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, 1998

                                       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 16, 1999 on The New York Stock
                            Exchange was: $36,877,544

 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 16, 1999:
            Common Stock - Class A, $0.01 Par Value 9,786,162 shares
            Common Stock - Class C, $0.01 Par Value 5,334,700 shares

                      Documents incorporated by reference:
     Definitive Proxy Statement for the 1999 Annual Meeting of Shareholders
          on June 15, 1999 -- Part III.

<PAGE>



                                                      Part I.

Item 1.  Business

Forward Looking Statements

This report on Form 10-K for the year ended  December  31, 1998 as well as other
public documents of the Company contain forward-looking statements which involve
risks and  uncertainties,  including  (i) the  Company's  plans to introduce new
products and product  enhancements,  (ii) the Company's  plans to make selective
acquisitions,  (iii) the Company's  marketing,  distribution  and  manufacturing
expansion  plans,  (iv)  future  financial  performance,  (v)  cash  flows  from
operations,   (vi)   capital   expenditures   and  (vii)  the  cost  and  timely
implementation  of  the  Company's  Year  2000  compliance  modifications.   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,  the Company's IPO prospectus dated
October 14, 1996 and the Company's  debt offering  prospectus  dated October 31,
1997),  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)  unanticipated  costs,  difficulties or delays in implementing the Company's
Year 2000 compliance  modifications.  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 market. 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 Sheeen,  Sta-Sof-Fro,  Posner,  Ultra
Star,  Moxie, Soft 'n Free, 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. The Company's hair care products are specifically

                                       1

<PAGE>



formulated  to  address  the  unique  physiological  characteristics  of hair of
persons of African descent, which typically include curliness and dryness.

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, 1998 the Company's  direct  subsidiaries  were Carson  Products  Company and
Carson  Management  Company.  Active  indirect  subsidiaries of the Company were
Johnson  Products Co., Inc.,  Carson  Holdings  Limited (South  Africa),  Carson
Products  Do  Brasil,  Carson  UK  Ltd.,   Dermablend,   Inc.,  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

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.  As of
December 31, 1998 the Company owned  approximately  52.8% of the stock of Carson
South Africa.

Acquisition of Johnson Products Co., Inc.

On July 14, 1998, the Company acquired all of the outstanding  shares of Johnson
Products  Co.,  Inc.   ("Johnson   Products").   Johnson  Products  is  a  major
manufacturer of personal care products for the ethnic market. The purchase price
approximated $84.7 million with $34.7

                                       2
<PAGE>



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 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 allocation
of the assets and liabilities acquired are 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 purchase price has been allocated to the identifiable assets and liabilities
based on the fair values at the acquisition date.

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 has been 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                                          1,576
     General and administrative expenses                              440
     Amortization                                                     344
                                                            -------------
                                                                 $    890
                                                            =============


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.

                                       3

<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 must be used to pay for
certain  expenses  related to the sale of Cutex.  Any  amounts  not used for the
designated  purposes  by June  30,  2000  must  be  used  to make an  additional
prepayment on the Secured Term Loan.

The remaining $60.3 million of 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 will be
accrued at an annual rate of 16% for the month deferred and will be added to the
outstanding principal amount of the loan. The capital stock and assets of Carson
Products  Company,  the  capital  stock and assets of Johnson  Products  and the
capital stock and intellectual  property of Dermablend 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
On December  10, 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 ("Cutex Company").  The Company realized net cash proceeds
of  approximately  $27.8 million ($4.5 million of which is restricted  cash) and
recorded a loss on the sale of approximately $14.0 million.

Of the cash proceeds received for the sale of the Cutex remover  business,  $4.5
million (the  "Holdback  Amount") must be used by the Company  solely to pay for
certain designated  expenses related to the sale of Cutex. The remaining balance
of the Holdback  Amount on June 30, 2000, if any, must be used by the Company to
make a prepayment of secured debt.



Industry Overview

         Ethnic Hair Care Market

The United  States  retail  ethnic hair care market,  principally  targeting the

                                       4
<PAGE>



distinct  hair care needs of  African-Americans,  was  estimated,  according  to
Packaged  Facts,  an independent  market  research  company (the "Packaged Facts
Report"), to be a $1.2 billion retail business in 1997. This segment is expected
to  continue  to show a modest  annual  growth rate of 4%, thus making it a $1.4
billion  segment by the year 2001.  According to 1997 United  States Census Data
(Selected Social  Characteristics  of the  Population,)  published by the United
States Department of 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 Caucasion  population through the middle of the
next century. The personal income of African-Americans doubled from 1980 to 1990
and their combined  purchasing power is 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.

The United  States  retail  ethnic  hair care market for  African-Americans  has
historically  been a competitive  and highly  fragmented,  but the last year has
seen major changes as large general  market  companies  have entered or expanded
their presence in the ethnic arena:  L'Oreal  purchased  Soft Sheen,  and Revlon
purchased  African Pride.  The Company also  significantly  increased its market
share with the purchase of Johnson Products in the second half of 1998. Prior to
this acquisitive  phase in the category,  the top five companies  garnered a 51%
collective  market share or percent of sales,  but as of December 31, 1998,  the
top five  companies  now  generate  approximately  60% of industry  sales.  This
information is based on sales information collected from store register scanners
at a sampling of food store chains,  drug store chains and mass merchandisers in
the United States and published by Information  Resources,  Inc. ("IRI"). Of the
top five companies, only two are privately owned companies.

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 is no independent market
data to support the size of the international  market, the Company believes that
the international market is significant.

Competitive Strengths

The  Company  had the number one market  position  in the United  States  retail
market in three of the four  ethnic  hair care  categories  in which it competes
(hair relaxers and texturizers,  hair color and men's  depilatory  products) for
the 1998 year,  according to IRI. The  acquisition of Johnson  Products adds the
hair  dress/conditioning  and the combout/oil sheen categories to this list. The
Company  attributes  its leading  market  positions  to a number of  competitive
strengths,  including  its strong brand  names,  dedicated  sales  force,  broad
distribution, R&D capabilities and experienced management team.

o        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 also brings 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,

                                       5
<PAGE>



         properly   targeted   advertising,   package design,   reputation   for
         innovation and focused commitment to the unique needs of its consumers.

o        Experienced Sales Force and Broad Distribution. The Company believes it
         has the largest  direct sales  force serving the  United  States retail
         ethnic  hair  care  market.  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,
         K-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.

o        Focused  Research  and  Development.  The  Company  believes  that  its
         heritage  of  technological innovation  and its  focused R&D effort are
         important to maintaining its market leadership  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,
1998.

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

                                       6
<PAGE>



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

Posner                     Hair Care Maintenance
                           Cosmetics

Ultra Star                 Hair Care Maintenance

Moxie                      Hair Care Maintenance

Soft 'n Free               Relaxers
                           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.

Over  12% of  net  sales  in 1998 was  allocated  to  advertising  and  consumer

                                       7

<PAGE>



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:

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

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

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

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

o        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.

                                       8
<PAGE>



Research and Development and Quality Control

The Company believes that the strength of its competitive position in the ethnic
hair care industry is  attributable,  in part, to its tradition of technological
innovation and its focused R&D effort.  Three of the ethnic 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.

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.

                                       9
<PAGE>



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.

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, and Posner.  The Company  considers these and its other
marks and the name  recognition  associated  with  these 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.

                                       10
<PAGE>



Employees

As of December  31,  1998,  the Company  employed  approximately  349 persons in
Savannah,  172 in Chicago,  Illinois,  an  additional 31 elsewhere in the United
States and 436 internationally.  In the United States, 366 were hourly personnel
and 186 were salaried employees.  The Company also utilizes temporary workers as
needed,  primarily in  manufacturing.  An average of 101 such temporary  workers
were utilized on a daily basis by the Company during the year ended December 31,
1998. 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.

                                       11
<PAGE>

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.

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.

                                       12

<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, 1998 and 1997 are as
follows:



       Quarter Ended                       High                    Low
     -------------------           ---------------        ---------------
       
          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
 
          03/31/97                    $ 14.8750             $ 11.3750
          06/30/97                      11.6250                7.5000
          09/30/97                      13.0000                9.0000
          12/31/97                      11.6875                6.1250


At March  16,  1999,  there  were  approximately  123  holders  of record of the
Company's  Class A Common Stock,  and 17 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. 

                                       13
 
<PAGE>

<TABLE>
Item 6.  Selected Consolidated Historical Financial Data
(Amounts in thousands except per share data)


                                               Company (1)                                Full Fiscal Year             Predecessor
 
                               -------------------------------------------------    ----------------------------     ---------------
                                                                                                         Company 
                                       Year            Year     Nine Months           Predecessor     August 23,             Year
                                      Ended           Ended           Ended         April 1, 1995        1995 to            Ended
                               December 31,    December 31,    December 31,         to August 22,      March 31,        March 31,
                                       1998            1997            1996                  1995        1996(2)             1995
------------------------------------------------------------------------------------------------------------------------------------
<S>                            <C>             <C>             <C>                  <C>             <C>              <C>

Net sales                      $    150,706    $    109,631    $     59,938         $      26,854   $     41,465     $     58,126

Income (loss) before                                                           
extraordinary item                      (36)          3,754          (3,256)                3,934          1,104            5,688
Basic and diluted                                                                                                           
earnings (loss) per                                                                                                        
share before                                                                                                               
extraordinary item             $       0.00    $       0.25    $     ( 0.25)                 ----   $       0.09             ----
Weighted average
shares outstanding                   14,986          15,003          12,715                  ----         11,871             ----
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>




<TABLE>
                                                          Company (1)                              Predecessor 
                                    ------------------------------------------------------------  -------------    

                                    December 31,    December 31,    December 31,       March 31,       March 31,
                                            1998            1997           1996             1996            1995
------------------------------------------------------------------------------------------------ --------------
<S>                                 <C>             <C>             <C>             <C>             <C>   
Total assets                        $    267,463    $    201,424    $     97,529    $     87,980    $     43,863

Long-term debt (including
current portion)                         133,549         103,623          27,101          66,788            ----
Stockholders' equity                      69,160          61,531          54,215           9,775          34,358
Working capital                     $     54,774    $     44,944    $     15,852    $     13,855    $     15,140
------------------------------------------------------------------------------------------------  -------------
</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.




                                       14

<PAGE>



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

Company Overview

Carson,  Inc. (the "Company" or "Carson") was  established in May 1995 and until
August 1995 its  operations  were  negligible.  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
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.

The Company  completed the offering (the "initial public offering") of 4,818,500
shares of Class A common  stock on the New York Stock  Exchange  on October  18,
1996 at a price of $14 per share.  Of these shares,  3,113,000  were sold by the
Company with the balance sold by selling  stockholders,  none of which  included
any members of  management or the original buy out group.  On July 3, 1996,  the
Company's  South  African  subsidiary,  Carson  Holdings Limited ("Carson  South
Africa")  sold  25.0%  of  its  shares  in an  initial  public  offering  on the
Johannesburg Stock Exchange.

The Company believes it is the number one manufacturer and marketer of hair care
and shaving  products  for people of color.  The majority of the  Company's  net
sales are  derived  from four  categories  of the ethnic  health and beauty aids
market: hair relaxers and texturizers, hair color, men's depilatory products and
hair care maintenance products.

In the years ended December 31, 1998 and 1997, 33.6% and 30.8%, 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 31,1998      Total     December 31,1997      Total
--------------------------------------------------------------------------------
Net sales to:  
United States              $ 100,127       66.4%           $  75,834       69.2%
South Africa                  39,183       26.0               21,662       19.8
Europe                         5,715        3.8                4,611        4.2
Other International            5,681        3.8                7,524        6.8
--------------------------------------------------------------------------------
Total                      $ 150,706      100.0%           $ 109,631      100.0%



With the exception of sales by Carson South  Africa  to South Africa,  Botswana,
Lesotho, Namibia and Swaziland, which are denominated in South African Rand, all

                                       15

<PAGE>



of the Company's sales are recorded in United States  Dollars.  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.  However,  due to
fluctuations  in the exchange rate , there is a potential for gains or losses on
the  consolidated  level.  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.

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.  As of
December 31, 1998 the Company owned  approximately  52.8% of the stock of Carson
South Africa.

Acquisition of Johnson Products Co., Inc.
On July 14, 1998, the Company acquired all of the outstanding  shares of Johnson
Products  Co.,  Inc.   ("Johnson   Products").   Johnson  Products  is  a  major
manufacturer of personal care products for the ethnic market. 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.  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 allocation
of the assets and liabilities acquired are 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 purchase price has been allocated to the identifiable assets and liabilities
based on the fair values at the acquisition date.

The  Dermablend  line of corrective  cosmetics,  which is sold in department and

                                       16

<PAGE>



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 has been 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                                            1,576
     General and administrative expenses                                440
     Amortization                                                       344     
                                                               -------------
                                                                   $    890
                                                               =============


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.

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 must be used to pay for
certain  expenses  related to the sale of Cutex.  Any  amounts  not used for the
designated  purposes  by June  30,  2000  must  be  used  to make an  additional
prepayment on the Secured Term Loan.

The remaining $60.3 million of the Secured Term Loan bears interest at an annual

                                       17

<PAGE>



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 will be
accrued at an annual rate of 16% for the month deferred and will be added to the
outstanding principal amount of the loan. The capital stock and assets of Carson
Products  Company,  the  capital  stock and assets of Johnson  Products  and the
capital stock and intellectual  property of Dermablend 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
On December  10, 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 ("Cutex Company").  The Company realized net cash proceeds
of  approximately  $27.8 million ($4.5 million of which is restricted  cash) and
recorded a loss on the sale of approximately $14.0 million.

Of the cash proceeds received for the sale of the Cutex remover  business,  $4.5
million (the  "Holdback  Amount") must be used by the Company  solely to pay for
certain designated  expenses related to the sale of Cutex. The remaining balance
of the Holdback  Amount on June 30, 2000, if any, must be used by the Company to
make a prepayment of secured debt.

Non-recurring Charges
During  the  year  ended   December  31,  1998,   the  Company   recorded  total
non-recurring  pretax charges of $39.0 million  (approximately $23.4 million net
of  tax).   These   non-recurring   charges  by  category  of  expenditure   and
classification in the statement of operations were as follows (in thousands):


<TABLE>

                                                                                 Bad
                                                                               Debts
                                               Management       Fixed            and       Sale of     Write-off
                                 Inventory  Restructuring      Assets          Other         Cutex            of         Total
                                                                                                      Investment                   
<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>


                                       18

<PAGE>



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
employee  severance  costs and expenses  related to the hiring of the  Company's
chief  executive  officer.  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.  The "Bad Debts and  Other"  charges  included
primarily $2.0 million of additional  reserves against  accounts  receivable for
customer  deductions.  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.

Of the  restructuring  charges of $5.8  million,  $1.4 million has been paid and
$2.9 million  represents  the  write-off  of fixed assets  during the year ended
December 31, 1998.

On February 21, 1999,  Gregory  Andrews died causes 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, subject to post-closing adjustments,  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, subject to post closing adjustments,  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  twelve  months  ended
December  31, 1996.  This  acquisition  was  accounted  for  under the  purchase
method of accounting.

                                       19

<PAGE>



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  market  to the
Company's portfolio of brands. The purchase price was approximately $5.6 million
in cash,  subject to post-closing  adjustments,  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,  subject to post closing adjustments,  of which approximately $9.3
million was recorded as intangible  assets;  additional  consideration  was paid
based upon the after-tax profits of the business for the year ended December 31,
1998.  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.  Based upon the after-tax  profit
of A&J  Cosmetics  for the year ended  December  31,  1998,  Carson South Africa
recorded additional  goodwill and additional  consideration due of $3.0 million.
The additional consideration was paid in March 1999.

Results of Operations

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
                        --------------------------------------------------
Carson Products                  $ 71,092             $ 70,169        1.3
Johnson Products                   25,244                   --        N/A
Cutex                              15,187               17,800      (14.7)
                                  111,523               87,969       26.8
                        ---------------------------------------

South Africa                       39,183               21,662       80.9
                        ---------------------------------------
   Consolidated                  $150,706             $109,631       37.5
                        =======================================


The net sales above for Carson Products  includes  results for the domestic core
business,  other domestic sales which are not part of Johnson Products or Cutex,

                                       20

<PAGE>


and  international  sales  excluding  South  Africa.  Net sales of the Company's
domestic core business, ethnic hair care products,  amounted to $57.8 million in
1998, a modest increase of $1.1 million,  or 2.0%,  compared to $56.7 million in
1997.  In the first half of 1998,  domestic  core net sales were below the prior
year levels.  To address the downward  trend in the Company's  domestic core net
sales, 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
increased  by  23.9%  to  $5.7   million  from  $4.6  million  in  1997.   Other
international  net sales  decreased  by 24.5% to $5.7  million in 1998 from $7.5
million  in 1997.  The  reduction  in other  international  net  sales  occurred
primarily in the Caribbean.

The  acquisition  of Johnson  Products in July 1998 added  $25.2  million of net
sales in 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.

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.

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.

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
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

                                       21

<PAGE>

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.

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.

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

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 effective tax rate is unusually high due
to the valuation allowance recorded against deferred tax assets.

                                       22

<PAGE>

Year Ended December 31, 1997 Compared to Year Ended December 31, 1996

Statement of Operations Data
(Dollars in thousands)


                                               Year Ended             Year Ended
                                        December 31, 1997   December 31, 1996(a)
                                                                     (Unaudited)
                                        ----------------------------------------
Net sales                                      $  109,631             $   77,730
Cost of goods sold                                 50,510                 34,923
                                        ----------------------------------------
Gross profit                                       59,121                 42,807
Marketing and selling expenses                     28,158                 19,144
General and adminsitrative expenses                18,714                 10,873
Incentive compensation                               ----                  7,123
                                        ----------------------------------------
Operating income                               $   12,249             $    5,667
                                        ----------------------------------------

Data as a percentage of net sales:
    Net sales                                      100.0%                 100.0%
    Cost of goods sold                              46.1%                  44.9%
                                        ----------------------------------------
    Gross profit                                    53.9%                  55.1%
    Marketing and selling expenses                  25.7%                  24.6%
    General and administrative expenses             17.1%                  14.0%
    Incentive compensation                           ----                   9.2%
                                        ----------------------------------------
    Operating income                                11.1%                   7.3%
                                        ----------------------------------------


(a) The unaudited  statement of operations  for the year ended December 31, 1996
includes the audited  results for the nine-month  period ended December 31, 1996
and the unaudited results for the three-month period ended March 31, 1996.

Net Sales.  Consolidated net sales for the year ended December 31, 1997 amounted
to $109.6  million,  an increase of 41.0% over the $77.7  million  reported  for
1996. This sales increase was principally  attributable to incremental  sales of
the  domestic  acquisitions  of the Cutex and Let's Jam  brands in  addition  to
strong  growth in sales of Carson  South  Africa,  which saw sales  increase  by
110.0%.  Cutex, which was acquired on April 30, 1997,  contributed $17.8 million
to  consolidated  sales,  and Let's Jam,  which was  acquired  on April  8,1997,
contributed $2.4 million to sales. Total  international  sales amounted to $33.8
million,  an increase of 65.4% over the $20.4 million  reported for all of 1996.
Carson  South  Africa  contributed  $21.7  million of this  international  sales
performance.

In the United States, the Company's core ethnic hair care sales declined by 5.2%
to $54.3  million.  However,  during this period,  the Company's  overall market
share of this category,  as published by  Information  Resources,  Inc.  ("IRI")
(based on sales data from store register scanners at a sampling of food and drug
store chains and mass  merchandisers),  increased  slightly.  These market share
results  outperformed the ethnic hair care products market where sales at retail
declined by  approximately  2.6% as published by IRI. The Company  believes that
the softness in this market was  attributable  in part to continuing  drug chain
consolidation as well as consolidation in the distribution channel.

                                       23

<PAGE>



During the second half of 1997,  the Company  introduced a new line of cosmetics
under  the Dark & Lovely  brand  name.  Due to delays  in the  execution  of the
launch,  net sales of Dark & Lovely  Cosmetics  were limited to $1.2 million for
1997.

Gross  Profit.  Gross  profit  increased  to $59.1  million  for the year  ended
December  31, 1997  compared to $42.8  million in the prior year.  Gross  profit
margin decreased from 55.1% in 1996 to 53.9% in 1997.  Management  believes that
this contraction in gross margin was principally  attributable to inefficiencies
in its manufacturing  processes which resulted without a comparable  increase in
production  volume. The Company addressed these issues and by year end had added
a Senior Vice  President,  Operations  and a Director of  Materials  Management.
Management  believes  that it has made  significant  progress in  resolving  the
issues that adversely impacted gross margin in 1997.

Marketing  and Selling  Expenses.  Marketing and selling  expenses  increased to
$28.2  million in 1997  compared to $19.1 million in 1996, an increase of 47.1%.
As a percentage of sales,  marketing and selling  expenses  amounted to 25.7% in
1997 compared to 24.6% in 1996.  There were several  reasons for the substantial
increase  in  marketing  and  selling  expenses.   As  a  result  of  the  Cutex
Acquisition, the Company began paying sales commissions to brokers hired to sell
Cutex.  Prior to the Cutex  Acquisition,  essentially all sales were obtained by
the Company's internal sales force. Additionally,  in connection with the launch
of the Color  Cosmetics  and Salon  Professional  lines,  the  Company  incurred
significant start-up marketing and selling expenses in amounts  disproportionate
to the sales volume  generated  by these new lines.  A total of $1.5 million was
incurred in the Color Cosmetics development and $1.6 million was incurred in the
development of the Salon  Professional line. These amounts were expensed as part
of marketing and selling expenses during 1997.

General  and  Administrative  Expenses.   General  and  administrative  expenses
increased  from $10.9  million in 1996 to $18.7  million in 1997, an increase of
72.1%. This increase was due in part to increased amortization related to recent
acquisitions  combined with  increased  professional  fees and  personnel  costs
associated  with  the  enhancement  of  infrastructure  needed  to  support  the
Company's growth . An example of the infrastructure  improvements  include costs
to  enhance  the  Company's  information  services  technology  needed  to  meet
financial  reporting  requirements  as well as  customer  service  demands.  The
increases in personnel costs were  attributable in large measure to the addition
of a Chief Financial Officer,  a Senior Vice President,  Operations and a Senior
Vice President,  Finance. In addition,  two incumbent  executives who terminated
their services at the end of 1997 were included in the cost structure throughout
1997.  Non-recurring  severance  benefits  aggregating  $430,000  were  paid  or
accrued and expensed in 1997 for these individuals.

Incentive  Compensation.  During  1996, a non-recurring  charge for  pre-initial
public offering incentive  compensation of $7.1 million was incurred. No similar
cost was incurred in 1997.

Operating Income. As a result of the above changes, operating income amounted to
$12.2  million for 1997,  an increase  of 116.1% over  operating  income of $5.7
million  reported for 1996.  The operating  margin was 11.1% in 1997 compared to
7.3% in 1996.

Interest Expense.  Interest expense amounted to $6.4 million in 1997 compared to
$6.2  million  in  1996.  Although  total  interest  expense  did  not  increase
materially  from year to year, the Company  refinanced its debt in November 1997
by issuing  $100.0  million  of 10 3/8 % Senior  Subordinated  Notes  which will
result in increased interest expense in future years.

                                       24
<PAGE>



Extraordinary   Item.  In  connection  with  the  debt   refinancing   mentioned
previously, unamortized debt issuance costs of $3.2 million related to the early
extinguishment  of existing  debt was written  off as an  extraordinary  charge.
After  taxes,  this charge  amounted to $2.1 million  ($0.14 per share).  During
1996, there was an extraordinary  charge of $3.5 million,  ($0.28 per share) net
of income taxes,  related to the write off of debt issuance costs in conjunction
with the extinguishment of debt as a result of the Company's IPO.

Provision  for Income Taxes.  The  provision  for income taxes  amounted to $2.8
million in 1997, or 42.5% of income before income taxes.  In 1996, the provision
for income  taxes was $2.5  million,  although  income  before  income taxes was
negligible.  The  effective  tax  rate in  1996  was  not  proportionate  to the
statutory rate as a result of the majority of the non-deductibility of incentive
compensation charges for income tax purposes.

Company    Nine-Month  Period  Ended  December  31, 1996  Compared  to  Combined
Nine-Month Period Ended December 31, 1995

The Company is comparing its actual  historical  results of  operations  for the
nine-month  period ended  December 31, 1996 to a Predecessor  period of April 1,
1995 to August 22,  1995  combined  with a Company  period of August 23, 1995 to
December  31,  1995.  This  combined  presentation  is  not in  conformity  with
generally  accepted  accounting  principles  but  is  included  for  comparative
purposes only.


Statement of Operations Data
(Dollars in thousands)
                                              Company               Combined (a)
                                      -------------------- --------------------
                                         Nine-Month Period    Nine-Month Period
                                                     Ended                Ended
                                         December 31, 1996    December 31, 1995
                                                                    (Unaudited)
                                       -----------------------------------------
Net sales                                       $   59,938           $   50,527
Cost of goods sold                                  26,940               22,336
                                       -----------------------------------------
Gross profit                                        32,998               28,191
Marketing and selling expenses                      15,692               13,596
General and adminsitrative expenses                  7,732                6,029
Incentive compensation                               7,123                 ----
                                       -----------------------------------------
Operating income                                $    2,451           $    8,566
                                       -----------------------------------------

Data as a percentage of net sales:
    Net Sales                                         100.0%              100.0%
    Cost of goods sold                                 44.9%               44.2%
                                        ----------------------------------------
    Gross profit                                       55.1%               55.8%
    Marketing and selling expenses                     26.2%               26.9%
    General and administrative expenses                12.9%               11.9%
    Incentive compensation                             11.9%                ----
                                        ----------------------------------------
    Operating income                                    4.1%               17.0%
                                        ----------------------------------------

                                       25

<PAGE>



(a) The combined  unaudited  statement of operations for the  nine-month  period
ended  December 31, 1995  includes  results of  Predecessor  operations  for the
period from April 1, 1995 to August 22, 1995  combined  with Company  results of
operations  for the period  from  August 23,  1995 to  December  31,  1995.  The
combined  presentation is not in conformity with generally  accepted  accounting
principles but is included for comparative purposes only.

Net Sales.  Net sales  increased from $50.5 million for the combined  nine-month
period ended December 31, 1995 to $59.9 million for the nine-month  period ended
December  31, 1996,  an increase of 18.6%.  In the United  States,  relaxers and
texturizers,  hair color and hair care  maintenance  products each generated net
sales  increases.  Carson South Africa  continued to demonstrate  strong results
with an  increase  in net sales of 69.2%  from  $5.2  million  for the  combined
nine-month  period ended  December  31, 1995 to $8.8 million for the  nine-month
period ended December 31, 1996.

Gross  Profit.  Gross  profit  increased  from $28.2  million  for the  combined
nine-month  period ended  December 31, 1995 to $33.0 million for the  nine-month
period ended  December 31, 1996, an increase of 17.0%.  This increase was almost
entirely  due to the  increase  in net sales.  As a percent of net sales,  gross
profit  decreased from 55.8% for the combined  nine-month  period ended December
31, 1995 to 55.1% for the nine-month  period ended December 31, 1996,  primarily
due to an inventory  adjustment  related to  repackaging  and  reformulation  of
several product lines.

Marketing and Selling  Expenses.  Marketing and selling expenses  increased from
$13.6  million for the combined  nine-month  period  ended  December 31, 1995 to
$15.7 million for the nine-month  period ended December 31, 1996, an increase of
15.4%.  The  increase in  marketing  and selling  expense was almost  entirely a
result of the increase in net sales. As a percentage of net sales, marketing and
selling expenses decreased from 26.9% to 26.2% during this period,  primarily as
a result of the timing of advertising and promotional expenses.

General and Administrative  Expenses.  General and administrative expenses other
than depreciation and amortization  increased from $4.8 million for the combined
nine-month  period ended  December  31, 1995 to $5.8 million for the  nine-month
period ended  December 31, 1996,  an increase of 20.8%.  As a percentage  of net
sales,  general and  administrative  expenses increased from 9.4% to 9.7% during
this  period.  This  increase  in  general  and  administrative  expenses  as  a
percentage  of net sales was a  function  of  several  factors  relating  to the
acquisition  and the new management  structure.  First,  the new management team
included  the  addition of several new senior  executives  and the  promotion of
certain key executives that increased  personnel costs which management believed
was necessary to support the future growth of the Company.  Second,  the Company
entered into a management  agreement with Morningside  which provides  strategic
consulting advice to the Company for a fee of $400,000 per annum.  Third, travel
expenses   increased   significantly  due  to  the  new  management's  focus  on
international  markets which required extensive travel.  Finally,  bank fees and
professional  fees  increased due to the new credit  agreements  relating to the
debt incurred to finance the Aminco Acquisition.

Incentive   Compensation  Expenses.  The  Company  recognized  $7.1  million  of
incentive  compensation expenses during the nine-month period ended December 31,
1996 relating to costs under certain long-term incentive compensation agreements
and the  purchase  of shares  prior to the  initial  public  offering by several
outside directors and certain members of senior management and for the shares of

                                       26

<PAGE>



Carson South Africa  awarded to certain  members of its  management.  No similar
costs were previously recorded.

Depreciation and Amortization.  Depreciation and amortization  expense increased
from $1.3 million for the combined  nine-month period ended December 31, 1995 to
$1.9 million for the nine-month  period ended December 31, 1996. As a percentage
of net sales,  depreciation and amortization expense increased from 2.5% to 3.2%
during this period.  This increase was  primarily  due to goodwill  amortization
which  resulted from the  application  of purchase  accounting.  The increase in
amortization  due to the Aminco  Acquisition was partially offset by a change in
the way the Company  accounts  for  package  design  costs.  Prior to the Aminco
Acquisition,  the Predecessor  capitalized package design costs and amortized it
over a four year period. Since the Aminco Acquisition,  the Company has expensed
package design costs as incurred.

Operating Income.  As a result of the above changes,  operating income decreased
from $8.6 million for the combined  nine-month period ended December 31, 1995 to
$2.5 million for the nine-month period ended December 31, 1996.

Interest Expense. Interest expense increased substantially from $2.7 million for
the combined  nine-month  period ended December 31, 1995 to $4.5 million for the
nine-month  period ended December 31, 1996, as a result of the new debt incurred
to finance the Aminco Acquisition.

Other Income,  net.  Other income  decreased as a result of the  elimination  of
royalty income associated with the Caribbean.  The Company now handles Caribbean
sales  through its in-house  sales  organization.  Investment  income  decreased
because most of the  Predecessor's  investments  were  liquidated in conjunction
with the Aminco Acquisition. Additionally,  in June of 1996, the Company made an
investment and entered into a management  contract with AM Cosmetics,  a leading
low-cost  producer  of  cosmetics.  Under  the terms of the  investment  and the
management agreement,  the Company is entitled to a 12% paid in kind dividend on
its $3.0  million  investment  and an annual  management  fee of the  greater of
$500,000 or 1% of net sales.

Provision for Taxes. The provision for taxes decreased from $2.8 million to $1.7
million during this period.  The effective tax rate is not  proportionate to the
statutory rates as a result of the majority of the incentive compensation charge
not being deductible for income tax purposes.

Liquidity and Capital Resources

In 1998 the Company's cash balance increased by $14.7 million,  to $28.7 million
at December 31, 1998 from $14.0 million at December 31, 1997. Net cash flow used
in operations was $8.4 million.  Net cash used in operating  activities reflects
uses of cash of $7.4  million for an increase  in accounts  receivable  and $2.6
million for a decrease in accounts  payable and sources of cash of $6.8  million
for an increase in accrued  expenses  and $1.8 million for an increase in income
taxes payable.

                                       27

<PAGE>



Net cash  used in  investing  activities  for 1998  totaled  $21.7  million  and
consisted of $34.7 million of cash paid for the acquisition of Johnson  Products
Company,  $23.3  million of net cash  received for the sale of the Cutex remover
business  and $10.3  million of  non-acquisition related  capital  expenditures.

Net cash provided from financing activities totaled $48.5 million primarily as a
result of $74.4  million  cash  proceeds  from the sale of Carson  South  Africa
stock,  proceeds from  long-term  debt issuance of $93.5  million,  repayment of
long-term debt of $59.5 million,  repayment of the $50.0 million short-term note
used to finance the acquisition of Johnson Products  Company,  repayment of $5.4
million by Carson South Africa related to the 1997 purchase of A&J Cosmetics and
$4.6 million paid for debt issuance costs, primarily related to the new debt.

The cash balance was adversely  impacted in 1998 by the significant  devaluation
of the South African Rand. The rand devalued approximately 22.3%, from 4.89 rand
per dollar at December  31, 1997 to 5.98 rand per dollar at December  31,  1998.
Due to this  devaluation,  the cash  balances  held in South  Africa  fell  $3.7
million  when  converted  to  U.S.  dollars.  During  the  prior  year,  no such
significant devaluation of the rand occurred.

As discussed earlier,  the Company terminated its senior secured credit facility
with Credit Agricole Indosuez in July 1998 and currently has no revolving credit
facility available. However, the Company retained approximately $16.0 million of
the  proceeds  from the  Secured  Term  Loan and the sale of Cutex  for  working
capital  purposes.  The  Secured  Term Loan  provides  the Company the option of
deferring  monthly  interest  payments  a maximum  of twelve  times in the first
twenty-four  months of the term in  exchange  for an  increase in the normal 13%
annual interest rate to a 16% annual interest rate for the months deferred. This
option  provides the Company  flexibility  in meeting its cash needs in the near
term. The Company believes that cash flow from operating activities and existing
cash balances will be sufficient to fund working capital  requirements,  capital
expenditures and debt service requirements in the foreseeable future.

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
successfully  implement  its  growth  strategy,  the nature and 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.

Year 2000 Issue
The Company currently utilizes two computer  information systems. The JD Edwards
financial  package is used to support  several  financial  applications.  In its
distribution and manufacturing  operations,  the Company uses a software package
known as PRISM developed by MARCAM.  The JD Edwards and PRISM packages run on an
IBM AS/400 computer and are currently not year 2000 compliant.

                                       28
<PAGE>



To replace the current systems and provide year 2000 compliance,  management has
selected SAP, a single vendor,  integrated  business software package.  SAP will
run on  the  Company's  IBM  AS/400  computer.  A  certification  of  year  2000
compliance  will be obtained for the AS/400 from IBM. The cost of  conversion to
SAP is estimated to be approximately $1.2 million, including hardware,  software
and the Company's  commitment of internal  resources.  As of March 27, 1999, the
Company  has  incurred  approximately  $0.7  million of the $1.2  million  cost.
Implementation is in process. The initial phase has been completed,  and testing
is  underway.  The core project will train the general user group in April 1999.
The Company expects the installation to be complete during the second quarter of
1999.

In the unlikely event that implementation of the new software fails, the Company
would  immediately  begin working with another  software  vendor to achieve year
2000  compliance  as quickly as possible.  The risk  associated  with not having
systems that are  compliant  by the year 2000 is that the Company  would have to
implement manual  procedures which would lead to a reduction in efficiency.  The
Company could continue to operate, but at a reduced level of productivity.

Other items which include  non-information  technology  systems are being tested
and upgraded as needed.  Included in the non-information  technology systems are
the  Company's   personal   computers  and  applications,   telephone   systems,
manufacturing equipment, security systems and other non- crucial items.

The  Company  has a  substantial  amount  of  personal  computers  and  software
applications.  The Company will replace all non-compliant personal computers and
install  the latest  versions  of year 2000  compliant  applications  available.
Specialized applications not used company-wide will be upgraded as necessary.

Other  non-information  technology systems such as telephone  systems,  security
systems and copiers are being assessed for year 2000 compliance.  The Company is
contacting  vendors of these items to determine their compliance status. No time
frame or estimated cost has been established to bring these  non-essential items
year 2000 compliant.

The  costs of major  year  2000  projects  have  been  included  in the  current
operating  budget.  The  majority  of these costs will be  capitalized  with the
exception of software data  conversion  costs and training  costs.  The funds to
finance these projects will come from the Company's  operating cash flow.  There
can be no assurance  that the Company will not  encounter  unanticipated  delays
with the implementations or that costs of such  implementations  will not exceed
management's current estimates.

The Company is considering issuing  certification  requests to all major vendors
and  customers as well as to its main bank seeking  assurance  that they will be
year 2000  compliant  and will  continue to monitor the  progress of these third
parties in  becoming  year 2000  compliant.  At this time,  the  Company  has no
contingency plans to address problems if third parties are not compliant.

                                       29

<PAGE>



New Accounting Standards
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments  and  Hedging Activities" ("FAS 133") was issued in June 1998 and is
effective for fiscal years  beginning  after June 15, 1999.  The Company has not
yet  completed  its  evaluation  of the effect of this standard on its financial
statements.  However, at this time the Company does not expect FAS 133 to have a
material effect on its financial position, results of operations,  cash flows or
financial statement disclosures.

                                       30

<PAGE>

Item 8. Financial Statements and Supplementary Data


CARSON, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<TABLE>
                                                                                                  Nine Months
                                                                                                     Ended
                                                                        Year Ended December 31,   December 31,
                                                                      =========================
                                                                           1998           1997           1996
                                                                      ==========     ==========     ==========
<S>                                                                   <C>            <C>            <C>      


Net sales                                                             $ 150,706      $ 109,631      $  59,938
Cost of sales                                                            84,509         50,510         26,940
                                                                      ----------     ----------     ----------
     Gross profit                                                        66,197         59,121         32,998
                                                                      ----------     ----------     ----------     
                          
Marketing and selling expenses                                           42,692         27,007         15,692
AM Cosmetics sales commissions                                            1,452          1,151             --
General and administrative expenses                                      31,196         18,344          7,499
General and administrative - fees paid to  Morningside                      350            370            233
Loss on sale of business                                                 13,994            --             --
Restructuring charges                                                     5,751             --             --
Incentive compensation, directors and management                             --             --          7,123
                                                                      ----------     ----------     ----------
     Operating expenses                                                  95,435         46,872         30,547
                                                                      ----------     ----------     ----------

Other operating income-cumulative effect of change
in accounting for subsidiary income                                         890             --             --
                                                                      ----------     ----------     ----------
  
     Operating (loss) income                                            (28,348)        12,249          2,451

Gain on sale of subsidiary stock                                         49,140             --             --
Interest expense                                                        (13,649)        (6,444)        (4,545)
Loss on write-off of investment                                          (3,768)            --             --
Other income, net                                                         3,383            780            377
Other income, AM Cosmetics management fee and dividend                      223            900            444
                                                                      ----------     ----------     ----------
Income (loss) before income taxes, minority interest and 
     extraordinary item                                                   6,981          7,485         (1,273)

Provision for income taxes                                               (4,299)        (2,779)        (1,727)
                                                                      ----------     ----------     ----------
Income (loss) before minority interest and extraordinary item             2,682          4,706         (3,000)

Minority interest in earnings of subsidiary                              (2,718)          (952)          (256)
                                                                      ----------     ----------     ----------
(Loss) income before extraordinary item                                     (36)         3,754         (3,256)

Extraordinary item, net of income taxes                                     127         (2,086)        (3,527)
                                                                      ----------     ----------     ----------
Net income (loss)                                                    $       91      $   1,668      $  (6,783)
                                                                      ==========     ==========     ==========

Basic and diluted income (loss) per common share: 
     Before extraordinary item                                       $     0.00      $    0.25      $   (0.25)
     Extraordinary item, net of income taxes                               0.01          (0.14)         (0.28)
                                                                      ----------     ----------     ----------
     Net income (loss)                                               $     0.01      $    0.11      $   (0.53)
                                                                      ==========     ==========     ==========

Weighted average common shares outstanding                               14,986         15,003         12,715
                                                                      ==========     ==========     ==========


                The accompanying notes are an integral part of these consolidated financial statements. 
</TABLE>

                                       31
<PAGE>



CARSON, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
<TABLE>
<S>                                                                                             <C>                       <C>    
 
                                                                                              December 31,              December 31,
               ASSETS                                                                                1998                      1997
                                                                                                ==========                ==========
                                                                                                    
CURRENT ASSETS:
     Cash and cash equivalents                                                                  $  28,706                 $  14,043
     Accounts receivable less allowances of $6,457 (1998) and $3,881 (1997)                        38,953                    28,148
     Inventories                                                                                   22,825                    24,861
     Restricted Cash                                                                                4,500                        --
     Other current assets                                                                             669                       832
                                                                                                ----------                ----------
          Total current assets                                                                     95,653                    67,884

PROPERTY, PLANT AND EQUIPMENT, net                                                                 35,765                    22,202

INVESTMENT IN AM COSMETICS                                                                             --                     3,587
       
INTANGIBLES, net of accumulated amortization of $6,174 (1998) and $3,737 (1997)                   129,183                   100,385

OTHER ASSETS                                                                                        6,862                     7,366

                                                                                                ----------                ----------
          TOTAL ASSETS                                                                          $ 267,463                 $ 201,424
                                                                                                ==========                ==========


               LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
     Accounts payable                                                                           $  12,584                 $   8,567
     Due for A&J Cosmetics                                                                          6,355                     5,416
     Accrued expenses                                                                              19,306                     7,413
     Income taxes payable                                                                           2,508                     1,544
     Current maturities of long-term debt                                                             126                        --
                                                                                                ----------                ----------
          Total current liabilities                                                                40,879                    22,940

LONG-TERM DEBT                                                                                    133,423                   103,623

DUE FOR A&J COSMETICS                                                                                  --                     4,088

OTHER LIABILITIES                                                                                   3,345                     1,742

MINORITY INTEREST IN SUBSIDIARY                                                                    20,656                     7,500

COMMITMENTS AND CONTINGENCIES (Notes 14 and 16)                                                        --                        --

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, 7,926,485 and
       5,033,248 shares issued as of December 31, 1998 and 1997, respectively                          79                        50
     Class B, nonvoting, $.01 par value, 2,000,000 shares authorized and 1,859,677 shares
       issued and outstanding                                                                          19                        19
     Class C, voting, $.01 par value, 13,000,000 shares authorized, 5,334,700 and
       8,127,937 shares issued as of December 31, 1998 and 1997, respectively                          53                        81

     Paid-in capital                                                                               80,970                    69,022
     Accumulated deficit                                                                           (3,920)                   (4,011)
     Accumulated other comprehensive losses                                                        (6,495)                   (2,170)
     Notes receivable from shareholders, net of discount                                           (1,209)                   (1,353)
     Treasury stock, 13,245 shares of Class A common stock as of December 31, 1998
       and 1997 and 28,969 shares of Class C common stock as of December 31, 1998                    (337)                     (107)
                                                                                                ----------                ----------
          Total stockholders' equity                                                               69,160                    61,531

                                                                                                ----------                ----------
          TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                            $ 267,463                 $ 201,424
                                                                                                ==========                ==========



                The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       32
<PAGE>



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

                                                                                                                                    
                                                                                                                                    
                                                    Class A                 Class B                 Class C                   Total
                                                ------------------------------------------------------------------------      Share
                                                     Shares      Amount      Shares      Amount      Shares     Amount       Amount
                                                ------------------------------------------------------------------------------------
Balance, March 31, 1996                                  --   $      --       1,860   $      19       9,510   $      95   $     114 
Comprehensive loss:
     Net loss                                            --          --          --          --          --          --          -- 
     Foreign currency translation                        --          --          --          --          --          --          -- 
                                                                                                                                    
Total comprehensive loss                                                                                                            

Gain on sale of South African stock, net                 --          --          --          --          --          --          -- 
Sale of common stock, net                             3,113          31          --          --          --          --          31
Conversion of Class C shares to Class A shares        1,884          19          --          --      (1,884)        (19)         -- 
Reduction of debt from shareholders                      --          --          --          --          --          --          -- 
Shareholder loans, less discount                         --          --          --          --          --          --          -- 
Incentive compensation and other                         --          --          --          --         502           5           5 

                                                ------------------------------------------------------------------------------------
Balance, December 31, 1996                            4,997          50       1,860          19       8,128          81         150 
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         150 
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          --          --          --          --           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   $     151
                                                ====================================================================================

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

</TABLE>


<TABLE>
<S>                                             <C>         <C>          <C>           <C>          <C>          <C>
              
 
                                                                  
                                                              Retained    Accumulated       Notes   
                                                              Earnings      Other        Receivable                      Total
                                                    Paid-in (Accumulated Comprehensive      From        Treasury   Stockholders'
                                                    Capital     Deficit)     Losses    Shareholders      Stock          Equity
                                                -----------------------------------------------------------------------------
Balance, March 31, 1996                           $   8,557   $   1,104    $      --     $      --    $      --     $   9,775
Comprehensive loss:
     Net loss                                            --      (6,783)          --            --           --        (6,783)
     Foreign currency translation                        --          --       (1,309)           --           --        (1,309)
                                                                                                                 ------------
Total comprehensive loss                                                                                               (8,092)

Gain on sale of South African stock, net              2,808          --           --            --           --         2,808
Sale of common stock, net                            38,162          --           --            --           --        38,193
Conversion of Class C shares to Class A shares           --          --           --            --           --            --
Reduction of debt from shareholders                   5,530          --           --            --           --         5,530
Shareholder loans, less discount                         --          --           --        (1,365)          --        (1,365)
Incentive compensation and other                      7,361          --           --            --           --         7,366
                                                -----------------------------------------------------------------------------
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
                                                =============================================================================

                         The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       33
<PAGE>



<TABLE>
CARSON, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

<S>                                                                              <C>                 <C>                <C>  

                                                                                                                        Nine Months
                                                                                                                           Ended
                                                                                       Year Ended December 31,          December 31,
                                                                                         1998                1997               1996
                                                                                 ============        ============       ============
                                                                                                                      
OPERATING ACTIVITIES:
  Net income (loss)                                                              $        91         $     1,668        $    (6,783)
  Adjustments to reconcile net income (loss) to   
    net cash (used in) provided by operating activities: 
         Gain on sale of subsidiary stock                                            (49,140)                 --                 --
         Loss on sale of business                                                     13,994                  --                 --
         Non-cash charges - inventory and fixed assets                                 9,596                  --                 --
         Loss on write-off of investment                                               3,768                  --                 --
         Extraordinary item, net of income taxes                                        (127)              2,086              3,527
         Incentive compensation                                                           --                  --              6,163
         Depreciation and amortization                                                 6,626               3,793              1,896
         Provision for doubtful accounts                                               2,935                 935                112
         Deferred income tax provision                                                   790                (142)              (957)
         Minority interest in earnings of subsidiary                                   2,718                 952                256
         Other, net                                                                      104                (554)            (1,619)
         Prepayment penalty on long-term debt                                             --                  --             (1,328)
         Changes in operating assets and liabilities, net of acquisitions   
           and disposals:     
             Accounts receivable                                                      (7,367)            (13,078)            (2,618)
             Inventories                                                                 (60)            (11,589)            (2,086)
             Other current assets                                                         47               1,711              1,748
             Accounts payable                                                         (2,642)              6,852              3,465
             Accrued liabilities                                                       6,775              (9,912)               430
             Income taxes payable                                                      1,773                  --                 --
             Other liabilities                                                         1,688                  --                 --
                                                                                 ------------        ------------       ------------
                 Total adjustments                                                    (8,522)            (18,946)             8,989
                                                                                 ------------        ------------       ------------
        Net cash (used in) provided by operating activities                           (8,431)            (17,278)             2,206
                                                                                 ------------        ------------       ------------

INVESTING ACTIVITIES:
  Acquisitions of business assets, net of cash acquired                              (34,661)            (49,406)                --
  Additions to property, plant and equipment                                         (10,340)             (8,220)            (3,805)
  Net proceeds from sale of business                                                  23,298                  --                 --
  Purchases of long-term investments                                                     --                   --             (3,000)
                                                                                 ------------        ------------       ------------
       Net cash used in investing activities                                         (21,703)            (57,626)            (6,805)
                                                                                 ------------        ------------       ------------

FINANCING ACTIVITIES:
  Proceeds from long-term borrowings                                                  93,500             166,860             32,704
  Proceeds from sale of subsidiary stock                                              74,446               9,032              4,216
  Principal payments on long-term debt                                               (59,537)            (92,661)           (67,876)
  Repayment of short-term notes payable                                              (50,000)                 --                 --
  Payment on A&J Cosmetics payable                                                    (5,416)                 --                 --
  Debt issuance costs                                                                 (4,619)                 --                 --
  Proceeds from equity rights offering                                                    --               1,525                 --
  Proceeds from sale of common stock                                                      --                  --             38,193
  Other, net                                                                             106                  --                 --
                                                                                 ------------        ------------       ------------
        Net cash provided by financing activities                                     48,480              84,756              7,237
                                                                                 ------------        ------------       ------------

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

NET INCREASE IN CASH AND CASH EQUIVALENTS                                             14,663               9,852              2,638
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                      14,043               4,191              1,553
                                                                                 ------------        ------------       ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                       $    28,706         $    14,043        $     4,191
                                                                                 ============        ============       ============

Cash paid during the year for:
  Interest                                                                       $    13,324          $    6,683        $     4,178
  Income taxes                                                                   $     2,273          $    2,764        $     2,421

                        The accompanying notes are an integral part of these consolidated financial statements.
</TABLE>

                                       34

<PAGE>



Notes to Consolidated Financial Statements

Note 1. Organization and Business

Carson, Inc. (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  more than 100 products are  marketed  under  seventeen principal
brand names.

Certain of the  Company's  international  activities  are conducted by its South
African  subsidiary,  Carson Holdings  Limited  ("Carson South  Africa"),  which
through June 1996 was  wholly-owned.  In July 1996, Carson South Africa sold 25%
of its shares in an initial public offering on the Johannesburg  Stock Exchange.
The  subsidiary  received net proceeds of  approximately  $4.2 million from this
sale  (which  resulted in a gain to the Company of  approximately  $2.8  million
which was  recorded  in  paid-in  capital).  In  conjunction  with  this  public
offering,  the Company  entered into an amendment to its license  agreement with
Carson South Africa which provides that,  commencing in April 1998, Carson South
Africa pay the Company a royalty in the amount of 3.0% of the net sales price of
all licensed products. The amount of the royalty increases to 3.5% in April 1999
and 4.0% in April 2000 until the  termination  of the  agreement.  The agreement
expires  initially on April 1, 1999;  however,  the  agreement may be altered or
renewed  indefinitely  thereafter  until  terminated by either party upon twelve
months written notice.

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.  As  of  December  31,  1998  the  Company  owned
approximately 52.8% of the stock of Carson South Africa.

The Company  completed an initial  public  offering of  4,818,500  shares of its
Class A common  stock in October  1996.  The Company  used the  proceeds of such
offering  to  repay  certain   indebtedness.   This  repayment  resulted  in  an
extraordinary  loss recorded at that time of approximately  $3.5 million (net of
tax) for prepayment penalties and the write-off of unamortized debt discount and
deferred financing costs.

Note 2. Significant Accounting Policies

Change in Fiscal Year
Effective  December 31, 1996, the Company changed its fiscal year-end from March
31 to December 31.

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.

                                       35

<PAGE>



New Accounting Standards
Statement of Financial  Accounting Standards No. 133, "Accounting for Derivative
Instruments and  Hedging  Activities" ("FAS 133") was issued in June 1998 and is
effective for fiscal years  beginning  after June 15, 1999.  The Company has not
yet  completed  its  evaluation  of the effect of this standard on its financial
statements.  However, at this time the Company does not expect FAS 133 to have a
material effect on its financial position, results of operations,  cash flows or
financial statement disclosures.

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 6).

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 $98.8  million  and $90.2  million at  December  31, 1998 and 1997,
respectively,  is being  amortized using the  straight-line  method over periods
ranging  from 15 to 40 years.  Trademarks  of $30.1  million and $9.9 million at
December  31,  1998 and  1997,  respectively,  are  being  amortized  using  the
straight-line method over 17 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  records a valuation  allowance  against the  applicable  long-lived
asset for the amount that the projected  discounted cash flows exceeds the asset
at net carrying value.

                                       36

<PAGE>



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.

Foreign Currency Translation
Assets and liabilities of the Carson South Africa operations 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.  Adjustments
resulting from foreign currency  transactions are immaterial to the accompanying
financial statements.

Fair Value of Financial Instruments
The  carrying  values  of  cash  and  cash  equivalents,   accounts  receivable,
inventories,  accounts payable and accrued  liabilities  approximate fair values
due to the  short-term  maturities  of the  instruments.  The carrying  value of
long-term debt approximates fair value except for the senior  subordinated notes
(see Note 9).

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.  The Company's R&D costs  (principally for new products) for the years
ended  December  31, 1998 and 1997 and the nine months  ended  December 31, 1996
were $610,000, $535,000 and $349,000,  respectively. These costs 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.  Basic and diluted earnings per share have been
calculated  and  reported  for  all  periods   presented  in  the  statement  of
operations.

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

                                       37

<PAGE>



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.

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


Note 3. Acquisitions

On July 14, 1998, the Company acquired all of the outstanding  shares of Johnson
Products  Co.,  Inc.   ("Johnson   Products").   Johnson  Products  is  a  major
manufacturer of personal care products for the ethnic market. 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 9).

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 allocation
of the assets and liabilities acquired are 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 purchase price has been allocated to the identifiable assets and liabilities
based on the fair values at the acquisition date.

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 has been included in the
Company's  consolidated  statement of operations for the year ended December 31,
1998. These operating results are summarized as follows:

                                       38

<PAGE>



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


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,  subject to post closing  adjustments,  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
under the Cutex trademark in the United States and Puerto Pico.

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
periods  ended  December  31,  1997 and 1996  include  the  results of the Cutex
business as if the Cutex acquisition had occurred as of the beginning of each of
these periods.  Cutex operations are included in 1998 up to the date of its sale
in December 1998.

<TABLE>

<S>                                           <C>                 <C>                <C>   

(Dollars in thousands except                    Year Ended            Year Ended     Nine Months Ended
 per share amounts)                           December 31, 1998   December 31, 1997  December 31, 1996
                                               (unaudited)           (unaudited)        (unaudited)
-------------------------------------------------------------------------------------------------------
Net sales                                             $ 187,997           $ 176,248          $  74,781
Net income (loss) before extraordinary
   item                                                   1,500               5,913             (1,708)
Net income (loss)                                         1,627               3,827             (5,235)
Basic and diluted income (loss) per
  share before extraordinary item                     $    0.10           $    0.39          $   (0.13)
Basic and diluted income (loss) per
  share                                               $    0.11           $    0.26          $   (0.41)
</TABLE>



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

                                       39

<PAGE>



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,  subject to
post-closing adjustments.  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, subject to post closing adjustments,  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,  subject to post closing adjustments,  of which approximately $9.3
million was recorded as intangible  assets;  additional  consideration  was paid
based upon the after-tax profits of the business for the year ended December 31,
1998. 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. Based upon the after
tax profit of A&J Cosmetics for the year ended  December 31, 1998,  Carson South
Africa recorded  additional  goodwill and additional  consideration  due of $3.0
million. This additional consideration was paid in March 1999.

Note 4. Disposition

On  December  9, 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 ("Cutex Company").  The Company realized net cash proceeds
of  approximately  $27.8 million ($4.5 million of which is restricted  cash) and
recorded a loss on the sale of approximately $14.0 million.

Of the cash proceeds received for the sale of the Cutex remover  business,  $4.5
million (the  "Holdback  Amount") must be used by the Company  solely to pay for
certain designated  expenses related to the sale of Cutex. The remaining balance
of the Holdback  Amount on June 30, 2000, if any, must be used by the Company to
make a prepayment of secured debt (see Note 9).

Note 5. Non-recurring Charges

During the year ended  December 31,  1998,  the Company  recorded  non-recurring
pre-tax charges of $39.0 million  (approximately $23.4 million net of tax). Such
charges by category of expenditure were as follows (in thousands):

                                       40

<PAGE>


 
<TABLE>
<S>                       <C>           <C>            <C>           <C>           <C>             <C>    
                                                                              Bad     
                                                                            Debts
                                           Management         Fixed           and       Sale of  Write-off of
                           Inventory    Restructuring        Assets         Other         Cutex    Investment         Total
                          ------------  -------------  ------------  ------------  ------------  ------------  ------------
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 employee  severance costs and expenses related to the hiring of
the Company's chief executive officer.  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.  The "Bad Debts and  Other"  charges  included
primarily $2.0 million of additional  reserves against  accounts  receivable for
customer  deductions.  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 4). The write-off of the related party investment is discussed further
in Note 16.


Of the  restructuring  charges of $5.8  million,  $1.4 million has been paid and
$2.9 million of fixed assets were written off during the year ended December 31,
1998.

Note 6. Inventories

Inventories are summarized as follows (in thousands):

                               December 31, 1998                December 31,1997
--------------------------------------------------------------------------------
Raw materials                           $   9,979                       $ 10,873
Work-in-process                             1,938                          1,651
Finished goods                             10,908                         12,337
--------------------------------------------------------------------------------
     Total                               $ 22,825                       $ 24,861


                                       41

<PAGE>



Note 7. Property, Plant and Equipment

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


                                      December 31, 1998        December 31, 1997
--------------------------------------------------------------------------------
Land                                           $  1,345                 $    545
Buildings and equipment                          16,661                    7,706
Machinery and equipment                          15,659                    9,423
Furniture and fixtures                            2,657                    1,537
Construction-in-progress                          3,371                    5,242
--------------------------------------------------------------------------------
                                                 39,693                   24,453
Less: accumulated depreciation                    3,928                    2,251
--------------------------------------------------------------------------------
   Total                                       $ 35,765                 $ 22,202
--------------------------------------------------------------------------------


Depreciation  expense  for the years ended  December  31, 1998 and 1997 was $3.0
million and $1.3 million,  respectively.  For the nine months ended December 31,
1996, depreciation expense was $672,000.

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 $1.9 million,  $0.6 million and $0.2
million in the years ended  December 31, 1998 and 1997 and the nine months ended
December 31, 1996,  respectively.  At December 31, 1998,  future  minimum annual
rental  commitments  under  non-cancelable  operating  leases are  approximately
$446,000 per year in 1999 through 2002 and $260,000 in 2003.

Note 8. Other Assets

Other assets are summarized as follows (in thousands):


                                     December 31, 1998         December 31, 1997
--------------------------------------------------------------------------------
Debt issuance costs                            $ 6,534                   $ 6,074
Deferred income taxes                               --                     1,156
Long-term notes receivable                         767                       251
--------------------------------------------------------------------------------
                                                 7,301                     7,481
Less: accumulated amortization                     439                       115
--------------------------------------------------------------------------------
Total                                          $ 6,862                   $ 7,366
--------------------------------------------------------------------------------



                                       42

<PAGE>



Note 9. Long-Term Debt

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


                                            December 31, 1998  December 31, 1997
--------------------------------------------------------------------------------
103/8 % senior subordinated notes due 2007           $ 73,000        $   100,000
13% secured term loan due 2003                         60,324               ----
Revolving line of credit                                   --              3,000
Other                                                     225                623
--------------------------------------------------------------------------------
                                                      133,549            103,623
Less: current portion                                     126             --
--------------------------------------------------------------------------------
                                                    $ 133,423          $ 103,623
--------------------------------------------------------------------------------

Annual  maturities  of  outstanding  indebtedness  at  December  31, 1998 are as
follows (in thousands):


Year ended December 31,
--------------------------------------------------------------------------------
1999                                                                $        126
2000                                                                          99
2001                                                                        ----
2002                                                                        ----
2003                                                                      60,324
Thereafter                                                                73,000
--------------------------------------------------------------------------------
                                                                       $ 133,549

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 3) 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 4) 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 remaining $60.3 million of the Secured Term Loan bears interest at an annual
rate of 13% and matures on December 8, 2003.  Interest is payable  monthly.  The

                                       43

<PAGE>



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 will be
accrued at an annual rate of 16% for the month deferred and will be added to the
outstanding principal amount of the loan. The capital stock and assets of Carson
Products  Company,  the  capital  stock and assets of Johnson  Products  and the
capital stock and intellectual  property of Dermablend 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.

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 3/8 % senior subordinated
notes (the  "offering").  In December  1997, the notes were exchanged for $100.0
million  aggregate  principal  amount of  ten-year,  fixed  rate 10 3/8 % senior
subordinated notes which were registered under a Form S-4 Registration Statement
and are publicly  traded.  The notes are  currently  guaranteed by the Company's
wholly-owned  subsidiaries,   Carson  Products  Company,  Johnson  Products  and
Dermablend.  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 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 $51.1 million at December 31, 1998. At December 31, 1997,
the carrying value of $100.0 million  approximated  fair value.  Fair  value was
determined by reference to quoted market prices.

Credit Facility
Concurrently  with the consummation of the Company's  initial public offering in
October  1996 (see Note 1), the  Company  entered  into a credit  facility  with
Credit  Agricole  Indosuez,  as agent and a lender,  which  included (i) a $15.0
million term loan A, (ii) a $10.0  million term loan B and (iii) a $15.0 million
revolving  credit  facility,  including up to $5.0 million of letters of credit.
The Company used the proceeds from the initial public  offering to retire senior
subordinated notes,  subordinated notes and junior subordinated notes which were
issued in connection with the acquisition of the Company. During the nine months
ended  December 31, 1996,  the Company  recorded an  extraordinary  loss of $3.5
million  (net of tax  benefits of $2.4  million)  for  debt-related  charges and
write-offs related to these debt repayments.  In addition, a shareholder forgave
a portion of junior subordinated notes totaling $5.5 million, which is reflected
as a capital addition in the statement of shareholders' equity.

In April 1997,  the Company  amended its credit  facility  with Credit  Agricole
Indosuez to change the  Company's  then  existing  $40.0  million  senior credit

                                       44

<PAGE>



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 3). In connection  with the  refinancing,  the
Company  incurred debt issuance costs of approximately  $2.6 million,  including
$520,000 paid to Morningside Capital Group, L.L.C.

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.

Note 10. Accrued Liabilities

Accrued liabilities consist of the following (in thousands):


                                           December 31, 1998   December 31, 1997
--------------------------------------------------------------------------------
Compensation and benefits                            $ 4,359             $ 2,788
Accruals related to Cutex disposition                  4,207                ----
Promotional expenses                                   2,093                 839
Accruals related to restructuring                      1,455                ----
Interest                                               1,262               1,592
Self insurance                                         1,159                 766
Professional fees                                        985                 306
Advertising                                              702                 774
Property and sales taxes                                 697                  66
Other                                                  2,387                 282
--------------------------------------------------------------------------------
                                                    $ 19,306             $ 7,413

Note 11. 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 periods
noted:
<TABLE>

<S>                                            <C>                 <C>                 <C>    

                                                      Year Ended           Year Ended    Nine Months Ended
                                               December 31, 1998    December 31, 1997    December 31, 1996
----------------------------------------------------------------------------------------------------------
Statutory rate                                            34.0 %               34.0 %              (34.0)%
State income taxes, net of federal benefit                 1.1 %                1.2 %               (2.6)%
Foreign taxes                                             (3.2)%               ----                 33.8 %
Foreign tax credit                                      ----                   ----                (33.8)%
Loss on sale of management company
stock (see Note 12)                                     (178.6)%               ----                 ----
Valuation allowance                                      179.6 %               ----                 ----
Gain on sale of Carson South Africa stock                 23.5 %               ----                 ----
Goodwill                                                   5.8 %                6.1 %               21.8 %
Incentive compensation                                  ----                   ----                 93.9 %
Other                                                     (0.6)%               (4.2)%               56.6 %
------------------------------------------------------------------------------------------------------
Effective rate                                            61.6 %               37.1 %              135.7 %
</TABLE>

                                       45
<PAGE>




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

<TABLE>
<S>                                            <C>                    <C>                     <C>   

                                                     Year Ended              Year Ended       Nine Months Ended
                                              December 31, 1998       December 31, 1997       December 31, 1996
---------------------------------------------------------------------------------------------------------------
Current:
    Federal                                          $     ----              $     ----              $    1,685
    State                                                   120                    ----                     405
    Foreign                                               3,389                   1,728                     594
                                               ----------------------------------------------------------------
Total current provision                                   3,509                   1,728                   2,684
                                               ----------------------------------------------------------------

Deferred:
    Federal                                                 697                     885                    (749)
    State                                                   137                     104                    (269)
    Foreign                                                 (44)                     62                      61
                                               ----------------------------------------------------------------
Total deferred provision                                    790                   1,051                    (957)
                                               ----------------------------------------------------------------

Total provision before extraordinary items                4,299                   2,779                   1,727
Extraordinary items                                          84                  (1,201)                 (2,351)
                                               ----------------------------------------------------------------
Total income tax expense (benefit)                   $    4,383              $    1,578              $     (624)
</TABLE>

                                       46

<PAGE>

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

<TABLE>
                                                      December 31, 1998               December 31, 1997 
                                                     -------------------             -------------------
<S>                                                 <C>            <C>             <C>              <C> 

(in thousands)                                       Current        Long-term         Current       Long-term
Deferred domestic tax assets related to:
Inventories                                         $   6,036       $    ----       $     897       $    ----
Loss on sale of Cutex                                    ----           5,625            ----            ----
NOL carryforward                                         ----           4,181            ----             696
Accrued expenses                                        3,653             616             758            ----
Package design costs                                      383            ----            ----             538
Allowance for doubtful accounts                           924            ----            ----            ----
Foreign tax credit carryforward                          ----             702            ----             702
Deferred compensation                                    ----            ----            ----             622
State income tax credits and other                        156           1,130             101             256
---------------------------------------------------------------------------------------------------------------
                                                       11,152          12,254           1,756           2,814
Deferred domestic tax liabilities related to:
Inventories                                              (122)         (3,967)           (621)           ----
Amortization                                             ----         ( 2,869)           ----            ----
Property, plant and equipment                            ----          (2,152)           ----          (1,658)
Allowance for doubtful accounts                          ----            (219)           (923)           ----
Other                                                  (1,227)           (313)            (51)           ----
---------------------------------------------------------------------------------------------------------------
                                                       (1,349)         (9,520)         (1,595)         (1,658)
Deferred domestic tax asset                         $   9,803       $   2,734        $    161       $   1,156
Valuation allowance                                    (9,803)         (2,734)           ----            ----
---------------------------------------------------------------------------------------------------------------
Net deferred domestic tax asset                     $    ----       $    ----        $    161       $   1,156

Deferred foreign tax liability                      $    ----       $   (325)        $   ----       $    (143)
---------------------------------------------------------------------------------------------------------------
</TABLE>

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 1998.

Deferred  income  taxes were not provided on  undistributed  earnings of certain
foreign  subsidiaries  ($13.0  million at December  31, 1998 and $5.9 million at
December  31,  1997)  because  such  undistributed  earnings  are expected to be
reinvested   indefinitely   overseas.  If  these  amounts  were  not  considered
permanently  invested,  additional  deferred taxes of approximately $0.7 million
and $0.6 million  would have been provided at December 31, 1998 and December 31,
1997,  respectively.  The foreign tax credit  carryforward and the net operating
loss  carryforward  at December 31, 1998 expire in 2001 and 2018,  respectively.
State income tax credits expire generally in the years 2005 through 2007.

                                       47

<PAGE>



Note 12. 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 1998, $262,500 in 1997 and $401,000 for the
nine months ended December 31, 1996.

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  ($1.5  million at December 31, 1998 and $1.7 million at December 31,
1997) is classified in other liabilities in the accompanying balance sheets.

The Company provides  postretirement health care benefits to a limited number of
key executives.  The accumulated  postretirement benefit obligation ("APBO") was
$572,000 at December 31, 1998 and $548,000 at December 31, 1997. For measurement
purposes,  the cost of providing  medical benefits was assumed to increase by 8%
in the fiscal year ended  December 31, 1998,  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
5.4%  at  December  31,  1998  and  8%  at  December  31,  1997.   Net  periodic
postretirement  benefit cost was $24,000 for 1998,  $14,000 for 1997 and $18,000
for the nine months ended December 31, 1996.

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
11).

The Company recognized $800,000 of compensation expense during the quarter ended
June 30, 1996 relating to anticipated costs under certain equity-based long-term
incentive  compensation  arrangements (such awards and compensation expense were
based  upon the fair  market  value of the  Company  at the time of the  initial
public  offering).   Such   arrangements   were  awarded   originally  as  stock
appreciation  rights  ("SARs").  During 1996 the SARs were amended and converted
into accelerated,  immediately  exercisable stock purchase rights, on a complete
or partial basis, as agreed to by the Company and the awardee. The SARs entitled
the holder to a specified  value  (determined  as a percentage  of the Company's
equity value) over a fixed base value subject to five-year vesting  requirements
(or earlier upon a public  offering or sale of the Company).  Upon amendment and
conversion,  the SAR  rights  were  canceled  (and  replaced  with  accelerated,
immediately exercisable stock purchase rights which have been exercised).  These
rights have a fixed  purchase  price equal in amount to the canceled SARs' fixed
base value.

                                       48

<PAGE>



During  August  1996,  pursuant  to the  terms of the  accelerated,  immediately
exercisable stock purchase rights,  several outside directors  purchased 115,373
shares  of Common  Stock at  approximately  $2.17  per  share  for an  aggregate
purchase price of $250,000 and members of senior  management  purchased  385,818
shares  of Common  Stock at  approximately  $4.21  per  share  for an  aggregate
purchase price of $1.6 million. The purchase of such shares by senior management
was  financed  with  $1.4  million  (net of  discount)  in  noninterest  bearing
long-term full recourse loans from the Company.  The incentive  compensation  of
$7.1 million expense  represents the excess of the initial public offering price
over the actual  purchase price of these shares plus certain cash  payments.  In
connection  with the South African  offering,  the Company also issued shares of
the  subsidiary  to certain  members of its  management;  the  Company  recorded
compensation expense of approximately $0.3 million for these share awards.

Note 13. 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,  1998,   only  awards  of  options  and  restricted   shares  were
outstanding.  Restricted  shares  were  also  granted  to  directors  under  the
"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. The amount
of expense  recorded in the statement of operations for the years ended December
31,1998 and 1997 was $200,000 and $40,000,  respectively.  There was no issuance
of restricted shares in the nine months ended December 31, 1996.  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.

The following summarizes stock option activity for 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

                                       49

<PAGE>



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  in 1998
consistent  with the  provisions  of FAS 123, the Company's net income and basic
and diluted  earnings  per share for the years ended  December  31,1998 and 1997
would have been reduced to the unaudited pro forma amounts  indicated  below (in
thousands except per share amounts):


                                                               1998         1997
                                                         -----------------------
Net income, as reported                                    $     91     $  1,668
Net income(loss), pro forma-unaudited                          (636)       1,243
Basic and diluted earnings per share, as reported              0.01         0.11
Basic and diluted earnings(loss) per share,
  pro forma-unaudited                                         (0.04)        0.08

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 1998 and 1997, respectively:  (i) dividend
yield of 0% and 0%, (ii)  expected  volatility of 54% and 57%,  (iii)  risk-free
interest  rate of 4.7%  and 6.5% and (iv)  expected  life of 6.0  years  and 4.9
years.  The weighted  average fair value of the options  granted during 1998 and
1997 was $1.89 and $4.74, respectively.

The following table summarizes  information  about stock options  outstanding at
December 31, 1998:



Exercise  Number Outstanding   Weighted Average Remaining  Number Exercisable at
  Price   at December 31, 1998           Contractual Life      December 31, 1998
--------------------------------------------------------------------------------
$ 14.00          30,000                    7.8                    20,000
  12.00          50,000                    8.2                    16,666       
  10.94          25,000                    8.7                     8,333
   9.56          50,000                    8.5                    16,666
   9.22          40,000                    8.4                    13,333
   8.75          43,025                    9.3                      ----
   8.29          40,000                    9.4                      ----
   8.25           7,500                    9.0                     2,500
   7.50         100,000                    8.3                    66,666
   7.34          10,000                    9.4                      ----
   2.47         568,500                    9.9                      ----
--------------------------------------------------------------------------------
                964,025                    9.4                   144,164
--------------------------------------------------------------------------------


Note 14. 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 16.

At  the  beginning  of  1997,  the  Company  entered  into  purchase  commitment
agreements with two vendors.  The duration of each commitment agreement is three
years.  The annual  aggregate  commitment  amount  under the two  agreements  is
approximately $4.1 million.  Total purchases under these agreements totaled $4.6
million and $4.1 million in 1998 and 1997, respectively.

                                       50

<PAGE>

Note 15. U.S. and Foreign Operations

The Company operates in one business  segment,  the manufacture and marketing of
ethnic personal care products for people of color. 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>

<S>                       <C>                 <C>                  <C>  
                                  Year Ended          Year Ended   Nine Months Ended
                           December 31, 1998   December 31, 1997   December 31, 1996
------------------------  -------------------  ------------------  ------------------
Net Sales:
United States:
    Domestic                       $ 100,127           $  75,834           $  42,855
    Export                             5,681               7,524               4,147
Europe                                 5,715               4,611               4,127
South Africa                          39,183              21,662               8,809
------------------------  -------------------  ------------------  ------------------
                                   $ 150,706           $ 109,631           $  59,938
------------------------  -------------------  ------------------  ------------------
Net Sales sold under:
Carson label                       $  71,092           $  70,169           $  51,129
Johnson label                         25,244                ----                ----
Cutex label                           15,187              17,800                ----
South Africa label                     39,183              21,662               8,809
------------------------  -------------------  ------------------  ------------------
                                   $ 150,706           $ 109,631           $  59,938
------------------------  -------------------  ------------------  ------------------
Operating income (loss):
United States                      $ (37,671)          $   7,582           $     723
Europe                                 2,290                ----                ----
South Africa                           7,033               4,667               1,728
------------------------  -------------------  ------------------  ------------------
                                   $ (28,348)          $  12,249           $   2,451
------------------------  -------------------  ------------------  ------------------
Identifiable assets (at
end of period):
United States                      $ 256,369           $ 190,264           $  95,283
Europe                                 2,751                ----                ----
South Africa                          60,738              42,545              11,529
Eliminations                        (52,395)             (31,385)             (9,283)
------------------------  -------------------  ------------------  ------------------
                                   $ 267,463           $ 201,424           $  97,529
------------------------  -------------------  ------------------  ------------------
</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,
Posner,  Ultra Star, Moxie, Soft'n Free, Classy Curl, Curly Perm and Afro Sheen.
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.

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  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.  

                                       51
<PAGE>



Note 16. Certain Relationships and Related Transactions

Morningside
Carson Products and Morningside  Capital Group, L.L.C.  ("Morningside")  entered
into a Management  Assistance  Agreement dated August 23 , 1995 (the "Management
Agreement"), pursuant to which Morningside (a shareholder of the Company) agreed
to supply the services of a principal  member of  Morningside  to the Company 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 for
out-of-pocket  expenses.  The termination  date of the Management  Agreement was
August 23, 1998; however,  the term of the agreement has been extended and shall
continue  until  terminated by not less than 30 days'  advance  notice by either
party.   Under  the   Management   Agreement,   the  Company  paid   Morningside
approximately  $127,000,  $40,000 and $25,000 in 1998,  1997 and the nine months
ended  December 31,  1996,  respectively,  for  reimbursement  of  out-of-pocket
expenses.

In connection with the 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. In 1996,  Morningside  received a fee of $100,000 for
arranging and  negotiating  the terms of the bank facility and performing  other
consulting and financial advisory services. In addition,  the Company reimbursed
Morningside for  approximately  $35,000 of  out-of-pocket  expenses  incurred in
connection with the initial public  offering.  From time to time Morningside may
provide  additional  financial  advisory  services  to the  Company,  for  which
Morningside will receive usual and customary compensation.

AM Cosmetics
Morningside AM Acquisition Corp. ("AM Acquisition")  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 "PIK Preferred Shares") issued
by AM  Acquisition, at  a  price of $10,000 per share. AM Acquisition was formed
by  Morningside  on  behalf of  an  investor  group  to  acquire  the  assets of
Arthur  Matney Co.,  Inc.  Certain key  management  personnel  and  shareholders
of  the  Company  are  or  have  been  key  management  and  shareholders  of AM
Cosmetics.  AM  Cosmetics  sells  several  brands  of  budget cosmetics,  one of
which is targeted at  the African-American  consumer.  The  PIK Preferred Shares
are  non-voting  and are entitled to cumulative  dividends  payable quarterly in
additional PIK  Preferred Shares at a rate of 12% per annum.  Additionally,  the
PIK  Preferred  Shares  are  subject to  redemption  in  whole  at the option of
Carson  Products  on  or after  July 1, 2005 , at  the  stated  value  per share
(which is $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  financial   difficulties   and  management  turnover.
The Company recorded a charge of $3.7 million to write off its investment in the
PIK  Preferred  Shares,  as  a result of what management believes is a permanent

                                       52

<PAGE>


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,
1998 and 1997,  the Company  received  $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  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 which will  expire on May 1, 1999 (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
approximately  $4.7 million and $2.0 million from AM Cosmetics in 1998 and 1997,
respectively,  under the AM Manufacturing Agreement. Currently, no production is
being carried out pursuant to this contract.

Carson  Products  and AM  Cosmetics  also  entered  into a sales  and  marketing
agreement (the "AM Sales/Marketing  Agreement") in accordance with the Carson-AM
Management  Agreement  in  1997.  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 was approximately $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.  In its first  claim,  AM Cosmetics  asserts that the
Company  breached  the  Carson-AM  Management  Agreement  by  failing 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 asserts 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. Arbitrators were recently selected, and an
initial conference with the arbitration panel is expected in the near future. AM
Cosmetics  has not yet  specified  its damages or provided  any  calculation  of
alleged  losses.  The Company  disputes AM  Cosmetics'  claim for damages and is
vigorously  defending the matter.  At this time, the ultimate  resolution of the
claim is unknown but is not expected to have a materially  adverse effect on the
Company's financial position, results of operations or cash flows.

Dr. Leroy Keith, Chairman of  the Company, and Vincent  A. Wasik, a  controlling
stockholder  of  the  Company  have ownership  interests  in  AM Cosmetics.  Dr.
Keith  serves  as a member of AM Cosmetics' Board  of  Directors.  In  addition,

                                       53

<PAGE>


Lawrence E. Bathgate,  II, a member of the Company's Board of Directors,  serves
as a member of AM Cosmetics' Board of Directors and as chairman of its executive
committee.

Note 17. Subsequent Event

On February 21, 1999,  the  Company's  President  and Chief  Executive  Officer,
Gregory J. 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
South Africa and as President, International Operations, for the Company.

Note 18. Quarterly Financial Information (Unaudited)

Unaudited quarterly financial  information for the years ended December 31, 1998
and 1997 is as follows (in thousands except per share data):

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

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)

Year Ended December 31, 1997:
Net sales                                                     $  17,932       $  30,234       $  29,625       $  31,840
Gross profit                                                     10,052          16,238          16,070          16,761
Income (loss) before extraordinary items                            682           2,266           1,493            (687)
Net income (loss)                                             $     682       $   2,266       $   1,493       $  (2,773)
Basic and diluted income (loss) per
common share:
    Income (loss) before extraordinary
    items                                                     $    0.05      $      0.15       $     0.10      $    (0.05)
    Net income (loss)                                         $    0.05      $      0.15       $     0.10      $    (0.19)
</TABLE>

                                       54

<PAGE>

Note 19. 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
3/8% Senior Subordinated Notes due 2007 (the "Notes").  The Notes are guaranteed
on a  senior  subordinated  basis  by  Carson  Products,  Johnson  Products  and
Dermablend.  Carson Products is a direct wholly-owned subsidiary of Carson, Inc.
and Johnson  Products and Dermablend are indirect  wholly-owned  subsidiaries of
Carson,  Inc.,  which were  purchased by Carson  Products in 1998. The following
tables present condensed  consolidating  financial information for Carson, Inc.,
the guarantor  subsidiaries,  the  non-guarantor  subsidiaries  of Carson,  Inc.
(other than  inconsequential  non-guarantor  subsidiaries)  and the eliminations
necessary to arrive at the consolidated financial statements of Carson, Inc. and
its subsidiaries.  Separate financial statements for the guarantor  subsidiaries
are not included and the guarantor  subsidiaries are not filing separate reports
under the  Securities  Exchange Act of 1934,  as amended,  because the guarantor
subsidiaries have fully and  unconditionally  guaranteed the Notes, and separate
financial statements and other disclosures concerning the guarantor subsidiaries
are not deemed material to investors.

Non-guarantor  subsidiaries  in 1998 include  Carson South Africa and Carson UK.
Carson UK was incorporated in 1998 and is an indirect wholly-owned subsidiary of
Carson, Inc. 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
52.8%-owned  non-guarantor  subsidiary of Carson,  Inc., 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, Inc.  also  has  one inactive  subsidiary (Carson Botswana
(PTY Limited)), which is inconsequential to the Company and  separate  financial
information  for it has not  been  included  in  these  tables.  CMC is a direct
wholly-owned subsidiary of Carson, Inc.

                                       55

<PAGE>


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

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

                                       56

<PAGE>


Consolidating Statement of Operations for the Year Ended December 31, 1997
<TABLE>
<S>                                            <C>             <C>             <C>             <C>             <C>  
                                                  Carson, Inc.      Guarantor   Non-guarantor                    Consolidated
                                                     (parent)    subsidiaries    subsidiaries    Eliminations     Carson, Inc.
                                               --------------  --------------  --------------  --------------  --------------
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>

                                       57

<PAGE>


Consolidating Balance Sheet as of December 31, 1998
<TABLE>
<S>                                            <C>             <C>             <C>             <C>             <C>   
                                                  Carson, Inc.      Guarantor  Non-guarantor                   Consolidated
                                                     (parent)    subsidiaries   subsidiaries    Eliminations    Carson, Inc.
                                               --------------  --------------  --------------  --------------  --------------
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>

                                       58

<PAGE>


Consolidating Balance Sheet as of December 31, 1997
<TABLE>
<S>                                            <C>             <C>             <C>             <C>             <C>   
                                                  Carson, Inc.      Guarantor   Non-guarantor                    Consolidated
                                                     (parent)    subsidiaries    subsidiaries    Eliminations    Carson, Inc.
                                               --------------  --------------  --------------  --------------  --------------
Assets                                          
Current assets:
    Cash                                            $    ----       $   2,614       $  11,420       $       9       $  14,043
    Accounts receivable, net                             ----          24,058          10,817          (6,727)         28,148
    Inventories, net                                     ----          20,438           4,423            ----          24,861
    Other current assets                                 ----             730             102            ----             832
Property, plant and equipment, net                       ----          16,216           6,021             (35)         22,202
Intangible assets, net and other assets                  ----         101,690           9,762            (114)        111,338
Investment in subsidiary                               61,531          24,518            ----         (86,049)           ----
                                               --------------  --------------  --------------  --------------  --------------
Total assets                                       $   61,531       $ 190,264       $  42,545       $ (92,916)      $ 201,424
                                               ==============  ==============  ==============  ==============  ==============

Liabilities and stockholders' equity
Current liabilities:
    Accounts payable                                $    ----       $  10,599       $   4,840       $  (6,872)      $   8,567
    Other current liabilities                            ----           6,047           8,321               5          14,373
Long-term debt                                           ----         103,000             623            ----         103,623
Other liabilities                                        ----           9,087           4,243            ----          13,330
Common stock and paid in capital                       69,172          16,760          20,131         (36,891)         69,172
Other equity accounts                                  (3,630)         (3,678)         (1,526)          5,204          (3,630)
Retained earnings (Accumulated deficit)                (4,011)         48,449           5,913         (54,362)         (4,011)
                                               --------------  --------------  --------------  --------------  --------------
Total liabilities and stockholders' equity          $  61,531       $ 190,264       $  42,545       $ (92,916)      $ 201,424
                                               ==============  ==============  ==============  ==============  ==============

</TABLE>

                                       59

<PAGE>


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

<S>                                            <C>             <C>             <C>             <C>             <C>
                                                  Carson, Inc.      Guarantor   Non-guarantor                    Consolidated
                                                     (parent)    subsidiaries    subsidiaries    Eliminations     Carson, Inc.
                                               --------------  --------------  --------------  --------------  --------------
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 benefit             ----            (127)           ----            ----            (127)
      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                               ----          (3,867)         (4,646)             (9)         (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>

                                       60

<PAGE>


Consolidating Statement of Cash Flows for the Year Ended December 31, 1997
<TABLE>
<S>                                            <C>             <C>             <C>             <C>             <C>         
                                                  Carson, Inc.      Guarantor   Non-guarantor                    Consolidated
                                                     (parent)    subsidiaries    subsidiaries    Eliminations    Carson, Inc.
                                               --------------  --------------  --------------  --------------  --------------
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>


                                       61

<PAGE>



Independent Auditors' Report

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, 1998 and 1997,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year ended December 31, 1998 and 1997 and the nine months ended December 31,
1996.  These  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility  is to express  an  opinion on these  financial
statements based on our audits.

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

     In our opinion,  such consolidated  financial statements present fairly, in
all  material  respects  the  financial   position  of  Carson,   Inc.  and  its
subsidiaries as of December 31, 1998 and 1997, and the results of its operations
and its cash flows for the years ended  December  31, 1998 and 1997 and the nine
months ended December 31, 1996 in conformity with generally accepted  accounting
principles.


DELOITTE & TOUCHE LLP


Atlanta, Georgia
February 26, 1999

                                       62

<PAGE>



Item 9.  Disagreements on Accounting and Financial Disclosure

None.

                                                     PART III

Item 10.  Directors and Executive Officers of the Registrant

Information  concerning  directors  is  incorporated  by  reference to "Proposal
Number 1 - Election of Directors" in the Company's  Proxy  Statement to be filed
for its 1999 Annual Meeting of Stockholders( the "Proxy Statement"). Information
concerning executive officers who are not directors is incorporated by reference
to page 13 of the Proxy  Statement.  Reference is also made to Item 4(A), Part I
of this report,  "Executive  Officers of the Registrant,"  which  information is
incorporated herein.

Section 16(a) of the Exchange Act requires the directors, executive officers and
persons who own beneficially  more than 10% of certain equity  securities of the
Company to file reports of  ownership  with the  Commission.  Copies of all such
reports  are  required  to be  furnished  to the  Company.  Based on the reports
received  by the  Company  (and on written  representations  from the  reporting
persons),  the Company believes that each of the Company's  directors,  officers
and 10%  beneficial  owners of its Class A Common  Stock filed on a timely basis
the required Forms 3, 4 or 5 at the time such forms were due, except for Malcolm
Yesner,  who  inadvertently  failed to file on a timely  basis Form 3 and Form 4
with respect to six transactions.

Item 11.  Executive Compensation

This information is incorporated  herein by reference to "Compensation and Other
Transactions   with  Executive   Officers  and  Directors  -  Executive  Officer
Compensation" in the Proxy Statement.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

This information is incorporated herein by reference to "Principal  Stockholders
and Management Ownership" in the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

This information is incorporated  herein by reference to "Certain  Relationships
and Related Transactions" in the Proxy Statement.

                                       63

<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,  1998 and  1997,  the  related  statements  of  operations,
shareholders'  equity and cash flows for the years ended  December  31, 1998 and
1997 and the nine months ended  December 31, and the related  report of Deloitte
Touche LLP.

(b)  The Company filed a report on Form 8-K on December 24,1998, which contained
     the Asset Purchase  Agreement between Carson Products Company and The Cutex
     Company,  dated as of December 9, 1998; the License  Agreement  dated as of
     December 9, 1998; the Option Agreement  between Carson Products Company and
     the Cutex  Company,  dated as of  December 9, 1998;  the Secured  Term Loan
     Agreement between Carson Products  Company,  Carson Inc., the Lenders party
     thereto and Norwest Bank Minnesota, N. A. as Collateral Agent,  dated as of
     December 8, 1998;  Press Release dated December 10, 1998; and Press Release
     dated December 11, 1998.


      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 103/8% Senior Subordinated Note due 2007, Series B (included
            as Exhibit B to Exhibit 4.1)
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 Roche
*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 Muley

                                       64

<PAGE>



***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, 2996  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
*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 Roche and Carson, Inc.

                                       66

<PAGE>



*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  Muley and
            Carson, Inc.
*10.35      Pledge  Agreement  dated  August 13, 1996  between  Joyce  Roche 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
***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 Muley 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
            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, 1999
++10.55     Purchase Agreement by and between IVAX Corporationa and Carson, Inc.
            dated as of June 16,1998 
***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.
***24.1     Powers  of  Attorney  (included on  signature  pages of  this Annual
            Report on Form 10-K)
27          Financial Data Schedule


* 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 Annual Report on Form 10-K
for the fiscal year ended December 31,1997

+ 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.

                                       67

<PAGE>



++ 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 Quarterly Report on Form
10-Q for the period ended June 30, 1998     

                                       68

<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: March 30, 1999                        By:/s/ 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: March 30, 1999                        By:/s/ Dr. Leroy Keith
                                                   Chairman and Director

Date: March 30, 1999                        By:/s/ Malcolm R. Yesner
                                                   President and Chief Executive
                                                   Officer and Director

Date: March 30, 1999                        By:/s/ Lawrence E. Bathgate, II
                                                   Director

Date: March 30, 1999                        By:/s/ Suzanne de Passe
                                                   Director

Date: March 30, 1999                        By:/s/ Melvyn J. Estrin
                                                   Director

Date: March 30, 1999                        By:/s/ John L. Sabre
                                                   Director

Date: March 30, 1999                        By:/s/ Vincent A. Wasik
                                                   Director

Date: March 30, 1999                        By:/s/ Robert W. Pierce
                                            Executive  Vice   President,   Chief
                                            Financial  Officer   and   Corporate
                                            Secretary  (Principal Accounting and
                                            Financial Officer)

                                       69