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

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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, 1998

[_]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

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THE ARISTOTLE CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

DELAWARE 06-1165854
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

27 ELM STREET, NEW HAVEN, CONNECTICUT 06510
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)

(203) 867-4090
(REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE)

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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

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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, 1998, 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 $6,431,172, based on the closing price as
reported by the Nasdaq Stock Market.

DOCUMENTS INCORPORATED BY REFERENCE

None

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THE ARISTOTLE CORPORATION

TABLE OF CONTENTS

Selected Consolidated Financial Data....................................... 3
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 4
Consolidated Financial Statements.......................................... 10

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, 1994, 1995, 1996, 1997 and 1998. 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." All references
herein to the "Company" include Aristotle, Strouse and ASI. 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.

FISCAL YEARS ENDED JUNE 30,
-----------------------------------------------------
1994 1995 1996 1997 1998
--------- --------- --------- --------- ---------

CONSOLIDATED STATEMENTS
OF OPERATIONS DATA:
Operating expenses:
General and adminis-
trative............... $ 957 $ 589 $ 609 $ 649 $ 685
Nonrecurring tax claim
contingency fee....... -- -- -- -- 480
--------- --------- --------- --------- ---------
Operating loss....... (957) (589) (609) (649) (1,165)
Other income (expense):
Investment and inter-
est income............ 294 321 312 146 151
Interest expense....... -- -- (4) (9) (5)
--------- --------- --------- --------- ---------
Loss from continuing
operations before in-
come taxes and minor-
ity interest.......... (663) (268) (301) (512) (1,019)
Benefit from (provision
for) income taxes(1)... 20 (25) 1,626 (32) 1,182
--------- --------- --------- --------- ---------
Income (loss) from
continuing operations
before minority in-
terest................ (643) (293) 1,325 (544) 163
Minority interest....... 48 219 215 175 72
--------- --------- --------- --------- ---------
Income (loss) from
continuing opera-
tions............... (691) (512) 1,110 (719) 91
Discontinued operations:
Income (loss) from op-
erations of The
Strouse, Adler Compa-
ny.................... 512 (386) 358 732 624
Gain on sale of The
Strouse, Adler Com-
pany (less applicable
income taxes of
$1,000)............... -- -- -- -- 873
--------- --------- --------- --------- ---------
Net income (loss).... (179) (898) 1,468 13 1,588
Preferred dividends..... -- -- -- -- 126
--------- --------- --------- --------- ---------
Net income (loss)
available to common
shareholders........ $ (179) $ (898) $ 1,468 $ 13 $ 1,462
========= ========= ========= ========= =========
DILUTED EARNINGS PER
COMMON SHARE:
Continuing operations... $ (0.63) $ (0.47) $ 0.92 $ (0.65) $ (0.03)
Discontinued operations. 0.47 (0.36) $ 0.25 $ 0.66 $ 0.54
Gain on sale of discon-
tinued operations...... -- -- -- -- $ 0.75
--------- --------- --------- --------- ---------
Net income........... $ (0.16) $ (0.83) $ 1.17 $ 0.01 $ 1.26
========= ========= ========= ========= =========
Weighted average shares
outstanding(2)......... 1,091,593 1,085,757 1,440,274 1,100,700 1,151,920
CONSOLIDATED BALANCE
SHEET DATA:
Total assets............ 23,162 26,820 23,795 20,381 14,582
Stockholders' equity.... 5,805 4,996 6,530 6,511 8,455
Long-term debt.......... 251 10,274 2,097 1,670 --

- --------
(1) Income tax benefit for the year ended June 30, 1996 reflects 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
reflects a tax refund received resulting from a tax loss carryback claim.

(2) The number of shares outstanding has been adjusted to reflect the one for
ten reverse stock split that was effective on May 11, 1994.

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, 1998, as compared to
the year ended June 30, 1997, and the fiscal year ended June 30, 1997, as
compared to the year ended June 30, 1996. 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 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"). Accordingly, Aristotle is no longer in the business of
designing, manufacturing and marketing women's intimate apparel. Aristotle is
currently seeking to acquire one or more operating companies.

RESULTS OF CONTINUING OPERATIONS OF THE COMPANY

Fiscal Year Ended June 30, 1998 as Compared to the Year Ended June 30, 1997

The Company's general and administrative expenses for the fiscal year ended
June 30, 1998 increased 6% to $685,000 compared to $649,000 for the prior
fiscal year. The increase was primarily due to increased directors
compensation.

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. See the income tax
discussion below.

Investment and interest income was $151,000 and $146,000 for the twelve
months ended June 30, 1998 and 1997, respectively. The income for the twelve
months ended June 30, 1998 and 1997 was principally generated by short-term
cash investments, restricted and unrestricted long-term investments in
corporate bonds and the investment of funds held in the Strouse Escrow Account
that was established in connection with the Strouse Acquisition and was
subject to an escrow and pledge agreement with the Former Strouse
Stockholders.

Interest expense for the twelve months ended June 30, 1998 decreased to
$5,000 from $9,000 in the corresponding twelve months ended June 30, 1998. The
interest was generated by borrowings on a line of credit agreement that bore
interest at prime. The balance was paid in January 1998 and the agreement was
terminated on August 31, 1998.

The income tax benefit for the twelve months ended June 30, 1998 was
$1,182,000 compared to a provision of $32,000 for the twelve months ended June
30, 1997. 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. In addition,
during the twelve months ended June 30, 1998, the Company recorded a minimum
state tax provision. The income tax provision for the twelve months ended June
30, 1997 reflected minimum state taxes as any federal tax obligation was
sheltered by the utilization of net operating loss carryforwards.

Minority interest expense was $72,000 and $175,000 for the twelve months
ended June 30, 1998 and 1997, respectively. The minority interest expense was
due to preferred dividends paid or accrued on outstanding ASI Preferred Stock
issued to the Former Strouse Stockholders in connection with the Strouse
Acquisition. In January 1998, upon consummation of the ASI Merger, the ASI
Preferred Stock was converted into Series F, G and H Aristotle Preferred
Stock.

Preferred dividends were $126,000 for the twelve months ended June 30, 1998.
Preferred dividends represent dividends paid or accrued during the twelve
months on outstanding Series E, F, G and H Aristotle Preferred Stock. The
Series E Aristotle Preferred Stock was issued in connection with the Preferred
Stock Purchase Agreement between the Company and Geneve Corporation (the
"Preferred Stock Purchase Agreement"). The Series F, G and H Aristotle
Preferred Stock was issued in connection with the ASI Merger.

RESULTS OF DISCONTINUED OPERATIONS OF THE COMPANY

Fiscal Year Ended June 30, 1998 as Compared to the Year Ended June 30, 1997

Income from the operations of The Strouse, Adler Company was $624,000 for
the twelve months ended June 30, 1998 versus $732,000 for the twelve months
ended June 30, 1997. The decrease of $108,000 was primarily due to a 31%
increase in selling costs partially offset by the increased gross profit
generated by a 22% net sales increase. The selling cost increase reflected
increased investment spending in advertising and merchandising to support
current and future business growth.

Gain on the sale of Strouse of $873,000 reflects gross proceeds of
$21,500,000 (which is subject to purchase price adjustment based on the final
net book value of Strouse on June 30, 1998, as defined) offset by the net book
value of Strouse assets and liabilities of $18,397,000 and estimated taxes and
transaction costs of $2,230,000.

RESULTS OF OPERATIONS OF THE COMPANY

Fiscal Year Ended June 30, 1997 as Compared to the Year Ended June 30, 1996

The Company's net sales for the year ended June 30, 1997 decreased 9% to
$21,847,000, compared to net sales of $24,062,000 for the prior year. The
decrease was primarily generated by a $2,758,000 volume decrease in specialty
brassiere products and a $276,000 volume decrease in shapewear products,
offset by a $819,000 impact from increased prices.

The Company's gross profit for the year ended June 30, 1997 increased to
$6,021,000 from $5,669,000 for the prior year, and the gross margin percentage
increased to 27.6% from 23.6%. The increase in gross profit and gross margin
percentage was principally a result of lower per unit costs resulting from
increases in production levels primarily relating to the implementation of new
product lines, the stabilization of raw material costs, lower production costs
resulting from a reduction in production rates charged by the Company's
Dominican subcontractor and a consolidation of Strouse's production to
locations with lower costs. Raw material components, consisting primarily of
wide fabrics, lace, elastic and accessories, represent approximately 44% of
the Company's total product costs. Costs of raw materials decreased 0.2% in
fiscal 1997 and increased 1.8% in fiscal 1996.

Operating expenses include selling, general and administrative, and product
development expenses. Selling, general and administrative expenses for the
fiscal year ended June 30, 1997 were $4,661,000 versus $4,520,000 for the year
ended June 30, 1996. The $141,000, or 3%, increase was principally a result of
increases in advertising costs partially offset by decreases in administrative
personnel, sales commissions and stockholder expenses. Product development
costs for the Company for the fiscal year ended June 30, 1997 were $584,000,
compared to $523,000 for the corresponding period in 1996. Product development
costs primarily include compensation of Company personnel and were incurred by
Strouse. All products were designed internally in Strouse's New Haven and New
York design centers. The $61,000, or 12%, increase in costs reflects Strouse's
continued investment in the product development process through increases in
staffing in Strouse's design centers.

Other income includes investment and interest income and interest expense.
Investment and interest income was $146,000 and $312,000 for the fiscal year
ended June 30, 1997 and 1996, respectively. Investment and interest income in
1997 was principally generated by the Strouse Escrow Account, Aristotle's
pledge of $500,000 to secure its guarantee of the Credit Facilities with
BankBoston and short-term cash investments. The $166,000 reduction in
investment and interest income was primarily a result of the fiscal 1997
payment to the FDIC of approximately $3,760,000 from the FDIC Escrow Accounts
in connection with the FDIC Settlement.

Interest expense for fiscal 1997 decreased to $690,000 from $865,000 in the
prior year. The decrease in interest expense primarily resulted from reduced
borrowing levels under the Credit Facilities due to lower average inventory
levels in 1997 versus 1996.

The provisions for income taxes for the year ended June 30, 1997 was an
expense of $32,000, compared to a benefit of $1,626,000 in the prior year. The
$32,000 expense in fiscal 1997 represents minimum state taxes. The fiscal 1996
benefit included a net benefit of $1,650,000 related to the settlement of the
FDIC Claims, offset by a $24,000 expense for minimum state taxes. The Company
did not pay federal taxes in fiscal 1997 or 1996 because its federal tax
obligations were offset by the utilization of net operating loss
carryforwards.

Minority interest expense was $187,000 for the fiscal year ended June 30,
1997, versus $231,000 for the year ended June 30, 1996. The minority interest
expense is principally due to preferred dividends paid and accrued during the
year on outstanding ASI Preferred Stock issued to the Former Strouse
Stockholders in connection with the Strouse Acquisition. The preferred
dividends decreased as a result of the exercise of the Put Right which
resulted in fewer shares of ASI Preferred Stock being outstanding during 1997.

LIQUIDITY AND CAPITAL RESOURCES

During fiscal 1998, cash required to fund the working capital needs of
Strouse was supplied principally through a line-of-credit facility and term
loan facility with BankBoston (as successor to Bank of Boston, Connecticut),
trade credit and internally generated funds. 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"). In
connection with the Strouse Sale, Strouse terminated its credit facilities
with BankBoston.

During fiscal 1998, cash required to fund the operations of Aristotle was
supplied primarily through the sale of the Series E Preferred Stock to Geneve
Corporation pursuant to the Preferred Stock Purchase Agreement, the Internal
Revenue Service (the "IRS") tax refund, earnings generated from investments,
interest payable to Aristotle pursuant to certain notes from certain officers
of Strouse and amounts received from Strouse in connection with a tax sharing
agreement between Aristotle and Strouse.

The Company utilized cash of $1,174,000 from operations during the fiscal
year ended June 30, 1998 and utilized cash of $459,000 from operations for the
fiscal year ended June 30, 1997. During fiscal 1998, the utilization of cash
from operations was principally the result of the income generated by
operations, depreciation and amortization and an increase in accrued tax
reserves partially offset by an increase in inventories and a decrease in
accounts payable. During fiscal 1997, the utilization of cash from operations
was principally the result of increases in accounts receivables and
inventories partially offset by depreciation and amortization and an increase
in accounts payable.

Investment activities provided $10,957,000 for the Company for the fiscal
year ended June 30, 1998 and provided $515,000 for the Company for the fiscal
year ended June 30, 1997. During fiscal 1998, the generation of cash was
primarily provided from proceeds from the Strouse Sale and proceeds from the
sale of the Series E Preferred Stock partially offset by the redemption of ASI
Preferred Stock. During fiscal 1997, the primary generation of cash from
investing activities was the $5,760,000 sale of marketable securities that
were withdrawn from the FDIC Escrow Accounts in connection with the FDIC
Settlement, offset by the payment of $3,760,000 from the FDIC Escrow Accounts
in connection with the FDIC Settlement. The Company also used $530,000 to fund
the redemption of the ASI Preferred Stock. During 1997, the Company also
utilized $707,000 of its cash from investing activities to fund an account
pledged to BankBoston, which secured Aristotle's guarantee of the Credit
Facilities, and to restore the Strouse Escrow Accounts.

Financing activities provided $2,349,000 for the Company for the fiscal year
ended June 30, 1998 and utilized $16,000 for the fiscal year ended June 30,
1997. Funds provided in fiscal 1998 were generated from borrowings under the
line of credit and were used to fund the working capital needs of Strouse.
Funds utilized during fiscal 1997 were primarily a result of $793,000 of
payments of its notes payable partially offset by

additional borrowing under the line of credit. In addition in 1997, Aristotle
repurchased 6,000 shares of its Common Stock in the open market for
approximately $22,000.

In connection with the Strouse Acquisition in April 1994, ASI issued to the
Former Strouse Stockholders 245,381 shares of ASI Preferred Stock, 33,424
shares of ASI common stock and options to purchase an additional 35,208 shares
of ASI common stock. Under the charter provisions in effect at the time of the
Strouse Acquisition, the Former Strouse Stockholders had the right to require
that ASI repurchase each share of ASI Preferred Stock for $10.00 per share,
plus any accrued but unpaid dividends at various dates beginning in April 1996
(the "Put Right"). Prior to the Put Right becoming exerciseable, the holders
of the ASI Preferred Stock were entitled to quarterly dividends of 8.9% per
annum. Once the Put Right became exerciseable, the dividends ceased. In order
to exercise the Put Right, a Former Strouse Stockholder was required to sell
an equal number of shares of Series A, B, and C Aristotle Preferred Stock to
Aristotle for $.001 per share. The payment of the repurchase price pursuant to
the Put Right was partially secured by the Strouse Escrow Account.

During fiscal 1997 and 1996, certain of the Former Strouse Stockholders,
including certain executive officers of the Company, exercised their Put Right
and received aggregate consideration of $530,000 and $207,000 in exchange for
52,989 and 20,175 shares of ASI Preferred Stock, respectively. In addition, in
October 1996, pursuant to the terms of an employment agreement between a
former executive officer of Strouse and the Company, upon the voluntary
termination of such officer's employment, the former executive officer was
obligated to sell to the Company, for nominal consideration, 1,178 shares of
ASI Preferred Stock. Accordingly, at June 30, 1997, there were 170,499 shares
of ASI Preferred Stock outstanding.

In September 1997, the Company and the Former Strouse Stockholders who
continued to hold ASI Preferred Stock agreed to delay the exercise of the
remaining Put Rights and to modify certain other agreements entered into at
the time of the Strouse Acquisition (the "1997 Modifications"). Under the 1997
Modifications, during fiscal 1998 the Former Strouse Stockholders surrendered
to ASI 10,000 shares of ASI Preferred Stock in exchange for the cancellation
of an aggregate of $100,000 owed by these Former Strouse Stockholders to the
Company under loans extended to these Former Strouse Stockholders by the
Company in connection with the Strouse Acquisition (the "Acquisition Loans").
The Put Right for the remaining 160,499 shares of ASI Preferred Stock was also
amended whereby 80,000 shares were redeemed on January 1, 1998 and 40,249 and
40,250 shares would be redeemable on January 1, 1999 and January 1, 2000,
respectively.

In addition, under the 1997 Modifications, the maturity dates on the
Acquisition Loans were extended such that $104,000 of the outstanding balance
would be due and payable on January 1, 1999, and the remaining $104,000 would
be due and payable on January 1, 2000. The Former Strouse Stockholders also
agreed to release $400,000 from the Strouse Escrow Account on January 1, 1998
which was used to partially fund the redemption of 80,000 shares of ASI
Preferred Stock as well as to the release of $200,000 and $100,000 as of
January 1, 1999 and January 1, 2000, respectively, to help satisfy the
Company's additional Put Right obligations.

In connection with the Strouse Acquisition, Aristotle also issued an
aggregate of 270,379 shares of $.001 par value voting Redeemable Preferred
Stock, Series A, B, C and D, which shares did not have the right to receive
dividends and did not share in the proceeds from any liquidation of the assets
of Aristotle. The Aristotle Series A, B, C and D Preferred Stock had one vote
per share with respect to all matter other than the election of directors and
auditors. During fiscal 1997 and 1996, an aggregate of 54,167 and 20,715
shares, respectively, shares of Series A, B, C and D Preferred Stock were
redeemed at $.001 per share in connection with the fiscal 1997 and 1996 Put
Rights and 1997 employment termination. Accordingly, at June 30, 1997, an
aggregate of 195,497 shares of Aristotle Series A, B, C and D Preferred Stock
was outstanding.

Aristotle Preferred Stock were currently outstanding. Pursuant to the Series
F, G and H Aristotle Preferred Stock redemption features, 40,249 shares of
Series F, G and H were to be redeemable on January 1, 1999, at $10.00 per
share, and 40,250 shares of Series F, G and H were to be redeemable on January
1, 2000, at $10.00 per share. However, as a result of the Strouse Sale, the
Former Strouse Stockholders may require Aristotle to immediately repurchase
the Series F, G and H Aristotle Preferred Stock. If the holders of the Series
F, G and H Preferred Stock elect not to redeem this preferred stock, the
holders may elect to convert each such share into 1.667 shares of Aristotle
Common Stock, subject to certain adjustments.

In addition, as a result of the ASI Merger, the ASI options were converted
into 35,208 options to purchase Aristotle Common Stock and the ASI common
stock was converted into 33,424 shares of Aristotle Common Stock.

Aristotle is actively working to acquire one or more operating companies. In
the meantime, 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 June 30, 1998, Aristotle consummated the previously reported sale of
substantially all of the assets and certain of the liabilities of Strouse to
Sara Lee Corporation (the "Strouse Sale") for an aggregate purchase price of
$21,500,000, subject to purchase price adjustment based on the final net book
value of Strouse on June 30, 1998, as defined. The net proceeds to Aristotle
of the Strouse Sale were approximately $8,700,000. Aristotle is currently
seeking to acquire one or more operating companies.

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 acquisitions; (ii) the ability of Aristotle to maintain
and take advantage of its net operating tax loss carryforward position; (iv)
Aristotle's ability to manage any 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.

INCOME TAXES

At June 30, 1998, Aristotle had $55,400,000 of federal net operating loss
carryforwards which expire through 2012 and $1,000,000 of state net operating
loss carryforwards which expire through 2002.

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
returns, 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 $32,000,000 and the Company's aggregate
Federal net operating loss deduction would be reduced from $55,400,000 to
$33,400,000.

During fiscal 1998, 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 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.

The Company's 1992 and 1996 amended returns and carryback claims are in the
process of being reviewed by the Internal Revenue Service and there can be no
assurance that they will be allowed. In addition, there is no assurance that
the Company will be entitled to any net operating loss carryforward arising
from, or with respect to its interest in the former Bank. Even if the Company
is entitled to any 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 in the
Strouse Acquisition and ASI Merger and Geneve Corporation currently own the
maximum number of shares of Common Stock of Aristotle it could acquire through
the conversion of the Series E Preferred Stock, 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, five
percent 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.

For state tax purposes the election to re-attribute the losses of the former
Bank to the Company is not applicable and it is unlikely that the Company will
obtain any Connecticut tax loss carryforwards as a result of its disposition
of the former Bank.

YEAR 2000 ISSUE

In 1997, Aristotle began, for all of its computer systems, a Year 2000
conversion project to address all necessary code changes, testing and
implementation. The Year 2000 conversion project has been completed. However,
there can be no assurance that the systems of other companies on which the
Company's systems rely will be timely converted or that any such failure to
convert by another company would not have an adverse effect on the Company's
systems.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

AS OF JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT FOR SHARE DATA)

1998 1997
--------- ---------

ASSETS
------
Current assets:
Cash and cash equivalents.............................. $ 12,271 $ 139
Marketable securities.................................. 202 --
Marketable securities and cash equivalents held in
escrow, at market value............................... 600 900
Accounts receivable, net of reserves of $172 for 1997.. -- 3,519
Current maturities of employee notes receivable........ 208 100
Inventories............................................ -- 10,945
Other current assets................................... 360 146
--------- ---------
Total current assets................................. 13,641 15,749
--------- ---------
Property and equipment, net............................. 4 1,475
--------- ---------
Other assets:
Marketable securities held in escrow, at market value.. -- 300
Marketable securities, at market value................. 867 --
Employee notes receivable, less current maturities..... -- 208
Goodwill, net of amortization of $162 for 1997......... -- 1,784
Deferred tax asset..................................... -- 630
Other noncurrent assets................................ 70 235
--------- ---------
937 3,157
--------- ---------
$ 14,582 $ 20,381
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Notes payable and current maturities of long-term
debt.................................................. $ -- $ 6,488
Current maturities of Series F, G and H Preferred
Stock................................................. 805 --
Current maturities of minority interest in
subsidiary's preferred stock.......................... -- 900
Accounts payable....................................... -- 2,663
Accrued expenses....................................... 648 517
Accrued transaction costs.............................. 1,704 --
Accrued tax reserves................................... 720 --
Deferred tax liability................................. -- 630
--------- ---------
Total current liabilities............................ 3,877 11,198
Long-term debt, less current maturities................. -- 1,670
--------- ---------
Total liabilities.................................... 3,877 12,868
--------- ---------
Commitments and contingencies
Series E Redeemable Preferred Stock..................... 2,250 --
--------- ---------
Minority interest in subsidiary's common stock.......... -- 194
--------- ---------
Minority interest in subsidiary's preferred stock, less
current maturities..................................... -- 805
--------- ---------
Voting redeemable preferred stock, $.01 par value,
3,000,000 shares authorized; 75,678 shares of Series A,
34,065 shares of Series B, 60,756 shares of Series C
and 24,998 shares of Series D issued and outstanding
for 1997............................................... -- 3
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 3,000,000 shares
authorized, 1,209,027 and 1,105,801 shares issued in
1998 and 1997......................................... 11 11
Additional paid-in capital............................. 160,248 159,762
Retained earnings (deficit)............................ (151,770) (153,232)
Treasury stock, at cost, 7,287 shares.................. (30) (30)
Net unrealized investment gains........................ (4) --
--------- ---------
Total stockholders' equity........................... 8,455 6,511
--------- ---------
$ 14,582 $ 20,381
========= =========

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

THE ARISTOTLE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)

1998 1997 1996
------- ----- ------

Operating expenses:
General and administrative........................... $ 685 $ 649 $ 609
Nonrecurring tax claim contingency fee............... 480 -- --
------- ----- ------
Operating loss..................................... (1,165) (649) (609)
------- ----- ------
Other income (expense):
Investment and interest income....................... 151 146 312
Interest expense..................................... (5) (9) (4)
------- ----- ------
Loss from continuing operations before income taxes
and minority interest............................... (1,019) (512) (301)
Benefit from (provision for) income taxes.............. 1,182 (32) 1,626
------- ----- ------
Income (loss) from continuing operations before
minority interest................................. 163 (544) 1,325
Minority interest...................................... 72 175 215
------- ----- ------
Income (loss) from continuing operations........... 91 (719) 1,110
Discontinued Operations:
Income from operations of The Strouse, Adler Company. 624 732 358
Gain on sale of The Strouse, Adler Company (less
applicable income taxes of $1,000).................. 873 -- --
------- ----- ------
Net income......................................... 1,588 13 1,468
Accreted dividends..................................... 126 -- --
------- ----- ------
Net income applicable to common shareholders....... $ 1,462 $ 13 $1,468
------- ----- ------
Basic earnings per common share:
Continuing operations................................ $ (.03) $(.65) $ 1.01
Discontinued operations.............................. .54 .66 .33
Gain on sale of discontinued operations.............. .75 -- --
------- ----- ------
Net income......................................... $ 1.26 $ .01 $ 1.34
======= ===== ======
Diluted earnings per common share:
Continuing operations................................ $ (.03) $(.65) $ .92
Discontinued operations.............................. .54 .66 .25
Gain on sale of discontinued operations.............. .75 -- --
------- ----- ------
Net income......................................... $ 1.26 $ .01 $ 1.17
======= ===== ======

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

THE ARISTOTLE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

NET
UNREALIZED
ADDITIONAL RETAINED INVESTMENT
COMMON PAID-IN EARNINGS TREASURY GAINS
STOCK CAPITAL (DEFICIT) STOCK (LOSSES) TOTAL
------ ---------- --------- -------- ---------- ------

Balance, June 30, 1995.. $11 $159,843 $(154,713) $(151) $ 6 $4,996
Net income.............. -- -- 1,468 -- -- 1,468
Issuance of treasury
stock to directors..... -- (81) -- 143 -- 62
Net unrealized invest-
ment gain.............. -- -- -- -- 4 4
--- -------- --------- ----- ---- ------
Balance, June 30, 1996.. 11 159,762 (153,245) (8) 10 6,530
Net income.............. -- -- 13 -- -- 13
Net unrealized invest-
ment loss.............. -- -- -- -- (10) (10)
Purchase of treasury
stock.................. -- -- -- (22) -- (22)
--- -------- --------- ----- ---- ------
Balance, June 30, 1997.. 11 159,762 (153,232) (30) -- 6,511
Net income.............. -- -- 1,588 -- -- 1,588
Sale of common stock.... -- 135 -- -- -- 135
Conversion of ASI common
stock (Note 1)......... -- 215 -- -- -- 215
Issuance of common stock
to directors........... -- 136 -- -- -- 136
Accretion of dividends.. -- -- (126) -- -- (126)
Net unrealized invest-
ment loss.............. -- -- -- -- (4) (4)
--- -------- --------- ----- ---- ------
Balance, June 30, 1998.. $11 $160,248 $(151,770) $ (30) $ (4) $8,455
=== ======== ========= ===== ==== ======

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

THE ARISTOTLE CORPORATION AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED JUNE 30, 1998, 1997 AND 1996
(DOLLARS IN THOUSANDS)

1998 1997 1996
------- ------- -------

Cash flows from operating activities:
Net income......................................... $ 1,588 $ 13 $ 1,468
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Gain from sale of discontinued operations........ (873) -- --
Gain on settlement of FDIC claim................. -- -- (2,000)
Depreciation and amortization.................... 574 528 461
Issuance of stock for services................... 136 -- 62
Changes in assets and liabilities:
Accounts receivable............................ (23) (685) 1,664
Inventories.................................... (2,850) (1,467) 2,304
Other assets................................... 1 263 552
Proceeds from tax carryback claim.............. -- -- 1,778
Accounts payable............................... (757) 1,291 (995)
Accrued expenses............................... 310 (402) (385)
Accrued tax reserves........................... 720 --
------- ------- -------
Net cash provided by (used in) operating
activities.................................. (1,174) (459) 4,909
------- ------- -------
Cash flows from investing activities:
Purchase of marketable securities.................. (1,069) (707) (1,778)
Sale of marketable securities...................... 600 5,760 207
Settlement of FDIC claim........................... -- (3,760) --
Repurchase of ASI Preferred Stock.................. (800) (530) (207)
Proceeds from sale of Series E Preferred Stock..... 2,250 -- --
Sale of common stock............................... 135 -- --
Minority interest.................................. 21 12 15
Proceeds from disposal of discontinued operations.. 8,724 -- --
Accrued transaction costs.......................... 1,704 --
Purchase of property and equipment................. (608) (260) (565)
------- ------- -------
Net cash provided by (used in) investing
activities.................................. 10,957 515 (2,328)
------- ------- -------
Cash flows from financing activities:
Net borrowings (payments) under line of credit..... 2,424 799 (2,412)
Proceeds from issuance of debt..................... -- -- 140
Principal debt payments............................ (75) (793) (398)
Purchase of treasury stock......................... -- (22) --
------- ------- -------
Net cash provided by (used in) financing
activities.................................. 2,349 (16) (2,670)
------- ------- -------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS..... 12,132 40 (89)
CASH AND CASH EQUIVALENTS, beginning of period....... 139 99 188
------- ------- -------
CASH AND CASH EQUIVALENTS, end of period............. $12,271 $ 139 $ 99
======= ======= =======
SUPPLEMENTAL DISCLOSURES:
Cash paid during the year for:
Interest......................................... $ 901 $ 637 $ 876
======= ======= =======
Income taxes..................................... $ 56 $ 44 $ 31
======= ======= =======

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

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 1998 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)

1. NATURE OF OPERATIONS:

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), the Aristotle Corporation (Aristotle
or the Company) 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, 1997 and
1996, 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 consideration to be received by Aristotle from Sara Lee is $21,500, plus
a purchase price adjustment based on the final net book value of Strouse, as
defined, on June 30, 1998. Included in the $21,500 aggregate purchase price is
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 gain on the Strouse Sale of approximately $873
calculated as follows:

Gross proceeds.................................................... $ 21,500
Net book value of assets and liabilities related to and resulting
from the operation of Strouse.................................... (18,397)
Estimated taxes and transaction costs............................. (2,230)
--------
Gain on sale of discontinued operation............................ $ 873
========

The estimated net cash proceeds to Aristotle resulting from the Strouse sale
is as follows:

Gross proceeds.................................................... $ 21,500
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............................ (2,230)
--------
Net proceeds from sale of discontinued operation.................. $ 8,724
========

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, $21,847 and $24,062
for the years ended June 30, 1998, 1997 and 1996, respectively.

Organization--

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.

As a result of the 1994 Strouse Acquisition, Aristotle, through its wholly-
owned subsidiary Aristotle Subsidiary, Inc. (ASI), owned 97% of Strouse. The
Strouse Acquisition was partially funded through the issuance of 245,381
shares of ASI Preferred Stock (ASI Preferred) and 33,424 shares of ASI common
stock (ASI Common) to the former stockholders of Strouse (Former Strouse
Stockholders). In addition, the Former Strouse Stockholders were granted
options (ASI Options) to purchase an additional 35,208 shares of ASI common
stock.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The ASI Preferred had an original liquidation preference of $2,454 in the
aggregate, or $10 per share, and accrued dividends at 8.9% per annum. The
holders of the ASI Preferred were granted the right to require that ASI
repurchase each share of ASI Preferred at various dates beginning in April
1996 for $10.00 per share (the Put Right), plus any accrued but unpaid
dividends. In order to exercise the Put Right, the holder was required to sell
an equal number of shares of Aristotle Preferred (see below).

During fiscal 1997 and 1996, certain of the Former Strouse Stockholders,
including certain executive officers of the Company, exercised their Put Right
and received aggregate consideration of $530 and $207 in exchange for 52,989
and 20,715 shares of ASI Preferred, respectively. In addition, in October
1996, pursuant to terms of an employment agreement between a former executive
officer of Strouse and the Company, upon the voluntary termination of such
officer's employment, the former executive officer was obligated to sell to
the Company, for nominal consideration, 1,178 shares of ASI Preferred.
Accordingly, at June 30, 1997 there were 170,499 shares of ASI Preferred
outstanding.

In September 1997, the Company and the Former Strouse Stockholders entered
into an amendment to delay the exercise of the remaining Put Rights and to
modify certain other agreements entered into at the time of the Strouse
Acquisition. In accordance with the terms of the amendment, during fiscal 1998
the Former Strouse Stockholders surrendered to ASI 10,000 shares of ASI
Preferred in exchange for the cancellation of $100 of loans owed to the
Company by the Former Strouse Stockholders. The Put Rights for the remaining
160,499 shares of ASI Preferred were also amended whereby 80,000 shares were
redeemed on January 1, 1998 and 40,249 and 40,250 shares would be redeemable
on January 1, 1999 and January 1, 2000, respectively.

In connection with the Strouse Acquisition, Aristotle also issued 270,379
shares of $.001 par value voting Redeemable Preferred Stock (Aristotle
Preferred), which shares did not have the right to receive dividends and did
not share in the proceeds from any liquidation of the assets of Aristotle. The
Aristotle Preferred had one vote per share with respect to matters other than
the election of directors and auditors. During fiscal 1997 and 1996, 54,167
and 20,715 shares, respectively, of Aristotle Preferred were redeemed at $.001
per share in connection with the fiscal 1997 and 1996 Put Rights and 1997
employment termination (see above). Accordingly, at June 30, 1997, 195,497
shares of Aristotle Preferred were outstanding.

On January 2, 1998, ASI was merged into Aristotle (ASI Merger). As a result
of the ASI Merger, all of the remaining 195,497 shares of Aristotle Preferred
were repurchased by the Company for $.001 per share and the remaining 80,499
shares of ASI Preferred were converted into Series F, G and H Aristotle
Preferred Stock (Series F, G and H). As was the case with the ASI Preferred,
the Series F, G and H are entitled to dividends of 8.9% per annum. As of June
30, 1998, a total of 80,499 shares of Series F, G and H were outstanding.
Pursuant to the Series F, G and H redemption features, 40,249 shares of Series
F, G and H were to be redeemable on January 1, 1999, at $10.00 per share, and
40,250 shares of Series F, G and H were to be redeemable on January 1, 2000,
at $10.00 per share. However, as a result of the Strouse Sale, the Strouse
Stockholders may require Aristotle to immediately repurchase the Series F, G
and H. Accordingly, the Series F, G and H has been reflected as a current
obligation in the accompanying 1998 consolidated financial statements. If the
holders of the Aristotle Series F, G and H elect not redeem this preferred
stock they may elect to convert each such share into 1.667 shares of Aristotle
common stock, subject to adjustment as defined.

In addition, as a result of the ASI merger, the ASI Options were converted
into 35,208 options to purchase Aristotle common stock and the ASI Common was
converted into 33,424 shares of Aristotle common stock.

The Strouse Acquisition also provided for loans from Aristotle to the former
Strouse Stockholders which bear interest at 8.9% per annum. Included in the
accompanying 1998 and 1997 balance sheets is $208 and $308, respectively, of
these loans. During fiscal 1998, the Former Strouse Stockholders surrendered
10,000 shares of ASI Preferred in exchange for the cancellation of $100 of
loans (see above).

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

In accordance with the terms of the Put Right, Aristotle is required to
escrow certain funds (see Note 4). At June 30, 1998 and 1997, $600 and $700,
respectively was held in escrow resulting from this requirement.

2. SIGNIFICANT ACCOUNTING POLICIES:

Principles of consolidation--

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

Cash and cash equivalents--

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

Use of estimates--

The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Earnings per common share--

The Company has adopted the provisions of Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" (SFAS 128). The years ended June 30,
1997 and 1996 have been restated as a result of the adoption.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

For the years ended June 30, 1998, 1997 and 1996, Basic and Diluted Earnings
Per Share are calculated as follows:

1998 1997 1996
--------- --------- ---------

BASIC EARNINGS PER SHARE:
Numerator
Income (loss) from continuing operations..... $ 91 $ (719) $ 1,110
Accredited dividends......................... (126) -- --
--------- --------- ---------
Income (loss) from continuing operations
applicable to common shareholders........... (35) (719) 1,110
Income from discontinued operation........... 624 732 358
Gain on sale of discontinued operation....... 873 -- --
--------- --------- ---------
Net income applicable to common shareholders. $ 1,462 $ 13 $ 1,468
========= ========= =========
Denominator
Weighted average shares outstanding.......... 1,151,920 1,100,700 1,097,301
--------- --------- ---------
Basic Earnings Per Share Per Common Shareholder
Continuing operations........................ $ (.03) $ (.65) $ 1.01
Discontinued operations...................... .54 .66 .33
Gain on sale of discontinued operations...... .75 -- --
--------- --------- ---------
Net income................................... $ 1.26 $ .01 $ 1.34
========= ========= =========
DILUTED EARNINGS PER SHARE:
Numerator
Income (loss) from continuing operations..... $ 91 $ (719) $ 1,110
Accredited dividends......................... (126) -- --
Minority interest convertible preferred
dividends................................... -- -- 215
--------- --------- ---------
Income (loss) from continuing operations
applicable to common shareholders........... (35) (719) 1,325
Income from discontinued operations.......... 624 732 358
Gain on sale of discontinued operations...... 873 -- --
--------- --------- ---------
Net income applicable to common shareholders. $ 1,462 $ 13 $ 1,683
========= ========= =========
Denominator
Weighted average shares outstanding.......... 1,151,920 1,100,700 1,097,301
Minority interest convertible preferred
stock....................................... -- -- 309,547
Minority interest convertible common stock... -- -- 33,426
--------- --------- ---------
1,151,920 1,100,700 1,440,274
========= ========= =========
Diluted Earnings per Share per Common
Shareholder
Continuing operations........................ $ (.03) $ (.65) $ .92
Discontinued operations...................... .54 .66 .25
Gain on sale of discontinued operations...... .75 -- --
--------- --------- ---------
Net income................................... $ 1.26 $ .01 $ 1.17
========= ========= =========

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Options to purchase shares of common stock of the Company were outstanding
during the above periods 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.

For the years ended June 30, 1998 and 1997, convertible preferred stock and
convertible common stock was not included in diluted earnings per share as
such inclusion would be antidilutive as a result of the Company's loss from
continuing operations applicable to common shareholders.

Recently issued accounting standards--

During 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". This statement establishes standards for
separately reporting comprehensive income and its components (revenues,
expenses, gains and losses) in a full set of general purpose financial
statements. Components of comprehensive income represent changes in equity
resulting from transactions and other events and circumstances from nonowner
sources. This statement is effective for fiscal years beginning after
December 15, 1997, and reclassification of financial statements for earlier
periods provided for comparative purposes is required. The Company plans to
adopt the new standard effective July 1, 1998.

3. SIGNIFICANT ACCOUNTING POLICIES OF STROUSE:

Inventories--

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

As a result of the application of purchase accounting to the Strouse
Acquisition in 1994, the financial accounting basis of the inventories
changed, while the basis for federal income tax reporting purposes did not.
Accordingly, as of June 30, 1997, the LIFO inventories reflected in the
accompanying consolidated balance sheet were stated at an amount $1,884
greater than LIFO inventories reported for federal income tax purposes.

At June 30, 1997, inventories consisted of the following:

Raw materials.................................................... $ 2,123
Work-in-process.................................................. 2,652
Finished goods................................................... 5,216
-------
9,991
LIFO reserve..................................................... 954
-------
$10,945
=======

Property and equipment--

Property and equipment were recorded at cost and were depreciated or
amortized, using the straight-line method, over estimated useful lives of five
to ten years.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

At June 30, 1997, property and equipment consisted of the following:

Machinery and equipment........................................... $ 1,782
Furniture and fixtures............................................ 21
Leasehold improvements............................................ 280
Equipment under capital lease..................................... 600
-------
2,683
Less accumulated depreciation and amortization.................... (1,208)
-------
$ 1,475
=======

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

Goodwill--

The excess of cost over the fair value of net tangible and identifiable
intangible assets acquired resulted from the Strouse Acquisition and was being
amortized using the straight-line method over 40 years.

Revenue recognition--

Strouse recognized revenue as the product was shipped to its customers.

Co-op advertising--

Strouse granted customers a co-op advertising credit relating to qualified
advertising and promotional costs incurred by the customer in promoting
Strouse's products. These credits were recognized in the consolidated
financial statements as the advertising costs were incurred.

Principal supplier--

In 1998, 1997 and 1996, approximately 98%, 98% and 95%, respectively, of
Strouse's products were manufactured and sewn in the Caribbean, with
approximately 63%, 72% and 68%, respectively, of Strouse's products assembled
in Santo Domingo, Dominican Republic.

Long-lived assets--

In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of" (SFAS 121). SFAS
121 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. The adoption of this standard did not have a
material impact on Strouse's results of operations or financial position.

4. MARKETABLE SECURITIES:

At June 30, 1998 and 1997, the Company had placed in escrow $600 and $1,200,
respectively. The 1998 escrow funds were related to the Put Rights to the
Former Strouse Stockholders (see Note 1) and the 1997 escrow funds were
comprised of $700 related to the Put Right and $500 related to the Company's
financing arrangements.

The funds relating to the above mentioned arrangements have been invested in
cash equivalents and U.S. Treasuries. The securities have been classified as
available-for-sale.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

JUNE 30, 1998
---------------------------
GROSS
AMORTIZED UNREALIZED MARKET
COST GAINS VALUE
--------- ---------- ------

Company obligations:
Cash equivalents and interest receivable....... $600 $-- $600
==== === ====

JUNE 30, 1997
---------------------------
GROSS
AMORTIZED UNREALIZED MARKET
COST GAINS VALUE
--------- ---------- ------

Company obligations:
U.S. Treasuries maturing in less than 1 year... $ 150 $-- $ 150
Cash equivalents and interest receivable....... 1,050 -- 1,050
------ --- ------
$1,200 $-- $1,200
====== === ======

The Company has other funds invested in high-grade corporate debentures.
These securities have been classified as available-for-sale and an unrealized
holding loss of approximately $4 is recorded as a component of stockholders'
equity as of June 30, 1998.

Investment securities available for sale other than the escrow arrangements
are summarized as follows:

JUNE 30, 1998
---------------------------
GROSS
AMORTIZED UNREALIZED MARKET
COST LOSS VALUE
--------- ---------- ------

Corporate debt maturing in:
Less than one year............................. $202 $-- $202
1 to 5 years................................... 871 4 867

5. NOTES PAYABLE AND LONG-TERM DEBT:

Notes payable and long-term debt at June 30, 1997, consisted of the
following:

Strouse borrowings under bank line of credit...................... $ 6,075
Strouse term notes payable to bank................................ 1,867
Aristotle bank line of credit..................................... 75
Strouse capital lease obligation.................................. 141
-------
Total........................................................... 8,158
Less current maturities........................................... (6,488)
-------
$ 1,670
=======

The Strouse line of credit and notes payable to bank were fully satisfied
and extinguished in connection with the Strouse Sale. The Aristotle line of
credit was repaid during fiscal 1998 and the Strouse capital lease obligation
was assumed by Sara Lee in connection with the Strouse Sale.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Line of credit and term notes--

As of June 30, 1997, Strouse had outstanding borrowings of $7,942 pursuant
to a Bank debt facility (the Credit Agreement). The Credit Agreement provided
for a $10,000 Revolving Loan and a $2,000 Term Loan. The interest rate on the
Revolving Loan varied from prime to prime plus 1.0% or Eurodollar plus 1.75%
to Eurodollar plus 3% per annum based on the level of total liabilities to
total net worth, as defined. In addition, the amended credit agreement
provided for a .35% per annum commitment fee on the unused portion of the
Revolving Loan. The Term Loan bore interest at prime plus .75%, Eurodollar
plus 2.5% or at a fixed rate of cost of funds plus 2.25%. The Term Loan had a
three year term expiring in September 1999 and required principal payments to
reduce the amount outstanding based on a ten year amortization.

Borrowings under the Credit Agreement were collateralized by substantially
all of the assets of Strouse and were guaranteed by Aristotle and ASI, with
each guaranty limited to $2,000.

Aristotle bank line of credit--

During 1997, Aristotle entered into a $300 line of credit agreement that
bore interest at prime. This agreement terminated on August 31, 1998.

Capital lease obligation--

During fiscal 1995, Strouse entered into a capital lease obligation with one
of their principal suppliers to lease the supplier's land, building, machinery
and equipment. Under the terms of the lease, Strouse made quarterly payments
of $66, $94, and $88, for principal, interest and executor costs, for calendar
years 1998, 1997 and 1996, respectively. The imputed interest rate on the
obligation was 9.0% per annum. Included in the accompanying 1997 consolidated
balance sheet is $600 of land, building and equipment under capital lease, net
of accumulated amortization of $193 resulting from this lease commitment.

6. COMMITMENTS AND CONTINGENCIES:

In April 1995, the FDIC filed a complaint related to the matter captioned
Federal Deposit Insurance Corporation vs. The Aristotle Corporation, in the
United States District Court for the District of Connecticut. The FDIC claimed
that it was entitled to income tax refunds previously received and yet to be
received by Aristotle.

In addition, the Company was aware that the FDIC was preparing claims
against certain former officers and directors of the Bank based on alleged
negligence in approving certain loans that the Bank made and subsequently lost
money on when borrowers defaulted. Under Delaware law and under Aristotle's
bylaws, Aristotle may have had an obligation to indemnify these officers and
directors for expenses and liabilities incurred by them in connection with any
action the FDIC brought to enforce its claims.

The Company, the FDIC and certain other interested parties entered into a
settlement agreement dated May 29, 1996 regarding the foregoing asserted
claims and potential claims (the FDIC Claims). Under the settlement agreement,
the Company retained $2,000 of the disputed $5,760 in tax refunds.
Accordingly, the Company has recorded an income tax benefit, net of legal
costs, as a result of the above agreement (see Note 9). The FDIC received the
balance of the tax refunds. The FDIC and Aristotle each dismissed the above-
captioned action, as it related to the other party. As part of the settlement
agreement, the FDIC released Aristotle, certain of Aristotle's former officers
and directors, and certain officers and directors of the Bank from any claims
pertaining to the operations or failure of the Bank. Aristotle released the
FDIC from all claims relating to the Bank.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

During 1990, two separate purported stockholder class actions were commenced
in the United States District Court for the District of Connecticut and a
consolidated complaint, captioned In Re: First Constitution Stockholders
Litigation, was filed on August 3, 1990 (the Stockholder Litigation). The
consolidated complaint alleged, among other things, that during the purported
class period (January 25, 1989 to April 5, 1990), the Company, a former
director and certain former officers acted to inflate the price of the
Aristotle Common Stock by issuing materially false and misleading statements
or omissions. The consolidated complaint also alleged claims based on common
law fraud and misrepresentation, and sought unspecified damages, as well as
recovery of attorneys' fees.

On May 23, 1996, the plaintiffs, Aristotle and the individual defendants
entered into a Stipulation and Agreement of Settlement pursuant to which,
among other things, the Stockholder Litigation would be settled for $2,300,
which, following the payment of attorneys' fees and costs, would be
distributed to class members who timely submitted valid proofs of claim.
Aristotle's directors and officers liability insurance carrier has funded the
entire settlement amount. By order and judgment dated August 2, 1996, the
Court approved the settlement and dismissed the Stockholder Litigation with
prejudice.

7. PREFERRED STOCK:

On January 2, 1998, ASI was merged into Aristotle. As a result of the ASI
Merger, the Aristotle Preferred owned by the Former Strouse Stockholders was
repurchased by the Company for $.001 per share and the remaining 80,499 shares
of ASI Preferred were converted into Series F, G and H (see Note 1).

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), representing
approximately thirty percent (30%) of the issued and outstanding capital stock
of Aristotle, for an aggregate price of $2,250, or a per share price of $4.60.
The Series E earns dividends of 8% per annum. Pursuant to the Series E
redemption features, the Company is 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 (see Note 8).

8. STOCKHOLDERS' EQUITY:

The Company had the following common and treasury stock issued and
outstanding at June 30, 1998, 1997 and 1996:

COMMON TREASURY
STOCK STOCK
--------- --------

Outstanding, June 30, 1995............................... 1,105,801 17,361
Issuance of treasury stock to directors.................. -- (16,074)
Exercise of Put Right (Note 1)........................... -- --
--------- -------
Outstanding, June 30, 1996............................... 1,105,801 1,287
Purchases of treasury stock.............................. -- 6,000
--------- -------
Outstanding, June 30, 1997............................... 1,105,801 7,287
Sale of common stock..................................... 30,000 --
Conversion of ASI common into Aristotle common (Note 1).. 33,424 --
Issuance of common stock to directors.................... 39,802 --
--------- -------
Outstanding, June 30, 1998............................... 1,209,027 7,287
========= =======

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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

1998 1997
------- -------

Conversion of ASI Preferred Stock........................... -- 218,588
Conversion of Series E...................................... 489,131 --
Conversion of Series F, G and H Preferred Stock............. 134,163 --
Conversion of ASI Common Stock (Note 1)..................... -- 33,424
Exercise of options issued to Former Strouse Stockholders
(Note 1 and 10)............................................ 35,208 35,208
Exercise of stock options granted under the Plan (Note 10).. 117,929 43,935
Exercise of stock options granted outside of the Plan (Note
10)........................................................ 20,000 20,000
------- -------
Total..................................................... 796,431 351,155
======= =======

9. INCOME TAXES:

The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards 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, 1998 and 1997, the principal components of deferred tax assets,
liabilities and the valuation allowance were as follows:

1998
-----------------------------
CURRENT ASSET LONG-TERM ASSET
(LIABILITY) (LIABILITY)
------------- ---------------

Federal net operating loss carryforwards...... $-- $ 18,800
State of Connecticut net operating loss
carryforwards................................ -- 100
---- --------
-- 18,900
Valuation allowance........................... -- (18,900)
---- --------
$-- $ --
==== ========

1997
-----------------------------
CURRENT ASSET LONG-TERM ASSET
(LIABILITY) (LIABILITY)
------------- ---------------

Federal net operating loss carryforwards...... $ -- $ 2,200
State of Connecticut net operating loss
carryforwards................................ -- 666
Inventory purchase accounting basis
difference................................... (754) --
Other......................................... 218 (87)
----- -------
(536) 2,779
Valuation allowance........................... (94) (2,149)
----- -------
$(630) $ 630
===== =======

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.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

Benefits (charges)for income taxes are comprised of the following for the
years ended June 30, 1998, 1997 and 1996:

1998 1997 1996
------ ---- ------

Current:
Federal.............................................. $1,199 $-- $1,650
State................................................ (17) (32) (24)
------ ---- ------
$1,182 $(32) $1,626
====== ==== ======

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 1998 consolidated
balance sheet. 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 1996 federal tax benefit
relates to the settlement of the FDIC tax refund complaint (See Note 6). The
state tax provisions relate principally to minimum state and franchise taxes.

Included in Gain on Sale of The Strouse, Adler Company in the accompanying
1998 consolidated income statement is a tax provision of $1,000 resulting from
the Strouse Sale.

At June 30, 1998, without giving consideration to the 1992 carryback claim
(see below), the Company had $55,400 of federal net operating loss
carryforwards which expire through 2012 and $1,000 of state net operating loss
carryforwards which expire through 2002.

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 $32,000 and the
Company's aggregate Federal net operating loss deduction would be reduced from
$55,400 to $33,400.

The Company's 1992 and 1996 amended returns and carryback claims (see above)
are in the process of being reviewed by the Internal Revenue Service and there
can be no assurance that they will be allowed. In addition, 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.

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The Company's ability to utilize tax carryforwards 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.

10. STOCK OPTION PLAN AND PROFIT SHARING PLAN:

During fiscal 1997, the Board of Directors adopted the 1997 Stock Option
Plan, (the 1997 Plan). The 1997 Plan provides for granting of 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. Options to purchase 15,000 shares at $5.625 per share
and 68,000 shares at $4.625 per share were granted under the 1997 Plan during
fiscal 1998.

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) entitle 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 issued 35,208
ASI options which were converted into options to purchase shares of Aristotle
common stock in connection with the ASI merger (see Note 1).

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 1998 using the Black-Scholes option pricing model
prescribed by SFAS 123. There were no options granted in 1997 and 1996. The
weighted average assumptions used as of June 30, 1998 are as follows:

Risk free interest rate.......................................... 5.76%-5.83%
Expected dividend yield.......................................... None
Expected lives................................................... 5 years
Expected volatility.............................................. 77.2%-78.1%

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

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 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, 1998:

Income (loss) from continuing operations applicable to common
shareholders:
As reported...................................................... $ (35)
Pro forma........................................................ $(135)
Pro forma income (loss) from continuing operations per common
share:
Basic/diluted earnings (loss) per share:
As reported...................................................... $(.03)
Pro forma........................................................ $(.11)

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 options plans and other
options as of June 30, 1998, 1997 and 1996, and changes during the years then
ended, is presented below:

1998 1997 1996
------------------ ----------------- ------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------- --------- ------ --------- ------- ---------

Outstanding at beginning
of year................ 99,137 $15.24 99,637 $15.19 110,239 $ 26.19
Granted................. 83,000 4.80 -- -- -- --
Expired................. (9,000) -- (500) 5.45 (10,602) 129.55
------- ------ -------
Outstanding at end of
year................... 173,137 6.15 99,137 15.24 99,637 15.19
======= ====== =======
Options exercisable at
year-end............... 143,137 99,137 15.24 89,637 16.28
Weighted-average fair
value of options
granted during the
year................... $ 3.21 $ -- $ --

THE ARISTOTLE CORPORATION AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)

The following table summarizes information about stock options outstanding
at June 30, 1998:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------- --------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED
NUMBER REMAINING AVERAGE NUMBER AVERAGE
OUTSTANDING CONTRACTUAL EXERCISE EXERCISABLE EXERCISE
EXERCISE PRICES AT 6/30/98 LIFE PRICE AT 6/30/98 PRICE
--------------- ----------- ------------ --------- ----------- --------

$4.63.............. 68,000 51.5 months $ 4.63 38,000 $ 4.63
5.00.............. 10,210 45.3 5.00 10,210 5.00
5.30.............. 2,395 70.0 5.30 2,395 5.30
5.40.............. 20,000 73.0 5.40 20,000 5.40
5.45.............. 26,498 47.1 5.45 26,498 5.45
5.63.............. 15,479 109.6 5.63 15,479 5.63
10.00.............. 27,290 46.7 10.00 27,290 10.00
17.50.............. 958 23.0 17.50 958 17.50
23.75.............. 2,307 23.5 23.75 2,307 23.75
------- -------
$4.63-23.75......... 173,137 57.1 6.15 143,137 6.54
======= =======

11. RELATED PARTY TRANSACTIONS:

During the years ended June 30, 1998, 1997 and 1996, the Company paid its
directors $84, $58 and $64, respectively, in compensation for services as
directors of the Company.

During the years ended June 30, 1998, 1997 and 1996, Strouse paid rent of
$437, $443 and $435 related to its corporate offices to the lessor who is also
a shareholder of the Company.

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 Aris-
totle Corporation (a Delaware corporation) and subsidiary as of June 30, 1998
and 1997, and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years ended June 30,
1998. These financial statements are the responsibility of the Company's man-
agement. Our responsibility is to express an opinion on these financial state-
ments based on our audits.

We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting 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 pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Aristotle Corporation
and subsidiary as of June 30, 1998 and 1997, and the results of their opera-
tions and their cash flows for each of the three years ended June 30, 1998 in
conformity with generally accepted accounting principles.

Arthur Andersen LLP

Hartford, Connecticut
September 18, 1998

FORM 10-K CROSS REFERENCE INDEX

PAGE
----

PART I
Item 1. Business....................................................... 30
Item 2. Properties..................................................... 30
Item 3. Legal Proceedings.............................................. 30
Item 4. Submission of Matters to a Vote of Security Holders............ 31
PART II
Market for Registrant's Common Equity and Related Stockholder
Item 5. Matters........................................................ 32
Item 6. Selected Financial Data........................................ 32
Management's Discussion and Analysis of Financial Condition and
Item 7. Results of Operations.......................................... 32
Item 8. Financial Statements and Supplementary Data.................... 32
Changes in and Disagreements with Accountants on Accounting and
Item 9. Financial Disclosure........................................... 32
PART III
Item 10. Directors and Executive Officers of the Registrant............. 33
Item 11. Executive Compensation......................................... 36
Item 12. Security Ownership of Certain Beneficial Owners and Management. 39
Item 13. Certain Relationships and Related Transactions................. 41
PART IV
Exhibits, Financial Statement Schedules, and Reports on Form 8-
Item 14. K.............................................................. 42

PART I

ITEM 1. BUSINESS

General. The Aristotle Corporation ("Aristotle") is a holding company which,
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") for
an aggregate cash purchase price of $21,500,000, subject to purchase price
adjustment based on the final net book value of Strouse on June 30, 1998, as
defined. On July 2, 1998, Strouse changed its name to "S-A Subsidiary, Inc."
Strouse formerly designed, manufactured and marketed women's intimate apparel.
Aristotle is currently seeking to acquire one or more operating companies.

Business Strategy. Aristotle's business strategy is to utilize the net
proceeds from the Strouse Sale to acquire one or more operating companies.
Although Aristotle is not currently engaged in negotiations with an
acquisition target, Aristotle is reviewing acquisition opportunities.

Employees. As of September 1, 1998, Aristotle employed 1 full-time, non-
union employee.

Bank Financing. In connection with the Strouse Sale, Strouse's Credit
Facilities with BankBoston (as successor to Bank of Boston, Connecticut) were
terminated.

During 1997, Aristotle entered into a line-of-credit agreement with Citizens
Bank for $300,000. The line-of-credit matured on August 31, 1998 and was
terminated.

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. Prior to the Strouse Sale on June 30, 1998, Aristotle's business was
the business of Strouse. Currently, Aristotle is seeking to acquire one or
more operating companies.

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 office is 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.

ITEM 3. LEGAL PROCEEDINGS

Aristotle is not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

A Special Meeting of the stockholders of Aristotle was held on June 26,
1998. At the Special Meeting, the stockholders voted upon a proposal to
approve and adopt the proposed sale for cash to Sara Lee Corporation of
substantially all of the assets and certain specified liabilities of Strouse
(the "Strouse Sale").

The Strouse Sale was approved and adopted by the Aristotle stockholders by
the following vote:

TOTAL
COMMON PREFERRED PERCENT OF
STOCK STOCK TOTAL VOTES CAST
------- --------- --------- ----------

For................................... 657,209 560,174 1,217,383 69%
Against............................... 3,995 0 3,995 0.2%
Abstain............................... 2,767 9,456 12,223 0.7%

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, 1998:
June 30.................................................. 6 1/2 5 1/2
March 31................................................. 8 1/4 3 3/4
December 31.............................................. 7 1/4 3 1/8
September 30............................................. 4 7/8 2 7/8
FISCAL YEAR ENDED JUNE 30, 1997:
June 30.................................................. 4 2
March 31................................................. 3 1/8 1 7/8
December 31.............................................. 4 3/8 2 1/8
September 30............................................. 4 3/4 3

The Common Stock is listed for trading on the NASDAQ SmallCap Market under
the symbol "ARTL." As of September 8, 1998, there were approximately 4,000
stockholders of record and 2,200 additional beneficial stockholders
(stockholders holding Common Stock in brokerage accounts). Pursuant to the
Acquisition Agreement, Aristotle may not pay any dividends with respect to its
Common Stock. 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 3
of this report.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION

"Management's Discussion and Analysis of Financial Condition and Results of
Operations" can be found on pages 4 to 9 of this report.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements of the Company and its subsidiary,
together with the related Notes to Consolidated Financial Statements and the
report of independent auditors, can be found on pages 10 to 28 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

The Amended Bylaws of Aristotle (the "Amended Bylaws") provide that the
number of directors shall not be less than seven (7) nor more than fifteen
(15), as fixed by the Board of Directors. The Amended and Restated Certificate
of Incorporation and the Amended Bylaws provide that the directors be divided
into three classes, as equal in number as possible, with terms expiring in
successive years. Directors are elected by the stockholders, other than in the
case of newly created directorships, in which case a majority of the Directors
then in office appoint an individual to fill the newly created directorship.
Directors are elected for terms of three years, or, in the case of newly
created directorships, for a full term for the class of directors in which the
new directorship was created and, in any case, until their successors are
elected and qualified. At the Annual Meeting, three directors will be elected
for three-year terms.

As of the date of the last annual meeting, there were eight (8)
directorships. As of June 30, 1998, there were ten (10) directorships.

Pursuant to the Stock Purchase Agreement dated October 22, 1998 between
Aristotle and Geneve Corporation ("Geneve"), Geneve purchased 489,131 shares
of Series E Aristotle Preferred Stock. The terms of the Series E Preferred
Stock provide that having fewer than two representatives of the holders of
Series E Preferred Stock on Aristotle's Board of Directors shall result in an
acceleration event which could require that Aristotle redeem the Series E
Preferred Stock. Consequently, the Board of Directors established two new
directorships in January of 1998. The directors then in office appointed
Edward Netter, the Chairman and Chief Executive Officer of Geneve, for a term
to expire at the Annual Meeting in 1998 and appointed Steven B. Lapin, the
President and Chief Operating Officer of Geneve, for a term to expire at the
Annual Meeting in 1999.

INFORMATION AS TO NOMINEES AND CONTINUING DIRECTORS

It is the intention of the persons named in the proxy to vote the shares
represented by each properly executed proxy for the election as director of
all of the persons named below as nominees, unless contrary instructions are
given on the proxy. The Board of Directors believes that all of the nominees
will stand for election and will serve if elected. However, if any of the
persons nominated by the Board of Directors fails to stand for election or
becomes unable to accept election, the proxies will be voted for the election
of such other person or persons as a majority of the Board of Directors may
recommend.

The following table sets forth the names of the Board of Director's three
nominees for election as directors. Also shown is certain other information,
some of which has been obtained from Aristotle's records and some of which has
been supplied by the nominees and continuing directors, with respect to each
nominee's or director's principal occupation or employment during the past
five years, his or her age at September 1, 1998, the periods during which he
or she has served as a director of Aristotle and the positions currently held
with Aristotle.

DIRECTOR OF THE
NOMINEES AGE COMPANY SINCE POSITIONS HELD WITH THE COMPANY
-------- --- --------------- -------------------------------

John J. Crawford........ 53 1989 Director, President, Chief Executive Officer and
Chairman of the Board
Edward Netter........... 66 1998 Director
Sharon M. Oster......... 50 1992 Director

JOHN J. CRAWFORD has been President and Chief Executive Officer of Aristotle
since April 2, 1990 and Chairman of the Board since April 1993. Since July
1994, Mr. Crawford has served Aristotle in a part-time capacity. Mr. Crawford
is also the Chief Executive Officer of the Regional Water Authority, a utility
located in New Haven, Connecticut. Mr. Crawford is also a member of the Board
of Directors of Webster Financial Corporation.

EDWARD NETTER has been Chairman, Chief Executive Officer and a director of
Geneve Corporation, a private diversified holding company, for more than five
years. Mr. Netter is also Chairman, Chief Executive Officer and a director of
Independence Holding Company, a holding company engaged principally in the
life and health insurance business.

SHARON M. OSTER has been a Professor of Economics at the School of
Organization and Management, Yale University since 1982. Ms. Oster is a
director of two publicly-held companies, Health Care REIT, a real estate
investment company, and TransPro, Inc., a manufacturer of
automotive/industrial-related products.

DIRECTOR OF THE POSITIONS HELD WITH
CONTINUING DIRECTORS AGE COMPANY SINCE THE COMPANY
-------------------- --- --------------- -------------------

Directors with terms expiring in
1999:
Barry R. Banducci.................. 62 1993 Director
Steven B. Lapin.................... 53 1998 Director
Daniel J. Miglio................... 58 1990 Director
Directors with terms expiring in
2000:
Robert L. Fiscus................... 61 1991 Director
Betsy Henley-Cohn.................. 45 1993 Director
John C. Warfel..................... 46 1994 Director

BARRY R. BANDUCCI has been self-employed as an investor/consultant since
February 1994, having retired from The Equion Corporation, a manufacturer of
automotive/industrial-related products, in January 1994. Mr. Banducci served
as the President, the Chief Executive Officer and a director of The Equion
Corporation prior to his retirement in 1994. Mr. Banducci serves as the
Chairman of the Board of Directors of TransPro, Inc., a publicly-held
manufacturer of automotive-related products.

STEVEN B. LAPIN has been President and Chief Operating Officer of Geneve
Corporation ("Geneve"), a private diversified holding company, since October
1993 and a director of Geneve for more than five years. Mr. Lapin is also
President, Chief Operating Officer and a director of Independence Holding
Company, a holding company engaged principally in the life and health
insurance business, as well as a director of American Educational Products,
Inc., a developer and producer of hands-on-educational materials, and
Zimmerman Sign Company, a provider of site identification products and
services.

DANIEL J. MIGLIO is the Chairman and Chief Executive Officer of Southern New
England Telecommunications Corporation ("SNET"), a publicly-held
telecommunications company. He has been employed by SNET since 1962 and has
previously served as its President and the Senior Vice President of Finance
and Planning. Mr. Miglio is the Chairman and Chief Executive Officer of
Southern New England Telephone Company, a subsidiary of SNET.

ROBERT L. FISCUS is Vice Chairman of the Board of Directors and Chief
Financial Officer of The United Illuminating Company, a publicly-held electric
utility company, where he previously served as President and Chief Financial
Officer. Mr. Fiscus has been employed by The United Illuminating Company since
1972.

BETSY HENLEY-COHN is Chairperson of Birmingham Utilities, Inc., a water
utility in Ansonia, Connecticut, and Joseph Cohn & Son, Inc., in New Haven,
Connecticut. Ms. Henley-Cohn has been employed by Birmingham Utilities, Inc.
since 1993 and by Joseph Cohn & Son, Inc. since 1978. She also serves as a
director of The United Illuminating Company and Citizens Bank of Connecticut.

JOHN C. WARFEL has been the Senior Vice President, Administration and
Finance and Chief Financial Officer of Starter Corporation, a leading sports
apparel manufacturer since March 1995. He has been employed by Starter
Corporation since 1988.

BOARD OF DIRECTORS' COMMITTEES AND NOMINATIONS BY STOCKHOLDERS

To select nominees for election as directors, the Board of Directors of
Aristotle has appointed a Nominating Committee which met on September 17, 1998
and made its nominations for the Annual Meeting. The members of this committee
were Messrs. Banducci and Warfel and Ms. Henley-Cohn. Aristotle's Amended
Bylaws provide that to be eligible for nomination as a director of Aristotle,
a person must be a resident of the State of Connecticut or have been
previously a resident for at least three years. The Amended Bylaws further
provide that nominations of persons for election to the Board of Directors may
be made by the Board of Directors, or by any stockholder entitled to vote for
the election of directors at the meeting who provides timely notice in writing
to the Secretary of Aristotle and who complies with the requirement to set
forth certain information specified in Article III, Section 13 of the Amended
Bylaws concerning each person the stockholder proposes to nominate for
election and the nominating stockholder. To be timely, notice must be
delivered to, or mailed to and received at, the principal executive offices of
Aristotle not less than 30 days nor more than 90 days prior to the date of the
meeting, provided that at least 45 days' notice or prior public disclosure of
the date of the meeting is given or made to stockholders. No stockholder
nominations for directors have been submitted in connection with the Annual
Meeting.

The Board of Directors has appointed a standing Audit Committee, which
during the year ended June 30, 1998 conducted two (2) meetings. The members of
the Audit Committee were Messrs. Fiscus and Warfel, Ms. Henley-Cohn and Ms.
Oster. The duties of the Audit Committee include reviewing the financial
statements of the Company and the scope of the independent annual audit and
internal audits. It also reviews the independent accountants' letter to
management concerning the effectiveness of the Company's internal financial
and accounting controls, and reviews and recommends to the Board of Directors
the firm to be engaged as the Company's independent accountants. The Audit
Committee may also examine and consider such other matters relating to the
financial affairs and operations of the Company as it determines to be
appropriate.

The Board of Directors of Aristotle also has appointed a Human Resources and
Stock Option Committee comprised of three directors, which during the year
ended June 30, 1998 conducted one (1) meeting. The Human Resources and Stock
Option Committee reviews the salary structure and policies of Aristotle,
administers the Company's stock option plan, selects the eligible persons to
whom stock options or stock appreciation rights will be granted, and
prescribes the terms and provisions of each such option or right. The members
of the Human Resources and Option Committee during the year ended June 30,
1998 were Ms. Oster and Messrs. Fiscus and Miglio.

During the year ended June 30, 1998, the Board of Directors of Aristotle
held ten (10) meetings. During fiscal 1998, none of the directors attended
less than 75% of the total number of meetings of the Board of Directors and
committees of which they were members, except for Barry Banducci who attended
50% of such meetings and Sharon Oster who attended 60% of such meetings.

COMPENSATION OF DIRECTORS

Effective January 1, 1998, directors of Aristotle, other than officers, each
receive a retainer of $7,500, payable semi-annually in 50% Common Stock and
50% cash and $500 per meeting attended. The Common Stock is payable in six
month intervals and is valued based on its average market value during the ten
days preceding the payment date. In addition to the retainer, the Chairperson
and the members of board committees receive $550 or $500, respectively, for
each committee meeting attended. During the year ended June 30, 1998,
Aristotle did not pay the entire amount of the retainer. Accordingly,
Aristotle has accrued an aggregate of $52,000 for the payment of such
retainers to directors.

Non-employee directors are eligible to receive grants of stock options under
the Company's 1997 Employee and Director Stock Plan (the "1997 Stock Plan").
The 1997 Stock Plan provides for the automatic grant of non-qualified options
to non-employee directors of the Company. Each non-employee director, upon
first being elected to the Board of Directors, will receive an option to
purchase 2,500 shares, which will vest after completion of one year of service
on the Board of Directors, and each non-employee director serving on the

Board of Directors on October 30, 1997 received an immediately exerciseable
option to purchase 2,500 shares. Additionally, the 1997 Stock Plan provides
for a grant to each non-employee director on the date of his or her reelection
(provided that the director has served as a director since his or her initial
election) of an option to purchase 1,000 shares, which vests upon completion
of one year of service on the Board of Directors.

EXECUTIVE OFFICERS

The following table sets forth, as of September 1, 1998, the name of the
Company's current executive officer who is not a director, his age, and all
positions held with the Company. The executive officer serves at the
discretion of the Board of Directors, subject to an Employment Agreement that
the Company has entered into with the executive officer. See "Executive
Compensation--Employment Agreements."

NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------

Paul M. McDonald................. 45 Chief Financial Officer and Secretary

The principal occupations of the executive officer for the last five years
are set forth below.

PAUL M. MCDONALD has been the Chief Financial Officer of Aristotle since
November 1994. Mr. McDonald has been the Secretary of Aristotle since April
1994. In addition, Mr. McDonald served as the Chief Financial Officer and a
Director of Strouse since 1989 and as the Secretary of Strouse since September
1995. Prior to joining Strouse, Mr. McDonald was the Controller for Playtex's
European operations.

ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth certain information for the periods indicated
regarding cash and other compensation paid to, earned by, or awarded to the
Company's Chief Executive Officer and certain other executive officers of the
Company (collectively, the "Named Officers") whose salary and bonus exceeded
$100,000 during the fiscal year ended June 30, 1998.

SUMMARY COMPENSATION TABLE

ANNUAL
COMPENSATION LONG TERM COMPENSATION
------------------- ------------------------------
NAME AND PRINCIPAL OPTIONS ALL OTHER
POSITION YEAR SALARY $ BONUS $ AWARDED(1) # COMPENSATION $(2)
------------------ ---- -------- ------- ------------ -----------------

John J. Crawford........ 1998 $ 80,000(3) $ 0 20,000 $ 0
President, Chief
Executive Officer and 1997 60,000(3) 0 0 0
Chairman of the Board--
the Company 1996 60,000(3) 0 0 0
Alfred A. Kniberg....... 1998 $172,816 $ 0 10,000 $2,674
President and Chief
Operating Officer-- 1997 162,816 0 0 2,225
Strouse 1996 162,816 0 0 2,077
Joyce Baran............. 1998 $168,000 $ 0 10,000 $2,580
Vice President
Merchandising and
Design-- 1997 160,000 0 0 2,001
Strouse 1996 131,900 0 0 1,660
Paul McDonald........... 1998 $148,529 $ 0 10,000 $2,019
Chief Financial Officer
and Secretary--the 1997 108,947 20,000(4) 0 1,408
Company; Chief
Financial Officer and 1996 108,947 0 0 1,520
Secretary--Strouse
Barry Topf.............. 1998 $123,750 $ 9,330(5) 3,000 $1,053
Vice President of
Manufacturing--Strouse 1997 92,380 0 0 474

- --------
(1) Options awarded were options to purchase Common Stock of Aristotle.

(2) Other compensation for the Named Officers, excluding Mr. Crawford, is
comprised of the following: fiscal 1998, $774, $278, $680 and $653 paid
for term life insurance premiums and an estimated $1,900, $1,74,

$1,900 and $400 to be paid as a matching contribution pursuant to the
Strouse Cash or Deferral Profit Sharing Plan (the "Plan") for Messrs.
Kniberg and McDonald, Ms. Baran and Messr. Topf, respectively; in fiscal
1997, $650, $120, $471 and $474 paid for term life insurance premiums for
Messrs. Kniberg and McDonald, Ms. Baran and Messr. Topf, respectively, and
an estimated $1,575, $1,288, and $1,530 to be paid as a matching
contribution pursuant to the Plan for Messrs. Kniberg and McDonald and Ms.
Baran.

(3) In fiscal 1998, salary includes $32,000 in shares of Common Stock; in
fiscal 1997, salary includes $20,000 in shares of Common Stock; and in
fiscal 1996, salary includes $20,000 in shares of Common Stock.

(4) In fiscal 1997, the Company paid Mr. McDonald a $20,000 bonus in
recognition of certain additional services rendered to the Company by Mr.
McDonald. The payment of this bonus was not pursuant to the terms of Mr.
McDonald's Employment Agreement.

(5) In fiscal 1998, the Company paid Mr. Topf a $9,330 performance bonus for
meeting management objectives.

OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information regarding each stock option
granted to a Named Officer during the fiscal year ended June 30, 1998.

NUMBER OF % OF TOTAL OPTIONS
SECURITIES AWARDED TO
UNDERLYING OPTIONS EMPLOYEES IN FISCAL EXERCISE PRICES
NAME GRANTED(1) YEAR 1998(2) ($/SHARE) EXPIRATION DATE
---- ------------------ ------------------- --------------- -----------------

John J. Crawford........ 20,000 29% $4.625 November 14, 2007
Alfred A. Kniberg....... 10,000 15% $4.625 November 14, 2007
Joyce Baran............. 10,000 15% $4.625 November 14, 2007
Paul McDonald........... 10,000 15% $4.625 November 14, 2007
Barry Topf.............. 3,000 4% $4.625 November 14, 2007

- --------
(1) All stock options were granted under the 1997 Stock Option Plan of
Aristotle.

(2) Options for 83,000 shares were granted during the fiscal year ended June
30, 1998, of which 68,000 were granted to employees and 15,000 were
granted to non-employee Directors.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES

The following table sets forth certain information regarding unexercised
stock options held as of June 30, 1998, by the Named Officers. No stock
options were exercised by the Named Officers during the fiscal year ended June
30, 1998.

NUMBER OF SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT JUNE 30, 1998(1) (#) AT JUNE 30, 1998(2) ($)
-------------------------------------- ----------------------------
NAME EXERCISEABLE UNEXERCISABLE EXERCISEABLE UNEXERCISABLE
---- --------------- ---------------- ------------ -------------

John J. Crawford........ 32,500 20,000 $ 9,500(3) $25,000(4)
Alfred A. Kniberg....... 19,514(5) 0 17,689(6) 0
Joyce Baran............. 12,503(5) 0 14,421(7) 0
Paul McDonald........... 3,781 10,000 2,373(8) 12,500(9)
Barry Topf.............. 3,000 0 3,750(10) 0

- --------
(1) All options awarded to Messrs. Crawford and Topf were options to purchase
Aristotle Common Stock. Options awarded to Messrs. Kniberg (10,000
options) and McDonald (10,000 options) and Ms. Baran (10,000 options) on
November 14, 1997 were options to purchase Aristotle Common Stock. All
other options awarded to Messrs. Kniberg and McDonald and Ms. Baran were
options (the "ASI Options") to purchase common stock of ASI (the "ASI
Common Stock"). Contemporaneously with the award of any ASI Option, an
identical number of warrants were issued by Aristotle that enable the
holder, after the exercise of the ASI Options, to convert each share of
ASI Common Stock into one share of Common Stock after January 1, 1999 for
no additional consideration. Pursuant to the ASI Merger in January of
1998, the ASI Options were exchanged for options to purchase Aristotle
Common Stock.

(2) The value of unexercised, "in-the-money" options at June 30, 1998 is the
difference between (a) the closing price of Aristotle Common Stock on
June 30, 1998 as reported by Nasdaq ($5.875)--the assumed fair market
value--and (b) the per share option exercise price, multiplied by the
number of shares of Aristotle Common Stock underlying such options.

(3) Mr. Crawford holds 12,500 exerciseable options to purchase 12,500 shares
of Aristotle Common Stock that have an exercise price of $10.00 per
option which is greater than the fair market value of the Common Stock as
of June 30, 1998 ($5.875). Such options are not "in-the-money" and their
value, therefore, is zero. The exercise price of Mr. Crawford's remaining
20,000 exerciseable options is $5.400.

(4) The exercise price of the 20,000 unexercisable options is $4.625.

(5) The full vesting of 10,000 options with an exercise price of $4.625 which
were granted on November 14, 1997 was accelerated to June 30, 1998
pursuant to a resolution of the Board of Directors on June 26, 1998.

(6) The exercise price of 10,000 options is $4.625, the exercise price of
2,545 options is $5.000 and the exercise price of 6,969 options is
$5.450.

(7) The exercise price of 10,000 options is $4.625, the exercise price of
1,905 options is $5.000 and the exercise price of 598 options is $5.450.

(8)The exercise price of 1,703 options is $5.000 and the exercise price of
2,078 options is $5.450.

(9)The exercise price of the 10,000 unexercisable options is $4.625.

(10)The exercise price of the 3,000 options is $4.625.

EMPLOYMENT AGREEMENTS

In connection with the Strouse Acquisition, the Company entered into
Employment Agreements (the "Employment Agreements") in 1994 with Messrs.
Kniberg and McDonald and Ms. Baran. Pursuant to the Strouse Sale, the
Employment Agreements with Messr. Kniberg and Ms. Baran were terminated
effective June 30, 1998. The Employment Agreement with Messr. McDonald was
altered in August of 1997 in order to change his salary to more appropriately
reflect his duties.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

STOCK OWNED BY MANAGEMENT AND PRINCIPAL STOCKHOLDERS

The following table sets forth, as of September 1, 1998, certain information
regarding beneficial ownership of the Common Stock and the Preferred Stock by:
(i) each person who is known to Aristotle to own beneficially more than 5% of
the outstanding shares of either the Common Stock or the Preferred Stock; (ii)
each director of Aristotle; (iii) each executive officer of Aristotle who is a
Named Officer; and (iv) all executive officers and directors of Aristotle as a
group. Unless otherwise indicated, all persons listed below have sole voting
and investment power with respect to their shares and the address for each
such person is The Aristotle Corporation, 27 Elm Street, New Haven,
Connecticut. In preparing the following table, Aristotle has relied on
information furnished by such persons.

NUMBER OF SHARES
OF CAPITAL STOCK PERCENT OF CLASS AND
BENEFICIALLY OWNED VOTING POWER OF CLASS
5% STOCKHOLDERS, ---------------------- ------------------------- TOTAL
DIRECTORS AND COMMON PREFERRED COMMON PREFERRED VOTING
EXECUTIVE OFFICERS STOCK(1) STOCK STOCK(2) STOCK POWER(3)
------------------ -------- --------- ---------- ----------- --------

5% STOCKHOLDERS:
Geneve
Corporation/Chaparral
International Re.(4)... 79,000 489,131 6.58% 85.87% 31.13%
Howell Resource Part-
ners(5)................ 24,446 50,000 2.03% 8.78% 5.91%
David S. Howell(7)...... 25,521(6) 50,000 2.12% 8.78% 5.96%
Ann-Marie Howell(7)..... 25,521(8) 50,000 2.12% 8.78% 5.96%
Alfred A. Kniberg....... 28,832(9) 13,617 2.40% 2.39% 2.80%
Paul McDonald........... 7,397(10) 5,702 * 1.00% *
DIRECTORS:
Barry R. Banducci....... 10,344(11) 0 * * *
John J. Crawford........ 71,327(12) 0 5.94% * 3.91%
Robert L. Fiscus........ 11,644(13) 0 * * *
Betsy Henley-Cohn....... 26,684(14) 0 2.22% * 1.46%
Steven B. Lapin......... 0(15) 0 * * *
Daniel J. Miglio........ 11,444(16) 0 * * *
Edward Netter........... 0(17) 0 * * *
Sharon M. Oster......... 38,164(18) 0 3.18% * 2.09%
John C. Warfel.......... 8,737(19) 0 * * *
NAMED OFFICERS
(EXCLUDING MESSRS.
CRAWFORD, KNIBERG AND
MCDONALD)
Joyce Baran............. 13,302(20) 1,724 * * *
Barry Topf.............. 3,000(21) * * * *
ALL EXECUTIVE OFFICERS
AND DIRECTORS AS A
GROUP (13 PERSONS)..... 230,875 19,319 19.02% 3.39% 28.27%

- --------
*Less than 1%

(1) Includes as part of the total number of issued and outstanding shares of
Common Stock those stock options which are currently exerciseable by the
individual whose share ownership percentage is being calculated, in
accordance with the applicable securities regulations.

(2) Percentages are calculated by including as part of the total number of
issued and outstanding shares of Common Stock those stock options which
are currently exerciseable by the individual whose share ownership
percentage is being calculated, in accordance with the applicable
securities regulations.

(3) Percentages are calculated based on the total number of shares of Common
Stock and Preferred Stock (on a fully converted basis) outstanding.
Includes as part of the total number of issued and outstanding shares of
Common Stock those stock options which are currently exerciseable by the
individual whose share ownership percentage is being calculated, in
accordance with the applicable securities regulations.

(4) Chaparral International Re. is a subsidiary of Geneve Corporation. The
address of Geneve Corporation is 96 Cummings Point Road, Stamford,
Connecticut. Director Steven B. Lapin is the President and
Chief Operating Officer of Geneve Corporation and Director Edward Netter
is the Chairman and Chief Executive Officer of Geneve Corporation.

(5) Howell Resource Partners ("HRP") is a general partnership whose general
partners are David S. Howell and Ann-Marie Howell. Includes 12,639 shares
held by HRP directly; stock options, which are currently exerciseable, to
purchase 11,807 shares; and 50,000 shares of preferred stock. The address
of HRP and Mr. and Mrs. Howell is 151 River Road, Essex, Connecticut.

(6) Includes 1,000 shares held by Mr. Howell jointly with his wife, Ann-Marie
Howell; and 75 shares held by Mr. Howell's step-son, Eric M. Hines. Mr.
Howell disclaims beneficial ownership of the 75 shares held by his step-
son.

(7) Mr. Howell and Mrs. Howell are the general partners of HRP (discussed in
footnote 3 above), and have the power to vote the 74,446 shares. Mr.
Howell and Mrs. Howell therefore share voting and dispositive power with
respect to the 74,446 shares and are indirect beneficial owners of such
shares.

(8) Includes 1,000 shares held by Mrs. Howell jointly with her husband, David
S. Howell; and 75 shares held by Mrs. Howell's son, Eric M. Hines. Mrs.
Howell disclaims beneficial ownership of the 75 shares held by her son.

(9) Includes 9,318 shares held by Mr. Kniberg directly; stock options, which
are currently exerciseable, to purchase 19,514 shares.

(10) Includes 2,806 shares held by Mr. McDonald directly; stock options, which
are currently exerciseable, to purchase 3,781 shares; 452 shares held by
Janney Montgomery Scott, Inc. under a custodial agreement for Mr.
McDonald's benefit; and stock options, which are currently exerciseable,
to purchase 358 shares. Mr. McDonald disclaims beneficial ownership of
the 810 shares held by Janney Montgomery Scott, Inc.

(11) Includes 6,886 shares held by Mr. Banducci directly; and stock options,
which are currently exerciseable, to purchase 3,458 shares.

(12) Includes 34,197 shares held by Mr. Crawford directly; 4,580 shares held
in his wife's name; 50 shares held in the name of his daughter; and stock
options, which are currently exerciseable, to purchase 32,500 shares.

(13) Includes 7,307 shares held by Mr. Fiscus directly and 400 shares held
jointly with his wife; and stock options, which are currently
exerciseable, to purchase 3,937 shares.

(14) Includes 6,886 shares held by Ms. Henley-Cohn directly; 14,340 shares
held in trusts in which Mrs. Henley-Cohn has the power to vote the
shares; 2,000 shares held equally by Ms. Henley-Cohn's son and daughter;
and stock options, which are currently exerciseable, to purchase 3,458
shares.

(15) Does not include any shares owned by Chaparral International Re., a
subsidiary of Geneve Corporation. Mr. Lapin is the President and Chief
Operating Officer of Geneve Corporation.

(16) Includes 7,507 shares held by Mr. Miglio directly; and stock options,
which are currently exerciseable, to purchase 3,937 shares.

(17) Does not include any shares owned by Chaparral International Re., a
subsidiary of Geneve Corporation. Mr. Netter is the Chairman and Chief
Executive Officer of Geneve Corporation.

(18) Includes 8,327 shares held by Ms. Oster directly and 25,900 held by Ms.
Oster's husband; and stock options, which are currently exerciseable, to
purchase 3,937 shares. Ms. Oster declines control over shares owned by
her husband.

(19) Includes 5,758 shares held by Mr. Warfel directly; and stock options,
which are currently exerciseable, to purchase 2,979 shares.

(20) Includes 799 shares held by Ms. Baran directly; stock options, which are
currently exerciseable, to purchase 12,503 shares.

(21) Includes stock options, which are currently exerciseable to purchase
3,000 shares.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

In September 1997, Aristotle and the holders of the ASI Preferred Stock
agreed to delay the exercise of the remaining Put Right and to modify certain
other agreements entered into at the time of the Strouse Acquisition (the
"1997 Modifications"). Under the 1997 Modifications, Alfred Kniberg, Paul
McDonald and Joyce Baran surrendered to ASI 5,706 shares, 3,531 shares and 763
shares, respectively, of ASI Preferred Stock in exchange for the cancellation
of $57,060, $35,310 and $7,630 owed by Messrs. Kniberg and McDonald and Ms.
Baran, respectively, under loans extended to these Former Strouse Stockholders
by the Company in connection with the Strouse Acquisition (the "Acquisition
Loans"). The Put Right for the remaining 160,499 shares of ASI Preferred Stock
was also amended whereby 80,000 shares were redeemed on January 1, 1998 for
$10.00 per share. The Put Right for the remaining 80,499 shares of ASI
Preferred Stock, including 13,617 shares owned by Mr. Kniberg, 5,702 shares
owned by Mr. McDonald and 1,724 shares owned by Ms. Baran, had been postponed
such that the Put Right with respect to 40,249 shares, including 6,809 shares
owned by Mr. Kniberg, 2,851 shares owned by Mr. McDonald and 862 shares owned
by Ms. Baran, will be redeemable on January 1, 1999 and the Put Right with
respect to 40,250 shares, including 6,808 shares owned by Mr. Kniberg, 2,851
shares owned by Mr. McDonald and 862 shares owned by Ms. Baran, will be
redeemable on January 1, 2000.

Under the 1997 Modifications, the maturity dates on the Acquisition Loans
were extended such that $104,000 of the outstanding balance ($46,060 remaining
balance for Mr. Kniberg, $28,510 remaining balance for Mr. McDonald and $6,169
remaining balance for Ms. Baran) will be due and payable on January 1, 1999
and the remaining $104,000 ($46,059 remaining balance for Mr. Kniberg, $28,510
remaining balance for Mr. McDonald and $6,169 remaining balance for Ms. Baran)
will be due and payable on January 1, 2000. The Former Strouse Stockholders
also agreed to release $400,000 from the Strouse Escrow Account on January 1,
1998 which was used to partially fund the redemption of 80,000 shares of ASI
Preferred Stock on January 1, 1998 and to the release of $200,000 and $100,000
on January 1, 1999 and January 1, 2000, respectively, to help satisfy the
Company's Put Right obligations.

On January 2, 1998, ASI was merged into Aristotle (the "ASI Merger"). As a
result of the ASI Merger, all of the remaining 195,497 shares of Series A, B,
C and D Aristotle Preferred Stock owned by the Former Strouse Stockholders
were repurchased by Aristotle for $.001 per share and all of the remaining
80,499 outstanding shares of ASI Preferred Stock were converted into Series F,
G and H Aristotle Preferred Stock which continue to accrue an 8.9% dividend.
As of June 30, 1998, a total of 80,499 shares of Series F, G and H Aristotle
Preferred Stock were currently outstanding. Pursuant to the Series F, G and H
Preferred Stock redemption features, 40,249 shares of Series F, G and H were
to be redeemable on January 1, 1999, at $10.00 per share, and 40,250 shares of
Series F, G and H were to be redeemable on January 1, 2000, at $10.00 per
share. However, as a result of the Strouse Sale, the Former Strouse
Stockholders may require Aristotle to immediately repurchase the Series F, G
and H Aristotle Preferred Stock. If the holders of the Series F, G and H
Preferred Stock elect not to redeem this preferred stock, the holders may
elect to convert each such share into 1.667 shares of Aristotle Common Stock,
subject o certain adjustments.

Pursuant to the Stock Purchase Agreement dated October 22, 1998 between
Aristotle and Geneve Corporation ("Geneve"), Geneve purchased 489,131 shares
of Aristotle Series E Preferred Stock. The terms of the Series E Preferred
Stock provide that having fewer than two representatives of the holders of
Series E Preferred Stock on Aristotle's Board of Directors shall result in an
acceleration event which could require that Aristotle redeem the Series E
Preferred Stock. Consequently, the Board of Directors established two new
directorships in January of 1998. The directors then in office appointed
Edward Netter, the Chairman and Chief Executive Officer of Geneve, for a term
to expire at the Annual Meeting in 1998 and appointed Steven B. Lapin, the
President and Chief Operating Officer of Geneve, for a term to expire at the
Annual Meeting in 1999.

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............................................. 10
Consolidated Statements of Operations................................... 11
Consolidated Statements of Changes in Stockholders' Equity.............. 12
Consolidated Statements of Cash Flows................................... 13
Notes to Consolidated Financial Statements.............................. 14
Report of Independent Public Accountants................................ 28

(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 NO. DESCRIPTION
----------- -----------

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's Current Report
on Form 8-K dated April 14, 1994, as amended (the "1994 Current
Report").
3.1 Restated Certificate of Incorporation of The Aristotle Corporation.
Incorporated herein by reference to Exhibit 3.1 of The Aristotle
Corporation's Quarterly Report on Form 10-Q for the fiscal quarter
ended March 31, 1997.
3.2 Amended and Restated Bylaws. Incorporated herein by reference to
Exhibit 3.2 of The Aristotle Corporation's Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 1997.
4.1 Restated Certificate of Incorporation of The Aristotle Corporation.
See Exhibit 3.1 hereof.
4.2 Certificate of Designation, Preferences and Rights of Series E
Convertible Preferred Stock of the Aristotle Corporation. Incorporated
herein by reference to Exhibit 4.1 of The Aristotle Corporation's
Quarterly Report on Form 10-Q for the fiscal quarter ended September
30, 1997.
4.3 Certificate of Designation, Preferences and Right of Series F, G, and
H Convertible Preferred Stock of The Aristotle Corporation.
Incorporated herein by reference to Exhibit 4.2 of the Aristotle
Corporation Quarterly Report on Form 10-Q for the fiscal quarter ended
September 30, 1997.
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 1994 Current Report.
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 1994 Current Report.
10.3 Term Promissory Notes dated April 11, 1994 payable to The Aristotle
Corporation. Incorporated herein by reference to Exhibit 2.12 of the
1994 Current Report.
10.4 Employment Agreement dated as of April 11, 1994 by and among The
Aristotle Corporation, Aristotle Sub, Inc., The Strouse, Adler Company
and Paul McDonald. Incorporated herein by reference to Exhibit 2.6 of
the 1994 Current Report.
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 1994 Current Report.

EXHIBIT NO. DESCRIPTION
----------- -----------

10.6 Stock Option Plan of The Aristotle Corporation, as amended.
Incorporated herein by reference to Exhibit 10.2 of the Aristotle
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (the "1992 Form 10-K").
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.
10.8 Form of Incentive Stock Option Agreement (for employees).
Incorporated herein by reference to Exhibit 10.4 of the 1992 Form 10-
K.
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.
10.10 Letter Agreement dated October 27, 1995 Re: Amended Put Rights.
Incorporated herein by reference to Exhibit 10.1 of The Aristotle
Corporation's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1995.
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 Corporations Annual Report on
Form 10-K for the fiscal year ended June 30, 1996.
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 Corporations Annual
Report on Form 10-K for the fiscal year ended June 30, 1996.
21.1 Subsidiaries of The Aristotle Corporation is attached hereto as
Exhibit 21.1.
27 Financial Data Schedule is attached hereto as Exhibit 27.

(b) Reports on Form 8-K:

There were no reports on Form 8-K filed in the fourth quarter of
Aristotle's fiscal year ended June 30, 1998.

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

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
By: _________________________________
John J. Crawford
Its President, Chief Executive
Officer and
Chairman of the Board
Date: September 24, 1998

/s/ Paul McDonald
By: _________________________________
Paul McDonald
Its Chief Financial Officer and
Secretary
(principal financial and chief
accounting officer)
Date: September 24, 1998

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.

SIGNATURE TITLE DATE
--------- ----- ----

/s/ John J. Crawford President, Chief Executive September 24, 1998
____________________________________ Officer, Chairman of the
John J. Crawford Board and Director
(principal executive
officer)

/s/ Paul McDonald Chief Financial Officer and September 24, 1998
____________________________________ Secretary (principal
Paul McDonald financial and accounting
officer)

/s/ Barry R. Banducci Director September 24, 1998
____________________________________
Barry R. Banducci

/s/ Robert L. Fiscus Director September 24, 1998
____________________________________
Robert L. Fiscus

/s/ Betsy Henley-Cohn Director September 24, 1998
____________________________________
Betsy Henley-Cohn

/s/ Alfred A. Kniberg Director September 24, 1998
____________________________________
Alfred A. Kniberg

SIGNATURE TITLE DATE
--------- ----- ----

/s/ Stephen B. Lapin Director September 24, 1998
____________________________________
Stephen B. Lapin

/s/ Daniel J. Miglio Director September 24, 1998
____________________________________
Daniel J. Miglio

/s/ Edward Netter Director September 24, 1998
____________________________________
Edward Netter

/s/ Sharon M. Oster Director September 24, 1998
____________________________________
Sharon M. Oster

/s/ John C. Warfel Director September 24, 1998
____________________________________
John C. Warfel

FINANCIAL STATEMENT SCHEDULES INDEX

Schedule II--Valuation and Qualifying Accounts

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES

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

We have audited in accordance with generally accepted auditing standards,
the financial statements included in The Aristotle Corporation's Form 10-K,
and have issued our report thereon dated September 18, 1998. 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.

Arthur Andersen LLP

Hartford, Connecticut
September 18, 1998

SCHEDULE II

THE ARISTOTLE CORPORATION AND SUBSIDIARY

VALUATION ACCOUNTS
(DOLLARS IN THOUSANDS)

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

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) --
FISCAL YEAR ENDED JUNE 30, 1997
Accounts receivable reserve..... 125 26 (29) 122
Co-op advertising reserve....... 117 150 (217) 50
Accounts receivable--long-term
reserve........................ 11 0 (2) 9
FISCAL YEAR ENDED JUNE 30, 1996
Accounts receivable reserve..... 100 59 (34) 125
Co-op advertising reserve....... 71 270 (224) 117
Accounts receivable--long-term
reserve........................ 36 25 (50) 11

EXHIBIT INDEX

EXHIBIT
NUMBER DOCUMENT DESCRIPTION
------- --------------------

21.1 Subsidiaries of The Aristotle Corporation
27 Financial Data Schedule