SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

For the quarterly period ended July 4, 1999
                              ------------------------------------

                                       OR

[ ] 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     0-19703
                      ------------------

                               Farrel Corporation
             ------------------------------------------------------
             (Exact name of registrant as specified in its charter)

            Delaware                                        22-2689245
   -----------------------------                        -------------------

   (State or other jurisdiction of                      (I.R.S. Employer
   inorporation or organization)                        Identification No.)

                   25 Main Street, Ansonia, Connecticut, 06401
                   -------------------------------------------
               (Address of principal executive offices) (Zip Code)

                                 (203) 736-5500
                              ---------------------
              (Registrant's telephone number, including area code)


     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
   -----   -----
                      APPLICABLE ONLY TO CORPORATE ISSUERS:
                      -------------------------------------

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

              CLASS                           OUTSTANDING AT      August 6, 1999

Common Stock (Voting), $.01 par value                             5,366,586
                                                             -------------------


<PAGE>


                               FARREL CORPORATION
                               ------------------


                                      Index
                                      -----

                                                                        Page
Part I. Financial Information
        ---------------------

             Consolidated Balance Sheets -
             July 4, 1999 and December 31, 1998                            3

             Consolidated Statements of Operations -
             Three and Six Months Ended July 4, 1999
               and June 28, 1998                                           4

             Consolidated Statements of Cash Flows -
             Six Months ended July 4, 1999
               and June 28, 1998                                           5

             Notes to Consolidated Financial Statements                    6

             Management's Discussion and Analysis of Financial
             Condition and Results of Operations                           8

             Exhibit 11 - Computation of Earnings Per Share               14

Part II. Other Information                                                15
         -----------------




                                  Page 2 of 16
<PAGE>



                             Part I - Financial Information
                                   FARREL CORPORATION
                                   ------------------
                               CONSOLIDATED BALANCE SHEETS
                               ---------------------------
                            (In thousands, except share data)

<TABLE>
<CAPTION>
                                                                     July 4,   December 31,
                                                                     -------   ------------
                                                                      1999         1998
                                                                      ----         ----
                                                                  (Unaudited)
<S>                                                                <C>           <C>
ASSETS
        Current Assets:
          Cash and cash equivalents ..........................     $  3,305      $  5,786
          Accounts receivable, net of allowance for
             doubtful accounts of  $255 and $297, respectively       10,822        20,708
          Inventory ..........................................       17,715        14,542
          Asset purchase agreement receivable ................            0         5,284
          Other current assets ...............................        1,759         1,953
                                                                   --------      --------
                        Total current assets .................       33,601        48,273
          Property, plant and equipment - net
             of accumulated depreciation of $12,177 and
             $11,648, respectively ...........................       11,067        11,614
          Goodwill ...........................................        2,311         1,555
          Other Assets .......................................          703         1,281
                                                                   --------      --------
   Total Assets ..............................................     $ 47,682      $ 62,723
                                                                   ========      ========
LIABILITIES & STOCKHOLDERS' EQUITY

          Current Liabilities:
             Accounts payable ................................     $  6,657      $ 14,039
             Accrued expenses & taxes payable ................        2,035         4,284
             Advances from customers .........................        5,236         7,017
             Accrued installation & warranty costs ...........        1,628         1,683
             Short - term debt ...............................        1,261         1,328
                                                                   --------      --------
                         Total current liabilities ...........       16,817        28,351
          Long - term debt ...................................        3,153         3,983
          Postretirement benefit obligation ..................        1,156         1,171
          Long-term pension obligation .......................        2,429         2,429
          Deferred income taxes ..............................          496           488
          Commitments and contingencies ......................         --            --
                                                                   --------      --------
                         Total Liabilities ...................       24,051        36,422
                                                                   --------      --------
          Stockholders' Equity:
             Preferred stock, par value $100, 1,000,000
                   shares authorized, no shares issued .......         --            --
             Common stock, par value $.01,
                  10,000,000 shares authorized,
                   6,142,106 shares issued ...................           61            61
             Paid in capital .................................       19,295        19,295
             Treasury stock, 755,520 and 202,620 shares at
             July 4, 1999 and December 31, 1998, respectively        (2,262)         (990)
             Retained earnings ...............................        8,791         9,576
             Accumulated other comprehensive expense .........       (2,254)       (1,641)
                                                                   --------      --------
                         Total Stockholders' Equity ..........       23,631        26,301
                                                                   --------      --------
Total Liabilities and Stockholders' Equity ...................     $ 47,682      $ 62,723
                                                                   ========      ========
</TABLE>

               See Accompanying Notes to Consolidated Financial Statements



                                  Page 3 of 16
<PAGE>



                                                 FARREL CORPORATION
                                                 ------------------
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                                       -------------------------------------
                                 (In thousands, except per share and share data)
                                 -----------------------------------------------

<TABLE>
<CAPTION>
                                                  Three Months Ended                  Six Months Ended
                                                  ------------------                  ----------------
                                                July 4,         June 28,          July 4,         June 28,
                                                 1999             1998             1999             1998
                                                 ----             ----             ----             ----
                                                      (unaudited)                       (unaudited)

<S>                                          <C>              <C>              <C>              <C>
Net Sales ..............................     $    17,282      $    24,954      $    30,576      $    40,930

Cost of sales ..........................          12,744           18,854           23,634           30,594
                                             -----------      -----------      -----------      -----------

Gross margin ...........................           4,538            6,100            6,942           10,336

Operating expenses:

    Selling ............................           1,673            1,946            3,383            3,678

    General & administrative ...........           2,197            2,306            4,419            4,075

    Research & development .............             385              366              768              684
                                             -----------      -----------      -----------      -----------

Total operating expenses ...............           4,255            4,618            8,570            8,437
                                             -----------      -----------      -----------      -----------


Operating income (loss) ................             283            1,482           (1,628)           1,899

Interest income ........................              72                6              307               58

Interest expense .......................             (96)            (191)            (272)            (401)

Gain from sale of real estate ..........               0                0            1,879                0

Other income/(expense), net ............              97              (70)              (6)            (146)
                                             -----------      -----------      -----------      -----------

Income before income taxes .............             356            1,227              280            1,410

Provision for income taxes .............              74              490              115              563
                                             -----------      -----------      -----------      -----------

Net income .............................     $       282      $       737      $       165      $       847
                                             ===========      ===========      ===========      ===========

Per share data:
Basic and Diluted  income per
  common share .........................     $      0.05      $      0.12      $      0.03      $      0.14
                                             ===========      ===========      ===========      ===========
Average shares outstanding:
  Basic ................................       5,386,586        5,942,582        5,603,086        5,942,582
                                             ===========      ===========      ===========      ===========
  Diluted ..............................       5,392,262        5,947,388        5,609,286        5,966,836
                                             ===========      ===========      ===========      ===========
   Dividends per share .................            --        $      0.04      $      0.16      $      0.04
                                             ===========      ===========      ===========      ===========
</TABLE>

                  See Accompanying Notes to Consolidated Financial Statements


                                  Page 4 of 16
<PAGE>
                                          FARREL CORPORATION
                                          ------------------
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 -------------------------------------
                                            (In thousands)
<TABLE>
<CAPTION>
                                                                               Six Months Ended
                                                                               ----------------
                                                                           July 4,        June 28,
                                                                           -------        --------
                                                                            1999           1998
                                                                            ----           ----
                                                                         (Unaudited)    (Unaudited)
<S>                                                                        <C>          <C>
Cash flows from operating activities:
  Net Income .........................................................     $   165      $   847
  Adjustments to reconcile net income to
  net cash provided by/(used in) operating activities:
    Gain on disposal of fixed assets .................................      (1,944)        (137)
    Depreciation and amortization ....................................       1,135        1,175
    Decrease in accounts receivable ..................................       9,547        2,110
    Increase in inventory ............................................      (3,730)      (4,367)
    (Decrease)increase in accounts payable ...........................      (7,060)       1,669
    (Decrease)increase in customer advances ..........................      (1,674)       2,133
    Decrease in accrued expenses & taxes .............................      (1,917)        (189)
    (Decrease)increase in accrued installation and warranty costs ....          (4)         215
    Increase in deferred income taxes ................................         213          100
    Other ............................................................        (571)        (953)
                                                                           -------      -------
    Total adjustments ................................................      (6,005)       1,756
                                                                           -------      -------
    Net cash (used) provided by operating activities .................      (5,840)       2,603
                                                                           -------      -------
Cash flows from investing activities:
    Refund of Shaw asset purchase price ..............................       4,401        2,701
    Proceeds from disposal of fixed assets ...........................       2,610          160
    Purchases of property, plant and equipment .......................        (580)      (1,073)
                                                                           -------      -------
    Net cash provided by investing activities ........................       6,431        1,788

Cash flows from financing activities:
    Repayment of long-term borrowings ................................        (644)        (331)
    Purchase of treasury stock .......................................      (1,272)        --
    Used for dividends paid ..........................................        (951)      (1,188)
                                                                           -------      -------
    Net cash used by financing activities ............................      (2,867)      (1,519)
Effect of foreign currency exchange rate changes on cash .............        (205)          19
                                                                           -------      -------
Net (decrease) increase in cash and cash equivalents .................      (2,481)       2,891
    Cash and cash equivalents - Beginning of period ..................       5,786        1,447
                                                                           -------      -------
    Cash and cash equivalents - End of period ........................     $ 3,305      $ 4,338
                                                                           =======      =======
Income taxes paid ....................................................     $ 1,082      $   139
                                                                           =======      =======
Interest paid ........................................................     $   192      $   311
                                                                           =======      =======
</TABLE>

                  See Accompanying Notes to Consolidated Financial Statements



                                  Page 5 of 16
<PAGE>


                               FARREL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION

     In the  opinion of  management,  the  accompanying  unaudited  consolidated
financial  statements  contain  all  adjustments,   consisting  only  of  normal
recurring adjustments,  necessary to present fairly in accordance with generally
accepted accounting  principles,  the consolidated  financial position of Farrel
Corporation  ("Farrel" or "the  Company") as of July 4, 1999,  the  consolidated
results of its operations for the three and six-month periods ended July 4, 1999
and June 28, 1998,  and its  consolidated  cash flows for the six-month  periods
ended  July 4,  1999  and June  28,  1998.  These  results  are not  necessarily
indicative  of results to be expected for the full fiscal year.  The  statements
should be read in conjunction  with the financial  statements and notes thereto,
included  in the  Company's  Annual  Report  and Form  10-K  for the year  ended
December 31, 1998.

NOTE 2 - INVENTORY

         Inventory is comprised of the following:

                                                 July 4,       December 31,
                                                 -------       ------------
                                                  1999             1998
                                                  ----             ----
                                                      (In thousands)
          Stock and raw materials.....          $ 6,991          $ 7,279
          Work-in process ............           10,724            7,263
                                                -------          -------
          Total ......................          $17,715          $14,542
                                                =======          =======

NOTE 3 - ASSET PURCHASE

     On December 19, 1997, Farrel Shaw Limited, a wholly owned subsidiary of the
Company,  acquired  certain assets and the operations of the Francis Shaw Rubber
Machinery  ("Shaw")  operations  from  EIS  Group  PLC  of  the  United  Kingdom
("Seller").  The purchase and sale agreement  ("Agreement")  between the Company
and the Seller required subsequent  adjustment to the purchase price if the Shaw
operations did not produce a minimum  profit,  as defined in the  Agreement,  of
approximately  $1.7  million for the year ended  December  31, 1998 (the "Profit
Guaranty").  The operations of Shaw produced a loss (as computed under the terms
of the Agreement) of approximately  $3.6 million for the year ended December 31,
1998.

     Accordingly,  the Company recorded a receivable from the Seller at December
31, 1998 of  approximately  $5.3 million under the terms of the Profit  Guaranty
provisions of the Agreement and reduced the purchase  price. On May 7, 1999, the
Company received a cash payment of $4.4 million in settlement of its claim under
the Profit Guaranty.  The difference between the amount recorded at December 31,
1998 and  amount  received  from the  Seller  was  recorded  as an  increase  in
goodwill.

     The Agreement  also required the transfer of the pension  liability for the
Shaw employees together with the pension assets related to those employees.  The
assets for the Shaw employees were transferred to the Company's  pension plan on
May 5, 1999. The  consolidated  financial  statements do not include any amounts
related to the transferred Shaw employees as the actuarial  amounts have not yet
been  determined.  The net amount of the  actuarially  determined  excess of the
pension  assets  compared with the  projected  benefit  obligation  for the Shaw
employees  will be recorded as an  additional  purchase  price  adjustment  when
determined.


                                  Page 6 of 16
<PAGE>


NOTE 4 - COMPREHENSIVE INCOME

     During the six month period ended July 4,1999,  the British Pound Sterling,
the functional  currency of the Company's  United Kingdom  subsidiary,  weakened
against the  Company's  United States Dollar  reporting  currency;  from 1.66 US
dollars at December 31, 1998,  to 1.58 at July 4, 1999.  The Pound  Sterling has
subsequently strengthened to 1.62 as of July 31, 1999.

     The impact of the foregoing  foreign currency exchange rate fluctuations is
recorded as a foreign currency  translation  adjustment and is included in other
comprehensive  income for the  period.  The  components  of other  comprehensive
income, for the six-month periods ended are as follows:

                                                          July 4,     June 28,
                                                           1999         1998
                                                           ----         ----
                                                             (In thousands)
     Net income ..................................       $ 165         $ 847
     Foreign currency translation adjustments ....        (613)            2
                                                         -----         -----
     Other comprehensive (loss) income ...........       $(448)        $ 849
                                                         =====         =====

      The components of accumulated other comprehensive  expense, net of related
tax, are as follows:
                                                        July 4,     December 31,
                                                         1999          1998
                                                         ----          ----
                                                           (In thousands)
     Minimum pension liability ..................      $(1,577)      $(1,577)
     Foreign currency translation adjustments ...         (677)          (64)
                                                       -------       -------
     Accumulated other comprehensive expense ....      $(2,254)      $(1,641)
                                                       =======       =======

NOTE 5 - SEGMENT INFORMATION

     The  Company's   operations  are  considered  one  operating  segment.  The
Company's products consist of new machines,  spares and repair related services.
The Company's products and services are sold to commercial  manufacturers in the
plastic and rubber industries.  The manufacturing,  assembly and distribution of
the Company's products are essentially the same.

NOTE 6 - GAIN FROM SALE OF REAL ESTATE

     During January 1999,  the Company  completed the sale of excess real estate
held for sale for $2.4 million. The Company recorded a gain of $1.9 million from
the sale.


                                  Page 7 of 16
<PAGE>


PART I - ITEM 2 -

               MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
                        CONDITION & RESULTS OF OPERATIONS

SAFE HARBOR FOR FORWARD-LOOKING  STATEMENTS UNDER PRIVATE SECURITIES  LITIGATION
REFORM ACT OF 1995

     Certain statements  contained in the Company's public documents,  including
in this report and in particular,  in this "Management's Discussion and Analysis
of Financial Condition and Results of Operations" may be forward looking and may
be subject to a variety of risks and uncertainties.  Various factors could cause
actual  results  to differ  materially  from  these  statements.  These  factors
include,  but are not limited to,  pricing  pressures  from  competitors  and/or
customers;  continued  economic  and  political  uncertainty  in  certain of the
Company's  markets;  the Company's ability to maintain and increase gross margin
levels;  the  Company's  ability to  generate  positive  cash  flow;  changes in
business conditions,  in general,  and, in particular,  in the businesses of the
Company's  customers and competitors;  assessment of the impact of the Year 2000
and other  factors  which might be described  from time to time in the Company's
filings with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

SIX MONTHS ENDED JULY 4, 1999 COMPARED TO THE SIX MONTHS ENDED JUNE 28, 1998

     Net sales for the six month  period  ended July 4, 1999 were $30.6  million
compared to $40.9  million  during the six month  period  ended June 28, 1998, a
decrease of $10.3  million.  The decrease in net sales is primarily due to lower
new machine sales, which was $7.5 million lower year-to-date 1999 as compared to
the same period in 1998.  The timing of the Company's  sales,  particularly  new
machines sales, are highly dependent on when an order is received, lead time and
customer requirements. Management believes the Company operates in markets which
are extremely  competitive.  Many of our  customers and markets  operate at less
than full capacity and certain  markets,  in  particular,  the Far East,  remain
particularly competitive and are subject to local economic events.

     The Company  received $32.2 million in orders during the six months of 1999
compared to $50.3 million during the same period of 1998.  Order intake into the
third  quarter of 1999  continues  to be slow.  New  machine  orders  were $12.8
million lower  year-to-date  1999 compared to 1998.  The Company's  products are
primarily  supplied to manufacturers and represent  capital  commitments for new
plants, expansion or modernization. In the case of major equipment orders, up to
12 months are  required  to complete  the  manufacturing  process.  Accordingly,
revenues  reported in the statement of  operations  may be recognized in a later
accounting period than the one in which the order was received. In addition, the
cyclical nature of industry demand and, therefore,  order intake, may effect the
Company's quarterly results of operations. The Company's ability to maintain and
increase net sales depends upon a  strengthening  and stability in the Company's
traditional markets.  Firm backlog at July 4, 1999 was $34.4 million compared to
$33.0  million at December  31, 1998 and $56.3  million at June 28,  1998.  Firm
backlog  as of  August 6, 1999 and  August 5, 1998 was $34.1  million  and $51.8
million, respectively.

     Year-to-date  gross  margin  in 1999 and 1998 was $6.9  million  and  $10.3
million,  respectively. The margin percentage decreased to 22.7% from 25.3%. The
decrease in comparative  gross margin is  attributable  to lower sales volume to
absorb fixed manufacturing and assembly costs.

     Year-to-date  1999  operating  expenses were $8.6 million  compared to $8.4
million  during  1998.  The  increase  is due to higher  employee  compensation,
benefit costs and professional services offset by lower selling expenses.



                                  Page 8 of 16
<PAGE>



     Year-to-date interest expense for 1999 was $0.3 million, a decrease of $0.1
million from the same period of 1998. The decrease is due to lower borrowings.

     The Company provides for income taxes in the jurisdictions in which it pays
income taxes at the statutory rates in effect in each jurisdiction  adjusted for
differences in providing for income taxes between financial reporting and income
tax purposes.  The effective income tax rate, as a percentage of pre-tax results
of operations, was 41.1% and 39.9% in 1999 and 1998, respectively.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JULY 4, 1999 COMPARED TO THE THREE MONTHS ENDED JUNE 28, 1998

     Net sales for the second  quarter of 1999 and 1998 were $17.3  million  and
$24.9  million,  respectively.  Order  intake in the second  quarter of 1999 was
$15.0 million  compared to $20.1 million for the second quarter of 1998.  Sales,
orders and backlog levels varied when comparing the two quarters due to the same
reasons  previously stated in the results of operations for the six month period
on page 8.

     Gross  margin in the second  quarter of 1999 and 1998 was $4.5  million and
$6.1 million,  respectively. The margin percentage increased to 26.2% from 24.4%
due to the mix of products sold in the two periods.

     Operating expenses decreased $0.4 million to $4.2 million during the second
quarter 1999 compared to 1998. The decrease is due to the  consolidation  of the
operations of Shaw into manufacturing and administrative facilities in Rochdale,
England and the same reasons  previously stated in the results of operations for
the six month period on page 8.

     Interest  expense  for the  second  quarter  of 1999  was $0.1  million,  a
decrease of $0.1  million from 1998.  The  decrease is due to lower  borrowings.
Interest income was $0.1 million for the quarter ended July 4, 1999.

     Other income, net of other expense, includes approximately $0.1 million for
the quarter  ended July 4, 1999 from the disposal of machinery and equipment the
Company  will no longer use and $0.2  million for the same  period in 1998.  The
impact  of  foreign  currency   fluctuations  on  the  consolidated  results  of
operations for 1998 compared to 1997 was not significant.

     The effective  income tax rate for the second  quarter in 1999 and 1998 was
20.8% and 39.9%,  respectively.  The Company  provides  for income  taxes in the
jurisdictions  in which it pays income taxes at the statutory rates in effect in
each  jurisdiction  adjusted for  differences  in providing for income taxes for
financial reporting and income tax purposes.

MATERIAL CONTINGENCIES

     In February  1995, the Company and Black & Decker entered into a Settlement
Agreement pursuant to which Black & Decker agreed to assume full  responsibility
for  the  investigation  and  remediation  of any  pre-May,  1986  environmental
contamination  at the Company's  Ansonia and Derby facilities as required by the
Connecticut  Department  of  Environmental  Protection  (DEP).  As  part  of the
settlement, the Company transferred by quit claim deed a vacant surfaced parking
lot  to the  City  of  Ansonia.  As  required  by the  Settlement  Agreement,  a
preliminary  environmental assessment of the Company's properties in Ansonia and
Derby,  Connecticut  has been conducted by Black & Decker.  On January 19, 1999,
the Company sold all of its Derby,  Connecticut,  real estate and facilities. By
the terms of that sale, the purchaser committed to cooperate with Black & Decker
in any additional  investigation  of the Derby  property and any  remediation of
that  property  that might be required by the DEP. In addition,  the Company has
been named an additional insured on a $5.0 million environmental policy obtained
by the purchaser and the purchaser is obligated to


                                  Page 9 of 16
<PAGE>


name the  Company  an  additional  insured  on any and all  other  environmental
insurance  policies obtained by the purchaser related to the Derby property.  On
the basis of the  preliminary  data now available  there is no reason to believe
that any  remediation  activities  which  might be  required  as a result of the
findings  of the  assessment  will  have a  material  effect  upon  the  capital
expenditures,  earnings or thecompetitive  position of the Company. This forward
looking  statement could,  however,  be influenced by the results of any further
investigation which the DEP might require, by DEP's conclusions and requirements
based  upon  its  review  of  complete   information  when  such  is  available,
unanticipated  discoveries,  the possibility that new or different environmental
laws might be adopted and the  possibility  that  further  regulatory  review or
litigation might become necessary or appropriate.

LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES

     Working  capital and the working  capital  ratio at July 4, 1999 were $16.8
million and 2.0 to 1,  respectively,  compared to $19.9  million and 1.7 to 1 at
December 31,  1998,  respectively.  During 1999,  the Company paid a dividend of
$.16 per share of common stock. The Company has also declared a dividend of $.04
per share of common stock to be paid in the third  quarter of 1999. In addition,
during the first six months of 1999, the Company  repurchased  552,900 shares of
common stock in the amount of $1,272,000. These shares are held in treasury. The
Company recently extended its discretionary open market stock program increasing
the amount by $2.5  million.  Subsequent  to the end of the second  quarter  the
Company repurchased 80,000 shares of common stock in the amount of $157,500. The
Company's  ability to pay dividends in the future is generally limited under its
credit facility described below to the aggregate of (a) 25% of net income during
the most recently  completed four fiscal quarters after deducting  distributions
previously  made and (b) purchases by the Company of its common stock during the
same period,  without the consent of and/or  waiver by the Company's  bank.  The
Company  received  a waiver  from its bank with  respect to  dividends  paid and
declared in 1999.

     Due to the  nature of the  Company's  business,  many  sales are of a large
dollar  amount.  Consequently,  the timing of recording such sales may cause the
balances in accounts  receivable  and/or  inventory  to  fluctuate  dramatically
between quarters and may result in significant  fluctuations in cash provided by
operations.  Historically,  the Company has not experienced significant problems
regarding the collection of accounts receivable.  The Company has also generally
financed  its  operations  with cash  generated  by  operations,  with  progress
payments from customers and with  borrowings  under its bank credit  facilities.
Management  anticipates  that  its  cash  balances,  operating  cash  flows  and
available credit line will be adequate to fund anticipated  capital  commitments
and  working  capital  requirements  for at least the next  twelve  months.  The
Company made capital  expenditures  of $0.6 million and $1.1 million  during the
first half of fiscal 1999 and 1998, respectively.

     On May 7,  1999,  the  Company  received  a cash  payment  of $4.4  million
representing  settlement of its claim under the Profit Guaranty provision of the
Asset Purchase  Agreement for the purchase of the Francis Shaw Rubber  Machinery
Business.

     The Company has a worldwide  multi-currency  credit  facility  with a major
U.S.  bank in the  amount  of  $25.0  million  consisting  of an  $18.5  million
revolving credit facility for direct  borrowings and letters of credit and up to
(pound)3.0  million for foreign  exchange  contracts  and a five year term note.
Interest varies based upon prevailing  market  interest.  The facility  contains
limits on direct borrowings and letters of credit combined based upon stipulated
percentages  of accounts  receivable,  inventory and backlog.  The facility also
contains  covenants  specifying  minimum and maximum  operating  thresholds  for
operating results and selected  financial ratios. The agreement contains certain
restrictions  on the making of  investments,  on  borrowings  and on the sale of
assets.  At July 4, 1999 and December 31, 1998,  there was $4.4 million and $5.3
million, respectively,  outstanding under the term loan. There were $4.8 million
and $5.1 million of letters of credit  outstanding  at July 4, 1999 and December
31, 1998, respectively.


                                 Page 10 of 16
<PAGE>


MARKET FOR REGISTRANT'S COMMON STOCK

     The Company's  common stock,  $0.01 par value  ("Common  Stock"),  has been
publicly  traded on the Nasdaq  National Market since January 17, 1992 (the date
of the  Company's  initial  public  offering)  under the symbol  "FARL."  Nasdaq
listing standards require,  among other things,  that the market value of public
float of the qualifying  outstanding  shares of Common Stock of the Company that
are  available  for  trading  exceed  $5,000,000.  Nasdaq may  initiate  de-list
proceedings  if the market value of public  float falls below the minimum  level
for a period of thirty  consecutive  business days and is not otherwise restored
to a level in excess of the  minimum  requirement  for at least ten  consecutive
business days during a 90-day compliance period.

     Prior to July 12, 1999,  the market value of public float of the qualifying
outstanding shares of the Company's Common Stock intermittently had fallen below
Nasdaq's $5,000,000 minimum requirement. From the period July 12, 1999 to August
12,  1999,  the market  value of public  float of the  qualifying  shares of the
Common Stock failed to meet the $5,000,000 minimum requirement.  Continuation of
this trend for thirty  consecutive  business days could subject the Common Stock
to Nasdaq de-list  proceedings.  If Nasdaq were to de-list the Company's  Common
Stock,  an  investor  could find it more  difficult  to dispose of, or to obtain
accurate  quotations as to, the market value of the Common Stock and the Company
could have greater difficulty effecting future equity financing.

YEAR 2000

     The Company has  instituted  a Year 2000  readiness  project to address the
impact and risks  related to the  ability of the  Company's  computer  hardware,
computer programs, equipment with embedded computer chips and critical suppliers
to operate and function  properly  during the year change from December 31, 1999
to January 1, 2000, and to process date information correctly thereafter.

     The  project is  divided  into three  components  - Business  Applications,
comprising the Company's internal  information  systems as well as the readiness
of third party  suppliers of goods and services whose Year 2000 readiness  could
potentially  have  significant  impact  on  the  Company's  operations;  Product
Applications,  relating to micro-processors within the control equipment sold by
the Company; and Equipment Applications, which relate to micro-processors within
operating equipment utilized in the Company's day to day operations.

     The project team is made up of internal resources from various disciplines,
including  operations,  facility  management,  product  engineering,  management
information systems and finance. The major objectives for each component are to:
(1)  identify  and  document  Year 2000 issues  which  affect the  Company;  (2)
inventory systems,  machines and processes affected by the Year 2000; (3) assess
Year 2000 readiness for identified items; and (4) design and implement a plan to
achieve Year 2000 readiness for significant Year 2000 issues. The identification
and  inventory  of systems,  machines  and  processes  has been  completed.  The
assessment  and plan to achieve  Year 2000  readiness  are at various  stages of
completion for each of the three major components.

        The  Business  Applications  component of the  Company's  Year 2000 plan
relates primarily to the Company's principal internal  information system, which
consists of a mainframe  operated with third party purchased  computer software.
The  conversion to a Year 2000  compliant  version of the software was completed
during the fourth quarter of 1998;  however,  system testing will continue.  The
conversion  included  the  replacement  of hardware  and software for one of the
Company's UK operations to provide  consistency  with the US operation.  Similar
systems for our newly  acquired  subsidiary in the UK have not been upgraded due
to the consolidation of that facility into the other UK operation which has been
upgraded.  The  balance of the  Company's  computer  based  information  systems
consist  primarily of  individual  work  stations and personal  computers.  Work
stations in the  Engineering  Department  were  upgraded in 1997.  All  personal
computer  hardware and software has been tested.  Modifications to the equipment
are being made and upgrades  purchased  for non-Year 2000 ready  equipment.  The
total amount  expended in the current and prior year,  related to the  Company's
internal   information  system,  was  approximately  $0.9  million.   Additional
expenditures to


                                 Page 11 of 16
<PAGE>


complete this phase are  estimated to be less than $0.1  million.  A significant
portion of these  expenditures  would have occurred  without the Year 2000 issue
and, in general, these expenditures have not been accelerated.

     The  identification  and  assessment  of  critical  suppliers  of goods and
services is in process.  Critical suppliers include suppliers of components used
in the Company's products as well as suppliers of goods and services used in the
Company's  operations.  Critical  suppliers have been identified as suppliers of
goods or services that, if interrupted for an extended period,  might impact the
Company's  ability to  provide  goods and  services  to its  customers,  satisfy
obligations to its employees and vendors,  and which might pose a risk of injury
or damage to individuals,  property or the  environment.  Critical  suppliers of
goods and services are being  contacted to assess their  readiness  for the Year
2000.  Due to the varying degree of impact the Year 2000 might cause and general
uncertainty  inherent  in the Year  2000  problem,  the  Company  is  unable  to
determine  if  third  party  supplier  readiness  would  materially  impact  the
Company's results of operations, liquidity or financial condition.

     The Product Applications  component of the Company's Year 2000 plan relates
primarily to  microprocessors  within the control equipment sold by the Company.
The  Company  has  identified  auxiliary  equipment  and  components  which were
supplied  with its  products  and which  might  pose a risk  that the  Company's
product  will  not  function   properly  in  the  Year  2000.   The  process  is
substantially  complete.  Some supplied  components may require  modification or
upgrade.  The extent of  modifications  required  are  dependent  on the use and
extent of integration of the Company's equipment at a customer's  location.  The
Company's efforts are expected to continue to assist the Company's  customers to
maximize serviceability of Company supplied equipment. The cost of an upgrade or
modification  may  result in a  warranty  obligation  and  charge to  results of
operations  of the  Company.  The Company is unable to  determine  a  reasonable
estimate at this time.  However,  the Company does not expect that these matters
will have a material  adverse  effect on the  Company's  financial  position  or
results of operations and some of the cost might be recovered from the Company's
vendors.

     Equipment Applications component of the Company's Year 2000 plan relates to
microprocessors  within the operating equipment utilized in the Company's day to
day operations.  The identification of equipment used in the Company's operation
has been completed.  The equipment used in the Company's manufacturing and other
operations are not  integrated  systems,  but consist  principally of individual
stand alone machine tools and equipment. Failure of one piece of equipment would
not materially impact operations. Correspondence with the equipment suppliers to
determine  Year 2000 readiness is in process.  The expected  completion has been
postponed,  however, completion is anticipated prior to the year-end. Individual
pieces of  equipment  have been  identified  for  replacement.  The cost of such
equipment identified to date for replacement is not significant.  Replacement of
all known effected equipment has been completed.

     The  failure to correct a material  Year 2000  problem  could  result in an
interruption  in,  or a  failure  of,  certain  normal  business  activities  or
operations.  Such failures could  materially and adversely  affect the Company's
results of  operations,  liquidity and financial  condition.  Due to the general
uncertainty  inherent  in the Year  2000  problem,  resulting  in part  from the
uncertainty of the Year 2000  readiness of third-party  suppliers and customers,
the Company is unable to determine at this time whether the consequences of Year
2000  failures  might  have a  material  impact  on  the  Company's  results  of
operations,  liquidity or financial condition. The Year 2000 Project is expected
to significantly  reduce the Company's level of uncertainty  about the Year 2000
problem and, in particular,  about the Year 2000 compliance and readiness of its
critical  suppliers of goods and  services.  The Company  believes that with the
completion  of  the  Project  as  scheduled,   the  possibility  of  significant
interruptions of normal operations should be reduced.

     The foregoing  discussion contains  forward-looking  statements  including,
without  limitation,  statements  relating to the Company's  plans,  strategies,
objectives,  expectations,  intentions,  and adequate  resources,  that are made
pursuant to the "Safe Harbor"  statements of the Private


                                 Page 12 of 16
<PAGE>


Securities   Litigation   Reform  Act  of  1995.   Readers  are  cautioned  that
forward-looking statements contained in this Year 2000 disclosure should be read
in conjunction  with the "Safe Harbor For  Forward-Looking  Statements under the
Private  Securities  Litigation  Reform Act of 1995"  contained on page eight of
this report.

     Taking into account the  foregoing,  the following are  identified as some,
but not all of, important risk factors that could cause actual results to differ
materially from those expressed in any forward-looking  statement made by, or on
behalf of, the Company:  the availability and cost of personnel;  the ability to
locate and correct all  non-compliant  year 2000 items;  and timely responses to
and corrections by third-parties and suppliers.  Due to the general  uncertainty
inherent in the Year 2000 problem, resulting in part from the uncertainty of the
Year  2000  readiness  of  third-parties  and  the   interconnection  of  global
businesses, the Company cannot ensure its ability to timely and cost-effectively
resolve  problems  associated  with the Year  2000  issue  that may  affect  its
operations and business, or expose it to third-party liability.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

     In June 1998, the FASB issued Statement No. 133,  Accounting for Derivative
Instruments and Hedging  Activities,  which must be adopted effective January 1,
2001. The Statement will require the Company to recognize all derivatives on the
balance sheet at fair value. Derivatives that are not hedges must be adjusted to
fair value through income.  If a derivative is a hedge,  depending on the nature
of the hedge,  changes in the fair value of the derivative will either be offset
against  the  change  in fair  value of the  hedged  asset,  liability,  or firm
commitment through earnings,  or recognized in other comprehensive  income until
the  hedged  item is  recognized  in  earnings.  The  ineffective  portion  of a
derivative's  change in fair value will be  immediately  recognized in earnings.
The Company does not anticipate  that the adoption of this Statement will have a
significant effect on its results of operations or financial position.

ITEM 2 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company is exposed to market risk from changes in foreign  currency and
interest rates. The Company  manufactures many of its products and components in
the  United   Kingdom  and  purchases  many   components  in  foreign   markets.
Approximately  50% of the Company's  revenue is generated from foreign  markets.
The Company  manages its risk to foreign  currency  rate changes by  maintaining
foreign  currency bank  accounts in  currencies in which it regularly  transacts
business  and  the  use of  foreign  exchange  forward  contracts.  The  Company
regularly  enters into foreign  exchange  forward and option  contracts to hedge
foreign  currency  transactions.  These  derivative  instruments  involve little
complexity  and are  generally  for short  periods of less than six months.  The
Company  does not enter into  derivative  contracts  for trading or  speculative
purposes.  The amount of foreign exchange  forward  contracts are not considered
material to the Company's financial position or its operations.

     The  Company's  cash   equivalents  and  short-term   investments  and  its
outstanding debt bear variable  interest rates. The rates are adjusted to market
conditions.  Changes in the market rate effects  interest earned and paid by the
Company. The Company does not use derivative  instruments to offset the exposure
to changes in interest rates.  Changes in the interest rates are not expected to
have a material impact on the Company's results of operations.


                                 Page 13 of 16
<PAGE>



                                                                      Exhibit 11

                               FARREL CORPORATION
                               ------------------
                 STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
                 -----------------------------------------------
                 (In thousands, except per share and share data)
                 -----------------------------------------------


<TABLE>
<CAPTION>
                                                        Three Months Ended          Six Months Ended
                                                     --------------------------------------------------
                                                       July 4,      June 28,      July 4,     June 28,
                                                        1999          1998         1999         1998
                                                        ----          ----         ----         ----

<S>                                                  <C>          <C>          <C>          <C>
Net income  applicable to common stock ...........   $      282   $      737   $      165   $      847
                                                     ==========   ==========   ==========   ==========
Weighted average number of common
shares outstanding -  Basic earnings per share....    5,386,586    5,942,582    5,603,086    5,942,582

Effect of dilutive stock and purchase  options....        5,676        4,806        6,200       24,254
                                                     ----------   ----------   ----------   ----------

Weighted average number of common
shares outstanding - Diluted earnings per share...    5,392,262    5,947,388    5,609,286    5,966,836
                                                     ==========   ==========   ==========   ==========

Net income per common
  share - Basic ..................................   $     0.05   $     0.12   $     0.03   $     0.14
                                                     ==========   ==========   ==========   ==========
  share - Fully diluted ..........................   $     0.05   $     0.12   $     0.03   $     0.14
                                                     ==========   ==========   ==========   ==========
</TABLE>


                                 Page 14 of 16
<PAGE>


PART II - OTHER INFORMATION


ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K

Exhibit 11   (Regulation S-K) Computation of Earnings Per Share.
                             SEE PAGE 14

Exhibit 27   Financial Data Schedule

Reports on Form 8-K

     No  Reports  on Form 8-K were filed by the  registrant  during the  periods
covered by this report.





                                 Page 15 of 16
<PAGE>


                                   SIGNATURES


PURSUANT  TO THE  REQUIREMENTS  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.


                                    FARREL CORPORATION
                                    ------------------
                                    REGISTRANT




DATE:     8/16/99                   /s/ Rolf K. Liebergesell
     -------------------------      -------------------------------------------
                                    ROLF K. LIEBERGESELL
                                    CHIEF EXECUTIVE OFFICER, PRESIDENT
                                    AND CHAIRMAN OF THE BOARD


DATE:     8/16/99                   /s/ Theodore E. Jenny
     -------------------------      -------------------------------------------
                                    THEODORE E. JENNY
                                    VICE PRESIDENT
                                    CHIEF FINANCIAL OFFICER
                                    (CHIEF ACCOUNTING OFFICER)