UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    Form 10-K

(Mark One)

|X|   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934

      For the fiscal year ended June 30, 2000

|_|   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934

      For the transition period from ___________________ to _____________

                         Commission file number 0-14669

                            The Aristotle Corporation
             (Exact name of registrant as specified in its charter)

                                    Delaware
                         (State or other jurisdiction of
                         incorporation or organization)

                      27 Elm Street, New Haven, Connecticut
                    (Address of principal executive offices)

                                   06-1165854
                                (I.R.S. Employer
                               Identification No.)

                                     06510
                                   (Zip Code)

               Registrant's telephone number, including area code:
                                 (203) 867-4090

           Securities registered pursuant to Section 12(b) of the Act:
                                 Not Applicable

           Securities registered pursuant to Section 12(g) of the Act:
                     Common Stock, par value $.01 per share

      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

      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. |_|

      As of September 8, 2000, the aggregate market value of the Common Stock
outstanding of The Aristotle Corporation held by nonaffiliates (without
admitting that any person whose shares are not included in such calculation is
an affiliate) was approximately $4,889,949, based on the closing price as
reported by the Nasdaq Stock Market.

                       Documents Incorporated by Reference

Portions of the Registrant's Proxy Statement dated October 2, 2000 are
incorporated by reference into Part III of this Report on Form 10-K.

<PAGE>

                            THE ARISTOTLE CORPORATION

                               2000 ANNUAL REPORT

                                TABLE OF CONTENTS

Selected Consolidated Financial Data ......................................  2

Management's Discussion and Analysis ......................................  4

Consolidated Financial Statements ......................................... 13


                                       1
<PAGE>

               SELECTED CONSOLIDATED FINANCIAL DATA OF THE COMPANY
             (Amounts in thousands, except share and per share data)

      The following are selected consolidated financial data for The Aristotle
Corporation ("Aristotle"), Aristotle Sub, Inc. ("ASI"), and The Strouse, Adler
Company ("Strouse") on a consolidated basis for the fiscal years ended June 30,
1996, 1997 and 1998 and also include Simulaids, Inc. ("Simulaids") for the
fiscal years ended June 30, 1999 and 2000. Aristotle formed ASI in 1993 and
acquired Strouse (the "Strouse Acquisition") in 1994. On January 2, 1998, ASI
was merged into Aristotle (the "ASI Merger"). On June 30, 1998, Aristotle
consummated the sale of substantially all of the assets and certain of the
liabilities of Strouse to Sara Lee Corporation (the "Strouse Sale"). On July 2,
1998, Strouse changed its name to "S-A Subsidiary, Inc." On April 30, 1999,
Aristotle acquired all of the outstanding stock of Simulaids, a manufacturer of
health and education teaching aids. All references herein to the "Company"
include Aristotle, Strouse, ASI and Simulaids. The selected consolidated
financial data presented below should be read in conjunction with the
Consolidated Financial Statements of the Company, together with the Notes to
Consolidated Financial Statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
report.

<TABLE>
<CAPTION>
                                                                              FISCAL YEARS ENDED JUNE 30,
                                                                              ---------------------------
                                                        1996            1997           1998            1999             2000
                                                        ----            ----           ----            ----             ----
<S>                                                 <C>             <C>             <C>             <C>             <C>
Consolidated statements of operations data:
Net sales ......................................    $        --     $        --     $        --     $       947     $     6,713
Costs and expenses:
       Costs of goods sold .....................             --              --              --             770           3,775
       Selling, general and administrative .....            609             649             685           1,250           2,168
       Goodwill amortization ...................             --              --              --              39             228
       Nonrecurring tax claim contingency fee ..             --              --             480              --              --
                                                    -----------     -----------     -----------     -----------     -----------
            Operating gain (loss) ..............           (609)           (649)         (1,165)         (1,112)            542

Other income (expense):
  Investment and interest income ...............            312             146             151             725             337
  Interest expense .............................             (4)             (9)             (5)            (32)           (174)
                                                    -----------     -----------     -----------     -----------     -----------

Income (loss) from continuing operations
  before income taxes
  and minority interest ........................           (301)           (512)         (1,019)           (419)            705

(Provision for) benefit from income taxes (1) ..          1,626             (32)          1,182             (89)            (31)
                                                    -----------     -----------     -----------     -----------     -----------

Income (loss) from continuing operations before
  minority interest ............................          1,325            (544)            163            (508)            674

Minority interest ..............................            215             175              72              --              --
                                                    -----------     -----------     -----------     -----------     -----------

    Income (loss) from continuing operations ...          1,110            (719)             91            (508)            674

Discontinued operations:
  Income from operations of
    The Strouse Adler Company ..................            358             732             624              --              --
  Gain on sale of The Strouse, Adler Company ...             --              --             873             911              --
                                                    -----------     -----------     -----------     -----------     -----------

     Net income ................................          1,468              13           1,588             403             674

Preferred dividends ............................             --              --             126             233             109
                                                    -----------     -----------     -----------     -----------     -----------

    Net income applicable to common shareholders    $     1,468     $        13     $     1,462     $       170     $       565
                                                    ===========     ===========     ===========     ===========     ===========

Diluted  earnings per common share:
  Continuing operations ........................    $      0.92     $     (0.65)    $     (0.03)    $     (0.60)    $       .37
  Discontinued operations ......................           0.25            0.66            0.54              --              --
  Gain on sale of discontinued operations ......             --              --            0.75            0.74              --
                                                    -----------     -----------     -----------     -----------     -----------
  Net income ...................................    $      1.17     $      0.01     $      1.26     $      0.14     $       .37
                                                    ===========     ===========     ===========     ===========     ===========

  Weighted average shares ......................      1,440,274       1,100,700       1,151,920       1,226,144       1,834,968

Consolidated balance sheet data:
Total assets ...................................    $    23,795     $    20,381     $    14,582     $    18,485     $    15,211
Stockholders' equity ...........................          6,530           6,511           8,455           8,608          11,947
Long-term debt .................................          2,097           1,670              --             111           1,672
</TABLE>

-----------
(1)   Income tax benefit for the year ended June 30, 1996 includes a $1,650
      benefit related to the settlement of the Federal Deposit Insurance
      Corporation's claims. Income tax benefit for the year ended June 30, 1998
      includes a tax refund received resulting from a tax loss carryback claim.


                                       2
<PAGE>

                      SELECTED FINANCIAL DATA OF SIMULAIDS
                             (Amounts in thousands)

      The following are selected financial data for Simulaids, on a stand alone
basis, for the fiscal years ended December 31, 1997 and 1998 and June 30, 1998,
1999, and 2000. The selected financial data for the fiscal years ended June 30,
1998 and 1999 have not been audited. The financial data is presented on a
historic basis of accounting and does not reflect adjustments resulting from the
acquisition or costs associated with the acquisition. The selected financial
data presented below should be read in conjunction with the Consolidated
Financial Statements of the Company, together with the Notes to Consolidated
Financial Statements and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this report.

<TABLE>
<CAPTION>
                                                                 FISCAL YEARS ENDED              FISCAL YEARS ENDED
                                                                    DECEMBER 31,                     JUNE 30,
                                                                    ------------                     --------
                                                                    (unaudited)                     (unaudited)

                                                        1997            1998           1998            1999             2000
                                                      -------         -------         -------         -------         -------
<S>                                                   <C>             <C>             <C>             <C>             <C>
Consolidated statements of operations data:
Net sales .......................................     $ 5,478         $ 5,860         $ 5,527         $ 5,822         $ 6,713
Costs and expenses:
     Costs of goods sold ........................       2,965           3,266           3,121           3,259           3,775
     Selling, general and administrative ........       1,458           1,433           1,418           1,486           1,502
     Goodwill amortization ......................          --              --              --              39             228
                                                      -------         -------         -------         -------         -------
          Operating income ......................       1,055           1,161             988           1,038           1,208

Other income (expense):
  Interest and other income-net .................          42              27              40              12              13
  Interest expense ..............................         (14)            (11)            (13)            (12)           (165)
                                                      -------         -------         -------         -------         -------

Income from continuing operations
  before income taxes ...........................       1,083           1,177           1,015           1,038           1,056

Provision for income taxes ......................          (8)            (14)             (9)           (101)           (492)
                                                      -------         -------         -------         -------         -------

          Net income ............................     $ 1,075         $ 1,163         $ 1,006         $   937         $   564
                                                      =======         =======         =======         =======         =======

Consolidated balance sheet data:
Total assets ....................................     $ 3,227         $ 3,213         $ 3,139           8,743         $ 9,208
Stockholders' equity ............................       2,943           3,081           2,871           8,350           6,885
Long-term debt ..................................     $   106         $    --         $    96         $   111           1,672
</TABLE>

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

Interest and other income-net includes the Video Store business of Simulaids
through April 30, 1999 even though the Video Store business was not purchased by
Aristotle. The Video Store Business and related assets were distributed to the
former stockholder of Simulaids on April 30, 1999.


                                       3
<PAGE>

                MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                       CONDITION AND RESULTS OF OPERATION

General

      This discussion and analysis of financial condition and results of
operations will review the results of operations of the Company, on a
consolidated basis, for the fiscal year ended June 30, 2000, as compared to the
year ended June 30, 1999, and the fiscal year ended June 30, 1999, as compared
to the year ended June 30, 1998. This discussion and analysis of financial
condition and results of operations have been derived from, and should be read
in conjunction with, the Consolidated Financial Statements and Notes to
Consolidated Financial Statements contained elsewhere in this report.

      On April 30, 1999, Aristotle acquired all of the outstanding stock of
Simulaids, Inc. ("Simulaids"), a manufacturer of health and education teaching
aids. Simulaids was Aristotle's only operating subsidiary during the period
ended June 30, 2000. On September 14, 2000, Aristotle acquired 80% of the
outstanding stock of Safe Passage International, Inc. ("Safe Passage"), a
privately-held, Rochester, New York-based company that develops and sells
computer based training products to government and industry clients (see "Recent
Developments"). Except for references in the discussion under the heading
"Recent Developments" and in the Note - "Subsequent Events" in the Consolidated
Financial Statements, or unless otherwise indicated, this Report does not
include or otherwise describe the acquisition of Safe Passage or its business,
financial condition or financial performance.

Results of Continuing Operations of the Company

Fiscal Year Ended June 30, 2000 as Compared to the Year Ended June 30, 1999

      The Company's net sales of $6,713,000 for the fiscal year ended June 30,
2000 increased by $5,766,000 as compared to net sales of $947,000 for the fiscal
year ended June 30, 1999. The increase in sales reflects twelve months of sales
for Simulaids in the current fiscal year versus two months of sales for
Simulaids in the prior year.

      Gross profit for the current fiscal year of $2,938,000 increased by
$2,761,000 versus gross profit for the prior fiscal year of $177,000. The
increase in gross profit reflects twelve months of gross profit for Simulaids in
the current fiscal year versus two months of gross profit for Simulaids in the
prior year. In addition, the gross margin in fiscal 1999 reflects a nonrecurring
impact of the application of purchase accounting at the date of the acquisition
which resulted in a $259,000 fair value adjustment to the purchased inventory.
This purchase accounting adjustment was expensed in the period ended June 30,
1999 as the corresponding inventory was sold.

      The Company's selling, general and administrative expenses for the fiscal
year ended June 30, 2000 increased by $918,000 to $2,168,000 compared to
$1,250,000 for the prior fiscal year. The increase principally reflects twelve
months of expenses for Simulaids in the current fiscal year versus two months of
expenses for Simulaids in the prior year, partially offset by a reduction in
professional fees.

      Goodwill amortization for the current fiscal year of $228,000 increased by
$189,000 versus goodwill amortization for the prior fiscal year of $39,000. The
increase in goodwill


                                       4
<PAGE>

amortization reflects twelve months of amortization in the current fiscal year
versus two months of amortization in the prior year.

      Investment and interest income was $337,000 and $725,000 for the twelve
months ended June 30, 2000 and 1999, respectively. The decrease in fiscal year
2000 mainly reflects a redemption of marketable securities in which the proceeds
were used to partially finance the acquisition of Simulaids in April 1999. The
income for the twelve months ended June 30, 2000 and 1999 was principally
generated by short-term cash investments and corporate bonds.

      Interest expense for the twelve months ended June 30, 2000 increased to
$174,000 from $32,000 in the corresponding twelve months ended June 30, 1999.
The increase reflected interest expense on the bank funds used in the
acquisition of Simulaids which were utilized for twelve months in the current
fiscal year versus two months in the prior year.

      The income tax provision for the twelve months ended June 30, 2000 was
$31,000 compared to $89,000 for the twelve months ended June 30, 1999. During
the twelve months ended June 30, 2000, the Company recorded a tax provision
related to state taxes. During the twelve months ended June 30, 1999, the
Company recorded a tax provision related to state taxes and a provision for
taxes due on the built-in gain on assets purchased in the acquisition of
Simulaids.

      Preferred dividends were $109,000 for the twelve months ended June 30,
2000 compared to $233,000 for the twelve months ended June 30, 1999. The
decrease was principally due to the conversion of all shares of Aristotle
Preferred Stock into shares of Common Stock from February 2000 to May 2000.
Preferred dividends represented dividends paid or accrued on outstanding Series
E, F, G and H Aristotle Preferred Stock. The shares of Series E Aristotle
Preferred Stock were issued to Geneve Corporation, Aristotle's principal
shareholder, in January 1998, and shares of the Series F, G and H Aristotle
Preferred Stock were issued in 1998 in connection with the acquisition of
Strouse, which company was subsequently sold to The Sara Lee Corporation in June
1998.

Results of Discontinued Operations of the Company

Fiscal Year Ended June 30, 2000 as Compared to the Year Ended June 30, 1999

      Gain on the sale of Strouse of $911,000 for the year ended June 30, 1999
reflects adjustments which resulted from a $48,000 charge related to a final
purchase price adjustment based on the net book value of net assets acquired by
Sara Lee, a $41,000 charge related to additional transaction costs in excess of
management's original estimate and $1,000,000 of additional gain resulting from
the final determination of the ultimate tax obligations resulting from the sale.

Results of Continuing Operations of the Company

Fiscal Year Ended June 30, 1999 as Compared to the Year Ended June 30, 1998

      The Company's net sales of $947,000 for the fiscal year ended June 30,
1999 represents the net sales of Simulaids for the two months ended June 30,
1999.

      Gross profit for the 1999 fiscal year of $177,000 represents the
operations of Simulaids for the two months ended June 30, 1999. The gross margin
reflects a nonrecurring impact of the


                                       5
<PAGE>

application of purchase accounting at the date of the acquisition which resulted
in a $259,000 fair value adjustment to the purchased inventory. This purchase
accounting adjustment was expensed in the period ended June 30, 1999 as the
corresponding inventory was sold.

      The Company's selling, general and administrative expenses for the fiscal
year ended June 30, 1999 increased 82% to $1,250,000 compared to $685,000 for
the prior fiscal year. The increase was primarily due to the operating expenses
of Simulaids of $227,000 for the two months ended June 30, 1999, increased
professional fees primarily incurred in connection with tax matters and
potential acquisitions, and increases in administrative and directors'
compensation.

      The Company's goodwill amortization of $39,000 for the fiscal year ended
June 30, 1999 represents amortization of goodwill for the two months ended June
30, 1999 resulting from the April 30, 2000 acquisition of Simulaids.

      The Company incurred a contingency fee of $480,000 for the fiscal year
ended June 30, 1998 which resulted from an agreement entered into in connection
with the income tax refund received during the fiscal year ended June 30, 1998.
See the income tax discussion below.

      Investment and interest income was $725,000 and $151,000 for the twelve
months ended June 30, 1999 and 1998, respectively. The increase in 1999 mainly
reflects the additional investment and interest income generated from the
proceeds of the Strouse Sale in June 1998. The income for the twelve months
ended June 30, 1999 and 1998 was principally generated by short-term cash
investments and corporate bonds.

      Interest expense for the twelve months ended June 30, 1999 increased to
$32,000 from $5,000 in the corresponding twelve months ended June 30, 1998. The
increase reflected interest expense on the bank funds utilized in the
acquisition of Simulaids.

      The income tax provision for the twelve months ended June 30, 1999 was
$89,000 compared to a benefit of $1,182,000 for the twelve months ended June 30,
1998. During the twelve months ended June 30, 1999, the Company recorded a tax
provision related to state taxes. During the twelve months ended June 30, 1998,
the Company received a tax refund of $1,919,000 resulting from a tax loss
carryback claim related to its 1996 tax year. In connection therewith, the
Company recorded an income tax benefit of $1,199,000, which is net of a $720,000
reserve which is included in accrued expenses in the accompanying consolidated
balance sheet, less minimum state provisions.

      Minority interest expense of $72,000 for the twelve months ended June 30,
1998 was due to preferred dividends paid or accrued on outstanding minority
interest Preferred Stock issued to the Former Strouse Stockholders in connection
with the Strouse Acquisition. In January 1998, the minority interest Preferred
Stock was converted into Series F, G and H Aristotle Preferred Stock.

      Preferred dividends were $233,000 for the twelve months ended June 30,
1999 compared to $126,000 for the twelve months ended June 30, 1998. The
increase was principally due to the payments of dividends on shares of the
Series E Aristotle Preferred Stock for the entire 1999 fiscal year versus for
half of the 1998 fiscal year. Preferred dividends represent dividends paid or
accrued during the twelve months on outstanding shares of Series E, F, G and H
Aristotle Preferred Stock.


                                       6
<PAGE>

Results of Discontinued Operations of the Company

Fiscal Year Ended June 30, 1999 as Compared to the Year Ended June 30, 1998

      Income from the operations of Strouse was $624,000 for the twelve months
ended June 30, 1998 reflecting the performance of the business during the year
before the sale in June 1998.

      Gain on the sale of Strouse of $911,000 for the year ended June 30, 1999
reflects adjustments which resulted from a $48,000 charge related to a final
purchase price adjustment based on the net book value of net assets acquired by
Sara Lee, a $41,000 charge related to additional transaction costs in excess of
management's original estimate and $1,000,000 of additional gain resulting from
the final determination of the ultimate tax obligations resulting from the sale.
The gain of $873,000 recorded in the year ended June 30, 1998 reflected gross
proceeds of $21,500,000 offset by the net book value of acquired assets and
liabilities of $18,397,000 and estimated taxes and transaction costs of
$2,230,000.

Results of Operations of Simulaids, on a stand alone basis

Twelve Months Ended June 30, 2000 as Compared to the Twelve Months Ended June
30, 1999

      Simulaids' net sales for the twelve months ended June 30, 2000 increased
15.3% to $6,713,000, compared to net sales of $5,822,000 for the prior year. The
increase was primarily due to higher volume of manikin sales to existing
domestic and international distributors.

      Simulaids' gross profit for the twelve months ended June 30, 2000
increased to $2,938,000 from $2,563,000 for the prior year (a 14.6% increase),
and the gross margin percentage decreased to 43.8% from 44.0%. The increase in
gross profit was principally due to the sales increase.

      Operating expenses include selling, general and administrative and product
development expenses. Operating expenses for the twelve months ended June 30,
2000 were $1,502,000 versus $1,486,000 for the twelve months ended June 30,
1999. The $16,000, or 1.1%, increase was principally a result of increases in
advertising, sales promotion, and selling compensation partially offset by
reductions in administrative compensation.

      Goodwill amortization for the current fiscal year of $228,000 increased by
$189,000 versus goodwill amortization for the prior fiscal year of $39,000. The
increase in goodwill reflects twelve months of amortization in the current
fiscal year versus two months of amortization in the prior year.

      Investment and interest income was $13,000 and $12,000 for the twelve
months ended June 30, 2000 and 1999, respectively. Fluctuations in investment
and interest income generated each year were a direct result of the cash
balances maintained in the business.

      Interest expense for the twelve months ended June 30, 2000 increased to
$165,000 from $12,000 in the prior year. The increase in interest expense
primarily resulted from increased borrowing levels under bank loans established
as part of the acquisition of Simulaids.

      The provision for income taxes for the twelve months ended June 30, 2000
was $492,000 versus $101,000 for the prior year. Income taxes represent
provisions made pursuant to the tax sharing agreement with its parent, The
Aristotle Corporation. The increase in the income tax


                                       7
<PAGE>

provision reflects twelve months with a tax sharing agreement with its parent
for the current fiscal year versus two months with a tax sharing agreement with
its parent and ten months as a "S" Corporation in the prior year.

Twelve Months Ended June 30, 1999 as Compared to the Twelve Months Ended June
30, 1998

      Simulaids' net sales for the twelve months ended June 30, 1999 increased
5.3% to $5,822,000, compared to net sales of $5,527,000 for the prior year. The
increase was primarily due to higher sales of custom products partially offset
by lower volume of manikin sales.

      Simulaids' gross profit for the twelve months ended June 30, 1999
increased to $2,563,000 from $2,406,000 for the prior year, and the gross margin
percentage increased to 44.0% from 43.5%. The increase in gross profit was
principally due to the sales increase and the increase in the gross margin
percentage was principally a result of increased efficiencies resulting from the
increased level of production.

      Operating expenses include selling, general and administrative, and
product development expenses. Operating expenses for the twelve months ended
June 30, 1999 were $1,486,000 versus $1,418,000 for the twelve months ended June
30, 1998. The $68,000, or 4.8%, increase was principally a result of increases
in administrative compensation.

      Goodwill amortization of $39,000 for the fiscal year ended June 30, 1999
represents amortization of goodwill for the two months ended June 30, 1999
resulting from the April 30, 2000 acquisition of Simulaids.

      Investment and interest income was $12,000 and $40,000 for the twelve
months ended June 30, 1999 and 1998, respectively. Fluctuations in investment
and interest income generated each year were a direct result of the cash
balances maintained in the business.

      The provision for income taxes for the twelve months ended June 30, 1999
was $101,000, which reflected state taxes on income.

Liquidity and Capital Resources

      Aristotle ended the June 30, 2000 fiscal year with $4,951,000 in cash and
cash equivalents. Cash consumed during the year was principally used for the
repayment of short-term borrowings partially offset by cash earnings from
operations, the receipt of tax refunds and the redemption of marketable
securities. The overall decrease in cash and cash equivalents of $898,000 is
detailed below.

      The Company generated cash of $1,757,000 from operations during the fiscal
year ended June 30, 2000 and deployed net cash of $761,000 in operations for the
fiscal year ended June 30, 1999. During fiscal 2000, the generation of cash from
operations was principally the result of earnings plus depreciation and
amortization of $1,100,000 and the receipt of tax refunds totaling $1,027,000.
During fiscal 1999, the use of cash from operations was principally the result
of a loss from continuing operations of $508,000 and the overpayment of
refundable taxes of $1,150,000 partially offset by reductions in other assets of
$482,000 and inventories of $203,000.


                                       8
<PAGE>

      The Company generated $910,000 from investing activities for the fiscal
year ended June 30, 2000 and deployed $10,558,000 in investing activities in the
fiscal year ended June 30, 1999. During fiscal 2000, the generation of cash
principally reflected the redemption of marketable securities of $991,000.
During fiscal 1999, the utilization of cash was principally for the acquisition
of Simulaids, the purchase of marketable securities and the payment of Strouse
transaction costs resulting from the June 1998 sale.

      Financing activities utilized cash of $3,565,000 for the fiscal year ended
June 30, 2000 and provided cash of $4,897,000 for the fiscal year ended June 30,
1999. Funds used in fiscal 2000 were primarily for the repayment of borrowings
of $3,212,000, the repurchase of shares of Aristotle Preferred Stock of $136,000
and the payment of dividends on Aristotle Preferred Stock of $163,000. Funds
generated in fiscal 1999 were primarily due to the short-term bank borrowings of
$5,000,000 partially offset by dividends on Aristotle Preferred Stock of
$233,000.

      Capital resources in the future are expected to be used for the
development of the Simulaids business and to acquire additional companies.
Aristotle anticipates that there will be sufficient financial resources to meet
Aristotle's projected working capital and other cash requirements for the next
twelve months.

Recent Developments

      On September 14, 2000, Aristotle acquired 80% of the outstanding shares of
common stock of Safe Passage International, Inc., a privately-held Rochester,
New York-based company, pursuant to a Stock Purchase Agreement dated as of
September 13, 2000 between Aristotle and the Safe Passage shareholders (the
"Sellers") for an aggregate purchase price of $1.8 million in cash plus possible
additional future consideration of up to a maximum of $2.3 million based on
management's performance during calendar years 2000 and 2001. Safe Passage
develops and sells computer based training products to government and industry
clients.

Income Taxes

      At June 30, 2000, Aristotle had $50,600,000 of federal net operating loss
carryforwards, which expire through 2011, and $1,600,000 of state net operating
loss carryforwards, which expire through 2004.

      In September 1996, the Company filed an amended Federal income tax return
for the year ending December 31, 1992 claiming a worthless stock deduction of
approximately $54,000,000 with respect to its stock in the First Constitution
Bank (the "Bank") which previously was Aristotle's only subsidiary and which, on
October 2, 1992, was seized by the FDIC. As a result of such amended return, the
Company has also claimed tax refunds of approximately $10,000,000 resulting from
the carryback of the Company's net operating loss from 1992 to prior years.
Pending final review by the Internal Revenue Service, the Company has not
recorded the $10,000,000 refund claim in its consolidated financial statements.
After consideration of such carryback claim, the Company's remaining Federal net
operating loss carryforward related to the worthless stock deduction would be
approximately $30,800,000 and the Company's aggregate Federal net operating loss
carryforwards would be reduced from $50,600,000 to $28,600,000.

      During 1997, the Company filed a carryback claim related to its 1996 tax
year. In connection therewith, the Company received $1,919,000 for which the
Company recorded an income tax benefit of $1,199,000, which is net of a $720,000
reserve. In addition, upon receipt of


                                       9
<PAGE>

such refund, the Company was obligated to pay $480,000 as a result of a
contingent fee arrangement entered into in connection with this income tax
refund claim.

      On its return for 1992 as originally filed, the Company made elections
under provisions set forth in regulations proposed by the Internal Revenue
Service in April 1992 as guidance for the application of Section 597 of the
Internal Revenue Code of 1986, as amended and under Section 1.1502-20(g)(1) of
the Federal Income Tax Regulations to (i) disaffiliate from the former Bank for
Federal income tax purposes and (ii) reattribute net operating losses of the
former Bank in excess of $81,000,000 to the Company. The application of the tax
law with respect to the Company's election to disaffiliate from the former Bank
and to reattribute the former Bank's net operating losses to the Company is not
certain and, therefore, there is no assurance that the Company could succeed to
any of the former Bank's net operating losses. Moreover, the reattribution to
the Company of the former Bank's net operating losses may be limited if the
position taken by the Company on its amended returns is allowed.

      As anticipated and as discussed in the Company's Annual Report on Form
10-K for the year ended June 30, 1999, the Company received from the Internal
Revenue Service a letter disallowing the two carryback claims filed on its
amended 1992 return and on its 1996 return. This disallowance at the field
examination level was not unexpected by the Company. The Company continues to
believe the claims have merit and, therefore, the Company will continue to
pursue its case at the Internal Revenue Service Appellate level. The ultimate
outcome of this proceeding is uncertain at this time. Notwithstanding, the
Company being entitled to a net operating loss carryforward arising from, or
with respect to its interest in, the former Bank, its ability to utilize such
carryforward is dependent upon many factors including (i) the realization of
taxable income by the Company, and (ii) avoiding a fifty percent "ownership
change" as defined in Section 382 of the Internal Revenue Code. If there is an
"ownership change," the tax loss carryforwards available to the Company would be
significantly reduced or eliminated. Accordingly, neither the refund claim nor
the future benefit of these remaining net operating loss carryforwards have been
reflected as tax assets in the accompanying consolidated financial statements.

      The Company believes, assuming that the Former Strouse Stockholders
currently own the maximum number of shares of Common Stock of Aristotle they
could acquire through the exercise of their various rights and options and that
Geneve Corporation currently owns the maximum number of shares of Common Stock
it could acquire, that the Company has not undergone an ownership change within
the meaning of Section 382 of the Code. During the period which the Company has
an unutilized federal net operating loss carryforward, which may be for many
years into the future, particularly if the Company does succeed to a significant
portion of the former Bank's net operating loss carryforward, it will be
necessary for the Company to determine whether an ownership change has occurred
each time a new or existing stockholder becomes a 5% stockholder or an existing
5% stockholder increases its ownership interest. Except with respect to the
Former Strouse Stockholders and Geneve Corporation, the Company does not know of
any stockholders who currently own or would own, upon the exercise of options or
warrants, 5% or more of the Common Stock. At a special meeting of stockholders
held on April 8, 1994, the stockholders voted to restrict certain share
transfers because they could affect the Company's ability to use its net
operating losses under Section 382.


                                       10
<PAGE>

Quantitative & Qualitative Disclosures About Market Risk

      As described below, credit risk and interest rate risk are the primary
sources of market risk to the Company in its marketable securities and
short-term borrowings.

Qualitative

      Interest Rate Risk: Changes in interest rates can potentially impact the
Company's profitability and its ability to realize assets and satisfy
liabilities. Interest rate risk is resident primarily in the Company's
marketable securities and short-term borrowings which have fixed coupon or
interest rates.

      Credit Risk: The Company's marketable securities are invested in
investment grade corporate bonds and closed-end bond funds, both domestic and
international, which have various maturities.

Quantitative

      The Company's marketable securities and short-term borrowings as of June
30, 2000 are as follows:

                                            Maturity less     Maturity greater
                                            than one year     than one year
                                            -------------     -------------
Marketable securities
         Cost value                          $   --            $ 2,074
         Weighted average return                 --                7.3%
         Fair market value                   $   --            $ 1,806

Short-term borrowings
         Amount                              $  253            $ 1,672
         Weighted average interest rate         8.2%               8.2%
         Fair market value                   $  253            $ 1,672

Year 2000 Issue

      The Year 2000 Issue arose as a result of computer programs that were
written using two digits rather than four to define the year. There was concern
that information technology systems and other systems using such programs that
have date sensitive software would recognize a date using "00" as the year 1900
rather than the year 2000. Accordingly, computer systems and software used by
many companies and governmental agencies needed to be upgraded to comply with
Year 2000 requirements or risk system failure or miscalculations causing
disruptions of operations.

      Subsequent to December 31, 1999, the Company has not experienced any
significant problems associated with the Year 2000 compliance of its own
operating and information systems and it has not experienced any problems with
the Year 2000 compliance of third parties, including its significant suppliers,
customers and critical business partners or any governmental agencies and
service providers. The Company does not expect to experience any significant
problems associated with the Year 2000 Issue in the future.


                                       11
<PAGE>

Certain Factors That May Affect Future Results of Operations

      Aristotle believes that this report may contain forward-looking statements
within the meaning of the "safe-harbor" provisions of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements include
statements regarding Aristotle's liquidity and are based on management's current
expectations and are subject to a number of factors and uncertainties that could
cause actual results to differ materially from those described in the
forward-looking statements. Aristotle cautions investors that there can be no
assurance that actual results or business conditions will not differ materially
from those projected or suggested in such forward-looking statements as a result
of various factors, including, but not limited to, the following: (i) the
ability of Aristotle to obtain financing and additional capital to fund its
business strategy on acceptable terms, if at all; (ii) the ability of Aristotle
on a timely basis to find, prudently negotiate and consummate one or more
additional acquisitions; (iii) the ability of Aristotle to retain and take
advantage of its net operating tax loss carryforward position; (iv) Aristotle's
ability to manage Simulaids, Safe Passage and any other acquired or to be
acquired companies; and (v) general economic conditions. As a result,
Aristotle's future development efforts and operations involve a high degree of
risk. For further information, refer to the more specific risks and
uncertainties discussed throughout this report.


                                       12
<PAGE>

                   THE ARISTOTLE CORPORATION AND SUBSIDIARIES

                        CONSOLIDATED FINANCIAL STATEMENTS

                          AS OF JUNE 30, 2000 AND 1999

                                 TOEGETHER WITH

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


                                       13
<PAGE>

THE ARISTOTLE CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
As of June 30, 2000 and 1999
(dollars in thousands, except for share data)

<TABLE>
<CAPTION>
                                                                                 2000          1999
<S>                                                                            <C>           <C>
ASSETS

Current assets:
   Cash and cash equivalents                                                   $   4,951     $   5,849
   Marketable securities, at market value                                          1,806           702
   Marketable securities and cash equivalents held
     in escrow, at market value                                                       --           157
   Accounts receivable                                                               465           299
   Current maturities of notes receivable                                             --           102
   Inventories, net                                                                  928           989
   Tax receivable, net                                                               123         1,150
   Other current assets                                                              128            85
                                                                               ---------     ---------

                  Total current assets                                             8,401         9,333
                                                                               ---------     ---------

Property, plant and equipment, net                                                 1,365         1,478
                                                                               ---------     ---------

Other assets:
   Marketable securities, at market value                                             --         1,386
   Marketable securities held in escrow, at market value                              --           552
   Goodwill, net of accumulated amortization of $267 and $39 in 2000
     and 1999, respectively                                                        5,428         5,685
   Other noncurrent assets                                                            17            51
                                                                               ---------     ---------

                                                                                   5,445         7,674
                                                                               ---------     ---------

                                                                               $  15,211     $  18,485
                                                                               =========     =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
   Short-term borrowings                                                       $      --     $   5,000
   Current maturities of long-term debt                                              225            --
   Current maturities of capital lease obligations                                    28            25
   Current maturities of Series F, G and H Preferred Stock                            --           799
   Accounts payable                                                                  127           143
   Accrued expenses                                                                  492           829
   Accrued tax reserves                                                              720           720
                                                                               ---------     ---------

                  Total current liabilities                                        1,592         7,516
                                                                               ---------     ---------

Long-term debt, net of current maturities                                          1,589            --
Capital lease obligations, net of current maturities                                  83           111
                                                                               ---------     ---------

                  Total long-term liabilities                                      1,672           111
                                                                               ---------     ---------

Commitments and contingencies

Series E Redeemable Preferred Stock                                                   --         2,250
                                                                               ---------     ---------

Stockholders' equity:
   Common stock, $.01 par value, 3,000,000 shares authorized;
     1,904,613 and 1,240,727 shares issued in 2000 and 1999,
     respectively                                                                     19            13
   Additional paid-in capital                                                    163,324       160,403
   Accumulated deficit                                                          (151,035)     (151,600)
   Treasury stock, at cost, 17,834 shares and 7,609 shares in
     2000 and 1999, respectively                                                     (93)          (47)
   Net unrealized investment losses                                                 (268)         (161)
                                                                               ---------     ---------

                  Total stockholders' equity                                      11,947         8,608
                                                                               ---------     ---------

                                                                               $  15,211     $  18,485
                                                                               =========     =========
</TABLE>

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


                                       14
<PAGE>

THE ARISTOTLE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations
For the Years Ended June 30, 2000, 1999 and 1998
(dollars in thousands, except per share data)

<TABLE>
                                                                     2000       1999         1998
<S>                                                                <C>         <C>         <C>
Net sales                                                          $ 6,713     $   947     $    --

Cost of goods sold                                                   3,775         770          --
                                                                   -------     -------     -------

                Gross profit                                         2,938         177          --
                                                                   -------     -------     -------

Selling expenses                                                       454          46          --

General and administrative expenses                                  1,714       1,204         685

Nonrecurring tax claim contingency fee                                  --          --         480

Goodwill amortization                                                  228          39          --
                                                                   -------     -------     -------

                Operating income (loss)                                542      (1,112)     (1,165)
                                                                   -------     -------     -------

Other income (expense):
   Investment and interest income                                      337         725         151
   Interest expense                                                   (174)        (32)         (5)
                                                                   -------     -------     -------

                Income (loss) from continuing operations before
                    income taxes and minority interest                 705        (419)     (1,019)

Provision for (benefit from) income taxes                               31          89      (1,182)
                                                                   -------     -------     -------

                Income (loss) from continuing operations
                    before minority interest                           674        (508)        163

Minority interest                                                       --          --          72
                                                                   -------     -------     -------

                Income (loss) from continuing operations               674        (508)         91

Discontinued operations:
   Income from operations of The Strouse, Adler Company                 --          --         624

   Gain on sale of The Strouse, Adler Company                           --         911         873
                                                                   -------     -------     -------

                Net income                                             674         403       1,588

Preferred dividends                                                    109         233         126
                                                                   -------     -------     -------

                Net income applicable to common shareholders       $   565     $   170     $ 1,462
                                                                   =======     =======     =======

Basic earnings (loss) per common share:
   Continuing operations                                           $   .39     $  (.60)    $  (.03)
   Discontinued operations                                              --          --         .54
   Gain on sale of discontinued operations                              --         .74         .75
                                                                   -------     -------     -------

                                                                   $   .39     $   .14     $  1.26
                                                                   =======     =======     =======

Diluted earnings (loss) per common share:
   Continuing operations                                           $   .37     $  (.60)    $  (.03)
   Discontinued operations                                              --          --         .54
   Gain on sale of discontinued operations                              --         .74         .75
                                                                   -------     -------     -------

                                                                   $   .37     $   .14     $  1.26
                                                                   =======     =======     =======
</TABLE>

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


                                       15
<PAGE>

THE ARISTOTLE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity
For the Years Ended June 30, 2000, 1999 and 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                                          Net
                                                                                      Unrealized
                                              Additional                               Investment      Total
                                   Common      Paid-in    Accumulated     Treasury       Gains      Stockholders'  Comprehensive
                                   Stock       Capital      Deficit         Stock       (Losses)       Equity         Income
<S>                              <C>          <C>          <C>           <C>           <C>           <C>           <C>
Balance, June 30, 1997           $      11    $ 159,762    $(153,232)    $     (30)    $      --     $   6,511

   Preferred dividends                  --           --         (126)           --            --          (126)

   Issuance of common stock             --          135           --            --            --           135

   Conversion of subsidiary's
     common stock                       --          215           --            --            --           215

   Issuance of common
     stock to directors                 --          136           --            --            --           136

   Net unrealized
     investment loss                    --           --           --            --            (4)           (4)    $      (4)

   Net income                           --           --        1,588            --            --         1,588         1,588
                                                                                                                   ---------

   Total comprehensive
     income                                                                                                        $   1,584
                                 ---------    ---------    ---------     ---------     ---------     ---------     ---------

Balance, June 30, 1998                  11      160,248     (151,770)          (30)           (4)        8,455

   Preferred dividends                  --           --         (233)           --            --          (233)

   Issuance of common
     stock to directors                  2          155           --            --            --           157

   Purchase of treasury stock           --           --           --           (17)           --           (17)

   Net unrealized
     investment loss                    --           --           --            --          (157)         (157)    $    (157)

   Net income                           --           --          403            --            --           403           403
                                                                                                                   ---------

   Total comprehensive income                                                                                      $     246
                                 ---------    ---------    ---------     ---------     ---------     ---------     ---------

Balance, June 30, 1999                  13      160,403     (151,600)          (47)         (161)        8,608

   Preferred dividends                  --           --         (109)           --            --          (109)

   Issuance of common
     stock to directors and
     employees                          --           46           --             8            --            54

   Conversion of preferred
     stock                               6        2,539           --            --            --         2,545

   Issuance of common stock             --          336           --            --            --           336

   Purchase of treasury stock           --           --           --           (54)           --           (54)
   Net unrealized investment
     loss                               --           --           --            --          (107)         (107)    $    (107)

   Net income                           --           --          674            --            --           674           674
                                                                                                                   ---------

   Total comprehensive income                                                                                      $     567
                                 ---------    ---------    ---------     ---------     ---------     ---------     ==========

Balance, June 30, 2000           $      19    $ 163,324    $(151,035)    $     (93)    $    (268)    $  11,947
                                 =========    =========    =========     =========     =========     =========
</TABLE>

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


                                       16
<PAGE>

THE ARISTOTLE CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows
For the Years Ended June 30, 2000, 1999 and 1998
(dollars in thousands)

<TABLE>
<CAPTION>
                                                                          2000         1999         1998
<S>                                                                     <C>          <C>          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net income                                                          $    674     $    403     $  1,588
    Adjustments to reconcile net income to net cash
      provided by (used in) operating activities:
        Gain from sale of discontinued operations                             --         (911)        (873)
        Depreciation and amortization                                        426           59          574
        Issuance of stock for services                                        --           --          136
        Loss on disposal of property and equipment                            14            9           --
        Changes in assets and liabilities, net of business acquired:
          Accounts receivable                                               (166)          92          (23)
          Inventories                                                         61          203       (2,850)
          Tax receivable                                                   1,027       (1,150)          --
          Other assets                                                        17          482            1
          Accounts payable                                                   (16)          64         (757)
          Accrued expenses                                                  (280)         (12)         310
          Accrued tax reserves                                                --           --          720
                                                                        --------     --------     --------

              Net cash provided by (used in) operating activities          1,757         (761)      (1,174)
                                                                        --------     --------     --------

CASH FLOWS FROM INVESTING ACTIVITIES:
    Purchase of marketable securities                                         --       (1,285)      (1,069)
    Redemption of marketable securities                                      991           --          600
    Minority interest                                                         --           --           21
    Proceeds from disposal of discontinued operations                         --          911        8,724
    Accrued transaction costs                                                 --       (1,704)       1,704
    Purchase of property and equipment                                       (81)         (17)        (608)
    Purchase of Simulaids, net of $237 of cash acquired                       --       (8,463)          --
                                                                        --------     --------     --------

              Net cash provided by (used in) investing activities            910      (10,558)       9,372
                                                                        --------     --------     --------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from short-term borrowings                                       --        5,000           --
    Repurchase of minority interest Preferred Stock                           --           --         (800)
    Proceeds from sale of Series E Preferred Stock                            --           --        2,250
    Net borrowings under line of credit                                       --           --        2,424
    Repayment of short-term borrowings                                    (5,000)          --           --
    Proceeds from credit agreement                                         2,000           --           --
    Principle debt payments                                                 (187)          --          (75)
    Repayment of capital lease obligations                                   (25)          (4)          --
    Repurchase of preferred stock                                           (136)          (6)          --
    Proceeds from sale of common stock                                        --           --          135
    Proceeds from exercise of stock options                                   --          157           --
    Payment of dividends on preferred stock                                 (163)        (233)          --
    Purchase of treasury stock                                               (54)         (17)          --
                                                                        --------     --------     --------

              Net cash (used in) provided by financing activities         (3,565)       4,897        3,934
                                                                        --------     --------     --------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                            (898)      (6,422)      12,132

CASH AND CASH EQUIVALENTS, beginning of period                             5,849       12,271          139
                                                                        --------     --------     --------

CASH AND CASH EQUIVALENTS, end of period                                $  4,951     $  5,849     $ 12,271
                                                                        ========     ========     ========

SUPPLEMENTAL DISCLOSURES:
    Cash paid during the year for:
      Interest                                                          $    180     $     28     $    901
                                                                        ========     ========     ========

      Income taxes                                                      $     28     $  1,259     $     56
                                                                        ========     ========     ========
</TABLE>

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


                                       17
<PAGE>

THE ARISTOTLE CORPORATION AND SUBSIDIARY

Notes to Consolidated Financial Statements
June 30, 2000 and 1999
(dollars in thousands, except share and per share data)

(1)   NATURE OF OPERATIONS

      Organization

      The Aristotle Corporation (Aristotle or the Company) is a holding company
      which, through its operating subsidiary, Simulaids Inc. (Simulaids),
      currently conducts business in the health and medical educational products
      market. Simulaids' proprietary products include manikins and simulation
      kits used for training in the CPR, emergency rescue and patient care
      fields. Simulaids' products are sold throughout the United States and
      internationally via distributors and catalogues to end-users such as fire
      and emergency medical departments and nursing and medical schools.

      Acquisition of Simulaids, Inc.

      Effective April 30, 1999, pursuant to a Stock Purchase Agreement dated as
      of April 30, 1999, Aristotle acquired all of the outstanding stock (the
      Acquisition) of Simulaids, a privately-held New York corporation. As a
      result, the Company's 1999 consolidated statement of operations includes
      the results of operations of Simulaids since the date of the Acquisition.

      The Acquisition purchase price of approximately $8,700, which includes
      $300 of transaction and tax obligations resulting from the Acquisition,
      was paid utilizing approximately $3,700 of cash and $5,000 of bank
      financing. The fair value of assets acquired and liabilities assumed
      amounted to $3,456 and $412, respectively. The excess cost over the fair
      value of net assets acquired amounted to $5,656 and is reflected as
      goodwill in the accompanying financial statements, net of amortization
      based on a straight-line basis over 25 years.

      The Acquisition has been accounted for using the purchase method of
      accounting and, accordingly, the purchase price has been allocated to the
      assets and liabilities acquired based on their fair market values at the
      date of the Acquisition. The following summarizes the final allocation of
      the purchase price of Simulaids:

               Cash                                     $   237
               Accounts receivable                          391
               Inventories (Note 2)                       1,192
               Property, plant and equipment              1,486
               Other assets                                 150
               Goodwill                                   5,656
               Accounts payable and accrued expenses       (156)
               Other liabilities                           (256)
                                                        -------

                                                        $ 8,700
                                                        =======


                                       18
<PAGE>

      Operating results for the years ended June 30, 1999 and 1998 on a pro
      forma basis, excluding the discontinued operations of The Strouse, Adler
      Company, as though Simulaids was acquired as of July 1, 1998 are:

<TABLE>
<CAPTION>
                                                                1999                        1998
                                                        (Dollars in thousands       (Dollars in thousands
                                                         except share data)          except share data)
                                                             (unaudited)                 (unaudited)

          <S>                                               <C>                        <C>
           Net sales                                        $     5,820                $     5,527
           Net income (loss) from continuing operations
              available to common shareholders                     (422)                        39
           Net income (loss) from continuing operations
              available to common shareholders
              per basic share                               $     (.34)                $       .03
</TABLE>

      The pro forma financial information is presented for informational
      purposes only and is not necessarily indicative of the operating results
      that would have occurred had the Acquisition been consummated as of the
      above dates, nor are they necessarily indicative of the future operating
      results. The pro forma adjustments include amortization of intangibles,
      decreased interest income, increased interest expense and state income
      taxes on the income of Simulaids.

      Sale of The Strouse, Adler Company

      Effective June 30, 1998, pursuant to an Asset Purchase Agreement dated as
      of March 3, 1998 (the Purchase Agreement), Aristotle sold substantially
      all of the assets and certain specified liabilities of its wholly-owned
      subsidiary The Strouse, Adler Company (Strouse) to the Sara Lee
      Corporation (Sara Lee) (the Strouse Sale). Strouse, which was Aristotle's
      only operating subsidiary during fiscal 1998 and 1997, designed,
      manufactured and marketed specialty bra and shapewear products. Aristotle
      had originally acquired Strouse on April 11, 1994 for an aggregate
      purchase price of $5,990 (the Strouse Acquisition).

      The final consideration received by Aristotle from Sara Lee was $21,452.
      Included in the $21,452 aggregate purchase price was a $5,000 payment as
      consideration for Aristotle agreeing not to compete in the business of
      manufacturing, marketing, distributing and selling women's intimate
      apparel.

      Aristotle recognized a net gain on the Strouse Sale of approximately
      $1,784 calculated as follows:

            Proceeds                                                   $ 21,452
            Net book value of acquired assets and liabilities
              related to and resulting from the operation of Strouse    (18,397)
            Estimated taxes and transaction costs                        (1,271)
                                                                       --------

            Gain on sale of discontinued operation                     $  1,784
                                                                       ========

      During the year ended June 30, 1999, Aristotle recorded adjustments
      aggregating $911 which increased the gain on the sale of Strouse. The $911
      adjustments resulted from a $48 charge related to a final purchase price
      adjustment based on the net book value of net assets acquired by Sara Lee,
      as defined and as provided for in the Purchase Agreement; a $41 charge
      related to additional transaction costs in excess of management's original
      estimate and $1,000 of additional gain resulting from the final
      determination of the ultimate tax obligations resulting from the sale. As
      a result of these final adjustments, the ultimate gain recognized by the
      Company in connection with


                                       19
<PAGE>

      the Strouse Sales was $1,784, of which a gain of $873 was recorded in
      fiscal 1998 and a gain of $911 was recorded in fiscal 1999. The net cash
      proceeds to Aristotle resulting from the Strouse Sale is as follows:

           Gross proceeds                                             $ 21,452
           Payment of Strouse obligations not assumed by Sara Lee,
             including payment of Strouse bank debt of $10,455         (10,546)
           Payment of taxes and transaction costs                       (1,271)
                                                                      --------

           Net proceeds from sale of discontinued operation           $  9,635
                                                                      ========

      The results of Strouse prior to the sale have been classified as
      Discontinued Operations in the accompanying consolidated financial
      statements. Revenues generated from Strouse operations were $26,645 for
      the year ended June 30, 1998.

(2)   SIGNIFICANT ACCOUNTING POLICIES

      Principles of consolidation

      The consolidated financial statements include the accounts of Aristotle
      and its wholly-owned subsidiaries. All significant intercompany accounts
      and transactions have been eliminated in consolidation.

      Revenue recognition

      Revenue is recorded when goods are shipped to the Company's customers.

      Cash and cash equivalents

      Cash and cash equivalents include cash and highly liquid investments with
      an original maturity of three months or less.

      Marketable securities

      The Company accounts for marketable securities under Statement of
      Financial Accounting Standards (SFAS) No. 115, "Accounting for Certain
      Investments in Debt and Equity Securities." This statement requires that
      marketable securities be carried at their fair values. The Company has
      classified its marketable securities as "available-for-sale" in accordance
      with SFAS No. 115. Accordingly, all unrealized holding gains and losses
      are recorded as a separate component of stockholders' equity. The Company
      utilized the specified identification method in determining cost and fair
      value.

      Inventories

      Inventories were valued at the lower of cost, using the first-in,
      first-out method (FIFO), or market.


                                       20
<PAGE>

      At June 30, 2000 and 1999, inventories consisted of the following:

                                                            2000           1999

           Raw materials                                    $ 458         $ 296
           Work-in-process                                     50           119
           Finished goods                                     450           574
                                                            -----         -----

                                                              958           989
           Reserve                                            (30)           --
                                                            -----         -----

                                                            $ 928         $ 989
                                                            =====         =====

      In connection with the Acquisition (see Note 1), and in accordance with
      the purchase method of accounting, at the date of acquisition the
      purchased inventories were valued at a fair value which was approximately
      $259 greater than its historic cost. This purchase accounting adjustment
      was expensed as the associated inventories were sold and is therefore
      included in cost of sales in the accompanying 1999 consolidated statement
      of operations.

      Notes receivable

      Notes receivable relates to loans from Aristotle to the former
      stockholders of Strouse. The loans bore interest at 8.9% per annum. During
      fiscal 2000 and 1999, certain former Strouse shareholders surrendered
      4,606 and 616 shares of Series F, G & H Preferred Stock (see Note 6) in
      exchange for the cancellation of $46 and $6, respectively, of loans. In
      addition, during fiscal 2000 the remaining $56 of outstanding notes
      receivable were repaid to the Company in cash.

      Property, plant and equipment

      Property, plant and equipment are recorded at cost and are depreciated or
      amortized, using the straight-line method, over the estimated useful lives
      of the assets, as follows:

           Buildings                                     40
           Machinery, equipment and other               5-7
           Leasehold improvements                     various

      At June 30, 2000 and 1999 property, plant and equipment consisted of the
      following:

                                                             2000        1999

           Land                                             $   220     $   220
           Buildings and improvements                           835         845
           Machinery, equipment and other                       512         434
                                                            -------     -------

                                                              1,567       1,499

           Less accumulated depreciation and amortization      (202)        (21)
                                                            -------     -------

                                                            $ 1,365     $ 1,478
                                                            =======     =======

      Expenditures for repairs and maintenance are charged against income as
      incurred. Renewals and betterments are capitalized.


                                       21
<PAGE>

      Goodwill

      Goodwill resulted from the excess of cost over the fair value of assets
      acquired in the Acquisition (see Note 1) and is being amortized on a
      straight-line basis over 25 years.

      Long-lived assets

      The Company has adopted the provisions of SFAS No. 121, "Accounting for
      the Impairment of Long-Lived Assets and for Long-Lived Assets to be
      Disposed of". This statement requires a company to review long-lived
      assets for impairment whenever events or changes in circumstances indicate
      that the carrying amount of an asset may not be recoverable. Future
      realization of the Company's property, plant and equipment and intangible
      assets is dependent upon the ability of the Company to generate future
      profitable operating results in accordance with its operating plans. Based
      upon management's evaluations of expected future cash flows, no impairment
      was indicated.

      Earnings per common share

      The Company has adopted the provisions of SFAS No. 128, "Earnings Per
      Share". For the years ended June 30, 2000, 1999 and 1998, Basic and
      Diluted Earnings Per Share are calculated as follows:

<TABLE>
<CAPTION>
                                                           2000             1999           1998
      <S>                                               <C>             <C>             <C>
      Basic Earnings (Loss) Per Share:

      Numerator

        Income (loss) from continuing operations        $       674     $      (508)    $        91

        Preferred dividends                                    (109)           (233)           (126)
                                                        -----------     -----------     -----------

        Income (loss) from continuing operations
          applicable to common shareholders                     565            (741)            (35)

        Income from discontinued operation                       --              --             624

        Gain on sale of discontinued operation                   --             911             873
                                                        -----------     -----------     -----------

        Net income applicable to common shareholders    $       565     $       170     $     1,462
                                                        ===========     ===========     ===========

      Denominator

        Weighted average shares outstanding               1,464,465       1,226,144       1,151,920
</TABLE>


                                       22
<PAGE>
<TABLE>
<CAPTION>
                                                             2000            1999           1998
<S>                                                     <C>              <C>             <C>
      Basic Earnings (Loss) Per Share Per Common
        Shareholder

        Continuing operations                           $         .39    $      (.60)    $        (.03)

        Discontinued operations                                    --             --               .54

        Gain on sale of discontinued operations                    --            .74               .75
                                                        -------------    -----------     -------------

        Net income                                      $         .39    $       .14     $        1.26
                                                        =============    ===========     =============

      Diluted Earnings (Loss) per Share:

         Numerator

        Income (loss) from continuing operations        $         674    $      (508)    $          91

        Preferred dividends                                        --           (233)             (126)
                                                        -------------    -----------     -------------

        Income (loss) from continuing operations
          applicable to common shareholders                       674           (741)              (35)

        Income from discontinued operations                        --             --               624

        Gain on sale of discontinued operations                    --            911               873
                                                        -------------    -----------     -------------

        Net income applicable to common shareholders    $         674    $       170     $       1,462
                                                        =============    ===========     =============

           Denominator

        Weighted average shares outstanding                 1,464,465      1,226,144         1,151,920

        Options to purchase common stock                        2,164             --                --

        Convertible preferred stock                           368,339             --                --
                                                        -------------    -----------     -------------

                                                            1,834,968      1,226,144         1,151,920
                                                        =============    ===========     =============

      Diluted Earnings (Loss) per Share per Common
        Shareholder

        Continuing operations                           $         .37    $      (.60)    $        (.03)

        Discontinued operations                                    --             --               .54

        Gain on sale of discontinued operations                    --            .74               .75
                                                        -------------    -----------     -------------

        Net income                                      $         .37    $       .14     $        1.26
                                                        =============    ===========     =============
</TABLE>


                                       23
<PAGE>

      For the years ended June 30, 1999 and 1998, options to purchase shares of
      common stock and convertible preferred stock of the Company were
      outstanding but were not included in the computation of diluted earnings
      per share as such inclusion would be anti-dilutive or because the options'
      exercise price was greater than the average market price of the common
      shares. In addition, for the year ended June 30, 2000, there were an
      additional 134,637 options exercisable whose exercise price exceeded the
      average market price for the year and therefore are excluded in the
      computation of diluted earnings per share.

      New accounting standards

      In June 1999, the Financial Accounting Standards Board (FASB) issued SFAS
      No. 137, "Accounting for Derivative Instruments and Hedging
      Activities-Deferral of the Effective Date of SFAS No. 133 - an Amendment
      of SFAS No. 133" for the sole purpose of updating the effective date of
      adoption of SFAS No. 133 to January 1, 2001. The Company does not utilize
      derivative instruments, therefore SFAS 133 will have no impact on its
      financial position or results of operations.

      In December 1999, the Securities and Exchange Commission's Staff
      Accounting Bulletin No. 101 (SAB 101) Revenue Recognition, was issued. SAB
      101 will require a company to defer revenue recognition on product
      shipments until contractual terms of customer acceptance, including
      inspection and installation requirements, are met. The Company will be
      required to adopt this new accounting principle through a cumulative
      charge to accumulated deficit in accordance with the provisions of APB
      Opinion No. 20 no later than the fourth quarter of fiscal 2001. The
      Company does not believe that the adoption of this standard will have a
      material impact on its financial position or results of operations.

      Other comprehensive income

      The Company has adopted the provisions of SFAS No. 130, "Reporting
      Comprehensive Income," which establishes standards for the reporting and
      display of comprehensive income and its components in a full set of
      general-purpose financial statements. Accordingly, the Company has
      included this presentation as a component of the statements of changes in
      stockholders' equity. The objective of the statement is to report a
      measure of all changes in equity of an enterprise that result from
      transactions and other economic events of the period other than
      transactions with owners ("comprehensive income"). This statement requires
      that financial statements report net unrealized investment gains (losses)
      as a component of comprehensive income or loss.

      Concentration of credit risk

      At June 30, 2000, accounts receivable from two customers accounted for
      28.3% of the outstanding balance. No other customers had balances in
      excess of 10% of the outstanding balance. Sales to those two customers
      accounted for 29.9% of net sales during the year ended June 30, 2000.

      Use of estimates

      The preparation of financial statements in conformity with accounting
      principles generally accepted in the United States 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.


                                       24
<PAGE>

(3)   MARKETABLE SECURITIES

      As of June 30, 2000, all of the Company's remaining outstanding preferred
      stock was converted to common or put to the Company in accordance with the
      applicable preferred stock agreements (see Note 6). Therefore, as of June
      30, 2000, the Company was no longer required to escrow funds related to
      the put rights of the former Strouse stockholders. As of June 30, 1999,
      the Company had $709 in escrow related to those put rights which were
      invested in cash equivalents, U.S. treasuries, and corporate bonds and
      were classified as available-for-sale.

      Investment securities available-for-sale and cash equivalents relating to
      the above escrow arrangements are summarized as follows:

<TABLE>
<CAPTION>
                                                 ----------- June 30, 1999 ---------
                                                 Amortized   Unrealized  Gross Market
                                                    Cost       Losses       Value
      <S>                                          <C>         <C>          <C>
      Cash equivalents and interest receivable     $ 157       $  --        $ 157

      Corporate bonds, maturing in 1 to 5 years      573         (21)         552
                                                   -----       -----        -----

                                                   $ 730       $ (21)       $ 709
                                                   =====       =====        =====
</TABLE>

      As of June 30, 2000 and 1999, the Company had funds invested in high-grade
      corporate debentures which have been classified as available-for-sale. As
      of June 30, 2000 and 1999, the fair value of these securities were $1,806
      and $2,088, respectively, and the amortized cost associated with the
      securities was $2,074 and $2,228, respectively. A total unrealized holding
      loss, related to all investment securities, of $268 and $161 is recorded
      as a component of stockholders' equity as of June 30, 2000 and 1999,
      respectively.

(4)   SHORT-TERM BORROWINGS

      On May 3, 1999, the Company entered into a $5,000 revolving loan agreement
      with a bank to finance the Simulaids Acquisition (see Note 1). Borrowings
      under the revolving loan agreement bore interest at 7%. During fiscal
      2000, the Company repaid $3,000 of the revolving loan and refinanced the
      remaining $2,000 (see Note 5).

(5)   LONG TERM DEBT

      On September 27, 1999, Simulaids and Citizens Bank of Connecticut
      (Citizens) entered into a $2.5 million Credit Agreement. The credit
      agreement is comprised of three facilities (Credit Facilities):

      (a)   $1,200 Seven-Year Term Loan - Principal payments are scheduled on a
            ---------------------------
            seven-year straight-line amortization. The interest rate is charged
            at the rate of LIBOR plus 200 basis points on a 30, 60, 90 or 180
            day LIBOR rate at the Company's election.

      (b)   $800 Seven-Year Mortgage - Principal payments are scheduled on a
            ------------------------
            fifteen-year straight-line amortization, with a balloon payment at
            the seven-year maturity. The interest rate is charged at the rate of
            LIBOR plus 200 basis points on a 30, 60, 90 or 180 day LIBOR rate at
            the Company's election.

      (c)   $500 Two-Year Revolving Line of Credit - Borrowing availability
            --------------------------------------
            under the line of credit is determined by a borrowing base which is
            equal to the sum of 80% of eligible accounts


                                       25
<PAGE>

            receivable and 50% of eligible inventory, with a maximum borrowing
            of $500. There are no scheduled principal payments. The interest
            rate is charged at the rate of LIBOR plus 175 basis points on a 30,
            60, 90 or 180 day LIBOR rate at the Company's election.

      As of June 30, 2000, the balance outstanding on the term loan was $1,058
      and the balance outstanding on the mortgage was $756. Future monthly
      principal payments on the term loan and mortgage are $14 and $5,
      respectively. As of June 30, 2000, the Company had not drawn on the line
      of credit.

      Repayments of long-term debt for each of the next five years and
      thereafter are as follows:

                  Year Ending
                   June 30,                     Amount

                     2001                      $    225
                     2002                           225
                     2003                           225
                     2004                           225
                     2005                           225
                  Thereafter                        689
                                               --------

                                               $  1,814
                                               ========

      Simulaids is required to maintain certain financial ratios, including
      maintaining a debt service coverage ratio of 1.25 to 1, as defined, and
      satisfy various other covenants in connection with the Credit Facilities.
      As of June 30, 2000, Simulaids was in compliance with all financial ratios
      and covenants.

      The Credit Facilities are secured by a lien on all assets of Simulaids.
      Aristotle has guaranteed the Credit Facilities with recourse under the
      guaranty limited to $1,000, to be reduced by an amount equal to the
      principal payments made on the term loan. As of June 30, 2000, recourse
      under the Aristotle guaranty is limited to $813.

(6)   PREFERRED STOCK

      Series E

      On January 2, 1998, the Company and Geneve Corporation (Geneve)
      consummated a transaction which provided for the purchase of 489,131
      shares of Aristotle's $.01 par value Series E Convertible Preferred Stock
      (Series E) for an aggregate price of $2,250, or a per share price of
      $4.60. The Series E earned dividends of 8% per annum and the holder of the
      Series E was entitled to one vote per share. Pursuant to the Series E
      redemption features, the Company was obligated to redeem all or part of
      the Series E on January 1, 2002, at $4.60 per share plus accrued but
      unpaid dividends. Contemporaneously with the purchase of the Series E,
      Geneve purchased 30,000 shares of Aristotle common stock for an aggregate
      purchase price of $135.

      In February 2000, Geneve elected to convert all 489,131 shares of Series E
      into 489,131 shares of common stock and a promissory note issued by the
      Company in the amount of $330 due December 31, 2001 and bearing interest
      at 8% per annum (Geneve Note). In June 2000, the Company repaid the $330
      Geneve Note, plus accrued interest of approximately $6, by issuing 56,100
      shares of common stock. The aggregate fair value of the 545,231 shares of
      common stock was less than the $2,250 carrying value of the Series E.


                                       26
<PAGE>

      Series F, G & H

      At June 30, 1999, the Company had 79,883 shares of Series F, G and H
      Preferred Stock (Series F, G and H) outstanding. The Series F, G and H
      were entitled to one vote per share with respect to matters other than the
      election of directors and auditors. Through January 1, 1999 all holders of
      Series F, G and H were entitled to dividends of 8.9% per annum and from
      January 2, 1999 through January 1, 2000 the holders of 40,250 shares of
      Series F, G and H were entitled to dividends of 8.9% per annum.

      Pursuant to the Series F, G and H redemption features, the holders could
      require Aristotle to immediately repurchase the shares at $10 per share
      (the Put Right). As a result of the Put Right, Aristotle had been required
      to escrow certain funds (see Note 3) and at June 30, 1999, $709 was held
      in escrow resulting from this requirement. If the holder of the Series F,
      G and H elected not to redeem this preferred stock they could elect to
      convert each share into 1.667 shares of Aristotle common stock, subject to
      adjustment as defined.

      During fiscal 2000, a holder of the Series H exercised his right to put
      13,617 shares, with an aggregate value of $136, back to the Company in
      exchange for $90 in cash and the cancellation of a loan from the Company
      to him in the amount of $46. The remaining 66,266 shares of Series F, G
      and H were acquired by Geneve directly from the Series F, G and H
      shareholders and were subsequently converted into 110,441 shares of common
      stock at the original 1.667 conversion rate.

(7)   STOCKHOLDERS' EQUITY

      The Company had the following common and treasury stock issued and
      outstanding at June 30, 2000, 1999 and 1998:

                                                            Common     Treasury
                                                            Stock       Stock

      Issued, June 30, 1997                               1,105,801      7,287

      Issuance of common stock                               30,000         --
      Conversion of ASI common into Aristotle common         33,424         --
      Issuance of common stock to directors                  39,802         --
                                                          ---------     ------

      Issued, June 30, 1998                               1,209,027      7,287

      Exercise of options                                    32,322     (7,178)
      Fractional shares                                        (622)        --
      Purchase of treasury stock                                 --      7,500
                                                          ---------     ------

      Issued, June 30, 1999                               1,240,727      7,609

      Purchase of treasury stock                                 --     11,900
      Issuance of stock                                       8,214     (1,675)
      Conversion of Series E, F, G & H preferred stock      599,572         --
      Issuance of shares in repayment of note                56,100         --
                                                          ---------     ------

      Issued, June 30, 2000                               1,904,613     17,834
                                                          =========     ======

      Aristotle common shares reserved for future issuance consist of the
      following:


                                       27
<PAGE>
<TABLE>
<CAPTION>
                                                                              2000       1999
      <S>                                                                   <C>        <C>
      Conversion of Series E                                                     --    489,131
      Conversion of Series F, G and H Preferred Stock                            --    133,137
      Exercise of options issued to Former Strouse Stockholders (Note 9)     35,208     35,208
      Exercise of stock options granted under the Plan (Note 9)             130,429    118,429
      Exercise of stock options granted outside of the Plan (Note 9)         20,000     20,000
                                                                            -------    -------

               Total                                                        185,637    796,431
                                                                            =======    =======
</TABLE>

(8)   INCOME TAXES

      The Company accounts for income taxes under the provisions of SFAS No.
      109, "Accounting for Income Taxes" (SFAS 109). SFAS 109 utilizes the
      liability method and deferred taxes are determined based on the estimated
      future tax effects of differences between the financial statement and tax
      basis of assets and liabilities given the provisions of enacted tax laws.

      At June 30, 2000 and 1999, the principal components of deferred tax
      assets, liabilities and the valuation allowance were as follows:

<TABLE>
<CAPTION>
                                                                    ---------------- 2000 ----------------
                                                                     Current Asset         Long-term Asset
                                                                      (Liability)            (Liability)
      <S>                                                            <C>                    <C>
      Federal net operating loss carryforwards                       $         -            $    17,505
      State of Connecticut net operating loss carryforwards                    -                    120
                                                                     -----------            -----------

                                                                               -                 17,625
      Valuation allowance                                                      -                (17,625)
                                                                     -----------            -----------

                                                                     $         -            $         -
                                                                     ===========            ===========

<CAPTION>
                                                                    ---------------- 1999 ----------------
                                                                     Current Asset         Long-term Asset
                                                                      (Liability)            (Liability)
      <S>                                                            <C>                    <C>
      Federal net operating loss carryforwards                       $         -            $    17,600
      State of Connecticut net operating loss carryforwards                    -                    100
                                                                     -----------            -----------

                                                                               -                 17,700
      Valuation allowance                                                      -                (17,700)
                                                                     -----------            -----------

                                                                     $         -            $         -
                                                                     ===========            ===========
</TABLE>

      A valuation allowance has been recorded for the deferred tax assets as a
      result of uncertainties regarding the realization of the asset, including
      the lack of profitability to date and the variability of operating
      results.


                                       28
<PAGE>

      Provision for (benefits from) income taxes are comprised of the following
      for the years ended June 30, 2000, 1999 and 1998:

                                  2000          1999            1998
          Current:
             Federal           $     --       $     --       $  (1,199)
             State                   31             89              17
                               --------       --------       ---------

                               $     31       $     89       $  (1,182)
                               ========       ========       ==========

      The 1998 federal tax benefit relates to a tax refund of $1,919 resulting
      from a tax loss carryback claim related to its 1996 tax year. In
      connection therewith, the Company recorded an income tax benefit of
      $1,199, which is net of a $720 reserve which is included in the
      accompanying consolidated balance sheets. In addition, upon receipt of
      such refund the Company was obligated to pay $480 as a result of a
      contingent fee arrangement entered into in connection with this income tax
      refund claim. The state tax provisions relate principally to minimum state
      and franchise taxes.

      At June 30, 2000, without giving consideration to the 1992 carryback claim
      (see below), the Company had $50,600 of federal net operating loss
      carryforwards which expire through 2011 and $1,600 of state net operating
      loss carryforwards which expire through 2004.

      Prior to October 2, 1992, Aristotle was the holding Company of First
      Constitution Bank (the Bank). On October 2, 1992, the Federal Deposit
      Insurance Company (FDIC) was appointed as receiver of the Bank and
      Aristotle wrote off its investment in the Bank.

      On its return for 1992 as originally filed, the Company made elections
      under provisions set forth in regulations proposed by the Internal Revenue
      Service in April 1992 as guidance for the application of Section 597 of
      the Internal Revenue Code of 1986, as amended and under Section
      1.1502.20(g)(1) of the Federal Income Tax Regulations to (i) disaffiliate
      from the Bank for Federal income tax purposes and (ii) reattribute net
      operating losses of the Bank in excess of $81,000 to the Company. The
      application of the tax law with respect to the Company's election to
      disaffiliate from the Bank and to reattribute the Bank's net operating
      losses to the Company is not certain and, therefore, there is no assurance
      that the Company could succeed to any of the Bank's net operating losses.

      In September, 1996, the Company filed an amended Federal income tax return
      for the year ending December 31, 1992 claiming a worthless stock deduction
      of approximately $54,000 with respect to its stock in the Former Bank. As
      a result of such amended returns, the Company has also claimed tax refunds
      of approximately $10,000 resulting from the carryback of the Company's net
      operating loss from 1992 to prior years. Pending final review by the
      Internal Revenue Service, the Company has not recorded the $10,000 refund
      claim in its consolidated financial statements. After consideration of
      such carryback claim, the Company's remaining Federal net operating loss
      carryforward related to the worthless stock deduction would be
      approximately $30,800 and the Company's aggregate Federal net operating
      loss deduction would be reduced from $50,600 to $28,600.

      During 2000, the Company received from the Internal Revenue Service a
      letter disallowing the two carryback claims filed on its amended 1992 and
      1996 returns (see above). This disallowance at the field examination level
      was not unexpected by the Company. The Company continues to believe the
      claims have merit and, therefore, the Company is pursuing its case at the
      Internal Revenue Service appellate level.


                                       29
<PAGE>

      There is no assurance that the Company will be entitled to any net
      operating loss carryforwards arising from, or with respect to, its
      interest in the Bank. Even if the Company is entitled to any net operating
      loss carryforward arising from, or with respect to, its interest in the
      Bank, its ability to utilize such carryforward is dependent upon many
      factors including: (1) the acquisition by the Company of profitable
      investments, and (2) avoiding a fifty percent "ownership change" as
      defined in Section 382 of the Internal Revenue Code. If there is an
      "ownership change," the tax loss carryforwards available to the Company
      would be significantly reduced or eliminated. At a special stockholders
      meeting held on April 8, 1994, the stockholders voted to restrict certain
      stockholder transfers.

(9)   STOCK OPTION PLANS

      During fiscal 1997, the Board of Directors adopted the 1997 Stock Option
      Plan, (the 1997 Plan). The 1997 Plan provides for granting up to 150,000
      options to purchase shares of Common Stock of the Company. The term of the
      options and vesting requirements shall be for such period as the Stock
      Option Committee designates.

      The Company established a Stock Option Plan in 1986 (the 1986 Plan) which
      provided for the granting of nonincentive and incentive stock options to
      directors and officers of the Company for the purchase of Aristotle common
      stock. Nonincentive stock options and certain incentive stock options
      granted under the Plan are generally exercisable after one year but within
      ten years as of the date of the grant. Additionally, certain nonincentive
      stock options granted under the Plan may be accompanied by stock
      appreciation rights ("SAR"). The granting of such stock options (SAR's)
      entitles the holder to surrender an option and receive cash equal to the
      increase in the fair market value of the common stock from the date of
      grant to the date of exercise.

      In addition to the options outstanding under the foregoing plans, the
      Company has granted directors and employees of the Company stock options
      to purchase 20,000 common stock shares exercisable through December 3,
      2004. Also, in connection with the Strouse Acquisition, the Company
      granted 35,208 options to purchase shares of Aristotle common stock.

      In October 1995, the Financial Accounting Standard Board issued Statement
      of Financial Accounting Standards No. 123, "Accounting for Stock-Based
      Compensation" (SFAS 123). SFAS 123 requires the measurement of the fair
      value of stock options or warrants to be included in the statement of
      operations or disclosed in the notes to financial statements. The Company
      has determined that it will continue to account for stock-based
      compensation for employees under Accounting Principles Board Opinion No.
      25 and elect the disclosure-only alternative under SFAS 123.

      The Company has computed the pro forma disclosures required under SFAS 123
      for options granted in 2000, 1999 and 1998 using the Black-Scholes option
      pricing model prescribed by SFAS 123. The weighted average assumptions
      used as of June 30, 2000, 1999 and 1998 are as follows:

                                           2000        1999          1998

         Risk free interest rate          6.18%        4.76%       5.76%-5.83%
         Expected dividend yield          None         None        None
         Expected lives                   5 years      5 years     5 years
         Expected volatility              62.3%        69.6%       77.2%-78.1%

      Had compensation cost for the Company's stock option plans been determined
      based on the fair value of the grant dates of awards under these plans
      consistent with the method of SFAS 123, the


                                       30
<PAGE>

      Company's income (loss) from continuing operations applicable to common
      shareholders would have been adjusted to reflect the following pro forma
      amounts as of June 30, 2000, 1999 and 1998:

<TABLE>
<CAPTION>
                                                       2000       1999        1998
         <S>                                         <C>        <C>         <C>
         Income (loss) from continuing operations
           applicable to common shareholders:
               As reported                           $   565    $  (741)    $   (35)
               Pro forma                             $   529    $  (888)    $  (135)

         Pro forma income (loss) from continuing
           operations:
             Basic earnings (loss) per share:
               As reported                           $   .39    $  (.60)    $  (.03)
               Pro forma                             $   .36    $  (.72)    $  (.11)

         Pro forma income (loss) from continuing
           operations:
             Diluted earnings (loss) per share:
               As reported                           $   .37    $  (.60)    $  (.03)
               Pro forma                             $   .35    $  (.72)    $  (.11)
</TABLE>

      In addition to the pro forma impact on continuing operations shown above,
      options were granted to certain employees of Strouse during the year ended
      June 30, 1998. The value of such options would have decreased net income
      by $117.

      Because the SFAS 123 method of accounting has not been applied to options
      granted prior to July 1, 1995, the resulting pro forma compensation cost
      may not be representative of that to be expected in future years.

      A summary of the status of the Company's stock option plans and other
      options as of June 30, 2000, 1999 and 1998, and changes during the years
      then ended, is presented below:

<TABLE>
<CAPTION>
                                   --------- 2000 ---------     -------- 1999 ---------   -------- 1998 ---------
                                                  Weighted-                   Weighted-                 Weighted-
                                                   Average                     Average                   Average
                                                  Exercise                    Exercise                  Exercise
                                     Shares         Price         Shares        Price       Shares        Price
<S>                                  <C>            <C>           <C>        <C>            <C>         <C>
Outstanding at beginning of year     173,637        $ 6.42        173,137    $   6.15       99,137      $  15.24
Granted                               12,000          5.05         40,000        5.88       83,000          4.80
Expired                                   --            --             --          --       (9,000)           --
Exercised                                 --            --        (39,500)       4.66           --            --
                                    --------       --------     ---------    --------     --------      --------

Outstanding at end of year           185,637       $  6.05        173,637    $   6.42      173,137      $   6.15
                                    ========                    =========                 ========

Options exercisable at year-end      164,637       $  6.46        138,637    $   6.70     143,137       $   6.54

Weighted-average fair value of
   options granted during the year                 $  2.97                   $   3.61                   $   3.21
</TABLE>


                                       31
<PAGE>

The following table summarizes information about stock options outstanding at
June 30, 2000:

<TABLE>
<CAPTION>
             ------------ Options Outstanding -------------       ---- Options Exercisable ---
                                                 Weighted-
                                                  Average
                                Number           Remaining                           Number
              Exercise      Outstanding at      Contractual        Exercise        Exercisable
               Prices           6/30/00            Life              Price         at 6/30/00
          <S>                 <C>                  <C>                <C>          <C>
                $4.63           30,000              88.5               4.63          30,000
                 4.64            1,000             112.5               4.64              --
                 5.00           20,210              83.5               5.00          10,210
                 5.30            2,395              45.5               5.30           2,395
                 5.40           20,000              49.0               5.40          20,000
                 5.45           24,998              45.5               5.45          24,998
                 5.63           15,000              88.0               5.63          15,000
                 5.88           40,000             100.5               5.88          30,000
                 5.99            1,000             100.5               5.99           1,000
                10.00           27,769              35.0              10.00          27,769
                17.50              958              10.5              17.50             958
                23.75            2,307               7.0              23.75           2,307
                               -------                                -----         -------

           4.63-23.75          185,637                                 6.46         164,637
                               =======                                              =======
</TABLE>

(10)  RELATED PARTY TRANSACTIONS

      During the years ended June 30, 2000, 1999 and 1998, the Company paid its
      directors $175, $189 and $84, respectively, in compensation for services
      as directors of the Company.

      Simulaids has entered into a management services agreement with an
      affiliate of a stockholder to provide Simulaids with strategic and
      operational assistance. As part of this agreement, Simulaids agreed to pay
      management fees of $100 per annum. During the years ended June 30, 2000
      and 1999, the Company recorded approximately $100 and $16, respectively,
      of expense as part of this agreement.

      In the ordinary course of business, the Company sells its products to an
      affiliate of a stockholder. Sales to this affiliate by the Company for the
      year ended June 30, 2000 and 1999 were $350 and $92 respectively, and
      accounts receivable from this affiliate at June 30, 2000 and 1999 were $14
      and $11 respectively.

(11)  COMMITMENTS AND CONTINGENCIES

      401(k) Plan

      Simulaids maintains a 401(k) Plan, the Simulaids, Inc. 401(k) Plan (the
      Plan) for eligible employees. Employees are eligible to participate in the
      Plan when they reach 21 years of age and have completed one year of
      service. The Company's matching contribution is discretionary and can
      change from year to year. For fiscal year 2000, the Company elected to
      match 25% of employee contributions up to the first 6% of pay deferred.
      Simulaids contributions to the Plan were $12, $12 and $10 in 2000, 1999
      and 1998, respectively.


                                       32
<PAGE>

(12)  QUARTERLY DATA - UNAUDITED (000's OMITTED EXCEPT FOR PER SHARE DATA)

<TABLE>
<CAPTION>
                                ------------------------2000-------------------------
                                    1st           2nd          3rd              4th
                                  Quarter       Quarter       Quarter         Quarter
         <S>                      <C>           <C>           <C>             <C>
         Net Sales                $ 1,646       $ 1,687       $ 1,577         $1,803
         Gross profit                 671           708           776           783
         Operating profit             151           118           148           125
         Net income                   156           168           181           169
         Earnings per share:
            Basic                 $   .08       $   .09       $   .12         $ .09
            Diluted               $   .08       $   .09       $   .10         $ .10

<CAPTION>
                                ------------------------1999-------------------------
                                    1st           2nd          3rd              4th
                                  Quarter       Quarter       Quarter         Quarter
         <S>                      <C>           <C>           <C>             <C>
         Net Sales                $    --       $    --       $    --         $ 947
         Gross profit                  --            --            --           177
         Operating profit            (171)         (232)         (252)         (457)
         Net income (loss)            (44)          (24)         (225)**        696*
         Earnings per share:
            Basic                 $  (.09)      $  (.07)      $  (.23)**      $ .53*
            Diluted               $  (.09)      $  (.07)      $  (.23)**      $ .53*
</TABLE>

 *    Includes $911 gain on the sale of Strouse and operations of Simulaids,
      acquired April 30, 1999.
**    Includes loss on sale of discontinued operations of $150

(13)  SUBSEQUENT EVENT FOOTNOTE

      On September 14, 2000, Aristotle acquired 80% of the outstanding shares of
      common stock of Safe Passage International, Inc., a privately-held
      Rochester, New York-based company, pursuant to a Stock Purchase Agreement
      dated as of September 13, 2000 between Aristotle and the Safe Passage
      shareholders (the "Sellers") for an aggregate purchase price of $1.8
      million in cash plus possible additional future consideration of up to a
      maximum of $2.3 million based on management's performance during calendar
      years 2000 and 2001. Safe Passage develops and sells computer based
      training products to government and industry clients.


                                       33
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To The Board of Directors and Stockholders of
   The Aristotle Corporation:

We have audited the accompanying consolidated balance sheets of The Aristotle
Corporation (a Delaware corporation) and subsidiaries as of June 30, 2000 and
1999, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years ended June 30,
2000. 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 auditing standards generally accepted
in the United States. 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The Aristotle Corporation and
subsidiaries as of June 30, 2000 and 1999, and the results of their operations
and their cash flows for each of the three years ended June 30, 2000 in
conformity with accounting principles generally accepted in the United States.


                                                         /s/ Arthur Andersen LLP

Hartford, Connecticut
September 1, 2000


                                       34
<PAGE>

                                 SIMULAIDS, INC.

                              FINANCIAL STATEMENTS

                    FOR THE FOUR MONTHS ENDED APRIL 30, 1999

                                  TOGETHER WITH

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


                                       35
<PAGE>

                                 SIMULAIDS, INC.

                                  BALANCE SHEET

                              AS OF APRIL 30, 1999

                                     ASSETS

Current assets:
  Cash and cash equivalents                                           $  237,068
  Trade accounts receivable                                              391,281
  Inventories (Note 2)                                                   933,454
  Prepaid expenses and other current assets                              147,392
                                                                      ----------
                  Total current assets                                 1,709,195
                                                                      ----------

Property, plant and equipment:
  Land                                                                    61,944
  Buildings and improvements                                           1,020,599
  Machinery and equipment                                              1,298,975
  Office furniture, fixtures and equipment                                77,401
  Computer equipment                                                     243,291
  Vehicles                                                                46,164
                                                                      ----------
                                                                       2,748,374
                  Less: accumulated depreciation
                    and amortization                                   1,557,552
                                                                      ----------
                                                                       1,190,822

Other assets:
  Patent costs, net of accumulated amortization
    of $2,877                                                              3,937
  Deposits                                                                 2,786
                                                                      ----------
                  Total other assets                                       6,723
                                                                      ----------
                                                                      $2,906,740
                                                                      ==========

                      LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
  Trade accounts payable                                              $   78,922
  Accrued expenses                                                       148,236
  Current maturities of capital lease obligation                          24,990
                                                                      ----------
                  Total current liabilities                              252,148
                                                                      ----------

Capital lease obligation, net of current maturities                      115,056
                                                                      ----------

Commitments and contingencies (Notes 3 and 4)

Shareholder's equity:
  Common stock, $1 par value, 2,000 shares
    authorized; 100 shares issued and outstanding                            100
  Additional paid-in capital                                               5,741
  Retained earnings                                                    2,533,695
                                                                      ----------
                  Total shareholder's equity                           2,539,536
                                                                      ----------
                                                                      $2,906,740
                                                                      ==========

                     The accompanying notes are an integral
                        part of this financial statement.


                                       36
<PAGE>

                                 SIMULAIDS, INC.

                               STATEMENT OF INCOME

                    FOR THE FOUR MONTHS ENDED APRIL 30, 1999

Net sales                                                           $ 1,896,860
Cost of goods sold                                                    1,123,012
                                                                    -----------
               Gross profit                                             773,848

Selling expenses                                                         81,313
General and administrative expenses                                     374,316
                                                                    -----------
               Income from operations -
                 manufacturing division                                 318,219
                                                                    -----------

Operating loss - video division                                          (2,082)
                                                                    -----------
Other income (expense):
  Interest income                                                         3,420
  Interest expense                                                       (3,110)
                                                                    -----------
                                                                            310
                                                                    -----------
               Income before income taxes
                 and shareholder's salary                               316,447

State income tax provision                                                7,104
                                                                    -----------
               Income before shareholder's
                 salary                                                 309,343

Shareholder's salary                                                     77,196
                                                                    -----------
               Net income                                           $   232,147
                                                                    ===========

                     The accompanying notes are an integral
                        part of this financial statement.


                                       37
<PAGE>

                                 SIMULAIDS, INC.

                        STATEMENT OF SHAREHOLDER'S EQUITY

                    FOR THE FOUR MONTHS ENDED APRIL 30, 1999

                                        Additional
                               Common     Paid-in      Retained
                                Stock     Capital      Earnings         Total
                                -----     -------      --------         -----

BALANCE, January 1, 1999         $100      $5,741    $ 3,075,268    $ 3,081,109

  Net income                       --          --        232,147        232,147

  Distributions to
    shareholder                    --          --       (773,720)      (773,720)
                                 ----      ------    -----------    -----------
BALANCE, April 30, 1999          $100      $5,741    $ 2,533,695    $ 2,539,536
                                 ====      ======    ===========    ===========

                     The accompanying notes are an integral
                        part of this financial statement.


                                       38
<PAGE>

                                 SIMULAIDS, INC.

                             STATEMENT OF CASH FLOWS

                    FOR THE FOUR MONTHS ENDED APRIL 30, 1999

<TABLE>
<S>                                                                          <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net income                                                                 $ 232,147
  Adjustments to reconcile net income to
    net cash provided by operating
    activities:
      Depreciation and amortization                                             83,027
      Changes in operating assets and liabilities:
        Accounts receivable                                                   (169,331)
        Inventories                                                             51,789
        Prepaid expenses and other current assets                              (98,651)
        Deposits                                                                13,023
        Trade accounts payable                                                   3,590
        Accrued expenses and other payables                                     88,953
                                                                             ---------
                Net cash provided by operating activities                      204,547
                                                                             ---------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Purchases of property, plant and equipment                                   (37,380)
                                                                             ---------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Capital lease repayments                                                      (5,989)
  Cash distributions to shareholder                                           (423,211)
                                                                             ---------
                Net cash used in financing activities                         (429,200)
                                                                             ---------
                Net decrease in cash and cash equivalents                     (262,033)

CASH AND CASH EQUIVALENTS, beginning of year                                   499,101
                                                                             ---------
CASH AND CASH EQUIVALENTS, end of year                                       $ 237,068
                                                                             =========

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
  Cash paid during the period for:
    Interest                                                                 $   3,140
                                                                             =========
    Income taxes                                                             $      --
                                                                             =========

SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITY:
  Non-cash asset distributions to shareholder                                $ 350,509
                                                                             =========

  Equipment acquired pursuant to capital lease obligations                   $ 146,035
                                                                             =========
</TABLE>

                     The accompanying notes are an integral
                        part of this financial statement.


                                       39
<PAGE>

                                 SIMULAIDS, INC.

                          NOTES TO FINANCIAL STATEMENTS

                                 APRIL 30, 1999

1.    Organization and Significant Accounting Policies:

      Description of business -

      Simulaids, Inc. (the "Company"), a New York subchapter S Corporation,
      operates two plants in Woodstock, N.Y. engaged in the manufacturing of
      manikins and related products. The Company sells both domestically and
      internationally and creates training aids for emergency medical, rescue
      and law enforcement personnel. The Company's raw materials are readily
      available, and the Company is not dependent on a single supplier or only a
      few suppliers. In addition, the Company operates a local retail video
      rental facility in Saugerties, N.Y. The retail video rental facility and
      associated assets were distributed to the owner in anticipation of the
      sale of the Company (see Notes 4 and 6).

      Cash and cash equivalents -

      Cash equivalents consist of overnight repurchase agreement and money
      market accounts with an initial term of three months or less at date of
      purchase. For purposes of the statement of cash flows, the Company
      considers all highly liquid debt instruments with original maturities of
      three months or less to be cash equivalents.

      Concentration of credit risk -

      At April 30, 1999, accounts receivable from two customers accounted for
      35% of the outstanding balance. No other customers had balances in excess
      of 10% of the outstanding balance. Sales to those two customers accounted
      for 34% of net sales during the four months ended April 30, 1999.

      Inventories -

      Inventories are stated at the lower of cost or market using the first-in,
      first-out method.

      Property, plant and equipment -

      Deprecation on plant and equipment is calculated on the straight-line or
      declining balance methods over the estimated useful lives of the assets.

            Buildings                                                         40
            Machinery and equipment                                            7
            Vehicles                                                           5
            Computer equipment                                               5-7
            Office furniture, fixtures and equipment                           7
            Improvements                                                 various


                                       40
<PAGE>

      Expenditures for maintenance and repairs are charged to operations as
      incurred. Renewals and betterments are capitalized.

      Income taxes -

      The Company is a subchapter S corporation and, accordingly, no provision
      has been made for Federal income taxes since the tax is the responsibility
      of the individual owner and not the Company. Income tax expense reflects
      state income taxes at the Subchapter S rate.

      Impairment of long-lived assets on long-lived assets to be disposed of -

      The Company accounts for long-lived assets in accordance with the
      provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived
      Assets and for Long-Lived Assets to Be Disposed Of. This statement
      requires that long-lived assets and certain identifiable intangibles be
      reviewed for impairment whenever events or changes in circumstances
      indicate that the carrying amount of an asset may not be recoverable.
      Recoverability of assets to be held and used is measured by a comparison
      of the carrying amount of an asset to future net cash flows expected to be
      generated by the asset. If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the
      carrying amount of the assets exceed the fair value of the assets. Assets
      to be disposed of are reported at the lower of the carrying amount or fair
      value less costs to sell.

      Use of estimates -

      Management of the Company has made a number of estimates and assumptions
      relating to the reporting of assets and liabilities, revenues and expenses
      and the disclosure of contingent assets and liabilities to prepare these
      financial statements in conformity with generally accepted accounting
      principles. Actual results could differ from those estimates.

2.    Inventories:

      At April 30, 1999 inventories consisted of the following:

            Raw materials                                               $280,036
            Work-in-progress                                             112,014
            Finished goods                                               541,404
                                                                        --------
                                                                        $933,454
                                                                        ========


                                       41
<PAGE>

3.    Capital Lease Obligations:

      The Company entered into a capital lease for computer equipment in January
      1999. The outstanding capital lease obligation at April 30, 1999 is as
      follows:

              Capital lese for computer equipment payable
                in 60 monthly installments of $2,999,
                including interest at a 8.54% rate                     $140,046

              Less - current maturities                                 (24,990)
                                                                       --------
                                                                       $115,056
                                                                       ========

      Future capital lease principal payments for each twelve-month period ended
      April 30 are as follows:

              2000                                                     $ 24,990
              2001                                                       27,210
              2002                                                       29,628
              2003                                                       32,260
              2004                                                       25,958
                                                                       --------
                                                                       $140,046
                                                                       ========

4.    Distributions to Shareholder:

      Included in the accompanying statement of shareholder's equity are
      distributions to shareholder of $773,720, which represents $423,211 of
      cash distributions and $350,509 of other asset distributions made in
      contemplation of the sale of the Company (see Note 6). The $350,509 of
      other asset distributions reflects the distribution of property and
      associated assets related to the video business as well as the cash
      surrender value of an officers life insurance policy, a vehicle and
      certain artwork.

5.    Commitments and Contingencies:

      Operating leases -

      The Company leases two of its facilities from the owner of the Company on
      a month-to-month basis. Rent expense related to these facilities recorded
      in the accompanying statement of income was approximately $3,000.

6.    Subsequent Event:

      Pursuant to a Stock Purchase Agreement dated April 30, 1999, the owner
      sold all of its outstanding stock to the Aristotle Corporation for
      $8,400,000.


                                       42
<PAGE>

                    REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Board of Directors and Shareholders of

            Simulaids, Inc.

We have audited the accompanying balance sheet of Simulaids, Inc. (a New York
Subchapter S corporation) as of April 30, 1999 and the related statements of
income, shareholder's equity and cash flows for the four-month period then
ended. 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 audit.

We conducted our audit 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 audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Simulaids, Inc. as of April 30,
1999, and the results of its operations and its cash flows for the four-month
period then ended in conformity with generally accepted accounting principles.


                                                         /s/ Arthur Andersen LLP

Hartford, Connecticut
September 13, 1999


                                       43
<PAGE>

                                SIMULAIDS, INC.

                              FINANCIAL STATEMENTS

                        AS OF DECEMBER 31, 1998 AND 1997

             TOGETHER WITH REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS


                                       44
<PAGE>

                                SIMULAIDS, INC.

                                Balance Sheets

                          December 31, 1998 and 1997
<TABLE>
<CAPTION>
                                                      1998            1997
                                                      ----            ----
<S>                                              <C>            <C>
                   ASSETS
Current assets:
    Cash and cash equivalents                    $   499,101        662,920
    Trade accounts receivable (notes 3 and 4)        221,950        224,456
    Inventories (notes 2 and 3)                      987,239        833,198
    Prepaid expenses and other current assets         50,236         22,697
                                                 -----------    -----------
         Total current assets                      1,758,526      1,743,271
                                                 -----------    -----------
Property, plant and equipment:
    Land                                              61,944         61,944
    Buildings and improvements                     1,020,291        994,550
    Machinery and equipment                        1,291,634      1,238,005
    Leasehold improvements                            83,585         83,585
    Cassette tapes                                 1,032,142        939,460
    Office furniture, fixtures and equipment         127,716        124,861
    Computer equipment                               122,163        111,253
    Vehicles                                          61,028         61,028
                                                 -----------    -----------
                                                   3,800,503      3,614,686

Less:  accumulated depreciation and amortization   2,565,829      2,320,764
                                                 -----------    -----------
         Net property, plant and equipment         1,234,674      1,293,922

Other assets:
    CSV of officer's life insurance, net of
      loans of $18,012 in 1998 and 1997              199,900        182,727
    Patent costs, net of accumulated
      amortization of $2,366 in 1998 and $1,912
      in 1997                                          4,089          4,543
    Deposits                                          15,809            586
    Loan commitment fee, net                              --          2,275
                                                 -----------    -----------

         Total other assets                          219,798        190,131
                                                 -----------    -----------

         Total assets                            $ 3,212,998      3,227,324
                                                 ===========    ===========


    LIABILITIES AND SHAREHOLDER'S EQUITY

Current liabilities:
    Mortgage payable                             $        --        127,500
    Trade accounts payable                            75,332         50,392
    Corporate taxes payable                            5,295          2,862
    Due to shareholder                                    --         76,525
    Accrued expenses                                  51,262         26,981
                                                 -----------    -----------

         Total liabilities                           131,889        284,260
                                                 -----------    -----------

Shareholder's equity:
    Common stock, $1 par value.
      Authorized 2,000 shares; issued and
      outstanding 100 shares in 1998 and 1997            100            100
    Additional paid-in capital                         5,741          5,741
    Retained earnings                              3,075,268      2,937,223
                                                 -----------    -----------

         Total shareholder's equity                3,081,109      2,943,064
                                                 -----------    -----------

Commitments and contingencies (note 3)

         Total liabilities and shareholder's
           equity                                $ 3,212,998      3,227,324
                                                 ===========      =========
</TABLE>
                See accompanying notes to financial statements.


                                       45
<PAGE>

                                SIMULAIDS, INC.

                             Statements of Income

                 Years ended December 31, 1998, 1997 and 1996

<TABLE>
<CAPTION>
                                           1998           1997          1996
                                           ----           ----          ----
<S>                                   <C>             <C>           <C>

Net sales                             $  5,860,417    $ 5,478,380   $ 5,624,835
Cost of goods sold                       3,266,388      2,965,358     3,258,789
                                      ------------    -----------   -----------
    Gross profit                         2,594,029      2,513,022     2,366,046

Selling, expenses                          330,507        491,776       460,577
General and administrative expenses        873,246        744,074       640,365
                                      ------------    -----------   -----------

    Income from operations -
      manufacturing division             1,390,276      1,277,172     1,265,104
                                      ------------    -----------   -----------

Operating income (loss) -
  video division                            (2,330)        21,969        20,245
                                      ------------    -----------   -----------

Other income (expense):
  Other                                        126          7,912         1,633
  Interest income                           28,788         11,646         8,692
  Interest expense (note 6)                (11,187)       (13,963)      (20,800)
                                      ------------    -----------   -----------
                                            17,727          5,595       (10,475)
                                      ------------    -----------   -----------

    Income before income taxes
      and shareholder's salary           1,405,673      1,304,736     1,274,874

State income tax provision                  13,700          8,383         5,563
                                      ------------    -----------   -----------

    Income before shareholder's
      salary                             1,391,973      1,296,353     1,269,311

Shareholder's salary                       228,903        221,290       593,397
                                      ------------    -----------   -----------
    Net income                        $  1,163,070    $ 1,075,063   $   675,914
                                      ============    ===========   ===========
</TABLE>
                See accompanying notes to financial statements.


                                       46
<PAGE>

                                SIMULAIDS, INC.

                      Statements of Shareholder's Equity

                 Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>

                                         Additional
                                Common    paid-in      Retained
                                 stock    capital      earnings       Total
                                -------  ----------  ------------  ------------
<S>                             <C>      <C>         <C>           <C>
Balance at December 31, 1995    $   100       5,741    2,639,003     2,644,844

Net income                           --          --      675,914       675,914

Distributions                        --          --     (751,068)     (751,068)
                                -------  ----------  -----------   -----------
Balance at December 31, 1996        100       5,741    2,563,849     2,569,690

Net income                           --          --    1,075,063     1,075,063

Distributions                        --          --     (701,689)     (701,689)
                                -------  ----------  -----------   -----------
Balance at December 31, 1997        100       5,741    2,937,223     2,943,064

Net income                           --          --    1,163,070     1,163,070

Distributions                        --          --   (1,025,025)   (1,025,025)
                                -------  ----------  -----------   -----------
Balance at December 31, 1998    $   100       5,741    3,075,268     3,081,109
                                =======  ==========  ===========   ===========
</TABLE>

                See accompanying notes to financial statements.


                                       47
<PAGE>

                                SIMULAIDS, INC.

                           Statements of Cash Flows

                 Years ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
                                                        1998            1997          1996
                                                     -----------    -----------   -----------
<S>                                                  <C>            <C>           <C>
Cash flows from operating activities:
    Net income                                       $ 1,163,070      1,075,063       675,914

    Adjustments to reconcile net income to net
       cash provided by operating activities:
          Depreciation and amortization                  247,794        260,296       252,049
    Changes in operating assets and liabilities:
       Decrease in trade accounts receivable               2,506          1,903       134,100
       Increase  in inventories                         (154,041)          (297)        2,727
       (Increase) decrease in prepaid and other
          current assets                                 (27,539)        14,052       (17,809)
       (Increase) decrease in deposits                   (15,223)         5,000            --
       Increase (decrease) in trade accounts
          payable                                         24,940         (6,961)       (5,073)
       Increase (decrease) in accrued and
          other payables                                  26,714            294       (11,349)
                                                     -----------    -----------   -----------
                   Net cash provided by
                     operations                        1,268,221      1,349,350     1,030,559
                                                     -----------    -----------   -----------
Cash flows from investing activities:
    Increase in cash surrender value of
       officers life insurance                           (17,173)       (15,702)      (15,373)
    Purchase of property, plant and equipment           (185,817)      (137,378)     (365,613)
                                                     -----------    -----------   -----------
                   Net cash used in investing
                     activities                         (202,990)      (153,080)     (380,986)
                                                     -----------    -----------   -----------

Cash flows from financing activities
    Decrease in mortgage payable                        (127,500)       (21,000)     (151,352)
    (Decrease) increase in due to shareholder            (76,525)        76,525            --
    Distributions to shareholder                      (1,025,025)      (701,689)     (751,068)
                                                     -----------    -----------   -----------
                   Net cash used in financing
                     activities                       (1,229,050)      (646,164)     (902,420)
                                                     -----------    -----------   -----------
                   Net (decrease) increase in cash
                     and cash equivalents               (163,819)       550,106      (252,847)

Cash and cash equivalents at beginning of year           662,920        112,814       365,661
                                                     -----------    -----------   -----------
Cash and cash equivalents at end of year             $   499,101        662,920       112,814
                                                     ===========    ===========   ===========

Supplemental cash flows information:
    Cash paid during the year for interest           $    11,187         13,963        20,800
                                                     ===========    ===========   ===========
    Cash paid during the year for income tax         $    14,900          5,500        11,300
                                                     ===========    ===========   ===========
</TABLE>

                See accompanying notes to financial statements.


                                       48
<PAGE>

                                SIMULAIDS, INC.

                         Notes to Financial Statements

                          December 31, 1998 and 1997

(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES

     (a)  DESCRIPTION OF BUSINESS

          Simulaids, Inc. (the "Company") operates two plants in Woodstock, N.Y.
          engaged in the manufacturing of manikins and related products. The
          Company sells both domestically and internationally and creates
          training aids for emergency medical, rescue and law enforcement
          personnel. The Company's raw materials are readily available, and the
          Company is not dependent on a single supplier or only a few suppliers.
          In addition, the Company operates a local retail video rental facility
          in Saugerties, N.Y.

     (b)  CASH EQUIVALENTS

          Cash equivalents consist of overnight repurchase agreements and money
          market accounts with an initial term of three months or less at date
          of purchase. For purposes of the statements of cash flows, the Company
          considers all highly liquid debt instruments with original maturities
          of three months or less to be cash equivalents.

     (c)  INVENTORIES

          Inventories are stated at the lower of cost or market using the first-
          in, first-out method.

     (d)  PROPERTY, PLANT, AND EQUIPMENT

          Property, plant, and equipment are stated at cost.

          Depreciation on plant and equipment is calculated on the straight-line
          or declining balance methods over the estimated useful lives of the
          assets.

<TABLE>
<S>                                                       <C>
                  Buildings                                    40
                  Molds and Dies                                7
                  Cars                                          5
                  Cassette tapes                                1
                  Equipment                                   5-7
                  Furniture and fixtures                        7
                  Improvements                            various
</TABLE>


                                       49
<PAGE>

                                SIMULAIDS, INC.

                         Notes to Financial Statements

                          December 31, 1998 and 1997

     (e)  INCOME TAXES

          The Company is a subchapter S corporation and, accordingly, no
          provision has been made for Federal income taxes since the tax is the
          responsibility of the individual owner and not the Company. Income tax
          expense for 1998 and 1997 reflect state income taxes at the subchapter
          S rate.

     (f)  USE OF ESTIMATES

          Management of the Company has made a number of estimates and
          assumptions relating to the reporting of assets and liabilities,
          revenues and expenses and the disclosure of contingent assets and
          liabilities to prepare these financial statements in conformity with
          generally accepted accounting principles. Actual results could differ
          from those estimates.

     (g)  IMPAIRMENT OF LONG-LIVED ASSETS ON LONG-LIVED ASSETS TO BE DISPOSED OF

          The Company accounts for long-lived assets in accordance with the
          provisions of SFAS No. 121, Accounting for the Impairment of Long-
          Lived Assets and for Long-Lived Assets to Be Disposed Of. This
          statement requires that long-lived assets and certain identifiable
          intangibles be reviewed for impairment whenever events or changes in
          circumstances indicate that the carrying amount of an asset may not be
          recoverable. Recoverability of assets to be held and used is measured
          by a comparison of the carrying amount of an asset to future net cash
          flows expected to be generated by the asset. If such assets are
          considered to be impaired, the impairment to be recognized is measured
          by the amount by which the carrying amount of the assets exceed the
          fair value of the assets. Assets to be disposed of are reported at the
          lower of the carrying amount or fair value less costs to sell.

     (2)  INVENTORIES

          At December 31, 1998 and 1997, inventories consisted of the following:

<TABLE>
<CAPTION>
                                        1998                   1997
                                        ----                   ----
<S>                                   <C>                    <C>
              Raw materials           $283,167               $285,350
              Work-in-progress         129,577                135,435
              Finished goods           567,722                412,413
                                      --------               --------
                                      $980,466               $833,198
                                      ========               ========
</TABLE>


                                       50
<PAGE>

                                SIMULAIDS, INC.

                         Notes to Financial Statements

                          December 31, 1998 and 1997

(3)  COMMITMENTS AND CONTINGENCIES

     FINANCIAL GUARANTEES

     As of December 31, 1998, the Company has issued guarantees aggregating
     $3.5 million on borrowings by the owner of the Company. The guarantees are
     secured by accounts receivable, fixed assets and inventory of the
     suppliers. No amount has been accrued for the Company's obligation under
     its guaranty arrangements.

     LEASES

     The Company leases two of its facilities from the owner of the Company on a
     month-to-months basis. Rent expense related to these facilities was
     $19,305, $18,900 and $19,766 in 1998, 1997 and 1996, respectively.

(4)  BUSINESS AND CREDIT CONCENTRATIONS

     The Company's customers are located throughout the United States and
     internationally. Three, two and two customers accounted for more than five
     percent of the Company's sales in 1998, 1997 and 1996, respectively, and no
     account receivable from any customer exceeded $50,000 at December 31, 1998.
     The Company estimates an allowance for doubtful accounts based on the
     credit worthiness of its customers as well as general economic conditions.
     Consequently, an adverse change in those factors could effect the Company's
     estimate of its bad debts.

(5)  MORTGAGE PAYABLE

     At December 31, 1997, the Company had a mortgage loan in the amount of
     $127,500 bearing interest at 10% annually. The loan was repaid in 1998.
     Interest expense for 1998, 1997 and 1996 was $11,187, $13,963 and $20,800,
     respectively.


                                       51
<PAGE>

                          INDEPENDENT AUDITORS' REPORT

The Board of Directors and Shareholders
Simulaids, Inc.:

We have audited the accompanying balance sheet of Simulaids, Inc. as of December
31, 1998.  Further, we were engaged to audit the accompanying balance sheet as
of December 31, 1997, and the related statements of income, shareholder's equity
and cash flows for the years ended December 31, 1998, 1997 and 1996.  These
financial statements are the responsibility of the Company's management.  Our
responsibility is to express an opinion on these financial statements based on
our audits.

Except as discussed in the following paragraph, we conducted our audit 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
audit provides a reasonable basis for our opinion.

Because we were not engaged as auditors until after December 31, 1997, we were
not present to observe the physical inventory taken for December 31, 1997, 1996
or 1995 and we were unable to satisfy ourselves regarding inventory quantities
by means of other audit procedures.  Furthermore, the Company did not maintain
certain of its accounting records with respect to inventories at those dates,
and adequate evidential matter in support of recorded transactions was not
available in all cases.  The amount of inventory at December 31, 1997, 1996 and
1995, materially affects the determination of the results of operations and cash
flows for the years ended December 31, 1998, 1997 and 1996.

Because of the matter discussed in the preceding paragraph the scope of our work
was not sufficient to enable us to express, and we do not express, an opinion on
the financial position at December 31, 1997 or on the results of its operations
and its cash flows for the years ended December 31, 1998, 1997 and 1996.

In our opinion, the balance sheet of Simulaids, Inc. as of December 31, 1998
presents fairly, in all material respects, the financial position of Simulaids,
Inc. as of December 31, 1998 in conformity with generally accepted accounting
principles.


                                                            /s/ KPMG  LLP
                                                            KPMG  LLP

March 19, 1999


                                       52
<PAGE>

                         FORM 10-K CROSS REFERENCE INDEX

<TABLE>
<S>                                                                                 <C>
PART I
    Item 1.  Business............................................................    54
    Item 2.  Properties..........................................................    56
    Item 3.  Legal Proceedings...................................................    56
    Item 4.  Submission of Matters to a Vote of Security Holders.................    56
PART II
    Item 5.  Market for Registrant's Common Equity and Related
             Stockholder Matters.................................................    57
    Item 6.  Selected Financial Data.............................................    57
    Item 7.  Management's Discussion and Analysis of Financial Condition
             and Results of Operations...........................................    57
    Item 8.  Financial Statements and Supplementary Data.........................    57
    Item 9.  Changes in and Disagreements with Accountants on Accounting
             and Financial Disclosure ...........................................    57
PART III
    Item 10. Directors and Executive Officers of the Registrant..................    58
    Item 11. Executive Compensation..............................................    58
    Item 12. Security Ownership of Certain Beneficial Owners and Management......    58
    Item 13. Certain Relationships and Related Transactions......................    58
PART IV
    Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K....    59
</TABLE>


                                       53
<PAGE>

                                     PART I

ITEM 1. Business

      General. The Aristotle Corporation ("Aristotle") is a holding company
which, through its wholly-owned subsidiary, Simulaids, Inc. ("Simulaids"),
manufactures health and medical education teaching aids. Simulaids' primary
products include manikins and simulation kits used for training in CPR,
emergency rescue and patient care fields. Simulaids' products are sold
throughout the United States and internationally via distributors and catalogs
to end users such as fire and emergency medical departments and nursing and
medical schools.

      Previously Aristotle, through its wholly-owned subsidiary, Aristotle Sub,
Inc. ("ASI"), owned approximately 97% of The Strouse, Adler Company ("Strouse").
Aristotle formed ASI in 1993 to acquire Strouse (the "Strouse Acquisition"). On
January 2, 1998, ASI was merged into Aristotle (the "ASI Merger") and,
accordingly, Strouse became a wholly-owned subsidiary of Aristotle. On June 30,
1998, Aristotle consummated the sale of substantially all of the assets and
certain of the liabilities of Strouse to Sara Lee Corporation (the "Strouse
Sale"). On July 2, 1998, Strouse changed its name to "S-A Subsidiary, Inc."

      In September 2000, Aristotle acquired 80% of the outstanding stock of Safe
Passage International, Inc. ("Safe Passage"), a privately-held Rochester, New
York-based company that develops and sells computer based training products to
government and industry clients (see "Recent Developments").

      Business Strategy. Aristotle's business strategy is to position the
Company in the fast growing for-profit education and training industry through
acquisitions and the development of its wholly-owned subsidiary, Simulaids, and
its recently-acquired subsidiary, Safe Passage. The following discussion
pertains to Simulaids, Aristotle's sole operating subsidiary during the fiscal
year ended June 30, 2000.

      Products. Simulaids designs, manufactures and markets health and medical
education teaching aids. Simulaids' proprietary products include manikins and
simulation kits used for training in CPR, emergency rescue and patient care. For
the most recent year, approximately 71% of Simulaids' total net sales were
attributable to manikins and the remaining 29% of total net sales were
attributable to simulation kits and other teaching aids.

      Marketing and Distribution. Simulaids' products are marketed and
distributed throughout the United States and internationally via distributors
and catalogs to end users such as fire and emergency departments and nursing and
medical schools. The Simulaids' sales executives, who are full-time employees of
the Company, are responsible for marketing the Simulaids' products in the
continental United States and internationally.

      Simulaids currently sells products under its brand names primarily to
distributors. One of Simulaids' customers, Armstrong Medical Industries,
individually accounted for approximately 24% of total net sales for fiscal 2000.
If this customer substantially reduced the amount of products it purchased from
Simulaids, Simulaids' financial condition could be adversely affected.

      Manufacturing and Raw Materials. Simulaids conducts all manufacturing
operations at its facility located in Woodstock, New York. The design and
manufacture of the health and medical teaching aids are complex, requiring
specialized and sophisticated machinery and tools. Simulaids uses principally
plastics in the manufacture of its products. This raw material is generally
available from multiple sources and Simulaids currently obtains raw materials
from four sources. Simulaids purchases


                                       54
<PAGE>

the majority of its raw materials from sources within the United States. In the
event that a supplier would no longer be able to supply certain raw materials to
Simulaids, Simulaids would have access to substitute raw materials. However,
there can be no assurance that Simulaids would have immediate access to these
substitute raw materials on a timely basis. Any delays in obtaining raw
materials could cause Simulaids to experience delays in production.

      Intellectual Property. Patents, trademarks, and trade secrets are the
principal protection sources for Simulaids' products. Simulaids owns two
federally registered patents, one for a disposable protective sleeve having a
pneumatic action and one for a cardiopulmonary resuscitation manikin with
antiseptic cleaning system. Simulaids considers all of the patents, licenses and
trademarks to be valuable property rights. Simulaids believes that the
protection afforded by these intellectual property rights and the law of trade
secrets is adequate protection for its products. However, it is possible for a
competitor to develop near imitations of Simulaids' products without violating
those rights.

      Competition. The health and medical education teaching aids industry is
highly competitive. Simulaids' products compete for customers with numerous
manufacturers of well-known brands of teaching products.

      The principal competitive factors in the health and medical education
teaching aids market are quality, price, design of products, engineering and
customer service. Some of Simulaids' competitors have greater financial and
other resources and are, therefore, able to expend more resources and effort
than Simulaids in areas such as marketing and product development.

      Employees. As of September 1, 2000, the Company employed 60 full-time,
non-union employees.

      Bank Financing. On September 27, 1999, Simulaids and Citizens Bank of
Connecticut (Citizens) entered into a $2.5 million Credit Agreement. The credit
agreement was comprised of three facilities (Credit Facilities):

      (a)   $1,200,000 Seven-Year Term Loan - Principal payments are scheduled
            -------------------------------
            on a seven-year straight-line amortization. The interest rate is
            charged at the rate of LIBOR plus 200 basis points on a 30, 60, 90
            or 180 day LIBOR rate at Simulaids' election.

      (b)   $800,000 Seven-Year Mortgage - Principal payments are scheduled on a
            ----------------------------
            fifteen-year straight-line amortization, with a balloon payment at
            the seven-year maturity. The interest rate is charged at the rate of
            LIBOR plus 200 basis points on a 30, 60, 90 or 180 day LIBOR rate at
            Simulaids' election.

      (c)   $500,000 Two-Year Revolving Line of Credit - Borrowing availability
            ------------------------------------------
            under the line of credit is determined by a borrowing base which is
            equal to the sum of 80% of eligible accounts receivable and 50% of
            eligible inventory, with a maximum borrowing of $500,000. There are
            no scheduled principal payments. The interest rate is charged at the
            rate of LIBOR plus 175 basis points on a 30, 60, 90 or 180 day LIBOR
            rate at Simulaids' election.

      As of June 30, 2000, the balance outstanding on the term loan was
$1,058,000 and the balance outstanding on the mortgage was $756,000. Future
monthly principal payments on the term loan and mortgage are $14,000 and $5,000,
respectively. As of June 30, 2000, Simulaids had not drawn on the line of
credit.


                                       55
<PAGE>

      Background Regarding Aristotle. Aristotle is the former holding company of
First Constitution Bank (the "Bank"), which was Aristotle's only subsidiary and
which, on October 2, 1992, was seized by the FDIC. On April 11, 1994, Aristotle
acquired Strouse through ASI pursuant to the terms of a Capital Contribution
Agreement and certain other agreements. As a result of the Strouse Acquisition,
Aristotle owned approximately 97% of the issued and outstanding common stock of
ASI, which in turn owned all of the outstanding capital stock of Strouse. As a
result of the ASI Merger in January of 1998, Aristotle directly owned all of the
issued and outstanding capital stock of Strouse. On June 30, 1998, Aristotle
sold substantially all the assets of Strouse. On April 30, 1999, Aristotle
acquired all the outstanding stock of Simulaids, Inc., a manufacturer of health
and medical education teaching aids.

      Aristotle was organized in 1986 and is chartered in the State of Delaware.
On April 14, 1993, Aristotle changed its name from First Constitution Financial
Corporation to "The Aristotle Corporation." In May 1994, Aristotle effectuated a
one for ten reverse stock split.

ITEM 2. Properties

      At present, Aristotle's executive office occupies a 1,500 square foot
office in New Haven, Connecticut that is leased from 27 Elm Street, LLC for rent
of approximately $9.00 per square foot. Simulaids' office is located at 12 Dixon
Avenue, Woodstock, New York and is comprised of two buildings totaling 46,000
square feet. Both buildings are owned by Simulaids. Safe Passage's office is
located at 333 Metro Park, Rochester, New York that is leased from Metro
Business Complex for rent of approximately $9.50 per square foot.

ITEM 3. Legal Proceedings

      Aristotle is not a party to any material legal proceedings. See
"Management's Discussion and Analysis of Financial Condition and Result of
Operations - Income Taxes" and Note 8 - "Income Taxes" to the Consolidated
Financial Statements with regard to the status of Aristotle's claims for tax
refunds with the Internal Revenue Service.

ITEM 4. Submission of Matters to a Vote of Security Holders

      None.


                                       56
<PAGE>

                                     PART II

ITEM 5. Market for Registrant's Common Equity and Related Stockholder Matters

      The table below sets forth the high and low prices per share of Common
Stock during the fiscal quarters indicated.

                                                            Market Price $
                                                            --------------
                                                       High                Low
                                                       ----                ---
   Fiscal Year Ended June 30, 2000:
       June 30..........................               9.625              3.500
       March 31.........................               5.438              3.000
       December 31......................               5.500              3.750
       September 30.....................               6.500              5.000
   Fiscal Year Ended June 30, 1999:
       June 30..........................               6.719              5.625
       March 31.........................               8.000              5.375
       December 31......................               6.938              5.125
       September 30.....................               8.625              5.500

      The Common Stock is listed for trading on the NASDAQ SmallCap Market under
the symbol "ARTL." As of August 31, 2000, there were approximately 3,643
stockholders of record and 1,724 additional beneficial stockholders
(stockholders holding Common Stock in brokerage accounts). See also
"Management's Discussion and Analysis of Financial Condition and Results of
Operation" and Note 1 of the Notes to Consolidated Financial Statements.

ITEM 6. Selected Financial Data

      Selected consolidated financial data of the Company can be found on page 2
of this report.

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

      "Management's Discussion and Analysis of Financial Condition and Results
of Operations" can be found on pages 4 to 12 of this report.

ITEM 8. Financial Statements and Supplementary Data

      The Consolidated Financial Statements of the Company and its subsidiaries,
together with the related Notes to Consolidated Financial Statements and the
report of independent accountants, can be found on pages 13 to 33 of this
report. The Financial Statements of Simulaids for the four months ended April
30, 1999, together with the related Notes to Financial Statements and the report
of independent accountants, can be found on pages 35 to 43 of this report. The
Financial Statements of Simulaids, together with the related Notes to Financial
Statements and the report of independent accountants, can be found on pages 44
to 51 of this report.

ITEM 9. Changes in and Disagreements with Accountants on Accounting and
        Financial Disclosure

      None.


                                       57
<PAGE>

                                    PART III

ITEM 10. Directors and Executive Officers of the Registrant

      Aristotle will furnish to the Securities and Exchange Commission a
definitive proxy statement (the "Proxy Statement") not later than 120 days after
the close of the fiscal year ended June 30, 2000. The information required by
this time is incorporated herein by reference to the Proxy Statement.

ITEM 11. Executive Compensation

      The information required by this item is incorporated herein by reference
to the Proxy Statement.

ITEM 12. Security Ownership of Certain Beneficial Owners and Management

      The information required by this item is incorporated herein by reference
to the Proxy Statement.

ITEM 13. Certain Relationships and Related Transactions

      The information required by this item is incorporated herein by reference
to the Proxy Statement.


                                       58
<PAGE>

                                     PART IV

ITEM 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

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

(1)   Financial Statements:
      Consolidated Balance Sheets........................................    14
      Consolidated Statements of Operations..............................    15
      Consolidated Statements of Changes in Stockholders' Equity.........    16
      Consolidated Statements of Cash Flows..............................    17
      Notes to Consolidated Financial Statements.........................    18
      Report of Independent Public Accountants...........................    34

(2)   Financial Statement Schedules:
      Report of Independent Public Accountants on Schedules..............    S-1
      Schedule II--Valuation and Qualifying Accounts.....................    S-2

All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the consolidated
financial statements or notes thereto.

(3)   Exhibits:

      Exhibit 2.1--Capital Contribution Agreement dated as of November 19, 1993
      by and among The Aristotle Corporation, Aristotle Sub, Inc., The Strouse,
      Adler Company and the Stockholders of Strouse. Incorporated herein by
      reference to Exhibit 2.1 of The Aristotle Corporation Current Report on
      Form 8-K dated April 14, 1994, as amended (the "1994 Current Report").

      Exhibit 2.2--Agreement and Plan of Reorganization, dated as of September
      13, 2000 (closed on September 14, 2000), by and among the Registrant,
      Aristotle Acquisition Sub, Inc., Safe Passage International, Inc., James
      S. Viscardi, Michael R. Rooksby, Howard C. Rooksby and Andrew M. Figiel,
      incorporated herein by reference to Exhibit 2.1 of the Registrant's
      Current Report on Form 8-K dated September 27, 2000.

      Exhibit 2.3--Agreement and Plan of Merger, dated as of September 13, 2000
      (closed on September 14, 2000), by and between Aristotle Acquisition Sub,
      Inc. and Safe Passage International, Inc., incorporated herein by
      reference to Exhibit 2.2 of the Registrant's Current Report on Form 8-K
      dated September 27, 2000.

      Exhibit 3.1--Restated Certificate of Incorporation of The Aristotle
      Corporation. Incorporated herein by reference to Exhibit 3.1 of The
      Aristotle Corporation Quarterly Report on Form 10-Q for the fiscal quarter
      ended March 31, 1997.

      Exhibit 3.2--Amended and Restated Bylaws. Incorporated herein by reference
      to Exhibit 3.2 of The Aristotle Corporation Quarterly Report on Form 10-Q
      for the fiscal quarter ended March 31, 1997.

      Exhibit 4.1--Restated Certificate of Incorporation of The Aristotle
      Corporation and Amended and Restated Bylaws filed as Exhibits 3.1 and 3.2
      are incorporated into this item by reference. See Exhibit 3.1 and Exhibit
      3.2 above.


                                       59
<PAGE>

      Exhibit 4.2--Certificate of Powers, Designations, Preferences and
      Relative, Participating, Optional and other Special Rights of the Series E
      Convertible Preferred Stock of the Registrant, incorporated herein by
      reference to Exhibit 4.1 to the Registrant's Quarterly Report on Form 10-Q
      for the quarter ended September 30, 1997.

      Exhibit 4.3--Certificate of Powers, Designations, Preferences and
      Relative, Participating, Optional and other Special Rights of the Series
      F, G and H Convertible Preferred Stock of the Registrant, incorporated
      herein by reference to Exhibit 4.2 to the Registrant's Quarterly Report on
      Form 10-Q for the quarter ended September 30,1997.

      Exhibit 4.4--Registration Rights Agreement dated as of April 11, 1994
      between the Registrant and the shareholders listed on Exhibit A thereto,
      incorporated by reference to an exhibit to the Registrant's Registration
      Statement on Form S-3 (File No. 333-4185).

      Exhibit 4.5--Preferred Stock Purchase Agreement dated as of October 22,
      1997 between The Aristotle Corporation and Geneve Corporation,
      incorporated herein by reference to Exhibit 10.5 of the Registrant's
      Quarterly Report on Form 10-Q for fiscal quarter ended September 30, 1997.

      Exhibit 4.6--Registration Rights Agreement dated as of October 22, 1997
      between The Aristotle Corporation and Geneve Corporation, incorporated
      herein by reference to Exhibit 10.6 to the Registrant's Quarterly Report
      on Form 10-Q for the fiscal quarter ended September 30, 1997.

      Exhibit 4.7--Letter Agreement dated as of September 15, 1997 among The
      Aristotle Corporation, Aristotle Sub, Inc. and certain stockholders,
      incorporated herein by reference to Exhibit 10.7 to the Registrant's
      Quarterly Report on Form 10-Q for the fiscal quarter ended September 30,
      1997.

      Exhibit 4.8--Letter Agreement dated as of February 9, 2000 between The
      Aristotle Corporation and the Geneve Corporation regarding certain
      limitations on voting and the acquisition of additional shares of common
      stock.

      Exhibit 4.9--Letter Agreement dated as of April 28, 2000 between The
      Aristotle Corporation and the Geneve Corporation, modifying the letter
      agreement between such parties dated as of February 9, 2000, regarding
      certain limitations on voting and the acquisition of additional shares of
      common stock, incorporated herein by reference to the Registrant's Report
      on Form 8-K dated May 2, 2000.

      Exhibit 10.1--Pledge and Escrow Agreement dated as of April 11, 1994 by
      and among Aristotle Sub, Inc. and certain other parties, incorporated
      herein by reference to Exhibit 2.8 of the Registrant's Current Report on
      Form 8-K dated April 14, 1994, as amended.

      Exhibit 10.2--Security Agreement dated as of April 11, 1994 by and among
      The Strouse, Adler Company and certain other parties, incorporated herein
      by reference to Exhibit 2.9 of the Registrant's Current Report on Form 8-K
      dated April 14, 1994, as amended.

      Exhibit 10.3--Term Promissory Notes dated April 11, 1994 payable to The
      Aristotle Corporation, incorporated herein by reference to Exhibit 2.12 of
      the Registrant's Current Report on Form 8-K dated April 14, 1994, as
      amended.

      Exhibit 10.4--Employment Agreement dated as of December 1, 1998 by and
      between The Aristotle Corporation and Paul McDonald, incorporated herein
      by reference to Exhibit 10.1 of the Registrant's Registration Statement on
      Form S-3 filed on December 16, 1998.


                                       60
<PAGE>

      Exhibit 10.5--Stockholder Loan Pledge Agreements dated as of April 11,
      1994 by and between certain parties and The Aristotle Corporation,
      incorporated herein by reference to Exhibit 2.13 of the Registrant's
      Current Report on Form 8-K dated April 14, 1994, as amended.

      Exhibit 10.6--Stock Option Plan of The Aristotle Corporation, as amended.
      Incorporated herein by reference to Exhibit 10.2 of The Aristotle
      Corporation Annual Report on Form 10-K for the fiscal year ended December
      31, 1992 (the "1992 Form 10-K").

      Exhibit 10.7--Form of Stock Option Agreement (for non-employee directors).
      Incorporated herein by reference to Exhibit 10.3 of the 1992 Form 10-K.

      Exhibit 10.8--Form of Incentive Stock Option Agreement (for employees).
      Incorporated herein by reference to Exhibit 10.4 of the 1992 Form 10-K.

      Exhibit 10.9--Letter Agreement by and among The Aristotle Corporation,
      Aristotle Sub, Inc., Alfred Kniberg and David Howell dated June 27, 1995.
      Incorporated herein by reference to Exhibit 10.3 of The Aristotle
      Corporation Annual Report on Form 10-K for the fiscal year ended June 30,
      1995.

      Exhibit 10.10--Letter Agreement dated October 27, 1995 Re: Amended Put
      Rights. Incorporated herein by reference to Exhibit 10.1 of The Aristotle
      Corporation Quarterly Report on Form 10-Q for the fiscal quarter ended
      December 31, 1995.

      Exhibit 10.11--Settlement and Release Agreement dated as of May 29, 1996
      among The Aristotle Corporation, the Federal Deposit Insurance Corporation
      and certain other interested parties. Incorporated herein by reference to
      Exhibit 10.22 of The Aristotle Corporation Annual Report on Form 10-K for
      the fiscal year ended June 30, 1996.

      Exhibit 10.12--Stipulation and Agreement of Settlement dated as of May 28,
      1996 Re: In Re First Constitution Stockholders Litigation. Incorporated
      herein by reference to Exhibit 10.23 of The Aristotle Corporation Annual
      Report on Form 10-K for the fiscal year ended June 30, 1996.

      Exhibit 10.13--Stock Purchase Agreement between The Aristotle Corporation
      and Kevin Sweeney dated as of April 30, 1999, Incorporated herein by
      reference to Exhibit 2.1 of The Aristotle Corporation Current Report on
      form 8-K dated May 4, 1999, as amended.

      Exhibit 21.1--Subsidiaries of The Aristotle Corporation is attached hereto
      as Exhibit 21.1.

      Exhibit 23 --Consent of KPMG LLP is attached hereto as Exhibit 23.

      Exhibit 27 --Financial Data Schedule is attached hereto as Exhibit 27.

      (b)   Reports on Form 8-K:

            A Report on Form 8-K, as amended, was filed on May 18, 1999.

      (c)   See (a)(3) above.

      (d)   See (a)(2) above.


                                       61
<PAGE>

                                   SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                           THE ARISTOTLE CORPORATION


                                             /s/ John J. Crawford
                              --------------------------------------------------
                                               John J. Crawford
                                  Its President, Chief Executive Officer and
                                             Chairman of the Board
                                           Date: September 27, 2000


                                               /s/ Paul McDonald
                              --------------------------------------------------
                                                 Paul McDonald
                                   Its Chief Financial Officer and Secretary
                              (principal financial and chief accounting officer)
                                           Date: September 27, 2000

      Pursuant to the requirements of the Securities 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 indicated.

<TABLE>
<CAPTION>
          Signature                            Title                            Date
          ---------                            -----                            ----

<S>                                  <C>                                  <C>
/s/  John J. Crawford                President, Chief Executive           September 27, 2000
-----------------------------        Officer, Chairman of the
     John J. Crawford                Board and Director
                                     (principal executive officer)


/s/   Paul McDonald                  Chief Financial Officer and          September 27, 2000
-----------------------------        Secretary (principal financial
      Paul McDonald                  and accounting officer)


/s/   Betsy Henley-Cohn                     Director                      September 27, 2000
-----------------------------
      Betsy Henley-Cohn


/s/   Robert L. Fiscus                      Director                      September 27, 2000
-----------------------------
      Robert L. Fiscus


/s/   John L. Lahey                         Director                      September 27, 2000
-----------------------------
      John L. Lahey
</TABLE>


                                       62
<PAGE>

/s/   Steven B. Lapin                 Director               September 27, 2000
-----------------------------
      Steven B. Lapin


/s/   Daniel J. Miglio                Director               September 27, 2000
-----------------------------
      Daniel J. Miglio


/s/   Edward Netter                   Director               September 27, 2000
-----------------------------
      Edward Netter


/s/   Sharon M. Oster                 Director               September 27, 2000
-----------------------------
      Sharon M. Oster


/s/   John C. Warfel                  Director               September 27, 2000
-----------------------------
      John C. Warfel


                                       63
<PAGE>

             REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

To The Board of Directors and Stockholders of
   The Aristotle Corporation:

We have audited in accordance with auditing standards generally accepted in the
United States, the financial statements included in The Aristotle Corporation's
Form 10-K and have issued our report thereon dated September 1, 2000. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. The schedule listed in the index of financial statements is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.


                                                         /s/ Arthur Andersen LLP

Hartford, Connecticut
September 1, 2000


                                       S-1
<PAGE>

                       FINANCIAL STATEMENT SCHEDULES INDEX

Schedule II - Valuation and Qualifying Accounts

THE ARISTOTLE CORPORATION AND SUBSIDIARY

Valuation Accounts
(Dollars in thousands)

<TABLE>
<CAPTION>
         Column A                            Column B         Column C      Column D        Column E

                                                            Additions(1)
                                             Balance at      Charged to                    Balance at
                                             beginning       costs and     Deductions/       end of
                                             of period       expenses      write-offs        period
<S>                                           <C>            <C>            <C>             <C>
Fiscal year ended June 30, 2000
Inventory reserve                             $    --        $    30        $    --         $    30

Fiscal year ended June 30, 1999
Accounts receivable reserve                   $    --        $    --        $    --         $    --

Fiscal year ended June 30, 1998
Accounts receivable reserve                   $   122        $    26        $  (148)        $    --
Co-op advertising reserve                          50            408           (458)             --
Accounts receivable - long-term reserve             9              6            (15)             --
</TABLE>


                                       S-2
<PAGE>

                                  EXHIBIT INDEX

Exhibit 21.1      --Subsidiaries of The Aristotle Corporation

Exhibit 23        --Consent of KPMG LLP

Exhibit 27        --Financial Data Schedule