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, 1997

                                       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 incorporation  (I.R.S. Employer Identification
            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  stock  held by  non-affiliates  of the
registrant,  computed by  reference  to the closing  price on The New York Stock
Exchange on December 31, 1997 was: $ 17,999,660

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 February 28, 1998:
Common Stock - Class A, $0.01 Par Value                         5,033,248 shares
Common Stock - Class B, $0.01 Par Value                         1,859,677 shares
Common Stock - Class C, $0.01 Par Value                         8,127,937 shares
                                                               15,020,862 shares

                                           Documents incorporated by reference:
Definitive  Proxy  Statement  to be filed for the 1998  Annual  Meeting  of
Shareholders on May 8, 1998 -- Part III.

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                                     Part I.

Item 1.  Business

Forward Looking Statements

     This  report on Form 10-K for the year ended  December  31, 1997 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   marketing,
distribution and manufacturing expansion plans,(iii) the Company's plans to make
selective acquisitions,  (iv) future financial performance,  (v) cash flows from
operations,  (vi) capital  expenditures,  (vii) the  availability  of funds from
currently   available   credit   facilities  and  (viii)  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.
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 Company's  acquisition of the  Predecessor  for  approximately  $95
million  in cash  (including  $6  million  for fees  and  other  costs  directly
associated with the acquisition) was initially

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financed with long-term borrowings  aggregating  approximately $68.0 million and
has been  accounted for as a purchase (the "Aminco  Acquisition").  Accordingly,
the purchase price has been allocated to the Predecessor's  identifiable  assets
and liabilities  based on the fair values at the acquisition  date.  Liabilities
assumed aggregated approximately $11.4 million. The excess of the purchase price
over the fair  value  of the  Predecessor's  identifiable  net  assets  has been
classified as goodwill.  In connection with the Aminco  Acquisition,  the senior
management of the  Predecessor  was  replaced.  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,
Ltd.  ("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 on April 1, 1998, its South African subsidiary will 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% on April 1, 1999 and 4.0% on April
1,  2000  until  the  termination  of the  agreement.  The  initial  term of the
agreement  expires  on  April  1,  1999;   however,   the  agreement   continues
indefinitely  thereafter until terminated by either party upon 12 months written
notice. See Note 12 to the Consolidated  Financial Statements of the Company for
financial  information related to the Company's  operations in the United States
and South Africa.

         The Company completed an initial public offering of 4,818,500 shares of
its common  stock on October 18,  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.  Also in  October  1996,  the  Company  amended  its
Certificate of Incorporation  to change the authorized  capital stock to Class A
Common  Stock,  Class B Common Stock,  Class C Common Stock and Preferred  Stock
(each with a par value of $.01 per share).  Each share of the  Company's  former
Class A Common Stock was  converted  into 11,370 shares of newly created Class C
Common Stock,  and each share of former Class B Common Stock was converted  into
11,370 shares of newly created  Class B Common  Stock.  These stock  conversions
have  been  given   retroactive   recognition  in  the  accompanying   financial
statements.

Recent Developments

     In 1997,  the  Company  acquired  the right to use the Cutex brand name and
certain  related  assets in the  United  States  and  Puerto  Rico  (the  "Cutex
Acquisition")  and the Let's Jam hair  styling  products  brand name and certain
related  assets.  During 1997,  Carson South Africa acquired the Nu-Me cosmetics
and skin care brand name and certain related assets,  the Restore Plus hair care
brand name and certain related  assets,  the Seasilk  toiletries  brand name and
certain related assets,  and the Sadie roll-on  deodorant brand name and certain
related assets. The Company believes that the Cutex Acquisition  complements the
Company's  existing  product  lines and will enable the Company to increase  its
market share for existing  products by expanding  the number of stores served by
the Company.

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     During 1997, the Company  completed an offering of $100.0 million aggregate
principal amount of ten year, fixed rate 10 3/8% senior  subordinated notes (the
"Offering").  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 fees and expenses of $4.4 million related to a new credit facility (the "New
Credit Facility").  The balance of the proceeds was used for working capital and
general corporate  purposes.  As a result,  the Company  recognized $2.1 million
(net of related tax benefit of $1.1 million) in 1997 of debt-related charges and
write-offs  reflected  in  the  accompanying  statements  of  operations  as  an
extraordinary item.  Concurrent with the Offering,  the Company entered into the
New Credit  Facility  which  includes  (i) a $50.0  million term loan to be used
solely for the purpose of making acquisitions and (ii) a $25.0 million revolving
credit facility.

General

         The Company is a leading manufacturer and marketer in the United States
of  selected  personal  care  products  for both the ethnic  market and the mass
market. The Company believes that it is one of the leading global  manufacturers
and marketers of ethnic hair care products for persons of African  descent.  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 70 different  products  specifically  formulated to address
the unique physiological characteristics of persons of African descent under six
principal brand names, including Dark & Lovely,  Excelle,  Beautiful Beginnings,
Dark & Natural,  Magic and Let's Jam.  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 (constituting  approximately 50% of
the Company's sales in 1997),  hair color,  men's  depilatory  products and hair
care  maintenance  products,  primarily  for  persons  of African  descent.  The
Company's hair care products are  specifically  formulated to address the unique
physiological  characteristics  of hair of  persons of  African  descent,  which
typically include curliness and dryness.  In addition,  the Company is expanding
its product  offerings  to other  segments of the ethnic  personal  care market,
including cosmetics and skin care products.

         The  Company is also a leading  marketer  of nail care  products to the
United States mass market under the Cutex brand name. Cutex is the leading brand
of nail  polish  remover.  Other  products  marketed  under the Cutex brand name
include nail  enamel,  nail care  treatments  and the newly  introduced  women's
depilatory  product,  Naturally Soft Body Creme. The Company acquired the rights
to use the Cutex brand name in the United  States and Puerto Rico in April 1997.
The Company  believes that the Cutex product line  complements its existing hair
care and cosmetics product lines. The Cutex Acquisition is expected to create an
entree  into the United  States mass market for the  Company's  newly  developed
products and increase the Company's overall distribution  strength.  The Company
has contracted with AM Cosmetics to manufacture,  market and distribute  certain
Cutex  products to  capitalize  on AM  Cosmetic's  expertise in cosmetics and to
limit operating and financial risk.  Management  believes that AM Cosmetics,  an
affiliate of the Company,  is the largest  manufacturer  and distributor of nail
enamel in the United States.

Industry Overview

         Ethnic Hair Care Market


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         The United States retail ethnic hair care market, principally targeting
the distinct hair care needs of African-Americans, was estimated, according to a
July 1995 report  published by Packaged Facts,  and independent  market research
company (the "Packaged  Facts  Report") to be a $1.2 billion retail  business in
1995.  According to 1995 United States Census Data ("Census Data")  published by
the United States Department of Commerce,  the  African-American  population was
approximately 34 million and represented 12.7% of the United States  population.
This segment of the  population is projected by the United States  Department of
Commerce to grow  significantly  faster than the general  population through the
middle of the next century.  The personal  income of  African-Americans  doubled
from 1980 to 1990 and  their  combined  purchasing  power  was  estimated  to be
approximately  $260 billion in 1990,  according  to the Census  Data.  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
is competitive and highly fragmented,  with a number of market participants that
focus  specifically  on  this  market.  The  five  largest  companies  generated
approximately  48.2% of industry  sales for the twelve months ended December 31,
1997 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"). Most of the
larger  competitors  in the  ethnic  hair care  market are  privately  owned and
compete  only in this  market.  A few  general  market  health and  beauty  aids
companies produce a limited line of ethnic products.

         In addition to the retail segment of the United States ethnic hair care
market,  there are also  professional  ethnic hair care salons which the Company
estimates to exceed 28,000 in the United  States.  According to market  research
studies  commissioned by the Company in 1990,  which have been updated  annually
through  focus  groups and other  internal  research  conducted  by the  Company
(collectively, "Company Market Research"), approximately 40% of African-American
women patronize salons exclusively,  40% maintain their hair at home exclusively
and 20% switch between salons and home hair care.  The  professional  segment of
the United  States  ethnic hair care market is also highly  fragmented  with the
leading  competitor  being a general market health and beauty aids company.  The
Company  developed a new  professional  ethnic hair care  product line under the
Carson  Compositions  brand name that offers  certain  technological  advantages
compared to other ethnic hair care products currently offered in salons, as well
as a complimentary line of hair care maintenance products for exclusive purchase
in salons.  The Company  entered the United  States  salon  market in the fourth
quarter of 1997.

     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.  The Company's experience in
developing  regions such as South Africa, the Caribbean and Brazil indicates the
percentage  of women  who  patronize  salons  is  dramatically  higher  in these
developing  markets than in developed  markets such as the United States.  These
women  tend  to  patronize   salons  because  relaxer   products  are  generally
unavailable  on a retail basis,  professionals  have the  expertise,  as well as
ready  access to hot water,  which is  necessary  for  effective  use of relaxer
products, and the local salon is often a social gathering place for its patrons.
Although  there  is no  independent  market  data  to  support  the  size of the
international  market,  the Company  believes that the  international  market is
significant.  For example, the Company estimates that in Southern Africa, with a
Black population of approximately 100 million, manufacturers of ethnic hair care
products generated  approximately $40 million in sales in 1995.  Southern Africa
refers to Angola, Botswana, Lesotho, Malawi, Mozambique,  Namibia, South Africa,
Swaziland, Zambia and Zimbabwe.


<PAGE>

         Ethnic Cosmetics Market

     The physiological  differences between the skin of women of African descent
and  Caucasian  women  create  the need for a variety of  products  specifically
manufactured  for women of African  descent.  The  differences  between  the two
groups stem from the wide variety of skin tones that are representative of women
of African descent versus  Caucasian  women.  First,  the skin tones of women of
African  descent are  captured in 33 distinct  shades  versus  seven  shades for
Caucasian  women.  This variety of skin tones makes it  important  for an ethnic
cosmetics  line to have a wide variety of shades to appeal to the broader  range
of consumers.  Second,  hyperpigmentation  and hypopigmentation - or uneven skin
tone - makes  cosmetic  selection  more complex for women of color.  Uneven skin
tone is a problem  experienced  by many  African-American  women.  Products that
provide  ample  coverage are  important to blend away uneven skin tone color and
provide a smooth, even palate.  Third,  certain ingredients that are widely used
in general  market  brands  produce  unacceptable  results  for women of African
descent.  These  ingredients  include  titanium  dioxide and zinc  oxide,  which
produce a graying or whitening effect on darker skin tone;  oil-based  formulas,
which  tend to clog skin pores of women of  African  descent  who have a greater
tendency to have oily skin; and  lanolin-based  formulas which are not conducive
to the skin condition of African-American women.

         In 1995,  the Packaged  Facts Report  projected  that the United States
retail cosmetics segment would include  approximately $251.0 million in sales of
ethnic cosmetics products. Sales of ethnic cosmetics products were forecasted to
grow at an annual rate of 15% in future years according to the same source.

         Personal Care Market

o    Nail  Care  Market.  Nail care has been a rapidly  growing  segment  in the
     cosmetics   market,   with  an  estimated   increase  in  sales  volume  of
     approximately  9.2%  over  the  twelve  months  ended  December  31,  1997,
     according to IRI. Three segments, namely nail enamel/treatments and cuticle
     treatments,  artificial nail products and nail polish  removers  (including
     dryers and thinners), make up the nail care market.

o    Women's  Depilatory  Market.  Current  methods of  removing  unwanted  hair
     include shaving with a razor  (approximately 60%), waxing and using a creme
     or  lotion  depilatory  (approximately  15%).Shaving,while  fast,  easy and
     inexpensive,  can cause nicks, cuts, razor burns and bumps.  Shaving with a
     razor must be performed more often to maintain smooth skin.  Waxing,  while
     longer  lasting,  can be very painful and expensive if done in a salon on a
     regular basis. Depilatories offer longer lasting smoothness,  and are safer
     and less likely to cause bumps or burns.  Current depilatory products often
     contain an  unpleasant  odor and are not  completely  effective in removing
     unwanted hair. Nair, Sally Hansen and Neet represent the principal  brands,
     according to IRI,  targeting women aged 18-44 years.The  Company,  with its
     almost century-old  expertise in men's  depilatories,  introduced its first
     women's  depilatory  product  in 1997 under the Cutex  Naturally  Soft Body
     Creme brand  name. The Company  believes it has an opportunity to penetrate
     this market with a product
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         that delivers smooth,  soft skin in less time than existing brands.  In
         addition,  the Company believes that the pleasant scent and ease of use
         of the brand should give it a competitive advantage.

Competitive Strengths

         The Company had the number one 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 1997  year,
according to IRI. The  acquisition of the Let's Jam product line adds one of the
leading brands in the fourth category,  ethnic hair care  maintenance  products.
According to the same source,  the Company had the number one market position in
the United  States in nail polish  remover  during the same period.  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  seven
     principal  brand  names  including  Dark  &  Lovely,   Excelle,   Beautiful
     Beginnings,  Dark &  Natural,  Magic,Let's  Jam and  Cutex.  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  and  Cutex is the  leading  brand  name for nail  polish
     removers in the United  States mass market.  The Company  believes that its
     brand strength is based upon product quality,properly targeted advertising,
     package  design,  reputation for  innovation and focused  commitment to the
     unique needs of its consumers.

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 also utilizes the  experienced  sales force of AM
     Cosmetics,  an affiliate of the  Company, in the United States mass market.
     Both of these  sales  forces  enhance  the  Company's  ability  to  further
     penetrate  its  markets  with  current  and  new  products.  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,  Eckerd's,
     CVS/Revco), 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.The Company recently
     introduced a women's depilatory product, Cutex
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     Naturally Soft Body Creme,which the Company believes eliminates many of the
     negative  features  usually  associated  with  women's hair  removers.  The
     Company,  through its affiliation with AM Cosmetics,  also developed Dark &
     Lovely Cosmetics,  which the Company believes is the first  hypoallergenic,
     premium quality ethnic  cosmetics line to be marketed through the Company's
     existing distribution channels.

o    Experienced  Management  Team.  Since  the  Aminco  Acquisition,  a team of
     seasoned senior  executives with extensive  experience in the ethnic market
     and consumer products industry has been recruited to build on the Company's
     strong position in the global ethnic hair care market.


Key Brands
     The Company  manufactures and markets a variety of products worldwide.  The
following table sets forth the Company's  principal porducts, as of December 31,
1997.

Brand                      Products
Dark & Lovely              Relaxers
                           Hair Color
                           Hair Care Maintenance

Excelle                    Relaxers
                           Hair Care Maintenance

Beautiful Beginnings       Relaxers
                           Hair Care Maintenance
                           Shampoo

Dark & Natural             Texturizers
                           Hair Color
                           Moustache & Beard Color

Magic                      Shaving Products

Let's Jam                  Hair Care Maintenance

Cutex                      Polish
                           Remover


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 spent an average of approximately 1%
of net sales for each of the last two fiscal years on market  research,  such as
in-home consumer product placements for new products,  tracking studies, concept
testing, package testing and advertising testing aimed at

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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 10.7% of net sales in 1997 was allocated to  advertising  and consumer
promotions.  The Company regularly advertises in magazines aimed at consumers of
African  descent,  such as Essence,  Ebony,  Black  Enterprise  and Jet,  and in
targeted  spot  advertising  on  television  and  cable  channels  such as Black
Entertainment  Television  (BET)  and  engages  in  promotional  activities  and
in-store  displays to  introduce  new  products or attract  new  consumers.  The
Company also uses its kit packaging format to conduct sampling  programs for new
products.

Distribution and Sales

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

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

o    Drug Chains.  The  Company's  products  are sold by drug chains,  including
     Walgreens, Eckerd's and CVS/Revco.

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.  No single
customer  accounted for more that 10.0% of the Company's net sales in the twelve
months ended December 31, 1997.

         The Company's  strong  relationships  with its customers in the various
distribution  channels  are  enhanced  by its direct  sales force  comprised  of
divisional  managers,  regional managers and sales  merchandisers,  covering the
Northeast,  Mid-Atlantic,  Mideast and Midwest regions in the Northern  Division
and the Mid-South, Southeast, Southwest and

                                                         8

<PAGE>



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 distributes its cosmetics and nail care products through AM
Cosmetics' dedicated sales force and broker network.

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

Research and Development and Quality Control

         The Company  believes that the strength of its 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,  led by two
industry  experienced  chemists with Ph.D.s and including nine other researchers
and  technicians,  represents  the largest R&D effort focused on the ethnic hair
care market. In 1996, the Company's R&D department  finalized the development of
several  product  innovations,  including  the Fail Safe and DL2000 hair relaxer
technologies, as well as a full line of hair care maintenance products.

          The  Company's R&D costs  (principally  for new products) for the year
ended March 31, 1995 was  approximately  $300,000  and was $535,000 for the year
ended  December 31,  1997.  For the nine months  ended  December  31, 1996,  the
Company's R&D costs were $300,000. These amounts do not include amounts spent on
quality  control,  analytical  chemistry,   microbiology,  package  testing  and
consumer products testing.

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

                                                         9

<PAGE>



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.  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  Company  relies  on a limited  number of  contractors  to  manufacture  its
products to the Company's  specifications.  For example,  the Company  currently
relies on AM Cosmetics to  manufacture  the Dark & Lovely line of cosmetics  and
Cutex nail enamels.,  Chesebrough-Pond's  USA to  manufacture  Cutex nail polish
remover products and CEI to manufacture the Company's  shampoos and conditioners
as well as the Let's Jam line.

Competition

         The United  States retail  ethnic hair care market is  competitive  and
highly fragmented with a number of market  participants that focus  specifically
on this  market.  The five  largest  companies  generated  approximately  50% of
industry sales in 1997 with the remainder being generated by a number of smaller
companies,  according to the Towne-Oller  Report.  Some of the larger companies,
such as Soft Sheen,  Luster Products and Pro-Line Corp., are privately-owned and
compete only in the ethnic market,  as does the Johnson  Products  subsidiary of
IVAX,  Inc., a New York Stock Exchange  traded company.  However,  a few general
market companies,  such as Revlon, Inc. and Alberto-Culver Company, also produce
a limited  line of  specialized  products  for the ethnic  consumer.  In certain
product  categories,  such as shampoos and hair color,  competition  also arises
from  general  market  manufacturers  such as the  Procter & Gamble  Company and
Bristol-Myers  Squibb Company's Clairol division.  Such general market companies
are larger and have substantially greater financial and other resources than the
Company.  Internationally,  the  Company's  competitors  differ  from  market to
market,  and include  Revlon,  Soft Sheen and several  regionally  based foreign
companies.

         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.


                                                        10

<PAGE>



Trademarks and Patents

         The Company owns all of the trademark  rights used in  connection  with
its  principal  brands both in the United  States and in the other  countries in
which its products are principally sold.  Significant trademarks include: Dark &
Lovely, Cutex, Magic, Let's Jam, Dark & Lovely Excelle, Beautiful Beginnings and
Dark  &  Natural.   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 would not have a material adverse
effect on the  business,  results of  operations  or financial  condition of the
Company.

Consumer Laws, Government and Industry Regulations

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

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

Employees

         As of December 31, 1997, the Company employed approximately 343 persons
in  Savannah,  and  additional  38  elsewhere  in  the  United  States  and  317
internationally.  In the United States,  254 were hourly  personnel and 127 were
salaried  employees.  The Company  also  utilizes  temporary  workers as needed,
primarily  in  manufacturing.  An  average  of 75 such  temporary  workers  were
utilized on a daily basis by the Company during the twelve months ended December
31, 1997.  The Company is  non-union  and believes  that its  relationship  with
employees is good.

Environmental Matters

                                                        11

<PAGE>



         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  six  buildings on a 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
substantially all of the Company's products,  shipping, quality control, the R&D
laboratories,  customer  research and a professional hair salon which is used to
test new products.  The  manufacturing  and warehousing  space has been expanded
seven times since it was originally built in 1954. The Company is in the process
of  reconfiguring  its production lines to increase the capacity of the Savannah
facility.  The Company  has signed a five year lease  agreement  for  additional
warehouse and office space which expires in 2003. The annual lease commitment is
approximately  $445,000.  The Company believes that the capacity in the Savannah
facility  combined with the additional  warehouse space will be adequate for its
needs in the reasonably foreseeable future.

         The Company's  South African  subsidiary owns and occupies one building
on 4.5 acres in  Midrand,  South  Africa,  15 miles north of  Johannesburg  in a
developing industrial park located on the major highway between Johannesburg and
Pretoria.  The property  was  previously  occupied by Pfizer as a  manufacturing
facility and was easily  converted  to suit the  Company's  needs.  The building
encompasses  approximately 80,000 sq. ft. and houses 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  believes that capacity in
the  South  African  facility  is  adequate  for  its  needs  in the  reasonably
foreseeable future.

         In late 1996,  the  Company  purchased a  production  facility in Ghana
located near the Ghanaian Coca-Cola bottling plant which will enable the Company
to better service the 200 million Black people located in the region.  The plant
is expected to be  operational  by June 1997.  In  Tanzania,  East  Africa,  the
Company anticipates having a similar facility to the West African Ghanaian plant
which should be operational by early 1999.

Item 3.  Legal Proceedings


                                                        12

<PAGE>



         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.



                                   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.  The  Company's  Class B Common Stock and Class C Common Stock have no
established  public  trading  market.  The high  and low  sales  prices  for the
Company's  Class A Common  Stock as reported by the New York Stock  Exchange for
each full quarterly period for which prices are available follow:


                              1997      Quarterly Stock Prices*
                          1st            2nd            3rd           4th
                        Quarter        Quarter        Quarter       Quarter
 High                   14 7/8         11 5/8            13          11 11/16
 Low                    11 3/8          7 1/2             9           6 1/8


* Represents the closing price per share on the New York Stock  Exchange,  which
is the market on which shares of the Company's  Class A Common Stock are listed.
The first  quarter  of 1997 is the first  full  quarterly  period for which such
prices are available. The Company's symbol is CIC.

     At December 31, 1997, there were  approximately 42 holders of record of the
Company's  Class A Common Stock, 2 holders of the Company's Class B Common Stock
and 12  holders  of the  Company's  Class  C  Common  Stock.  Since  the  Aminco
Acquisition, 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
entered  into a new bank  credit  facility  and  issued  $100,000,000  of Senior
Subordinated  Notes which restricts 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>



Item 6.  Selected Consolidated Historical Financial Data

<TABLE>
                                                    Company (1)            Full Fiscal Year                    Predecessor
                                               Twelve         Nine
                                               Months       Months    Predecessor    Company (2)
                                                Ended        Ended  April 1, 1995  August 23, 1995
                                          December 31, December 31,  to August 22,  to March 31,            Year Ended March 31,
<S>                                          <C>          <C>            <C>           <C>         <C>         <C>         <C>
Amounts in 000s except per share data            1997     1996 (4)           1995          1996        1995    1994 (3)        1993
Statement of Operations Data:
Net sales ...............................    $109,631     $ 59,938       $ 26,854      $ 41,465    $ 58,126    $ 50,108    $ 49,335
Income (loss) from
  continuing operations (4) .............       3,754       (3,256)         3,934         1,104       5,688       2,697       4,939
Basic and diluted earnings (loss)
  per share from continuing
  operations (4) ........................    $   0.25     $  (0.25)          --        $   0.09        --          --          --
Weighted average common
  shares outstanding ....................      15,003       12,715           --          11,871        --          --          --





                                                                      Company                             Predecessor
                                                   December 31,  December 31,    March 31,                  March 31,
<S>                                                    <C>         <C>            <C>            <C>         <C>            <C>
Balance Sheet Data: ...............................        1997    1996 (3)       1996 (3)           1995    1994 (3)           1993
Total assets ......................................    $201,424    $ 97,529       $ 87,980       $ 43,863    $ 38,609       $ 37,572
Long-term debt (including current portion) ........     103,623      27,101         66,788           --          --              288
Stockholders' equity ..............................      61,531      54,215          9,775         34,358      29,313         30,473
Working capital ...................................    $ 44,944    $ 15,852       $ 13,855       $ 15,140    $ 11,267       $ 14,256

</TABLE>


(1) Effective  December 31, 1996, the Company  changed its fiscal  year-end from
March 31 to December 31.
(2) The acquisition of Aminco,  Inc. (the  Predecessor)  was completed on August
23, 1995. The Company's financial  statements include the operating results from
the acquisition date.
(3) During the second calendar quarter of 1997 the Company changed its method of
valuing inventories. See Note 3 and Note 15 to the financial statements.
(4) Before extraordinary item and cumulative effect of accounting change.





















                                                        14

<PAGE>



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

Overview
Carson, Inc. (formerly DNL Savannah Holding Corp. and also referred to herein as
the  "Company" or "Carson") is a leading  manufacturer  and marketer of personal
care  products.  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 (which  constituted  approximaely 50% of the Company 's net sales in
1997), hair color, men's depilatory products and hair care maintenance products.
Carson 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  include  the  operating  results  of Carson
Products Company ("Carson Products") from the acquisition date .
     The Company 's acquisition of the Predecessor for approximately $95 million
in cash (including $6 million for fees and other costs directly  associated with
the acquisition) was initially  financed with long-term  borrowings  aggregating
approximately  $68.0  million  and has been  accounted  for as a  purchase  (the
"Aminco Acquisition"). Accordingly, the purchase price has been allocated to the
Predecessor's  identifiable  assets and liabilities  based on the fair values at
the  acquisition  date.  Liabilities  assumed  aggregated   approximately  $11.4
million.  The  excess  of  the  purchase  price  over  the  fair  value  of  the
Predecessor's  identifiable  net  assets has been  classified  as  goodwill.  In
connection with the  acquisition,  the senior  management of the Predecessor was
replaced.  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.
     On July 3, 1996, the Company 's South African subsidiary,  Carson Holdings,
L t d . ("Carson  South  Africa") sold 25.0% of its shares in an initial  public
offering on the  Johannesburg  Stock  Exchange.  This  offering  resulted in net
proceeds of approximately  $4.2 million.  At the same time,  Carson South Africa
issued  1.875% of its shares to certain  employ e e s , officers  and  directors
involved in the Company 's South African operations. As a result of the issuance
of these  shares,  the Company has  reflected in its  consolidated  statement of
operations for periods  subsequent to the share issuance a minority  interest in
subsidiary earnings. The amount of the charge reflected in this line item equals
Carson South Africa 's net income for the  applicable  period  multiplied by the
percentage of the Carson South Africa shares which are not  indirectly  owned by
the Company. In conjunction with the South African initial public offering,  the
Company 's U.S.  subsidiary,  Carson  Products  entered into an amendment to its
license  agreement with Carson Products  Proprietary  Limited ("Carson  Products
S.A."), a South African  registered company wholly owned by Carson South Africa,
which provides that  commencing on April 1, 1998,  Carson Products S.A. will pay
to  Carson  Products  a  royalty  in the  amount of 3.0% of the net sales of all
licensed products.  The amount of the royalty increases to 3.5% on April 1, 1999
and 4.0% on April 1, 2000 until the  termination of the  agreement.  The initial
term of the agreement expires on April 1, 1999; however, the agreement continues
indefinitely  thereafter  until  terminated  by either party upon twelve  months
written notice.
     In the twelve months ended December 31, 1997, 30.8% 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 such period:
                                            Dollars in thousands      % of Total
Net sales to:
United States ............................             $ 75,834           69.2 %
South Africa .............................               21,662           19.8
Other International ......................               12,135           11.0
Total ....................................             $109,631          100.0 %

With the exception of sales by Carson  Products  S.A. to South Africa, Botswana,
Lesotho, Namibia and Swaziland, which are denominated in South African Rand, all
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
the South African  subsidiary incurs all of its costs in Rand.  However,  due to
fluctuations  in the  exchange  rate , there is a  potential  for  losses on the
consolidated level. Assets and

                                                        15

<PAGE>



liabilities  of the  Company's South   African  operations  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.
     On June 26, 1996,  Carson made an investment of $3.0 million in Morningside
AM  Acquisition  Corp.,  the parent of AM  Cosmetics,  Inc.  ("AM  Cosmetics") a
leading low-cost manufacturer of cosmetics.  The investment was made through the
purchase of $3.0 million of 12% cumulative, payment-in-kind preferred stock. The
Company 's consolidated  statements of operations for periods subsequent to June
26, 1996 include the dividend income from this  investment,  although  dividends
are anticipated to be paid through the issuance of additional  preferred  stock.
Therefore, it is anticipated that no cash will be generated from this investment
in the near future.  In connection  with the  investment,  Carson entered into a
management  agreement and will enter into certain  related sales  agreements and
manufacturing agreements with AM Cosmetics.
     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.
     In the first half of 1997,  Carson's South African  subsidiary  consummated
three acquisitions in the African personal care industry i n cluding 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  in the year  ended  December  31,  1997) . These
acquisitions are 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 's
USA Cutex line approximated  $18.2 million,  excluding any results from the sale
of nail enamel or other products under license by Jean Philippe,  for the twelve
months ended  December 31, 1996.  This  acquisition  is accounted  for under the
purchase method of accounting.
     Also on April 30, 1997, the Company  terminated  its just acquired  license
agreement with Jean Philippe to package,distribute,and sell nail enamel and nail
care  treatment  products,  nail care  implements  and lipstick  under the Cutex
trademark in the United States and Puerto Rico.
     During April 1997, the Company  completed the  acquisition of the Let's Jam
product line from New Image Laboratories,  Inc.This acquisition added one of the
leading  hair  care  maintenance  brands  in the  ethnic  retail  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 is 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
purchase  consideration  payable  for  the  acquisition  is  approximately  $9.5
million,  subject  to post  closing  adjustments,  of which  approximately  $9.3
million was recorded as intangible  assets;  additional  consideration  of up to
$3.7 million  based upon the after tax profit of the business for the year ended
December 31, 1998 may be paid. 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 in the year ended December 31, 1997).  Approximately $5.4 million of the
purchase price was paid in January 1998,  approximately  $4.1 million is payable
on or before  January  3, 1999 and the  remainder  (subject  to  adjustment)  is
payable no later than March 1999.

Effect of the Recent Acquisitions on Results of Operations

     The consummation of recent acquisitions  affected the Company 's results of
operations in certain significant respects.  The Cutex Acquisition and the other
recent  acquisitions  have been reflected  using purchase  accounting,  with the
excess of the purchase price over the fair value of the  identifiable net assets
being classified as goodwill.  Therefore,  depreciation and amortization expense
increased for periods following each such acquisition, and interest expense also
increased  following the Cutex Acquisition due to increased debt used to finance
the Cutex Acquisition.Similarly, the Aminco Acquisition
                                                        16

<PAGE>



was reflected using purchase  accounting with the purchase price being allocated
to the Company's  identifiable  assets and  liabilities  based on fair values at
the date of  acquisition,  which was August 23, 1995. The excess of the purchase
price over the fair value of the  Company  's  identifiable  net assets has been
classified as goodwill. The depreciation and amortization expense of the Company
are  significantly  higher than the  corresponding  amounts for the Predecessor.
Additionally,  interest expense increased due to debt used to finance the Aminco
Acquisition.  Due to these increased expenses,  the financial  statements of the
Predecessor  are not strictly  comparable to those of the Company for subsequent
periods.  However,  the following table combines historical fiscal 1995 data for
the Predecessor  and the Company in order to facilitate  discussion of financial
results.
<TABLE>

Statement of Operations Data
                                                                                    Company                             Combined (b)
                                                               Twelve-Month       Twelve-Month         Nine-Month         Nine-Month
                                                               Period Ended       Period Ended       Period Ended       Period Ended
Dollars in 000s                                            December 31,1997  December 31,1996(a) December 31,1996   December 31,1995
                                                                                    (Unaudited)                          (Unaudited)
<S>                                                                <C>                <C>                <C>                <C>
Net sales ..............................................           $109,631           $ 77,730           $ 59,938           $ 50,527
Cost of goods sold .....................................             50,510             34,923             26,940             22,336
Gross profit ...........................................             59,121             42,807             32,998             28,191
Marketing and selling expenses .........................             28,158             19,144             15,692             13,596
General and administrative expenses ....................             18,714             10,873              7,732              6,029
Incentive compensation .................................               --                7,123              7,123               --
Operating income .......................................           $ 12,249           $  5,667           $  2,451           $  8,566

Data as a Percentage of Sales:
Net sales ..................................................          100.0%             100.0%             100.0%            100.0%
Cost of goods sold .........................................           46.1               44.9               44.9              44.2
Gross profit ...............................................           53.9               55.1               55.1              55.8
Marketing and selling expenses .............................           25.7               24.6               26.2              26.9
General and administrative expenses ........................           17.1               14.0               12.9              11.9
Incentive compensation .....................................             --                9.2               11.9                --
Operating income ...........................................           11.1%               7.3%               4.1%             17.0%
</TABLE>

(a) The unaudited  statement of  operations  for the  twelve-month  period 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.  (b) 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.

Company  Twelve-Month  Period Ended  December 31, 1997 Compared to  Twelve-Month
Period Ended  December 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 is  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 the South  African  subsidiary,  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.
The South Africa  subsidiary  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 is  attributable  in part to  continuing  drug
chain consolidation as well as consolidation in the distribution channel.
      During the second half of 1997,  the Company  introduced a new line of
cosmetics under the Dark & Lovely

                                                        17

<PAGE>



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 is principally  attributable to  inefficiencies
in its manufacturing  processes which resulted without a comparable  increase in
production  volume.  The Company is addressing  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.

     During 1997, the Company  changed its method of valuing  inventories in the
United States from the lower of last-in,  first-out (LIFO) cost or market to the
lower of first-in,  first-out  (FIFO) cost or market.  The effect of this change
has been  reflected  to the extent  material in all periods  presented  in these
financial  statements.  This change in value in inventories was made in order to
provide conformity among all of the Company's subsidiaries as well as to conform
with general industry practices. As a result of this change in accounting,  cost
of goods sold increased and net income  decreased for the period from August 23,
1995 to March 31, 1996 by $177,000  and  $102,000,  respectively,  from  amounts
previously reported. In addition,  inventories  decreased by $177,000,  retained
earnings  decreased by $102,000,  and deferred income taxes decreased by $75,000
at December 31, 1996.

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 is 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.  Nonrecurring severance benefits aggregating $430,000 were paid or accrued
and expensed in 1997 for these individuals.

Incentive  Compensation.  During 1996,  a  nonrecurring  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.  Accordingly,
interest expense in future years, including amortization of debt issuance costs,
can be expected to amount to a minimum of $11.0 million per year. See "Liquidity
and Capital Resources" for further description of the Company 's financing.

                                                        18

<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.

Net Sales.  Net sales  increased from $50.5 million for the combined  nine-month
period  ended  December 31, 1995 to $59.9  million for t h e  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
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
On June 26, 1996,  Carson Products  Company invested $3.0 million in Morningside
AM  Acquisition   Corp.,  the  parent  of  AM  Cosmetics,   a  leading  low-cost
manufacturer of cosmetics.  The investment was made through the purchase of $3.0
million of 12%  cumulative,  payment-in-kind  preferred  stock.  The  Company 's
consolidated  statement of  operations  for periods  subsequent to June 26, 1996
include  the  dividend  income  from this  investment,  although  dividends  are
anticipated   to  be  paid   through  the  issuance  of   additional   preferred
stock.Therefore,  it is  anticipated  that no cash will be  generated  from this
investment  in the  near  future.  In  connection  with the  investment,  Carson
Products  Company entered into a management  agreement and certain related sales
agreements  and  manufacturing   agreements  with  AM  Cosmetics.  See  "Certain
Relationships and Related Transactions--AM Cosmetics."
     The Company  completed  the offering of 4,818,500  shares of Class A common
stock on the NYSE on October 18,  1996 at a price of $14.00 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 principal
investors.  The Company used the net proceeds of such  offering to repay certain
indebtedness of Carson Products Company used to finance the Aminco Acquisition.
      In April  1997,  the  Company  amended  its credit  facility to change the
Company 's then  existing  $40.0  million  senior  credit  facility  to a $100.0
million  senior  credit  facility  consisting  of $25.0 million of Term A loans,
$50.0 million of Term B loans and a $25.0 million revolving loan commitment. The
proceeds  of the  new  term  loans  were  used  in part  to  finance  the  Cutex
Acquisition.  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  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"). The notes are

                                                        19

<PAGE>



guaranteed by the Company 's wholly-owned  subsidiary,  Carson Products Company.
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 the amended 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 $2.1 million (net of the
related  tax  benefit  of $1.2  million)  in 1997 of  debt-related  charges  and
write-offs  reflected  in  the  accompanying  statements  of  operations  as  an
extraordinary item. The Company defers all loan fees and amortizes them over the
term of the loan. The private offering contains covenants with respect to, among
other things,  (i) maintenance by Carson  Products  Company of certain cash flow
coverage  ratios;  (ii)  restrictions  on the incurrence of additional  liens or
indebtedness.  The private offering contains  restrictions on the payment of any
cash dividends by the Company or any subsidiary.
     Concurrently  with the  consummation of the private  offering,  the Company
entered into a new credit  facility with Credit  Agricole  Indosuez as agent and
lender,  which is guaranteed by the Company 's wholly-owned  subsidiary,  Carson
Products  Company.  The facility  provides a term  acquisition  loan facility of
$50.0 million and a revolving loan facility of $25.0 million. The final maturity
date for each of the term loan facility and  revolving  loan facility is October
2005 and  2003,  respectively.  Borrowings  under  the term  loan  facility  and
revolving  loan  facility  will bear interest at the Base Rate (as defined) plus
1.0% and the Base Rate plus 0.5%, respectively,  or at the Company's option, the
Eurodollar  Rate (as  defined)  plus 2.5% and the  Eurodollar  Rate  plus  2.0%,
respectively.  Debt  issue  costs  related  to  the  new  credit  facility  were
approximately $1.7 million.
     The new credit  facility  provides  for (i) a  commitment  fee of 0.25% per
annum on the unutilized portion of the revolving credit facility,  (ii) a fee of
0.25% per annum on the maximum  amount  available  to be drawn under  letters of
credit and (iii) a letter of credit  insurance  fee. The new  facility  contains
covenants  with  respect  to,  among other  things,  (i)  maintenance  by Carson
Products  Company  of certain  total  interest  coverage  ratios,  fixed  charge
coverage ratios and leverage  ratios and (ii)  restrictions on the incurrence of
additional liens or indebtedness.  The new facility contains restrictions on the
payment  of any cash  dividends  by the  Company  or any  subsidiary  except for
dividends or distributions payable in shares of capital stock.
     In the year ended  December 31, 1997,  net cash flow used in operations was
$17.3 million,  largely as a result of a $11.6 million increase in inventory,  a
$13.0 million  increase in accounts  receivable,  and a $8.7 million decrease in
accrued  expenses.  These uses of cash were offset in part by net income of $1.7
million,  depreciation  and  amortization  of $3.8  million  and an  increase in
accounts payable of $6.9 million.
     Net cash used in investing  activities for the year ended December 31, 1997
totaled $57.6 million which consisted primarily of cash paid for acquisitions of
business assets of $49.4 million and capital expenditures  necessary to maintain
the Company 's facilities in modern condition.
     Net cash provided from financing activities totaled $84.8 million primarily
as a result of additional  borrowings  related to  acquisitions  plus the $100.0
million notes issuance discussed above,  offset in part by payments on long-term
debt of $92.7  million.  Additionally,  Carson South Africa  completed an equity
rights  offering which generated $1.5 million of cash, net of $4.2 million which
was  invested by Carson  Products  Company.  The rights  offering of  additional
shares of its common stock to its existing  shareholders was consummated in June
1997 in order to raise  capital to fund the  physical  expansion of the Midrand,
South  Africa  plant,  complete  the  factory  in  Accra,  Ghana,accelerate  the
development of recently acquired brands and provide  additional working capital.
The Company  participated  in the rights  offering  indirectly  by having Carson
Products Company  subscribe for additional shares in the amount of approximately
R19.0  million   (approximately  $4.2  million),  and  therefore  its  ownership
percentage   remained   approximately  the  same.  The  rights  offering  raised
approximately R25.9 million (approximately $5.7 million), including amounts paid
by Carson Products  Company.  In addition,  Carson South Africa issued 8,480,000
shares of its Common Stock during 1997 related to the purchase of A&J  Cosmetics
which generated cash of $9.0 million.
     The Company 's non-acquisition  related capital  expenditures for the years
ended   December  31,  1997  and  1996  were  $8.2  million  and  $3.8  million,
respectively.
     The Company  believes that cash flow from  operating  activities,  existing
cash balances and  available  borrowings  under its New Credit  Facility 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

                                                        20

<PAGE>



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.
     The  Company  has  received  newer  releases  of the JD  Edwards  and PRISM
packages that are year 2000 compliant but has not  implemented  these  releases.
New releases are covered by  maintenance  agreements  with JD Edwards and MARCAM
and as a result there were no additional  software  costs for the releases.  The
Company is currently working on a plan to upgrade current versions of JD Edwards
and PRISM with the newer releases. The new releases have additional features and
functions that will require a significant  amount of user  training.  Management
believes  that the  consulting  and training for the upgrade  could cost between
$50,000 to $100,000,  which includes the Company 's commitment of resources. The
Company  anticipates  that  both  the JD  Edwards  and  PRISM  upgrades  will be
functional by December 31, 1998.

New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("SFAS  No.  130")  .SFAS  No.  130  establishes  standards  for  reporting  and
displaying  comprehensive income and its components (revenues,  expenses,  gains
and losses) in a full set of general-purpose  financial statements.  The Company
will adopt SFAS No. 130 during 1998 and expects to report  comprehensive  income
for the effects of foreign currency  translation  adjustments which are reported
as a component of stockholders' equity.
     In addition,  during 1997 the FASB issued SFAS No. 131,"  Disclosures about
Segments of an Enterprise  and Related  Information."  SFAS No. 131  establishes
revised  standards for the manner in which companies  report  information  about
operating  segments.  The Company  does not  believe  that this  statement  will
significantly  alter the segment  disclosures  it  provides.  This  statement is
effective for the Company 's year ending December 31, 1998.















                                                        21

<PAGE>



Item 8.  Financial Statements and Supplementary Data
<TABLE>

Consolidated Statements of Operations

                                                                      Company                                Twelve-Month Period
                                                                                           Nine-Month Period
                                                                                       Unaudited       Predecessor           Company
                                           January 1,1997 to   April 1,1996 to August 23,1995 to   April 1,1995 to August 23,1995 to
Amounts in 000s,except per share data       December 31,1997  December 31,1996  December 31,1995    August 22,1995     March 31,1996
<S>                                                <C>               <C>               <C>               <C>               <C>
Net sales .................................        $ 109,631         $  59,938         $  23,673         $  26,854         $  41,465
Cost of sales .............................           50,510            26,940            10,823            11,513            18,806
Gross  profit .............................           59,121            32,998            12,850            15,341            22,659
Marketing and selling expenses ............           27,007            15,692             6,129             7,467             9,581
AM Cosmetics sales commissions ............            1,151                --                --                --                --
General and administrative expenses .......           14,551             5,603             2,475             2,276             5,061
General and administrative -
  fees paid to Morningside ................              370               233                --                --                --
Incentive compensation,directors and
  management ..............................               --             7,123                --                --                --
Depreciation and amortization .............            3,793             1,896               776               502             1,331
Operating income ..........................           12,249             2,451             3,470             5,096             6,686
Interest expense ..........................           (6,444)           (4,545)           (2,640)              (56)          (4,487)
Other (expense) income, net ...............             (172)              121                35             1,137               182
Other income,AM Cosmetics management
  fee and dividend ........................              900               444                --                --                --
Income (loss) before income tax ...........            6,533            (1,529)              865             6,177             2,381
Provision for income tax ..................            2,779             1,727               527             2,243             1,277
Income (loss) before extraordinary item ...            3,754            (3,256)              338             3,934             1,104
Extraordinary item,net of tax benefit .....           (2,086)           (3,527)               --                --                --
Net income (loss) .........................            1,668            (6,783)              338             3,934             1,104
Dividends on preferred stock ..............               --                --                --               554                --
Income (loss) available to all shareholders        $   1,668         $  (6,783)        $     338         $   3,380         $   1,104

Basic and diluted earnings (loss) per common share:
Before extraordinary item ........................ $    0.25      $      (0.25)        $    0.03                           $    0.09
Extraordinary item,net of tax benefit .............    (0.14)            (0.28)               --                                  --
Net Income (loss) per share .......................$    0.11      $      (0.53)        $    0.03                           $    0.09

Weighted average common shares outstanding .........  15,003            12,715            11,871                              11,871

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



                                                        23

<PAGE>
<TABLE>



Consolidated Balance Sheets


                                                                                                    December 31,        December 31,
Dollars in 000s except share and par value data                                                             1997                1996
ASSETS
Current Assets:
<S>                                                                                                     <C>                 <C>
Cash and cash equivalents ..................................................................            $ 14,043            $  4,191
Accounts receivable less allowance for doubtful accounts of
   $3,881 (1997) and $614 (1996) ...........................................................              28,148              15,117
Inventories ................................................................................              24,861              10,572
Other current assets .......................................................................                 832               1,421
Total current assets .......................................................................              67,884              31,301
Property, Plant and Equipment, net .........................................................              22,202              15,089
Investment in AM Cosmetics .................................................................               3,587               3,187
Intangibles,net of accumulated amortization of $3,737 (1997) and $1,573 (1996) .............             100,385              46,108
Other Assets ...............................................................................               7,366               1,844
Total Assets ...............................................................................            $201,424            $ 97,529

LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...........................................................................            $  8,567            $  7,065
Due for A&J Cosmetics ......................................................................               5,416                  --
Accrued expenses ...........................................................................               7,413               5,291
Income taxes payable .......................................................................               1,544                 493
Current maturities of long-term debt .......................................................                  --               2,600
Total current liabilities ..................................................................              22,940              15,449
Long-term Debt .............................................................................             103,623              24,501
Due for A&J Cosmetics ......................................................................               4,088                  --
Other Liabilities ..........................................................................               1,742               1,700
Minority Interest in Subsidiary ............................................................               7,500               1,664

Commitments and Contingencies (Notes 11 and 14) ............................................                  --                  --

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,5,033,248
  and 4,996,568 shares issued as of December 31, 1997 and 1996,respectively ..............                   50                   50
Class B,nonvoting, $.01 par value, 2,000,000 shares authorized,1,859,677 shares
  issued and outstanding .................................................................                   19                   19
Class C,voting, $.01 par value,13,000,000 shares authorized, 8,127,937
  shares issued and outstanding ..........................................................                   81                   81
Paid-in capital ..........................................................................               69,022               62,418
Accumulated deficit ......................................................................               (4,011)             (5,679)
Foreign currency translation adjustment ..................................................               (2,170)             (1,309)
Notes receivable from employee shareholders, net of discount .............................               (1,353)             (1,365)
Treasury stock,13,245 shares of Class A common stock .....................................                 (107)                  --
Total stockholders' equity ...............................................................               61,531               54,215
Total Liabilities and Stockholders' Equity ...............................................           $  201,424            $  97,529

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


</TABLE>









                                                        24

<PAGE>

<TABLE>

Consolidated Statement of Stockholders' Equity

                                                                                    Common Stock                  Preferred Stock
Amounts in 000s                                                                 Shares       Amount           Shares          Amount
PREDECESSOR
<S>                                                                            <C>           <C>             <C>             <C>
Balance,March 31,1995 ................................                         406,699       $1,220          606,752         $6,068
Net income ...........................................                              --           --               --             --
Cash dividends,preferred stock .......................                              --           --               --             --
Issuance of treasury stock ...........................                              --           --               --             --
Balance,August 22, 1995 ..............................                         406,699       $1,220          606,752         $6,068

                                                       Class A                        Class B                        Class C
Amounts in 000s                                 Shares        Amount            Shares       Amount           Shares          Amount
COMPANY, beginning
August 23,1995
<S>                                             <C>              <C>             <C>            <C>            <C>              <C>
Sale of common stock .......................        --           $--               569          $ 6            5,799            $58
Issuance of common stock in connection
  with acquisition .........................        --            --             1,291           13            2,006             20
Carryover of predecessor basis .............        --            --                --           --            1,705             17
Net income .................................        --            --                --           --               --             --
Balance,March 31,1996 ......................        --            --             1,860           19            9,510             95
Reduction of debt from shareholders ........        --            --                --           --               --             --
Sale of common stock,net ...................     3,113            31                --           --               --             --
Conversion of Class C shares
  to Class A shares ........................     1,884            19                --           --           (1,884)           (19)
Reduction of debt from sharehoders ........       --             --                --           --               --             --
Net loss ...................................       --             --                --           --               --             --
Translation adjustment .....................       --             --                --           --               --             --
Employee shareholder loans,
  less discount ............................       --             --                --           --               --             --
Incentive compensation and other ...........       --             --                --           --              502              5
Balance,December 31,1996 ...................    4,997             50             1,860           19            8,128             81
Gain on sale of South Africa stock,net .....       --             --                --           --               --             --
Restricted share awards ....................       36             --                --           --               --             --
Net income .................................       --             --                --           --               --             --
Translation adjustment .....................       --             --                --           --               --             --
Change in employee shareholder loans .......       --             --                --           --               --             --
Purchase of treasury stock .................       --             --                --           --               --             --
Balance,December 31, 1997 ..................    5,033            $50             1,860          $19            8,128            $81

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

</TABLE>



                                                       26

<PAGE>


<TABLE>


<S>               <C>                     <C>                                          <C>                                <C>
Paid-in           Retained              Valuation                                      Treasury                                Total
Capital           Earnings             Adjustment                                         Stock                 Stockholders' Equity

$   308           $ 33,187                $   283                                      $ (6,708)                           $ 34,358
     --              3,934                     --                                            --                               3,934
     --               (554)                    --                                            --                                (554)
     --                 --                     --                                           296                                 296
$   308           $ 36,567                $   283                                      $ (6,412)                           $ 38,034

<S>                <C>               <C>                           <C>                   <C>                               <C>
Paid-in           Retained Earnings    Translation               Receivable From       Treasury                                Total
Capital        (Accumulated Deficit)    Adjustment         Employee Shareholders          Stock                 Shareholders' Equity


 $11,936           $    --            $         --                   $        --         $   --                            $ 12,000

  2,717                 --                      --                            --             --                               2,750
 (6,096)                --                      --                            --             --                              (6,079)
     --              1,104                      --                            --             --                               1,104
  8,557              1,104                      --                            --             --                               9,775
  2,808                 --                      --                            --             --                               2,808
 38,162                 --                      --                            --             --                              38,193

     --                 --                      --                            --             --                                  --
  5,530                 --                      --                            --             --                               5,530
     --             (6,783)                     --                            --             --                              (6,783)
     --                 --                  (1,309)                           --             --                              (1,309)

     --                 --                      --                        (1,365)            --                              (1,365)
  7,361                 --                      --                            --             --                               7,366
 62,418             (5,679)                 (1,309)                       (1,365)            --                              54,215
  6,360                 --                      --                            --             --                               6,360
    244                 --                      --                            --             --                                 244
     --              1,668                      --                            --             --                               1,668
     --                 --                    (861)                           --             --                                (861)
     --                 --                      --                            12             --                                  12
     --                 --                      --                            --           (107)                               (107)
$69,022            $(4,011)           $     (2,170)                  $    (1,353)        $ (107)                           $ 61,531





</TABLE>


<PAGE>


Consolidated Statements of Cash Flows


<TABLE>

                                                                                                          Twelve-Month Period
                                                                                               Nine-Month Period
                                                        Company          Company  Company Unaudited      Predecessor         Company
                                             January 1, 1997 to April 1, 1996 to August 23, 1995 to April 1, 1995 to August 23, 1995
Dollars in 000s                               December 31, 1997 December 31, 1996 December 31, 1995 August 22, 1995   March 31, 1996
Operating Activities:
<S>                                                    <C>             <C>                 <C>             <C>              <C>
Net income (loss) ...................................  $  1,668        $ (6,783)           $    338        $  3,934         $ 1,104
Adjustments to reconcile net income (loss) to
net cash (used in) provided by operating activities:
Depreciation and amortization .......................     3,793           1,896                 776             502           1,331
Extraordinary item, net of tax benefit ..............     2,086           3,527                  --              --              --
Incentive compensation ..............................        --           6,163                  --              --              --
Provision for doubtful accounts .....................       935             112                 110              --              --
Deferred income taxes ...............................      (142)           (957)                 --              --             805
Other, net ..........................................       398          (1,363)             (2,238)         (1,367)            701
Prepayment penalty on long-term debt ................        --          (1,328)                 --              --              --
Changes in operating assets and liabilities,
net of acquisitions:
Accounts receivable .................................   (13,078)         (2,618)               (446)           (588)         (2,385)
Inventories .........................................   (11,589)         (2,086)             (1,579)            190          (1,409)
Other current assets ................................     1,711           1,748                 (89)           (546)         (1,045)
Accounts payable ....................................     6,852           3,465                 366            (732)          1,360
Accrued liabilities .................................    (9,912)            430                (985)          1,688          (1,677)
Total adjustments ...................................   (18,946)          8,989              (4,085)           (853)         (2,319)
Net cash (used in) provided by operating activities .   (17,278)          2,206              (3,747)          3,081          (1,215)

Investing Activities:
Additions to property, plant and equipment ..........    (8,220)         (3,805)               (624)           (375)         (1,470)
Purchase of long-term investments ...................        --          (3,000)                 --              --              --
Proceeds from sales and maturities of investments ...        --              --                  --          21,428              --
Purchase of package design costs ....................        --              --                  --            (244)             --
Acquisitions of business assets, net of cash acquired   (49,406)             --             (65,300)             --         (65,300)
Purchases of investments ............................        --              --                  --          (6,760)             --
Net cash (used in) provided by investing activities .  $(57,626)       $ (6,805)           $(65,924)       $ 14,049        $(66,770)


</TABLE>






                                                        27

<PAGE>

<TABLE>

Consolidated Statements of Cash Flows


                                                                                                          Twelve-Month Period
                                                                                               Nine-Month Period
                                                        Company          Company  Company Unaudited      Predecessor         Company
                                             January 1, 1997 to April 1, 1996 to August 23, 1995 to April 1, 1995 to August 23, 1995
Dollars in 000s                               December 31, 1997 December 31, 1996 December 31, 1995 August 22, 1995   March 31, 1996
Financing Activities:
<S>                                                   <C>             <C>                 <C>            <C>               <C>
Proceeds from long-term borrowings ..............     $ 166,860       $  32,704           $  58,550      $       --        $ 58,550
Principal payments on long-term debt ............       (92,661)        (67,876)               (500)             --          (1,012)
Dividends paid, preferred stock .................            --              --                  --            (554)             --
Purchases of treasury stock .....................            --              --                  --            (296)             --
Proceeds from subsidiary's equity rights offering         1,525              --                  --              --              --
Proceeds from sale of common stock ..............            --          38,193              12,000              --          12,000
Proceeds from sale of subsidiary stock ..........         9,032           4,216                  --              --              --
Net cash provided by (used in)
  financing activities ..........................        84,756           7,237              70,050            (850)         69,538

Net Increase in Cash and
  Cash Equivalents ..............................         9,852           2,638                 379          16,280           1,553

Cash and Cash Equivalents at Beginning of Period          4,191           1,553                  --           1,620              --

Cash and Cash Equivalents at End of Period ......     $  14,043       $   4,191           $     379      $   17,900       $   1,553

Cash paid during the period for:
  Interest ......................................     $   6,683       $   4,178           $   3,034      $       56       $   3,991

  Income taxes ..................................     $   2,764       $   2,421           $   1,276      $      457       $   2,497

Non-cash financing activities:
  Long-term debt issued in Acquisition ..........      $     --       $      --           $  11,753      $       --       $  11,753

  Reduction of debt from shareholders ...........      $     --       $   5,530           $      --      $       --       $     --

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


</TABLE>






                                                        28

<PAGE>



Notes to Consolidated Financial Statements

Note 1.  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
include the operating  results of Carson  Products  Company from the acquisition
date.
       The Company is the leading manufacturer and marketer in the United States
of selected personal care products for both the ethnic and the mass market.  The
Company  believes  that  it is one  of  the  leading  global  manufacturers  and
marketers  of ethnic  hair care  products  for persons of African  descent.  The
Company's more than 60 products are marketed  under five principal  brand names.
Certain of the  Company's  international  activities  are conducted by its South
African subsidiary (Carson Holdings,  Limited).
     The Company's  acquisition of the Predecessor for approximately $95 million
in cash (including $6 million for fees and other costs directly  associated with
the acquisition) has been accounted for as a purchase. Accordingly, the purchase
price  has  been  allocated  to  the  Predecessor's   identifiable   assets  and
liabilities  based on the fair values at the acquisition date. The excess of the
purchase price over the fair value of the Predecessor's  identifiable net assets
has been classified as goodwill.
       Certain  previous  stockholders  of the  Predecessor  received  1,705,500
shares of Class A Common Stock in the acquisition.  Such share interest has been
carried  over at such  shareholders'  proportionate  equity in the book value of
Aminco  (predecessor  basis) in accordance with Emerging Issues Task Force Issue
No. 88-16, "Basis in Leveraged Buyout Transactions."
       The  purchase  price  of the  Predecessor  (net of the  carryover  of the
negative  predecessor basis of approximately $6.1 million) has been allocated as
follows (in millions):

Current assets (including $17.9 of cash acquired) ................      $  37.9
Property, plant and equipment ....................................         10.8
Goodwill .........................................................         47.2
Other assets .....................................................          4.5
Liabilities assumed ..............................................        (11.4)
                                                                        $  89.0

In July 1996,  the Company's  South African  subsidiary  ("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 for the period ended December 31,
1996).  In conjunction  with this public  offering,  the Company entered into an
amendment to its license  agreement with Carson South Africa which provides that
commencing on April 1, 1998,  Carson South Africa will 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% on April 1, 1999 and 4.0% on April 1,
2000 until the  termination of the agreement.  The initial term of the agreement
expires on April 1, 1999;  however,  the agreement  may be renewed  indefinitely
thereafter until terminated by either party upon 12 months written notice.
       The Company  completed an initial public offering of 4,818,500  shares of
its Class A common stock on October 18,  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.
       In October 1996, the Company amended its Certificate of  Incorporation to
change the  authorized  capital  stock to Class A Common  Stock,  Class B Common
Stock,  Class C Common Stock and Preferred  Stock (each with a par value of $.01
per  share).  Each  share  of the  Company's  former  Class A Common  Stock  was
converted  into 11,370 shares of newly  created  Class C Common Stock,  and each
share of former Class B Common Stock was  converted  into 11,370 shares of newly
created  Class  B  Common  Stock.   These  stock  conversions  have  been  given
retroactive recognition in the accompanying financial statements.


                                                        29

<PAGE>



       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  in the year  ended  December  31,  1997).  These
acquisitions are 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 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,  with funds  provided by  additional  long-term  debt.  This
acquisition is accounted for under the purchase method of accounting.
       Also on April 30, 1997, the Company  terminated its just acquired license
agreement  with Jean Philippe to package,  distribute,  and sell nail enamel and
nail care treatment products,  nail care implements and lipstick under the Cutex
trademark in the United States and Puerto Pico.
       The  following  unaudited  pro forma  information  presents  a summary of
consolidated  results of  operations of the Company and the results of the Cutex
Acquisition  as if the  acquisition  had  occurred as of the  beginning  of each
period presented:
<TABLE>
                                                                      Twelve Months Ended   Nine Months Ended
(Dollars in thousands except per share amounts)                         December 31, 1997   December 31, 1996
<S>                                                                              <C>                 <C>
Net sales ...........................................................            $114,837            $ 74,781
Net income (loss) before extraordinary item .........................               3,982              (1,708)
Net income (loss) ...................................................               1,896              (5,235)
Basic and diluted income (loss) per share before extraordinary item .                0.27               (0.13)
Basic and diluted income (loss) per share ...........................            $   0.13            $  (0.41)
</TABLE>

These  unaudited pro forma results have been prepared for  comparative  purposes
only and include  certain  adjustments,  such as an  adjustment to cost of goods
sold per a manufacturing  agreement  between the Company and  Chesebrough-Pond's
USA Co., additional intangible amortization, additional selling expenses related
to an agreement  between the Company and AM Cosmetics  and  additional  interest
expense on acquisition debt, among others. These unaudited pro forma results are
not necessarily indicative of what the actual consolidated results of operations
might have been if the Cutex  acquisition had been in effect as of the beginning
of each period  presented or of future results of operations of the consolidated
Company.
       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, of which  approximately $5.3 million was recorded as intangible assets,
subject to post-closing  adjustments,  funded primarily by additional  long-term
debt. This acquisition is 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
purchase  consideration  payable  for  the  acquisition  is  approximately  $9.5
million,  subject  to post  closing  adjustments,  of which  approximately  $9.3
million was recorded as intangible  assets;  additional  consideration  of up to
$3.7 million  based upon the after tax profit of the business for the year ended
December 31, 1998 may be paid. 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 in the year ended December 31, 1997).  Approximately $5.4 million of the
purchase price was paid in January 1998,  approximately  $4.1 million is payable
on or before  January  3, 1999 and the  remainder  (subject  to  adjustment)  is
payable no later than March 1999.

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.



                                                        30

<PAGE>



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.

Inventories
Inventories are valued at the lower of first-in, first-out (FIFO) cost or market
(see Note 3 and Note 15).

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  which is amortized
over periods ranging from 15 to 40 years using the straight-line method. Patents
and  trademarks  are  amortized  using the  straight-line  method over 17 years.
Trademarks  are  amortized  using the  straight-line  method over 17 years.  The
Company  periodically  assesses the  recoverability  of tangible and  intangible
assets based on judgments as to future undiscounted cash flows from operations.

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.

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. These costs are included in general and administrative expenses in the
accompanying statements of operations.  The Company's R&D costs (principally for
new products) for the year ended December 31,1997 and nine months ended December
31, 1996 were $535,000 and $349,000,respectively. Research and development costs
aggregated  $250,000  for the  period  August  23,  1995 to March  31,  1996 and
$160,000 for the period from April 1, 1995 to August 22,  1995.  These costs are
included in general and administrative  expenses in the accompanying  statements
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  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.

Sale of Subsidiary Stock
The Company accounts for the gain on the sale of subsidiary stock as an increase
in paid-in capital in stockholders' equity.

Foreign Currency Translation
Assets and liabilities of the Company's South African operations are translated
from South African Rand

                                                        31

<PAGE>



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 stockholders' equity.  Adjustments resulting from transactions
are immaterial to the accompanying financial statements.

Basic and Diluted Earnings (Loss) Per Share
During the fourth  quarter of 1997, the Company  adopted  Statement of Financial
Accounting  Standards ("SFAS") No. 128, "Earnings per Share." This pronouncement
requires  dual  presentation  of basic and  diluted  earnings  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.  SFAS No. 128 has been applied retroactively to all periods
presented.

New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial  Accounting  Standards No. 130,  "Reporting  Comprehensive  Income"
("SFAS  No.  130").  SFAS  No.  130  establishes  standards  for  reporting  and
displaying  comprehensive income and its components (revenues,  expenses,  gains
and losses) in a full set of general-purpose  financial statements.  The Company
will adopt SFAS No. 130 during 1998 and expects to report  comprehensive  income
for the effects of foreign currency  translation  adjustments which are reported
as a component of stockholders' equity.
       In addition, during 1997 the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise  and Related  Information."  SFAS No. 131  establishes
revised  standards for the manner in which companies  report  information  about
operating  segments.  The Company  does not  believe  that this  statement  will
significantly  alter the segment  disclosures  it  provides.  This  statement is
effective beginning with the Company's year ending December 31, 1998.

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

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.  The  fair  value  of the  Company's
investment  in AM Cosmetics  is not  determinable  because of the related  party
aspects of the investment.

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

Note 3. Inventories
Effective June 30, 1997, the Company  changed its method of valuing  inventories
in the United States from the lower of last-in,  first-out (LIFO) cost or market
to the  lower of  first-in,  first-out  (FIFO)  cost or  market  (See  Note 15).
Inventories are summarized as follows (in thousands):

                                           December 31, 1997   December 31, 1996
Raw materials ..........................             $10,873             $ 7,017
Work-in-process ........................               1,651               1,236
Finished goods .........................              12,337               2,319
    Total ..............................             $24,861             $10,572







                                                        32

<PAGE>



Note 4. Other Current Assets
Other current assets consist of the following (in thousands):

                                        December 31, 1997      December 31, 1996
Deferred income taxes ..................           $  161                 $  203
Income tax receivable ..................              188                    872
Other ..................................              483                    346
     Total .............................           $  832                 $1,421



Note 5. Property, Plant and Equipment
Property, plant and equipment is summarized as follows (in thousands):

                                        December 31, 1997      December 31, 1996
Land ....................................         $   545                    545
Buildings and improvements ..............           7,706                  6,689
Machinery and equipment .................           9,423                  7,436
Furniture and fixtures ..................           1,537                    396
Construction-in-progress ................           5,242                  1,004
                                                   24,453                 16,070
Less: accumulated depreciation ..........           2,251                    981
     Total ..............................         $22,202                $15,089

Depreciation  expense for the twelve  months  ended  December  31, 1997 was $1.3
million.  For the nine months  ended  December  31, 1996 and  December 31, 1995,
depreciation  expense was $672,000 and $586,000,  respectively.  For the periods
from  August 23,  1995 to March 31,  1996 and April 1, 1995 to August 22,  1995,
depreciation expense was $351,000 and $322,000, respectively.

Note 6. Other Assets
Other assets are summarized as follows (in thousands):

                                        December 31, 1997      December 31, 1996
Deferred financing costs .................         $6,074                 $  937
Deferred income taxes ....................          1,156                    935
Other ....................................            251                      5
                                                    7,481                  1,877
Less: accumulated amortization ...........            115                     33
Total ....................................         $7,366                 $1,844

Note 7. Long-Term Debt
Long-term debt is summarized as follows (in thousands):

                                        December 31, 1997      December 31, 1996
10 3/8% Senior subordinated notes due 2007      $ 100,000                $    --
Term loans ...............................             --                 24,350
Revolving line of credit .................          3,000                  2,052
Other ....................................            623                    699
                                                  103,623                 27,101
Less: current portion ....................             --                  2,600
                                                 $103,623                $24,501








                                                        33

<PAGE>



Annual  maturities  of  outstanding  indebtedness  at  December  31, 1997 are as
follows (in thousands):

Year ended December 31,
1998                                                                       $ 370
1999                                                                         253
2000                                                                          --
2001                                                                          --
2002                                                                          --
Thereafter                                                               103,000
                                                                        $103,623

Concurrently  with the consummation of the Company's  initial public offering in
October 1996, 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.  As a result,  during the nine
months ended  December 31, 1996,  the Company  incurred $3.5 million (net of the
relate tax benefit of $2.4  million)  of  debt-related  charges  and  write-offs
reflected in the accompanying statements of operations as an extraordinary item.
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  to change the
Company's then existing $40.0 million senior credit facility to a $100.0 million
senior  credit  facility  consisting  of $25.0  million  of Term A loans,  $50.0
million  of Term B loans and a $25.0  million  revolving  loan  commitment.  The
proceeds  of the  new  term  loans  were  used  in part  to  finance  the  Cutex
Acquisition.  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  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").  The notes are guaranteed by the Company's
wholly-owned  subsidiary,  Carson  Products  Company.  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 the amended  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 $2.1 million (net of the related
tax benefit of $1.2  million)  in 1997 of  debt-related  charges and  write-offs
reflected in the accompanying statements of operations as an extraordinary item.
The Company  defers all loan fees and amortizes  them over the term of the loan.
The private offering contains covenants with respect to, among other things, (i)
maintenance  by Carson  Products  Company of certain cash flow coverage  ratios;
(ii)  restrictions on the incurrence of additional  liens or  indebtedness.  The
private offering  contains  restrictions on the payment of any cash dividends by
the Company or any subsidiary.
     Concurrently  with the  consummation of the private  offering,  the Company
entered into a new credit  facility with Credit  Agricole  Indosuez as agent and
lender,  which is guaranteed by the Company's  wholly-owned  subsidiary,  Carson
Products  Company.  The facility  provides a term  acquisition  loan facility of
$50.0 million and a revolving loan facility of $25.0 million. The final maturity
date for each of the term loan facility and  revolving  loan facility is October
2005 and  2003,  respectively.  Borrowings  under  the term  loan  facility  and
revolving  loan  facility  will bear interest at the Base Rate (as defined) plus
1.0% and the Base Rate plus 0.5%, respectively,  or at the Company's option, the
Eurodollar  Rate (as  defined)  plus 2.5% and the  Eurodollar  Rate  plus  2.0%,
respectively.  Debt  issue  costs  related  to  the  new  credit  facility  were
approximately $1.7 million.
     The new credit  facility  provides  for (i) a  commitment  fee of 0.25% per
annum on the unutilized portion of the revolving credit facility,  (ii) a fee of
0.25% per annum on the maximum  amount  available  to be drawn under  letters of
credit and (iii) a letter of credit  insurance  fee. The new  facility  contains
covenants  with  respect  to,  among other  things,  (i)  maintenance  by Carson
Products  Company  of certain  total  interest  coverage  ratios,  fixed  charge
coverage ratios and leverage  ratios and (ii)  restrictions on the incurrence of
additional liens or indebtedness.  The new facility contains restrictions on the
payment  of any cash  dividends  by the  Company  or any  subsidiary  except for
dividends or distributions payable in shares of capital stock.

                                                        34

<PAGE>






Note 8. Accrued Liabilities
Accrued liabilities consisted of the following (in thousands):
                                             December 31, 1997 December 31, 1996
Compensation and benefits ..................            $2,788            $1,587
Advertising ................................               774             1,070
Self insurance .............................               766               719
Interest ...................................             1,592               240
Directors and officers .....................               138             1,333
Other ......................................             1,355               342
                                                        $7,413            $5,291

Note 9. 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>

                                                                    Company                            Predecessor         Company
                                      January 1, 1997  to    April 1, 1996 to  Aug. 23, 1995 to   April 1, 1995 to  Aug. 23, 1995 to
                                        December 31, 1997       Dec. 31, 1996     Dec. 31, 1995      Aug. 22, 1995    March 31, 1996
                                                                                    (Unaudited)
<S>                                                 <C>               <C>                <C>                <C>              <C>
Statutory rate ......................               34.0%             (34.0)%             34.0%              34.0%            34.0%
State income taxes
(net of federal benefit) ............                1.2%              (2.6)%              2.6%               4.0%             4.0%
Foreign taxes .......................                 --               33.8%              21.5%                --             21.5%
Foreign tax credit ..................                 --              (33.8)%            (21.5)%               --            (21.5)%
Permanent differences:
Incentive compensation ..............                 --               93.9%                --                 --               --
Goodwill ............................                6.1%              21.8%              24.3%                --             16.0%
Other taxes .........................                1.2%              33.8%                --               (1.7)%             --
Effective rate ......................               42.5%             112.9%              60.9%              36.3%            54.0%

</TABLE>
<TABLE>

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


                                                                         Company                        Predecessor         Company
                                             January 1, 1997  to  April 1, 1996 to Aug. 23, 1995 to April 1, 1995 toAug. 23, 1995 to
                                               December 31, 1997     Dec. 31, 1996   Dec. 31, 1995    Aug. 22, 1995   March 31, 1996
                                                                                       (Unaudited)
Current:
<S>                                                         <C>            <C>                <C>            <C>              <C>
Federal .....................................               $--            $ 1,685            $117           $1,744           $  204
State .......................................                --                405              19              333               33
Foreign .....................................             1,728                594             177              104              310
Total current provision .....................             1,728              2,684             313            2,181              547

Deferred:
Federal .....................................               885               (749)            102               52              546
State .......................................               104               (269)             65               10              102
Foreign .....................................                62                 61              47             --                 82
Total deferred provision ....................             1,051               (957)            214               62              730

Total provision before extraordinary
   items ....................................             2,779              1,727             527            2,243            1,277
Benefit for extraordinary item ..............            (1,201)            (2,351)            --              --               --
Total income tax expense(benefit) ...........           $ 1,578            $  (624)           $527           $2,243           $1,277

</TABLE>


                                                        35

<PAGE>



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

(in thousands)                                                           December 31, 1997                    December 31, 1996
                                                                      Current         Long-term           Current          Long-term
Deferred domestic tax assets related to:
<S>                                                                   <C>               <C>               <C>               <C>
Deferred compensation ......................................              $--           $   622               $--           $    643
Accrued expenses ...........................................              758                --               813                --
Package design costs .......................................               --               538                --                533
Allowance for doubtful accounts ............................               --                --               219                --
Foreign tax credit carryforward ............................               --               702                --                702
NOL carryforward ...........................................               --               696                --                241
Inventories ................................................              897                --                14                --
Other ......................................................              101               256                --                116
                                                                        1,756             2,814             1,046              2,235

Deferred domestic tax liabilities related to:
Allowance for doubtful accounts ............................             (923)               --                --                --
Inventories ................................................             (621)               --              (752)               --
Property, plant and equipment ..............................               --            (1,658)               --            (1,300)
Other ......................................................              (51)               --               (91)               --
                                                                       (1,595)           (1,658)             (843)           (1,300)
Deferred domestic tax asset ................................          $   161           $ 1,156           $   203           $   935
Deferred foreign tax liability .............................              $--           $  (143)              $--           $  (106)

</TABLE>

     Deferred  income  taxes were not  provided  on  undistributed  earnings  of
certain foreign subsidiaries ($9.2 million at December 31, 1997 and $5.7 million
at December 31, 1996)  because  such  undistributed  earnings are expected to be
reinvested   indefinitely   overseas.  If  these  amounts  were  not  considered
permanently  invested,  additional  deferred taxes of approximately $1.2 million
and $712,000  would have been  provided as of December 31, 1997 and December 31,
1996, respectively.  The foreign tax credit and NOL carryforwards of $.7 million
and $2.0  million at December  31, 1997 expire at December 31, 2001 and December
31, 2002, respectively.

Note 10. 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  $262,500  to the plan in 1997,  $401,000 to the plan for the period
from April 1, 1996 to December  31, 1996 and $246,000 to the plan for the period
from August 23, 1995 to March 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  ($1.7  million at December 31, 1997 and $1.6 million at December 31,
1996) 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  $548,000 at December  31, 1997 and $517,000 at December 31, 1996.
For measurement purposes,  the cost of providing medical benefits was assumed to
increase by 8% in the fiscal year ended  December  31,  1997,  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.  For example,  an increase of 1% in the assumed rate
of increase  would have an effect of increasing  the APBO by $92,000 and the net
periodic  postretirement  benefit cost by $25,000. The weighted average discount
rate used in determining  the APBO was 8%. Net periodic  postretirement  benefit
cost for the period from  August 23, 1995 to March 31, 1996 was $9,000,  for the
nine months ended December 31, 1996 was $18,000 and for 1997 was $14,000.
     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

                                                        36

<PAGE>



stock  pur-chase  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.
     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 11. 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  and  operations  of the
Company.
     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 $4.1
million in 1997.

Note 12. U.S. and Foreign Operations
The Company's  operations  are located  primarily in the United States and South
Africa. Financial information by geographic area is as follows:
<TABLE>

                                                                                                              Twelve-Month Period
                                                                                             Nine-Month Period
                                          January 31, 1997 to   April 1, 1996 to August 23, 1995 to April 1, 1995 to Aug 23, 1995 to
                                            December 31, 1997   December 31,1996  December 31, 1995  August 22, 1995  March 31, 1996
                                                                                        (UNAUDITED)
Net sales:
United States:
<S>                                                <C>                 <C>                 <C>              <C>              <C>
Domestic ...................................       $  75,834           $  42,855           $ 17,386         $ 20,189         $30,676
Export .....................................          12,135               8,274              3,304            4,407           6,494
South Africa ...............................          21,662               8,809              2,983            2,258           4,295
                                                   $ 109,631           $  59,938           $ 23,673         $ 26,854         $41,465

Operating income:
United States ..............................       $   7,582           $     723           $  3,096         $  4,733         $ 5,713
South Africa ...............................           4,667               1,728                374              363             973
                                                   $  12,249           $   2,451           $  3,470         $  5,096         $ 6,686

Identifiable assets (at end of period):
United States ..............................       $ 190,264           $  95,283           $ 82,109                         $ 84,886
South Africa ...............................          42,545              11,529              2,953                            4,404
Eliminations ...............................         (31,385)             (9,283)              (971)                         (1,310)
                                                   $ 201,424           $  97,529           $ 84,091                         $ 87,980


</TABLE>
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 Europe, the Caribbean and Africa.



                                                        37

<PAGE>



Note 13. 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  have  been
guaranteed on a senior  subordinated  basis by Carson Products Company, a direct
wholly-owned  subsidiary  of Carson,  Inc.  (the " subsidiary  guarantor").  The
following  table presents  condensed  consolidating  financial  information  for
Carson,  Inc., the  subsidiary  guarantor,   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
subsidiary guarantor are not included and the subsidiary guarantor is not filing
separate reports under the Securities Exchange Act of 1934, as amended,  because
the subsidiary guarantor has fully and unconditionally guaranteed the Notes, and
separate  financial  statements and other disclosures  concerning the subsidiary
guarantor are not deemed material to investors.

Consolidating Statement of Operations for the Year Ended December 31, 1997
<TABLE>
                                                                                             Carson
                                                                              Carson       Holdings
                                                                            Products        Limited
                                                           Carson,Inc.       Company       (non-guarantor               Consolidated
                                                              (parent)(guarantor subsidiary)subsidiaries) Eliminations   Carson,Inc.
<S>                                                             <C>         <C>             <C>            <C>            <C>
Net sales ..............................................          $--       $ 87,969        $ 21,662           $--        $ 109,631
Cost of goods sold .....................................           --         39,782          10,728            --           50,510
Gross profit ...........................................           --         48,187          10,934            --           59,121
Marketing and selling
  expenses .............................................           --         24,036           4,122            --           28,158
General and administrative
  expenses .............................................           --         16,569           2,145            --           18,714
Operating income .......................................           --          7,582           4,667            --           12,249
Other income (expense) .................................           --         (6,317)            601            --           (5,716)
Equity in subsidiary
 earnings (net of taxes) ...............................        1,668             --              --        (1,668)              --
Income before income taxes                                      1,668          1,265           5,268        (1,668)           6,533
Provision for income taxes .............................           --            989           1,790            --            2,779
Income from continuing operations                               1,668            276           3,478        (1,668)           3,754
Extraordinary loss,net of taxes ........................           --         (2,086)             --            --           (2,086)
Net income (loss) ......................................       $1,668       $ (1,810)       $  3,478      $ (1,668)         $ 1,668
</TABLE>

Consolidating Balance Sheet as of December 31, 1997
<TABLE>
                                                                            Carson          Carson
                                                                          Products        Holdings
                                                                           Company         Limited
                                                         Carson,Inc.    (guarantor    (non-guarantor                    Consolidated
                                                           (parent)     subsidiary)    subsidiaries)    Eliminations     Carson,Inc.
Assets
Current assets:
<S>                                                        <C>            <C>             <C>              <C>              <C>
Cash and cash equivalents .........................        $    --        $  2,614        $ 11,420         $      9         $ 14,043
Accounts receivable,net ...........................             --          24,058          10,817           (6,727)          28,148
Inventory .........................................             --          20,438           4,423               --           24,861
Other current assets ..............................             --             730             102               --              832
Property,plant and equipment,net                                --          16,216           6,021             (35)           22,202
Intangibles 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


</TABLE>







                                                        38

<PAGE>

<TABLE>


                                                                              Carson          Carson
                                                                            Products        Holdings
                                                                             Company         Limited
                                                         Carson,Inc.     (guarantor    (non-guarantor                   Consolidated
                                                            (Parent)     subsidiary)    subsidiaries)    Eliminations     Carson,Inc
Liabilities and stockholders' equity Current liabilities:
<S>                                                         <C>            <C>              <C>              <C>          <C>
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>

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

                                                                              Carson          Carson
                                                                            Products        Holdings
                                                                             Company         Limited
                                                         Carson,Inc.     (guarantor    (non-guarantor
                                                            (parent)     subsidiary)    subsidiaries)    Eliminations     Carson,Inc
<S>                                                        <C>            <C>               <C>               <C>         <C>
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 provided by (used in)
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 activities ...............................          --          (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>

     Carson Holdings Limited, an indirect 70%-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  Holdings  Limited.  Carson  Inc.  also has two  inactive
subsidiaries  (Fine Products  Company and Carson Botswana (PTY Limited)),  which
are  inconsequential  to the Company on an  individual  and  combined  basis and
separate  financial  information for those subsidiaries has not been included in
this table.

Note 14. 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) and
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  is  August  23,  1998;  however,  the term of the
agreement  shall continue after such  termination  date until  terminated by not
less than 30 days' advance notice by either party.
     In connection  with the Aminco  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 and
was  reimbursed  by the Company  for  certain  related  expenses.  In  addition,
Morningside  received fees of $520,000 and $125,000 in 1997 for similar 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 Notes.  Under the  Management  Agreement,  the
Company paid  Morningside  approximately  $40,000 and $25,000 in fiscal 1997 and
1996,  respectively,  for  reimbursement  of  out-of-pocket  expenses.  In 1996,
Morningside  received a fee of $100,000 for arranging and  negotiating the terms
of the New Senior 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.

Fees Related to the Acquisition
A corporation in which the  Company's former chief  financial  officer serves as
President and is a principal  stockholder was paid $290,000 and received 159,180
shares of the  Company 's Class C Common  Stock from the  Company in  connection
with financial advisory services related to the Aminco  Acquisition.  A law firm
in which a director and a  shareholder  of the Company  serves as President  and
Chief Executive Officer was paid approximately $690,000 for services rendered in
arranging the equity  investment  in the Company in  connection  with the Aminco
Acquisition. A principal  lender and a shareholder  of the Company received fees
and reimbursement of out-of-pocket  expenses  totaling  $1,783,000 in connection
with the Aminco Acquisition .

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 also key management and  shareholders of AM Cosmetics.  AM Cosmetics
sells  three  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.
     Concurrent with its investments 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 for
the management and other services it will provide,  Carson  Products is entitled
to fees equal to 1% of AM  Cosmetics'  annual net sales  subject to a minimum of
$500,000 for 1997

                                                        39

<PAGE>



and $250,000 for 1998 and  thereafter.  For the twelve months ended December 31,
1997, the Company received $500,000 in management fees. The Carson-AM Management
Agreement expires on June 26, 2004 unless  terminated  earlier or renewed for an
additional  three-year  period at AM Cosmetics' option by giving Carson Products
written notice  thereof at least 180 days prior to the expiration  date . Either
party may  terminate  the AM  Management  Agreement by providing the other party
with  written  notice,  at least 360 days in  advance  if  terminated  by Carson
Products and 60 days in advance if terminated by AM Cosmetics.
     Pursuant to the Carson-AM  Management  Agreement , the parties have entered
into a  manufacturing  agreement  in May 1997  expiring  on May 1, 1999 (the "AM
Manufacturing  Agreement").  Under the AM Manufacturing  Agreement, AM Cosmetics
manufactures   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 is entitled to a 25% profit margin
above all costs,  including general and  administrative  costs, on the cosmetics
products  it produces  under the AM  Manufacturing  Agreement,  except for Cutex
products  for which the  pricing is  specified  by SKU.  The  Company  purchased
approximately  $2.0 million from AM Cosmetics in 1997 under the AM Manufacturing
Agreement.
     Carson  Products  and AM  Cosmetics  have  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,
which  expires on September  19, 1999,  AM Cosmetics is entitled to a 7.5% sales
commission  on its  sales of all  Cutex  products.  Such  sales  commission  was
approximately $1.2 million in 1997.
     Dr. Leroy Keith,  Chairman and Chief Executive Officer of the Company,  has
an  ownership  interest  in AM  Cosmetics  and  Vincent A.  Wasik,  a  principal
stockholder of the Company,  indirectly owns a controlling ownership interest in
AM Cosmetics.  In addition,  Mr. Wasik served as a member of AM Cosmetics' Board
of Directors and Dr. Keith served as President and Chief Executive Officer of AM
Cosmetics for the twelve months ended  December 31, 1997.  Currently,  Mr. Wasik
serves as President  and Chief  Executive  Officer of AM Cosmetics and Dr. Keith
serves as a member of AM Cosmetics' Board of Directors. In addition, Lawrence E.
Bathgate, II serves as a member of AM Cosmetics' Board of Directors and chairman
of its executive committee.

Note 15. Change in Accounting Method
Effective   June  30,  1997,   the   Company  changed   its  method  of  valuing
inventories  in the United  States from the lower of last-in,  first-out  (LIFO)
cost or market to the lower of first-in,  first-out  (FIFO) cost or market.  The
effect of this  change has been  reflected  in all  periods  presented  in these
financial  statements.  This change in valuing  inventories was made in order to
provide conformity among all of the Company's subsidiaries as well as to conform
with  general  industry  practices.  As a result of this  change  in  accounting
method, cost of goods sold increased, net income decreased and basic and diluted
earnings  per share  decreased  for the period ended March 31, 1996 by $177,000,
$102,000,  and   $0.01,  respectively,  from  amounts  previously  reported.  In
addition,  inventories  decreased by $177,000,  retained  earnings  decreased by
$102,000 and deferred income taxes decreased by $75,000 as of March 31, 1996 and
December  31,  1996.The  effect  on   all  other   periods   presented  was  not
significant.

Note 16. Stock Compensation Plans
The Company has fixed  option  plans which  reserve  shares of common  stock for
issuance to executives,  key employees and  directors.  Under the Company's  two
stock option plans, officers, directors and key employees may be granted options
to purchase the Company's  common stock at no less than 100% of the market price
on the date the option is granted.  Options  have been  granted  only during the
year ended December  31,1997. No options were exercised or forfeited during such
period.
     The Company has adopted the  disclosure-only  provisions  of  Statement  of
Financial   Accounting   Standards   No.  123,   "Accounting   for   Stock-Based
Compensation".  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 1997
consistent  with the  provisions  of SFAS No. 123, the Company 's net income and
basic and diluted  earnings per share for the year ended December  31,1997 would
have been reduced to the pro forma amounts indicated below :

Net income, as reported                                                  $ 1,668
Net income, pro forma                                                      1,243
Basic and diluted earnings per share, as reported                           0.11
Basic and diluted earnings per share, pro forma                             0.08

                                                        40

<PAGE>



The fair value of each option  granted  during 1997 was estimated on the date of
grant  using  the  Black-Scholes   option   pricing  model  with  the  following
assumptions:  (i) dividend  yield of 0%, (ii) expected  volatility of 57%, (iii)
risk-free  interest  rate of 6.5%  and  (iv)  expected  life of 4.9  years.  The
weighted average fair value of the options granted during 1997 was $4.74.
     The following table summarizes  information about stock options outstanding
at December 31, 1997:
                                                                          Number
              Number Outstanding at Weighted Average Remaining    Exercisable at
Exercise Price    December 31, 1997    Contractual Life        December 31, 1997
$14.00                       67,500                 9.4                   10,500
  7.50                      100,000                 9.4                   50,000
  9.22                       40,000                 9.4                       --
 12.00                      187,000                 9.4                       --
  9.56                       50,000                 9.6                       --
 10.94                       25,000                 9.6                       --
                            469,500                                       60,500

The Company  also  maintains a  restricted  stock award plan which  provides for
awards to officers and certain key employees of the Company.




































                                                        41

<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,  1997 and 1996,  and the related
consolidated statements of operations,  stockholders' equity, and cash flows for
the year  ended  December  31,  1997 and for the  periods  from April 1, 1996 to
December 31, 1996 and from August 23,1995 to March 31, 1996. We also audited the
accompanying  statements of operations,  stockholders' equity, and cash flows of
Aminco,  Inc. (the  Predecessor) for the period from April 1, 1995 to August 22,
1995.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, 1997 and 1996, and the results of its operations and its cash
flows for the year ended  December  31, 1997 and for the  periods  from April 1,
1996 to December  31, 1996 and from August 23, 1995 to March 31,  1996,  and the
results of  operations  and cash flows of the  Predecessor  for the period  from
April  1,  1995  to  August  22,  1995 in  conformity  with  generally  accepted
accounting principles.



DELOITTE & TOUCHE LLP


Atlanta, Georgia
March 18, 1998





















                                                        42

<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" on pages 9-11 of the Company's  Proxy  Statement
to be filed for its 1998 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 failed to file on
a timely basis the required  Forms 4 or 5 at the time such forms were due: Joyce
M. Roche,  Form 4 with respect to one  transaction  not filed on a timely basis;
Dennis E. Smith,  Form 4 with respect to one  transaction  not filed on a timely
basis; and Lawrence E. Bathgate,  III, Abbey J. Butler,  Melvyn J. Estrin, James
L. Hudson, Jack Kemp, Miriam Muley,  Suzanne de Passe, John L. Sabre and Vincent
A. Wasik, Form 5 not filed on a timely basis.

Item 11.  Executive Compensation

     This information is incorporated  herein by reference to "Compensation  and
Other  Transactions  with Executive  Officers and Directors - Executive  Officer
Compensation"  on pages 15-22 of the Company Proxy Statement to be filed for its
1998 Annual Meeting of Stockholders.

Item 12.  Security Ownership of Certain Beneficial Owners and Management

     This  information  is  incorporated   herein  by  reference  to  "Principal
Stockholders and Management Ownership" on pages 2-3 of the Proxy Statement.

Item 13.  Certain Relationships and Related Transactions

         This  information  is  incorporated  herein by  reference  to  "Certain
Relationships  and Related  Transactions" on pages x-x of the Proxy Statement to
be filed for its 1998 Annual Meeting of Shareholders.






                                                        43

<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,  1997 and  1996,  the  related  statements  of  operations,
shareholders'  equity and cash flows for the following periods:  Company January
1, 1997 through  December 31, 1997 and April 1, 1996 through  December 31, 1996,
Unaudited  Company  August 23, 1995 to December 31, 1995,  Predecessor  April 1,
1995 to August 22, 1995,  and Company  August 23, 1995 to March 31, 1996 and the
related report of Deloitte Touche LLP.



                                                        44

<PAGE>




      3.  Exhibits incorporated by reference or filed with this report

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
*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)
*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 M. 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
***10.9 Employment  Agreement  dated as of May 9, 1995,  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.
                                                        45

<PAGE>



*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.
*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.
***12.1 Statement re Computation of Ratio of Earnings to Fixed Charges
*16  Letter regarding Change in Certifying Accountant from Price Waterhouse LLP
***18 Letter re Change in  Accounting  Principles, dated  August  11,  1997 from
     Deloitte & Touche LLP to Carson, Inc.,  incorporated herein by reference to
     Carson,  Inc.'s Quarterly Report on Form 10-Q of the quarter ended June 30,
     1997, as amended
***21.1 Subsidiaries of Carson, Inc.
23.2 Consent of Deloitte & Touche LLP
***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.


                                                        46

<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, 1998                        By: /s/  Dr. Leroy Keith
                                            Dr. Leroy Keith
                                            Chairman,  Chief  Executive  Officer
                                            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,  Robert W. Pierce and
John P. Brown,  Jr.,  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, 1998                        By: /s/ Dr. Leroy Keith
                                            Dr. Leroy Keith
                                            Chairman,  Chief  Executive  Officer
                                            and Director

Date: March 30, 1998                        By: /s/ Joyce M. Roche
                                            Joyce M. Roche
                                            President   and   Chief   Operating
                                            Officer and Director

Date: March 30, 1998                        By: /s/ Dennis E. Smith
                                            Dennis E. Smith
                                            Executive Vice President,  Sales and

                                                        47

<PAGE>


                                            Director

Date: March 30, 1998                        By: /s/ Lawrence E. Bathgate, II
                                            Lawrence E. Bathgate, II
                                            Director

Date: March 30, 1998                        By: /s/Abbey J. Butler
                                            Abbey J. Butler
                                            Director

Date: March 30, 1998                        By: /s/  Suzanne de Passe
                                            Suzanne de Passe
                                            Director


Date: March 30, 1998                        By: /s/ Melvyn J. Estrin
                                            Melvyn J. Estrin
                                            Director

Date: March 30, 1998                        By: / / James L. Hudson
                                            James L. Hudson
                                            Director


Date: March 30, 1998                        By: / / Jack Kemp
                                            Jack Kemp
                                            Director

Date: March 30, 1998                        By: /s/ John L. Sabre
                                            John L. Sabre
                                            Director

Date: March 30, 1998                        By: /s/ Vincent A. Wasik
                                            Vincent A. Wasik
                                            Director

Date: March 30, 1998                        By: /s/ Robert W. Pierce
                                            Robert W. Pierce
                                            Executive Vice President and Chief
                                            Financial Officer(Principal
                                            Accounting and Financial Officer)



                                                        48

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