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 September 27, 1998
                               ----------------------------------------------
                                       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
 incorporation 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 November 5, 1997
--------------------------------------------------------------------------------
Common Stock (Voting), $.01 par value                     5,939,486
                                                          ---------



<PAGE>


                                      Farrel Corporation
                                      ------------------


                                             Index
                                             -----

                                                                           Page

Part I. Financial Information                                               3
        ---------------------
  
               Consolidated Balance Sheets -
               September 27, 1998 and December 31, 1997                     3

               Consolidated Statements of Operations -
               Three and Nine months ended September 27, 1998
                 and September 28, 1997                                     4

               Consolidated Statements of Cash Flows -
               Nine months ended September 27, 1998
                 and September 28, 1997                                     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>



<TABLE>
<CAPTION>
                                       Part I - Financial Information
                                             FARREL CORPORATION
                                             ------------------
                                        CONSOLIDATED BALANCE SHEETS
                                        ---------------------------
                                     (In thousands, except share data)
                                                                   September 28,       December 31,
                                                                   -------------       ------------
                                                                        1998               1997
                                                                        ----               ----
ASSETS                                                              (Unaudited)
    Current Assets:
       <S>                                                              <C>                  <C>   
       Cash and cash equivalents                                        $1,593               $1,447
       Accounts receivable, net of allowance for
         doubtful accounts of  $191 and $179, respectively              17,234               14,423
       Inventory                                                        19,972               18,277
       Asset purchase agreement receivable                               2,946
       Other current assets                                              2,752                2,957
                                                                  -------------      ---------------
                    Total current assets                                44,497               37,104
       Property, plant and equipment - net
         of accumulated depreciation of $11,442  and
         $9,786, respectively                                           11,714               12,416
       Goodwill                                                          3,088                5,295
       Other Assets                                                      1,781                1,566
                                                                  -------------      ---------------
Total Assets                                                           $61,080              $56,381
                                                                  =============      ===============
LIABILITIES & STOCKHOLDERS' EQUITY
    Current Liabilities:
       Accounts payable                                                 $8,142               $8,317
       Accrued expenses & taxes payable                                  5,463                4,753
       Advances from customers                                          10,917                6,412
       Accrued installation & warranty costs                             1,761                1,326
       Dividend Payable                                                      -                  951
       Short - term debt                                                 1,769                1,527
                                                                  -------------      ---------------
                     Total current liabilities                          28,052               23,286
    Long - term debt                                                     4,750                5,283
    Postretirement benefit obligation                                    1,177                1,213
    Long-term pension obligation                                           592                  592
    Deferred income taxes                                                  331                  225
    Commitments and contingencies                                            -                    -
                                                                  -------------      ---------------
                     Total Liabilities                                  34,902               30,599
                                                                  -------------      ---------------
    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, 199,120 and 199,524 shares at
       September 27, 1998 and December 31, 1997, respectively             (982)                (984)
       Retained earnings                                                 7,946                7,776
       Accumulated other comprehensive expense                            (142)                (366)
                                                                  -------------      ---------------
                     Total Stockholders' Equity                         26,178               25,782
                                                                  -------------      ---------------
Total Liabilities and Stockholders' Equity                             $61,080              $56,381
                                                                  =============      ===============

                        See Accompanying Notes to Consolidated Financial Statements

</TABLE>

                                  Page 3 of 16
<PAGE>




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

                                              Three Months Ended                     Nine Months Ended
                                              ------------------                     -----------------
                                       September 27,      September 28,       September 27,     September 28,
                                           1998              1997                1998              1997
                                           ----              ----                ----              ----
                                                 (Unaudited)                           (Unaudited)
<S>                                        <C>                <C>                 <C>               <C>    
Net Sales                                  $21,626            $21,955             $62,556           $64,261

Cost of sales                               17,285             16,526              47,879            50,150
                                       -------------      -------------       -------------     -------------

Gross margin                                 4,341              5,429              14,677            14,111

Operating expenses:

    Selling                                  2,005              1,739               5,683             5,294

    General & administrative                 2,118              2,111               6,193             5,747

    Research & development                     396                380               1,080             1,153
                                       -------------     -------------       -------------     -------------

Total operating expenses                     4,519              4,230              12,956            12,194
                                       -------------     -------------       -------------     -------------


Operating income/(loss)                       (178)             1,199               1,721             1,917

Interest income                                 40                 62                  98               210

Interest expense                              (160)               (18)               (561)              (88)

Other income/(expense), net                     56                (25)                (90)              364
                                       -------------     -------------       -------------     -------------

Income/(loss) before income taxes             (242)             1,218               1,168             2,403

Provision/(benefit) for income taxes           (40)               506                 523               927
                                       -------------     -------------       -------------     -------------

Net income/(loss)                            ($202)              $712                $645            $1,476
                                       =============     =============       =============     =============
Per share data:

Basic and Diluted  income/(loss)
  per common share                          ($0.03)             $0.12               $0.11             $0.25
                                       =============     =============       =============     =============
Average shares outstanding:
  Basic                                  5,942,338          5,942,212           5,942,664         5,942,153
                                       =============     =============       =============     =============
  Diluted                                5,942,338          5,944,460           5,948,952         5,944,509
                                       =============     =============       =============     =============
   Dividends per share                       $0.04              $0.16               $0.08             $0.32
                                       =============     =============       =============     =============

                        See Accompanying Notes to Consolidated Financial Statements

</TABLE>



                                  Page 4 of 16
<PAGE>





<TABLE>
<CAPTION>
                                          FARREL CORPORATION
                                          ------------------
                                 CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 -------------------------------------
                                            (In thousands)
                                                                    Nine Months Ended
                                                                    -----------------
                                                            September 27,        September 28,
                                                            -------------        -------------
                                                                1998                 1997
                                                                ----                 ----
                                                             (Unaudited)         (Unaudited)
Cash flows from operating activities:
  <S>                                                                <C>               <C>   
  Net Income                                                         $645              $1,476
  Adjustments to reconcile net income to net
  cash provided by/(used in) operating activities:
    Gain on disposal of fixed assets                                 (227)               (637)
    Depreciation and amortization                                   1,795               1,241
    (Increase)/decrease in accounts receivable                     (2,572)              3,338
    (Increase) in inventory                                        (3,775)             (2,185)
    (Decrease) in accounts payable                                   (339)             (1,449)
    Increase in customer advances                                   4,431                  28
    Increase in accrued expenses & taxes                              163                   4
    Increase (decrease) in accrued installation and                   407                (213)
       warranty costs
    Increase in deferred income taxes                                 106                 123
    Increase in other receivable                                   (2,900)
    Decrease in Goodwill                                            2,387
                                                                      (98)                692
    Other
                                                           ----------------     ---------------
    Total adjustments                                                (622)                942
                                                           ----------------     ---------------
    Net cash provided by operating activities                          23               2,418
                                                           ----------------     ---------------
Cash flows from investing activities:
    Refund of Shaw asset purchase price                             2,701
    Proceeds from disposal of fixed assets                            647                 866
    Purchases of property, plant and equipment                     (1,318)             (1,394)
                                                           ----------------     ---------------
    Net cash provided by (used in) investing activities             2,030                (528)
Cash flows from financing activities:

    Repayment of long-term borrowings                                (663)               (102)
    Proceeds from short-term borrowings, net                          195                   -
    Issuance of treasury stock                                          2                   -
    Used for dividends paid                                        (1,427)             (1,903)
                                                           ----------------     ---------------
    Net cash used in financing activities                          (1,893)             (2,005)
Effect of foreign currency exchange rate changes on cash              (14)               (141)
                                                           ----------------     ---------------
Net increase in cash and cash equivalents                             146                (256)
    Cash and cash equivalents - Beginning of period                 1,447               3,832
                                                           ----------------     ---------------
    Cash and cash equivalents - End of period                      $1,593              $3,576
                                                           ================     ===============
Income taxes paid                                                    $148                $741
                                                           ================     ===============
Interest paid                                                        $407                  $4
                                                           ================     ===============

                      See Accompanying Notes to Consolidated Financial Statements

</TABLE>




                                  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 September 27, 1998, the  consolidated  results
of its operations for the three and nine-month  periods ended September 27, 1998
and  September  28, 1997,  and its  consolidated  cash flows for the  nine-month
periods ended  September 27, 1998 and September 28, 1997.  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, 1997.

NOTE 2 - INVENTORY

        Inventory is comprised of the following:

                                                September 27,      December 31,
                                                -------------      ------------
                                                    1998               1997
                                                    ----               ----
                                                        (In thousands)
        Stock and raw materials...............    $ 9,575            $ 9,459
        Work-in process.......................     10,397              8,818
                                                   ------              -----
        Total.................................    $19,972            $18,277
                                                   ======             ======



NOTE 3 - ASSET PURCHASE

        On December 19, 1997, the Company acquired certain assets of the Francis
Shaw  Rubber  Machinery  operations  ("Shaw")  from EIS  Group PLC  ("EIS")  for
approximately $10.9 million. The Asset Purchase Agreement ("Agreement") provided
for a  reduction  in the  purchase  price to the  extent  that the  value of the
closing date inventory was less than the contract amount.  During June 1998, the
Company and EIS agreed to a revised inventory valuation as of December 19, 1997.
The inventory  value, as per the Agreement,  was reduced by  approximately  $2.7
million  and a payment  in that  amount was  received  from EIS.  Subsequent  to
recording  the inventory  valuation in the  preliminary  purchase  accounting an
additional inventory reduction of approximately $0.9 million was recorded with a
corresponding increase in goodwill.

        In addition,  if the acquired assets do not generate at least (pound)1.0
million  (approximately  $1.67  million)  of pre-tax  profit,  as  defined,  the
Agreement  provides  for a reduction in the  purchase  price.  Included in total
assets,  with a corresponding  reduction in goodwill,  is an amount due from the
seller  calculated  under the terms of the Agreement based upon the year to date
results.

        The  results of  operations  of Shaw are  included  in the  consolidated
results of operations of the Company for the 1998 periods.  The seller (EIS) did
not maintain and the Company was not provided historical  financial  information
for the Shaw operations. Therefore, the proforma results



                                  Page 6 of 16
<PAGE>




for the nine months ending  September 28, 1997 are not  available.  Based on the
limited information available, the Company estimates that the pro forma revenues
and net income for the nine months  ended  September  27,  1998,  would not vary
materially from the historical  amounts recorded in the consolidated  statements
of operations.

NOTE 4 -  COMPREHENSIVE INCOME

         As of  January  1,  1998,  the  Company  adopted  Financial  Accounting
Standard No. 130, "Reporting Comprehensive Income". Standard No. 130 establishes
new  rules  for the  reporting  and  display  of  comprehensive  income  and its
components;  however,  the  adoption  of  the  statement  had no  impact  on the
Company's net income or stockholders equity.

         The  components  of  other  comprehensive  income,  for the  nine-month
periods ended are as follows:

                                                 September 27,   September 28,
                                                     1998            1997
                                                     ----            ----
                                                        (In thousands)
         Net income                                  $645           $1,476
         Foreign currency translation adjustments     224             (659)
                                                      ---             -----
         Other comprehensive income                  $869             $817
                                                     ====             =====

       The components of accumulated other comprehensive expense, net of related
tax, are as follows:
                                                 September 27,   December 31,
                                                     1998          1997
                                                     ----          ----
                                                       (In thousands)
      Minimum pension liability                     $(303)        $(303)
      Foreign currency translation adjustments        161           (63)
                                                    ------        ------
      Accumulated other comprehensive expense       $(142)        $(366)
                                                    ======        ======





                                  Page 7 of 16
<PAGE>



PART I - ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION & RESULTS OF OPERATIONS

SAFE HARBOR 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;  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

NINE MONTHS ENDED SEPTEMBER 27, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER
28, 1997

        Year to date net sales in 1998 and 1997  were  $62.5  million  and $64.3
million,  respectively. The 1998 amount includes net sales of approximately $9.2
million by Farrel Shaw Limited ("Shaw") which was acquired on December 19, 1997.
Excluding  Shaw sales,  net sales would have declined  $11.0 million  during the
nine months  ended  September  27, 1998  compared to September  28,  1997.  This
decrease is largely due to the timing of when  customer  orders  shipped in each
period  were  received.  A  substantial  portion of the 1997  shipments  reflect
several  individually  large orders  received in 1996.  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
extreme economic and financial difficulties at this time.

        The Company  received  $59.4 million in orders  including  approximately
$9.2  million  from the newly  acquired  Shaw  operations  during the first nine
months of 1998  compared to $53.9  million  during the same period of 1997.  The
recent  level of order  intake has been  impacted by recent  uncertain  economic
news,  affecting  our  customer's  capital  spending  plans.  Our  products  are
primarily  supplied to manufacturers and represent  capital  commitments for new
plants, expansion or modernization.  Excluding Shaw's order intake, the level of
orders  received has decreased by  approximately  $3.7  million.  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  represent  orders  received in the  current or previous  fiscal
quarters.  In addition,  the cyclical nature of industry demand and,  therefore,
order intake,  may affect the Company's  quarterly  results of  operations.  The
Company's  ability to maintain net sales depends upon stability in the Company's
traditional markets.  There can be no assurance that any such level of stability
will lead to orders for the  Company's  products.  Firm backlog at September 27,
1998 was $44.8  million,  including  $5.9  million  at Shaw,  compared  to $46.5
million at December 31, 1997 and $39.8  million at the end of the third  quarter
of 1997. Backlog at November 5, 1998 was $44.0 million.




                                  Page 8 of 16
<PAGE>





        Year to date gross  margin in 1998 and 1997 was $14.7  million and $14.1
million,  respectively.  The  margin  percentage  increased  to 23.5% from 22.0%
largely due to the mix of products sold in the two periods.  The 1998  shipments
include a higher  relative  proportion of spare parts,  rebuild and repair sales
than in 1997 which  generate  higher  margins  than the new  machine  sales.  In
addition,  1997 included  several large new machine  shipments  with  relatively
lower gross margins.

        Year to date operating  expenses increased $0.8 million to $13.0 million
in 1998  compared to 1997.  The 1998 amount  includes  selling  expenses of $0.5
million  and general and  administrative  expenses of $0.9  million at the newly
acquired Shaw operation.  Excluding the impact of the Shaw operation,  operating
expenses  decreased  by $0.6  million to $11.5  million in the nine month period
ended  September 27, 1998.  The decrease is largely  attributed to reductions in
marketing  programs,  professional  fees,  insurance and  continuing  efforts to
steadily reduce  expenses.  The Company intends to consolidate the operations of
Shaw into  manufacturing  and  administrative  facilities in Rochdale,  England,
thereby,  reducing a portion of the Shaw overhead expenses.  The Company expects
the  consolidation to be accomplished in the first half of 1999. The Company has
reduced  headcount  at Shaw  to 93 at  September  27,  1998  compared  to 218 at
December 31, 1997. Research and development costs declined primarily as a result
of reduced headcount.

        Year to date interest  expense at September 27, 1998,  was $0.6 million,
an  increase  of $0.5  million  from 1997.  The  increase  is due to  borrowings
associated with the acquisition of the Shaw operations. Interest income was $0.1
million for the nine month period ended  September 27, 1998 and $0.2 million for
the nine month period ended September 28, 1997.

        Other income, net of other expense,  includes approximately $0.3 million
for the nine  month  period  ended  September  27,  1998  from the  disposal  of
machinery  and equipment the Company will no longer use and $0.6 million for the
same period in 1997. The impact of foreign currency on the consolidated  results
of operations for 1998 compared to 1997 was not significant.

        The  effective  income  tax rate in 1998 and 1997 was 44.7%  and  38.6%,
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.

THREE MONTHS ENDED  SEPTEMBER 27, 1998 COMPARED TO THREE MONTHS ENDED  SEPTEMBER
28, 1997

        Net sales for the third quarter of 1998 were $21.6 million,  compared to
the $22.0  million  for the third  quarter  of 1997.  Order  intake in the third
quarter of 1998 was $9.0 million including  approximately  $1.5 million from the
Shaw operations,  compared to $18.9 million in the third quarter of 1998. Sales,
orders and backlog levels varied when comparing the two quarters due to the same
reasons previously discussed.

        Gross  margin in the third  quarter of the current year was $4.3 million
compared to $5.4 million in the third quarter of 1997 and the margin  percentage
decreased  to 20.1% from 24.7%,  respectively.  The third  quarter  gross margin
percentage  decreased  due to a higher  portion  of the  quarter's  sales  being
generated by the Shaw operation.  The  acquisition of the Shaw assets  (acquired
December  1997)  included the  assumption of sales  contracts  negotiated by the
seller (EIS),  with gross margin  percentages  lower than the historical  levels
earned by Farrel.




                                  Page 9 of 16
<PAGE>



        Total operating  expenses  increased $0.4 million from the third quarter
of 1997 to $4.5 million in the third quarter of 1998. The third quarter includes
selling expenses of $0.2 million and administrative  expenses of $0.3 million at
the newly acquired Shaw facilities. Excluding the impact of the Shaw operations,
operating  expenses  would have declined  approximately  $0.2 million during the
third quarter of 1998. The changes in operating  expenses are due to the reasons
previously discussed.

        Interest  expense,  for the third quarter of 1998, was $0.2 million,  an
increase of $0.2 million from the third quarter of 1997.  The increase is due to
borrowings associated with the acquisition of the Shaw operations.

        Other income, net of other expense in the third quarter of 1998 and 1997
includes  approximately  $0.1 million for the disposal of excess  machinery  and
equipment.  The  impact of  foreign  currency  on the  consolidated  results  of
operations for the third quarter of 1998 compared to 1997 was not significant.

        The tax rate in the third  quarter of 1998 and 1997 was 16.5% and 41.5%,
respectively.  The low tax rate in 1998 is due to the  effect  of  consolidating
pretax income and pretax losses from  different tax  jurisdictions.  The Company
provides for income taxes in the jurisdictions in which it pays for 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

        The Company and The Black & Decker Corporation,  in 1995, 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). A
preliminary  environmental assessment of the Company's properties in Ansonia and
Derby,  Connecticut  has been  conducted by Black & Decker.  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 the  competitive  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 September 27, 1998 were
$16.4 million and 1.6 to 1.0, respectively, compared to $18.4 million and 2.0 to
1.0 at December  31, 1997,  respectively.  During the first nine months of 1998,
the Company paid dividends  totaling $0.08 per share.  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



                                 Page 10 of 16
<PAGE>




the Company's bank. The Company  received a waiver from its bank with respect to
dividends paid between April 23, 1997 through June, 1998.

        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.
The Company made capital  expenditures of $1.3 and $1.4 million during the first
nine months of 1998 and 1997, respectively.

        The Company has a worldwide  multi-currency credit facility with a major
U.S. bank in an amount of $25.9 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 loan. The facility
contains  limitations on direct  borrowings and letters of credit combined based
upon  stipulated  levels of accounts  receivable,  inventory  and  backlog.  The
facility also contains  covenants  specifying minimum and maximum thresholds for
operating  results and selected  financial  ratios.  There were $6.5 million and
$7.1 million in direct borrowings under this facility at September 27, 1998, and
December  31,  1997,  respectively.  There were $5.2 million and $6.0 million of
letters of credit  outstanding  at  September  27, 1998 and  December  31, 1997,
respectively.  The revolving  credit facility  expires on December 31, 1999, the
term note matures on December 31, 2002.

        Subsequent  to the end of the third  quarter,  the  Company  executed  a
modified  extension of its previously  announced contract for sale of its Derby,
Connecticut real property. The unconditional contract provides for completion of
the transaction no later than the 30th of December, 1998 for $2.4 million.

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 items which affect the
Company; (2) inventory systems,  machines and process 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 items.
The  identification  and  inventory of systems,  machine 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.





                                 Page 11 of 16
<PAGE>




        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 commenced during
the third  quarter of 1998.  This  included  the  replacement  of  hardware  and
software  for  one of our UK  operations  to  provide  consistency  with  the US
operation. As of the current date the conversion was completed,  however, system
testing will continue into the first-half of 1999. Similar systems for our newly
acquired  subsidiary  in  the UK  have  not  been  upgraded  due to the  planned
consolidation  at our other UK operation  which has recently been upgraded.  The
balance of the Company's computer based information systems consist primarily of
individual  work stations and personal  computers.  Work stations in Engineering
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  through  September  27,  1998,  related to the  Company's  internal
information  system was approximately $0.8 million.  Additional  expenditures to
complete  this phase is 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 may 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  micro-processors  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
approximately  one  third  complete.   Some  supplied   components  may  require
modification  or upgrade.  Testing is  continuing  and  expected to be completed
before December 31, 1998. 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, some
of the cost may 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 our 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 and expected to be complete  before
the end of December 1998.  Individual  pieces of equipment have been  identified
for replacement. The cost of



                                 Page 12 of 16
<PAGE>




such  equipment   identified  to  date  for  replacement  is  not   significant.
Replacement of all effected  equipment is expected to be completed by the middle
of 1999.

        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  above  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  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
statements of 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 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.

RECENT ACCOUNTING PRONOUNCEMENTS

        As of January 1, 1998, the Company adopted Financial Accounting Standard
No. 130,  "Reporting  Comprehensive  Income".  Standard No. 130  establishes new
rules for the reporting and display of comprehensive  income and its components;
however,  the  adoption of this  Statement  had no impact on the  Company's  net
income or  stockholder's  equity.  Statement 130 requires the Company's  foreign
currency  translation and minimum pension  liability  which,  prior to adoption,
were  reported  separately  in  stockholders'  equity  to be  included  in other
comprehensive  income. Prior year financial statements have been reclassified to
conform to the requirements of Standard No. 130.

        For the nine months ended  September  27, 1998 and  September  28, 1997,
total   comprehensive   income  amounted  to  $0.9  million  and  $0.8  million,
respectively.


ITEM 2 -  QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK - Not
applicable.




                                 Page 13 of 16
<PAGE>





                                                                     Exhibit 11
<TABLE>
<CAPTION>
                                       FARREL CORPORATION
                                       ------------------
                         STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
                         ----------------------------------------------
                         (In thousands, except per share and share data)
                         -----------------------------------------------

                                                Three Months Ended          Nine Months Ended
                                           -------------------------------------------------------
                                           September 27,    June 29,      June 28,      June 29,
                                              1998            1997          1998          1997
                                              ----            ----          ----          ----


Net income  applicable to
   <S>                                          <C>             <C>            <C>         <C>   
   common stock                                 ($202)          $712           $645        $1,476
                                           ===========   ============   ============  ============
Weighted average number of common
shares outstanding -  Basic earnings        5,942,338      5,942,212      5,942,664     5,942,153
per share

Effect of dilutive stock and purchase          -               2,248          6,288         2,356
options
                                           -----------   ------------   ------------  ------------

Weighted average number of common
shares outstanding - Diluted earnings       5,942,338      5,944,460      5,948,952     5,944,509
per share
                                           ===========   ============   ============  ============

Net income/(loss) per common
  share - Basic                                ($0.03)         $0.12          $0.11         $0.25
                                           ===========   ============   ============  ============
  share - Fully diluted                        ($0.03)         $0.12          $0.11         $0.25
                                           ===========   ============   ============  ============

</TABLE>



                                 Page 14 of 16
<PAGE>




PART II - OTHER INFORMATION


ITEM 2 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

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 such reports were filed by the Company during the third quarter of 1998.





                                 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:      11/10/98                      /s/ ROLF K. LIEBERGESELL
     -------------------------           ------------------------------------
                                         ROLF K. LIEBERGESELL
                                         CHIEF EXECUTIVE OFFICER,
                                         PRESIDENT AND CHAIRMAN OF THE BOARD





DATE:      11/10/98                      /s/ CATHERINE M. BOISVERT
     -------------------------           ------------------------------------
                                         CATHERINE M. BOISVERT
                                         VICE PRESIDENT AND CONTROLLER
                                         (CHIEF ACCOUNTING OFFICER)




                                 Page 16 of 16