may be increased. The number of shares of Common Stock which each
Underwriter has agreed to purchase is set forth opposite the name below.

<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
- --------------------------------------------------------------------------- -----------------
<S> <C>
Chatfield Dean & Co........................................................
Suncoast Capital Corp......................................................

-----------------
Total...................................................................... 2,000,000
</TABLE>

The Representative has advised the Company that the Underwriters propose to
initially offer the shares of Common Stock to the public at the Offering Price
set forth on the cover page of this Prospectus, and to certain dealers at such
price less a concession not in excess of $. per share of common stock. The
Underwriters may allow, and such dealers may allow, a discount not in excess of
$. per share of common stock on sales to certain other dealers. After the
Offering, the Offering Price, concession and discount may be changed.

The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to an
aggregate of 300,000 additional shares of Common Stock at the Offering Price set
forth on the cover page of this Prospectus, less underwriting discounts and
commissions. The Underwriters may exercise this option only to cover
over-allotments, if any, made on the sale of the Common Stock offered hereby. To
the extent that the Underwriters exercise this option, the Underwriters will be
obligated, subject to certain conditions, to purchase the number of additional
shares of Common Stock proportionate to the Underwriters' initial amount
reflected in the foregoing table.

The Company has agreed to pay to the Underwriters a nonaccountable expense
allowance of 3% of the gross proceeds of this Offering. The Company has also
agreed to pay all expenses in connection with qualifying the shares of Common
Stock offered hereby for sale under the laws of such states as the Underwriters
may designate, including expenses of counsel retained for such purpose by the
Underwriters.

In connection with the Offering, the Company has agreed to sell to the
Underwriter and its designees for an aggregate of $200.00, the Underwriters'
Warrants to purchase up to ten percent (10%) of the shares of Common Stock
offered herein. The Underwriters' Warrants are exercisable initially at
$ per share (120% of the Offering Price) for a period of four years
commencing one year from the date of this Prospectus. The Underwriters' Warrants
grant to the holders thereof certain "piggyback" registration rights for a
period of four years from the first anniversary of the date of this Prospectus
with respect to registration under the Securities Act of the Common Stock
issuable upon exercise of the Underwriters' Warrants. Pursuant to such piggyback
registration rights, the Underwriters will be able to include, at the Company's
expense, the Common Stock underlying the Underwriters' Warrants in any
registration statement filed by the Company in the relevant period, except if
the managing underwriter of any offering on behalf of the Company determines
that such inclusion would impair its ability to sell securities on behalf of the
Company and except that such piggyback registration rights shall not apply to
registration statements filed by the Company in connection with stock option or
similar employee plans or in connection with mergers or similar transactions.

50
<PAGE>

The Company has agreed to issue 20,000 shares of Common Stock to Robert
Rubin upon completion of the Offering in consideration of his introduction of
the Representative to the Company and his assistance in obtaining certain
lock-up agreements required by the Underwriters.

All directors, officers and 5% stockholders of the Company have agreed with
the Underwriters not to, directly or indirectly, offer, sell, contract to sell
or otherwise dispose of any shares of Common Stock prior to the expiration of
periods ranging from 12 to 24 months from the date of this Prospectus without
the prior written consent of the Representative and the Company.

Until the distribution of the Common Stock is completed, rules of the
Commission may limit the ability of the Underwriters and certain selling group
members to bid for and purchase the Common Stock. As an exception to these
rules, the Underwriters are permitted to engage in certain transactions that
stabilize the price of the Common Stock. Such transactions consist of bids or
purchases for the purpose of pegging, fixing or maintaining the price of the
Common Stock.

If the Underwriters create a short position in the Common Stock in
connection with this offering, I.E, if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Underwriters may
reduce that short position by purchasing Common Stock in the open market. The
Underwriters may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.

The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase shares of
Common Stock in the open market to reduce the Underwriters' short position or to
stabilize the price of the Common Stock, they may reclaim the amount of the
selling concession from the Underwriters and selling group members who sold
those shares as part of this Offering.

In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.

Neither the Company nor the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor the Underwriters make any representation that the Underwriters
will engage in such transactions or that such transactions, once commenced, will
not be discontinued without notice.

Prior to this Offering, there has been a limited public market for the
Common Stock of the Company. The Offering Price will be determined through
negotiations among the Company and the Representative. Among the factors
considered in determining the Offering Price, in addition to prevailing market
conditions, are the financial condition of the Company, the history of, and the
prospects for, the Company and the industry in which it competes and an
assessment of the Company's management. There can be no assurance that an active
trading market will develop for the Common Stock or that the Common Stock will
trade in the public market subsequent to the Offering at or above the Offering
Price. The Representative is subject to the supervision of various governmental
and self-regulatory organizations as well as certain capital requirements. Such
regulatory authorities periodically investigate and audit the activities of
broker-dealers, such as the Representative. In the event the Representative is
required to curtail or cease operations as a result of administrative actions
instituted by the regulatory authorities or because of lack of capital, the
price and liquidity of the Common Stock may be affected by the reduced
participation or complete absence of such Representative from the market.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act.

51
<PAGE>
LEGAL MATTERS

The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Herzfeld & Rubin, P.C., New York, New York. Stroock &
Stroock & Lavan LLP, New York, New York has acted as counsel for the
Underwriters in connection with the Offering.

EXPERTS

The Financial Statements of Carpet Barn ("Predecessor Business") and the
Consolidated Financial Statements of Nations Flooring, Inc. and subsidiaries
included in this Prospectus and in the Registration Statement have been audited
by McGladrey & Pullen, LLP, independent public accountants, to the extent and
for the periods set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included herein in reliance upon the authority
of said firm as experts in auditing and accounting.

52
<PAGE>

NATIONS FLOORING, INC.
(A DELAWARE CORPORATION)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<S> <C>
INDEPENDENT AUDITOR'S REPORT.................................................... F-2

CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets................................................... F-3
Consolidated statements of operations......................................... F-4
Consolidated statement of stockholders' equity--Successor Business............ F-5
Consolidated statement of stockholder's equity--Predecessor Business.......... F-6
Consolidated statements of cash flows......................................... F-7
Notes to consolidated financial statements.................................... F-9
</TABLE>

F-1
<PAGE>

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors

Nations Flooring, Inc.

(A Delaware Corporation)

New York, New York

We have audited the accompanying consolidated balance sheets of Nations
Flooring, Inc. and subsidiaries (Successor Business) as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
equity and cash flows for the period from commencement of operations (June 2,
1995) to December 31, 1995 and for the year ended December 31, 1996. We have
also audited the accompanying statement of operations, stockholder's equity and
cash flows for Carpet Barn, Inc., a Nevada corporation (Predecessor Business),
for the period from January 1, 1995 to June 1, 1995, and for the year ended
December 31, 1994. These financial statements are the responsibility of the
respective Successor and Predecessor Companies' managements. Our responsibility
is to express an opinion on the respective 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 opinions.

In our opinion, the Successor Business consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of Nations Flooring, Inc. and subsidiaries, as of December 31, 1995 and
1996 and the results of their operations and their cash flows for the period
from commencement of operations (June 2, 1995) to December 31, 1995 and for the
year ended December 31, 1996 in conformity with generally accepted accounting
principles. Also, in our opinion, the Predecessor Business financial statements
referred to above present fairly, in all material respects, the results of its
operations and its cash flows for the period from January 1, 1995 to June 1,
1995, and for the year ended December 31, 1994, in conformity with generally
accepted accounting principles.

-------------------------
McGladrey & Pullen, LLP

Las Vegas, Nevada

February 19, 1997, except for the Recapitalization in Note 1 and Note 13 as to
which the date is March 19, 1997.

The above form of auditors report represents the form of report that
McGladrey & Pullen, LLP would be willing to issue assuming the consummation of
the merger pursuant to which Ragar Corp. will reincorporate in Delaware, change
its name to Nations Flooring, Inc. and effect a one-to-four reverse stock split
of Ragar Corp.'s common stock, all as described in Note 1, had taken place. The
merger is expected to occur prior to the effective date of the Company's planned
offering of 2,000,000 common shares.

McGladrey & Pullen, LLP

Las Vegas, Nevada

May 15, 1997

F-2
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, MARCH 31,
1995 1996 1997
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS (Note 6)
Current Assets
Cash.............................................................. $ 693,356 $ 335,130 $ 215,879
Accounts receivable, less allowance for doubtful accounts 1995
$44,000, 1996 $347,000, 1997 $352,000 (Note 8).................. 3,467,282 3,281,236 2,731,336
Due from employee................................................. -- 63,104 43,920
Inventory......................................................... 638,295 709,627 523,931
Current portion of related party note receivable (Note 12)........ 132,800 169,169 178,754
Deferred public offering costs.................................... -- 155,721 291,324
Prepaid expenses and other........................................ 61,637 168,588 466,812
------------- ------------- -------------
Total current assets........................................ 4,993,370 4,882,575 4,451,956
------------- ------------- -------------
Related party note receivable, less current portion (Note 12)....... 146,736 45,327 18,357
Equipment and leasehold improvements, net (Note 4).................. 415,738 549,349 497,980
Intangible assets, net (Note 5)..................................... 18,769,810 17,666,327 17,447,018
------------- ------------- -------------
$ 24,325,654 $ 23,143,578 $ 22,415,311
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note payable (Note 6)............................................. $ 1,865,604 $ 2,879,581 $ 2,749,272
Subordinated notes payable (Note 7)............................... 515,422 -- 534,000
Current maturities of long-term debt (Note 6)..................... 3,527,862 8,781,519 7,907,000
Accounts payable.................................................. 1,799,764 2,250,206 1,782,128
Due to principal shareholder (Note 12)............................ -- 390,038 580,690
Accrued expenses.................................................. 448,835 413,004 362,982
Customer deposits................................................. 592,496 916,480 1,089,707
------------- ------------- -------------
Total current liabilities................................... 8,749,983 15,630,828 15,005,779
------------- ------------- -------------
Deferred Income Taxes (Note 9)...................................... 35,616 91,000 126,000
Long-Term Debt, less current maturities (Note 6).................... 8,811,558 110,815 103,251
------------- ------------- -------------
Minority Interest: Preferred Stock of Subsidiary.................... 2,759,619 3,117,274 3,117,274
------------- ------------- -------------
Commitments and Contingencies (Notes 11 and 12)
Stockholders' Equity (Notes 6 and 13)
Preferred stock, $.001 par value, authorized 1,000,000 shares;
issued 1995, 1996 and 1997 0 shares............................. -- -- --
Common stock, $.001 par value, authorized 20,000,000 shares;
issued 1995 3,733,036 shares; 1996 and 1997 3,787,647 shares.... 3,733 3,788 3,788
Additional paid-in capital........................................ 3,684,942 3,862,232 3,862,232
Retained earnings................................................. 280,203 333,451 202,797
------------- ------------- -------------
3,968,878 4,199,471 4,068,817
Less cost of treasury stock (145,250 shares) (Note 12)............ -- 5,810 5,810
------------- ------------- -------------
3,968,878 4,193,661 4,063,007
------------- ------------- -------------
$ 24,325,654 $ 23,143,578 22,415,311
------------- ------------- -------------
------------- ------------- -------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-3
<PAGE>

NATIONS FLOORING INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS NATIONS FLOORING, INC.
---------------------------- --------------------------------------------------
JANUARY 1, JUNE 2, 1995 THREE MONTHS ENDED
YEAR ENDED 1995 TO YEAR ENDED MARCH 31,
DECEMBER 31, TO JUNE 1, DECEMBER 31, DECEMBER 31, --------------------
1994 1995 1995 1996 1996 1997
------------ -------------- -------------- ------------ --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
Sales (Note 8).............. $42,506,987 $ 16,362,727 $ 23,979,879 $42,414,364 $9,764,955 $9,258,004
Cost of sales............... 31,665,636 11,344,430 17,962,416 31,321,924 7,084,927 6,833,143
------------ -------------- -------------- ------------ --------- ---------
Gross profit.......... 10,841,351 5,018,297 6,017,463 11,092,440 2,680,028 2,424,861
Selling, general and
administrative expenses:
Related party consulting
fees (Note 12).......... -- -- 315,000 365,000 125,000 30,000
Related party rent expense
(Note 11)............... -- -- 58,499 100,284 25,071 25,071
Other..................... 5,265,138 1,280,445 2,855,540 7,004,284 1,411,944 1,633,865
------------ -------------- -------------- ------------ --------- ---------
5,265,138 1,280,445 3,229,039 7,469,568 1,562,015 1,688,936
------------ -------------- -------------- ------------ --------- ---------
Amortization and
depreciation.............. 28,442 14,195 685,233 1,255,770 319,015 323,104
------------ -------------- -------------- ------------ --------- ---------
Operating income...... 5,547,771 3,723,657 2,103,191 2,367,102 798,998 412,821
Other income (expense):
Miscellaneous income...... 44,681 19,892 20,024 18,454 4,509 3,466
Interest expense.......... (16,414) (6,405) (1,385,022) (1,477,614) (414,993) (402,141)
Loss on sale of securities
(Note 10)............... (656,262) -- -- -- -- --
Loss on disposal of
equipment............... (31,435) -- -- -- -- --
------------ -------------- -------------- ------------ --------- ---------
Income before taxes and
dividends to preferred
stockholders of
subsidiary................ 4,888,341 3,737,144 738,193 907,942 388,514 14,146
Provision for income taxes
(Note 9).................. -- -- 254,595 317,000 134,750 5,000
------------ -------------- -------------- ------------ --------- ---------
Income before
dividends to
preferred
stockholders of
subsidiary.......... $4,888,341 $ 3,737,144 $ 483,598 $ 590,942 $ 253,764 $ 9,146
Dividends to preferred
stockholders of subsidiary
(Note 3).................. -- -- 203,395 537,694 124,200 139,800
------------ -------------- -------------- ------------ --------- ---------
Net income (loss)..... 4,888,341 3,737,144 280,203 53,248 129,564 (130,654)
------------ -------------- -------------- ------------ --------- ---------
------------ -------------- -------------- ------------ --------- ---------
Net income (loss) per common
share..................... $ 0.08 $ 0.01 $ 0.04 (0.03)
Unaudited Proforma
Information:
Net income before taxes..... $4,888,341 $ 3,737,144
Proforma income tax
expense................... 1,662,036 1,270,629
------------ --------------
Proforma net income after
taxes..................... $3,226,305 $ 2,466,515
------------ --------------
------------ --------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-4
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARIES

(A DELAWARE CORPORATION)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--SUCCESSOR BUSINESS
COMMENCEMENT OF OPERATIONS (JUNE 2, 1995) TO DECEMBER 31, 1995 AND THE YEAR
ENDED DECEMBER 31, 1996

<TABLE>
<CAPTION>
COMMON STOCK
---------------------- ADDITIONAL
SHARES PAID-IN RETAINED TREASURY
OUTSTANDING DOLLARS CAPITAL EARNINGS STOCK TOTAL
----------- --------- ------------ ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock for initial
capitalization................................ 209 $ 2 $ 925,055 -- -- $ 925,057
Recapitalization/exchange including issuance of
common stock for acquisition costs of
$1,157,393 (Note 2)........................... 3,631,042 3,629 2,324,045 -- -- 2,327,674
Exchange of subordinated debt for common stock
(Note 7)...................................... 58,571 59 247,003 -- -- 247,062
Issuance of common stock........................ 43,214 43 188,839 -- -- 188,882
Net income...................................... -- -- -- 280,203 -- 280,203
----------- --------- ------------ ---------- --------- ------------
Balance, December 31, 1995...................... 3,733,036 3,733 3,684,942 280,203 -- 3,968,878
Issuance of common stock........................ 54,611 55 177,290 -- -- 177,345
Purchase of treasury stock (145,250 shares)
(Note 12)..................................... -- -- -- -- (5,810) (5,810)
Net income...................................... -- -- -- 53,248 -- 53,248
----------- --------- ------------ ---------- --------- ------------
Balance, December 31, 1996...................... 3,787,647 $ 3,788 $ 3,862,232 $ 333,451 ($ 5,810) $ 4,193,661
----------- --------- ------------ ---------- --------- ------------
----------- --------- ------------ ---------- --------- ------------
</TABLE>

See Notes to Consolidated Financial Statements.

F-5
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)

CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY--PREDECESSOR BUSINESS
YEAR ENDED DECEMBER 31, 1994 AND PERIOD FROM JANUARY 1, 1995 TO JUNE 1, 1995

<TABLE>
<CAPTION>
COMMON STOCK
--------------------------
<S> <C> <C> <C> <C>
SHARES RETAINED
OUTSTANDING DOLLARS EARNINGS TOTAL
--------------- --------- ------------- -------------
Balance, December 31, 1993................................. 100 $ 50,000 $ 1,201,531 $ 1,251,531
Dividends paid........................................... -- -- (5,352,092) (5,352,092)
Net income............................................... -- -- 4,888,341 4,888,341
--- --------- ------------- -------------
Balance, December 31, 1994................................. 100 50,000 737,780 787,780
Dividends paid........................................... -- -- (2,400,000) (2,400,000)
Net income............................................... -- -- 3,737,144 3,737,144
--- --------- ------------- -------------
Balance, June 1, 1995...................................... 100 $ 50,000 $ 2,074,924 $ 2,124,924
--- --------- ------------- -------------
--- --------- ------------- -------------
</TABLE>

F-6
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
---------------------------- NATIONS FLOORING, INC.
JANUARY 1, ------------------------------- THREE MONTHS ENDED
YEAR ENDED 1995 YEAR ENDED MARCH 31,
DECEMBER 31, TO JUNE 1, JUNE 2, 1995 TO DECEMBER 31, ----------------------
1994 1995 DECEMBER 31, 1995 1996 1996 1997
------------ -------------- ----------------- ------------ ----------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Cash received from customers...... $42,803,429 $ 15,378,509 $23,148,474 $42,924,394 $10,049,458 $9,981,131
Cash paid to suppliers and
employees....................... (36,757,286) (13,629,493) (19,145,259) (38,276,238) (9,371,759) (9,144,095)
Cash dividends to preferred
stockholders of subsidiary...... -- -- (161,995) (160,000) (129,800) --
Interest paid..................... (16,414) (6,405) (130,171) (59,469) (6,028) (7,602)
Income taxes paid................. -- -- (374,000) (138,800) -- --
Miscellaneous income received..... 44,681 19,892 20,024 18,455 4,509 3,466
------------ -------------- ----------------- ------------ ----------- ---------
Net cash provided by operating
activities.................. 6,074,410 1,762,503 3,357,073 4,308,342 546,380 832,900
------------ -------------- ----------------- ------------ ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Advances to employees and related
parties......................... -- -- (338,035) (327,403) (13,843) 11,499
Purchase of equipment and
leasehold improvements.......... (62,052) -- (108,237) (231,190) (24,162) (23,631)
Payments for acquisition of net
assets of Predecessor
Business........................ -- -- (19,257,524) -- -- --
Payments for acquisition of net
assets of Steve's Floor
Covering........................ -- -- (266,722) -- -- --
Acquisition cost expenditures..... -- -- (96,552) -- -- (28,795)
Proceeds from sale of equipment... -- 72,076 19,000 -- -- --
Net cash flows from investments in
securities...................... (656,262) -- -- -- -- --
------------ -------------- ----------------- ------------ ----------- ---------
Net cash provided by (used in)
investing activities........ (718,314) 72,076 (20,048,070) (558,593) (38,005) (40,927)
------------ -------------- ----------------- ------------ ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on note payable.......... -- -- (1,827,722) (3,879,595) (869,059) (1,302,537)
Principal payment on subordinated
notes payable................... -- -- (560,000) (560,000) -- --
Minority interest: issuance of
preferred stock of subsidiary... -- -- 1,842,781 357,655 -- --
Proceeds from issuances of common
stock........................... -- -- 188,882 162,345 -- --
Cash dividends paid............... (5,352,092) (2,400,000) -- -- -- --
Principal payments on long-term
debt............................ (18,532) (8,156) (8,102) (26,849) (6,404) (7,084)
Purchase of treasury stock........ -- -- -- (5,810) -- --
Cash payment for deferred offering
costs........................... -- -- -- (155,721) -- (135,603)
Proceeds from long-term debt...... -- -- 14,000,000 -- -- --
Proceeds from note payable........ -- -- 1,152,532 -- -- 534,000
Proceeds from subordinated notes
payable......................... -- -- 1,569,364 -- -- --
Proceeds from issuance of stock in
connection with capitalization
of Company...................... -- -- 1,939,237 -- -- --
Debt issuance costs............... -- -- (912,619) -- -- --
------------ -------------- ----------------- ------------ ----------- ---------
Net cash provided by (used in)
financing activities........ (5,370,624) (2,408,156) 17,384,353 (4,107,975) (875,463) (911,224)
------------ -------------- ----------------- ------------ ----------- ---------
Net increase (decrease) in
cash........................ (14,528) (573,577) 693,356 (358,226) (367,088) (119,251)
Cash, beginning..................... 679,921 665,393 -- 693,356 693,356 335,130
------------ -------------- ----------------- ------------ ----------- ---------
Cash, ending........................ $ 665,393 $ 91,816 $ 693,356 $ 335,130 $ 326,268 $ 215,879
------------ -------------- ----------------- ------------ ----------- ---------
------------ -------------- ----------------- ------------ ----------- ---------
</TABLE>

See Notes to Consolidated Financial Statements.

F-7
<PAGE>

NATIONS FLOORING, INC. AND SUBSIDIARIES
(A DELAWARE CORPORATION)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

See Notes to Consolidated Financial Statements.

F-8
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

RECAPITALIZATION

Nations Flooring, Inc. (Nations or the Company) is conducting a public
offering of 2,000,000 shares of common stock. An agreement of merger and equity
restructuring has been approved by management and the shareholders on March 19,
1997. The merger will be consummated prior to the effective date of the public
offering. The agreement provides for the merger of Ragar Corp. with and into
Nations Flooring, Inc., (a newly-formed, wholly-owned subsidiary of Ragar Corp.
incorporated in Delaware). Nations will be the surviving corporation after the
merger. The agreement provides that all assets, liabilities, property, rights,
liabilities and obligations of Ragar Corp. would be transferred to and assumed
by Nations.

In the merger, each four (4) shares of Ragar Corp. common stock will be
exchanged for one (1) share of Nations common stock. The effect of this exchange
will be similar to a one for four reverse stock split of Ragar Corp.
Accordingly, all references to shares of the Company's common stock in the
accompanying financial statements and footnotes have been restated to reflect
this one for four reverse stock split as though it had occurred in the earliest
period presented (June 2, 1995). The Company will have 20,000,000 authorized
shares of common stock after the merger is consummated.

NATURE OF BUSINESS

Ragar Corp. (Successor Business or Ragar) was organized under the laws of
the state of New York on July 19, 1988. Ragar Corp. had substantially no
operations prior to its exchange, on June 2, 1995, in a reverse acquisition with
Carpet Barn Holdings, Inc., (CBH), which was organized under the laws of the
State of Delaware on May 26, 1995 (see Note 2). CBH and its wholly owned
subsidiary, Carpet Barn, Inc., (CBI), a Delaware corporation, were formed for
the purpose of acquiring the assets and operations of Carpet Barn, Inc., a
Nevada Corporation (Predecessor Business), a retail carpet sales and
installation outlet located in Las Vegas, Nevada. The Company began operations
on June 2, 1995, the date of acquisition, as described in Note 2.

The Company is also related, through common ownership, to C. B. Realty of
Delaware, Inc. (Realty).

The Company sells floor coverings, primarily carpet, to the new home and
retail replacement markets primarily in southern Nevada.

A summary of the Company's significant accounting policies follows. Unless
specifically discussed, the accounting policies apply to both Nations (and its
subsidiaries) and the Predecessor Business.

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 incurred on the acquisition debt. Also, the Predecessor
Business financial statements contain no provision for income taxes.

BASIS OF PRESENTATION

On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange (the Exchange) by the holders of such common stock for newly issued
common stock of the Company, representing 92% of the Company's common stock
outstanding after the Exchange. For financial reporting and accounting purposes,
the Exchange was recorded as a reverse acquisition, with CBH as the accounting
acquirer. In a reverse acquisition, the accounting acquirer is treated as the
surviving entity, even though the Company's legal existence does not change and
the financial statement titles refer to the Company, not the

F-9
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

accounting acquirer. The accounting acquirer treats the Exchange similar to a
purchase acquisition. As a result, the historical financial information
presented is CBH's and not the Company's, as previously reported. The operating
results of the Company are included with those of CBH after June 2, 1995, the
date of the Exchange. See Note 2 for further discussion of the Exchange.

UNAUDITED FINANCIAL STATEMENTS

The accompanying financial statements as of March 31, 1997 and for the
periods ended March 31, 1996 and 1997 are unaudited and have been prepared in
accordance with generally accepted accounting principles and the rules of the
Securities and Exchange Commission for interim financial information.
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 period ended March 31, 1997 are not necessarily
indicative of the results which will be reported for the entire year. Any
disclosure related to events occuring subsequent to February 19, 1997, except
for the Recapitalization in Note 1 and Note 13 as to which the date is March 19,
1997, are unaudited.

PRINCIPLES OF CONSOLIDATION

The Successor Business consolidated financial statements include the
accounts of the Company and its subsidiaries, CBH and CBI. All material
intercompany accounts and transactions are eliminated in consolidation. The
minority interest in the accompanying consolidated financial statements
represents the preferred stock of CBH not owned by the Company. The CBH
preferred stock dividends are included as a charge on the consolidated income
statements.

The preferred stock is divided into two classes, one designated as Series A
and the other undesignated. The Series A preferred stockholders have an
aggregate of 6% of the votes of the outstanding shares of the common stock of
CBH. The other preferred stockholders have an aggregate of 10% of the votes of
the outstanding shares of the common stock of CBH. Both classes of preferred
stock contain the identical provisions as described below.

In the event CBH 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, CBH 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, CBH 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.

The preferred shares were issued in units that included shares of the common
stock of the Company. The proceeds of the units attributable to the common stock
element resulted in recording the issuance of

F-10
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

the preferred stock at a discount from their face amount of $1,380,381 and
$1,542,726 at December 31, 1995 and 1996, respectively.

The preferred stock was issued as follows:

<TABLE>
<CAPTION>
SHARES AMOUNT
----------- ------------
<S> <C> <C>
June 2, 1995........................................................... 2,715 $ 1,770,563
November 30, 1995...................................................... 1,425 989,056
----- ------------
Balance at December 31, 1995......................................... 4,140 2,759,619

April 30, 1996......................................................... 520 357,655
----- ------------
Balance at December 31, 1996......................................... 4,660 3,117,274
----- ------------
----- ------------
</TABLE>

CASH

During the periods presented, the Company and the Predecessor Business
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,
1996 the Company's cash balances were maintained at financial institutions in
Nevada and Illinois.

INVENTORY

Inventory consists primarily of carpet and vinyl and is stated at the lower
of cost (first-in, first-out method) or market.

EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment 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. Estimated useful lives for financial reporting purposes are as
follows:

<TABLE>
<CAPTION>
YEARS
-----
<S> <C>
Furniture and equipment................................................................ 7
Autos and trucks....................................................................... 5
Leasehold improvements................................................................. 3-5
</TABLE>

INTANGIBLES

Cost in excess of net assets of the business' acquired in connection with
the Company's acquisitions (see Note 2) is being amortized by the straight-line
method over twenty-five years. The Company periodically reviews the value of its
goodwill to determine if an impairment has occurred. The Company does not
believe that an impairment of its goodwill has occurred based on an evaluation
of operating income, cash flows and business prospects.

F-11
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

The Company incurred financing costs related to the bank financing obtained
in connection with the acquisition of the Predecessor Business (see Note 2).
These costs are being amortized on the effective interest method over the term
of the debt.

The Company also entered into a covenant not-to-compete in connection with
the acquisition of the Predecessor Business (see Note 2). The covenant is being
amortized on the straight-line method over the five-year term of the agreement.

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.

The Predecessor Business, with the consent of its stockholder, elected to be
taxed under sections of the federal tax law which provide that, in lieu of
corporation income taxes, the stockholder separately accounted for the
Predecessor Business' items of income, deduction, losses and credits. Therefore,
the Predecessor Business financial statements do not include any provision for
corporation income taxes.

VENDOR COOP 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.

EARNINGS PER COMMON SHARE

Earnings per share is computed based on the weighted average number of
common shares outstanding during the period and the net income for the period.
There were no common stock equivalents outstanding during the period from June
2, 1995 to December 31, 1995 and for the year ended December 31, 1996.

Effective for financial statements issued after December 15, 1997, the
Company will be required to implement FASB Statement No. 128, Earnings per
Share. The Statement establishes standards for computing and presenting earnings
per share (EPS) and applies to entities with publicly held common stock or
potential common stock. It replaces the presentation of basic EPS and also
requires dual presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Company has not
determined what effect, if any, this new pronouncement will have on the
Company's EPS presentations.

F-12
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

SUPPLEMENTAL NET INCOME PER COMMON SHARE

The supplemental net income per common share has been calculated using the
number of shares used to calculate net income per common share, plus the effect
of the estimated shares to be issued in the Company's planned Offering
(1,262,810) which would be necessary to fund the repayment of $7,640,000 of the
First Source indebtedness, plus the effect of the estimated shares to be issued
in the Offering (522,314) which would be necessary to redeem $3,160,000 of
preferred stock issued by CBH. Interest expense related to the reduction of
indebtedness was $475,727 for the period June 2, 1995 to December 31, 1995,
$815,875 for the year ended December 31, 1995 on a pro forma basis, and $818,626
for the year ended December 31, 1996 and $205,324 and $202,311, respectively for
the three months ended March 31, 1996 and 1997. Preferred stock dividends
related to preferred stock of CBH, which is to be redeemed upon completion of
the Offering, were $203,395 for the period June 2, 1995 to December 31, 1995,
$339,395 for the year ended December 31, 1995 on a pro forma basis, and $537,694
for the year ended December 31, 1996 and $124,200 and $139,800, respectively for
the three months ended March 31, 1996 and 1997. Supplemental net income per
common share was $0.18 for the period June 2, 1995 to December 31, 1995 and
$0.52 for the year ended December 31, 1995 on a pro forma basis, and $0.25 for
the year ended December 31, 1996 and $0.08 and $0.04, respectively for the three
months ended March 31, 1996 and 1997.

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.

REVENUE RECOGNITION

Revenue is recorded for commercial and retail floor covering sales upon
installation.

ADVERTISING

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

Advertising expense consists of the following:

<TABLE>
<CAPTION>
PREDECESSOR BUSINESS
- ---------------------------- NATIONS FLOORING, INC.
JANUARY 1, -------------------------------
YEAR ENDED 1995 YEAR ENDED
DECEMBER 31, TO JUNE 1, JUNE 2, 1995 TO DECEMBER 31,
1994 1995 DECEMBER 31, 1995 1996
- ------------ -------------- ----------------- ------------
<S> <C> <C> <C>
$ 348,828 $ 125,452 $ 206,421 $ 597,960
- ------------ -------------- -------- ------------
- ------------ -------------- -------- ------------
</TABLE>

F-13
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATION

Certain 1994 and 1995 balances have been reclassified to correspond to the
balance sheet, statements of income, and cash flows classifications for 1996.
These reclassifications have no effect on stockholders' equity.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amounts of financial instruments including cash, accounts
receivable, employee and other receivables, subordinated notes payable, note
payable, accounts payable, due to principal stockholder, and accrued expenses
approximate their fair values because of their short maturities.

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

ACCOUNTING FOR THE IMPARIMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS
TO BE DISPOSED OF

The Financial Accounting Standards Board issued SFAS No. 121, ACCOUNTING FOR
THE IMPAIRMENT OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF.
Statement No. 121 is effective for the Company December 31, 1996 and establishes
accounting standards for the impairment of long-lived assets, certain
identifiable intangibles, and goodwill related to those assets to be held and
used, and for long-lived assets, and certain identifiable intangibles to be
disposed of.

The Company's management has determined there was no impairment of
long-lived assets, including identifiable intangibles, at December 31, 1996.

ACCOUNTING FOR STOCK-BASED COMPENSATION

In October 1995, the FASB issued Statement No. 123, Accounting for
Stock-Based Compensation. Statement No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans, such as stock
options and stock purchase plans. The statement generally suggests but does not
require stock-based compensation arrangements for employees be accounted for
based on the fair value of the consideration received or the fair value of the
equity instruments issued, whichever is more reliably measurable. Stock-based
compensation for nonemployees is required to be accounted for at the fair value
of the consideration received or the fair value of the equity instruments
issued, whichever is more reliably measurable.. Companies that do not elect to
change their accounting for stock-based compensation for employees are required
to disclose the effect on net income and earnings per share as if the provision
of Statement No. 123 were applied. The Company has decided not to adopt the
accounting provision of this Statement.

NOTE 2. ACQUISITIONS

On June 2, 1995, the Company acquired all of the common stock of CBH in an
exchange by the holders of such common stock for 3,340,750 newly issued shares
of common stock of the Company, representing 92% of the Company's common stock
outstanding after the Exchange. The Company had no operations prior to the
acquisition of the Predecessor Business. Its only asset was approximately
$860,000 of cash and it had immaterial liabilities.

F-14
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 2. ACQUISITIONS (CONTINUED)

Concurrent with CBH's stock exchange with the Company, CBI executed an
"Asset Purchase Agreement" to acquire certain assets net of assumed liabilities
of the Predecessor Business, for a cash purchase price of $19,257,524. The
acquisition was accounted for as a purchase.

On July 28, 1995, the Company purchased the net assets of Steve's Floor
Covering, Inc. for approximately $267,000. The acquisition was accounted for as
a purchase.

Unaudited pro forma results of operations for the year ended December 31,
1995 of the Company assuming the acquisitions occurred on January 1, 1995 are
presented below. Pro forma adjustments made to the historical results of
operations consist principally of the amortization of intangible assets and
interest expense related to the acquisition financing and income taxes.

<TABLE>
<S> <C>
Net sales...................................................... $40,343,000
Gross profit................................................... $11,035,000
Net income..................................................... $1,500,000
Net income per common share.................................... $ 0.10
</TABLE>

The net income per common share was computed based on the 3,645,791 weighted
average common shares outstanding during the period from June 2, 1995 to
December 31, 1995.

The above pro forma information does not purport to be indicative of the
results that actually would have been obtained had the acquisitions occurred on
January 1, 1995.

NOTE 3. LIQUIDITY AND MANAGEMENT'S PLANS

The Company is in violation of certain debt covenants relating to its
primary credit agreement with First Source. The covenants have not been waived
by First Source. First Source has continued to allow the Company to borrow the
full capacity under the working capital portion of the credit agreement, and the
Company has received no indication from the lender that it intends to accelerate
the maturity of the debt. The credit agreement requires quarterly principal
payments of $875,000 and interest is accrued and added to the note balance (Note
6).

Management plans with respect to its future financing needs is as follows:

On February 19, 1997, the Company obtained a commitment from FINOVA Capital
Corporation for a $12,500,000 credit facility which includes a $7,000,000 term
loan and a $5,500,000 revolving line of credit both bearing interest at a rate
which is approximately 0.75 percent lower than the Company's current credit
agreement. The credit facility would allow the Company to pay off the First
Source credit facility and allow additional revolving credit. The agreement
would require quarterly principal payments of $325,000 on the term note payable.
The credit facility funding is subject to the successful completion of the above
mentioned public offering of common stock and the commitment expires April 30,
1997. The Company has paid FINOVA $41,666, representing 33% of the loan fee.

On May 2, 1997 the Company paid FINOVA $15,000 to extend the commitment to
June 15, 1997.

The Company's long-term plans include a growth strategy through selected
acquisitions and adding other markets. The Company has a letter of intent to
purchase Nonn's Flooring, Inc., a Madison Wisconsin commercial and retail floor
covering company. The Company obtained a commitment from FINOVA

F-15
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 3. LIQUIDITY AND MANAGEMENT'S PLANS (CONTINUED)

Capital Corporation to participate in future acquisitions through working
capital financing, subject to the independent evaluation of each acquisition by
FINOVA. The acquisition of Nonn's Flooring, Inc. is subject to the successful
completion of the above mentioned public offering of common stock.

NOTE 4. EQUIPMENT AND LEASEHOLD IMPROVEMENTS

Equipment and leasehold improvements consist of the following at December
31:

<TABLE>
<CAPTION>
1995 1996
---------- ----------
<S> <C> <C>
Furniture and equipment............................................... 378,494 556,430
Autos and trucks...................................................... 65,165 112,334
Leasehold improvements................................................ 16,200 102,050
---------- ----------
459,859 770,814
Less accumulated depreciation and amortization........................ 44,121 221,465
---------- ----------
$ 415,738 $ 549,349
---------- ----------
---------- ----------
</TABLE>

NOTE 5. INTANGIBLE ASSETS

Intangible assets consist of the following at December 31:

<TABLE>
<CAPTION>
1995 1996
------------- -------------
<S> <C> <C>
Cost in excess of net assets of business' acquired, including
costs incurred in connection with business acquisitions...... $ 17,923,811 $ 17,898,754
Covenant not-to-compete........................................ 575,000 575,000
Debt issuance costs............................................ 912,619 802,500
------------- -------------
19,411,430 19,276,254
Less accumulated amortization.................................. 641,620 1,609,927
------------- -------------
Intangible assets, net......................................... $ 18,769,810 $ 17,666,327
------------- -------------
------------- -------------
</TABLE>

NOTE 6. NOTE PAYABLE AND LONG-TERM DEBT

Concurrent with its acquisition of the Predecessor Business, the Company
entered into a Credit Agreement with First Source Financial, LLP (First Source)
under which the Company obtained a $14,000,000 credit facility due May 31, 1999
and a $3,000,000 working capital note due May 31, 1997, which, under certain
conditions may be extended through May 31, 1999. The Credit Agreement contains
covenants requiring CBI to maintain minimum levels of tangible net worth,
working capital and various financial ratios. The agreement further requires
that a minimum $100,000 cash balance be maintained in a cash collateral account.
The agreement also limits payments from CBI to CBH and limits dividends,
redemptions and purchases of capital stock of CBI, CBH and the Company. CBH
pledged to First Source substantially all the assets and all of the common stock
of CBI to secure CBI's obligations under the Credit Agreement and guaranteed
CBI's debt obligations to First Source under the Credit Agreement.

F-16
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)

During the period from commencement of operations (June 2, 1995) through
December 31, 1996 the Company violated the following convenants: 1) adjusted net
worth at June 2, 1995, 2) quarterly annual interest coverage ratios through
December 31, 1995, 3) and substantially all of the financial covenants for the
year ending December 31, 1996 and the three months ended March 31, 1997.

On April 15, 1996 First Source waived these covenant violations, through
June 1, 1996. In connection with obtaining the waiver, the Company agreed to
limit certain payments including principal payments of CBH's subordinated debt,
with the exception that such payments could be made from the proceeds of newly
acquired capital if any, and First Source agreed to amend the covenants to a
level where the Company's business plan would allow it to be in compliance.

The Company had certain discussions with First Source in an effort to amend
such covenants but was unable to reach an agreement with First Source. The
discussions are not continuing at present, and the Company believes that the
covenants are not likely to be amended. Moreover, the waiver period has not been
extended beyond June 1, 1996, and, therefore, the Company has been in violation
of the covenants since June 1, 1996. To date, First Source has continued to
allow the Company to borrow up to the full capacity of the working capital
portion under the original terms of the Credit Agreement and the Company has
received no indication from First Source that it intends to exercise its right
under the Credit Agreement to accelerate the maturity of the debt.

Because First Source has maintained its right to accelerate the maturity of
the debt due to the covenant violations, and because the Company's commitment
for replacement financing (See Note 3) is dependent on the completion of a
public offering, the Company has classified the debt as current on the December
31, 1996 consolidated balance sheet.

If First Source chooses to accelerate the maturity of the debt or if the
Company were to obtain alternate financing, certain unamortized debt issuance
costs classified as intangible assets would be charged to expense. Such
unamortized debt issuance costs totaled $508,125 at December 31, 1996.
Additionally, the Credit Agreement contains a prepayment penalty clause
requiring the Company to pay 2% of the then applicable revolving loan
commitment, as defined in the Credit Agreement, if the Company chooses to
terminate the Credit Agreement prior to June 1, 1997, 1% between June 2, 1997
and June 1, 1998 and none thereafter.

Amounts outstanding under the agreement at December 31, are as follows:

<TABLE>
<CAPTION>
1995 1996
------------- ------------
<S> <C> <C>
Working capital note............................................. $ 1,865,604 $ 2,879,581
------------- ------------
------------- ------------
Long-term note................................................... $ 12,250,000 $ 8,750,000
------------- ------------
------------- ------------
</TABLE>

At December 31, 1996 the Company has approximately $120,000 available under
the original working capital note commitment.

During the period ended December 31, 1995 and the year ended December 31,
1996, the Company made principal payments due on the long-term revolving note by
borrowing these amounts on the working capital note. In addition, the agreement
provided that interest be added to the notes. The Company received unsecured
advances from unrelated parties of $534,000 during February 1997, enabling the

F-17
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 6. NOTE PAYABLE AND LONG-TERM DEBT (CONTINUED)

Company to make the quarterly principal payment of $875,000 then due on the
long-term revolving note.These advances bear interest at the rate of 12% per
annum, payable monthly. Additionally, if the advance is repaid within three
months of the date of the advance, the lender will receive 40% of the dollar
amount of the advance in shares of common stock of the Company. This amount
increases by 20% for each additional three month period the advance is
outstanding, capping at 100% if the advance is not repaid within 9 months. The
per share value of the shares of common stock of the Company issued to satisfy
this obligation will be based on the average bid price of the stock for the
thirty day period prior to the payment date. These advances were repaid in May
1997.

In May 1997, a Director made an unsecured, non-interest bearing advance to
the Company in the amount of $500,000.

CBI also has long-term notes payable of $89,420 and $142,334 outstanding at
December 31, 1995 and 1996, respectively. The notes bear interest at an
approximate average of 11% and mature between March 1997 and August 2001.

Aggregate maturities required on the long-term debt are due in future years
as follows at December 31, 1996:

NOTE 7. SUBORDINATED NOTES PAYABLE

The Company issued unsecured notes payable with a face amount of $1,940,000
in the June 1995 acquisition discussed in Note 2. The notes were issued in units
that included shares of the common stock of CBH, which were concurrently
exchanged into shares of the Company in the Exchange (See Note 2). The proceeds
of the units attributable to the common stock element resulted in recording the
issuance of the notes at a discount from their face amount of approximately
$371,000 which was amortized to interest expense over the term of the debt.

On November 30, 1995, notes with a face amount of $560,000 were paid in full
and notes with a face amount of $820,000 were exchanged for 820 shares of CBH
preferred stock and 58,571 shares of the Company's common stock. The CBH
preferred stock was recorded at a net value of $572,938 and the Company's common
stock was recorded at $247,062. The remaining notes with a face amount of
$560,000 were paid in full during 1996.

F-18
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 8. MAJOR CUSTOMERS

Sales for Nations Flooring, Inc. and the Predecessor Business include sales
to, and accounts receivable due from, the following major customers:

<TABLE>
<CAPTION>
PERCENT TO TOTAL
PERCENT TO TOTAL ACCOUNTS
SALES RECEIVABLE
-------------------------------------------------------------------------------- -----------------
PREDECESSOR BUSINESS NATIONS FLOORING, INC. NATIONS FLOORING,
------------------------------------ ------------------------------------------ INC.
YEAR ENDED YEAR ENDED -----------------
DECEMBER 31, JANUARY 1, TO JUNE 2, 1995 TO DECEMBER 31, DECEMBER 31,
CUSTOMER 1994 JUNE 1, 1995 DECEMBER 31, 1995 1996 1995
- ------------------------------ ----------------- ----------------- ----------------------- ----------------- -----------------
<S> <C> <C> <C> <C> <C>
A............................. 12% 10% 13% 14% 12%
B............................. 12% 8% 9% 10% 3%

DECEMBER 31,
CUSTOMER 1996
- ------------------------------ -------------------
<S> <C>
A............................. 6%
B............................. 3%
</TABLE>

NOTE 9. INCOME TAXES

The provision for federal income taxes for the period from commencement of
operations (June 2, 1995) through December 31, 1995 and the year ended December
31, 1996 is comprised of the following:

<TABLE>
<CAPTION>
1995
$ 1996
---------- ----------
<S> <C> <C>
Current expense....................................................... 218,979 $ 261,616
Deferred tax expense.................................................. 35,616 55,384
---------- ----------
$ 254,595 $ 317,000
---------- ----------
---------- ----------
</TABLE>

The $35,616 and $91,000 deferred tax liability at December 31, 1995 and
1996, respectively, is principally the result of temporary differences between
the tax bases and reported amounts of intangible assets.

NOTE 10. LOSS ON SALE OF SECURITIES OF PREDECESSOR BUSINESS

A summary of net losses on sales of securities (primarily foreign currency
contracts) of the Predecessor Business for the year ended December 31, 1994, are
as follows:

<TABLE>
<S> <C>
Gross gains..................................................... $1,740,104
Gross losses.................................................... (2,396,366)
----------
Net loss on sale of securities.................................. $ (656,262)
----------
----------
</TABLE>

The Predecessor Business accounted for these securities at market value.

The Successor Business does not enter into foreign currency contracts.

F-19
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 11. LEASE COMMITMENTS

RELATED PARTY LEASE COMMITMENTS

The Company leases its main operational premises from Realty under a
noncancelable operating lease expiring in May 1998. Future minimum rental
payments under this lease at December 31, 1996 are as follows:

OTHER LEASE COMMITMENTS

In 1996 the Company entered into agreements to rent retail space under
separate leases expiring August 1999 and June 2001. Monthly lease payments are
net of taxes, insurance and utilities, and are stated at a rate of $5,632 per
month, and $3,669 per month, respectively. The monthly base rent will be
adjusted annually to predetermined amounts, or to reflect any increases in the
Consumer Price Index.

Future minimum lease commitment under these leases at December 31, 1996 is
as follows:

Total rent expense under the above leases for the period from commencement
of operations (June 2, 1995) through December 31, 1995 and the year ended
December 31, 1996 was $60,199, and $157,149, respectively. This includes related
party rent expense of $58,499 and $100,284, respectively.

NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS

EMPLOYMENT AGREEMENTS AND CONTINGENCY

The Company has an employment agreement with its Chief Operating Officer
(COO). The agreement, expiring in July 1998, stipulates the annual salary. The
agreement includes a $100,000 bonus provision to be earned during 1997 if the
COO is employed the entire year.

The Company also had an employment agreement with its former Chief Financial
Officer (CFO) who was terminated in 1996. Pursuant to the employment agreement,
the CFO purchased 72,625 shares of common stock for $.001 per share. The
difference between the amount paid and market value of the shares was recognized
as additional acquisition costs in the consolidated financial statements (Notes
2 and 3). Also pursuant to his employment agreement 145,250 shares (Escrow
Shares) were deposited into an escrow account on June 1, 1995. Upon the first
anniversary of the former CFO's employment and each of the following four such
anniversaries, 29,050 of the Escrow Shares were to be released to the CFO
together with all rights and privileges thereto. In the event the Company did
not meet certain operating goals, as

F-20
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

described in the employment agreement, the Company had the right to repurchase
those shares at $.01 per share.

The Company accounted for this escrow share arrangement as a variable stock
option under which the Company would have recorded compensation expense equal to
the difference between the aggregate market price of the Escrow shares earned,
as of the date earned, and the aggregate purchase price of such Escrow Shares.
As of December 31, 1995, and through his termination date, the CFO had not
earned the right to receive any Escrow Shares. No compensation expense relating
to the Escrow Shares has been recognized in the period from June 2, 1995 to
December 31, 1995 or the year ended December 31, 1996. In connection with the
former CFO's termination, the Company repurchased the 145,250 Escrow shares for
$5,810.

The former CFO has commenced a suit against CBH, CBI and directors of the
Company alleging wrongful and unlawful termination. The suit is seeking
unspecified compensatory and punitive damages. The Company filed a motion to
dismiss the suit based on the arbitration provision in the CFO's employment
agreement. The dismissal motion was granted by the court. The motion also
dismissed the litigation against the individual officers. The remaining parties
are entering into binding arbitration. The Company and its legal counsel believe
it has meritorious defenses to such allegations, and the Company intends to
defend the matter vigorously in arbitration. The range of possible loss for the
contingency is not determinable. No liability has been recorded for this
contingency in the consolidated financial statements.

CONSULTING AGREEMENTS

The Company has entered into oral month-to-month consulting agreements with
Branin Investments, Inc. (Branin), a principal shareholder of the Company, PAH
Marketing Consultants, Inc. (PAH), a company controlled by the Chairman of the
Board and President of the Company, and Capital Vision Group, Inc. (Capital), a
company controlled by a director and shareholder of the Company, under which the
Company receives management advisory services in the areas of operations
management, financing, and mergers and acquisitions. Pursuant to these
agreements the Company pays $35,000, $5,000 and $5,000 per month to Branin, PAH
and Capital, respectively. The Company modified its agreement with Branin in
September 1996 reducing the management consulting fee to $10,000. The Company
terminated its agreement with Capital in January 1996 and the obligation to PAH
was discontinued in September 1996.

Total consulting expense under these agreements for the period from
commencement of operations (June 2, 1995) to December 31, 1995 and for the year
ended December 31, 1996 was $315,000, and $365,000, respectively.

RELATED PARTY NOTE RECEIVABLE

The Company has an unsecured note receivable of $279,536 and $214,496 at
December 31, 1995 and 1996, respectively due from Realty. The note accrues
interest at 10% per annum and is payable in equal
monthly installments of $9,293, including interest through May 1998. In lieu of
receiving payments and with the permission of Realty, the Company is offsetting
rental payments due to Realty (Note 11) against the note receivable.

F-21
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

BRANIN INVESTMENTS, INC.

Branin, which is 100% owned by the Chairman of the Board and President of
the Company, acted as advisor to the Company in certain financing and equity
transactions consummated concurrently with the acquisition described in Note 2.
In consideration of these advisory services Branin was entitled to fees of
approximately $650,000, representing 3% of the aggregate proceeds received by
the Company from First Source under the Credit Agreement described in Note 6 and
3% of the aggregate proceeds from the Note offering and Preferred Stock offering
described in Note 7, respectively. Branin was entitled to receive these fees
upon the consummation of a public offering of the Company's stock. Branin agreed
to waive such fees in exchange for increasing its management consulting fee from
$10,000 per month to $20,000 per month (see above consulting agreements.) The
increase is to be effective upon the consummation of a public offering of the
Company's stock.

Due to principal shareholder (Branin) consists of the following at December
31, 1996:

<TABLE>
<S> <C>
Preferred stock dividends paid on behalf of CBH.................. $ 419,094
Management fees due Branin....................................... 200,000
Cash payments made to Branin..................................... (229,056)
---------
Due to Branin.................................................. $ 390,038
---------
---------
</TABLE>

Amounts payable to Branin are non interest bearing and due on demand.

NEVADA DEPARTMENT OF EMPLOYMENT, TRAINING AND REHABILITATION

On September 5, 1996, the Nevada Department of Employment, Training and
Rehabilitation notified the Company that it had changed the status of the
Company's floor covering installers from independent contractors to employees,
subjecting the Company to unemployment tax obligations with respect to such
installers. The Company appealed the decision and an appeals hearing was held on
February 5, 1997. The appeals hearing referee agreed with the State of Nevada
and classified the installers as employees. The decision ordered no retroactive
tax or penalties, however, the Company will become responsible for taxes for
periods beginning April 1, 1997.

The Company maintains that these installers are not employees of the Company
but rather independent contractors and, as such, the Company is not subject to
payment of unemployment taxes with regard to these installers. The Company will
continue to vigorously defend its position and intends to appeal the above
decision to the Board of Review on or before the expiration of its term of
appeal.

In addition, the potential status change from independent contractors to
employees raises concerns that the Internal Revenue Service will assert the same
claims. If a claim is asserted, the Company will vigorously defend its position.
The amount of any potential liability is unknown but the Company along with
counsel believes that any adverse outcome will not be material.

PREDECESSOR BUSINESS CONTINGENCY

The Predecessor Business previously engaged an environmental consultant who
informed the Predecessor Business that contaminant levels at its business
location may exceed maximum levels established by The Environmental Protection
Agency. Management of the Predecessor Business believes that it was not

F-22
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 12. COMMITMENTS, CONTINGENCIES AND RELATED PARTY TRANSACTIONS (CONTINUED)

and has not been the source of the contaminants, if any. In the absence of a
conclusive finding concerning the source of and the actual level of
contamination, no accrual was made in the Predecessor Business financial
statements.

The business location of the Predecessor Business was not acquired by the
Company in the exchange. The business location was acquired by Realty (see Note
2) and leased to the Company under the operating lease agreement described above
in Note 11. Subsequent to the acquisition, the Company obtained advice from
legal counsel that the Company would not become liable for the potential
contamination even if the Predecessor Business or Realty are found to be liable.

NOTE 13. SUBSEQUENT EVENTS

1997 STOCK OPTION PLAN

On March 19, 1997 the Company's shareholders 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. All options must be granted at no 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.

SECURITIES AND EXCHANGE COMMISSION MATTER

In a letter dated March 11, 1997, the Company received notice from the
Securities and Exchange Commission (SEC), Division of Enforcement, that an
informal inquiry was being conducted. The Company was requested to voluntarily
provide the SEC with certain documents as outlined in that letter. The SEC's
letter to the Company states that this inquiry is confidential and should not be
construed as an indication by the SEC or its staff that any violations of law
has occurred, or as a reflection upon any person, entity or security.

Management of the Company intends to fully cooperate with the SEC's informal
inquiry. No specific allegations have been made; therefore, no conclusion can be
reached as to what impact, if any, this inquiry may have on the Company or its
operations.

NOTE 14. CASH FLOW INFORMATION

The following schedule describes the Company's noncash investing and
financing activities for the period from commencement of operations (June 2,
1995) to December 31, 1995 and for the year ended December 31, 1996.

F-23
<PAGE>

NATIONS FLOORING INC., AND SUBSIDIARIES
(A DELAWARE CORPORATION)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

NOTE 14. CASH FLOW INFORMATION (CONTINUED)

Acquisition of net assets of Predecessor Business:

<TABLE>
<CAPTION>
1995 1996
------------ ---------
<S> <C> <C>
Company common stock and minority interests issued for broker fee.... $ 500,000 $ --
Liabilities assumed.................................................. 357,689 --
------------ ---------
$ 857,689 $ --
------------ ---------
------------ ---------
Acquisition costs, incurred by related and unrelated parties prior to
commencement of operations, contributed to Company................. $ 1,157,393 $ --
------------ ---------
------------ ---------
Exchange of subordinated debt for minority investment in
subsidiary......................................................... $ 572,938 $ --
------------ ---------
------------ ---------
Equipment acquired through financing agreement....................... $ -- $ 79,764
------------ ---------
------------ ---------
</TABLE>

There were no significant noncash investing or financing activities of the
Predecessor Business the period from January 1, 1995 to June 1, 1995 and the
year ended December 31, 1994.

F-24
<PAGE>
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- --------------------------------------------------------------------------------

NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,AND ,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE
SHARES OF COMMON STOCK OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE
HEREOF.
------------------------

TABLE OF CONTENTS

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PAGE
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<S> <C>
Available Information............................ 2
Prospectus Summary............................... 3
Risk Factors..................................... 7
Use of Proceeds.................................. 15
Price Range of Common Stock...................... 15
Dividend Policy.................................. 16
Dilution......................................... 17
Capitalization................................... 18
Selected Financial Data.......................... 19
Management's Discussion and Analysis of Financial
Condition and Results of Operations............ 21
Business......................................... 29
Management....................................... 38
Certain Transactions............................. 43
Principal Stockholders and Holdings of
Management..................................... 45
Description of Capital Stock..................... 47
Shares Eligible for Future Sale.................. 49
Underwriting..................................... 50
Legal Matters.................................... 52
Experts.......................................... 52
Index to Consolidated Financial Statements....... F-1
</TABLE>

UNTIL , 1997 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

2,000,000 SHARES

NATIONS FLOORING, INC.
COMMON STOCK

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

PROSPECTUS

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

CHATFIELD DEAN & CO.
SUNCOAST CAPITAL CORP.
, 1997

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The expenses incurred by the Company in connection with this Offering are:

<TABLE>
<S> <C>
SEC registration fee.............................................. $ 6,340
NASD fee and expenses*............................................ 7,500
American Stock Exchange fee....................................... 35,000
Accounting fees and expenses*..................................... 70,000
Legal fees and expenses*.......................................... 225,000
Printing costs*................................................... 65,000
Blue sky fees and expenses*....................................... 40,000
Transfer agent's fees*............................................ 7,500
Miscellaneous*.................................................... 43,660
---------
Total............................................................. $ 500,000
---------
---------
</TABLE>

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

* Estimated.

ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.

DCGL Section 102(b)(7) enables a corporation to eliminate or limit personal
liability of members of its board of directors for violation of a director's
fiduciary duty of care. However, the elimination of limitation may not apply
where there has been a breach of the duty of loyalty, failure to act in good
faith, intentional misconduct or knowing violation of law, payment of a dividend
or approval of a stock repurchase which was deemed illegal, or where a director
obtains an improper personal benefit.

The Company's Certificate of Incorporation provides that any director or
officer of the Company involved in any action, suit or proceeding, whether
civil, criminal, administrative, or investigative, the basis of which is alleged
action or inaction by such director or officer while acting in the official
capacity as director or officer of the Company or as director, trustee, officer,
employee, or agent of another entity at the request of the Company, shall be
indemnified and held harmless by the Company to the fullest extent permitted by
DCGL 145 or any successor provision or provisions, against all expense,
liability and loss reasonably incurred or suffered by such person in connection
therewith. Such indemnification as to such action or inaction shall be made by
the Company only upon a determination as to whether the indemnitee acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe that his conduct was unlawful.

II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.

Since December 15, 1992, the Company has sold unregistered securities in the
amounts, (as adjusted for the one-for-four reverse stock split) at the time and
for the aggregate amounts of consideration listed as follows:

(a) On September 23, 1994, the Company sold an aggregate of 250,000
shares of Common Stock to 114 persons in a private placement, for an
aggregate consideration of $1,000,000.

(b) On June 2, 1995, the Company issued an aggregate of 3,304,438 shares
of Common Stock to 10 holders of CBH Common Stock in the Exchange and, in
connection therewith, issued 36,313 shares of Common Stock to eight
designess of Gro-Vest Management, Inc.

(c) In November and December 1995, the Company issued an aggregate of
101,786 shares of Common Stock to 34 purchasers of 12% preferred stock of
CBH.

(d) In January 1996, the Company issued 1,250 shares of Common Stock to
Herman Jeffer as a fee in connection with an advance to the Company.

(e) In January 1996, the Company issued 12,500 shares of Common Stock to
Elliot H. Vernon as a finders fee.

(f) In May 1996, the Company issued an aggregate of 37,143 shares of
Common Stock to six purchasers of 12% preferred stock of CBH.

(g) In August 1996, the Company issued an aggregate of 3,718 shares of
Common Stock to four persons as a finders fee.

The above transactions were made in reliance upon the exemption from the
registration provisions under the Securities Act contained in Section 4(2)
thereof.

ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

(a) Exhibits

<TABLE>
<C> <S>
*1.1 Form of Underwriting Agreement.
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).
**3.5 Certificate of Merger
*3.6 Certificate of Incorporation of the Company (Delaware).
*3.7 By-laws of the Company (Delaware).
</TABLE>

II-2
<PAGE>

<TABLE>
<C> <S>
*4 Form of Warrant Agreement (incorporated by reference from Exhibit 4 of the 1997
Registration Statement).
**5 Opinion of Herzfeld & Rubin, P.C.
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).
10.1 Secured Credit Agreement, dated as of June 1, 1995, between CBAC and with First
Source Financial LLP ("First Source") (incorporated by reference from Exhibit 5
of the June Form 8-K).
10.2 Pledge Agreement, dated as of June 1, 1995, among CBH, CBAC and First Source
(incorporated by reference from Exhibit 9 of the June Form 8-K).
10.3 Guaranty, dated as of June 1, 1995, by CBH in favor of First Source (incorporated
by reference from Exhibit 10 of the June Form 8-K).
10.4 Revolving Note, dated June 1, 1995, between CBAC and First Source (incorporated
by reference from Exhibit 6 of the June Form 8-K).
10.5 Working Capital Note, dated June 1, 1995, between CBAC and First Source
(incorporated by reference from Exhibit 7 of the June Form 8-K).
10.6 Security Agreement, dated June 1, 1995, between CBAC and First Source
(incorporated by reference from Exhibit 8 of the June Form 8-K).
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 Employment Agreement, dated as of June 1, 1995, between CBI and Mark Szporka
incorporated by reference from Exhibit 2 of the June 1995 Form 10-Q).
10.10 Amendment, dated June 1, 1995, to employment agreement between CBAC and Mark
Szporka (incorporated by reference from Exhibit 3 of the June 1995 Form 10-Q).
10.10.1 Amendment, dated March 6, 1996, to employment agreement between CBAC and Mark
Szporka (incorporated by reference from Exhibit 10.11 of the Form 10-K).
10.11 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).
10.12 Lease, dated June 1, 1995, between C.B. Realty of Delaware, Inc. ("CB Realty")
and CBAC (incorporated by reference from Exhibit 10.13 of the Form 10-K).
10.13 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).
10.14 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).
*10.15 Employment Agreement, dated as of May 28, 1996, between CBI and Alan Ember.
10.16 Letter of Intent with Nonn's Flooring, Inc. (incorporated by reference from
Exhibit 10.16 of the Company's Annual Report on Form 10-K for the period ended
December 31, 1996).
21 List of Subsidiaries of the Company (incorporated by reference from Exhibit 21 of
the Company's Registration Statement on Form S-1 (33-80745) filed December 22,
1995).
23.1 Consent of McGladrey & Pullen, LLP.
24.1 Power of Attorney (contained in the signature page hereto).
</TABLE>

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

* Previously filed.

** To be filed by amendment.

II-3
<PAGE>

(b) Financial Statement Schedules

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PAGE
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Independent Auditors' Report on the Supplemental Schedule.......................................... II-6
Schedule II-Valuation and Qualifying Accounts...................................................... II-7
</TABLE>

ITEM 17. UNDERTAKINGS.

(a) Indemnification

Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
liabilities (other than the payment by the Company of expenses incurred or paid
by a director, officer or controlling person of the Company in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered, the
Company will, unless in the opinion of its counsel the matter has been settled
by controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.

(b) The Company hereby undertakes that:

(1) for purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective; and

(2) for the purposes of determining liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at the time shall be deemed to
be the initial bona fide offering thereof.

(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:

(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than a 20% change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and

(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.

II-4
<PAGE>
SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of New York,
State of New York, on the 15th day of May, 1997.

NATIONS FLOORING, INC.

By: /s/ PHILIP A. HERMAN
-----------------------------------------
Philip A. Herman
CHAIRMAN OF THE BOARD AND PRESIDENT

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

SIGNATURE TITLES DATE
- ------------------------------ -------------------------- -------------------

/s/ PHILIP A. HERMAN
- ------------------------------ Chairman of the Board May 15, 1997
Philip A. Herman and President

*
- ------------------------------ Director May 15, 1997
Michael Mindlin

*
- ------------------------------ Director May 15, 1997
Gary Peiffer

*
- ------------------------------ Director May 15, 1997
Facundo Bacardi

Chief Financial Officer
* (Principal
- ------------------------------ Financial and Accounting May 15, 1997
William Poccia Officer)

*By: /s/ PHILIP A. HERMAN
- ------------------------------
Philip A. Herman
POWER OF ATTORNEY

II-5
<PAGE>

INDEPENDENT AUDITOR'S REPORT ON THE SUPPLEMENTAL SCHEDULE

To the Board of Directors

Nations Flooring, Inc.

(A Delaware Corporation)

New York, New York

Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. The consolidated
supplemental schedule II is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements of Nations Flooring, Inc. and its predecessor and, in our opinion, is
fairly stated in all material respects in relation to the basic consolidated
financial statements taken as a whole.

Las Vegas, Nevada

February 19, 1997, except for the first paragraph

of recapitalization in Note and Note 13 as to

which the date is March 19, 1997.

McGladrey & Pullen, LLP

Las Vegas, Nevada

May 14, 1997

II-6
<PAGE>
SCHEDULE II

NATIONS FLOORING, INC. AND PREDECESSOR

VALUATION AND QUALIFYING ACCOUNTS

<TABLE>
<CAPTION>
BALANCE AT DEDUCTIONS- BALANCE
BEGINNING ADDITIONS- (RETURNS) AND AT END
DESCRIPTION OF YEAR PROVISIONS WRITE-OFFS OF YEAR
- -------------------------------------------------------------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C>
Fiscal year ended December 31, 1994,
Allowance for doubtful accounts............................. $ 48,581 ($ 6,926) ($ 39,681) $ 81,315

Fiscal year ended December 31, 1995,
Allowance for doubtful accounts............................. $ 81,316 $ 46,762 $ 84,078 $ 44,000

Fiscal year ended December 31, 1996,
Allowance for doubtful accounts............................. $ 44,000 $ 404,414 $ 101,490 $ 346,924
</TABLE>

II-7
<PAGE>
EXHIBIT INDEX

<TABLE>
<CAPTION>
EXHIBIT NAME PAGE
- --------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>

*1.1 Form of Underwriting Agreement .................................................................

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 10K 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)...................................

** 3.5 Certificate of Merger...........................................................................

*3.6 Certificate of Incorporation of the Company (Delaware)..........................................

*3.7 By-laws of the Company (Delaware)...............................................................

*4 Form of Warrant Agreement.......................................................................

** 5 Opinion of Herzfeld & Rubin, P.C................................................................

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).....................

10.1 Secured Credit Agreement, dated as of June 1, 1995, between CBAC and with First Source Financial
LLP ("First Source") (incorporated by reference from Exhibit 5 of the June Form 8-K)............

10.2 Pledge Agreement, dated as of June 1, 1995, among CBH, CBAC and First Source (incorporated by
reference from Exhibit 9 of the June Form 8-K)..................................................

10.3 Guaranty, dated as of June 1, 1995, by CBH in favor of First Source (incorporated by reference
from Exhibit 10 of the June Form 8-K)...........................................................

10.4 Revolving Note, dated June 1, 1995, between CBAC and First Source (incorporated by reference
from Exhibit 6 of the June Form 8-K)............................................................

10.5 Working Capital Note, dated June 1, 1995, between CBAC and First Source (incorporated by
reference from Exhibit 7 of the June Form 8-K)..................................................

10.6 Security Agreement, dated June 1, 1995, between CBAC and First Source (incorporated by reference
from Exhibit 8 of the June Form 8-K)............................................................

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)................................
</TABLE>

<PAGE>

<TABLE>
<CAPTION>
EXHIBIT NAME PAGE
- --------- ------------------------------------------------------------------------------------------------ ---------
<C> <S> <C>
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 Employment Agreement, dated as of June 1, 1995, between CBI and Mark Szporka incorporated by
reference from Exhibit 2 of the June 1995 Form 10-Q)............................................

10.10 Amendment, dated June 1, 1995, to employment agreement between CBAC and Mark Szporka
(incorporated by reference from Exhibit 3 of the June 1995 Form 10-Q)...........................

10.10.1 Amendment, dated March 6, 1996, to employment agreement between CBAC and Mark Szporka
(incorporated by reference from Exhibit 10.11 of the Form 10-K).................................

10.11 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).................................................

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

10.13 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).................................

10.14 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)............................................................

*10.15 Employment Agreement, dated as of May 28, 1996, between CBI and Alan Ember......................

10.16 Letter of Intent with Nonn's Flooring, Inc. (incorporated by reference from Exhibit 10.16 of the
Company's Annual Report on Form 10-K for the period ended December 31, 1996).

21 List of Subsidiaries of the Company (incorporated by reference from Exhibit 21 of the Company's
Registration Statement in Form S-1 (33-80745) filed December 22, 1995.).........................

23.1 Consent of McGladrey & Pullen, LLP..............................................................

24.1 Power of Attorney (contained in the signature page hereto)......................................
</TABLE>

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* Previously filed.

** To be filed by amendment.

<PAGE>
EXHIBIT 23.1

CONSENT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors
Nations Flooring, Inc.
(a Delaware Corporation)
Las Vegas, Nevada

We hereby consent to the use in the Amendment No. 2 to the Registration
Statement on Form S-1 (Registration No. 333-19871) of our report which indicates
the form of report we will be willing to issue dated February 19, 1997, except
for the Recapitalization in Note 1 and Note 13 as to which the date is March 19,
1997, relating to the consolidated balance sheet of Nations Flooring, Inc. and
subsidiaries (Successor Business) as of December 31, 1995 and 1996 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the period from commencement of operations (June 2, 1995) to December
31, 1995 and the year ended December 31, 1996 and our report on the Supplemental
Schedule for the three year period ended December 31, 1996. We also consent to
the use in the Amendment No. 2 to the Registration Statement on Form S-1 of our
report dated February 9, 1996 relating to the balance sheet of Carpet Barn,
Inc., a Nevada corporation (Predecessor Business), as of December 31, 1994 and
the related statements of operations, stockholder's equity and cash flows for
the period from January 1, 1995 to June 1, 1995, and for the years ended
December 31, 1994 and 1993. We also consent to the reference to our Firm under
the captions "Experts" and "Selected Financial Data" in such prospectus.

MCGLADREY & PULLEN, LLP

Las Vegas, Nevada
May 15, 1997