SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K
      [X ] Annual Report Pursuant to Section 13 or 15(d) of the Securities
                      Exchange Act of 1934 [Fee Required]

                   For the Fiscal Year Ended December 31, 1999

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
                                   Act of 1934

                         Commission file number 1-12271


                                  CARSON, INC.

             (Exact name of registrant as specified in its charter)

             DELAWARE                                    06-1428605
(State or other jurisdiction of                  (I.R.S. Employer Identification
     incorporation or organization)                   Number)

                     64 Ross Road, Savannah Industrial Park
                             Savannah, Georgia 31405
          (Address, including zip code, of principal executive offices)

       Registrant's telephone number, including area code: (912) 651-3400

          Securities Registered Pursuant to Section 12 (b) of the Act:

Title of Each Class:                       Name of Exchange On Which Registered:
Common Stock - Class A, $0.01 Par Value           New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
                                  Yes _X__ No

        Securities Registered Pursuant to Section 12 (g) of the Act: None

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

     Aggregate  market value of the voting and non-voting common equity held
     by  non-affiliates of  the  registrant, computed  by  reference  to the
     average bid and asked prices as of March 31, 2000 on The New York Stock
                           Exchange was: $ 33,124,595

 Indicate the number of shares outstanding of each of the registrant's  classes,
as of the latest practicable date.

               Title of Each Class: Outstanding at March 31, 2000:
            Common Stock - Class A, $0.01 Par Value 10,083,485 shares
            Common Stock - Class C, $0.01 Par Value 5,126,163  shares

<PAGE>



                                     Part I.

Item 1.  Business

Forward Looking Statements

This report on Form 10-K for the year ended  December  31, 1999 as well as other
public documents of the Company contain forward-looking statements which involve
risks and uncertainties,  including (i) the proposed  acquisition of the Company
as further described herein,  (ii) the Company's plans to introduce new products
and  product  enhancements,  (iii) the  Company's  marketing,  distribution  and
manufacturing expansion plans, (iv) future financial performance, (v) cash flows
from operations and (vi) capital expenditures.  The Company's actual results may
differ materially from those discussed in such forward-looking  statements. When
used herein and in the Company's future filings,  the terms "expects",  "plans",
"intends", "estimates",  "projects", or "anticipates" or similar expressions are
intended to identify  forward-looking  statements (within the meaning of Section
21E of the Securities  Exchange Act of 1934, as amended (the  "Exchange  Act")).
Such statements  reflect the current views of the Company with respect to future
events and are  subject to certain  risks,  uncertainties  and  assumptions.  In
addition to risk factors that may be described in the Company's filings with the
Securities and Exchange  Commission (the  "Commission"),  including this filing,
actual   results   could  differ   materially   from  those   expressed  in  any
forward-looking statements made by the Company. Additional risk factors include,
but are not limited to, the following: (a) the Company's success in implementing
its  growth  strategy,  including  its  success  in  obtaining  financing  where
required,  (b) difficulties or delays in developing and introducing new products
or the  failure of  consumers  to accept new product  offerings,  (c) changes in
consumer  preferences,  including  reduced  consumer  demand  for the  Company's
current  products,  (d) the  nature  and  extent  of future  competition  in the
Company's  principal  marketing areas,  (e) political,  economic and demographic
developments in the United States,  Africa,  Brazil,  the Caribbean,  Europe and
other countries where the Company now does or in the future may do business, and
(f) failure to satisfy the conditions to the pending merger transaction prior to
the July 31, 2000  termination  date. The Company assumes no  responsibility  to
update forward-looking information contained herein.

General

The Company  believes  that it is one of the leading  global  manufacturers  and
marketers  of ethnic  hair care  products  for  people of color.  The  Company's
flagship brand,  Dark & Lovely,  is the most widely recognized ethnic brand name
in the United  States retail ethnic hair care  business.  The Company  currently
sells over 100 different products specifically  formulated to address the unique
physiological characteristics of people of color under seventeen principal brand
names, including Dark & Lovely, Excelle,  Beautiful Beginnings,  Dark & Natural,
Magic,  Let's Jam, Gentle Treatment,  Ultra Sheen,  Sta-Sof-Fro,  Posner,  Ultra
Star, Classy  Curl,  Curly Perm, Afro Sheen and  Dermablend. The majority of the
Company's  net sales have  historically  been  derived  from hair  relaxers  and
texturizers, which are used to chemically treat and straighten hair, hair color,
men's  depilatory  products and hair care  maintenance  products,  primarily for
people of color.

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<PAGE>

Organization and Business

Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to herein as
the "Company") was  established in May 1995 and until August 1995 its operations
were de minimus. On August 23, 1995, the Company acquired all of the outstanding
stock  of  Aminco,  Inc.  (also  referred  to as  the  "Predecessor").  Aminco's
operations were  principally  conducted by its wholly owned  subsidiary,  Carson
Products  Company.  Subsequent to the  acquisition  of Aminco,  Carson  Products
Company was merged into Aminco; the surviving entity was renamed Carson Products
Company.  The  accompanying  financial  statements  of the  Company  include the
operating  results  of Carson  Products  Company  ("Carson  Products")  from the
acquisition date.

The Predecessor had a March 31 fiscal year-end. Effective December 31, 1996, the
Company  changed its fiscal  year-end from March 31 to December 31. The decision
to  change  the  fiscal  year-end  was made in order to  conform  the  Company's
financial reporting year to the natural business year of the industry.

In July 1996, the Company's South African  subsidiary,  Carson Holdings  Limited
("Carson South Africa") sold 25% of its shares in an initial public  offering on
the Johannesburg Stock Exchange.

The Company  completed an initial  public  offering of  4,818,500  shares of its
common stock on the New York Stock  Exchange on October 18, 1996. As of December
31, 1999 the Company's  direct  subsidiaries  were Carson  Products  Company and
Carson  Management  Company.  Active  indirect  subsidiaries of the Company were
Carson  Holdings  Limited (South Africa),  Carson Products Do Brasil,  Carson UK
Ltd., Carson Products (Proprietary) Limited (South Africa), Carson Products West
Africa Limited  (Ghana) and Carson  Products East Africa (Epz) Limited.  Four of
the  Company's  indirect  subsidiaries  were  inactive:   Carson  Botswana  (PTY
Limited), Johnson Products Export Sales, Inc., IVAX Personal Care Products P.R.,
Inc. and Johnson Products Co. (UK) Limited.

Recent Developments

Proposed Sale of Company

On February 25, 2000,  the Company  entered into an Agreement and Plan of Merger
(the "Merger  Agreement")  with Cosmair,  Inc.  ("Cosmair") and its wholly-owned
subsidiary, Crayon Acquisition Corp. ("Purchaser"), pursuant to which Cosmair, a
Delaware  corporation  wholly-owned  by  L'Oreal,  S.A. of Paris,  France,  will
acquire the Company in a two-step transaction.

To implement the Merger  Agreement,  Purchaser on March 8, 2000 commenced a cash
tender offer to acquire all the issued and outstanding  shares of Class A Common
Stock, par value $.01per share, of the Company (the "Class A Common Stock") at a
price of $5.20 per share net to the  seller in cash (the  "Offer").  Purchaser's
obligation to purchase  shares of Class A Common Stock tendered  pursuant to the
Offer is subject to the  satisfaction  of customary  conditions,  including  the
expiration or  termination  of  the   applicable   waiting   periods   under the
Hart-Scott-Rodino  Antitrust  Improvements  Act of 1976 (the "HSR  Act") and the
Competition Act of the Republic of South Africa (the "S.A. Competition Act") and
the valid tender of a majority of the outstanding shares of Company Common Stock
(as defined below) on a fully-diluted  basis. On March 22, 2000, Cosmair and the


                                       2
<PAGE>

Company received a request for additional  information and documentary  material
from the U. S. Department of Justice ("DOJ") related to the proposed merger. The
requested  materials are being compiled and will be submitted to the DOJ. If DOJ
clearance is obtained and the other  conditions to the Offer are satisfied,  any
and all shares tendered in the Offer must be purchased by Cosmair.  The Board of
Directors of the Company  recommended that all stockholders accept the Offer and
tender  their  shares  pursuant  to  the  Offer.  The  Merger  Agreement  may be
terminated by either party if the Offer is not  consummated  on or prior to July
31, 2000.

If the Offer is successfully  completed,  Purchaser will be merged with and into
the Company (the "Merger"),  with the Company becoming a wholly-owned subsidiary
of  Cosmair.  Consummation  of the  Merger is  subject  to the  approval  of the
Company's  stockholders.  Cosmair  and  Purchaser  have  agreed  in  the  Merger
Agreement to vote all shares of Class A Common  Stock  purchased in the Offer in
favor of the Merger.  The Majority  Stockholders (as defined below) will also be
required to vote their shares of Class C Common Stock,  par value $.01 per share
of the Company  ("Class C Common  Stock" and,  together  with the Class A Common
Stock,  the "Company  Common  Stock"),  in favor of the Merger in the event that
they are not  required  to  convert  their  shares of Class C Common  Stock into
shares of Class A Common Stock and tender their shares to Purchaser  pursuant to
the  Stockholders  Agreement,  as described  below. Any shares of Company Common
Stock not  purchased  in the Offer will be  converted  into the right to receive
$5.20 per share in cash, without interest.

To induce  Cosmair and  Purchaser  to enter into the Merger  Agreement,  certain
stockholders  of  the  Company  (the  "Majority  Stockholders")  entered  into a
Stockholders Agreement,  dated February 25, 2000, with the Company,  Cosmair and
Purchaser   (the   "Stockholders   Agreement").   Collectively,   the   Majority
Stockholders own shares of Company Common Stock  representing  approximately 48%
of the outstanding  shares of Company Common Stock on a fully-diluted  basis and
approximately  88% of the  voting  power of all  outstanding  shares of  Company
Common Stock. In the Stockholder  Agreement,  the Majority  Stockholders agreed,
among other  things,  (i) subject to at least  565,857  shares of Class A Common
Stock being  tendered in the Offer,  to convert  their  shares of Class C Common
Stock into shares of Class A Common  Stock and to tender all of their  shares of
Company  Common  Stock in the  Offer,  and (ii) in the  event  that they are not
required  to so  convert  their  shares of Class C Common  Stock,  to vote their
shares of Class C Common Stock in favor of the Merger.

Cosmair  conditioned its  willingness to enter into the Merger  Agreement on the
Company's  settlement  of all  disputes  with AM  Cosmetics  arising  out of any
business  relationships  between  them.  The Company  entered  into a settlement
agreement  with  AM  Cosmetics  on  February  25,  2000.  See  Note  18  to  the
consolidated financial statements for terms of the settlement.


Industry Overview

         Ethnic Hair Care Business

Sales of ethnic  hair care,  cosmetics  and  skincare  at retail was  estimated,
according  to Packaged  Facts,  an  independent  market  research  company  (the
"Packaged  Facts  Report"),  to be $1.6  billion in 1999.  The ethnic  hair care
market  comprises  75%, or $1.2 billion,  of the overall  retail ethnic  product
business.   According  to  1997  United  States  Census  Data  (Selected  Social
Characteristics of the Population,) published by the United States Department of


                                       3
<PAGE>

Commerce,  the  African-American  population  was  approximately  34 million and
represented  12.8%  of  the  United  States  population.  This  segment  of  the
population is projected by the United States Department of Commerce to grow at a
rate  twice  that of the  Caucasian  population  through  the middle of the next
century.  The combined  purchasing  power of  African-Americans  was expected to
exceed $530 billion in 1999. Moreover,  research indicates that African-American
consumers  generally spend up to three times as much of their disposable  income
on health and beauty products as Caucasian consumers.

On a global scale, the Company currently  estimates that there are approximately
900 million people of African  descent  outside the United States,  including an
estimated 750 million  people on the African  continent,  100 million  people in
Brazil,  20 million people in the Caribbean,  10-15 million people in Europe and
10-13  million  people in Central  America.  Although  there are no  independent
market data to support the size of the international sales, the Company believes
that the international market is significant.

Company Strengths

The  Company  was a leading  supplier of products in three of the five hair care
categories  in which it  competes  (chemicals,  hair color and men's  depilatory
products) for the 1999 year, according to Information  Resources,  Inc. ("IRI").
Since the acquisition of Johnson Products, the Company also competes in the hair
dress/conditioning and the combout/oil sheen categories. The Company believes it
has a number  of  competitive  strengths,  including  its  strong  brand  names,
dedicated sales force,  broad  distribution,  R&D  capabilities  and experienced
management team.

                Strong Brands.  The Company  currently  sells its products under
              seventeen  principal  brand names.  The company's  flagship brand,
              Dark & Lovely,  is the most widely recognized ethnic brand name in
              the   United   States   retail   ethnic   hair  care   market  for
              African-Americans. The acquisition of Johnson Products brought two
              more well known brands into the Carson family,  namely Ultra Sheen
              and Gentle Treatment. The Company believes that its brand strength
              is based upon  product  quality,  properly  targeted  advertising,
              package design,  reputation for innovation and focused  commitment
              to the unique needs of its consumers.

               Experienced  Sales  Force and  Broad  Distribution.  The  Company
              believes  it has the  largest  direct  sales  force in the  United
              States retail ethnic hair care business. The Company's competitors
              primarily  use  commissioned   sales  brokers  who  tend  to  have
              conflicting  brand  loyalties  and provide  minimal  marketing and
              sell-through  support.  In the United States, the Company benefits
              from having its extensive product line distributed broadly through
              three principal channels:  (i) multi-warehouse  chains,  including
              mass  merchandisers  (e.g.,  Wal-Mart),  major drug chains  (e.g.,
              Walgreens,  Rite-Aid, CVS), food chains (e.g., Winn Dixie, Kroger)
              and discount chains (e.g.,  Family Dollar,  Dollar General),  (ii)
              Beauty and Barber Supply Stores  ("B&B's") such as  Alberto-Culver
              Company's Sally's Beauty Supply stores and members of the National
              Beauty  Supply  Dealers  Association,  and  (iii)  ethnic  product
              distributors.

                                       4
<PAGE>

               Focused Research and  Development.  The Company believes that its
              heritage of  technological  innovation  and its focused R&D effort
              are important to  maintaining  its  position.  Three of the ethnic
              hair care industry's most significant  innovations were introduced
              by the Company:  the first hair color  developed  exclusively  for
              hair of  persons  of  African  descent  (1972),  the first  no-lye
              relaxer,  which  provided  a safe  relaxer  product  for  home use
              (1978),  and the recently patented Fail Safe technology for no-lye
              relaxers  (1998),  the only relaxer  system to eliminate  problems
              associated with imprecise  mixing,  which the Company  believes is
              the most common cause of consumer complaints regarding relaxers.

Key Brands

The  Company  manufactures  and  markets a variety of  products  worldwide.  The
following table sets forth the Company's principal products,  as of December 31,
1999.

Brand                      Products

Dark & Lovely              Relaxers
                           Hair Color
                           Hair Care Maintenance

Excelle                    Relaxers
                           Hair Care Maintenance

Beautiful Beginnings       Relaxers
                           Hair Care Maintenance

Dark & Natural             Texturizers
                           Hair Color
                           Moustache & Beard Color

Magic                      Shaving Products

Let's Jam                  Hair Care Maintenance

Gentle Treatment           Relaxers
                           Texturizers
                           Hair Care Maintenance

Ultra Sheen                Relaxers
                           Hair Care Maintenance

Sta-Sof-Fro                Relaxers
                           Texturizers
                           Hair Care Maintenance

                                       5
<PAGE>

Posner                     Hair Care Maintenance
                           Cosmetics

Ultra Star                 Hair Care Maintenance

Classy Curl                Texturizers
                           Hair Care Maintenance

Curly Perm                 Hair Care Maintenance

Afro Sheen                 Hair Care Maintenance

Dermablend                 Skin Care


Marketing and Promotions

The Company believes that  understanding the consumer,  meeting her or his needs
and  delivering on product  promises are critical in  maintaining  the Company's
competitive  position.  The Company  conducts market  research,  such as in-home
consumer product placements for new products, tracking studies, concept testing,
package testing and advertising  testing aimed at improving its understanding of
and effectively  targeting its consumer.  The Company also maintains a toll-free
telephone  number to answer consumer  questions and to gather consumer  feedback
used to focus the Company's marketing programs.

Approximately  8% of net sales in 1999 was allocated to advertising and consumer
promotions.  The Company regularly advertises in magazines aimed at consumers of
African  descent,  such as Essence,  Ebony,  Black  Enterprise  and Jet,  and in
targeted  spot  advertising  on  television  and  cable  channels  such as Black
Entertainment  Television  (BET)  and  engages  in  promotional  activities  and
in-store  displays to  introduce  new  products or attract  new  consumers.  The
Company also uses its kit packaging format to conduct sampling  programs for new
products.

Distribution and Sales

The Company's products are sold through five principal  distribution channels in
the United States retail personal care market, as follows:

               Mass Merchandisers.  The  Company's  products are  sold  by  mass
              merchandisers, including Wal-Mart, K-Mart and Target.

               Drug Chains.  The  Company's  products  are sold  by drug chains,
              including Walgreens, Rite-Aid and CVS.

               Food Chains.  The  Company's products  are sold  by food  chains,
              including Winn Dixie and Kroger.



                                       6
<PAGE>

               Discount Chains.  The  Company's  products  are sold  by discount
              chains, including Family Dollar and Dollar General.

               Beauty & Barber Supply Stores.  B&Bs are dominated by the Sally's
              Beauty  Supply  retail  chain  (Alberto-Culver  Company)  and  the
              National Beauty Supply Dealers Association (the "NBSDA"),  a large
              group of independent  family-controlled  retail outlets. B&Bs that
              are  members of the NBSDA are  prevalent  in the  African-American
              community,  typically in retail outlets in strip  shopping  malls.
              B&Bs generally have convenient locations, low everyday prices, and
              a wide selection of ethnic products relative to retail chains.

The chains  generally  are an important  part of the Company's  retail  business
because of their ability to draw  customers  from a large  geographic  area. The
Company's chain customers may purchase the Company's  products directly from the
Company, through an ethnic product distributor or both.

The  Company's   strong   relationships   with  its  customers  in  the  various
distribution  channels  are  enhanced  by its direct  sales force  comprised  of
national account persons,  regional directors and sales merchandisers,  covering
the  Northeast,  Mid-Atlantic,  Mideast  and  Midwest  regions  in the  Northern
Division and the  Mid-South,  Southeast,  Southwest  and Western  regions in the
Southern Division. The sales force in each region markets the Company's products
to all of the distribution channels doing business in its geographic region.

The Company has established  distributor  relationships in various  countries in
international  markets.  In Africa, the Company focuses its direct sales efforts
primarily on hair care salons which are serviced through regional  distributors,
specialty  cash-and-carry wholesale outlets, mass merchandisers and large retail
chains.



Research and Development and Quality Control

The Company believes that the strength of its position in the hair care industry
is attributable,  in part, to its tradition of technological  innovation and its
focused  R&D  effort.  Three  of  the  hair  care  industry's  most  significant
innovations  were  introduced  by the  Company:  the first hair color  developed
exclusively for  African-American  hair (1972), the first no-lye relaxer,  which
provided a safe relaxer product for home use (1978),  and the recently  patented
Fail Safe  technology  for no-lye  relaxers  (1998),  the only relaxer system to
eliminate problems associated with imprecise mixing,  which the Company believes
is the most common cause of consumer complaints regarding relaxers.  The Company
believes that its R&D  department  represents  the largest R&D effort focused on
the ethnic hair care market.

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<PAGE>

Manufacturing

The  Company  uses a  batching  process  in  its  manufacturing  operations  for
virtually  all of its  products.  The  batching  process  begins  with  chemical
ingredients  being  mixed in kettles in batch sizes  ranging  from 2,000 lbs. to
21,000 lbs. The kettles heat, cool, homogenize and blend each batch of materials
according to standard operating procedures (SOPs). The SOPs for each product are
established by the Company's R&D and Quality Control staff and are  periodically
reviewed and improved to ensure  uniformity and  batch-to-batch  conformity with
the manufacturing specifications for the product.

The product is then  transferred from the kettles into a holding tank or another
type  of  storage  device  until  it is  pumped  into  a  filling  machine  that
volumetrically  fills the liquid or cream into plastic jars,  tubes,  bottles or
packets. Each container (i.e., jar, tube, bottle or packet) is coded to identify
or track a specific  batch.  Hair care  maintenance  products are then packed in
shipping  boxes and sent to the finished goods  warehouse  ready for shipment to
the Company's  customers.  Certain other products are filled,  capped,  labeled,
coded and stored  temporarily  until they are  assembled  as  components  in the
relaxer, texturizer or hair color kits.

The Company  emphasizes  quality and adherence to Good  Manufacturing  Practices
(according to FDA guidelines) throughout the production operation. Each batch of
finished  product is tested by Quality  Control  staff before it is packaged and
shipped.  The Company's  quality control measures and standards  include testing
raw materials and packaging materials.

The Company purchases raw materials,  packaging,  and components  throughout the
world and  reviews  the  efficiency  and  quality  of its  purchasing  contracts
regularly.  The Company  believes that  alternate  sources of supplies exist and
does not  anticipate any  significant  shortages of, or difficulty in obtaining,
such supplies.

In order to increase the Company's manufacturing capacity, the Company has added
new  production  lines in Savannah and  outsourced the production of certain low
volume maintenance  products,  freeing the resources of the Savannah facility to
concentrate  on  certain  high  volume  relaxer  and  hair  care  products.  The
acquisition of Johnson Products Company in July 1998 significantly  expanded the
Company's manufacturing capacity.

Competition

The  Company  primarily  competes  on the  basis of brand  recognition,  product
quality,   performance  and  price.  Advertising,   promotions,   merchandising,
packaging and the timing of new product  introductions  and line extensions also
have a significant  impact on buying  decisions and the structure and quality of
the sales force affect product reception,  in-store position,  display space and
inventory levels in retail outlets.

Some of the Company's  competitors are general market companies which are larger
and have substantially greater financial and other resources than the Company.

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<PAGE>

Trademarks and Patents

The  Company  owns  all of the  trademark  rights  used in  connection  with its
principal  brands both in the United States and in the other  countries in which
its  products are  principally  sold.  Significant  trademarks  include:  Dark &
Lovely, Magic, Let's Jam, Excelle, Beautiful  Beginnings, Dark & Natural, Gentle
Treatment,  Ultra Sheen, Posner and Dermablend.  The Company considers these and
its other marks and the name recognition  associated with them to be valuable to
its business.  The Company utilizes certain proprietary or patented technologies
in the formulation or manufacture of a number of its products; however, the loss
of such proprietary  rights and patents would not have a material adverse effect
on the business, results of operations or financial condition of the Company.

Consumer Laws, Government and Industry Regulations

The Company is subject to the Food, Drug and Cosmetics Act, the Consumer Product
Safety Act, the Federal  Hazardous  Substance Act and to the jurisdiction of the
Consumer  Product  Safety  Commission as well as product  safety laws in foreign
jurisdictions.  Such  regulations  subject  the  Company to the  possibility  of
requirements  of repurchase or recall of products  found to be defective and the
possibility of fines or penalties.  The Food and Drug Administration ("FDA") has
promulgated certain regulations concerning product ingredients, product labeling
and product claims. In addition,  the FTC regulates product claims.  The Company
is subject to consumer  laws in foreign  countries  where its products are sold,
for  example,   bilingual  packaging   requirements  (Canada)  and  new  product
registration  requirements  (Brazil).  Existing  and future FDA, FTC and foreign
regulations  could  impact  distribution  and sales of certain of the  Company's
products.

The  Company  operates  under  the  FDA's  Good  Manufacturing  Practices  (GMP)
guidelines  and is  regulated by the FDA,  although its product  formulas do not
have to be approved in advance by the FDA. Coloring agents used in the Company's
products may be either  Food,  Drug & Cosmetic  (FD&C) or Drug & Cosmetic  (D&C)
classified.   Additionally,  as  a  member  of  the  Cosmetics,  Toiletries  and
Fragrances  Association  ("CTFA"),  the  Company  agrees to  adhere  to  Quality
Assurance  Guidelines as promulgated  by CTFA.  The Company  believes that it is
substantially  in compliance  with such  guidelines and uses such  guidelines as
standards for its operational activities. The Company is also subject to various
other federal,  state, local and foreign regulations.  Federal,  state and local
regulations  in the United States that are designed to protect  customers or the
environment  have had an increasing  influence on product  claims,  contents and
packaging.  The Company believes that it is in substantial  compliance with such
regulations.

Employees

As of December  31,  1999,  the Company  employed  approximately  334 persons in
Savannah,  165 in Chicago,  Illinois,  an  additional 47 elsewhere in the United
States and 440 internationally.  In the United States, 373 were hourly personnel
and 173 were salaried employees.  The Company also utilizes temporary workers as
needed,  primarily in  manufacturing.  An average of 110 such temporary  workers
were utilized on a daily basis by the Company during the year ended December 31,

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<PAGE>

1999. The Company is non-union and believes that its relationship with employees
is good.

Environmental Matters

The  Company  is  subject  to  various   federal,   state,   local  and  foreign
environmental requirements, including those relating to discharges to air, water
and land, the handling and disposal of solid and hazardous waste and the cleanup
of properties affected by hazardous substances. Certain environmental laws, such
as the Comprehensive Environmental Response, Compensation, and Liability Act, as
amended ("CERCLA"), impose strict, retroactive, joint and several liability upon
persons responsible for releases of hazardous substances.

Based upon  recent  experience,  the  Company  believes  that the future cost of
compliance  with existing  environmental  requirements,  and liability for known
environmental  claims  pursuant to such  requirements,  will not have a material
adverse  effect on the Company's  business,  results of operations and financial
condition. However, future events, such as new information,  changes in existing
requirements or their interpretation,  and more vigorous enforcement policies of
regulatory  agencies,  may give rise to additional  expenditures  or liabilities
that could be material.

Item 2. Properties

The Company owns and occupies nine buildings on an 11.6-acre  tract in Savannah.
The plant,  warehouses and offices  encompass  approximately  225,000 sq. ft. on
seven acres of the property,  with the remaining 4.6 acres undeveloped.  Four of
the  buildings  are used  primarily  for  warehousing  and storage.  The largest
building  (more than  120,000 sq. ft.) houses the  manufacturing  equipment  for
production,  shipping, quality control, the R&D laboratories,  customer research
and a  professional  hair salon which is used to test new products.  The Company
has  reconfigured  its production lines to increase the capacity of the Savannah
facility.  The Company  leases  approximately  112,000 square feet of additional
warehouse and office space under a five-year  lease which  expires in 2003.  The
annual lease commitment is approximately $445,000.

In addition,  the Company owns and occupies one building on a 14.4-acre tract in
Chicago,  Illinois.  The facility encompasses  approximately 225,000 sq. ft., of
which 51,718 square feet consists of office and R&D laboratory space.

The Company  believes  that the capacity in the Savannah and Chicago  facilities
combined with the  additional  leased  warehouse  space will be adequate for its
needs in the reasonably foreseeable future.

The Company's  South African  subsidiary  owns and occupies two buildings on 9.0
acres in Midrand,  South Africa,  15 miles north of Johannesburg in a developing
industrial park located on the major highway between  Johannesburg and Pretoria.
The   buildings   encompass   approximately   162,000  sq.  ft.  and  house  the
manufacturing equipment for all products,  shipping and receiving,  raw material
and finished goods storage,  an R&D laboratory and executive office space. Ample
acreage is available for expansion of the facility.

                                       10
<PAGE>

The  Company  also  operates a  production  facility in Ghana  located  near the
Ghanaian  Coca-Cola  bottling plant which enables the Company to service the 200
million people located in the region.  The Company  believes that the facilities
in Midrand  and Ghana  provide  adequate  production  capacity  for its needs in
Africa in the reasonably foreseeable future.

Item 3.  Legal Proceedings

The Company is involved in various  routine  legal  proceedings  incident to the
ordinary  course of business and believes  that the outcome of all pending legal
proceedings,  in the aggregate,  will not have a material  adverse effect on the
business, results of operations or financial condition of the Company.

Item 4.  Submission of Matters to Vote of Security Holders

Not applicable.


                                       11
<PAGE>


                                    PART II.

Item 5. Market for the Registrant's Common Stock and Related Shareholder Matters

         The  Company's  Class A Common  Stock is traded  on the New York  Stock
Exchange under the symbol "CIC".  The Company's Class B Common Stock and Class C
Common Stock have no established public trading market. The high and low closing
sales prices for the Company's  Class A Common Stock as reported by the New York
Stock  Exchange for each  quarter of the years ended  December 31, 1999 and 1998
are as follows:


             Quarter Ended            High                 Low
         -------------------------------------------------------------

               03/31/99            $  4.8750             $ 2.9375
               06/30/99               4.3125               2.6250
               09/30/99               3.5000               2.5625
               12/31/99               4.0000               2.6250

               03/31/98            $ 10.1250             $ 5.8750
               06/30/98              10.7500               5.8750
               09/30/98               7.8125               1.9375
               12/31/98               4.8750               2.0000


At March  31,  2000,  there  were  approximately  125  holders  of record of the
Company's  Class A Common Stock and 14 holders of the  Company's  Class C Common
Stock.  As of such date,  all shares of the  Company's  Class B Common Stock had
been  converted  to shares of Class A Common  Stock.  Since  October  1996,  the
Company has not declared or paid any cash or other dividends on its Common Stock
and does not expect to pay dividends  for the  foreseeable  future.  The Company
anticipates that for the foreseeable future,  earnings will be reinvested in the
business to finance its growth and  development.  The declaration and payment of
dividends by the Company are subject to the discretion of the Board of Directors
of the Company (the "Board"). The Company's debt agreements restrict the ability
of the Company or any subsidiary of the Company from paying cash dividends other
than dividends or  distributions  payable in shares of capital stock. Any future
determination  to  pay  dividends  will  depend  on  the  Company's  results  of
operations, financial condition, capital requirements,  contractual restrictions
and other factors deemed relevant by the Board.

Item 6.  Selected Consolidated Historical Financial Data

The Company was  established  in May 1995 and until  August 1995 its  operations
were de minimus. On August 23, 1995, the Company acquired all of the outstanding
stock  of  Aminco,  Inc.  (also  referred  to as  the  "Predecessor").  Aminco's
operations were  principally  conducted by its wholly owned  subsidiary,  Carson
Products  Company.  Subsequent to the  acquisition  of Aminco,  Carson  Products
Company was merged into Aminco; the surviving entity was renamed Carson Products


                                       12
<PAGE>

Company. The following tables contain selected consolidated historical financial
data for the Company (amounts in thousands except per share data):

<TABLE>
<CAPTION>
                                            Company (1)                                  Full Fiscal Year
                          ---------------------------------------------------------   ----------------------
                                                                                                         Company
                                  Year           Year           Year    Nine Months     Predecessor   August 23,
                                 Ended          Ended          Ended          Ended   April 1, 1995      1995 to
                          December 31,   December 31,   December 31,   December 31,   to August 22,    March 31,
                                  1999           1998           1997        1996(1)            1995      1996(2)
-----------------------------------------------------------------------------------------------------------------
<S>                         <C>             <C>            <C>             <C>             <C>          <C>
Net sales                   $ 169,355       $ 150,706      $ 109,631       $ 59,938        $ 26,854     $ 41,465

(Loss) income before
extraordinary item            (14,288)            (36)         3,754         (3,256)          3,934        1,104

Basic and diluted
earnings (loss) per
share before
extraordinary item          $  ( 0.94)      $    0.00      $    0.25       $ ( 0.25)           ----     $   0.09

Weighted average shares
outstanding                    15,150          14,986         15,003         12,715            ----       11,871
-----------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
<CAPTION>
                                       December 31,    December 31,    December 31,   December  31,      March 31,
                                               1999            1998            1997            1996           1996
------------------------------------ --------------- --------------- --------------- --------------- --------------
<S>                                       <C>             <C>             <C>              <C>            <C>
Total assets                              $ 246,648       $ 267,463       $ 201,424        $ 97,529       $ 87,980

Long-term debt (including current
portion)                                    138,314         133,549         103,623          27,101         66,788

Stockholders' equity                         53,869          69,160          61,531          54,215          9,775

Working capital                           $  44,904       $  54,774       $  44,944        $ 15,852       $ 13,855
------------------------------------ --------------- --------------- --------------- --------------- --------------
</TABLE>


(1) Effective  December 31, 1996, the Company  changed its fiscal  year-end from
March 31 to December 31.

(2) The  acquisition of Aminco, Inc. (the Predecessor) was  completed on  August
23, 1995.  The Company's financial statements include the operating results from
the acquisition date.

(3) The  consolidated  financial  statements  of the Company have been  prepared
assuming  the Company  will  continue  as a going  concern.  However,  there are
matters disclosed in Note 19 to the consolidated financial statements that raise
substantial  doubt about the Company's  ability to continue as a going  concern.
These  consolidated  financial  statements do not include any  adjustments  that
might result from the outcome of this uncertainty.


                                       13
<PAGE>

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

Company Overview

The Company is a  manufacturer  and marketer of hair care and shaving  products.
The majority of the Company's net sales are derived from five  categories of the
health and beauty aids market:  chemicals (hair relaxers and texturizers),  hair
color, men's depilatory products,  hair dress/conditioning and combout/oil sheen
products.

In the years ended December 31, 1999 and 1998, 36.4% and 34.9%, respectively, of
the net sales of the Company were to customers  outside the United  States.  The
following table presents the Company's net sales by geographic  region for these
periods:

                               Year Ended     % of          Year Ended     % of
                         December 31,1999    Total    December 31,1998    Total
--------------------- -------------------- -------- ------------------- --------
Net sales to:
United States                   $ 107,744     63.6%          $  98,096     65.1%
South Africa                       44,018     26.0              39,183     26.0
Europe                              9,970      5.9               7,170      4.8
Other International                 7,623      4.5               6,257      4.1
--------------------- -------------------- -------- ------------------- --------
Total                           $ 169,355    100.0%          $ 150,706    100.0%


Most of the  Company's  sales are recorded in United  States  Dollars.  However,
sales by Carson South Africa to South  Africa,  Botswana,  Lesotho,  Namibia and
Swaziland  are  denominated  in South  African  Rand,  and sales by Carson South
Africa's  subsidiary in Ghana ("Carson Ghana") are denominated in Ghanian Cedis.
The Company is therefore  exposed to foreign currency price risk as the exchange
rates of the rand and the cedi fluctuate,  and there is a potential for gains or
losses on the consolidated level. The Company does not view the exposure to rand
exchange rate  fluctuations  as  significant  because Carson South Africa incurs
most of its costs in rand.  Assets and  liabilities  of Carson  South Africa are
translated for consolidation purposes from South African Rand into United States
Dollars  at the  rate of  currency  exchange  at the end of the  fiscal  period.
Revenues and expenses are  translated  at average  monthly  prevailing  exchange
rates.  Resulting  translation  differences  are  recognized  as a component  of
stockholders'  equity.  Gains and losses from foreign currency  transactions are
included in other income in the consolidated statement of operations.

Subsequent Event - Sale of Company

On February 25, 2000, the Company entered into the Merger Agreement with Cosmair
and  Purchaser,  pursuant to which  Cosmair,  wholly-owned  by L'Oreal,  S.A. of
Paris, France, will acquire the Company in a two-step transaction.

To implement the Merger  Agreement,  Purchaser on March 8, 2000 commenced a cash
tender offer to acquire all the issued and outstanding  shares of Class A Common

                                       14
<PAGE>

Stock at a price of $5.20 per share in cash.  Purchaser's obligation to purchase
shares of Class A Common Stock tendered  pursuant to the Offer is subject to the
satisfaction of customary conditions, including the expiration or termination of
the applicable  waiting  periods under the HSR Act and the S.A.  Competition Act
and the valid tender of a majority of the  outstanding  shares of Company Common
Stock on a  fully-diluted  basis.  On March 22,  2000,  Cosmair  and the Company
received a request for additional  information and documentary material from the
U. S.  Department  of  Justice  ("DOJ")  related  to the  proposed  merger.  The
requested  materials are being compiled and will be submitted to the DOJ. If DOJ
clearance is obtained and the other  conditions to the Offer are satisfied,  any
and all shares tendered in the Offer must be purchased by Cosmair.  The Board of
Directors of the Company  recommended that all stockholders accept the Offer and
tender  their  shares  pursuant  to  the  Offer.  The  Merger  Agreement  may be
terminated by either party if the Offer is not  consummated  on or prior to July
31, 2000.

If the Offer is successfully  completed,  Purchaser will be merged with and into
the Company,  with the Company  becoming a  wholly-owned  subsidiary of Cosmair.
Consummation  of the  Merger  is  subject  to  the  approval  of  the  Company's
stockholders.  Cosmair and Purchaser have agreed in the Merger Agreement to vote
all  shares  of  Class A Common  Stock  purchased  in the  Offer in favor of the
Merger. The Majority  Stockholders will also be required to vote their shares of
Class C Common  Stock in favor of the  Merger  in the  event  that  they are not
required to convert  their shares of Class C Common Stock into shares of Class A
Common Stock and tender their shares to Purchaser  pursuant to the  Stockholders
Agreement. Any shares of Company Common Stock not purchased in the Offer will be
converted into the right to receive $5.20 per share in cash, without interest.

To induce Cosmair and Purchaser to enter into the Merger Agreement, the Majority
Stockholders entered into a Stockholders Agreement.  Collectively,  the Majority
Stockholders own shares of Company Common Stock  representing  approximately 48%
of the outstanding  shares of Company Common Stock on a fully-diluted  basis and
approximately  88% of the  voting  power of all  outstanding  shares of  Company
Common Stock. In the Stockholder  Agreement,  the Majority  Stockholders agreed,
among other  things,  (i) subject to at least  565,857  shares of Class A Common
Stock being  tendered in the Offer,  to convert  their  shares of Class C Common
Stock into shares of Class A Common  Stock and to tender all of their  shares of
Company  Common  Stock in the  Offer,  and (ii) in the  event  that they are not
required  to so  convert  their  shares of Class C Common  Stock,  to vote their
shares of Class C Common Stock in favor of the Merger.

Cosmair  conditioned its  willingness to enter into the Merger  Agreement on the
Company's  settlement  of all  disputes  with AM  Cosmetics  arising  out of any
business  relationships  between  them.  The Company  entered  into a settlement
agreement  with  AM  Cosmetics  on  February  25,  2000.  See  Note  18  to  the
consolidated financial statements for terms of the settlement.



Fiscal 1999 - Significant Events

Restructuring and Other Charges
During the year ended December 31, 1999, the Company recorded  restructuring and

                                       15
<PAGE>

other  charges of $11.3  million  (of which $10.8  million  was  recorded in the
fourth  quarter).  Such charges by category of  expenditure  were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                                        Foreign
                                                               AM          South                       Exchange
                                           Product      Cosmetics        African       Management   Transaction
                           Returns      Relaunches     Settlement     Write-offs    Restructuring        Losses       Total
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>            <C>
Net sales                   $  4,048       $    300       $     --       $     --       $     --       $     --       $  4,348

Cost of sales                    175            400             --            449             --             --          1,024

Marketing and selling
expenses                          --          1,699             --             --             --             --          1,699

General and
administrative                    --             --             --            947             --             --            947

Charge for settlement
with AM Cosmetics                 --             --          1,350             --             --             --          1,350

Restructuring charges             --             --             --             --            600             --            600
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
Operating income               4,223          2,399          1,350          1,396            600             --          9,968

Other income, net                 --             --             --             --             --          1,301          1,301
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total                       $  4,223       $  2,399       $  1,350       $  1,396       $    600       $  1,301       $ 11,269
                       ============== ============== ============== ============== ============== ============== ==============
</TABLE>


               In 1999 net sales  included  the  following  charges  related  to
              product  returns or  dispositions:  $2.1 million for Cutex polish,
              $1.0  million for Diva hair  colors and $0.9  million for Dark and
              Lovely  Cosmetics.  The $2.1  million  of Cutex  charges  included
              customer  deductions and other expenses related to the disposition
              of the Cutex polish  business,  which was sold in 1998. The actual
              Cutex  polish  disposition  expenses  exceeded the $4.0 million of
              estimated  expenses  which  were  recorded  in 1998.  The  Company
              discovered  that tube  components  in some of the Diva hair  color
              kits  held  by the  Company  and by  customers  were  leaking  and
              required  replacement.  The Company recorded a $1.0 million charge
              to net sales for returns of damaged  inventory  held by  customers
              and a $0.2  million  charge to cost of sales for the  write-off of
              damaged inventory held by the Company. The $0.9 million charge for
              Dark and Lovely  Cosmetics  was for the return or  disposition  of
              inventory  held by customers;  the Company  decided to discontinue
              the manufacture and sale of Dark and Lovely Cosmetics in 1999.

               The $2.4 million of new packaging  costs related to a relaunch of
              Dark and Lovely relaxers and hair colors  scheduled for 2000. This
              charge included $1.7 million for package design,  $0.4 million for
              write-off  of excess  old  inventory  and $0.3  million  for price
              reductions granted to customers for Diva inventory on hand.

               The $1.4 million expensed for the AM Cosmetics settlement related
              to a  dispute  between  the  Company  and a  related  party and is
              discussed   further  in  Note  18  to  the   Company's   financial
              statements.

                               16
<PAGE>

               The South Africa  write-offs of $1.4 million consisted of charges
              for inventory and  trademarks,  primarily of the Seasilk and Nu-Me
              brands, determined to be unsaleable or impaired.

               The  restructuring  charges  of $0.6  million  included  employee
              severance costs for personnel  reductions the Company undertook to
              cut costs and  increase  operating  income.  Seventeen  employees,
              mostly  involved in  administrative  functions,  were  terminated.
              Severance  payments of $0.5  million  were paid in 1999,  and $0.1
              million will be paid in 2000.

               The foreign exchange  transaction losses of $1.3 million resulted
              from a significant  devaluation of the Ghanian currency, the Cedi,
              in the last quarter of 1999. The Cedi devalued  approximately 50%,
              from 2,340 cedi per dollar at December  31, 1998 to 3,500 cedi per
              dollar at December 31, 1999.

Net sales and operating  income (loss) for products  discontinued or disposed of
by the Company  for the years ended  December  31,  1999,  1998 and 1997 were as
follows (in thousands):
                                           1999       1998       1997
                                        ---------- ---------- ----------
       Cutex
       Net sales                         $     --   $ 15,187   $ 17,800
       Operating (loss) income             (2,098)    (1,647)     6,684

       Dark and Lovely Cosmetics
       Net sales                              163      1,677      1,229
       Operating loss                      (1,040)    (1,978)      (923)

       Nu-Me and Seasilk
       Net sales                               --        292        292
       Operating (loss) income             (1,396)        35         41



Fiscal 1998 - Significant Events

Sale of South Africa Stock
In May 1998 the Company sold 29.1 million of its shares of Carson South  Africa.
This sale generated net cash proceeds of $55.2 million and resulted in a gain of
$49.1 million.  Concurrent with the sale of the Company's  shares,  Carson South
Africa issued an additional  10.25 million shares for which it received net cash
proceeds of approximately $19.2 million.  This transaction resulted in a gain to
the Company of $11.7 million which was recorded in paid-in-capital.

Acquisition of Johnson Products Co., Inc.
In July 1998,  the Company  acquired  all of the  outstanding  shares of Johnson
Products Co., Inc. ("Johnson  Products").  Johnson Products is a manufacturer of
personal care products. The purchase price approximated $84.7 million with $34.7
million paid in cash.  The Company  entered into a senior secured term loan with
IVAX Corporation, d/b/a IVX Bioscience, Inc., for the remaining $50.0 million of

                                       17
<PAGE>

the purchase  price.  The IVAX loan was replaced with  longer-term  financing in
December 1998 as discussed below.

The acquisition  was accounted for under the purchase method of accounting.  The
results  of  operations  of  Johnson  Products  are  included  in the  Company's
consolidated  financial  statements since the date of acquisition.  The purchase
price was allocated to the identifiable assets and liabilities based on the fair
values at the  acquisition  date. The  allocation of the assets and  liabilities
acquired was as follows (in thousands):

           Current assets                                  $ 15,495
           Property, plant and equipment                     10,135
           Trademarks                                        22,199
           Goodwill                                          48,433
           Other assets                                         517
           Liabilities assumed                              (62,118)
                                                    ----------------
                                                           $ 34,661
                                                    ================


The  Dermablend  line of corrective  cosmetics,  which is sold in department and
specialty  stores and has an ethnic  consumer base of 40 - 50%, was purchased by
the  Company  as  part  of the  Johnson  Products  acquisition.  Dermablend  was
incorporated as Dermablend,  Inc.  ("Dermablend"),  a wholly-owned subsidiary of
Johnson Products, at the time the Company acquired Johnson Products. Originally,
management  intended to sell  Dermablend  within one year from the  acquisition.
Therefore, in accordance with Emerging Issues Task Force No. 87-11,  "Allocation
of Purchase  Price to Assets to be Sold",  the results of operations  related to
Dermablend were initially excluded from the Company's  consolidated statement of
operations.  In December  1998, the Company  decided to operate  Dermablend on a
longer-term basis.  Accordingly,  the cumulative effect of the operating results
of  Dermablend  since the  acquisition  date of  $890,000  was  included  in the
Company's  consolidated  statement of operations for the year ended December 31,
1998. These operating results were summarized as follows:

       Net sales                                                  $ 4,016
       Cost of sales                                                  766
                                                              ------------
             Gross profit                                           3,250
                                                              ------------
       Marketing and selling                                        1,576
       General and administrative expenses                            440
       Amortization                                                   344
                                                              ------------
                                                                  $   890
                                                              ============

Beginning  January 1, 1999, the operating  results of Dermablend are included in
the Company's consolidated statement of operations.

Debt Refinancing
In July 1998 the Company  terminated  its senior  secured  credit  facility with
Credit  Agricole  Indosuez.  During  the  third  quarter  of 1998,  the  Company
recognized an extraordinary  loss of $0.9 million (net of tax) for the write-off
of $1.6  million of debt  issuance  costs  related to the  credit  facility.

                                       18
<PAGE>

On December 8, 1998 the Company entered into loan agreements relating to a $75.0
million  secured  term  loan  (the  "Secured  Term  Loan")  and an $8.0  million
unsecured  term loan (the  "Unsecured  Term Loan").  The cash proceeds were used
primarily  to repay the $50.0  million  secured  term loan  which  financed  the
Johnson Products  acquisition and to purchase and retire $27.0 million of senior
subordinated notes for $23.0 million.  The Company recorded an extraordinary net
gain of  approximately  $1.8 million  resulting from the early retirement of the
$27.0 million of senior notes and the write-off of related debt issuance  costs.
Of the  remaining  cash  proceeds,  approximately  $4.3  million was used to pay
transaction fees and expenses, and $5.7 million was retained for working capital
purposes.

On December 10, 1998, the proceeds from the sale of Cutex (see discussion below)
were used to repay the $8.0 million Unsecured Term Loan and $14.7 million of the
Secured  Term Loan.  As a result of this  repayment,  the  Company  recorded  an
extraordinary net loss of approximately $0.7 million (net of tax) related to the
write-off of debt issuance  costs  incurred for this debt.  As discussed  below,
$4.5 million of the cash proceeds from the sale of Cutex were  restricted to pay
for certain expenses related to the sale of Cutex.

The  Secured  Term Loan bears  interest  at an annual rate of 13% and matures on
December 8, 2003.  Interest is payable monthly.  The Company may, at its option,
defer the monthly  interest  payment a maximum of twelve times until December 8,
2000. In the event of deferral, interest is accrued at an annual rate of 16% for
the month deferred and added to the  outstanding  principal  amount of the loan.
The Company elected to defer the monthly  interest  payment a total of six times
during 1999 and thereby added $5.0 million to the outstanding  principal balance
in 1999.  The  Company  elected  to defer the  monthly  interest  payment  three
additional  times in 2000 and added  another  $2.6  million  to the  outstanding
principal balance of the secured term loan, which totaled $68.0 million at March
31, 2000. The capital stock and assets of Carson Products Company, including the
assets used in the Johnson  Products and Dermablend  operations,  are pledged as
collateral for the Secured Term Loan.  The loan contains  covenants with respect
to, among other things,  (i)  restrictions on the incurrence of additional liens
or  indebtedness  and (ii)  restrictions on the payment of any cash dividends by
the Company or any subsidiary.

Sale of Cutex
In December 1998 the Company sold  substantially  all of the assets of the Cutex
nail  polish  remover and nail  implements  business  to The Cutex  Company,  an
unrelated  corporation.  The Company realized net cash proceeds of approximately
$27.8 million ($4.5 million of which was  restricted  cash at December 31, 1998)
and recorded a loss on the sale of approximately $14.0 million. The $4.5 million
restricted  cash was used  during 1999 to pay for  certain  designated  expenses
related to the sale of Cutex.

                                       19
<PAGE>

Restructuring and Other Charges
During  the  year  ended   December  31,  1998,   the  Company   recorded  total
restructuring  and other  significant  charges of $39.0  million (of which $19.2
million  was  recorded  in the fourth  quarter).  These  charges by  category of
expenditure  and  classification  in the statement of operations were as follows
(in thousands):


<TABLE>
<CAPTION>

                                                                              Bad
                                                                            Debts                       Write-off
                                             Management      Fixed            and          Sale of             of
                              Inventory   Restructuring      Assets         Other            Cutex      Investment        Total
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S>                             <C>            <C>           <C>             <C>            <C>            <C>            <C>
Net sales                       $     --       $     --      $      --       $     --       $  4,000       $     --       $  4,000

Cost of goods sold                 6,573             --             --             --          1,300             --          7,873

General and
administrative                        --          1,416            228          2,000             --             --          3,644

Loss on sale of
business                              --             --             --             --         13,994             --         13,994

Restructuring charges                 --          2,638          2,879            234             --             --          5,751
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
Operating income                   6,573          4,054          3,107          2,234         19,294             --         35,262

Loss on write-off of
investment                            --             --             --             --             --          3,768          3,768
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total                           $  6,573       $  4,054      $   3,107       $  2,234       $ 19,294       $  3,768       $ 39,030
                           ============== ============== ============== ============== ============== ============== ==============
</TABLE>


In 1998,  the  Company  undertook  a  restructuring  of its  product  lines  and
management  group.  The Company  revised its key  management  team,  terminating
several  senior  managers  and  adding  Gregory J.  Andrews  as Chief  Executive
Officer.  The Company announced a new strategic focus on its core business,  the
worldwide  ethnic hair care market.  In  connection  with this new focus and the
Johnson  Products  acquisition,   all  of  the  combined  products,  brands  and
facilities were reviewed for optimum use. Items  identified as  non-strategic or
redundant were written down.

The $6.6 million  inventory charge related  primarily to write-down of inventory
which was determined to be non-strategic and to reserves for obsolete  inventory
and  inventory  in excess of usage  plans.  Over 100  stock-keeping  units  were
eliminated.  The management  restructuring charges of $4.1 million included $2.6
million of employee  severance costs and $1.4 million of expenses related to the
hiring of the Company's chief executive officer. Thirty employees, including six
members of senior management and fourteen members of the sales department,  were
terminated. Severance payments totaling $1.3 million were paid in 1998 and 1999.
The fixed assets charges of $3.1 million related primarily to fixed assets which
were disposed of in connection with the  restructuring  of product lines.  These
fixed  assets  were  written  off in 1998.  The "Bad  Debts and  Other"  charges
included  primarily  $2.0  million  of  additional   reserves  against  accounts
receivable for customer deductions. Miscellaneous restructuring charges included
in "Bad Debts and Other"  above were paid $0.1 million in each of 1998 and 1999.

                                       20
<PAGE>

The  charges  related to the sale of Cutex were for product  returns,  inventory
write-downs and the loss on the sale of the remover  business.  The $3.8 million
loss on write-off of  investment  was the result of  management's  determination
that the Company's preferred stock investment in AM Cosmetics was not realizable
due to the financial condition of AM Cosmetics.

On February 21,  1999,  Gregory  Andrews died while on a business  trip in South
Africa. Malcolm R. Yesner was named President and Chief Executive Officer of the
Company to succeed  Mr.  Andrews.  Mr.  Yesner  also  serves as Chief  Executive
Officer of Carson Holdings Limited and as President,  International  Operations,
for the Company.

Fiscal 1997- Significant Events

In the first half of 1997, Carson South Africa consummated three acquisitions in
the African  personal  care  industry  including  the African  Nu-Me  Cosmetics,
Restore  Plus and  Seasilk  brand names and certain  related  assets.  The total
purchase price,  including fees, for these three  acquisitions was approximately
$1.5  million,  comprised of $0.7  million in cash and 500,000  shares of Carson
South  Africa  common  stock  (which  resulted  in a  gain  to  the  Company  of
approximately   $460,000   which  was  recorded  in  paid-in   capital).   These
acquisitions were accounted for under the purchase method of accounting.

On April 30,  1997,  the  Company  purchased  the  rights  to sell,  distribute,
package,  manufacture,  and market Cutex nail polish remover,  nail enamel, nail
care treatment products and nail care implements in the United States and Puerto
Rico (the "Cutex  Acquisition").  The  purchase  price was  approximately  $41.4
million,  with funds provided by additional long-term debt. Net product sales of
Chesebrough-Pond  USA Co.'s  Cutex  line in the United  States  and Puerto  Rico
approximated  $18.2 million,  excluding any results from the sale of nail enamel
or other  products  under  license  by Jean  Philippe  Fragrances,  Inc.  ("Jean
Phillipe"), for the year ended December 31, 1996. This acquisition was accounted
for under the purchase method of accounting.

Also on April  30,  1997,  the  Company  terminated  its just  acquired  license
agreement  with Jean  Philippe to package,  distribute  and sell nail enamel and
nail care treatment products,  nail care implements and lipstick under the Cutex
trademark in the United States and Puerto Rico.

During  April  1997,  the Company  completed  the  acquisition  of the Let's Jam
product line from New Image Laboratories, Inc. This acquisition added one of the
leading  hair care  maintenance  brands in the  ethnic  retail  business  to the
Company's portfolio of brands. The purchase price was approximately $5.6 million
in cash,  funded  primarily by additional long term debt.  This  acquisition was
accounted for under the purchase method of accounting.

In  November  1997,  Carson  South  Africa  completed  the  acquisition  of  A&J
Cosmetics, which owns and manufactures the Sadie brand of toiletry products. The
original  purchase  consideration  payable for the acquisition was approximately
$9.5  million,  of which  approximately  $9.3 million was recorded as intangible
assets. Additional consideration aggregating $3.0 million was paid in March 1999
based upon the after-tax profits of the business for the year ended December 31,

                                       21
<PAGE>

1998 and was recorded as  additional  goodwill.  To fund this  purchase,  Carson
South Africa issued stock with net proceeds of approximately $9.1 million (which
resulted  in a gain to the  Company of  approximately  $5.9  million,  which was
recorded in paid-in capital).  Approximately  $5.4 million of the purchase price
was paid in January  1998,  and  approximately  $3.4 million was paid in January
1999.  The amount paid in January  1999 was reduced  from an original  amount of
$4.1 million due to significant devaluation of the South African Rand in 1998.


Results of Operations

Year Ended December 31, 1999 Compared to Year Ended December 31, 1998

Net Sales.  Consolidated  net sales for the year ended  December  31,  1999 were
$169.4 million,  an increase of $18.6 million,  or 12.4%, over net sales for the
year ended December 31, 1998 of $150.7  million.  This increase is summarized as
follows (dollars are in thousands):

                                 Year Ended           Year Ended
                          December 31, 1999    December 31, 1998      % Change
                        -------------------- -------------------- -------------
Domestic Hair Care                 $ 93,321             $ 79,645          17.2
Export                               17,593               13,427          31.0
Dermablend Group                     16,521                3,264         406.2
South Africa                         44,018               39,183          12.3
                        -------------------- --------------------
   Ethnic                           171,453              135,519          26.5
Cutex                                (2,098)              15,187        (100.0)
                        -------------------- --------------------
   Consolidated                    $169,355             $150,706          12.4
                        ==================== ====================


Domestic hair care net sales above include  domestic sales of Carson and Johnson
hair care products.  Carson products include the principal brands Dark & Lovely,
Excelle,  Beautiful  Beginnings,  Dark & Natural,  Magic and Let's Jam.  Johnson
products   include  the  principal   brands  Gentle   Treatment,   Ultra  Sheen,
Sta-Sof-Fro,  Ultra Star,  Classy Curl and Curly Perm. Export includes net sales
of Carson and  Johnson  hair care  products  in Europe  and other  international
markets,  excluding  Africa.  Dermablend  Group  net  sales  includes  sales  of
Dermablend corrective cosmetics, Posner cosmetics and Dark and Lovely Cosmetics.

Domestic  hair  care  1999 net sales  increased  from the prior  year due to the
acquisition of Johnson Products Company in July 1998. Johnson brands contributed
$36.3  million to  Domestic  hair care net sales in 1999,  an  increase of $14.7
million  over the  $21.6  million  contributed  from July to  December  of 1998.
Domestic net sales of Carson brands decreased  slightly to $57.0 million in 1999
from $58.0 million in 1999.  Domestic sales of Carson relaxers were down in 1999
compared to 1998,  while  domestic  sales of Carson hair colors were up from the
prior year.  Domestic  hair care net sales for 1999  includes  the $1.3  million
charge for Diva hair color returns and price reductions discussed earlier.

Export 1999 net sales  exceeded prior year levels due to the addition of Johnson
Products and higher sales of Carson hair care  products in Europe.  Net sales in

                                       22
<PAGE>

Europe  increased  to $10.0  million in 1999 from $7.2  million  in 1998.  Other
international  net sales  increased to $7.6 million in 1999 from $6.2 million in
1998.

Dermablend  group  1999  net  sales  were  up from  the  prior  year  due to the
acquisition of Dermablend, Inc. and Johnson Products Company, Inc. in July 1998.
Net sales of Dermablend  corrective cosmetics were $14.2 million in 1999. No net
sales for  Dermablend  were included in the 1998 net sales as the brand was held
for sale from its purchase in July 1998 until the end of 1998.  Dermablend group
net sales for 1999  includes  the $0.9  million  charge to  dispose  of Dark and
Lovely Cosmetics inventory held by customers discussed earlier.

South Africa 1999 net sales were up 12.3% from the prior year.  While gains were
made,  this sales growth is smaller than in prior years due to economic  factors
on the  African  continent.  High  interest  rates  in  South  Africa  generally
depressed  consumer spending there and necessitated  heavy discounting and trade
promotional  spending to grow market  share.  Sales in West and Southern  Africa
were  adversely  impacted by declining  local  currencies,  which  increased the
relative cost of the Company's products.

As discussed earlier, net sales for 1999 included approximately $2.1 million for
deductions  and other  expenses  related to the  disposition of the Cutex polish
business, which was sold in 1998.

Gross  Profit.  Consolidated  gross  profit was $85.6  million in the year ended
December 31, 1999 compared to $66.2 million in the year ended December 31, 1998,
an increase of $19.4 million, or 29.3%. Gross margin was 50.6% for 1999 compared
to 43.9% for 1998. The 1999 gross margin was adversely  impacted by $5.4 million
of  unusual  charges,  including:  $3.0  million  charged to net sales for Cutex
polish and Dark and Lovely Cosmetics returns,  $1.3 million charged to net sales
for Diva  hair  color  returns  and $1.0  million  charged  to cost of sales for
write-down of inventory.  The 1998 gross margin was adversely  impacted by $11.9
million of unusual  charges,  including:  $6.6 million  charged to cost of goods
sold for  inventory  write-downs,  $4.0  million  charged to net sales for Cutex
polish returns and $1.3 million charged to cost of sales for write-down of Cutex
polish  inventory.  Excluding  these  special  charges,  gross  profit was $91.0
million in 1999 and $78.1  million in 1998,  and gross  margin was 52.4% in 1999
and 50.5% in 1998.  Excluding  special charges,  the increase in gross margin in
1999 was  attributable  in part to increased  plant  utilization in the Savannah
manufacturing  facility,  whereas in the first half of 1998 gross  margins  were
adversely  impacted by reduced  production  volumes undertaken in order to lower
inventory  balances  at that time.  The overall  gross  margin for 1998 was also
reduced  by higher  than  anticipated  returns of old Cutex  nail  polish  after
introduction  of the new Ultra line.  Gross margins in 1999  benefited from high
margins (typically in excess of 75%) of the Dermablend business, offset somewhat
by lower Johnson  Products hair care margins  resulting  from  discounted  sales
pricing.  Revised pricing terms for Johnson hair care products began to phase in
in the third  quarter of 1999 and produced an improved  gross margin for Johnson
brands in the fourth quarter of 1999.

Marketing and Selling  Expenses.  Marketing and selling expenses  increased $6.0
million, or 14.0%, to $48.7 million in 1999 from $42.7 million in 1998. In 1999,

                                       23
<PAGE>

marketing and selling expenses  included $1.7 million of special charges related
to the relaunch of Dark and Lovely  relaxers and hair colors in 2000.  Excluding
these special charges, marketing and selling expenses were $47.0 million in 1999
compared to $42.7 million in 1998,  an increase of $4.3 million or 10.1%.  These
expenses  increased  $13.5  million  from  1998 to 1999 due to the  addition  of
Dermablend and Johnson Products in July 1998 and higher spending at Carson South
Africa.  Marketing and selling expenses  increased at Carson South Africa due to
heavy trade  promotional  spending required to stimulate demand and increases in
distribution  costs. The increased marketing and selling expense for Dermablend,
Johnson  Products and Carson  South  Africa was largely  offset by a decrease of
approximately  $7.2 million from the elimination of spending on the Cutex,  Dark
and Lovely Cosmetics and Salon Professional lines.  Spending was also reduced in
1999 on the  production  of media  advertising.  As a  percentage  of net sales,
excluding  special charges,  marketing and selling  expenses  decreased to 27.1%
during 1999 from 27.6% during 1998.

General and Administrative  Expense.  General and  administrative  expenses were
$29.7  million in 1999  compared  to $31.2  million in 1998,  a decrease of $1.5
million or 4.8%.  In 1999,  general and  administrative  expense  included  $0.9
million of special  charges for the  write-off  of  trademarks  at Carson  South
Africa, and in 1998, general and administrative expense included $3.6 million of
special charges primarily related to the executive management  restructuring and
additional  accounts  receivable  reserves.  Excluding  these  special  charges,
general and administrative expenses were $28.8 million in 1999 compared to $27.6
million in 1998,  an increase of $1.2  million or 4.4%.  Increased  spending for
Carson South Africa,  Johnson  Products and Dermablend was largely offset by the
elimination of general and administrative  expenses,  primarily amortization and
depreciation, related to Cutex and Dark and Lovely Cosmetics. As a percentage of
net sales,  excluding  special  charges,  general  and  administrative  expenses
decreased to 16.6% during 1999 from 17.8% during 1998. This percentage  decrease
is  primarily  due to the  incremental  net sales  provided  by the  addition of
Johnson   Products   without  a  pro  rata  increase  in  overall   general  and
administrative expenses.

Restructuring   Charges.   In  1999  the  Company   recorded   $0.6  million  of
restructuring  charges for severance  payments related to personnel  reductions.
These  reductions  were  undertaken  as a  cost-cutting  measure to improve  the
Company's operating income. In 1998 the Company recorded  restructuring  charges
of $5.7 million  related  primarily to changes in the Company's  top  management
group and to the  write-down  of fixed assets which were disposed of as a result
of changes in product lines.

Operating Income.  As a result of the above changes,  operating income increased
to $4.9 million in 1999 compared to an operating loss of $28.3 million in 1998.

Interest  Expense.  Interest expense increased to $17.8 million in 1999 compared
to $13.6  million in 1998.  The  increased  interest  expense  was the result of
additional  debt,  at higher  rates,  incurred  in 1998 to finance  the  Johnson
Products acquisition.

Foreign Currency Transaction Losses.  The loss of $1.3 million  recorded in 1999
related to the devaluation of the Ghanian Cedi.


                                       24
<PAGE>

Other Income,  Net.  Other income  decreased to $2.0 million in 1999 compared to
$3.4 million in 1998. The decrease was primarily due to lower interest income in
South  Africa.  Gain on Sale of Subsidiary  Stock.  In May 1998 the Company sold
29.1 million of its shares of Carson South  Africa,  resulting in a pre-tax gain
to the Company of $49.1 million.

Loss on Write-off of Investment.  In 1998, the Company  recorded a pretax charge
of $3.8 million for the write-off of an investment in the preferred  stock of AM
Cosmetics.

Provision  for Income Taxes.  The provision for income taxes  decreased to $1.8,
million based on an effective rate of (15.0)%, in 1999 compared to $4.3 million,
based on an effective  rate of 61.6%,  in 1998.  These  effective  tax rates are
unusual due to the valuation  allowances  recorded against domestic deferred tax
assets  in both  1999  and  1998.  For  further  discussion,  see Note 13 to the
Company's financial statements.

Minority  Interest in Earnings of Subsidiary.  Minority  interest in earnings of
subsidiary  decreased to $0.4 million in 1999  compared to $2.7 million in 1998.
This  decrease  was due to the lower  earnings  of Carson  South  Africa in 1999
compared to 1998.

Year Ended December 31, 1998 Compared to Year Ended December 31, 1997

Net Sales.  Consolidated  net sales for the year ended  December  31,  1998 were
$150.7 million,  an increase of $41.1 million,  or 37.5%, over net sales for the
year ended December 31, 1997 of $109.6  million.  This increase is summarized as
follows (dollars are in thousands):



                                  Year Ended           Year Ended
                           December 31, 1998    December 31, 1997      % Change
                         -------------------- -------------------- -------------
Domestic Hair Care                  $ 79,645             $ 56,803          40.2
Export                                13,427               12,137          10.6
Dermablend Group                       3,264                1,229         165.6
South Africa                          39,183               21,662          80.9
                         -------------------- --------------------
   Ethnic                            135,519               91,831          47.6
Cutex                                 15,187               17,800         (14.7)
                         -------------------- --------------------
   Consolidated                     $150,706             $109,631          37.5
                         ==================== ====================



Domestic hair care net sales above include  domestic sales of Carson and Johnson
hair care products.  Carson products include the principal brands Dark & Lovely,
Excelle,  Beautiful  Beginnings,  Dark & Natural,  Magic and Let's Jam.  Johnson
products   include  the  principal   brands  Gentle   Treatment,   Ultra  Sheen,
Sta-Sof-Fro, Ultra Star, Classy Curl, Afro Sheen and Curly Perm. Export includes
net  sales of  Carson  and  Johnson  hair  care  products  in  Europe  and other
international  markets,   excluding  Africa.  For  the  years  presented  above,
Dermablend  group net sales  includes  sales of  Posner  cosmetics  and Dark and
Lovely  Cosmetics.  Although the  Dermablend  line of  corrective  cosmetics was

                                       25
<PAGE>

purchased in July 1998,  no net sales for  Dermablend  were included in the 1998
net sales as the brand was held for sale from its  purchase  in July 1998  until
the end of 1998.

Domestic  hair  care  1998  net  sales  were up from the  prior  year due to the
acquisition of Johnson Products Company in July 1998. Johnson brands contributed
$21.6  million to Domestic  hair net sales from July to  December of 1998.  This
amount  included  $1.4  million of net sales for items  produced for and sold to
another  ethnic hair care company under a contract  which was  terminated at the
end of 1998.

Domestic net sales  Carson  brands  amounted to $58.0  million in 1998, a modest
increase of $1.2  million,  or 2.2%,  compared to $56.8  million in 1997. In the
first half of 1998,  domestic  net sales of Carson  brands  were below the prior
year levels.  To address this downward trend,  management was  restructured  and
certain sales,  distribution and marketing practices were revised to better meet
customer and  distributor  needs and stimulate  interest at the consumer  level.
Sales improved in the second half of the year.

Significant gains were made in Europe in 1998. Net sales there were $7.2 million
in 1998 compared to $4.6 million in 1997. This increase of $2.6 million, or 56.5
%,  included  $1.5  million of net sales of Johnson  brands  1998.  Net sales of
Carson  brands in Europe  increased  $1.1  million,  or 23.9% from 1998 to 1997.
Other  international  net sales  decreased by 16.8% to $6.3 million in 1998 from
$7.5 million in 1997.  The reduction in other  international  net sales occurred
primarily in the Caribbean.

Dermablend  group net sales in 1998  included  $1.6 million for net sales of the
Posner  cosmetics line,  which was purchased as part of Johnson Products in July
1998.  The remaining  Dermablend  net sales in 1998 and 1997 consist of sales of
Dark and Lovely Cosmetics.

Net sales in South  Africa grew  significantly  from the prior  year.  Net sales
there increased 80.9% to $39.2 million in 1998. Carson South Africa has extended
operations to key and  fast-growing  markets in West Africa and East Africa,  in
addition to its growing base in Southern Africa.

Net  sales of Cutex in 1998  were  14.7%  below  1997,  although  the  brand was
purchased  on April  30,  1997 and was  included  in the  Company's  results  of
operations  for only  eight  months  of 1997.  Cutex net  sales  were  adversely
impacted in 1998 by the  introduction  in April 1998 of the new Cutex Ultra line
of nail polishes.  This introduction resulted in heavy returns in the second and
third quarters of old product which the Cutex Ultra line replaced.

Gross  Profit.  Gross profit was $66.2 million in 1998 compared to $59.1 million
in 1997, an increase of $7.1 million,  or 12.0%.  Gross margin was 43.9% in 1998
compared  to 53.9% in 1997.  The 1998 gross  margin was  adversely  impacted  by
significant  non-recurring charges,  including:  $6.6 million charged to cost of
goods sold for  inventory  write-downs,  $4.0  million  charged to net sales for
Cutex polish returns and $1.3 million charged to cost of sales for write-down of
Cutex polish inventory.  Other factors in the gross margin  percentage  decrease
were the  addition of Johnson  Products,  which  produced  gross profit of $11.2
million  and a gross  margin of 44.5%,  and the high  returns  of old Cutex nail

                                       26
<PAGE>

polish after introduction of the new Ultra line.

Decreased  production  volumes  earlier  in the  year  also  contributed  to the
reduction in gross margin. Production volume was curtailed in the second quarter
of 1998 to reduce  inventories  which  had risen to levels in excess of  current
needs. To lower inventory levels,  the plant was shut down for two weeks and run
only four days per week for  several  more weeks  during  the second  quarter of
1998. This action resulted in unabsorbed  overhead in production which adversely
impacted gross margin.

Marketing and Selling Expenses.  Marketing and selling expenses  increased $15.7
million,  or 58.1%,  to $42.7  million in 1998 from $27.0  million in 1997. As a
percentage  of net sales,  these  expenses  increased  to 28.3% during 1998 from
24.6%  during  1997.  This  increase  was due to expanded  domestic  programs to
promote the Company's core ethnic products,  the addition of Johnson Products in
1998 and higher spending  internationally  to support the growth of Carson South
Africa.  Marketing  and selling  expenses were also higher in 1998 for the Cutex
and Let's Jam brands, which were purchased in April 1997.

General and Administrative  Expense.  General and  administrative  expenses were
$31.2  million for 1998 compared to $18.3 million for 1997, an increase of $12.9
million,  or 70.1%.  As a percentage  of net sales,  general and  administrative
expenses increased to 20.7% during 1998 from 16.7% during 1997. The 1998 general
and administrative expenses were increased by significant  non-recurring charges
discussed  earlier,  including:  $1.4 million  related to the  restructuring  of
senior  management  and $2.0  million  to  increase  reserves  against  accounts
receivable.  General and administrative  expenses also increased $3.0 million in
1998  due to the  addition  of  Johnson  Products.  General  and  administrative
expenses  incurred by Carson South Africa  increased $3.0 million in 1998 due to
the enhancement of infrastructure required to support the subsidiary's growth.

Loss on Sale of Business.  As  discussed  previously, this  $14.0  million  loss
resulted from the sale of the Cutex business.

Restructuring.  As discussed previously,  restructuring charges in 1998 included
$2.6  million  related to the  management  restructuring,  $2.9  million for the
write-down of fixed assets and $0.2 million of other miscellaneous charges.

Operating Income.  As a result of the above changes,  operating income decreased
to a loss of $28.4  million in 1998 from  income of $12.2  million in 1997.  The
1998 operating loss includes total non-recurring charges of $35.3 million.

Interest Expense.  Interest expense increased  significantly to $13.6 million in
1998 from $6.4 million in 1997. The increased interest expense was the result of
additional debt at higher rates, to finance the Johnson Products  acquisition as
well as  additional  debt  incurred  in 1997 to finance  the Cutex and Let's Jam
acquisitions.

Other Income.  Other income increased to $3.4 million for 1998 from $0.8 million
for 1997, an increase of $2.6 million.  The increase was primarily due to higher
interest  income on cash  balances in the United  States and South  Africa which

                                       27
<PAGE>

were generated by the sale of Carson South Africa stock in June 1998.

Gain on Sale of Subsidiary  Stock. As discussed  previously,  this $49.1 million
gain resulted  from the sale of 29.1 million of the  Company's  shares of Carson
South Africa.

Minority  Interest in Earnings of Subsidiary.  Minority  interest in earnings of
subsidiary  increased  to expense of $2.7  million in 1998 from  expense of $1.0
million in 1997.  This  increase was due to the higher  earnings of Carson South
Africa in 1998 compared to 1997 and to the higher minority ownership  percentage
resulting from the sales of Carson South Africa stock.

Loss on Write-off of  Investment.  As discussed  previously,  this loss resulted
from  the  write-off  of the  Company's  investment  in  preferred  stock  of AM
Cosmetics.

Provision for Taxes. The provision for taxes increased to $4.3 million, based on
an  effective  rate of  61.6%  in 1998  compared  to $2.8  million,  based on an
effective rate of 37.1%,  in 1997. The 1998 effective tax rate is unusually high
due to the valuation allowance recorded against deferred tax assets.

Liquidity and Capital Resources

In 1999 the Company's cash balance  decreased by $20.0 million,  to $8.7 million
at December 31, 1999 from $28.7 million at December 31, 1998. Net cash flow used
in operations was $1.3 million.  Cash was used primarily to increase inventories
and  to  decrease  accrued  liabilities  and  income  taxes  payable.   Domestic
inventories  were at  lower  than  optimum  levels  at the end of 1998  and were
increased during 1999. Accrued liabilities decreased primarily due to payment of
expenses  related to the  disposition of Cutex and income taxes by the Company's
foreign  subsidiaries.  Cash was provided by the  conversion of restricted  cash
into available cash, which was used to pay the Cutex accrued  liabilities.  Cash
was also  provided  by a decrease  in  accounts  receivable  and an  increase in
accounts payable. Accounts receivable decreased as domestic collections improved
after credit policy and staff changes were implemented during the second half of
1999.  Accounts payable  increased  primarily due to the $1.4 million  liability
payable to AM Cosmetics  recorded in 1999 for  settlement  of the legal  dispute
discussed earlier. Accounts payable was also up due to a delay in paying vendors
from the last two weeks of 1999 into the year 2000.

Net cash  used in  investing  activities  in 1999  was  $11.8  million.  Capital
expenditures totaled $5.6 million. Approximately $1.8 million of these additions
related to the Carson Products software upgrade and  approximately  $2.0 million
were additions by Carson South Africa. Carson South Africa invested $5.7 million
in redeemable cumulative  preference shares of two investment companies.  Carson
South  Africa,  through its  subsidiary  in Ghana,  also  issued a $1.0  million
long-term  note  receivable  to the Company's  distributor  in Brazil to provide
working  capital  to the  distributor  and  thereby  assist  in  increasing  the
Company's exports to Brazil.

Net cash used in financing activities totaled $6.4 million.  Carson South Africa
paid $6.4 million of purchase  consideration  related to its 1997 acquisition of

                                       28
<PAGE>

A&J Cosmetics.  This amount included $3.4 million of original consideration that
was due in January 1999 and $3.0 million of  additional  consideration  that was
paid in March 1999 based on the after tax profits of A&J Cosmetics for the  year
ended December 31, 1998.

The cash balance was adversely impacted in 1999 by continued  devaluation of the
South African Rand.  The rand devalued  approximately  3.0%,  from 5.98 rand per
dollar at December 31, 1998 to 6.16 rand per dollar at December 31, 1999. Due to
this  devaluation,  the cash  balances  held in South  Africa  decreased by $0.5
million when converted to U.S. dollars.

As discussed  earlier,  the Company deferred the monthly interest payment on its
Secured  Term Loan six  times in 1999 and  thereby  added  $5.0  million  to the
principal  balance.  The Company  deferred the monthly  interest  payment  three
additional  times in 2000 (and  can defer such  monthly interest payments up  to
three more times during the remainder of 2000) and added  another  $2.6  million
to the  outstanding principal  balance of  the Secured Term Loan, which  totaled
$68.0 million at March 31, 2000.

At the end of April 2000,  the Company  must pay  approximately  $4.5 million of
interest,   including  a  $3.8  million  semi-annual  interest  payment  on  the
subordinated  notes and a $0.7 million monthly  interest  payment on the Secured
Term Loan.  Management  plans to meet these  interest  payments  from cash flows
provided by operations.

Current  operating  budgets and cash flow projections  indicate that the Company
will build cash throughout the second half of 2000. However,  these earnings and
cash  flow   projections  are  based  upon  the  successful   launches  of  new,
reformulated  or  repackaged  products  and  the  achievement  of  sales  levels
substantially  higher than  historical  sales  levels.  As a result,  management
cannot be certain it will have  sufficient  cash resources to meet its long-term
debt repayment  requirements.  Failure to meet debt repayment requirements would
result in the Company being in default of its loan covenants,  in which case the
Company's long-term debt would become immediately due and payable.

Inflation
The Company's  manufacturing  costs and operating expenses are affected by price
changes. The Company has historically  mitigated inflationary effects by passing
price  changes  along  to its  customers  and  by  continually  developing  more
cost-effective  manufacturing and operational procedures.  The Company's ability
to mitigate the effects of price changes will depend on market factors.

Outlook
Statements contained herein are forward-looking  statements.  It is important to
note that the  Company's  actual  results  could  differ  materially  from those
projected in such forward-looking  statements based on a number of factors, some
of which are beyond the Company's control.

Risk factors include,  but are not limited to, the Company's ability to generate
sufficient cash flows from operations to meets its debt repayment  requirements,
the  Company's  ability  to  refinance  its  long-term  debt if  necessary,  the
Company's ability to successfully  implement its growth strategy, the nature and

                                       29
<PAGE>

extent of future  competition  in the Company's  principal  marketing  areas and
increased costs of compliance with any  developments  in the U.S.,  Brazil,  the
Caribbean,  Europe and other countries where the Company now does business or in
the future may do business.

New Accounting Standards
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), as amended, will be required to
be adopted by the Company  effective with the quarter ending March 31, 2001. The
Company has not yet completed  its  evaluation of the effect of this standard on
its financial statements.


Item 7A.   Quantitative and Qualitative Disclosure About Market Risk

The Company does not speculate on the future  direction of interest rates. As of
March 31, 2000, none of the Company's debt bore interest at variable rates.  The
Company  believes  that the effect,  if any, of  reasonably  possible  near term
changes in interest rates on its  consolidated  financial  position,  results of
operations or cash flows would not be significant.

The Company is exposed to foreign  currency price risk because of its operations
in foreign countries.  Most of the Company's sales are recorded in United States
Dollars.  However,  sales by  Carson  South  Africa to South  Africa,  Botswana,
Lesotho,  Namibia and Swaziland are denominated in South African Rand, and sales
by Carson South Africa's subsidiary in Ghana ("Carson Ghana") are denominated in
Ghanian  Cedis.  The  Company is exposed to foreign  currency  price risk as the
exchange rates of the rand and the cedi fluctuate,  and there is a potential for
gains  or  losses  on the  consolidated  level.  The  Company  does not view the
exposure to rand exchange rate fluctuations as significant  because Carson South
Africa  incurs most of its costs in rand.  In 1999 the  Company  incurred a $1.3
million foreign currency  transaction loss related to a significant  devaluation
of the  Ghanian  Cedi.  This loss was  included  in the  Company's  consolidated
statement of operations for the year ended December 31, 1999.


                                       30
<PAGE>

Item 8. Financial Statements and Supplementary Data


                                  CARSON, INC.
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                      (In thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                      Year Ended December 31,
                                                                     ==========================================================
                                                                        1999                  1998                 1997
                                                                     ================     ================     ================
<S>                                                                 <C>                  <C>                  <C>
Net sales                                                           $        169,355     $        150,706     $        109,631
Cost of sales                                                                 83,747               84,509               50,510
                                                                     ----------------     ----------------     ----------------
Gross profit                                                                  85,608               66,197               59,121
                                                                     ----------------     ----------------     ----------------

Marketing and selling expenses                                                48,688               42,692               27,007
General and administrative expenses                                           29,703               31,196               18,344
General and administrative - fees paid to MCG Global                             350                  350                  370
Charge for settlement with AM Cosmetics                                        1,350                   --                   --
Restructuring charges                                                            600                5,751                   --
AM Cosmetics sales commissions                                                    --                1,452                1,151
Loss on sale of business                                                          --               13,994                   --
                                                                     ----------------     ----------------     ----------------
Operating expenses                                                            80,691               95,435               46,872
                                                                     ----------------     ----------------     ----------------

Other operating income - cumulative effect of change
in accounting for subsidiary                                                      --                  890                   --
                                                                     ----------------     ----------------     ----------------

Operating income (loss)                                                        4,917              (28,348)              12,249

Interest expense                                                             (17,757)             (13,649)              (6,444)
Foreign currency transaction (loss) gain                                      (1,301)                  (7)                   7
Other income, net                                                              2,047                3,390                  773
Gain on sale of subsidiary stock                                                  --               49,140                   --
Loss on write-off of investment                                                   --               (3,768)                  --
AM Cosmetics management fee and dividend                                          --                  223                  900
                                                                     ----------------     ----------------     ----------------
(Loss) income before income taxes, minority interest and
     extraordinary items                                                     (12,094)               6,981                7,485

Provision for income taxes                                                    (1,816)              (4,299)              (2,779)
                                                                     ----------------     ----------------     ----------------
(Loss) income before minority interest and extraordinary items               (13,910)               2,682                4,706

Minority interest in earnings of subsidiary                                     (378)              (2,718)                (952)
                                                                     ----------------     ----------------     ----------------
(Loss) income before extraordinary items                                     (14,288)                 (36)               3,754

Extraordinary items, net of income taxes                                          --                  127               (2,086)
                                                                     ----------------     ----------------     ----------------
Net (loss) income                                                   $        (14,288)    $             91     $          1,668
                                                                     ================     ================     ================

Basic and diluted (loss) income per common share:
     Before extraordinary items                                     $          (0.94)    $           0.00     $           0.25
     Extraordinary items, net of income taxes                                     --                 0.01                (0.14)
                                                                     ----------------     ----------------     ----------------
     Net (loss) income                                              $          (0.94)    $           0.01     $           0.11
                                                                     ================     ================     ================

Weighted average common shares outstanding                                    15,150               14,986               15,003
                                                                     ================     ================     ================

</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.


                                       31
<PAGE>


                                  CARSON, INC.
                           CONSOLIDATED BALANCE SHEETS
                 (In thousands, except share and per share data)

<TABLE>
<CAPTION>
                                                                                                    December 31,       December 31,
                    ASSETS                                                                             1999               1998
                                                                                                  ==============     ==============
<S>                                                                                              <C>                <C>
CURRENT ASSETS:
       Cash and cash equivalents                                                                 $        8,740     $       28,706
       Accounts receivable less allowances of $5,490 (1999) and $6,457 (1998)                            35,459             38,953
       Inventories                                                                                       28,332             22,825
       Restricted cash                                                                                       --              4,500
       Investments                                                                                        2,435                 --
       Other current assets                                                                                 507                669
                                                                                                  --------------     --------------
              Total current assets                                                                       75,473             95,653

PROPERTY, PLANT AND EQUIPMENT, net                                                                       37,190             35,765

INVESTMENTS                                                                                               3,248                 --

INTANGIBLES, net of accumulated amortization of $10,675 (1999) and $6,174 (1998)                        124,285            129,183

OTHER ASSETS                                                                                              6,452              6,862

                                                                                                  --------------     --------------
            TOTAL ASSETS                                                                         $      246,648     $      267,463
                                                                                                  ==============     ==============


                         LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       Accounts payable                                                                          $       14,373     $       12,584
       Accrued expenses                                                                                  13,630             19,306
       Payable to AM Cosmetics                                                                            2,000
       Income taxes payable                                                                                 566              2,508
       Due for A&J Cosmetics                                                                                 --              6,355
       Current maturities of long-term debt                                                                  --                126
                                                                                                  --------------     --------------
            Total current liabilities                                                                    30,569             40,879

LONG-TERM DEBT                                                                                          138,314            133,423

OTHER LIABILITIES                                                                                         3,769              3,345

MINORITY INTEREST IN SUBSIDIARY                                                                          20,127             20,656

COMMITMENTS AND CONTINGENCIES (Notes 16 and 18)                                                              --                 --

STOCKHOLDERS' EQUITY:
       Preferred stock, $.01 par value, 10,000,000 shares authorized, none outstanding                       --                 --
       Common stock:
            Class A, voting, $.01 par value, 150,000,000 shares authorized,  10,096,730 and
             7,926,485 shares issued as of December 31, 1999 and 1998, respectively                         101                 79
            Class B, nonvoting, $.01 par value, 2,000,000 shares authorized, 0 and
             1,859,677 shares issued and outstanding as of December 31, 1999 and 1998, respectively          --                 19
            Class C, voting, $.01 par value, 13,000,000 shares authorized, 5,155,132 and
             5,334,700 shares issued as of December 31, 1999 and 1998, respectively                          52                 53

       Paid-in capital                                                                                   81,500             80,970
       Accumulated deficit                                                                              (18,208)            (3,920)
       Accumulated other comprehensive losses                                                            (8,001)            (6,495)
       Notes receivable from shareholders, net of discount                                               (1,238)            (1,209)
       Treasury stock, 13,245 shares of Class A common stock as of December 31, 1999
            and 1998 and 28,969 shares of Class C common stock as of December 31, 1999 and 1998            (337)              (337)
                                                                                                  --------------     --------------
            Total stockholders' equity                                                                   53,869             69,160

                                                                                                  --------------     --------------
            TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                           $      246,648     $      267,463
                                                                                                  ==============     ==============
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       32
<PAGE>

                                  Carson, Inc.
                 Consolidated Statement of Stockholders' Equity
                                 (in thousands)
<TABLE>

<CAPTION>
                                                               Class A                   Class B                   Class C
                                                     -------------------------------------------------------------------------------
                                                            Shares       Amount       Shares       Amount       Shares       Amount
                                                     -------------------------------------------------------------------------------
<S>                                                         <C>          <C>         <C>          <C>          <C>          <C>
Balance, December 31, 1996                                   4,997       $   50       1,860       $   19        8,128       $   81
Comprehensive income (loss):
     Net income                                                 --           --          --           --           --           --
     Foreign currency translation                               --           --          --           --           --           --
Total comprehensive income

Gain on sale of South African stock, net                        --           --          --           --           --           --
Restricted share awards                                         36           --          --           --           --           --
Change in shareholder loans                                     --           --          --           --           --           --
Purchase of treasury stock                                      --           --          --           --           --           --

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1997                                   5,033           50       1,860           19        8,128           81
Comprehensive income (loss):
     Net income                                                 --           --          --           --           --           --
     Foreign currency translation                               --           --          --           --           --           --
Total comprehensive loss

Gain on sale of South African stock, net                        --           --          --           --           --           --
Restricted share awards, net of cancellations                  100            1          --           --           --           --
Conversion of Class C shares to Class A shares               2,793           28          --           --       (2,793)         (28)
Change in shareholder loans                                     --           --          --           --           --           --
Purchase of treasury stock                                      --           --          --           --           --           --

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1998                                   7,926           79       1,860           19        5,335           53
Comprehensive loss:
     Net loss                                                   --           --          --           --           --           --
     Foreign currency translation                               --           --          --           --           --           --
Total comprehensive loss

Conversion of Class B shares to Class A shares               1,860           19      (1,860)         (19)          --           --
Conversion of Class C shares to Class A shares                 180            1          --           --         (180)          (1)
Restricted share awards                                        131            2          --           --           --           --
Gain on sale of South African stock, net                        --           --          --           --           --           --
Change in shareholder loans                                     --           --          --           --           --           --

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1999                                  10,097       $  101          --       $   --        5,155       $   52
                                                     ===============================================================================
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.
























 <TABLE>
<CAPTION>
                                                                                Accumulated     Notes
                                                                                   Other     Receivable                   Total
                                                        Paid-in    Accumulated Comprehensive    From        Treasury   Stockholders'
                                                        Capital      Deficit      Losses     Shareholders    Stock        Equity
                                                     -------------------------------------------------------------------------------
<S>                                                     <C>          <C>          <C>          <C>          <C>          <C>
Balance, December 31, 1996                              $  62,418    $  (5,679)   $  (1,309)   $  (1,365)   $      --    $  54,215
Comprehensive income (loss):
     Net income                                                --        1,668           --           --           --        1,668
     Foreign currency translation                              --           --         (861)          --           --         (861)
Total comprehensive income                                                                                            --------------
                                                                                                                               807

 Gain on sale of South African stock, net                   6,360           --           --           --           --        6,360
 Restricted share awards                                      244           --           --           --           --          244
 Change in shareholder loans                                   --           --           --           12           --           12
 Purchase of treasury stock                                    --           --           --           --         (107)        (107)

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1997                                 69,022       (4,011)      (2,170)      (1,353)        (107)      61,531
Comprehensive income (loss):
     Net income                                                --           91           --           --           --           91
     Foreign currency translation                              --           --       (4,325)          --           --       (4,325)
Total comprehensive loss                                                                                              --------------
                                                                                                                            (4,234)

Gain on sale of South African stock, net                   11,713           --           --           --           --       11,713
Restricted share awards, net of cancellations                 235           --           --           --           --          236
Conversion of Class C shares to Class A shares                 --           --           --           --           --           --
Change in shareholder loans                                    --           --           --          (86)          --          (86)
Purchase of treasury stock                                     --           --           --          230         (230)          --

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1998                                 80,970       (3,920)      (6,495)      (1,209)        (337)      69,160
Comprehensive loss:
     Net loss                                                  --      (14,288)          --           --           --      (14,288)
     Foreign currency translation                              --           --       (1,506)          --           --       (1,506)
Total comprehensive loss                                                                                              --------------
                                                                                                                           (15,794)

Conversion of Class B shares to Class A shares                 --           --           --           --           --           --
Conversion of Class C shares to Class A shares                 --           --           --           --           --           --
Restricted share awards                                       384           --           --           --           --          386
Gain on sale of South African stock, net                      146           --           --           --           --          146
Change in shareholder loans                                    --           --           --          (29)          --          (29)

                                                     -------------------------------------------------------------------------------
Balance, December 31, 1999                              $  81,500    $ (18,208)   $  (8,001)   $  (1,238)   $    (337)   $  53,869
                                                     ===============================================================================
</TABLE>
The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       33

<PAGE>

                                 CARSON, INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)
<TABLE>
<CAPTION>
                                                                                              Year Ended December 31,
                                                                                ====================================================
                                                                                     1999               1998               1997
                                                                                =============      =============      =============
<S>                                                                             <C>                <C>                <C>
OPERATING ACTIVITIES:
     Net (loss) income                                                          $    (14,288)       $        91       $      1,668
     Adjustments to reconcile net (loss) income to net cash
       used in operating activities:
            Depreciation and amortization                                              7,386              6,626              3,793
            Interest deferred on secured term loan                                     4,990                 --                 --
            Non-cash charges - inventory, intangibles and fixed assets                 1,971              9,596                 --
            Provision for doubtful accounts                                            1,673              2,935                935
            Foreign currency transaction loss (gain)                                   1,301                  7                 (7)
            Deferred income tax provision                                                323                790               (142)
            Minority interest in earnings of subsidiary                                  378              2,718                952
            Gain on sale of subsidiary stock                                              --            (49,140)                --
            Loss on sale of business                                                      --             13,994                 --
            Loss on write-off of investment                                               --              3,768                 --
            Extraordinary item, net of income taxes                                       --               (127)             2,086
            Other, net                                                                   140                 97               (547)
            Changes in operating assets and liabilities, net of acquisitions
                and disposals:
                   Accounts receivable                                                 1,475             (7,367)           (13,078)
                   Inventories                                                        (7,660)               (60)           (11,589)
                   Restricted cash                                                     4,500                 --                 --
                   Other current assets                                                  152                 47              1,711
                   Accounts payable                                                    3,874             (2,642)             6,852
                   Accrued liabilities                                                (5,654)             6,775             (9,912)
                   Income taxes payable                                               (1,880)             1,773                 --
                   Other liabilities                                                      --              1,688                 --
                                                                                -------------      -------------      -------------
                    Total adjustments                                                 12,969             (8,522)           (18,946)
                                                                                -------------      -------------      -------------
            Net cash used in operating activities                                     (1,319)            (8,431)           (17,278)
                                                                                -------------      -------------      -------------

INVESTING ACTIVITIES:
     Additions to property, plant and equipment                                       (5,605)           (10,340)            (8,220)
     Purchase of investments                                                          (5,683)                --                 --
     Issuance of long-term note receivable                                            (1,000)                --                 --
     Collection of long-term note receivable                                             517                 --                 --
     Acquisitions of business assets, net of cash acquired                                --            (34,661)           (49,406)
     Net proceeds from sale of business                                                   --             23,298                 --
                                                                                -------------      --------------     -------------
            Net cash used in investing activities                                    (11,771)           (21,703)           (57,626)
                                                                                -------------      --------------     -------------

FINANCING ACTIVITIES:
     Proceeds from long-term borrowings                                                   --             93,500            166,860
     Payment on A&J Cosmetics payable                                                 (6,355)            (5,416)                --
     Proceeds from sale of subsidiary stock                                              281             74,446              9,032
     Principal payments on long-term debt                                               (225)           (59,537)           (92,661)
     Repayment of short-term notes payable                                                --            (50,000)                --
     Debt issuance costs                                                                  --             (4,619)                --
     Proceeds from equity rights offering                                                 --                 --              1,525
     Other, net                                                                         (123)               106                 --
                                                                                -------------      -------------      -------------
            Net cash (used in) provided by financing activities                       (6,422)            48,480             84,756
                                                                                -------------      -------------      -------------

EFFECT OF EXCHANGE RATE CHANGES                                                         (454)            (3,683)                --

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                 (19,966)            14,663              9,852
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        28,706             14,043              4,191
                                                                                -------------      -------------      -------------
CASH AND CASH EQUIVALENTS AT END OF YEAR                                        $      8,740       $     28,706       $     14,043
                                                                                =============      =============      =============
Cash paid during the year for:
     Interest                                                                   $     11,780       $     13,324       $      6,683
     Income taxes                                                               $      3,242       $      2,273       $      2,764
</TABLE>

The  accompanying  notes are an integral  part of these  consolidated  financial
statements.

                                       34
<PAGE>

Notes to Consolidated Financial Statements

Note 1. Organization and Business

The Company is engaged in the  production  and marketing of hair care  products.
The  Company's  more than 100 products are marketed  under  seventeen  principal
brand names.

Certain  of  the  Company's  international   activities  are  conducted  by  its
majority-owned South African subsidiary,  Carson Holdings Limited ("Carson South
Africa"),  shares of which are traded on the Johannesburg Stock Exchange.  As of
December 31, 1999 the Company owned  approximately  52.5% of the stock of Carson
South Africa.  A license  agreement  between the Company and Carson South Africa
commenced in April 1998 and provides  that Carson South Africa pay the Company a
royalty in the amount of 3.0% of the net sales price of all  licensed  products.
The agreement may be altered or renewed  indefinitely until terminated by either
party upon twelve months  written  notice.  The agreement was altered in 1999 to
suspend the payment of royalties during 1999 in exchange for Carson South Africa
providing  a $1.0  million  loan to the  Company's  distributor  in Brazil.  See
further discussion of this loan in Note 10. The royalty payments were reinstated
at 3.5% on January 1, 2000 and will increase to 4% on April 1, 2000.

In May 1998 the Company sold 29.1 million of its shares of Carson South  Africa.
This sale generated net cash proceeds of $55.2 million and resulted in a gain of
$49.1  million  ($28.1  million  net of  tax).  Concurrent  with the sale of the
Company's shares,  Carson South Africa issued an additional 10.25 million shares
for which it received net cash proceeds of  approximately  $19.2  million.  This
transaction  resulted  in a gain to the  Company  of  $11.7  million  which  was
recorded in paid-in-capital.

Note 2. Significant Accounting Policies

Principles of Consolidation
The accompanying  financial  statements  include the accounts of the Company and
its subsidiaries.  All significant  intercompany  transactions and accounts have
been eliminated.

New Accounting Standards
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), as amended, will be required to
be adopted by the Company  effective with the quarter ending March 31, 2001. The
Company has not yet completed  its  evaluation of the effect of this standard on
its financial statements.

Cash and Cash Equivalents
Cash and investments  with maturities of three months or less when purchased are
considered cash and cash equivalents.

Inventories
Inventories are valued at the lower of first-in, first-out (FIFO) cost or market
(see Note 7).

                                       35
<PAGE>

Property, Plant and Equipment
Property,  plant and  equipment  is recorded at assigned  values or cost less an
allowance for depreciation. The Company capitalizes eligible expenditures with a
cost greater  than  $1,000.  Depreciation  is computed  using the  straight-line
method over the following estimated useful lives:
                                                                      Years
                                                                      -----
     Buildings                                                           42
     Land improvements                                                   20
     Machinery and equipment                                             12
     Furniture and fixtures                                              10
     Office equipment                                                     8
     Vehicles                                                             5
     Information systems                                                  5

Intangible Assets
Intangible  assets are  substantially  comprised  of  goodwill  and  trademarks.
Goodwill  of $96.1  million  and $98.8  million at  December  31, 1999 and 1998,
respectively,  is being  amortized using the  straight-line  method over periods
ranging from 15 to 40 years.  Trademarks  of $27.9  million and $30.1 million at
December  31,  1999 and  1998,  respectively,  are  being  amortized  using  the
straight-line method over 10 to 25 years.

Long-lived Assets
The Company  reviews  long-lived  assets,  including fixed assets and intangible
assets, for impairment whenever events or changes in circumstances indicate that
the carrying amount of such assets may not be  recoverable.  The Company reviews
projected  undiscounted  cash  flows  of the  underlying  long-lived  assets  to
determine if the assets are impaired.  If there is an indication of  impairment,
the Company would write the long-lived assets down to fair value.

Income Taxes
Deferred  income taxes are  recognized  for the tax  consequences  of "temporary
differences"  by  applying  currently  enacted  statutory  rates to  differences
between  financial  statement  carrying  amounts  and the tax basis of  existing
assets and liabilities. The effect on deferred taxes of a change in tax rates is
recognized  in the  results  of  operations  in the  period  that  includes  the
enactment  date.  Valuation  allowances  are  provided  when  recoverability  of
deferred tax assets is uncertain.


Foreign Currency Translation/Transaction
Assets and  liabilities of Carson South Africa are translated from South African
Rand into U.S. Dollars at the rate of currency exchange at the end of the fiscal
period.  Revenues and expenses are translated at average monthly  exchange rates
prevailing during the period.  Resulting translation  differences are recognized
as a component  of other  comprehensive  losses.  Gains and losses from  foreign

                                       36
<PAGE>

currency transactions are included in the consolidated statements of operations.

Fair Value of Financial Instruments
The  carrying  values  of  cash  and  cash  equivalents,   accounts  receivable,
inventories,  investments,  accounts payable and accrued liabilities approximate
fair values due to the short-term  maturities of the  instruments.  The carrying
value of long-term debt is discussed in Note 11.

Revenue Recognition
Revenue  from  sales  of  manufactured  goods is  recognized  upon  shipment  to
customers.

Research and Development Costs
Research and development  costs  (principally  for new products) are expensed as
incurred.  Such costs for the years ended  December 31,  1999,  1998 and 1997 of
$863,000,  $610,000  and  $535,000,  respectively,  are  included in general and
administrative expenses in the accompanying statements of operations.

Sale of Subsidiary Stock
The Company  accounts for gains incurred on the sale of subsidiary stock sold by
the subsidiary as an increase in paid-in capital in stockholders'  equity. Gains
incurred on sales of the Company's  holdings of subsidiary  stock are recognized
in the statement of operations.

Basic and Diluted Earnings (Loss) Per Share
Basic  earnings  per share is computed by dividing  net  earnings  (loss) by the
weighted average number of shares of common stock  outstanding  during the year.
Diluted  earnings per share is computed by dividing  net earnings  (loss) by the
sum of (1) the weighted  average  number of shares of common  stock  outstanding
during the period,  (2) the  dilutive  effect of the  assumed  exercise of stock
options  using the treasury  stock  method and (3) the dilutive  effect of other
potentially dilutive securities. For the year ended December 31, 1999 options to
purchase 1,487,025 shares of the Company's common stock were not included in the
computation  of diluted  earnings  per share  because the effect would have been
anti-dilutive.  For the year ended December 31, 1998 options to purchase 568,500
shares were included in the computation of diluted earnings per share, resulting
in an increase of 334,367 weighted average shares outstanding but no change from
basic  earnings  per share.  For the years ended  December 31, 1998 and December
31, 1997 options to purchase 395,525 shares and 441,500 shares respectively were
not  included  in the  computation of  diluted  earnings  per share  because the
options' exercise  price was greater than the average market price of the common
shares.

Use of Estimates
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  disclosure  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.

                                       37
<PAGE>

Reclassification
Certain  prior  periods  have been  reclassified  to conform  with  current year
presentation.

Note 3. Subsequent Event - Sale of Company

On February 25, 2000, the Company entered into the Merger Agreement with Cosmair
and  Purchaser,  pursuant to which  Cosmair,  wholly-owned  by L'Oreal,  S.A. of
Paris, France, will acquire the Company in a two-step transaction.

To implement the Merger  Agreement,  Purchaser on March 8, 2000 commenced a cash
tender offer to acquire all the issued and outstanding  shares of Class A Common
Stock at a price of $5.20 per share in cash.  Purchaser's obligation to purchase
shares of Class A Common Stock tendered  pursuant to the Offer is subject to the
satisfaction of customary conditions, including the expiration or termination of
the applicable  waiting  periods under the HSR Act and the S.A.  Competition Act
and the valid tender of a majority of the  outstanding  shares of Company Common
Stock on a  fully-diluted  basis.  On March 22,  2000,  Cosmair  and the Company
received a request for additional  information and documentary material from the
U. S.  Department  of  Justice  ("DOJ")  related  to the  proposed  merger.  The
requested  materials are being compiled and will be submitted to the DOJ. If DOJ
clearance is obtained and the other  conditions to the Offer are satisfied,  any
and all shares tendered in the Offer must be purchased by Cosmair.  The Board of
Directors of the Company  recommended that all stockholders accept the Offer and
tender  their  shares  pursuant  to  the  Offer.  The  Merger  Agreement  may be
terminated by either party if the Offer is not  consummated  on or prior to July
31, 2000.

If the Offer is successfully  completed,  Purchaser will be merged with and into
the Company,  with the Company  becoming a  wholly-owned  subsidiary of Cosmair.
Consummation  of the  Merger  is  subject  to  the  approval  of  the  Company's
stockholders.  Cosmair and Purchaser have agreed in the Merger Agreement to vote
all  shares  of  Class A Common  Stock  purchased  in the  Offer in favor of the
Merger. The Majority  Stockholders will also be required to vote their shares of
Class C Common  Stock in favor of the  Merger  in the  event  that  they are not
required to convert  their shares of Class C Common Stock into shares of Class A
Common Stock and tender their shares to Purchaser  pursuant to the  Stockholders
Agreement. Any shares of Company Common Stock not purchased in the Offer will be
converted into the right to receive $5.20 per share in cash, without interest.

To induce Cosmair and Purchaser to enter into the Merger Agreement, the Majority
Stockholders entered into a Stockholders Agreement.  Collectively,  the Majority
Stockholders own shares of Company Common Stock  representing  approximately 48%
of the outstanding  shares of Company Common Stock on a fully-diluted  basis and
approximately  88% of the  voting  power of all  outstanding  shares of  Company
Common Stock. In the Stockholder  Agreement,  the Majority  Stockholders agreed,
among other  things,  (i) subject to at least  565,857  shares of Class A Common
Stock being  tendered in the Offer,  to convert  their  shares of Class C Common
Stock into shares of Class A Common  Stock and to tender all of their  shares of
Company  Common  Stock in the  Offer,  and (ii) in the  event  that they are not
required  to so  convert  their  shares of Class C Common  Stock,  to vote their
shares of Class C Common Stock in favor of the Merger.

                                       38
<PAGE>

Cosmair  conditioned its  willingness to enter into the Merger  Agreement on the
Company's  settlement  of all  disputes  with AM  Cosmetics  arising  out of any
business  relationships  between  them.  The Company  entered  into a settlement
agreement  with  AM  Cosmetics  on  February  25,  2000.  See  Note  18  to  the
consolidated financial statements for terms of the settlement.

Note 4. Restructuring and Other Charges

During the year ended December 31, 1999, the Company recorded  restructuring and
other  charges of $11.3  million  (of which $10.8  million  was  recorded in the
fourth  quarter).  Such charges by category of  expenditure  were as follows (in
thousands):

<TABLE>
<CAPTION>
                                                                                                        Foreign
                                                               AM          South                       Exchange
                                           Product      Cosmetics        African       Management   Transaction
                           Returns      Relaunches     Settlement     Write-offs    Restructuring        Losses       Total
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S>                         <C>            <C>            <C>            <C>            <C>            <C>            <C>
Net sales                   $  4,048       $    300       $     --       $     --       $     --       $     --       $  4,348

Cost of sales                    175            400             --            449             --             --          1,024

Marketing and selling
expenses                          --          1,699             --             --             --             --          1,699

General and
administrative                    --             --             --            947             --             --            947

Charge for settlement
with AM Cosmetics                 --             --          1,350             --             --             --          1,350

Restructuring charges             --             --             --             --            600             --            600
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
Operating income               4,223          2,399          1,350          1,396            600             --          9,968
Other income, net                 --             --             --             --             --          1,301          1,301
                       -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total                       $  4,223       $  2,399       $  1,350       $  1,396       $    600       $  1,301       $ 11,269
                       ============== ============== ============== ============== ============== ============== ==============
</TABLE>

      In 1999 net sales  included  the  following  charges  related  to  product
     returns or  dispositions:  $2.1 million for Cutex polish,  $1.0 million for
     Diva hair colors and $0.9 million for Dark and Lovely  Cosmetics.  The $2.1
     million of Cutex charges  included  customer  deductions and other expenses
     related to the disposition of the Cutex polish business,  which was sold in
     1998.  The actual  Cutex  polish  disposition  expenses  exceeded  the $4.0
     million of  estimated  expenses  which were  recorded in 1998.  The Company
     discovered that tube components in some of the Diva hair color kits held by
     the Company and by customers  were leaking and  required  replacement.  The
     Company  recorded a $1.0 million charge to net sales for returns of damaged
     inventory  held by customers and a $0.2 million charge to cost of sales for
     the write-off of damaged  inventory  held by the Company.  The $0.9 million
     charge for Dark and Lovely  Cosmetics was for the return or  disposition of
     inventory  held by  customers;  the  Company  decided  to  discontinue  the
     manufacture and sale of Dark and Lovely Cosmetics in 1999.

      The $2.4 million of new packaging  costs related to a relaunch of Dark and
     Lovely  relaxers and hair colors  scheduled for 2000.  This charge included

                                       39
<PAGE>

     $1.7 million for package  design,  $0.4 million for write-off of excess old
     inventory  and $0.3 million for price  reductions  granted to customers for
     Diva inventory on hand.

      The $1.4 million  expensed for the AM  Cosmetics  settlement  related to a
     dispute between the Company and a related party and is discussed further in
     Note 18.

      The South  Africa  write-offs  of $1.4  million  consisted  of charges for
     inventory  and  trademarks,  primarily  of the  Seasilk  and Nu-Me  brands,
     determined to be unsaleable or impaired.

      The  restructuring  charges of $0.6 million  included  employee  severance
     costs for  personnel  reductions  the  Company  undertook  to cut costs and
     increase  operating  income.   Seventeen  employees,   mostly  involved  in
     administrative functions, were terminated. Severance payments totaling $0.5
     million were paid in 1999, and $0.1 million will be paid in 2000.

      The foreign  exchange  transaction  losses of $1.3 million resulted from a
     significant  devaluation  of the Ghanian  currency,  the Cedi,  in the last
     quarter of 1999. The Cedi devalued  approximately  50%, from 2,340 cedi per
     dollar at December 31, 1998 to 3,500 cedi per dollar at December 31, 1999.

Net sales and operating  income (loss) for products  discontinued or disposed of
by the Company  for the years ended  December  31,  1999,  1998 and 1997 were as
follows (in thousands):

                                         1999         1998         1997
                                     ------------ ------------ ------------
       Cutex
       Net sales                         $    --      $15,187      $17,800
       Operating income (loss)            (2,098)      (1,647)       6,684

       Dark and Lovely Cosmetics
       Net sales                             163        1,677        1,229
       Operating loss                     (1,040)      (1,978)        (923)

       Nu-Me and Seasilk
       Net sales                              --          292          292
       Operating income (loss)            (1,396)          35           41

                                       40
<PAGE>

During the year ended December 31, 1998, the Company recorded  restructuring and
other  charges of $39.0  million  (of which $19.2  million  was  recorded in the
fourth  quarter).  Such charges by category of  expenditure  were as follows (in
thousands):

<TABLE>
<CAPTION>

                                                                               Bad
                                                                             Debts                       Write-off
                                             Management       Fixed            and         Sale of              of
                              Inventory   Restructuring       Assets         Other           Cutex      Investment       Total
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
<S>                             <C>            <C>           <C>             <C>            <C>            <C>            <C>
Net sales                       $     --       $     --      $      --       $     --       $  4,000       $     --       $  4,000

Cost of goods sold                 6,573             --             --             --          1,300             --          7,873

General and
administrative                        --          1,416            228          2,000             --             --          3,644

Loss on sale of
business                              --             --             --             --         13,994             --         13,994

Restructuring charges                 --          2,638          2,879            234             --             --          5,751
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
Operating income                   6,573          4,054          3,107          2,234         19,294             --         35,262

Loss on write-off of
investment                            --             --             --             --             --          3,768          3,768
                           -------------- -------------- -------------- -------------- -------------- -------------- --------------
Total                           $  6,573       $  4,054      $   3,107       $  2,234       $ 19,294       $  3,768       $ 39,030
                           ============== ============== ============== ============== ============== ============== ==============
</TABLE>

The inventory  charge  related  primarily to  write-down of inventory  which was
determined  to be  non-strategic  and to reserves  for  obsolete  inventory  and
inventory in excess of usage plans. The management restructuring charges of $4.1
million  included $2.6 million of employee  severance  costs and $1.4 million of
expenses related to the hiring of the Company's chief executive officer.  Thirty
employees,  including six members of senior  management and fourteen  members of
the sales department, were terminated.  Severance payments totaling $1.3 million
were paid in 1998 and 1999.  The fixed assets  charges of $3.1  million  related
primarily  to  fixed  assets  which  were  disposed  of in  connection  with the
restructuring of product lines. These fixed assets were written off in 1998. The
"Bad Debts and Other"  charges  included  primarily  $2.0 million of  additional
reserves  against  accounts  receivable for customer  deductions.  Miscellaneous
restructuring  charges  included  in "Bad Debts and Other"  above were paid $0.1
million in each of 1998 and 1999. The charges  related to the sale of Cutex were
for  product  returns,  inventory  write-downs  and the  loss on the sale of the
remover  business (see Note 6). The write-off of the related party investment is
discussed further in Note 18.

Note 5. Acquisitions

In July 1998,  the Company  acquired  all of the  outstanding  shares of Johnson
Products Co., Inc. ("Johnson  Products").  Johnson Products is a manufacturer of
personal care products. The purchase price approximated $84.7 million with $34.7
million paid in cash.  The Company  entered into a senior secured term loan with
IVAX Corporation (the "Seller"),  d/b/a IVX Bioscience,  Inc., for the remaining
$50.0 million of the purchase  price.  This senior  secured term loan carried an
annual  interest  rate of 9% and was  replaced  with  longer-term  financing  in
December 1998 (see Note 11).

                                       41
<PAGE>

The acquisition  was accounted for under the purchase method of accounting.  The
results  of  operations  of  Johnson  Products  are  included  in the  Company's
consolidated  financial  statements since the date of acquisition.  The purchase
price was allocated to the identifiable assets and liabilities based on the fair
values at the  acquisition  date. The  allocation of the assets and  liabilities
acquired was as follows (in thousands):

           Current assets                                           $15,495
           Property, plant and equipment                             10,135
           Trademarks                                                22,199
           Goodwill                                                  48,433
           Other assets                                                 517
           Liabilities assumed                                      (62,118)
                                                               -------------
                                                                    $34,661
                                                               =============

The  Dermablend  line of corrective  cosmetics,  which is sold in department and
specialty  stores and has an ethnic  consumer base of 40 - 50%, was purchased by
the  Company  as  part  of the  Johnson  Products  acquisition.  Dermablend  was
incorporated as Dermablend,  Inc.  ("Dermablend"),  a wholly-owned subsidiary of
Johnson Products at the time the Company acquired Johnson Products.  Originally,
management  intended to sell  Dermablend  within one year from the  acquisition.
Therefore, in accordance with Emerging Issues Task Force No. 87-11,  "Allocation
of Purchase  Price to Assets to be Sold",  the results of operations  related to
Dermablend were initially excluded from the Company's  consolidated statement of
operations.  In December  1998, the Company  decided to operate  Dermablend on a
longer-term basis.  Accordingly,  the cumulative effect of the operating results
of  Dermablend  since the  acquisition  date of  $890,000  was  included  in the
Company's  consolidated  statement of operations for the year ended December 31,
1998. These operating results are summarized as follows:

           Net sales                                              $ 4,016
           Cost of sales                                              766
                                                              ------------
                 Gross profit                                       3,250
           Marketing and selling expenses                           1,576
           General and administrative expenses                        784
                                                              ------------
                                                                  $   890
                                                              ============

Beginning  January 1, 1999, the operating  results of Dermablend are included in
the Company's consolidated statement of operations.

On April 30,  1997,  the  Company  purchased  the  rights  to sell,  distribute,
package,  manufacture,  and market Cutex nail polish remover,  nail enamel, nail
care treatment products and nail care implements in the United States and Puerto
Rico from  Chesebrough-Pond's USA Co. The purchase price was approximately $41.4
million in cash, of which approximately $41.2 million was recorded as intangible
assets.  The  acquisition  was  accounted  for  under  the  purchase  method  of
accounting.

Also on April  30,  1997,  the  Company  terminated  its just  acquired  license
agreement with Jean Philippe Fragrances,  Inc. to package,  distribute, and sell
nail enamel and nail care treatment products,  nail care implements and lipstick

                                       42
<PAGE>

under the Cutex trademark in the United States and Puerto Rico.

The following unaudited pro forma information presents the results of operations
of the Company and the results of the Johnson  Products  acquisition  (including
Dermablend) as if the  acquisition  had occurred at the beginning of each of the
years ended  December 31, 1998 and 1997. The unaudited pro forma results for the
year ended December 31, 1997 include the results of the Cutex business as if the
Cutex acquisition had occurred as of the beginning of the year. Cutex operations
are included in 1998 up to the date of its sale in December 1998.

                                                 Year Ended         Year Ended
(Dollars in thousands except per share    December 31, 1998  December 31, 1997
amounts)                                         (unaudited)        (unaudited)
-------------------------------------------------------------------------------
Net sales                                         $ 187,997          $ 176,248
Net income before extraordinary item                  1,500              5,913
Net income                                            1,627              3,827
Basic and diluted income per share before
extraordinary item                                   $ 0.10             $ 0.39
Basic and diluted income per share                   $ 0.11             $ 0.26


These  unaudited pro forma results have been prepared for  comparative  purposes
only and include certain adjustments,  such as additional goodwill amortization,
additional  depreciation,  additional  interest expense on acquisition  debt, an
adjustment  to cost of goods  sold per a  manufacturing  agreement  between  the
Company and  Chesebrough-Pond's USA Co., and additional selling expenses related
to an  agreement  between the  Company and AM  Cosmetics,  among  others.  These
unaudited  pro forma results are not  necessarily  indicative of what the actual
results  of  operations  might  have  been if the  Johnson  Products  and  Cutex
acquisitions had been in effect as of the beginning of each period presented, or
of future results of operations of the Company.

During  April 1997,  the Company  acquired  the Let's Jam product  line from New
Image  Laboratories,  Inc. This  acquisition  added one of the leading hair care
maintenance  brands in the ethnic retail  market to the  Company's  portfolio of
brands.  The purchase  price was  approximately  $5.6 million in cash,  of which
approximately $5.3 million was recorded as intangible  assets.  This acquisition
was accounted for under the purchase method of accounting.

In the first half of 1997, Carson South Africa consummated three acquisitions in
the African  personal  care  industry  including  the African  Nu-Me  Cosmetics,
Restore  Plus and  Seasilk  brand names and certain  related  assets.  The total
purchase price,  including fees, for these three  acquisitions was approximately
$1.5  million,  comprised of $0.7  million in cash and 500,000  shares of Carson
South  Africa  common  stock  (which  resulted  in a  gain  to  the  Company  of
approximately   $460,000   which  was  recorded  in  paid-in   capital).   These
acquisitions were accounted for under the purchase method of accounting.

In  November  1997,  Carson  South  Africa  completed  the  acquisition  of  A&J
Cosmetics, which owns and manufactures the Sadie brand of toiletry products. The
original  purchase  consideration  payable for the acquisition was approximately
$9.5  million,  of which  approximately  $9.3 million was recorded as intangible
assets. Additional consideration aggregating $3.0 million was paid in March 1999

                                       43
<PAGE>

based upon the after-tax profits of the business for the year ended December 31,
1998 and was recorded as  additional  goodwill.  To fund this  purchase,  Carson
South Africa issued stock with net proceeds of approximately $9.1 million (which
resulted  in a gain to the  Company of  approximately  $5.9  million,  which was
recorded  in  paid-in  capital).  Approximately  $5.4  million  of the  original
purchase price was paid in January 1998 and approximately  $3.4 million was paid
in January  1999.  The amount paid in January  1999 was reduced from an original
amount of $4.1 million due to significant  devaluation of the South African Rand
in 1998.

Note 6. Disposition

In December 1998 the Company sold  substantially  all of the assets of the Cutex
nail  polish  remover and nail  implements  business  to The Cutex  Company,  an
unrelated  corporation.  The Company realized net cash proceeds of approximately
$27.8 million ($4.5 million of which was  restricted  cash at December 31, 1998)
and recorded a loss on the sale of approximately $14.0 million. The $4.5 million
restricted  cash was used  during 1999 to pay for  certain  designated  expenses
related to the sale of Cutex.

Note 7. Inventories

Inventories are summarized as follows (in thousands):

                                 December 31, 1999            December 31,1998
--------------------------------------------------------------------------------
Raw materials                             $ 12,658                      $ 9,979
Work-in-process                              3,048                        1,938
Finished goods                              12,626                       10,908
--------------------------------------------------------------------------------
     Total                                $ 28,332                     $ 22,825


Note 8. Investments

Current  investments  aggregating  $2.4  million at December 31, 1999 consist of
redeemable  cumulative  "A"  preference  shares in the share capital of Cerisier
Investments (Pty) Limited held by Carson South Africa. The shares pay cumulative
dividends of 64% of the prime  lending rate of interest per annum charged by The
Standard  Bank of South Africa  Limited.  During  1999,  the rate earned on this
investment  averaged  9.92% per annum.  The dividends  were paid on December 31,
1999,  the  original  redemption  date of the  investment.  Upon  maturity,  the
investment was extended another six months and are redeemable on June 30, 2000.

Long-term  investments  aggregating $3.2 million at December 31, 1999 consist of
redeemable cumulative  non-participating  preference shares in the share capital
of AEL Investment Holdings (Pty) Limited held by Carson South Africa. The shares
pay  semi-annual  cumulative  dividends  of  66% of the  prime  lending  rate of
interest  per annum.  During 1999, the rate  earned on this  investment averaged
10.23% per annum.  The shares are redeemable in January 2002.

These investments are being held to maturity by the Company.

                                       44

Note 9. Property, Plant and Equipment

Property,  plant and  equipment  is summarized as follows (in thousands):

                                      December 31, 1999       December 31, 1998
--------------------------------------------------------------------------------
Land                                           $  1,345                $  1,345
Buildings and equipment                          17,133                  16,661
Machinery and equipment                          16,556                  15,659
Furniture and fixtures                            5,910                   2,657
Construction-in-progress                          2,711                   3,371
--------------------------------------------------------------------------------
                                                 43,655                  39,693
Less: accumulated depreciation                    6,465                   3,928
--------------------------------------------------------------------------------
   Total                                       $ 37,190                $ 35,765
--------------------------------------------------------------------------------

Depreciation  expense for the years ended  December 31, 1999,  1998 and 1997 was
$2.8 million, $3.0 million and $1.3 million, respectively.

The Company leases warehouse and office space under a  non-cancelable  operating
lease which  expires in 2003 and  contains  renewal  options.  The Company  pays
taxes,  maintenance,  insurance and certain other  operating costs of the leased
property. The Company also leases certain equipment which, in the aggregate,  is
not significant.  Rent expense approximated $1.2 million, $1.9 million, and $0.6
million in the years ended December 31, 1999,  1998 and 1997,  respectively.  At
December 31, 1999, future minimum annual rental commitments under non-cancelable
operating  leases are  approximately  $446,000 per year in 2000 through 2002 and
$260,000 in 2003.

Note 10. Other Assets

Other assets are summarized as follows (in thousands):

                                         December 31, 1999    December 31, 1998
--------------------------------------------------------------------------------
Debt issuance costs                                $ 6,628              $ 6,534
Long-term notes receivable                           1,250                  767
--------------------------------------------------------------------------------
                                                     7,878                7,301
Less: accumulated amortization of
debt issuance costs                                  1,426                  439
--------------------------------------------------------------------------------
Total                                              $ 6,452              $ 6,862
--------------------------------------------------------------------------------


Long-term  notes  receivable  at December 31, 1999  includes a $1.0 million loan
from Carson  Products  West Africa  Limited  ("Carson  Ghana"),  a  wholly-owned
subsidiary of Carson South  Africa,  to Layff  Kosmetic,  Ltda.  ("Layff"),  the


                                       45
<PAGE>

distributor  of the Company's  products in Brazil.  The loan was made to provide
Layff with working  capital and thereby assist in developing the Company's sales
in Brazil.  The term of the loan is two years; all principal is due in September
2001. Interest accrues at 10% per annum and is payable  semi-annually.  The loan
is  denominated  in US dollars  and is secured  by a  mortgage  on certain  real
property owned by Layff.

Note 11. Long-Term Debt

Long-term debt is summarized as follows (in thousands):

                                         December 31, 1999    December 31, 1998
--------------------------------------------------------------------------------
10  % senior subordinated notes due              $  73,000            $  73,000
2007
13% secured term loan due 2003                      65,314               60,324
Other                                                   --                  225
--------------------------------------------------------------------------------
                                                   138,314              133,549
Less: current portion                                   --                  126
--------------------------------------------------------------------------------
                                                 $ 138,314            $ 133,423
--------------------------------------------------------------------------------


Term Loan
On December 8, 1998 the Company entered into loan agreements relating to a $75.0
million  secured  term  loan  (the  "Secured  Term  Loan")  and an $8.0  million
unsecured  term loan (the  "Unsecured  Term Loan").  The cash proceeds were used
primarily  to repay the $50.0  million  secured  term loan  which  financed  the
Johnson  Products  acquisition  in July 1998 (see  Note 5) and to  purchase  and
retire $27.0 million of senior subordinated notes for $23.0 million. The Company
recorded an extraordinary  net gain of  approximately  $1.8 million (net of tax)
resulting from the early retirement of the $27.0 million of senior notes and the
write-off  of related debt  issuance  costs.  Of the  remaining  cash  proceeds,
approximately  $4.3  million was used to pay  transaction  fees and  expenses to
investment  bankers and other  professionals,  and $5.7 million was retained for
working capital purposes.

On December 10, 1998, the proceeds from the sale of Cutex (see Note 6) were used
to repay the $8.0 million  Unsecured  Term Loan and $14.7 million of the Secured
Term Loan. As a result of this repayment,  the Company recorded an extraordinary
net loss of approximately  $0.7 million (net of tax) related to the write-off of
loan fees incurred for this debt.

The Secured Term Loan bears interest at an annual rate of 13% and is due in full
on  December  8, 2003.  Interest is payable  monthly.  The  Company  may, at its
option,  defer the  monthly  interest  payment a maximum of twelve  times  until
December  8, 2000.  In the event of  deferral,  interest is accrued at an annual
rate of 16% for the month  deferred  and is added to the  outstanding  principal
amount of the loan. The Company elected to defer the monthly  interest payment a
total of six times during 1999 and thereby added $5.0 million to the outstanding
principal  balance in 1999.  The Company  elected to defer the monthly  interest
payment  three  additional  times in 2000 and added  another $2.6 million to the
outstanding  principal  balance of the secured term loan,  which  totaled  $68.0
million at March 31,  2000.  The  capital  stock and  assets of Carson  Products

                                       46
<PAGE>

Company,  including  the assets  used in the  Johnson  Products  and  Dermablend
operations,  are  pledged as  collateral  for the  Secured  Term Loan.  The loan
contains  covenants with respect to, among other things, (i) restrictions on the
incurrence of additional  liens or  indebtedness  and (ii)  restrictions  on the
payment of any cash dividends by the Company or any subsidiary.

The Secured Term Loan had a carrying  value of $65.3 million and a fair value of
approximately  $62.0  million at December  31, 1999.  At December 31, 1998,  the
carrying  value of  $60.3  million  approximated  fair  value.  Fair  value  was
determined by reference to quoted market prices.

Senior Subordinated Notes
In November  1997,  the Company  completed a private  offering of $100.0 million
aggregate  principal  amount of  ten-year,  fixed rate 10 % senior  subordinated
notes (the  "offering").  In December  1997, the notes were exchanged for $100.0
million aggregate  principal amount of fixed rate 10 % senior subordinated notes
due in full in 2007 and which  were  registered  and are  publicly  traded.  The
Company used the net  proceeds  from the  offering,  after  initial  purchasers'
discounts and other offering expenses, to repay in full outstanding indebtedness
and  accrued  interest  under  its  then  existing  credit  facility  and to pay
transaction  fees and expenses of $4.4 million related to a new credit facility.
The balance of the  proceeds of the  offering  was used for working  capital and
general corporate purposes. As a result, the Company recognized an extraordinary
loss of $2.1  million  (net of the related tax benefit of $1.2  million) in 1997
for debt-related  charges and write-offs.  The notes are currently guaranteed by
the Company's wholly-owned subsidiary, Carson Products Company. Johnson Products
and Dermablend, formerly indirect wholly-owned subsidiaries of the Company, were
also  guarantor  subsidiaries  of the Notes  until they were  merged into Carson
Products during 1999. The indenture with respect to the notes contains covenants
with respect to, among other  things,  (i)  restrictions  on the  incurrence  of
additional  liens or  indebtedness  and (ii)  restrictions on the payment of any
cash dividends by the Company or any subsidiary.

The senior  subordinated  notes had a carrying value of $73.0 million and a fair
value of approximately $57.7 million at December 31, 1999. At December 31, 1998,
the carrying value was $73.0 million  compared to a fair value of  approximately
$51.1 million. Fair value was determined by reference to quoted market prices.

Credit Facility
In April  1997,  the Company  amended a credit  facility  with  Credit  Agricole
Indosuez to change the  Company's  then  existing  $40.0  million  senior credit
facility to a $100.0 million senior credit facility  consisting of $25.0 million
of Term A loans,  $50.0  million of Term B loans and a $25.0  million  revolving
loan commitment. The proceeds of the new term loans were used in part to finance
the Cutex  acquisition  (see Note 5). In connection  with the  refinancing,  the
Company  incurred debt issuance costs of approximately  $2.6 million,  including
$520,000 paid to MCG Global, LLC (see Note 18).

In July 1998 the Company  terminated  its senior  secured  credit  facility with
Credit Agricole  Indosuez.  As a result, the Company recognized an extraordinary
loss of $0.9  million  (net of tax) for the  write-off  of $1.6  million of debt
financing costs related to the credit facility.

                                       47
<PAGE>

Note 12. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):

                                         December 31, 1999    December 31, 1998
--------------------------------------------------------------------------------
Compensation and benefits                         $  4,568             $  4,359
Diva returns and price reductions                    1,300                   --
Promotional expenses                                 1,280                2,093
Interest                                             1,262                1,262
Self insurance                                       1,050                1,159
Advertising                                            868                  702
Property and sales taxes                               481                  697
Professional fees                                      404                  985
Accruals related to restructuring                      147                1,455
Accruals related to Cutex disposition                   --                4,207
Other                                                2,270                2,387
--------------------------------------------------------------------------------
                                                  $ 13,630             $ 19,306
================================================================================

Note 13. Income Taxes

The  following is a  reconciliation  of the  statutory tax rate on income (loss)
from  continuing  operations to the  Company's  effective tax rate for the years
noted:

<TABLE>
<CAPTION>

                                                       Year Ended           Year Ended           Year Ended
                                                December 31, 1999    December 31, 1998    December 31, 1997
------------------------------------------------------------------------------------------------------------
<S>                                                       <C>                 <C>                    <C>
Statutory rate                                            (34.0)%               34.0 %               34.0 %
State income taxes, net of federal benefit                  0.9 %                1.1 %                1.2 %
Foreign taxes                                              13.6 %               (3.2)%               ----
Valuation allowance                                        33.5 %              179.6 %               ----
Goodwill                                                    3.2 %                5.8 %                6.1 %
Foreign tax credit                                         (2.8)%               ----                 ----
Loss on sale of management company
stock (see Note 14)                                        ----               (178.6)%               ----
Gain on sale of Carson South Africa stock                  ----                 23.5 %               ----
Other                                                       0.6 %               (0.6)%               (4.2)%
------------------------------------------------------------------------------------------------------------
Effective rate                                             15.0 %               61.6 %               37.1 %
============================================================================================================
</TABLE>

                                       48
<PAGE>

Income tax expense  (benefit)  for the years noted  includes the  following  (in
thousands):

<TABLE>
<CAPTION>
                                                           Year Ended            Year Ended           Year Ended
                                                    December 31, 1999     December 31, 1998    December 31, 1997
------------------------------------------------ --------------------- --------------------- --------------------
<S>                                                           <C>                   <C>                  <C>
Current:
    Federal                                                   $  ----               $  ----              $  ----
    State                                                         182                   120                 ----
    Foreign                                                     1,311                 3,389                1,728
                                                 --------------------- --------------------- --------------------
Total current provision                                         1,493                 3,509                1,728
                                                 --------------------- --------------------- --------------------

Deferred:
    Federal                                                      ----                   697                  885
    State                                                        ----                   137                  104
    Foreign                                                       323                   (44)                  62
                                                 --------------------- --------------------- --------------------
Total deferred provision                                          323                   790                1,051
                                                 --------------------- --------------------- --------------------

Total provision before extraordinary items                      1,816                 4,299                2,779
Extraordinary items                                              ----                    84               (1,201)
                                                 --------------------- --------------------- --------------------
Total income tax expense                                      $ 1,816               $ 4,383              $ 1,578
================================================ ====================== ===================== ====================
</TABLE>

The effects of temporary  differences  which gave rise to the deferred tax asset
and liability are as follows:

<TABLE>
<CAPTION>

                                                                 December 31, 1999           December 31, 1998
                                                        --------------------------- ---------------------------
(in thousands)                                               Current     Long-term       Current     Long-term
------------------------------------------------------- ------------- ------------- ------------- -------------
<S>                                                         <C>           <C>           <C>           <C>
Deferred domestic tax assets related to:
Inventories                                                 $  4,282      $   ----      $  6,036      $   ----
Loss on sale of Cutex                                          3,511          ----          ----         5,625
NOL carryforward                                                ----         9,845          ----         4,181
Accrued expenses                                                 400         1,198         3,653           616
Package design costs                                             999          ----           383          ----
Allowance for doubtful accounts                                1,236          ----           924          ----
Foreign tax credit carryforward                                 ----         1,064          ----           702
State income tax credits and other                               398           839           156         1,130
------------------------------------------------------- ------------- ------------- ------------- -------------
                                                              10,826        12,946        11,152        12,254
Deferred domestic tax liabilities related to:
Inventories                                                     (514)         ----          (122)       (3,967)
Amortization                                                    ----        (2,634)         ----        (2,869)
Property, plant and equipment                                   ----        (2,918)         ----        (2,152)
Allowance for doubtful accounts                                 ----          ----          ----          (219)
Other                                                           ----          ----        (1,227)         (313)
------------------------------------------------------- ------------- ------------- ------------- -------------
                                                                (514)       (5,552)       (1,349)       (9,520)
------------------------------------------------------- ------------- ------------- ------------- -------------
Deferred domestic tax asset                                 $ 10,312      $  7,394      $  9,803      $  2,734
Valuation allowance                                          (10,312)       (7,394)       (9,803)       (2,734)
------------------------------------------------------- ------------- ------------- ------------- -------------
Net deferred domestic tax asset                             $   ----      $   ----      $   ----      $   ----
======================================================= ============= ============= ============= =============

Deferred foreign tax liability                              $   ----      $   (698)     $   ----      $   (325)
======================================================= ============= ============= ============= =============
</TABLE>

                                       49
<PAGE>

Management  believes the  recoverability  of the Company's net domestic deferred
tax asset is uncertain due to the recent domestic losses and therefore  provided
a valuation allowance against this asset in 1999 and 1998.

Deferred  income  taxes were not provided on  undistributed  earnings of certain
foreign  subsidiaries ($13.0 million at December 31, 1999 and 1998) because such
undistributed  earnings are expected to be reinvested  indefinitely overseas. If
these amounts were not  considered  permanently  invested,  additional  deferred
taxes of approximately $0.3 million and $0.7 million would have been provided at
December 31, 1999 and December  31, 1998,  respectively.  The foreign tax credit
carryforward and the net operating loss carryforward at December 31, 1999 expire
in 2004 and 2019, respectively. State income tax credits expire generally in the
years 2004 through 2010.

Note 14. Employee Benefit Plans

The Company has a profit  sharing  plan which  covers  substantially  all United
States employees.  Contributions to the plan are discretionary, as determined by
the Board of Directors.  Contributions  are made on an annual basis. The Company
contributed $350,000 to the plan in 1999 and 1998 and $262,500 in 1997.

The Company is obligated for  retirement  benefits to a former  employee for the
remainder of his (and his  spouse's)  life.  The expected  present value of this
obligation ($1.47 million at December 31, 1999 and $1.53 million at December 31,
1998) is classified in other liabilities in the accompanying balance sheets.

The Company provides  postretirement health care benefits to a limited number of
key executives and retired  employees.  The accumulated  postretirement  benefit
obligation  ("APBO")  was $405,000 at December 31, 1999 and $572,000 at December
31, 1998. For measurement  purposes,  the cost of providing medical benefits was
assumed to increase by 8% in the fiscal year ended December 31, 1999, decreasing
to an annual rate of 7% after  December 31, 2002, 6% after December 31, 2008 and
5% after December 31, 2014. The medical cost trend rate assumption could have an
effect  on  amounts  reported.  The  weighted  average  discount  rate  used  in
determining  the APBO was 6.7% at December  31,  1999 and 5.4% at  December  31,
1998.

In December 1998 the Company  transferred the  responsibility to provide medical
and  dental  insurance  coverage  for its  employees  to Carson  Management  Co.
("CMC"),  a subsidiary  of the  Company.  The Company  remains  liable for these
expenses if CMC is unable to satisfy the obligations.  This  responsibility  was
transferred  to CMC to  provide  focused,  strategic  management  and reduce the
Company's health care costs. In order to facilitate the effective  management of
these  costs,  the  Company  has entered  into a  strategic  partnership  with a
Savannah-based  medical  insurance  consulting  group  (the  "Consultant").  The
Consultant  purchased an interest in the  participating  preferred stock of CMC.
This sale of preferred stock to the Consultant  generated a taxable loss for the
Company which is not recorded for financial reporting purposes and which appears
as a reconciling item in the Company's income tax rate  reconciliation (see Note
13).

                                       50
<PAGE>

Note 15. Stock Compensation Plans

The Company has two stock compensation  plans, the "1996 Non-Employee  Directors
Equity  Incentive  Program"  and  the  "1996  Long-Term  Incentive  Plan  -  for
employees",  under which  directors,  officers and key  employees may be granted
options,  restricted shares and stock appreciation  rights. A total of 1,750,000
of the Company's  Class A common shares are reserved for use in these plans.  As
of  December  31,  1999,  only  awards of options  and  restricted  shares  were
outstanding.  Options issued under these plans entitle the recipient to purchase
the Company's  common stock at no less than 100% of the market price on the date
the option is granted.  Most of the  options  granted  under these plans  expire
after ten years and vest one-third each year over a three-year period. A limited
number vested after one year.

Restricted  shares were also granted to directors  under the "1996  Non-Employee
Directors Equity Incentive  Program" in lieu of cash as compensation for serving
on the board of  directors  and board  committees.  The  restricted  shares vest
one-third each year over a three-year  period.  Restricted share expense for the
years ended December 31, 1999, 1998 and 1997 was $384,000, $200,000 and $40,000,
respectively.

The following summarizes stock option activity for 1999, 1998 and 1997:

                                                             Weighted Average
                                          Number of Shares     Exercise Price
   ---------------------------------------------------------------------------
   Outstanding at December 31, 1996                      0             $ ----
       Granted                                     477,000              10.74
       Canceled or expired                         (35,500              12.87
   ---------------------------------------------------------------------------
   Outstanding at December 31, 1997                441,500              10.56
       Granted                                     661,525               3.30
       Canceled or expired                        (139,000)             12.32
   ---------------------------------------------------------------------------
   Outstanding at December 31, 1998                964,025               5.33
       Granted                                     918,000               3.27
       Canceled or expired                        (395,000)              4.11
   ---------------------------------------------------------------------------
   Outstanding at December 31, 1999              1,487,025             $ 4.38


The Company has adopted the disclosure-only provisions of Statement of Financial
Accounting  Standards No. 123,  "Accounting for Stock-Based  Compensation" ("FAS
123").  Accordingly,  no  compensation  expense has been  recorded for the stock
option  plans.  Had  compensation  expense for the two stock  option  plans been
determined based on the fair value at the grant date for awards  consistent with
the  provisions  of FAS 123,  the  Company's  net income  and basic and  diluted
earnings  per share for the years ended  December  31,1999,  1998 and 1997 would
have been reduced to the pro forma amounts  indicated below (in thousands except
per share amounts):

                                       51
<PAGE>

<TABLE>
<CAPTION>

                                                                         1999             1998             1997
                                                              ---------------- ---------------- ----------------
<S>                                                                 <C>              <C>              <C>
Net (loss) income, as reported                                      $ (14,288)       $      91        $   1,668
Net (loss) income, pro forma                                          (15,245)            (636)           1,243
Basic and diluted (loss) earnings per share, as reported                (0.94)            0.01             0.11
Basic and diluted earnings (loss) per share, pro forma                  (1.01)           (0.04)            0.08
</TABLE>


The fair value of each option grant was estimated on the date of grant using the
Black-Scholes   option  pricing  model  with  the  following   weighted  average
assumptions  used for those granted in 1999,  1998 and 1997,  respectively:  (i)
dividend  yield of 0%, 0% and 0%, (ii) expected  volatility of 61%, 54% and 57%,
(iii)  risk-free  interest rate of 5.5%, 4.7% and 6.5% and (iv) expected life of
6.0  years,  6.0 years and 4.9 years.  The  weighted  average  fair value of the
options  granted  during  1999,  1998 and  1997  was  $2.04,  $1.89  and  $4.74,
respectively.

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

--------------------------------------------------------------------------------
Exercise    Number Outstanding  Weighted Average Remaining    Number Exercisable
   Price  at December 31, 1999            Contractual Life  at December 31, 1999
--------------------------------------------------------------------------------
$ 14.00          19,000                    6.8                       19,000
  10.94          25,000                    7.7                       16,667
   9.56          50,000                    7.5                       33,333
   9.22          40,000                    7.4                       26,667
   8.75          42,525                    8.3                       14,175
   8.29          40,000                    8.4                       13,333
   7.50         100,000                    7.3                       83,333
   7.34          10,000                    8.4                        3,333
   4.13         200,000                    9.2                         ----
   3.19         373,000                    9.3                         ----
   2.88         300,000                    9.8                         ----
   2.81          45,000                    9.5                         ----
   2.47         242,500                    8.9                       80,834
--------------------------------------------------------------------------------
              1,487,025                    9.0                      290,675
--------------------------------------------------------------------------------


Note 16. Commitments and Contingencies

The  Company  is a party to  lawsuits  incidental  to its  business.  Management
believes that the ultimate  resolution of these matters will not have a material
adverse impact on the business or financial condition, operations and cash flows
of the Company. Also see Note 18.

                                       52
<PAGE>

Note 17. U.S. and Foreign Operations

The Company operates in one business  segment,  the manufacture and marketing of
personal care products.  The Company's  operations are located  primarily in the
United States and South Africa. A sales  subsidiary,  Carson UK Limited ("Carson
UK") was  incorporated  in January 1998 and manages sales in Europe for products
which are manufactured in the United States. Financial information by geographic
area is as follows:

<TABLE>
<CAPTION>


                                                   Year Ended             Year Ended               Year Ended
                                            December 31, 1999      December 31, 1998        December 31, 1997
--------------------------------------- ---------------------- ---------------------- ------------------------
<S>                                                 <C>                    <C>                      <C>
Net Sales:
United States:
    Domestic                                        $ 107,744              $  98,096                $  75,834
    Export                                              7,623                  6,257                    7,524
Europe                                                  9,970                  7,170                    4,611
South Africa                                           44,018                 39,183                   21,662
--------------------------------------- ---------------------- ---------------------- ------------------------
                                                    $ 169,355              $ 150,706                $ 109,631
--------------------------------------- ---------------------- ---------------------- ------------------------
Net Sales Sold Under:
Carson and Johnson labels:
    Domestic                                        $  93,321              $  79,645                $  56,805
    Export                                              7,623                  6,257                    7,524
    Europe                                              9,970                  7,170                    4,611
Dermablend label                                       16,521                  3,264                    1,229
Cutex label                                            (2,098)                15,187                   17,800
South Africa label                                     44,018                 39,183                   21,662
--------------------------------------- ---------------------- ---------------------- ------------------------
                                                    $ 169,355              $ 150,706                $ 109,631
--------------------------------------- ---------------------- ---------------------- ------------------------
Operating income (loss):
United States                                       $    (265)             $ (37,671)               $   7,582
Europe                                                  3,562                  2,290                     ----
South Africa                                            1,620                  7,033                    4,667
--------------------------------------- ---------------------- ---------------------- ------------------------
                                                    $   4,917              $ (28,348)               $  12,249
--------------------------------------- ---------------------- ---------------------- ------------------------
Identifiable assets (at end of
period):
United States                                       $ 250,193              $ 256,369                $ 190,264
Europe                                                  2,478                  2,751                     ----
South Africa                                           51,532                 60,738                   42,545
Eliminations                                          (57,555)               (52,395)                 (31,385)
--------------------------------------- ---------------------- ---------------------- ------------------------
                                                    $ 246,648              $ 267,463                $ 201,424
--------------------------------------- ---------------------- ---------------------- ------------------------
</TABLE>

Principal  brands sold under the Carson label include:  Dark & Lovely,  Excelle,
Beautiful Beginnings, Dark & Natural, Magic and Let's Jam. Principal brands sold
under the Johnson label include:  Gentle  Treatment,  Ultra Sheen,  Sta-Sof-Fro,
Ultra  Star, Classy  Curl and  Curly  Perm.  Principal  brands  sold  under  the
Dermablend label  include:  Dermablend,  Posner  and Dark and Lovely  Cosmetics.
Principal brands  sold under the South  African  label  include:  Dark & Lovely,
Excelle, Gentle Treatment,  Ultra Sheen,  Beautiful  Beginnings,  Restore  Plus,
Dark & Natural, Magic and Sadie.

                                       53
<PAGE>

Transfers of products  from the United  States to South Africa were not material
during the periods presented above.  Export sales from the United States include
sales  to  customers  in  the  Caribbean,   South  America,   Canada  and  other
international areas,  excluding Europe and Africa. All product sold in Europe is
produced  in the United  States and  shipped  directly  to  European  customers.
Intercompany profits have been eliminated in the schedule above.

Note 18. Certain Relationships and Related Transactions

MCG Global, LLC and Morningside Capital Group, L.L.C.
On September 1, 1999, the Management  Assistance Agreement by and between Carson
Products and Morningside Capital Group, L.L.C. ("Morningside"), dated August 23,
1995 (as amended,  the "Morningside  Management  Agreement"),  was terminated by
mutual consent of the parties thereto.  Following termination of the Morningside
Management  Agreement,  Carson  Products  entered into a  substantially  similar
Management  Assistance  Agreement  with MCG Global,  LLC ("MCG") on September 1,
1999 (the "MCG  Management  Agreement").  The  principal  members of MCG are the
former  principal  members  of  Morningside.  Pursuant  to  the  MCG  Management
Agreement,  MCG agrees to supply the  services of a  principal  member of MCG to
provide certain advice and  assistance.  Such services are provided for a fee of
$350,000 per year, payable on a monthly basis in advance plus reimbursement plus
reimbursement  for  out-of-pocket  expenses.  The  termination  date  of the MCG
Management  Agreement is August 23,  2003;  however,  the term of the  agreement
shall continue after such  termination date until terminated by not less than 30
days' advance notice by either party.  Notwithstanding  the  foregoing,  the MCG
Assistance Agreement will terminate upon consummation of the merger.

In connection with the 1998 Johnson Products  acquisition,  Morningside received
fees of $500,000 from the Company for arranging  and  negotiating  the financing
for the  acquisition  and performing  other  consulting  and financial  advisory
services.  The  Company  reimbursed  Morningside  for  approximately  $61,000 of
out-of-pocket expenses incurred in connection with the acquisition. In addition,
the Company reimbursed Morningside for approximately $94,000 of expenses related
to the debt refinancing and the sale of Cutex in 1998. Morningside received fees
of $520,000 and $125,000 in 1997 for services and expenses relating to the Cutex
acquisition  and  the   acquisition  of  the  Let's  Jam  brand,   respectively.
Morningside  received  fees of $250,000 in November 1997 related to the offering
of the Company's senior  subordinated  notes.  From time to time MCG may provide
financial advisory services to the Company, for which MCG will receive usual and
customary compensation.

AM Cosmetics
AM Products Company, formerly known as Morningside AM Acquisition Corp. ("AMP"),
entered  into  a  Subscription   Agreement  dated  as  of  June  26,  1996  (the
"Subscription  Agreement") with Carson  Products,  providing for the purchase by
Carson  Products of 300 shares of cumulative  payment-in-kind  Preferred  Shares
(the "AMP PIK Preferred Shares") issued by AMP, at a price of $10,000 per share.
The AMP PIK Preferred Shares were substantially exchanged by Carson Products for
an equal number of shares of cumulative  payment-in-kind  Preferred Shares of AM
Cosmetics,  the  parent  corporation  of AMP (the "PIK  Preferred  Shares").  AM
Cosmetics and AMP were formed by  Morningside  on behalf of an investor group to
acquire the assets of Arthur Matney Co., Inc. AM Cosmetics  sells several brands

                                       54
<PAGE>

of budget cosmetics, one of which is targeted at the African-American  consumer.
Certain key  management  personnel and  shareholders  of the Company are or have
been key management and shareholders of AM Cosmetics.  Dr. Leroy Keith, Chairman
of the Company,  and Vincent A. Wasik, a controlling  stockholder of the Company
have ownership interests in AM Cosmetics.  Lawrence E. Bathgate, II, a member of
the Company's Board of Directors,  serves as a member of AM Cosmetics'  Board of
Directors.

The PIK  Preferred  Shares  were  non-voting  and were  entitled  to  cumulative
dividends  payable quarterly in additional PIK Preferred Shares at a rate of 12%
per annum. Additionally,  the PIK Preferred Shares were subject to redemption in
whole at the option of Carson  Products on or after July 1, 2005,  at the stated
value of  $10,000  per share  plus an amount in cash  equal to all  accrued  and
unpaid  dividends  on the  PIK  Preferred  Shares.  During  1998,  AM  Cosmetics
experienced  significant  management turnover and serious financial difficulties
which continued  throughout  1999. The Company recorded a charge of $3.7 million
in 1998 to write off its investment in the PIK Preferred  Shares, as a result of
what management believed was a permanent impairment in this asset.

Concurrent with its investment in AM Acquisition, Carson Products entered into a
Management Agreement (the "Carson - AM Management Agreement") with AM Cosmetics,
pursuant to which Carson  Products  agreed to manage the business  operations of
and provide certain other services to AM Cosmetics.  In return,  Carson Products
was entitled to fees equal to 1% of AM Cosmetics'  annual net sales subject to a
minimum of  $500,000  for 1997.  The  contract  was amended in 1997 to provide a
fixed fee of $250,000 for 1998 and thereafter.  For the years ended December 31,
1999,   1998  and  1997,   the  Company   received  $0,  $42,000  and  $500,000,
respectively,  in management fees. The Company did not receive and therefore did
not accrue  revenue for the entire  $250,000 of fees in 1999 and 1998 due to the
financial  difficulties  experienced  by  AM  Cosmetics.  In  November  1998  AM
Cosmetics  served  written  notice of  termination  of the Carson-AM  Management
Agreement.

Pursuant to the  Carson-AM  Management  Agreement,  the parties  entered  into a
manufacturing  agreement in May 1997 (the "AM Manufacturing  Agreement").  Under
the AM Manufacturing Agreement, AM Cosmetics manufactured the Dark & Lovely line
of  cosmetics  and the Cutex  nail  enamel/treatments  and nail  care  treatment
products in strict accordance with Carson Products' specifications. AM Cosmetics
was  entitled  to a 25% profit  margin  above all costs,  including  general and
administrative  costs,  on the  cosmetics  products  it  produced  under  the AM
Manufacturing  Agreement,  except for Cutex  products  for which the pricing was
specified  by SKU. The Company  purchased  $0.2  million,  $4.7 million and $2.0
million,  from AM Cosmetics in 1999, 1998 and 1997,  respectively,  under the AM
Manufacturing Agreement. The AM Manufacturing Agreement expired on May 1, 1999.

Carson  Products  and AM  Cosmetics  also  entered  into a sales  and  marketing
agreement in 1997 (the "AM  Sales/Marketing  Agreement") in accordance  with the
Carson-AM  Management  Agreement.  Under the AM  Sales/Marketing  Agreement,  AM
Cosmetics  was  entitled  to a 7.5% sales  commission  on its sales of all Cutex
products. Such sales commission aggregated $1.5 million and $1.2 million in 1998
and 1997,  respectively.  In December 1998, the Company served written notice of
its intention to terminate the AM Sales/Marketing Agreement.

In December 1998 AM Cosmetics  instituted an AAA  arbitration  proceeding in New
York against the Company (the  "Arbitration").  In its first claim, AM Cosmetics
asserted that the Company breached the Carson-AM Management Agreement by failing

                                       55
<PAGE>

to provide management level personnel, thus causing AM Cosmetics to hire its own
management  team at its own cost and expense.  In its second claim, AM Cosmetics
asserted that the Company breached the AM Manufacturing  Agreement by failing to
pay AM Cosmetics for manufacturing certain goods and failing to reimburse it for
certain  marketing  and research  costs.  In 1999,  the Company  filed a lawsuit
against  AM  Cosmetics  in  Georgia  (the  "Lawsuit")  and also filed a Verified
Complaint for Declaratory  Judgment against AM Cosmetics in New Jersey (the "New
Jersey Action").

On February 25, 2000,  the Company  entered  into a  settlement  agreement  (the
"Settlement  Agreement")  with mutual  releases with AM Cosmetics to resolve the
Arbitration,  the Lawsuit and the New Jersey Action.  Pursuant to the Settlement
Agreement, the Company agreed to pay AM Cosmetics $2.0 million and surrender its
PIK Preferred Shares.  The Company paid AM Cosmetics $1.0 million upon execution
of the  Settlement  Agreement and paid the  remaining  $1.0 million on March 30,
2000. The PIK Preferred Shares were surrendered to AM Cosmetics, and appropriate
filings  were made  terminating  with  prejudice  each of the  Arbitration,  the
Lawsuit  and  the  New  Jersey  Action.   In  connection   with  the  Settlement
Agreement, six directors of the Company had caused  Grandbank,  a Maryland state
chartered  bank,  to issue an  irrevocable  letter of  credit  (the  "Letter  of
Credit")  in the  amount of  $690,000  to secure a portion  of the  second  $1.0
million  payment (the  "Second  Payment").  Because the Second  Payment was made
prior to March 31, 2000,  no draw down on the Letter of Credit was necessary and
the Letter of Credit was subsequently canceled.

As a result of this settlement,  the Company recorded a non-recurring  charge of
$1.35  million  in 1999 and had a payable  to AM  Cosmetics  of $2.0  million at
December 31, 1999.  Approximately  $0.65 million of the $2.0 million  settlement
had  been  expensed  but  not  paid  prior  to 1999 in  connection  with  the AM
Manufacturing Agreement and the AM Sales/Marketing Agreement discussed above.

Note 19.  Going Concern

The accompanying  consolidated  financial statements have been prepared assuming
the Company  will  continue as a going  concern.  The Company has reported a net
loss of $14.3 million for the year ended December 31, 1999. The Company  elected
to defer the monthly interest payment on its secured term loan six times in 1999
and thereby  added $5.0  million to the  outstanding  principal  balance,  which
totaled $65.3 million at December 31, 1999 (See Note 11). The Company elected to
defer the monthly  interest  payment  three  additional  times in 2000 and added
another $2.6 million to the  outstanding  principal  balance of the secured term
loan, which totaled $68.0 million at March 31, 2000.

At the end of April 2000,  the Company  must pay  approximately  $4.5 million of
interest,   including  a  $3.8  million  semi-annual  interest  payment  on  the
subordinated  notes and a $0.7 million monthly  interest  payment on the secured
term loan.  Management plans to meet these interest  payments from cash provided
by operations.

Current  operating  budgets and cash flow projections  indicate that the Company
will build cash throughout the second half of 2000. However,  these earnings and
cash  flow   projections  are  based  upon  the  successful   launches  of  new,
reformulated  or  repackaged  products  and  the  achievement  of  sales  levels
substantially  higher than  historical  sales  levels.  As a result,  management
cannot be certain it will have  sufficient  cash resources to meet its long-term
debt repayment  requirements.  Failure to meet debt repayment requirements would

                                       56
<PAGE>

result in the Company being in default of its loan covenants,  in which case the
Company's long-term debt would become immediately due and payable.

These matters raise substantial doubt about the Company's ability to continue as
a going  concern.  These  consolidated  financial  statements do not include any
adjustments that might result from the outcome of this uncertainty.

Note 20. Quarterly Financial Information (Unaudited)

Unaudited quarterly financial  information for the years ended December 31, 1999
and 1998 is as follows (in thousands except per share data):

<TABLE>
<CAPTION>
                                                              First          Second           Third          Fourth
                                                            Quarter         Quarter         Quarter        Quarter
                                                   -----------------------------------------------------------------
<S>                                                       <C>             <C>             <C>            <C>

Year Ended December 31, 1999:
Net sales                                                 $  41,653       $  41,067       $  48,010      $  38,625
Gross profit                                                 21,768          21,579          25,098         17,163
Net income (loss)                                         $     180       $  (2,636)      $   1,060      $ (12,892)
Basic and diluted net income (loss) per common
share                                                     $    0.01       $   (0.17)      $    0.07      $   (0.85)



Year Ended December 31, 1998:
Net sales                                                 $  31,797       $  29,174       $  44,563      $  45,172
Gross profit                                                 16,419           8,099          22,580         19,099
Income (loss) before extraordinary items                       (501)         17,716          (2,664)       (14,587)
Net income (loss)                                         $    (501)      $  17,716       $  (3,597)     $ (13,527)
Basic and diluted income (loss) per common share:
    Income (loss) before extraordinary
    items                                                 $   (0.03)      $    1.18       $   (0.18)     $   (0.97)
    Net income (loss)                                     $   (0.03)      $    1.18       $   (0.24)     $   (0.90)
</TABLE>

                                       57
<PAGE>

Note 21. Consolidating Financial Information of Carson, Inc.

The following  condensed  consolidating  financial  information is presented for
regulatory  purposes in connection with the registration of Carson,  Inc.'s 10 %
Senior  Subordinated  Notes due 2007  (the  "Notes").  The  Notes are  currently
guaranteed on a senior  subordinated  basis by Carson Products  Company ("Carson
Products"),  a direct wholly-owned  subsidiary of the Company.  Johnson Products
Co., Inc. ("Johnson Products"),  and Dermablend,  Inc. ("Dermablend"),  formerly
indirect  wholly-owned  subsidiaries  of the  Company,  were  merged into Carson
Products  during  the  quarters  ended June 30,  1999 and  September  30,  1999,
respectively.  The following tables present  condensed  consolidating  financial
information  for  the  Company,  the  guarantor  subsidiary,  the  non-guarantor
subsidiaries   of  the  Company   (other  than   inconsequential   non-guarantor
subsidiaries)  and the  eliminations  necessary  to arrive  at the  consolidated
financial  statements of the Company and its  subsidiaries.  Separate  financial
statements  for the  guarantor  subsidiary  are not included  and the  guarantor
subsidiary is not filing separate  reports under the Securities  Exchange Act of
1934, as amended, because the guarantor subsidiary has fully and unconditionally
guaranteed the Notes, and separate  financial  statements and other  disclosures
concerning the guarantor subsidiary are not deemed material to investors.

Non-guarantor  subsidiaries  include  Carson  Holdings,  Limited  ("Carson South
Africa"),  Carson UK Limited ("Carson UK") and Carson Management Company. Carson
UK is an indirect  wholly-owned  subsidiary of the Company.  Since Carson UK was
not incorporated in 1997, but was a division of Carson Products,  the results of
sales to Europe for 1997 are included in the guarantor subsidiaries information.
Carson  South  Africa, an indirect 52.5%-owned  non-guarantor  subsidiary of the
Company,  has three  wholly-owned  subsidiaries  which are also  non-guarantors:
Carson Products (Proprietary)  Limited,  Carson Products West Africa Limited and
Carson Products East Africa (EPZ) Limited.  The financial  information for these
three  non-guarantor  subsidiaries  is  included in the  consolidated  financial
statements  of  Carson  South  Africa.  Carson  Management  Company  is a direct
majority-owned subsidiary of the Company.

                                       58
<PAGE>

Consolidating Statement of Operations for the Year Ended December 31, 1999
<TABLE>
<CAPTION>


                                                 Carson, Inc.     Guarantor  Non-guarantor                 Consolidated
                                                     (parent)    subsidiary   subsidiaries   Eliminations   Carson, Inc.
                                               -------------- -------------- -------------- -------------- --------------
<S>                                                <C>            <C>            <C>            <C>           <C>
Net sales                                          $    ----      $ 115,367      $  53,988      $    ----     $  169,355
Cost of goods sold                                      ----         55,401         28,346           ----         83,747
                                               -------------- -------------- -------------- -------------- --------------
    Gross profit                                        ----         59,966         25,642           ----         85,608

Marketing and selling expenses                          ----         35,246         13,442           ----         48,688
General and administrative expenses                     ----         24,386          7,017           ----         31,403
Restructuring expenses                                  ----            600           ----           ----            600
                                               -------------- -------------- -------------- -------------- --------------
    Operating expenses                                  ----         60,232         20,459           ----         80,691
                                               -------------- ------------- --------------- -------------- --------------
    Operating (loss) income                             ----           (266)         5,183           ----          4,917

Other income (expense)                                  ----        (16,213)          (798)          ----        (17,011)
Equity in subsidiary earnings (net of
taxes)                                               (14,288)          ----           ----         14,288           ----
                                              --------------- -------------- -------------- --------------- -------------
    Income (loss) before income taxes and
       minority interest                             (14,288)       (16,479)         4,385         14,288        (12,094)
Income taxes                                            ----           (182)        (1,634)          ----         (1,816)
                                               -------------- -------------- -------------- -------------- --------------
    Income (loss) before minority
    interest                                         (14,288)       (16,661)         2,751         14,288        (13,910)
Minority interest                                       ----           ----           (378)          ----           (378)
                                               -------------- -------------- -------------- -------------- --------------
    Net income (loss)                              $ (14,288)     $ (16,661)     $   2,373      $  14,288     $  (14,288)
                                               ============== ============== ============== ============= ==============
</TABLE>

                                       59
<PAGE>


Consolidating Statement of Operations for the Year Ended December 31, 1998

<TABLE>
<CAPTION>
                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)  subsidiaries  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>
Net sales                                         $    ----     $ 105,808     $  44,898     $    ----     $ 150,706
Cost of goods sold                                     ----        63,034        21,475          ----        84,509
                                               ------------- ------------- ------------- ------------- -------------
    Gross profit                                       ----        42,774        23,423          ----        66,197

Marketing and selling expenses                         ----        35,534         8,610          ----        44,144
General and administrative expenses                    ----        26,056         5,490          ----        31,546
Loss on sale of business                               ----        13,994          ----          ----        13,994
Restructuring expenses                                 ----         5,751          ----          ----         5,751
                                               ------------- ------------- ------------- ------------- -------------
    Operating expenses                                 ----        81,335        14,100          ----        95,435
                                               ------------- ------------- ------------- ------------- -------------
Cumulative effect of change in accounting
for subsidiary                                         ----           890          ----          ----           890
                                               ------------- ------------- ------------- ------------- -------------

    Operating (loss) income                            ----       (37,671)        9,323          ----       (28,348)

Other income, net                                      ----        33,154         2,175          ----        35,329
Equity in subsidiary earnings (net
of taxes)                                                91          ----          ----           (91)         ----
                                               ------------- ------------- ------------- ------------- -------------
    Income (loss) before income taxes,
    minority interest and extraordinary item             91        (4,517)       11,498           (91)        6,981
Income taxes                                           ----          (954)       (3,345)         ----        (4,299)
                                               ------------- ------------- ------------- ------------- -------------
    Income (loss) before minority interest
    and extraordinary item                               91        (5,471)        8,153           (91)        2,682
Minority interest                                      ----          ----        (2,718)         ----        (2,718)
                                               ------------- ------------- ------------- ------------- -------------
    Income (loss) before extraordinary item              91        (5,471)        5,435           (91)          (36)
Extraordinary item, net of tax                         ----           127          ----          ----           127
                                               ------------- ------------- ------------- ------------- -------------
    Net income (loss)                             $      91     $  (5,344)    $   5,435     $     (91)    $      91
                                               ============= ============= ============= ============= =============
</TABLE>

                                       60

<PAGE>

Consolidating Statement of Operations for the Year Ended December 31, 1997


<TABLE>
<CAPTION>

                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)  subsidiaries  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>
Net sales                                         $    ----     $  87,969     $  21,662     $    ----     $ 109,631
Cost of goods sold                                     ----        39,782        10,728          ----        50,510
                                               ------------- ------------- ------------- ------------- -------------
    Gross profit                                       ----        48,187        10,934          ----        59,121

Marketing and selling expenses                         ----        24,036         4,122          ----        28,158
General and administrative expenses                    ----        16,569         2,145          ----        18,714
                                               ------------- ------------- ------------- ------------- -------------
    Operating expenses                                 ----        40,605         6,267          ----        46,872
                                               ------------- ------------- ------------- ------------- -------------

    Operating income(loss)                             ----         7,582         4,667          ----        12,249

Other income (expense)                                 ----        (5,365)          601          ----       (4,764)
Equity in subsidiary earnings (net of
taxes)                                                1,668          ----          ----        (1,668)         ----
                                               ------------- ------------- ------------- ------------- -------------
    Income before income taxes,
    minority interest and
    extraordinary item                                1,668         2,217         5,268        (1,668)        7,485
Income taxes                                           ----           989         1,790          ----         2,779
                                               ------------- ------------- ------------- ------------- -------------
    Income before minority interest and
    extraordinary item                                1,668         1,228         3,478        (1,668)        4,706
Minority interest                                      ----          ----          (952)         ----          (952)
                                               ------------- ------------- ------------- ------------- -------------
    Income before extraordinary item                  1,668         1,228         2,526        (1,668)        3,754
Extraordinary item, net of tax                         ----        (2,086)         ----          ----        (2,086)
                                               ------------- ------------- ------------- ------------- -------------
    Net income                                    $   1,668     $    (858)    $   2,526     $  (1,668)    $   1,668
                                               ============= ============= ============= ============= =============
</TABLE>

                                       61
<PAGE>

Consolidating Balance Sheet as of December 31, 1999
<TABLE>
<CAPTION>
                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)    subsidiary  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>
Assets
Current assets:
    Cash                                          $    ----     $   3,395     $   5,345     $    ----     $   8,740
    Accounts receivable, net                            646        25,171        13,990        (4,348)       35,459
    Inventories, net                                   ----        19,433         8,899          ----        28,332
    Investments                                        ----          ----         2,435          ----         2,435
    Other current assets                               ----           268           239          ----           507
Property, plant and equipment, net                     ----        27,933         9,292           (35)       37,190
Investments                                            ----          ----         3,248          ----         3,248
Intangible assets, net and other assets                ----       120,165        10,572          ----       130,737
Investment in subsidiary                             53,273        41,413          ----       (94,686)         ----
                                               ------------- ------------- ------------- ------------- -------------
Total assets                                      $  53,919     $ 234,076     $  54,020     $ (99,069)    $ 246,648
                                               ============= ============= ============= ============= =============

Liabilities and stockholders' equity
Current liabilities:
    Accounts payable                              $    ----     $  12,794     $   7,927     $  (4,348)    $  16,373
    Other current liabilities                          ----        10,857         3,339          ----        14,196
Long-term debt                                         ----       138,314          ----          ----       138,314
Other liabilities                                        50        23,148           698          ----        23,896
Common stock and paid in capital                     81,653        28,616        42,831       (71,447)       81,653
Other equity accounts                                (9,576)      (16,728)      (11,075)       27,803        (9,576)
Retained earnings (Accumulated deficit)             (18,208)       40,777        10,300       (51,077)      (18,208)
                                               ------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity        $  53,919     $ 234,076     $  54,020     $ (99,069)    $ 246,648
                                               ============= ============= ============= ============= =============
</TABLE>

                                       62
<PAGE>

Consolidating Balance Sheet as of December 31, 1998

<TABLE>
<CAPTION>

                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)  subsidiaries  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>
Assets
Current assets:
    Cash                                          $    ----     $  12,320     $  16,386     $    ----     $  28,706
    Accounts receivable, net                            844        30,701        14,974        (7,566)       38,953
    Inventories, net                                   ----        13,993         8,832          ----        22,825
    Restricted cash                                    ----         4,500          ----          ----         4,500
    Other current assets                               ----           307           362          ----           669
Property, plant and equipment, net                     ----        26,130         9,671           (36)       35,765
Intangible assets, net and other assets                ----       124,997        11,048          ----       136,045
Investment in subsidiary                             68,316        43,421          ----      (111,737)         ----
                                               ------------- ------------- ------------- ------------- -------------
Total assets                                      $  69,160     $ 256,369     $  61,273     $(119,339)    $ 267,463
                                               ============= ============= ============= ============= =============

Liabilities and stockholders' equity
Current liabilities:
    Accounts payable                              $    ----     $  12,484     $   7,702     $  (7,602)    $  12,584
    Other current liabilities                          ----        18,569         9,726          ----        28,295
Long-term debt                                         ----       133,324            99          ----       133,423
Other liabilities                                      ----        23,676           325          ----        24,001
Common stock and paid in capital                     81,121        28,470        39,320       (67,790)       81,121
Other equity accounts                                (8,041)      (15,193)       (8,910)       24,103        (8,041)
Retained earnings (Accumulated deficit)              (3,920)       55,039        13,011       (68,050)       (3,920)
                                               ------------- ------------- ------------- ------------- -------------
Total liabilities and stockholders' equity        $  69,160     $ 256,369     $  61,273     $(119,339)    $ 267,463
                                               ============= ============= ============= ============= =============
</TABLE>

                                       63
<PAGE>

Consolidating Statement of Cash Flows for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
                                               Carson, Inc.     Guarantor  Non-guarantor                  Consolidated
                                                   (parent)    subsidiary   subsidiaries   Eliminations   Carson, Inc.
                                               ------------- ------------- -------------- -------------- --------------
<S>                                               <C>           <C>            <C>            <C>            <C>
Operating Activities:
   Net income (loss)                              $ (14,288)    $ (16,661)     $   2,373      $  14,288      $ (14,288)
   Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating
   activities:
      Depreciation and amortization                    ----         6,017          1,369           ----          7,386
      Interest deferred on secured term loan           ----         4,990           ----           ----          4,990
      Non-cash special charges                         ----           575          1,396           ----          1,971
      Foreign currency transaction loss                ----          ----          1,301           ----          1,301
      Minority interest in earnings of
      subsidiary                                       ----          ----            378           ----            378
      Other, net                                     14,288         1,248            888        (14,288)         2,136
      Changes in operating assets and
      liabilities                                      ----        (4,596)          (597)          ----         (5,193)
                                               ------------- ------------- -------------- -------------- --------------
         Total adjustments                           14,288         8,234          4,735        (14,288)        12,969
                                               ------------- ------------- -------------- -------------- --------------
      Net cash provided by (used in )
      operating activities                             ----        (8,427)         7,108           ----         (1,319)
                                               ------------- ------------- -------------- -------------- --------------
Investing Activities:
   Additions to property, plant and
   equipment                                           ----        (3,656)        (1,949)          ----         (5,605)
   Purchase of investments                             ----          ----         (5,683)          ----         (5,683)
   Issuance of long-term note receivable               ----          ----         (1,000)          ----         (1,000)
   Collection of long-term note receivable             ----           517           ----           ----            517
                                               ------------- ------------- -------------- -------------- --------------
      Net cash used in investing activities            ----        (3,139)        (8,632)          ----        (11,771)
                                               ------------- ------------- -------------- -------------- --------------
Financing Activities:
   Payments on A&J Cosmetics payable                   ----          ----         (6,355)          ----         (6,355)
   Proceeds from sale of subsidiary stock              ----          ----            281           ----            281
   Principal payments on debt                          ----          ----           (225)          ----           (225)
   Other                                               ----         2,641         (2,764)          ----           (123)
                                               ------------- ------------- -------------- -------------- --------------
      Net cash used in financing activities            ----         2,641         (9,063)          ----         (6,422)
                                               ------------- ------------- -------------- -------------- --------------
Effect of Exchange Rate Changes                        ----          ----           (454)          ----           (454)
                                               ------------- ------------- -------------- -------------- --------------
Net decrease in Cash and Cash Equivalents              ----        (8,925)       (11,041)          ----        (19,966)
Cash and Cash Equivalents at Beginning of
Year                                                   ----        12,320         16,386           ----         28,706
                                               ------------- ------------- -------------- -------------- --------------
Cash and Cash Equivalents at End of Year          $    ----     $   3,395      $   5,345      $    ----      $   8,740
                                               ============= ============= ============== ============== ==============
</TABLE>

                                       64
<PAGE>

Consolidating Statement of Cash Flows for the Year Ended December 31, 1998

<TABLE>
<CAPTION>

                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)  subsidiaries  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>
Operating Activities:
   Net income (loss)                              $      91     $  (5,344)    $   5,435     $     (91)    $      91
   Adjustments to reconcile net income (loss)
   to net cash provided by (used in)
   operating activities:
      Gain on sale of subsidiary stock                 ----       (49,140)         ----          ----       (49,140)
      Loss on sale of business                         ----        13,994          ----          ----        13,994
      Non-cash special charges                         ----        11,596          ----          ----        11,596
      Loss on write-off of investment                  ----         3,768          ----          ----         3,768
      Depreciation and amortization                    ----         5,492         1,134          ----         6,626
      Extraordinary item, net of tax                   ----          (127)         ----          ----          (127)
      benefit
      Minority interest in earnings
      of subsidiary                                    ----          ----         2,718          ----         2,718
      Other, net                                        (91)        3,929           115            91         4,044
      Changes in operating assets and
      liabilities                                      ----         6,621        (8,613)           (9)       (2,001)
                                               ------------- ------------- ------------- ------------- -------------
         Total adjustments                              (91)       (3,867)       (4,646)           82        (8,522)
                                               ------------- ------------- ------------- ------------- -------------
      Net cash provided by (used in)
      operating activities                             ----        (9,211)          789            (9)       (8,431)
                                               ------------- ------------- ------------- ------------- -------------
Investing Activities:
   Additions to property, plant and
   equipment                                           ----        (4,797)       (5,543)         ----       (10,340)
   Acquisitions of business assets, net of
   cash acquired                                       ----       (34,661)         ----          ----       (34,661)
   Net proceeds from sale of business                  ----        23,298          ----          ----        23,298
                                               ------------- ------------- ------------- ------------- -------------
      Net cash used in investing activities            ----       (16,160)       (5,543)         ----       (21,703)
                                               ------------- ------------- ------------- ------------- -------------
Financing Activities:
   Proceeds from long-term borrowings                  ----        93,500          ----          ----        93,500
   Principal payments on debt                          ----      (109,126)       (5,827)         ----      (114,953)
   Proceeds from sale of subsidiary stock              ----        55,216        19,230          ----        74,446
   Other                                               ----        (4,513)         ----          ----        (4,513)
                                               ------------- ------------- ------------- ------------- -------------
      Net cash provided by financing
      activities                                       ----        35,077        13,403          ----        48,480
                                               ------------- ------------- ------------- ------------- -------------
Effect of Exchange Rate Changes                        ----          ----        (3,683)         ----        (3,683)
                                               ------------- ------------- ------------- ------------- -------------
Net increase in Cash and Cash Equivalents              ----         9,706         4,966            (9)       14,663
Cash and Cash Equivalents at Beginning of
Period                                                 ----         2,614        11,420             9        14,043
                                               ------------- ------------- ------------- ------------- -------------
Cash and Cash Equivalents at End of Period        $    ----     $  12,320     $  16,386     $    ----     $  28,706
                                               ============= ============= ============= ============= =============
</TABLE>

                                       65
<PAGE>

Consolidating Statement of Cash Flows for the Year Ended December 31, 1997

<TABLE>
<CAPTION>

                                               Carson, Inc.     Guarantor  Non-guarantor               Consolidated
                                                   (parent)  subsidiaries  subsidiaries  Eliminations  Carson, Inc.
                                               ------------- ------------- ------------- ------------- -------------
<S>                                               <C>           <C>           <C>           <C>           <C>

Operating Activities:
   Net income (loss)                              $   1,668     $  (1,810)    $   3,478     $  (1,668)    $   1,668
   Adjustments to reconcile net income (loss)
   to net cash provided by (used in) operating
   activities:
      Depreciation and amortization                    ----         3,341           452          ----         3,793
      Extraordinary item, net of tax benefit           ----         2,086          ----          ----         2,086
      Other, net                                     (1,668)       (1,493)          463         2,954           256
      Changes in operating assets and
      liabilities                                      ----       (16,423)      (12,143)        3,485       (25,081)
                                               ------------- ------------- ------------- ------------- -------------
         Total adjustments                           (1,668)      (12,489)      (11,228)        6,439       (18,946)
                                               ------------- ------------- ------------- ------------- -------------
      Net cash (used in) provided by
      operating activities                             ----       (14,299)       (7,750)        4,771      ( 17,278)
                                               ------------- ------------- ------------- ------------- -------------
Investing Activities:
   Additions to property, plant and
   equipment                                           ----        (6,626)       (1,631)           37        (8,220)
   Acquisitions of business assets, net of
   cash acquired                                       ----       (48,706)         (700)         ----       (49,406)
                                               ------------- ------------- ------------- ------------- -------------
      Net cash (used in) provided by
      investing activities                             ----       (55,332)       (2,331)           37       (57,626)
                                               ------------- ------------- ------------- ------------- -------------
Financing Activities:
   Proceeds from long-term borrowings                  ----       162,848         3,763           249       166,860
   Principal payments on long-term debt                ----       (92,175)         ----          (486)      (92,661)
   Proceeds from sale of equity from
   subsidiary                                          ----          ----        15,129        (4,572)       10,557
                                               ------------- ------------- ------------- ------------- -------------
      Net cash provided by (used in)
      financing activities                             ----        70,673        18,892        (4,809)       84,756
                                               ------------- ------------- ------------- ------------- -------------
Net increase in Cash and Cash Equivalents              ----         1,042         8,811            (1)        9,852
Cash and Cash Equivalents at Beginning of
Period                                                 ----         1,572         2,609            10         4,191
                                               ------------- ------------- ------------- ------------- -------------
Cash and Cash Equivalents at End of Period        $    ----     $   2,614     $  11,420     $       9     $  14,043
                                               ============= ============= ============= ============= =============
</TABLE>

                                       66
<PAGE>


INDEPENDENT AUDITORS' REPORT

To the Board of Directors and Stockholders of Carson, Inc.

     We have audited the  accompanying  consolidated  balance  sheets of Carson,
Inc.  and its  subsidiaries  as of December  31, 1999 and 1998,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the years ended December 31, 1999, 1998 and 1997. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial  statements based on our audits.  We did not audit
the financial statements of Carson Holdings Limited (a consolidated subsidiary),
which   statements   reflect   total  assets   constituting   20.9%  and  22.7%,
respectively, of consolidated total assets as of December 31, 1999 and 1998, and
total revenues  constituting  26.0% of consolidated total revenues for the years
then ended.  Those  statements  were audited by other  auditors whose report has
been  furnished  to us, and our  opinion,  insofar as it relates to the  amounts
included  for Carson  Holdings  Limited,  is based  solely on the report of such
other auditors.

     We conducted our audits in accordance  with  auditing  standards  generally
accepted in the United States of America.  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 and the report of
the other auditors provide a reasonable basis for our opinion.

     In our opinion,  based on our audits and the report of the other  auditors,
such consolidated financial statements present fairly, in all material respects,
the financial  position of Carson,  Inc. and its subsidiaries as of December 31,
1999 and 1998, and the results of their  operations and their cash flows for the
years ended  December  31, 1999,  1998 and 1997 in  conformity  with  accounting
principles generally accepted in the United States of America.

     As  discussed  in  Note  3 to the  consolidated  financial  statements,  on
February 25, 2000 the Company  entered into an Agreement and Plan of Merger with
Cosmair, Inc.

     The  accompanying  consolidated  financial  statements  have been  prepared
assuming the Company will continue as a going  concern.  As discussed in Note 19
to the consolidated financial statements, the Company has incurred a net loss of
$14.3 million for the year ended December 31, 1999. As further discussed in Note
11, the Company has also  elected to defer the monthly  interest  payment on its
secured  term loan six times in 1999 (and  thereby  added  $5.0  million  to the
outstanding principal balance) and elected to defer the monthly interest payment
three  additional  times  aggregating  $2.6  million  in 2000;  the  outstanding
principal  balance of the secured term loan totaled  $68.0  million at March 31,
2000. At the end of April 2000, the Company must pay approximately  $4.5 million
of  interest,  including  a $3.8  million  semi-annual  interest  payment on the
subordinated  notes and a $0.7 million monthly  interest  payment on the secured

                                       67
<PAGE>

term loan. These matters raise  substantial doubt about the Company's ability to
continue as a going concern.  Management's  plans  concerning  these matters are
also  described  in Note 19.  These  consolidated  financial  statements  do not
include any adjustments that might result from the outcome of this uncertainty.





DELOITTE & TOUCHE LLP

Atlanta, Georgia
April 10, 2000


                                       68
<PAGE>

Report of the independent auditors to the Directors of Carson Holdings Limited

We have audited the accompanying  consolidated balance sheets of Carson Holdings
Limited and its  subsidiaries  as of December 31, 1999 and 1998, and the related
consolidated  statements of earnings,  cash flows,  and changes in stockholders'
equity for each of the years in the  two-year  period  ended  December 31, 1999.
These consolidated  financial statements are the responsibility of the Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

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

In our opinion, the consolidated  financial statements referred to above present
fairly,  in all material  respects,  the financial  position of Carson  Holdings
Limited and its  subsidiaries  as of December 31, 1999 and 1998, and the results
of their  operations and cash flows for each of the years in the two-year period
ended  December 31, 1999,  in  conformity  with  generally  accepted  accounting
principles in South Africa.

Accounting  principles  generally  accepted  in  South  Africa  vary in  certain
significant respects from accounting principles generally accepted in the United
States.  Application of accounting  principles  generally accepted in the United
States would have affected  results of  operations  for each of the years in the
two-year period ended December 31, 1999 and stockholders'  equity as of December
31, 1999 and 1998, to the extent  summarized in the footnote to the consolidated
financial statements.

KPMG Inc.
Registered Accountants & Auditors

/s/ Per Mark Hoffman
Partner

10 April 2000

                                       69

<PAGE>

Item 9.  Disagreements on Accounting and Financial Disclosure

None.

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

Reference is made to the  information  contained in the  Information  Statement,
filed with the  Securities  Exchange  Commission  on March 8, 2000,  pursuant to
Section 14(f) of the Securities  Exchange Act of 1934 and Rule 14F-1 thereunder,
which is attached as Exhibit 99  hereto and is incorporated herein by reference.

Item 11.  Executive Compensation

Reference is made to the  information  contained in the  Information  Statement,
filed with the  Securities  Exchange  Commission  on March 8, 2000,  pursuant to
Section 14(f) of the Securities  Exchange Act of 1934 and Rule 14F-1 thereunder,
which is attached as Exhibit 99  hereto and is incorporated herein by reference.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

Reference is made to the  information  contained in the  Information  Statement,
filed with the  Securities  Exchange  Commission  on March 8, 2000,  pursuant to
Section 14(f) of the Securities  Exchange Act of 1934 and Rule 14F-1 thereunder,
which is attached as Exhibit 99  hereto and is incorporated herein by reference.

Item 13.  Certain Relationships and Related Transactions

Reference is made to the  information  contained in the  Information  Statement,
filed with the  Securities  Exchange  Commission  on March 8, 2000,  pursuant to
Section 14(f) of the Securities  Exchange Act of 1934 and Rule 14F-1 thereunder,
which is attached as Exhibit 99  hereto and is incorporated herein by reference.

                                       70
<PAGE>

                                     PART IV

Item 14.  Exhibits, Financial Statements, Schedules and Reports on Form 8-K

(a) The following documents are filed as part of this report:

      1.    Financial Statements

The Consolidated  Financial Statements included herein contain the Balance Sheet
as of  December  31,  1999 and  1998,  the  related  statements  of  operations,
shareholders'  equity and cash flows for the years ended December 31, 1999, 1998
and 1997, and the related report of Deloitte Touche LLP.

(b) The Company  filed  a report on Form 8-K on March 2, 2000,  which  contained
the  Agreement and Plan of Merger, dated as of February 25,  2000,  by and among
Cosmair,  Inc.,  Crayon  Acquisition  Corp.  and Carson,  Inc.; the Stockholders
Agreement,  dated  as  of   February  25,  2000, among   Cosmair,  Inc.,  Crayon
Acquisition  Corp.,  Carson, Inc. and the stockholders of the Company  signatory
thereto;  the Settlement Agreement, dated as of February 25, 2000,  among Carson
Products Company,  AM  Cosmetics  Corp.  and AM Products  Company;  the Release,
dated  as of February  25,  2000,  by Carson  Products  Company  in favor  of AM
Cosmetics  Corp. And AM Products  Company; the Release, dated as of February 25,
2000, by AM Cosmetics Corp. and AM Products  Company in favor of Carson Products
Company; the Letter Agreement, dated as of February 25, 2000, among Carson, Inc.
and certain  directors of the Company; and the Carson, Inc. Press Release, dated
February 28, 2000.

 The Company  filed a report on Form 8-K on April 7, 2000,  which noted a change
in  the   certifying   accountant  of  Carson   Holdings   Ltd.,  the  Company's
majority-owned South African subsidiary.

      2.  Exhibits incorporated by reference or filed with this report

--------------------------------------------------------------------------------
Number        Description
--------------------------------------------------------------------------------

--------- ----------------------------------------------------------------------
3.1*      Amended and Restated Certificate of Incorporation of Carson, Inc.
--------- ----------------------------------------------------------------------
3.2*      By-laws of Carson, Inc.
--------- ----------------------------------------------------------------------
3.3***    Restated Certificate of Incorporation of Carson Products Company
--------- ----------------------------------------------------------------------
3.4***    By-laws of Carson Products Company
--------- ----------------------------------------------------------------------
4.1***    Indenture, dated as of  November 6, 1997, among  Carson, Inc.,  Carson
          Products Company and Marine Midland Bank, as trustee
--------- ----------------------------------------------------------------------
4.2***    Form of  10 % Senior Subordinated Note due 2007, Series B (included as
          Exhibit B to Exhibit 4.1)
--------- ----------------------------------------------------------------------


                                       71
<PAGE>

--------- ----------------------------------------------------------------------
4.3       First Supplemental  Indenture, dated as of July 14, 1998 among Carson,
          Inc., Carson Products Company, Johnson Products Co., Inc., Dermablend,
          Inc. and Marine Midland Bank.
--------- ----------------------------------------------------------------------
9*        Voting Trust Agreement dated  as of August 23, 1995, by and  among Dr.
          Leroy  Keith,  S. Garrett  Stonehouse,  Harrow-Lewis  Corporation  and
          Northwest Capital, Inc.
--------- ----------------------------------------------------------------------
10.1*     Employment  Agreement  dated as of August 23, 1995, as  amended  as of
          July 31, 1996, between Carson Products Company and Dr. Leroy Keith
--------- ----------------------------------------------------------------------
10.2*     Employment  Agreement  dated as of July 7, 1995, as amended as of July
          31, 1996, between Carson Products Company and Joyce Roch'e
--------- ----------------------------------------------------------------------
10.3*     Employment Agreement  dated as of June 7, 1995, as  amended as of July
          31, 1996, between Carson Products Company and Dennis E. Smith
--------- ----------------------------------------------------------------------
10.4*     Employment  Agreement dated as of  June 7, 1995, as amended as of July
          31, 1996, between Carson Products Company and John P. Brown, Jr.
--------- ----------------------------------------------------------------------
10.7*     Employment  Agreement dated  as of September 1, 1995, as amended as of
          July 31,  1996, between Carson Products Company and Allena Lee-Brown
--------- ----------------------------------------------------------------------
10.8*     Employment Agreement dated as of March 11, 1996, as amended as of July
          31,  1996, between Carson Products Company and Miriam Mule'y
--------- ----------------------------------------------------------------------
10.9***   Employment Agreement dated as of May 9, 1997, between  Carson Products
          Company and Robert W. Pierce
--------- ----------------------------------------------------------------------
10.10*    Management  Assistance Agreement  dated as of August  23, 1995 between
          Carson Products Company and Morningside Capital Group L.L.C.
--------- ----------------------------------------------------------------------
10.11***  First  Amendment  dated  as of  October  18, 1996  to  the  Management
          Assistance  Agreement  dated  as of  August  23, 1995  between  Carson
          Products Company and Morningside Capital Group L.L.C.
--------- ----------------------------------------------------------------------
10.12***  Second  Amendment  dated  as of November  6, 1996  to  the  Management
          Assistance  Agreement  dated  as  of  August 23, 1995  between  Carson
          Products Company and Morningside Capital Group L.L.C.
--------- ----------------------------------------------------------------------
10.13*    Management Agreement dated as of June 26, 1996 between Carson Products
          Company and AM Cosmetics, Inc.
--------- ----------------------------------------------------------------------
10.14***  First Amendment  dated as of June 1, 1997 to the  Management Agreement
          dated as  of  June  26, 1996 between  Carson Products  Company  and AM
          Cosmetics, Inc.
--------- ----------------------------------------------------------------------
10.15***  Second  Amendment  dated  as of  October  6,  1997  to  the Management
          Agreement dated  as of June 26,  1996  between Carson Products Company
          and AM Cosmetics, Inc.
--------- ----------------------------------------------------------------------
10.16*    Subscription  Agreement  dated  as  of June  26, 1996  between  Carson
          Products Company and Morningside AM Acquisition Corp.
--------- ----------------------------------------------------------------------
10.17*    Carson, Inc. 1996 Long-term Incentive Plan
--------- ----------------------------------------------------------------------
10.18*    Carson, Inc. 1996 Non-Employee Directors Equity Incentive Program
--------- ----------------------------------------------------------------------

                                       72
<PAGE>

--------- ----------------------------------------------------------------------
10.19*    Subscription  Agreement  dated  as  of  August 23, 1995  by  and among
          Carson, Inc. and Investors set forth in Schedule I
--------- ----------------------------------------------------------------------
10.20*    Subscription  Agreement  dated  as  of  August 23, 1995 by  and  among
          Carson, Inc. and DNL Partners, Limited Partnership
--------- ----------------------------------------------------------------------
10.21*    Subscription  Agreement  dated  as  of  August 23, 1995 by  and  among
          Carson, Inc. and Indosuez Carson Partners and Indosuez CM II, Inc.
--------- ----------------------------------------------------------------------
10.22*    Subscription  Agreement  dated  as  of  August 15, 1995 by  and  among
          Carson, Inc. and the individuals (outside directors) named therein
--------- ----------------------------------------------------------------------
10.23*    Subscription  Agreement  dated  as  of  August 15, 1995 by  and  among
          Carson, Inc. and the  individuals (members of senior management) named
          therein
--------- ----------------------------------------------------------------------
10.24*    Licensing  Agreement  dated  April 7, 1994, as  amended  May 14, 1996,
          between  Carson  Products  Company and  Carson  Products  Company S.A.
          (Proprietary) Limited
--------- ----------------------------------------------------------------------
10.25*    Distribution  Agreement  dated May 14, 1996  between  Carson  Products
          Company and Carson Products Company S.A. (Proprietary) Limited
--------- ----------------------------------------------------------------------
10.26*    Promissory note between Joyce Roch'e and Carson, Inc.
--------- ----------------------------------------------------------------------
10.27*    Promissory note between John P. Brown and Carson, Inc.
--------- ----------------------------------------------------------------------
10.28*    Promissory note between Dennis Smith and Carson, Inc.
--------- ----------------------------------------------------------------------
10.33*    Pledge  Agreement  dated  August 13, 1996  between  John P.  Brown and
          Carson, Inc.
--------- ----------------------------------------------------------------------
10.34*    Pledge  Agreement  dated  August 13, 1996 between  Miriam  Mule'y  and
          Carson, Inc.
--------- ----------------------------------------------------------------------
10.35*    Pledge  Agreement  dated  August  13, 1996  between  Joyce  Roch'e and
          Carson, Inc.
--------- ----------------------------------------------------------------------
10.36*    Pledge  Agreement  dated  August  13, 1996  between  Dennis  Smith and
          Carson, Inc.
--------- ----------------------------------------------------------------------
10.37**   Asset  Purchase  Agreement dated as of  March 27, 1997 between  Carson
          Products Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA Co.
--------- ----------------------------------------------------------------------
10.38**   Asset  Purchase Agreement  dated as  of March 27, 1997  between Carson
          Products Company and Jean Philippe Fragrances, Inc.
--------- ----------------------------------------------------------------------
10.39**   Service Agreement  dated as of April 30, 1997  between Carson Products
          Company and Conopco, Inc. d/b/a Chesebrough-Pond's USA Co.
--------- ----------------------------------------------------------------------
10.40**   Broker  Agreement dated  as  of  September  19,  1997  between  Carson
          Products Company and AM Cosmetics, Inc.
--------- ----------------------------------------------------------------------
10.41***  Manufacturing  Agreement  dated as of  April 30, 1997  between  Carson
          Products Company and AM Cosmetics, Inc.
--------- ----------------------------------------------------------------------
10.42***  Credit  Agreement dated  as of November 6, 1997 among  Carson Products
          Company, Credit Agricole Indosuez and the lenders named therein
--------- ----------------------------------------------------------------------
10.43***  Term  Loan and  Revolving Credit  Deed to  Secure  Debt, Assignment of
          Leases and  Security Agreement  dated as  of November 6, 1997  made by
          Carson Products Company in favor of Credit Agricole Indosuez
--------- ----------------------------------------------------------------------

                                       73
<PAGE>

--------- ----------------------------------------------------------------------
10.44***  Borrower General Security Agreement dated  as of November 6, 1997 made
          by Carson Products Company in favor of Credit Agricole Indosuez
--------- ----------------------------------------------------------------------
10.45***  Borrower Intellectual Property Security Agreement dated as of November
          6, 1997  made by  Carson Products  Company in favor of Credit Agricole
          Indosuez
--------- ----------------------------------------------------------------------
10.46***  Borrower Securities Pledge Agreement dated as of November 6, 1997 made
          by Carson Products Company in favor of Credit Agricole Indosuez
--------- ----------------------------------------------------------------------
10.47***  Holdings Securities Pledge Agreement dated as of November 6, 1997 made
          by Carson, Inc. In favor of Credit Agricole Indosuez
--------- ----------------------------------------------------------------------
10.48+++  Employment  Agreement  dated  as  of  July  14, 1997,  between  Carson
          Products Company and Richard A. Bozzell
--------- ----------------------------------------------------------------------
10.49+++  Employment  Agreement  dated  as of  September 8, 1997, between Carson
          Products Company and Donald Riley
--------- ----------------------------------------------------------------------
10.50+++  Promissory Note between Miriam Mule'y and Carson, Inc.
--------- ----------------------------------------------------------------------
10.51+    Asset Purchase  Agreement dated  as of 27 October, 1997 between Carson
          Products  Proprietary)  Limited  and  A &  J  Cosmetics  (Proprietary)
          Limited
--------- ----------------------------------------------------------------------
10.52**** Employment  Agreement  dated as of July 1, 1998, by and  among  Carson
          Products Company and Gregory Andrews
--------- ----------------------------------------------------------------------
10.53**** Employment  Agreement dated  as of  June 8, 1998,  by and among Carson
          Products Company and Aurelia Waldon
--------- ----------------------------------------------------------------------
10.54++   Credit Agreement  among Carson Products Company, Carson, Inc. and IVAX
          Corporation dated as of July 14, 1998
--------- ----------------------------------------------------------------------
10.56++++ Secured  Term  Loan Agreement  between Carson Products Company, Carson
          Inc.,  Quantum  Partners  LDC  and  Norwest  Bank  Minnesota, N.A., as
          collateral agent.
--------- ----------------------------------------------------------------------
12.1***   Statement re Computation of Ratio of Earnings to Fixed Charges
--------- ----------------------------------------------------------------------
16*       Letter regarding Change in Certifying Accountant from Price Waterhouse
          LLP
--------- ----------------------------------------------------------------------
18***     Letter re Change  in Accounting Principles, dated August 11, 1997 from
          Deloitte  &  Touche  LLP  to  Carson,  Inc.,  incorporated  herein  by
          reference  to  Carson,  Inc.'s Quarterly  Report  on Form  10-Q of the
          quarter ended June 30, 1997, as amended
--------- ----------------------------------------------------------------------
21.1      Subsidiaries of Carson, Inc.
--------- ----------------------------------------------------------------------
23.2      Consent of Deloitte & Touche LLP
--------- ----------------------------------------------------------------------
23.3      Consent of KPMG Inc.
--------- ----------------------------------------------------------------------
24.1***   Powers  of Attorney (included on signature pages of this Annual Report
          on Form 10-K)
--------- ----------------------------------------------------------------------
27        Financial Data Schedule
--------- ----------------------------------------------------------------------
99        Information  Statement, filed with the Securities  Exchange Commission
          on March 8, 2000, pursuant to Section 14(f) of the Securities Exchange
          Act of 1934 and Rule 14F-1.
--------- ----------------------------------------------------------------------

                                       74
<PAGE>

--------- ----------------------------------------------------------------------
*         Incorporated  herein by  reference  to  the  Registrant's Registration
          Statement  on   Form  S-1  filed  with  the  Securities  and  Exchange
          Commission on October 14, 1996 File  No. 333-10191 and  the amendments
          thereto.
--------- ----------------------------------------------------------------------
**        Incorporated herein by reference to Carson,  Inc.'s Current  Report on
          Form 8-K as of May 15,  1997,  as amended by Form 8-KA  dated July 14,
          1997,  July 16,  1997 and  October 9, 1997.
--------- ----------------------------------------------------------------------
***       Incorporated  herein  by  reference  to  the Registrant's Registration
          Statement  on  Form  S-4  filed   with  the  Securities  and  Exchange
          Commission on October 31, 1997 File No. 333-42831.
--------- ----------------------------------------------------------------------
****      Incorporated herein by reference  to Carson, Inc.'s  Quarterly  Report
          on Form 10-Q for the period ended June 30, 1998.
--------- ----------------------------------------------------------------------
+         Certain confidential  portions of Exhibit 10.50 have been omitted from
          this  public  filing and  filed  separately  with  the  Securities and
          Exchange  Commission pursuant  to rule 406 under the Securities Act of
          1933, as amended.
--------- ----------------------------------------------------------------------
++        Incorporated herein by reference to Carson,  Inc.'s  Current Report on
          Form 8-K as of July 29, 1998,  as amended by Form 8-KA dated September
          25, 1998.
--------- ----------------------------------------------------------------------
+++       Incorporated  herein by  reference to Carson,  Inc.'s Annual Report on
          Form 10-K for the fiscal year ended  December 31, 1997.
--------- ----------------------------------------------------------------------
++++      Incorporated  herein by reference to  Carson, Inc.'s Current Report on
          Form 8-K dated December 24, 1998.
--------- ----------------------------------------------------------------------

                                       75
<PAGE>


                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registration  has duly  caused  this  report to be  signed on its  behalf by the
undersigned, thereunto duly authorized.

                                                            CARSON, INC.

Date: April 14, 2000               By: /s/Dr. Leroy Keith
                                       Dr. Leroy Keith
                                       Chairman  and Director
                                       Power of Attorney

KNOW ALL MEN AND WOMEN BY THESE  PRESENTS,  that  each  person  whose  signature
appears below  constitutes and appoints Dr. Leroy Keith and Robert W. Pierce his
or her  true  and  lawful  attorneys-in-fact  and  agents,  with  full  power of
substitution and revocation,  for him or her in his or her name, place and stead
in any and all  capacities to sign any and all  amendments to this report and to
file the same with all  exhibits  thereto,  and other  documents  in  connection
therewith,  with the  Securities  and Exchange  Commission,  granting  unto said
attorneys-in-fact  and agents,  and each of them, full power and authority to do
and perform each and every act and thing  requisite  and necessary to be done as
fully to all  intents  and  purposes  as he might or could do in person,  hereby
ratifying  and  confirming  all that said  attorneys-in-fact  and  agents or his
substitutes may lawfully do or cause to be done by virtue hereof.


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


Date:April 14, 2000                By: /s/Dr.Leroy Keith
                                       Dr. Leroy Keith
                                       Chairman and Director

Date: April 14, 2000               By: /s/Malcolm R. Yesner
                                       Malcolm R. Yesner
                                       President and Chief Executive Officer and
                                       Director

Date: April 14, 2000               By: /s/Lawrence E. Bathgate, II
                                       Lawrence E. Bathgate, II
                                       Director


                                       76
<PAGE>


Date: April 14, 2000               By: /s/Melvyn J. Estrin
                                       Melvyn J. Estrin
                                       Director

Date: April 14, 2000               By: /s/John L. Sabre
                                       John L. Sabre
                                       Director

Date: April 14, 2000               By: /s/Vincent A. Wasik
                                       Vincent A. Wasik
                                       Director

Date: April 14, 2000               By: /s/Abbey J. Butler
                                       Abbey J. Butler
                                       Director

Date: April 14, 2000               By: /s/Jack F. Kemp
                                       Jack F. Kemp
                                       Director

Date: April 14, 2000               By: /s/Robert W. Pierce
                                       Robert W. Pierce
                                       Executive Vice President, Finance
                                       Chief Financial Officer and
                                       Corporate Secretary
                                       (Principal Accounting and Financial
                                       Officer)



                                       77
<PAGE>

Exhibit-23.2


                          INDEPENDENT AUDITORS' CONSENT

We consent to the  incorporation  by reference in  Registration  Statements  No.
333-21141  and  333-37663 of Carson,  Inc. on Form S-8 of our report dated April
10,  2000,   (which  report  expresses  an  unqualified   opinion  and  includes
explanatory  paragraphs relating to the Agreement and Plan of Merger between the
Company and  Cosmair,  Inc.  and the  uncertainty  of the  Company's  ability to
continue as a going  concern)  appearing  in this Annual  Report on Form 10-K of
Carson, Inc. for the year ended December 31, 1999.





DELOITTE & TOUCHE LLP

Atlanta, Georgia
April 10, 2000


                                       78
<PAGE>

Exhibit-23.3
                     INDEPENDENT AUDITORS' CONSENT



We consent to  incorporation  by reference in the  registration  statements (No.
333-21141  and No.  333-37663)  on Form S-8 of Carson Inc.  of our report  dated
April 10, 2000,  relating to the consolidated  balance sheets of Carson Holdings
Limited and its  subsidiaries  as of December 31, 1999 and 1998, and the related
consolidated  statements of earnings,  changes in stockholders' equity, and cash
flows for the years then ended,  which report  appears in the December 31, 1999,
annual report on Form 10-K of Carson Inc.

KPMG Inc.
Registered Accountants and Auditors

/s/ KPMG Inc.

Johannesburg, South Africa
10 April 2000


                                       79