SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-K

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required] For the fiscal year ended December 31, 2001 or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [No Fee Required]

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 identification no.)
 incorporation or organization)


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

(Registrant's telephone number, including area code)   (203) 736-5500
                                                     ---------------------------
Securities registered pursuant to Section 12(b) of the Act:

       Title of each class            Name of each exchange on which registered
Securities registered pursuant to Section 12(g) of the Act:

   Common Stock $.01 Par Value                    NASD OTC Bulletin Board
--------------------------------------------------------------------------------
                                (Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days.
Yes X  No   .
   ---   ---

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [X].

The  aggregate  market value of the voting stock held by  non-affiliates  of the
registrant as of March 25, 2002 was $3,007,819.

The number of shares  outstanding of the  registrant's  common stock as of March
25, 2002 was 5,228,461 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive  Proxy  Statement to be delivered to  stockholders in
connection  with the Annual Meeting of  Stockholders to be held on June 12, 2002
are incorporated by reference into Part III.



                                  Page 1 of 49
<PAGE>

                                     PART I

ITEM 1 - BUSINESS

GENERAL

         Farrel  Corporation (the "Company")  designs,  manufactures,  sells and
services  machinery  and  associated  equipment  for  the  rubber  and  plastics
industries worldwide.  The Company's principal products are batch and continuous
mixers, single and twin-screw extruders,  pelletizers,  gear pumps and mills. In
conjunction  with sales of  capital  equipment,  the  Company  provides  process
engineering,  process  design and  related  services  for  rubber  and  plastics
processing installations. The Company's aftermarket business consists of repair,
refurbishment  and  equipment  upgrade  services,  spare  parts  sales and field
services.  The Company also  provides  laboratory  services and  facilities  for
product  demonstrations  and for the  development  and  testing  of  rubber  and
plastics equipment and processes.

         The Company's  rubber  processing  equipment is primarily  sold to tire
manufacturers,  custom  compounders and  manufacturers of rubber goods,  such as
sheet products, molded products, automotive components, footwear, wire and cable
and hoses.  In the plastics  processing  industry,  the  Company's  equipment is
primarily sold to large plastic resins  producers and  compounders.  The Company
markets  its   products   through  its   strategically   located   domestic  and
international sales and service organization.

COMPANY STRATEGY

         The  Company's  business  objectives  are to increase  market  share in
relatively  slow-growth,  cyclical  markets by broadening  its product range and
continuing to strengthen its market  position.  The Company  continues to pursue
manufacturing cost reductions by continually  reevaluating its current operating
practices and by purchasing, rather than manufacturing,  a significant number of
equipment  components and maintaining  overhead and manpower levels in line with
prevailing  economic  conditions.  The Company has taken  measures in the recent
past to achieve these objectives by transferring U.S. parts  manufacturing  from
Connecticut to its U.K.  subsidiary and moving U.S. assembly operations from its
former Derby, Connecticut plant to its Ansonia, Connecticut facility.

         In line with this strategy,  in December 1997, the Company acquired the
assets of the Francis Shaw Rubber Machinery ("Shaw") business in England for the
production of INTERMIX(R)  internal mixers with intermeshing  rotors,  extruders
and related equipment. The products serve principally the technical rubber goods
manufacturers  and the tire industry.  The internal  mixers produced by Shaw are
essentially similar to the Company's BANBURY(R) internal mixers,  differing only
in the configuration of the mixing rotors.  The combined  complimentary  product
lines   provide  the  Company  with  global   access  to  all  rubber   products
manufacturers,  thereby  increasing  markets  served.  The Shaw  operations were
transferred  to the Farrel  Limited  facility  beginning in the fall of 1998 and
were totally integrated by the end of the second quarter of 1999.

INDUSTRY OVERVIEW

         The Company's  products are used primarily by  manufacturers  of rubber
and  plastic  materials  and  products.   The  rubber  and  plastics  processing
industries are global in nature and intensely  competitive.  Both industries are
cyclical in nature, with capital equipment purchases  characterized by long lead
times between orders and shipments.

         In the rubber industry,  the major users of the Company's machinery are
tire manufacturers, custom compounders and manufacturers of rubber goods such as
sheet products,  molded products,  automotive components,  footwear and wire and
cable.  The Company  considers the non-tire sector its primary market for growth
opportunities.  There are approximately 50 tire  manufacturers in the world, six
of which account for a majority of total  worldwide tire  production.  Demand in
the tire and rubber  industry is  influenced  by,  among other  things,  general
economic conditions and the growth or decline in sales of automobiles and trucks
as well as overall truck tonnage and mileage  driven.  The industry  trend is to
shift  production  capacities  into  low  cost and  emerging  regions,  creating
potential opportunities in the future.


                                  Page 2 of 49
<PAGE>

         In the  plastics  industry,  the Company  serves two primary  groups of
customers:   commodity   plastics  producers   (typically  large   petrochemical
companies)  and  value-added  compounders  of plastics.  The commodity  plastics
processed by the Company's machinery are primarily polyethylene,  polypropylene,
polyvinyl chloride and polystyrene.  A large portion of the market is controlled
by a few major  producers  who license  their  technologies  to other  producers
worldwide.  These licensees are potential  customers for the Company's  products
and services.  The plastics  compounding market consists of those companies that
mix large  volumes of plastics in a  relatively  small  number of  formulations,
companies which perform  specialty  mixing for end users, and end users that mix
largely for their internal use.

         Many  manufacturers  in  the  industries  and  markets  served  by  the
Company's  products and services  are impacted by local  political  and economic
events.  The Company's  equipment is supplied to  manufacturers  and  represents
capital commitments for new plants, expansion or modernization.  New capital and
marketing  expenditures in the Company's  markets  depend,  in large part, on an
increase in market demand, which may require the need for additional capacity.

         Overall the Company is part of the capital goods industry.  The capital
goods  industry  in which the  Company  operates  is  cyclical  in nature and is
subject to significant changes in demand.  Capital goods demand is influenced by
many  factors,  including,  but not limited  to,  general  economic  conditions,
factory capacity utilization  and availability of financing.  The Company cannot
predict  when  cyclical  changes  will occur or the extent  that  demand for its
products will change as a result of cyclical changes.  Since 1998, the Company's
sales have declined  significantly.  In 1998, the Company's net sales were $98.3
million, which compares to net sales of $56.2 million in 2001.

PRODUCTS AND SERVICES

         The Company's  products are used to mix and process materials  produced
by  the  Company's  rubber  and  plastics  producing  customers.  The  Company's
principal  capital  equipment  product  lines are batch and  continuous  mixers,
single and twin-screw extruders,  pelletizers, gear pumps and mills. The Company
also provides process engineering,  installation and commissioning  services for
its equipment. The Company's customer service division repairs,  refurbishes and
provides  upgrade  services and spare parts for the Company's  installed base of
machines worldwide.

         The  following  table  illustrates  the  percentage  breakdown  of  the
Company's sales between new  machines/related  services and aftermarket business
(spare parts, repairs and rebuild) in the last three fiscal years:

                                               Year         Year       Year
                                               ended        ended      ended
                                             12/31/01     12/31/00   12/31/99
                                             --------     --------   --------


New Machines/Related Services............      42.4%        45.1%       44.6%
Aftermarket..............................      57.6%        54.9%       55.4%
                                              ------       ------      ------
Total....................................     100.0%       100.0%      100.0%
                                              ======       ======      ======

         The  Company  does not publish a standard  price  list.  Prices for the
Company's  new  equipment  are based  upon a  customer's  specifications  and/or
production  requirements.  Unit prices for the Company's new equipment  products
range from approximately $50,000 to more than $4 million.

CUSTOMERS AND MARKETING

         The   Company's   principal   customers   are   domestic   and  foreign
manufacturers  of rubber and plastic  materials.  The Company's  customers often
purchase  significant  equipment  for  new  plants,  plant  expansion  or  plant
modernization.  Purchases by any single  customer  typically vary  significantly
from year to year according to each  customer's  capital  equipment  needs. As a
result, the composition of the Company's customers may vary from one year to the
next.  The Company  considers its  operations to be one operating  segment.  The
sales,  manufacturing,  assembly  and  distribution  are  essentially  the same.
Segment information for new equipment sales, aftermarket sales, geographic sales
and operating results for fiscal 2001, 2000, and 1999 are reported in Note 16 to
the Consolidated Financial Statements.

         The  Company's  products  are sold  primarily  by its direct  sales and
support staff  augmented by agents in certain foreign  countries.  The Company's
sales  organization  is  headquartered  in Ansonia,  Connecticut  and  Rochdale,
England.


Page 3 of 49
<PAGE>

The Company has additional  sales and service offices  strategically  located in
the  United  States  and  a  representative  office  in  Singapore.  In  certain
geographic areas outside the United States, sales are facilitated by independent
representatives who assist employees of the Company.

PROCESS LABORATORY SERVICES

         The Company maintains two process laboratories in Ansonia,  Connecticut
and one  laboratory  in  Rochdale,  England.  In  addition,  the  Company has an
agreement  with a research  and  development  organization  in Taiwan to use and
demonstrate the Company's technology.  This contractual arrangement provides the
Company  with  laboratory  facilities  in Asia to  complement  the U.S. and U.K.
laboratories.  The Company uses its laboratories to demonstrate the capabilities
of its  processing  equipment  and to provide  customers  with  production-sized
equipment  in  order  to  experiment   with  new   processing   techniques   and
formulations.  The  Company  considers  its  process  laboratories  to be  vital
contributors to its continuing technology  development and marketing efforts and
routinely modernizes its process laboratories and related equipment.

COMPETITION

         The  Company's  products  are  sold  in  highly  competitive  worldwide
markets.  A number of companies  compete  directly  with the Company in both the
rubber and plastics  processing markets.  Numerous  competitors of varying sizes
compete  with the Company in one or more of its product  lines.  A number of the
Company's  competitors  are  former  licensees  of  the  Company,  divisions  or
subsidiaries of larger companies with financial and other resources greater than
those of the  Company  or  copycats  that  mimic the  Company's  technology  and
designs.  The  Company  has  historically  faced,  and  will  continue  to face,
considerable competitive pressures, particularly predatory price competition and
nationalistic  preferences.  The Company believes that the principal competitive
factors affecting its business are price,  performance,  technology,  breadth of
product line, product availability, reputation and customer service.

         The Company also faces strong  competition in the markets for its spare
parts and repair,  refurbishment  and equipment  upgrade  services from regional
service  firms  that take  advantage  of low  barriers  to entry and  geographic
proximity to certain of the Company's customers in order to compete on the basis
of price and service.  The Company  believes that it generally has a competitive
advantage  in these  markets due to the  superior  quality of its  products  and
services.

BACKLOG

         The  Company's  backlog  of orders  considered  firm by  management  at
December 31, 2001, 2000 and 1999 was approximately $18.1 million,  $27.7 million
and $28.9 million, respectively. Substantially all of the orders included in the
December  31, 2001  backlog have  contractual  ship dates in fiscal  2002.  Firm
backlog at March 25, 2002 and March 26, 2001 was $23.4  million and $29 million,
respectively.

         As of  December  31,  2001,  the  Company's  backlog  was at its lowest
year-end level since the Company  became public.  As a result the Company is now
more dependent on obtaining orders, including those with shorter delivery times,
in order to cover fixed expenses,  particularly  in the U.K.,  where the Company
maintains its manufacturing operations.


Page 4 of 49
<PAGE>

MANUFACTURING

         The Company's manufacturing facility in Rochdale,  England provides the
Company  with fully  integrated  manufacturing  capability  including a complete
range  of  machining  and  fabrication  equipment  used to  produce  proprietary
components.  Final assembly,  product testing and quality control activities are
performed  by Company  personnel  in both the U.S. and U.K. The Company also has
repair and rebuild  operations in Ansonia,  Connecticut;  Deer Park,  Texas; and
Rochdale, England and contracts for such services in Australia and Singapore.

         The  Company's  consolidation  of its  Derby and  Ansonia,  Connecticut
assembly, repair and spare parts operations, into available space in Ansonia was
completed in 1998 and yielded  significant  reductions in operating  costs.  The
Derby, Connecticut facility was sold in January 1999.

         The production equipment acquired in the 1997 Shaw acquisition, located
in Manchester,  England,  was transferred to Farrel Limited's facility in nearby
Rochdale,  England.  The facility  integration  was completed  during the second
quarter of 1999 and has generated  substantial  cost  reductions  and production
efficiencies.

         The Company  believes the Ansonia,  Connecticut  and Rochdale,  England
facilities  provide  the  Company  with  the  cost  structure  to  maintain  its
competitive position.

COMPONENTS AND RAW MATERIALS

         The Company  purchases  most of the  components  used in producing  its
machines  from  reliable  domestic and  international  suppliers.  The basic raw
materials  used by the Company are steel plates,  bars,  castings,  forgings and
hard-surfacing alloys. Principal components and raw materials are available from
a number of sources. The Company is not dependent on any supplier that cannot be
replaced in the normal course of business.  The Company's  U.K.  subsidiary is a
major source of large-scale components of proprietary designs.

RESEARCH AND DEVELOPMENT AND ENGINEERING

         The  Company's  research and  development  and  engineering  staffs are
located in Ansonia,  Connecticut and Rochdale,  England.  Their major activities
are:  application  engineering for specific customer orders;  standardization of
existing machinery as part of the Company's ongoing cost reduction measures; and
development  of new  products and product  features.  The  Company's  twin screw
rubber  sheeter  as well as the  recent  development  of a new very  large-scale
pelletizing   system  for  the  petrochemical   industry  are  examples  of  the
collaborative  success of the research and development  and product  engineering
staffs to produce a new product. Current development activities are in the batch
mixing process. The acquisition of the INTERMIX(R)  intermeshing  technology and
rotor design development provides  opportunities to strengthen our business with
batch mixer  customers.  A summary of research and  development  and engineering
expenditures incurred during the last three fiscal years is as follows:


                                                 Year      Year      Year
                                                ended     ended     ended
                                               12/31/01  12/31/00  12/31/99
                                               --------  --------  --------
                                                   (Dollars in thousands)

Research and development expense
 pertaining to new products or
 significant improvements to existing
 products                                       $1,354    $1,580    $1,570

All other product development and
 engineering expenditures related to
 ongoing refinements, improvements of
 existing products, and custom engineering       2,700     3,224     3,580
                                                ------    ------    ------

Total                                           $4,054    $4,804    $5,150
                                                ======    ======    ======

Percent of net sales                               7.2%      7.5%      6.9%


Page 5 of 49
<PAGE>

PATENTS AND TRADEMARKS

         The Company  possesses  rights  under a number of domestic  and foreign
patents and trademarks relating to its products and business.  The Company holds
approximately  193 patents  that cover  technology  utilized in its products and
currently  has  approximately  14 patent  applications  pending.  The  Company's
patents have  expiration  dates  ranging from 2002  through  2017.  Although the
Company  believes  that its patents  provide  some  competitive  advantage,  the
Company also depends upon trade  secrets,  unpatented  proprietary  know-how and
continuing  technological  innovation  to develop and maintain  its  competitive
advantage.

         The Company  considers the  following  trademarks to be material to its
business: FARREL(R); BANBURY(R); INTERMIX(R); ST(TM); MVX(TM); CP-SERIES II(TM);
FTX(TM); and TSS(TM).

ENVIRONMENTAL

         The Company  and The Black & Decker  Corporation  ("Black and  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
12, 1986 environmental  contamination at the Company's Ansonia and former Derby,
Connecticut   facilities   as  required  by  the   Connecticut   Department   of
Environmental  Protection ("DEP").  Black and Decker has conducted a preliminary
environmental  assessment  of the Ansonia and Derby  facilities.  Although  this
assessment is still being  evaluated by the DEP, on the basis of the preliminary
data available  there is no reason to believe that any activities  that might be
required  as a result of the  findings  of the  assessment  will have a material
effect upon the capital expenditures,  results of operations, financial position
or the competitive position of the Company.

EMPLOYEES

         As of December 31, 2001, the Company had 321 employees  compared to 376
employees at December 31, 2000. The workforce reduction is primarily a result of
the Company's ongoing  restructuring  activities.  Approximately 31 employees in
the U.S. are covered by a collective  bargaining agreement which expires on June
15, 2003. In the U.K., the Company is a party to non-binding  national and local
collective  bargaining  agreements  with  several  U.K.  unions,  which cover 65
employees.

ITEM 2 - PROPERTIES

         The  following  table sets forth  certain  information  concerning  the
Company's principal facilities, all of which are owned by the Company.

         Location           Principal Use                       Approx. Sq. Ft.
--------------------------------------------------------------------------------
Ansonia, Connecticut....    Office, research, laboratory,               520,000
                            repair, rebuild, assembly and
                            storage
Deer Park, Texas........    Repair and rebuild                           22,000
Rochdale, England.......    Office, research, laboratory,               210,000
                            manufacturing, repair and rebuild,
                            and storage

         The Company  believes that the facilities used in its operations are in
satisfactory  condition  and  adequate  for its present and  anticipated  future
operations. In addition to the facilities listed above, the Company leases space
in various  domestic and  international  locations,  primarily  for use as sales
offices.


Page 6 of 49
<PAGE>

ITEM 3 - LEGAL PROCEEDINGS

         As of the date hereof,  the Company is not aware of any  contamination,
other than  pre-May  12, 1986  contamination  (as  described  in Part I, Item 1,
Environmental),   at  any  of  its  facilities   that  would  require   material
environmental remediation costs.

         The Company is a defendant in certain  lawsuits arising in the ordinary
course of business,  primarily  related to product  liability  claims  involving
machinery manufactured by the Company or its predecessors.  While the outcome of
lawsuits or other  proceedings  against the Company cannot be predicted with any
certainty,  the Company does not expect that these  matters will have a material
adverse effect on the Company's financial position or results of operations.




















Page 7 of 49
<PAGE>

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

              None.
























Page 8 of 49
<PAGE>

                                     PART II

ITEM 5 - MARKET  FOR THE  REGISTRANT'S  COMMON  STOCK  AND  RELATED  STOCKHOLDER
MATTERS.

       (a) Price Range of Common Stock and Dividends

         The  Company's  Common Stock is traded on the OTC Bulletin  Board.  The
following  chart sets  forth the high and low  prices  for the Common  Stock and
dividends declared for the last two fiscal years:

Fiscal 2001                      High         Low          Dividend
-----------                      ----         ---          --------
First Quarter                    $0.97        $0.75        -
Second Quarter                   $0.75        $0.54        -
Third Quarter                    $0.89        $0.58        -
Fourth Quarter                   $1.01        $0.55        -

Fiscal 2000                      High         Low          Dividend
-----------                      ----         ---          --------
First Quarter                    $2.22        $1.75        $0.04
Second Quarter                   $1.87        $1.38        $0.04
Third Quarter                    $1.62        $1.25        $0.04
Fourth Quarter                   $1.46        $0.69        -



       (b) As of March 25, 2002 the approximate  number of record holders of the
Company's common stock was 1,100.

       (c) Dividends

         No cash dividends were declared for the quarter ended December 31, 2000
and for any period in fiscal 2001.  The Company pays quarterly cash dividends on
its  Common  Stock  as  its  Board  of  Directors   deems   appropriate,   after
consideration of the Company's  operating  results,  financial  condition,  cash
requirements,  general  business  conditions,  compliance  with covenants in the
credit  facility  (see  Management's  Discussion  and Analysis of Liquidity  and
Capital  Resources)  and such  other  factors  as the Board of  Directors  deems
relevant.

       (d) There were no sales or issuance's of the Company's equity shares that
were not registered under the Securities Act.


Page 9 of 49
<PAGE>

ITEM 6 - SELECTED CONSOLIDATED FINANCIAL DATA

<TABLE>
<CAPTION>

                                                          Year        Year         Year        Year        Year
                                                         ended       ended        ended       ended        ended
                                                        12/31/01    12/31/00     12/31/99    12/31/98     12/31/97
                                                        --------    --------     --------    --------     --------
Statement of Operations Data:                                     (In thousands, except per share data)

<S>                                                     <C>         <C>          <C>         <C>          <C>
Net sales (1) .......................................   $ 56,249    $ 64,223     $ 74,455    $ 98,267     $ 85,550
                                                        ========    ========     ========    ========     ========
Gross margin ........................................   $ 13,844    $ 15,158     $ 18,156    $ 22,772     $ 17,711
                                                        ========    ========     ========    ========     ========
   As a percent of net sales ........................       24.6%       23.6%        24.4%       23.2%        20.7%
                                                        ========    ========     ========    ========     ========
Operating income (loss) .............................   $  1,114    ($   837)    $  1,204    $  4,521     $  1,542
   Other income (expense), net (2) ..................         73        (129)       1,671        (698)         542
                                                        --------    --------     --------    --------     --------
Income (loss) before income taxes ...................      1,187        (966)       2,875       3,823        2,084
Provision  for income taxes .........................        397          17        1,115       1,546          727
                                                        --------    --------     --------    --------     --------
Net income (loss) ...................................   $    790    ($   983)    $  1,760    $  2,277     $  1,357
                                                        ========    ========     ========    ========     ========

Net income (loss) per share - Basic and Diluted .....   $   0.15    ($  0.19)    $   0.32    $   0.38     $   0.23
                                                        ========    ========     ========    ========     ========
Dividends per share of Common Stock .................       --      $   0.12     $   0.24    $   0.08     $   0.64
                                                        ========    ========     ========    ========     ========
Weighted  Average Shares Outstanding - Basic (000's)       5,229       5,249        5,448       5,942        5,950
                                                        ========    ========     ========    ========     ========
Weighted Average Shares Outstanding - Diluted (000's)      5,231       5,249        5,454       5,966        5,951
                                                        ========    ========     ========    ========     ========

Balance Sheet Data:
   Current assets ...................................   $ 26,845    $ 30,581     $ 34,445    $ 48,273     $ 37,104
   Current liabilities ..............................   $ 11,011    $ 16,277     $ 16,930    $ 28,893     $ 23,286
   Working capital ratio ............................        2.4         1.9          2.0         1.7          1.6
   Total assets .....................................   $ 35,966    $ 43,932     $ 48,862    $ 63,265     $ 56,381
   Long-term debt ...................................   $  1,019    $  1,194     $  2,584    $  3,983     $  5,283
   Stockholders' equity (3) .........................   $ 19,705    $ 23,963     $ 25,864    $ 26,301     $ 25,782

Other Data:
   Backlog ..........................................   $ 18,101    $ 27,680     $ 28,929    $ 33,269     $ 46,554
</TABLE>


(1)  Information  for years  prior to 2000 were  restated in 2000 to reflect the
     adoption of Emerging Issues Task Force  consensus Issue 00-10,  "Accounting
     for Shipping and Handling Fees and Costs".

(2)  1999 Other Income includes $1.9 million gain from the sale of real estate.

(3)  Amount as of  December  31,  2001,  reflects a charge to equity  related to
     pension  plan  accounting.  See  Note  11  to  the  Consolidated  Financial
     Statements.


Page 10 of 49
<PAGE>

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

SAFE HARBOR STATEMENTS UNDER PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

         Certain  statements   contained  in  the  Company's  public  documents,
included 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;  the Company's access to adequate financing
at competitive rates and other factors that might be described from time to time
in the Company's filings with the Securities and Exchange Commission.

FISCAL 2001 COMPARED TO FISCAL 2000

         Net  sales in 2001 and 2000  were  $56.2  million  and  $64.2  million,
respectively,  a decrease of $8.0  million.  The decrease in net sales is due to
lower sales in North America of $17.0 million partially offset by an increase in
new machine  sales in Europe.  The timing of the Company's  sales,  particularly
sales of new  machines,  is highly  dependent on when an order is received,  the
amount of lead-time  from  receipt of order to delivery  and  specific  customer
requirements.  The Company  operates in markets that are  extremely  competitive
with cyclical  demand.  Many of our  customers and markets  operate at less than
full  capacity  and certain  markets  remain  particularly  competitive  and are
subject to local economic conditions.

         The Company  received $47.0 million in orders in 2001 compared to $62.7
million for 2000.  The  decrease is  primarily  due to lower new machine  orders
received in Europe.

         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 twelve 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  periods
during which time economic conditions in various geographic markets of the world
impact our level of order intake.  Many of the Company's  traditional  customers
and markets are operating with excess  capacity  thereby  reducing the number of
projects for plant  expansion  and  modernization.  The Company is  experiencing
increased  pricing  pressures from our competitors in an overall smaller market.
In addition, since its introduction, the decline in the value of the Euro versus
the US dollar and British pound sterling has increased  pricing  pressures.  The
Euro's  weakness  provides  substantial  advantages  to our  competitors  in the
Euro-zone.  These conditions are resulting in customer orders with lower margins
and lost  business.  Further,  the  cyclical  nature  of  industry  demand  and,
therefore, the timing of order intake may effect the Company's quarterly results
in the current and future fiscal quarters. The Company's ability to maintain and
increase net sales depends upon a  strengthening  and stability in the Company's
traditional  markets and our ability to control costs to effectively  compete in
the  current  market.  There  can be no  assurance  that  the  level  of  orders
experienced in 2001 will continue,  that market  conditions will not worsen,  or
that  improvements in the Company's  traditional  markets will lead to increased
orders for the Company's products.

         Gross margin in 2001 was $13.8  million  compared to $15.2  million for
2000,  a decrease of $1.3  million.  The decrease in gross margin is a result of
lower sales.  The gross margin as a percent of sales for 2001 was 24.6% compared
to 23.6% for  2000.  The  increase  in gross  margin  as a  percent  of sales is
primarily due to a change in sales mix.

         Operating expenses in 2001 were $12.7 million compared to $16.0 million
in 2000,  a decrease of $3.3  million.  The  decrease is  primarily  due to $2.5
million in lower employee  compensation and related expenses and $0.5 million in
lower travel expenses.  The remaining  decrease is in various different types of
expenses.

         Interest  expense in 2001 was $0.2 million  compared to $0.3 million in
2000. Interest income was $0.2 million in 2001 and 2000.

         Net other income was $66,000 in 2001  compared to net other  expense of
$86,000 in 2000.

Page 11 of 49
<PAGE>

         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  provision  for income  taxes in 2001
represents  primarily  income tax expense related to pre-tax income generated by
the  Company's  U.K.  operations.  The  provision  for  income  taxes in 2000 is
comprised of $498,000 of income tax expense related to pre-tax income  generated
by the Company's U.S. operations offset by a $481,000 income tax benefit related
to a pre-tax loss generated by the Company's U.K. operations.

FISCAL 2000 COMPARED TO FISCAL 1999

         Net  sales in 2000 and 1999  were  $64.2  million  and  $74.4  million,
respectively,  a  decrease  of  $10.2  million.  The  decrease  in net  sales is
primarily due to lower sales in the European markets  resulting from weak demand
and the  detrimental  effect of the strength of the US dollar and British  Pound
Sterling  versus  the  Euro.  The  weakness  of the  Euro  provides  substantial
advantages  to our  competitors  located  in the  Euro-zone.  The  timing of the
Company's sales, particularly sales of new machines, is highly dependent on when
an order is received,  the amount of lead-time from receipt of order to delivery
and specific  customer  requirements.  The Company  operates in markets that are
extremely  competitive with cyclical  demand.  Many of our customers and markets
operate at less than full  capacity  and  certain  markets  remain  particularly
competitive and are subject to local economic conditions.

         The Company  received $62.7 million in orders in 2000 compared to $70.0
million for 1999.  The  decrease is  primarily  due to lower new machine  orders
received in North America  offset to some extent by increased new machine orders
received in the European markets.

         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 twelve 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  periods
during which time economic conditions in various geographic markets of the world
impact our level of order intake.  Many of the Company's  traditional  customers
and markets are operating with excess  capacity  thereby  reducing the number of
projects for plant  expansion  and  modernization.  The Company is  experiencing
increased  pricing  pressures from our competitors in an overall smaller market.
In  addition,  the  decline  in the value of the Euro  versus  the US dollar and
British pound sterling has increased  pricing  pressures.  These  conditions are
resulting in customer orders with lower margins and lost business.  Further, the
cyclical  nature of industry demand and,  therefore,  the timing of order intake
may effect the  Company's  quarterly  results in the current  and future  fiscal
quarters.  The Company's ability to maintain and increase net sales depends upon
a  strengthening  and  stability in the  Company's  traditional  markets and our
ability to control costs to effectively compete in the current market. There can
be no assurance that the level of orders experienced in 2000 will continue, that
market  conditions  will  not  worsen,  or that  improvements  in the  Company's
traditional markets will lead to increased orders for the Company's products.

         Gross margin in 2000 was $15.2  million  compared to $18.2  million for
1999, a decrease of $3.0 million.  The margin percentage decreased to 23.6% from
24.4%.  The  decrease  in  comparative  periods  margin as a percent of sales is
primarily  attributed to changes in product mix,  competitive  pricing pressures
and higher warranty costs.  New machine  shipments in 1999 included more Compact
Processing machines which tend to have higher margins than other new machines.

         Operating expenses in 2000 were $16.0 million compared to $17.0 million
in 1999, a decrease of $1.0 million.  Approximately  half the decrease is due to
lower employee compensation and related benefit costs with the remaining decline
due to small decreases in numerous expenses.

         During  2000,  the  Company  incurred  $326,000 of  severance  payments
related to headcount  reductions,  predominately in the Company's UK operations.
Of these payments, $77,000 was charged to cost of sales and $249,000 was charged
to selling, general and administrative expenses.

         Interest  expense in 2000 was $0.3 million  compared to $0.4 million in
1999. The decrease is due to lower average  borrowings.  Interest income in 2000
was $0.2 million  compared to $0.4 million in 1999. The decrease is due to lower
average cash balances available for investment.


Page 12 of 49
<PAGE>

         Net other expense in 2000 and 1999 was $0.1 million.

         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 provision for income taxes is comprised
of $498,000  of income tax expense  related to pretax  income  generated  by the
Company's U.S.  operations  offset by a $481,000 income tax benefit related to a
pre-tax loss generated by the Company's UK operations.

MATERIAL CONTINGENCIES

         As  described  in Part I,  Item 1,  Environmental,  on the basis of the
preliminary  data  now  available  there  is  no  reason  to  believe  that  any
remediation activities that the DEP might require as a result of the findings of
the  assessment  at the Ansonia and Derby,  Connecticut  facilities  will have a
material effect upon the capital expenditures,  results of operations, financial
position  or the  competitive  position of the  Company.  This  forward  looking
statement  could,  however,  be  influenced  by any  findings  of  environmental
contamination  attributable to post-May 12, 1986 activities,  the results of any
further  investigation  that 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.

ORDERS AND BACKLOG

         Orders  received by the Company  during  2001  decreased  approximately
$15.7 million,  or approximately 25%, to approximately $47.0 million compared to
$62.7 million in fiscal 2000.

         The Company's  products are  primarily  supplied to  manufacturers  and
represent capital commitment for new plants, expansion or modernization.  In the
case of major equipment orders, up to twelve 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  periods
during which  economic  conditions  in various  geographic  markets of the world
impact our level of order intake.  Many of the  Company's  customers and markets
are operating with excess  capacity  thereby  reducing the number of projects in
our traditional  markets for plant expansion and  modernization.  The Company is
experiencing  increased  pricing  pressures  from our  competitors in an overall
smaller market. In addition,  the decline in the value of the Euro versus the US
dollar and  British  pound  sterling  has  increased  pricing  pressures.  These
conditions are resulting in customer  orders with lower margins and lost orders.
Further,  the cyclical nature of industry demand and,  therefore,  the timing of
order  intake may effect the  Company's  quarterly  results in the  current  and
future fiscal quarters. The Company's ability to maintain and increase net sales
depends upon a strengthening and stability in the Company's  traditional markets
and our ability to control costs to effectively  compete in the current  market.
There can be no  assurance  that the level of  orders  experienced  in 2001 will
continue,  that market  conditions will not worsen,  or that improvements in the
Company's  traditional  markets will lead to increased  orders for the Company's
products.

         The level of backlog considered firm by management at December 31, 2001
and 2000 is $18.1 million and $27.7 million,  respectively. The contractual ship
dates for  substantially  all of the December  31, 2001 backlog is in 2002.  The
backlog at March 25, 2002 and March 26, 2001 was $23.4  million and $29 million,
respectively.

         As of  December  31,  2001,  the  Company's  backlog  was at its lowest
year-end level since the Company  became public.  As a result the Company is now
more dependent on obtaining orders, including those with shorter delivery times,
in order to cover fixed expenses,  particularly  in the U.K.,  where the Company
maintains its manufacturing operations.


Page 13 of 49
<PAGE>

LIQUIDITY AND CAPITAL RESOURCES; CAPITAL EXPENDITURES

         Working capital and the working capital ratio at December 31, 2001 were
$15.8 million and 2.4 to 1.0, respectively, compared to $14.3 million and 1.9 to
1.0 at December 31, 2000, respectively.  During the year ended December 31, 2000
the Company paid dividends of $0.12 per share. No dividends were paid during the
year ended December 31, 2001.

         During 1999, the Company extended its  discretionary  open market stock
repurchase program,  increasing the amount to be used to repurchase common stock
by $2.5 million to $4,750,000.  During 2001 and 2000 the Company has repurchased
1,600 and 20,000 shares of common stock,  respectively,  at varying times and in
varying amounts totaling  approximately  $1,000 and $16,000,  respectively.  The
repurchased  shares  are  held in  treasury  (See  Note  10 to the  Consolidated
Financial Statements).

         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 from
time to time and may result in  significant  fluctuations  in cash provided from
operating activities.  Historically, the Company has not experienced significant
problems  regarding  the  collection  of  accounts  receivable.  The Company has
historically  financed its operations  with cash  generated by operations,  with
customer progress payments and borrowings under its bank credit facilities.

         In June 2001, the Company  entered into a new worldwide  multi-currency
credit  facility  with a major US bank.  This  facility  includes a $10  million
revolving  credit  facility  for direct  borrowings  and letters of credit.  The
facility  contains a  sub-limit  that caps the amount of direct  borrowings  the
Company can make at $5 million.  The revolving  credit facility  expires on June
15, 2003.  The facility  contains  limits on direct  borrowings and issuances of
letters of credit based upon stipulated  percentages of accounts  receivable and
inventory.  The facility, as amended, also contains covenants specifying minimum
and/or maximum thresholds for operating  results,  selected financial ratios and
backlog.  The backlog  covenant  requires  that end of month backlog will not be
less than $20 million for more than two consecutive  months. The Company did not
achieve  the  backlog  covenant  as of the end of  January  and  February  2002;
however,  the bank waived the  non-compliance.  The agreement  contains  certain
restrictions  on  investments,  borrowings  and  the  sale of  assets.  Dividend
declarations or payments are allowed under this credit facility as long as there
exists  under the credit  facility no Event of Default (as defined in the credit
facility)  or no  condition  which upon giving  notice or lapse of time or both,
would  become  an Event of  Default.  The  Company's  old  credit  facility  was
terminated except in relation to approximately $0.1 million of letters of credit
which had  previously  been  posted  under  that  facility  and  continue  to be
outstanding on December 31, 2001. The Company has approximately  $1.6 million of
letters of credit posted under its new facility on December 31, 2001.

         In June 2001,  the Company also entered into a term loan for (pound)1.4
million (approximately $2 million) as part of this credit facility. The proceeds
of this loan were used to repay an existing  term loan of the same  amount.  The
new  term  loan  is  repayable   in  monthly   installments   of   (pound)38,888
(approximately $55,000) through June 2004. The term loan has an interest rate of
LIBOR plus 2.7%.  The term loan balance  outstanding  on December 31, 2001,  was
$1.7 million.

         Management anticipates that its cash balances, operating cash flows and
the credit line will be adequate to fund its anticipated capital commitments and
working capital  requirements  for at least the next twelve months.  The Company
made capital  expenditures of approximately  $0.6 and $1.1 million during fiscal
2001 and 2000.

         In fiscal 2000, new legal minimum funding  guidelines for pension plans
became  effective in the U.K. which are  significantly  different than the prior
guidelines.  Based  upon the new  guidelines  the  Company is  required  to make
significant  cash  contributions  to the Company's U.K.  pension plan.  Prior to
2000, the Company was not required to make substantial contributions to the U.K.
pension plans. In 2001 and 2000, the Company contributed  approximately $799,000
and $946,000 to the U.K.  pension  plan.  The Company  anticipates  that it will
continue to be required to make  substantial  contributions in the same order of
magnitude to the U.K.  pension plan in the coming years;  however,  the level of
future   contributions  is  subject  to  several  factors  including  investment
performance on existing assets.


Page 14 of 49
<PAGE>

         The  Company  manufactures  and  assembles  its  products  in the U.K.,
assembles its products in the U.S. and sells its products in the U.S.,  U.K. and
other foreign markets. The Company's financial position and results are affected
by changes in foreign currency exchange rates in the foreign markets in which it
operates. When the value of the U.S. dollar or U.K. sterling strengthens against
other  currencies,  the  value  of  the  transaction  in  the  foreign  currency
decreases.  The Company, from time to time, enters into foreign exchange forward
contracts to hedge foreign currency transactions.  Foreign currency transactions
generally  are for  periods of no more than  twelve  months.  In  addition,  the
Company maintains foreign currency bank accounts in other currencies in which it
regularly transacts business.

         The Company's  interest  income and expense are sensitive to changes in
the market level of interest rates.  The changes in interest rates earned on the
Company's cash  equivalents and short term  investments as well as interest paid
on its debt are variable and are adjusted to market conditions.

FINANCIAL POSITION

         The  Accumulated  Other  Comprehensive  Loss  section of  stockholders'
equity  reflects a charge of $4.8 million at December  31, 2001,  related to the
Company's  pension plans. Of this amount,  $4.2 million relates to the Company's
U.K. pension plan. The U.K. plan experienced a significant  decline in the value
of its  assets  during  2001.  As a result of the poor  investment  performance,
mid-year  the  plan's  trustees  moved  the  asset  management  to  a  different
investment  manager.  The  decline in the assets  resulted in a  requirement  to
record a minimum  pension  liability  of $2.6  million for the U.K.  plan.  This
requirement  resulted  in a net of tax  charge to  stockholders'  equity of $4.2
million.  This charge was  required to write down the existing  prepaid  pension
asset and establish a net liability.

EURO CONVERSION

         On January 1, 1999,  the European  Economic and Monetary  Union entered
into a three-year  transition phase during which a common  currency,  the "EURO"
was introduced in participating  countries. The Company does not have operations
in the participating countries and the conversion to the EURO is not expected to
have  a  material  impact  on  the  Company's  financial  position,  results  of
operations  or cash  flows,  except as it  relates to the  previously  described
competitive price  disadvantages due to the relative weakness of the Euro versus
the U.S. dollar and British Pound Sterling.

IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

         In June  1998,  the FASB  issued  Statement  No.  133,  Accounting  for
Derivative Instruments and Hedging Activities, which the Company was required to
adopt on January 1, 2001.  The  statement  requires 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  adoption  of  this  statement  did  not  have  a
significant effect on the Company's results of operations or financial position.

         In the fourth  quarter of 2000,  the Company was  required to adopt the
Emerging Issues Task Force  Consensus  Issue 00-10  "Accounting for Shipping and
Handling Fees and Costs"  ("EITF00-10"),  and SEC Staff Accounting  Bulletin 101
"Revenue  Recognition"  ("SAB-101").   As  a  result  of  EITF00-10,   financial
statements  prior to the fourth  quarter of 2000,  were  restated  to reflect as
revenue, amounts received from customers as reimbursement for freight costs paid
by the Company on their behalf. Such reimbursement had previously been reflected
as a reduction to the related  expenses.  The adoption of SAB-101 did not have a
material  impact on the prior annual  financial  statements but it did result in
changes in the timing of when certain  revenues were recognized  within a fiscal
year.


Page 15 of 49
<PAGE>

         In  June  2001,  the  Financial   Accounting   Standards  Board  issued
statements  No.  142  (Goodwill  and  Other  Intangible   Assets)  and  No.  143
(Accounting for Asset Retirement Obligations). Statement No. 142 must be adopted
by the  Company in  January  2002 and  statement  No. 143 must be adopted by the
Company no later than January 2003. Statement No. 142 changes the accounting for
Goodwill  and Other  Intangible  Assets,  such that those  assets  whose life is
determined to be indefinite are not subject to amortization.  These assets shall
be tested  for  impairment  at least  annually,  and the  value  will need to be
written down if the fair value is less than the carrying  value.  Statement  No.
143  requires  that a  liability  must be  recognized  for an  asset  retirement
obligation  related  to long  lived  tangible  assets.  The  liability  shall be
recorded at fair value.  The Company does not  anticipate  the adoption of these
statements will have a significant  effect on its financial  position or results
of operations.

         In  August  2001,  the  Financial  Accounting  Standards  Board  issued
statement  No. 144  (Accounting  for the  Impairment  or Disposals of Long-lived
Assets).  Statement No. 144 must be adopted by the Company in January 2002. This
statement  requires an impairment loss to be recognized if the carrying value of
a long-lived  asset (asset group) is not recoverable and exceeds its fair value.
Long-lived  assets (asset group) shall be tested for impairment  whenever events
or  changes  in  circumstances  indicate  that its  carrying  amount  may not be
recoverable.  At the time of  adoption,  the  Company  does not  anticipate  the
adoption  of this  statement  will have a  significant  effect on its  financial
position or results of operations.

CRITICAL ACCOUNTING POLICIES

         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results can differ from those estimates.  The Company
believes  that  of  its  significant  accounting  policies  (see  Note  1 to the
Consolidated Financial Statements), the following may involve a higher degree of
judgement and complexity.

REVENUE RECOGNITION

         Revenue on new  machine  sales is  recognized  upon  completion  of the
customer  contract,  which  generally  coincides with delivery.  When customers,
under the terms of specific orders or contracts,  request that the Company delay
shipment of the manufactured  equipment,  the Company  recognizes  revenue based
upon receiving contractual  confirmation of acceptance of the equipment from the
customer and legal  transfer of title and risk of loss to the customer.  Revenue
on repair and  refurbishment  of customer owned machines is recognized  when the
contractual work is completed. Spare parts revenue is recognized upon shipment.

WARRANTY

         Equipment  sold is  generally  covered  by a  warranty  of one to three
years.  The Company's  estimate of costs to service its warranty  obligations is
based on historical  experience and  expectations of future  conditions.  To the
extent the Company experiences  increased warranty claim activity,  or increased
costs in servicing those claims,  its warranty accrual will increase,  resulting
in decreased gross profit.

DEFERRED TAX ASSETS

         The Company has a valuation allowance to reduce its deferred tax assets
to the amount that is more likely than not to be realized. While the Company has
considered  future taxable income and ongoing  prudent and feasible tax planning
strategies in assessing the need for a valuation  allowance,  should the Company
determine  that it would not be able to realize all or part of its net  deferred
tax asset in the  future,  an  adjustment  to the  deferred  tax asset  would be
charged to income in the period such determination was made.

INVENTORY RESERVES

         The  Company  maintains  reserves  for  estimated  excess and  obsolete
inventory  to reflect a write down of the value of  unsaleable  inventory  based
upon  evaluations of slow moving items.  If future demand is different from that
anticipated by management, these reserves may need to be adjusted.


Page 16 of 49
<PAGE>

ITEM 7A - 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  revenues are 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 through the use of foreign exchange forward contracts. The Company,
from time to time,  enters into  foreign  exchange  forward  contracts  to hedge
foreign  currency  transactions.  These derivative  instruments  usually involve
little complexity and are generally for periods of less than twelve months.  The
Company  does not  enter  into  derivative  contracts  for  speculative  trading
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 these interest rates are not expected
to have a material impact on the Company's results of operations.

















Page 17 of 49
<PAGE>

ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                               FARREL CORPORATION
                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

                                                                          Page
                                                                          ----

Report of Independent Auditors ............................................19

Financial Statements:

Consolidated Balance Sheets as of December 31, 2001 and 2000 ..............20

Consolidated Statements of Operations for the years ended
 December 31, 2001, 2000, and 1999 ........................................21

Consolidated Statements of Stockholders' Equity for the years
 ended December 31, 2001, 2000 and 1999 ...................................22

Consolidated Statements of Cash Flows for the years ended
 December 31, 2001, 2000 and 1999 .........................................23

Notes to Consolidated Financial Statements ...........................24 - 39




















Page 18 of 49
<PAGE>

                         Report of Independent Auditors



The Board of Directors and Stockholders
Farrel Corporation

We  have  audited  the  accompanying   consolidated  balance  sheets  of  Farrel
Corporation  as of  December  31, 2001 and 2000,  and the  related  consolidated
statements of  operations,  stockholders'  equity and cash flows for each of the
three years in the period ended December 31, 2001.  These  financial  statements
are the  responsibility of the Company's  management.  Our  responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated financial position of Farrel
Corporation at December 31, 2001 and 2000, and the  consolidated  results of its
operations  and its cash flows for each of the three  years in the period  ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States.

                                Ernst & Young LLP



Stamford, Connecticut
February 1, 2002



















Page 19 of 49
<PAGE>

                               FARREL CORPORATION
                           CONSOLIDATED BALANCE SHEETS
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                          12/31/01    12/31/00
                                                                          --------    --------
   ASSETS
Current Assets:
  <S>                                                                     <C>         <C>
  Cash and cash equivalents ...........................................   $  5,579    $  2,486
  Accounts receivable, net of allowance for doubtful
   accounts of $179 and $139, respectively ............................      9,416      13,607
  Inventory ...........................................................     10,554      12,411
  Deferred income taxes ...............................................        423         793
  Other current assets ................................................        873       1,284
                                                                          --------    --------
    Total current assets ..............................................     26,845      30,581
Property, plant and equipment, net of accumulated
  depreciation of $14,995 and $14,037, respectively ...................      8,101       9,538
Prepaid pension costs .................................................       --         3,514
Deferred income taxes .................................................        764        --
Other assets ..........................................................        256         299
                                                                          --------    --------
Total assets ..........................................................   $ 35,966    $ 43,932
                                                                          ========    ========
   LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
  Accounts payable ....................................................   $  4,393    $  6,400
  Accrued expenses and taxes ..........................................      1,482       1,660
  Advances from customers .............................................      3,452       5,948
  Accrued  warranty costs .............................................      1,004       1,075
  Short-term debt .....................................................        680       1,194
                                                                          --------    --------
   Total current liabilities ..........................................     11,011      16,277
Long-term debt ........................................................      1,019       1,194
Postretirement benefit obligation .....................................      1,076       1,118
Minimum pension obligations ...........................................      3,155        --
Deferred income taxes .................................................       --         1,380
Commitments and contingencies .........................................       --          --
                                                                          --------    --------
   Total liabilities ..................................................     16,261      19,969
                                                                          --------    --------
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, 913,645 and 912,045 shares at December
  31, 2001 and 2000, respectively, at cost ............................     (2,530)     (2,529)
  Retained earnings ...................................................      9,120       8,330
  Accumulated other comprehensive loss ................................     (6,241)     (1,194)
                                                                          --------    --------
   Total stockholders' equity .........................................     19,705      23,963
                                                                          --------    --------
Total liabilities and stockholders' equity ............................   $ 35,966    $ 43,932
                                                                          ========    ========
</TABLE>

                 See Notes to Consolidated Financial Statements


Page 20 of 49
<PAGE>

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

<TABLE>
<CAPTION>

                                                              Year Ended
                                                  -------------------------------------
                                                  12/31/01      12/31/00      12/31/99
                                                  --------      --------      --------
<S>                                               <C>           <C>           <C>
Net sales ...................................     $ 56,249      $ 64,223      $ 74,455
Cost of sales ...............................       42,405        49,065        56,299
                                                  --------      --------      --------
Gross margin ................................       13,844        15,158        18,156
Operating expenses:
   Selling ..................................        4,857         6,713         6,791
   General and administrative ...............        6,519         7,702         8,591
   Research and development .................        1,354         1,580         1,570
                                                  --------      --------      --------
     Total operating expenses ...............       12,730        15,995        16,952
                                                  --------      --------      --------
Operating income (loss) .....................        1,114          (837)        1,204
Interest income .............................          157           222           384
Interest expense ............................         (150)         (265)         (449)
Gain from sale of real estate ...............         --            --           1,879
Other (expense) income, net .................           66           (86)         (143)
                                                  --------      --------      --------
Income (loss) before income taxes ...........        1,187          (966)        2,875
Provision (benefit) for income taxes:
     Current ................................            3           499         1,143
     Deferred ...............................          394          (482)          (28)
                                                  --------      --------      --------
     Total ..................................          397            17         1,115
                                                  --------      --------      --------
Net income (loss) ...........................     $    790      ($   983)     $  1,760
                                                  ========      ========      ========

Per share data:
Basic and diluted net income (loss) per share     $   0.15      ($  0.19)     $   0.32
                                                  ========      ========      ========
Average shares outstanding (000's):
   Basic ....................................        5,229         5,249         5,448
                                                  ========      ========      ========
   Diluted ..................................        5,231         5,249         5,454
                                                  ========      ========      ========
</TABLE>

                 See Notes to Consolidated Financial Statements


Page 21 of 49
<PAGE>

                               FARREL CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                        (In thousands, except share data)

<TABLE>
<CAPTION>

                                                                                                 Accumulated
                                                           Paid                                     other              Total
                                     Common stock           in       Treasury      Retained     comprehensive      Stockholders'
                                 Shares       Amount     capital       stock       earnings        expense            equity
                               ------------  ---------  ----------- ------------  ----------- ------------------  ----------------
<S>                              <C>              <C>      <C>           <C>          <C>              <C>                <C>
Balance, December 31, 1998       6,142,106        $61      $19,295       ($990)       $9,576           ($1,641)           $26,301
                               ------------  ---------  ----------- ------------  ----------- ------------------  ----------------
Comprehensive Income:
Net income                             ---        ---          ---          ---        1,760               ---              1,760
                                                                                                                  ----------------
Other Comprehensive income,
  net of tax
  Foreign currency translation         ---        ---          ---          ---          ---              (245)              (245)
  Minimum pension liability            ---        ---          ---          ---          ---               964                964
                                                                                                                  ----------------
Other Comprehensive income                                                                                                    719
                                                                                                                  ----------------
Comprehensive income                                                                                                        2,479
Treasury stock transactions            ---        ---          ---      (1,523)          (17)              ---             (1,540)
Cash dividend declared
  at $.24 per common share             ---        ---          ---          ---       (1,376)              ---             (1,376)
                               -----------  ---------  ----------- ------------  ----------- ------------------  ----------------
Balance, December 31, 1999       6,142,106        $61      $19,295     ($2,513)       $9,943             ($922)           $25,864
                               -----------  ---------  ----------- ------------  ----------- ------------------  ----------------
Net (loss)                             ---        ---          ---          ---         (983)              ---               (983)
                                                                                                                  ----------------
Other Comprehensive income,
  net of tax
  Foreign currency translation         ---        ---          ---          ---          ---              (885)              (885)
  Minimum pension liability            ---        ---          ---          ---          ---               613                613
                                                                                                                  ----------------
Other Comprehensive (loss)                                                                                                   (272)
                                                                                                                  ----------------
Comprehensive (loss)                                                                                                       (1,255)
Treasury stock transactions            ---        ---          ---         (16)          ---               ---                (16)
Cash dividend declared
  at $.12 per common share             ---        ---          ---          ---         (630)               ---              (630)
                               -----------  ---------  ----------- ------------  ----------- ------------------  ----------------
Balance, December 31, 2000       6,142,106        $61      $19,295     ($2,529)       $8,330           ($1,194)           $23,963
                               -----------  ---------  ----------- ------------  ----------- ------------------  ----------------
Net income                             ---        ---          ---          ---          790               ---                790
                                                                                                                  ----------------
Other Comprehensive income,
  net of tax
  Foreign currency translation         ---        ---          ---          ---          ---              (226)              (226)
  Minimum pension liability            ---        ---          ---          ---          ---            (4,821)            (4,821)
                                                                                                                  ----------------
Other Comprehensive (loss)                                                                                                 (5,047)
                                                                                                                  ----------------
Comprehensive (loss)                                                                                                       (4,257)
Treasury stock transactions            ---        ---          ---          (1)          ---               ---                 (1)
                               -----------  ---------  ----------- ------------  ----------- ------------------  ----------------
Balance, December 31, 2001       6,142,106        $61      $19,295     ($2,530)       $9,120           ($6,241)           $19,705
                               ===========  =========  =========== ============  =========== ==================  ================
</TABLE>

                 See Notes to Consolidated Financial Statements


Page 22 of 49
<PAGE>

                               FARREL CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 (In thousands)

<TABLE>
<CAPTION>

                                                                     Year Ended
                                                           12/31/01   12/31/00   12/31/99
                                                           --------   --------   --------

  Cash flows from operating activities:
  <S>                                                      <C>        <C>        <C>
  Net income (loss) ....................................   $   790    ($  983)   $ 1,760
  Adjustments to reconcile net income to net
  cash (used in) provided by operating activities:
   (Gain) loss on disposal of fixed assets .............      (412)         8     (1,930)
   Depreciation and amortization .......................     1,670      1,980      2,362
   Decrease (increase) in accounts receivable ..........     4,039        972      5,456
   Decrease (increase) in inventory ....................     1,719       (842)     2,143
   Decrease (increase) in net pension costs ............      (499)      (814)       290
   (Decrease) increase in accounts payable .............    (1,928)    (1,136)    (5,986)
   (Decrease) increase  in advances from customers .....    (2,363)     2,068     (2,945)
   (Decrease) increase in accrued expenses and taxes ...       142     (1,018)    (2,342)
   (Decrease) increase in warranty costs ...............       (63)      (506)       (25)
   (Decrease) increase in deferred income taxes ........       (26)       128       (297)
   Other ...............................................       509       (527)       336
                                                           -------    -------    -------
   Total adjustments ...................................     2,788        313     (2,938)
                                                           -------    -------    -------
   Net cash (used in) provided by operating activities .     3,578       (670)    (1,178)
                                                           -------    -------    -------

  Cash flows from investing activities:
    Proceeds from disposal of fixed assets .............       747        276      2,279
    Purchases of property, plant and equipment .........      (553)    (1,083)    (1,092)
    Refund of Shaw asset purchase price ................      --         --        4,405
                                                           -------    -------    -------
    Net cash (used in) provided by investing activities        194       (807)     5,592
                                                           -------    -------    -------

Cash flows from financing activities:
    Repayment of bank borrowings .......................    (2,264)    (1,225)    (1,293)
    Bank borrowings ....................................     1,652       --         --
    Purchase of treasury stock .........................        (1)       (16)    (1,523)
    Dividends paid .....................................      --         (630)    (1,376)
                                                           -------    -------    -------
    Net cash (used in) provided by financing activities       (613)    (1,871)    (4,192)
Effect of foreign currency exchange rate changes on cash       (66)      (235)        61
                                                           -------    -------    -------
Net increase (decrease) in cash and cash equivalents ...     3,093     (3,583)       283
Cash and cash equivalents--
    Beginning of year ..................................     2,486      6,069      5,786
                                                           -------    -------    -------
    End of year ........................................   $ 5,579    $ 2,486    $ 6,069
                                                           =======    =======    =======
Income taxes paid ......................................   $    33    $   601    $ 2,760
                                                           =======    =======    =======
Interest paid ..........................................   $   148    $   259    $   445
                                                           =======    =======    =======
</TABLE>

                 See Notes to Consolidated Financial Statements


Page 23 of 49
<PAGE>

                               FARREL CORPORATION
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - PRINCIPLES OF CONSOLIDATION AND SIGNIFICANT ACCOUNTING POLICIES

         The accompanying consolidated financial statements include the accounts
of  Farrel  Corporation  and its  wholly-owned  subsidiaries.  All  intercompany
balances and transactions have been eliminated in consolidation.

         The Company designs, manufactures, sells and services machinery for the
rubber and plastics  industry.  The Company's  principal  products are batch and
continuous mixers,  extruders,  pelletizers and mills. The Company also provides
process engineering services, process design and related services for rubber and
plastics  processing  installations  in  conjunction  with its sales of  capital
equipment. The Company's new machinery and related services generally represents
approximately half of its revenues.  The Company's aftermarket business consists
of contractual repair, refurbishment and equipment upgrade services, spare parts
sales and field services.

         The   Company's   principal   customers   are   domestic   and  foreign
manufacturers of rubber and plastics.  Foreign  customers are primarily  located
throughout Europe, Asia and the Middle East.

         Due to the nature of the  Company's  products,  which can  individually
cost up to $4.0  million,  the percent of sales of any  product  line can change
significantly from year to year. However,  the more significant products are the
Company's batch and continuous mixers.

  (a)  Cash and Cash Equivalents:
         Cash and cash equivalents include cash on hand, amounts due from banks,
and any other highly liquid  investments with a maturity of three months or less
when purchased. The carrying amount approximates fair value because of the short
maturity of those instruments.

  (b)  Other Financial Instruments:
         The carrying  amount of the Company's  trade  receivables  and payables
approximates fair value because of the short maturity of these instruments.  The
carrying value of long term debt  approximates  fair value. The interest rate on
the long-term debt is variable and approximates current market rates.

  (c)  Inventory:
         Inventory  is  valued  at the  lower of cost or  market.  Inventory  is
accounted for on the last-in,  first-out  (LIFO) basis in the U.S. and first-in,
first-out (FIFO) basis in the U.K.

  (d)  Property, Plant and Equipment:
         Property,  plant and  equipment  is stated  at cost.  Improvements  are
capitalized and expenditures  for normal  maintenance and repairs are charged to
expense.  Depreciation  is  computed  on a  straight  line  basis  based  on the
estimated  useful  lives of the related  assets  which range from 5 to 40 years.
Assets no longer anticipated to be used are segregated from Property,  Plant and
Equipment and included in Other Assets.


Page 24 of 49
<PAGE>

  (e)  Patents and Acquired Technology:
         Other assets  includes  acquired  patents and technical  know-how and a
technology  license  agreement,  which  represents  the  cost  of  licensed  and
purchased  technology,  know how, and trade secrets including technology that is
patented or for which a patent has been applied.  Such costs are amortized  over
periods from 5 to 7 years.

  (f)  Revenue Recognition:
         Revenue on new  machine  sales is  recognized  upon  completion  of the
customer  contract,  which  generally  coincides with delivery.  When customers,
under the terms of specific orders or contracts,  request that the Company delay
shipment of the manufactured  equipment,  the Company  recognizes  revenue based
upon receiving contractual  confirmation of acceptance of the equipment from the
customer and legal  transfer of title and risk of loss to the customer . Revenue
on repair and  refurbishment  of customer owned machines is recognized  when the
contractual work is completed. Spare parts revenue is recognized upon shipment.

         The Company typically  requires advances from customers upon entering a
contract and at times will require  progress  payments during the  manufacturing
process.  Generally,  letters of credit are  required on  contracts  with export
customers to minimize credit risk.

         During the fourth  quarter of 2000,  the Company was  required to adopt
SEC Staff Accounting  Bulletin 101 "Revenue  Recognition"  ("SAB-101").  SAB-101
provides  guidelines on when revenue can be recognized.  The adoption of SAB-101
did not have a material impact on the Company's annual financial  statements but
it did result in changes in the timing of when certain  revenues were recognized
within a fiscal year.

  (g)  Warranty Obligations:
         Estimated costs to be incurred under warranty  obligations  relating to
products which have been sold are provided for at the time of sale.

  (h)  Income Taxes:
         Deferred income taxes are provided on temporary differences between the
financial  statement and tax basis of the Company's  assets and  liabilities  in
accordance with the liability  method of accounting for income taxes.  Provision
has not  been  made  for  U.S.  income  taxes  or  additional  foreign  taxes on
approximately  $7.5 million of  undistributed  earnings of foreign  subsidiaries
because it is expected that those earnings will be reinvested indefinitely.

  (i)  Earnings Per Share:
         Basic earnings per share is determined by dividing net income (loss) by
the weighted  average shares  outstanding for the period.  Diluted  earnings per
share  reflects  the  potential  dilution  that could  occur if options to issue
common stock (see Note 10) were  exercised and  converted to common stock.  (See
Note 14 to the financial statements.)

  (j)  Foreign Currency Translation:
         Assets and liabilities denominated in foreign currencies are translated
into  United  States  dollars  at current  exchange  rates.  Income and  expense
accounts are translated at average rates of exchange prevailing during the year.
Adjustments  resulting from these  translations  are included in the accumulated
other comprehensive expense in stockholders' equity.

         Transaction  gains and losses are  included  in  earnings.  The Company
experienced a net foreign  currency  transaction gain of $142,000 and $63,000 in
2001 and 1999,  respectively,  and a net foreign  currency  transaction  loss of
$64,000 in fiscal 2000.  These amounts are included in cost of goods sold in the
accompanying financial statements.


Page 25 of 49
<PAGE>

  (k)  Use of Estimates:
         The  preparation of financial  statements in conformity  with generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions  that affect the amounts  reported in the financial  statements  and
accompanying notes. Actual results can differ from those estimates.

  (l)  Recent Accounting Pronouncements:
         In June 1998, the Financial Accounting Standards Board issued Statement
No. 133,  Accounting  for Derivative  Instruments  and Hedging  Activities.  The
Company  adopted the new  Statement  effective  January 1, 2001.  The  Statement
requires the Company to recognize all  derivatives  on the balance sheet at fair
value.  The adoption of this Statement did not have a significant  effect on the
Company's results of operations or financial position.

         In  June  2001,  the  Financial   Accounting   Standards  Board  issued
statements  No.  142  (Goodwill  and  Other  Intangible   Assets)  and  No.  143
(Accounting for Asset Retirement Obligations). Statement No. 142 must be adopted
by the  Company in  January  2002 and  statement  No. 143 must be adopted by the
Company no later than January 2003. Statement No. 142 changes the accounting for
Goodwill  and other  intangible  assets,  such that those  assets  whose life is
determined to be indefinite are not subject to amortization.  These assets shall
be tested  for  impairment  at least  annually,  and the  value  will need to be
written down if the fair value is less than the carrying  value.  Statement  No.
143  requires  that a  liability  must be  recognized  for an  asset  retirement
obligation  related  to long  lived  tangible  assets.  The  liability  shall be
recorded at fair value.  The Company does not  anticipate  the adoption of these
statements will have a significant  effect on its financial  position or results
of operations.

         In August 2001, the Financial Accounting Standards Board issued
statement No. 144 (Accounting for the Impairment or Disposals of Long-lived
Assets). Statement No. 144 must be adopted by the Company in January 2002. This
statement requires an impairment loss to be recognized if the carrying value of
a long-lived asset (asset group) is not recoverable and exceeds its fair value.
Long-lived assets (asset group) shall be tested for impairment whenever events
or changes in circumstances indicate that its carrying amount may not be
recoverable. At the time of adoption, the Company does not anticipate the
adoption of this statement will have a significant effect on its financial
position or results of operations.

  (m)  Advertising:
         Advertising  costs are  expensed  in the period the  advertising  takes
place.  Advertising expense for the years ended December 31, 2001, 2000 and 1999
was $67,000, $238,000 and $248,000, respectively.

  (n)  Reclassifications:
         Certain   amounts  in  prior  year  financial   statements   have  been
reclassified to conform with the current year presentation.

NOTE 2 - 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 estimated  purchase price,  including costs of the acquisition,
was approximately $13.9 million.  The purchase and sale agreement  ("Agreement")
between  the  Company  and the  Seller  required  subsequent  adjustment  to the
purchase price if (1) the inventory  value of Shaw at the transfer date was less
than  approximately  $5 million  and (2) 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").


Page 26 of 49
<PAGE>

         In June 1998,  the  Company  and the Seller  reached  agreement  on the
inventory value transferred  resulting in a payment to the Company by the Seller
of  approximately  $2.7  million , which  amount was used to reduce the purchase
price.  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.  In May 1999,  the
Company reached an agreement with the seller and received a cash payment of $4.4
million under the Profit  Guaranty  provisions of the Agreement.  The difference
between  the amount  recorded  at  December  31,  1998 for the  Profit  Guaranty
receivable  and the amount  received  from the Seller in May 1999 resulted in an
adjustment of the purchase price allocation.

NOTE 3 - OTHER ASSETS
                                                        12/31/01    12/31/00
                                                        --------    --------
                                                           (In thousands)
Acquired patents and technical know how,
  net of accumulated amortization of $582
  and $448, respectively...........................       $146        $299
Other..............................................        110           -
                                                          ----        ----
  Total............................................       $256        $299
                                                          ====        ====

NOTE 4 - RELATED PARTY TRANSACTIONS

         The Company is a party to an agreement  with First Funding  Corporation
(the  "Financial  Services  Agreement"),  pursuant to which the Company  retains
First Funding as its exclusive investment adviser.  Charles S. Jones, a director
of the Company and owner of over 5% of the Company's  outstanding  Common Stock,
is an executive officer of First Funding.  The Financial  Services Agreement may
be  terminated  by either  party upon  twelve  months  written  notice or by the
Company in the event that Mr. Jones is no longer an officer or employee of First
Funding.

         Under the Financial Services Agreement,  the Company pays First Funding
an annual retainer of $450,000 for Mr. Jones' services. Pursuant to an amendment
to the agreement,  First Funding reduced the annual retainer to $400,000 for the
period  March 1, 2002 to March 1,  2003.  The  Company  also  paid for  advisory
services  provided  by other  First  Funding  employees  on an hourly  basis and
out-of-pocket  expenses.  Since July 1, 2001,  First  Funding  agreed to provide
these  services as part of its annual  retainer fee until  further  notice.  The
Company  also  pays  transaction  fees  in  the  event  of  certain   successful
transactions.  The Company recorded amounts,  including the annual retainer, due
to First Funding of $522,000,  $526,000 and $719,000,  in fiscal 2001,  2000 and
1999,  respectively.  In addition,  the Company also  reimbursed  First  Funding
$104,000,  $207,000,  and $160,000 for out-of-pocket costs during the same three
periods, respectively.

NOTE 5 - INVENTORY

Inventory is comprised of the following:
                                                   12/31/01         12/31/00
                                                   --------         --------
                                                          (In thousands)
      Stock and raw materials................       $ 6,444          $ 7,997
      Work-in-process........................         4,110            4,414
                                                    -------          -------
      Total..................................       $10,554          $12,411
                                                    =======          =======

         Of the above  inventories  at December 31, 2001 and 2000,  $5.5 million
and $7.0  million,  respectively  are  valued  using  the LIFO  method.  Current
replacement  costs were greater than the LIFO carrying  amounts by approximately
$0.1 million and $0.2 million at December 31, 2001 and 2000, respectively.


Page 27 of 49
<PAGE>

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment is comprised of the following:
                                                       12/31/01      12/31/00
                                                       --------      --------
                                                            (In thousands)

      Land and buildings.....................            $3,882        $3,894
      Machinery, equipment and other.........            19,214        19,155
      Construction in progress...............                 -           526
                                                       --------      --------
                                                         23,096        23,575
        Accumulated depreciation.............           (14,995)      (14,037)
                                                       --------      --------
        Property, plant and equipment, net...          $  8,101      $  9,538
                                                       ========      ========

         Estimated  depreciable  lives of buildings  are 33-40 years.  Estimated
depreciable lives of machinery,  equipment and other depreciable assets are 5-10
years.

NOTE 7 - ACCRUED EXPENSES AND TAXES

         Accrued  expenses  and taxes  includes  accrued  wages and  benefits of
approximately  $0.6  million  and $0.8  million at  December  31, 2001 and 2000,
respectively.  Also  included are income taxes  payable of $0.4 million and $0.3
million, at December 31, 2001 and 2000.

NOTE 8 - BANK CREDIT ARRANGEMENTS

         The Company has a worldwide multi-currency credit facility with a major
U.S. bank,  which includes a $10 million  revolving  credit  facility for direct
borrowings  and letters of credit.  The  revolving  credit  facility  contains a
sub-limit  that caps the amount of direct  borrowings the Company can make at $5
million.  The facility  contains  limits on direct  borrowings  and issuances of
letters of credit based upon stipulated  percentages of accounts  receivable and
inventory.  The revolving  credit  facility  expires on June 15, 2003.  Interest
varies based upon prevailing  market  interest rates.  This credit facility also
includes a term loan for British pound  sterling 1.4 million  (approximately  $2
million), which the Company borrowed in June 2001. The term loan is repayable in
monthly  installments of British pound sterling 38,888  (approximately  $55,000)
through June 2004.  The term loan has an interest  rate of LIBOR plus 2.7%.  The
proceeds of this term loan were used to repay an existing term loan.

         The credit facility, as amended,  contains covenants specifying minimum
and/or maximum thresholds for operating  results,  selected financial ratios and
backlog.  The backlog  covenant  requires  that end of month backlog will not be
less than $20 million for more than two consecutive  months. The Company did not
achieve  the  backlog  covenant  as of the end of  January  and  February  2002;
however,  the bank waived the  non-compliance.  The agreement  contains  certain
restrictions   on   investments,   borrowings  and  sale  of  assets.   Dividend
declarations or payments are allowed under this credit facility as long as there
exists  under the credit  facility no Event of Default (as defined in the credit
facility)  or no  condition  which upon  given  notice or lapse of time or both,
would become an Event of Default.

         At December 31, 2001 and 2000,  there was $1.7 million and $2.4 million
outstanding  under the term loan.  Approximately,  $680,000 and  $1,194,000  was
classified as a current liability at December 31, 2001, and 2000,  respectively.
At December 31, 2001 and 2000,  $1,019,000  and  $1,194,000  was classified as a
long-term liability, respectively.


Page 28 of 49
<PAGE>

NOTE 9 - COMMITMENTS AND CONTINGENCIES

   (a)  Commitments:

         Aggregate future lease commitments under operating leases,  principally
for office space, equipment and vehicles, are as follows:

                      Year ending
                      December 31,           (In thousands)
                      ------------           --------------
                      2002                             $224
                      2003                              157
                      2004                               96
                      2005                               38
                      2006                               21

         Rental expense for the years ended December 31, 2001, 2000 and 1999 was
$370,000, $494,000 and $464,000, respectively.

   (b)  Contingencies:

         The Company is a defendant in certain  lawsuits arising in the ordinary
course of business,  primarily  related to product  liability  claims  involving
machinery manufactured by the Company or its predecessors.  While the outcome of
lawsuits  or other  proceedings  against the Company  cannot be  predicted  with
certainty,  the Company does not expect that these  matters will have a material
adverse effect on the Company's financial position or results of operations.

NOTE 10 - STOCK PLANS

         The  Company  sponsors  a Stock  Option  Plan and an  Employees'  Stock
Purchase Plan, both established in 1997.

         The 1997  Omnibus  Stock  Incentive  Plan  authorizes  the  granting of
incentive  stock  options  and  non-qualified  stock  options to  purchase up to
500,000 shares of common stock. Option awards may be granted by the Compensation
Committee of the Board of Directors through May 23, 2007 to eligible  employees.
The terms (exercise price, exercise period and expirations) of each option award
are at the  discretion of the  Compensation  Committee  subject to the following
limitations.  The exercise  price of an  Incentive  Stock Option may not be less
than the fair  market  value as of the date of the grant (or 110% in the case of
an incentive stock option granted to a 10% stockholder). The exercise period may
not exceed 10 years from the date of the grant.  At December 31,  2001,  350,000
shares are available for future issuance.

         Prior to 1997 the Company  granted  stock  options  under a  previously
sponsored plan to eligible  employees and directors of the Company.  At December
31, 2001, options to purchase 309,000 shares remain outstanding under that plan.

         The Company  accounts for stock  options  under  Accounting  Principles
Board Opinion No. 25,  "Accounting for Stock Issued to Employees" ("APB 25") and
not the fair value method as provided by Financial  Accounting  Standard  Number
123,  "Accounting  and  Disclosure of Stock-Based  Compensation."  The Company's
Stock  Option  Plan  requires  options to be granted at the market  price of the
Company's  common  stock on the date the options are  granted,  and as a result,
under APB 25 no compensation expense is recognized.


Page 29 of 49
<PAGE>

         The following  table  presents a summary of the Company's  stock option
activity and related information for the years ended:
<TABLE>
<CAPTION>

                                                       2001                       2000                     1999
                                               -------------------       ---------------------      ----------------------
                                                        Weighted-                   Weighted-                  Weighted-
                                                         Average                     Average                    Average
                                                Options  Exercise         Options    Exercise        Options     Exercise
                                                (000's)   Price           (000's)     Price          (000's)     Price
                                               -------------------       ---------------------      ----------------------

<S>                                              <C>         <C>             <C>        <C>              <C>         <C>
Outstanding, beginning of year                   499         $5.42           514        $5.32            515         $5.45
Granted                                           90          0.70            10         2.13             85          2.00
Exercised                                          -          -                -            -              -            -
Forfeited                                        130          4.43            25         2.00             86          3.34
                                               -------------------        -------------------      -----------------------
Outstanding, end of year                         459         $4.78           499        $5.42            514         $5.32
                                               -------------------        -------------------      -----------------------
Exercisable, end of year                         400         $5.39           472        $5.62            435         $5.83
Weighted-average fair value of options
    granted during the year                                  $0.53                      $1.16                        $1.18
</TABLE>


         The  following  table  summarizes   information   about  stock  options
outstanding at December 31, 2001:
<TABLE>
<CAPTION>

                        Options Outstanding                                                Options Exercisable
---------------------------------------------------------------------------         --------------------------------
                                            Weighted-           Weighted-                               Weighted-
                                             Average             Average                                 Average
   Range of           Number of             Remaining            Exercise            Number of           Exercise
Exercise Prices        Options          Contractual Life          Price               Options             Price
---------------------------------------------------------------------------         --------------------------------
<C>        <C>          <C>                    <C>               <C>                  <C>                <C>
$0.60 -    $0.81        90,000                 10 years          $0.69                29,999             $0.69
 2.00 -     2.00        60,000                  8                 2.00                60,000               2.00
 3.75 -     4.00        76,000                  4                 3.92                76,000              3.92
 5.25 -     5.44        52,000                  3                 5.29                52,000              5.29
 6.00 -     6.75        95,000                1.5                 6.32                95,000              6.32
 9.50 -    10.00        86,000                0.3                 9.73                86,000              9.73
---------------------------------------------------------------------------         --------------------------------
$0.60 -   $10.00       459,000               3.52 years          $4.78               398,999             $5.39
</TABLE>


Pro forma information regarding net income and earnings per share is required by
FAS  123,  and has been  determined  as if the  Company  had  accounted  for its
employee  stock  options  under the fair value method of FAS 123. The fair value
for these options  granted under the Stock Option Plan was estimated at the date
of grant using the  Black-Scholes  option  pricing  model,  one of the allowable
valuation  models under FAS 123, with the following  assumptions  for 2001, 2000
and 1999:

                                                       2001     2000     1999
                                                       ----     ----     ----
    Risk free interest rate                            5.00%    6.07%    6.52%
    Dividend yields                                    0.0%     0.0%     2.0%
    Expected volatility factor of the expected
      market price of the Company's common stock       .621     .379     .639
    Weighted average expected life of each option     10 yrs.   8 yrs.   8 yrs.


Page 30 of 49
<PAGE>

         The weighted  average fair value of options  granted during 2001,  2000
and 1999 was $0.53,  $1.16, and $1.18,  respectively.  The Black-Scholes  option
valuation  model was developed  for use in  estimating  the fair value of traded
options,  which  have no  vesting  restriction  and are fully  transferable.  In
addition,  option  valuation  models  require  the  input of  highly  subjective
assumptions  including  the  expected  stock  price  volatility.  The  Company's
employee  stock  options  have  characteristics  different  than those of traded
options,  and changes in the subjective input  assumptions can materially affect
the fair value  estimate,  therefore,  in  management's  judgment,  applying the
provisions of FAS 123 does not necessarily  provide a reliable single measure of
the fair value of its stock  options.  The current pro forma net income will not
necessarily be representative of pro forma net income in future years.

         For purposes of pro forma disclosures,  the estimated fair value of the
options is amortized to expense over the options vesting  period.  The Company's
pro forma information is as follows:

<TABLE>
<CAPTION>

                                                                               Year ended
                                                                 12/31/01       12/31/00      12/31/99
                                                                 --------       --------      --------
                                                                 (In thousands, except per share data)

<S>                                                                <C>          <C>            <C>
Pro forma net income (loss)                                        $ 772        ($1,001)       $1,731
Pro forma earnings (loss) per share - basic and diluted            $0.15        ($ 0.19)       $ 0.32
</TABLE>

         Under the 1997 Employees'  Stock Purchase Plan, the Board of Directors'
may offer each eligible  employee of the Company the right to purchase,  in each
year through 2001,  shares of common stock  equivalent in value to not more than
5% of the employee's annual  compensation,  up to a maximum of $25,000 per year.
At the  time of the  offering  by the  Board of  Directors  the  employees  must
designate the amount to be withheld  during the next 24 month  purchase  period.
The  purchase  price is the lower of 85% of the fair market  value of the common
stock on the date of offering  or 85% of the fair  market  value on the date the
applicable purchase period ends. Not more than an aggregate of 500,000 shares of
common stock may be purchased  under the stock  purchase plan. Any employee who,
after the purchase, would hold 5% or more of the common stock is ineligible.  No
options to purchase shares were offered during 2001, 2000 and 1999.

         During 1999,  approximately 11,700 shares were distributed to employees
under this plan. The 1999 distribution  includes 4,875 shares from the Company's
treasury shares, for which retained earnings was adjusted. At December 31, 2001,
there were no shares subscribed to under these plans.

         The Company may purchase up to $4,750,000 of its common stock under its
discretionary  open market stock repurchase  plan.  During fiscal 2001, 2000 and
1999 the Company  purchased  1,600,  20,000 and 694,300  shares of common stock,
respectively,  under  this  plan  for  approximately  $1,000,  $16,000  and $1.5
million, respectively which are included in treasury stock.


Page 31 of 49
<PAGE>

NOTE 11 - BENEFIT PLANS

         The accounting for pensions and retiree health benefits,  which will be
paid out over an  extended  period of time in the  future,  requires  the use of
significant estimates concerning  uncertainties about employee turnover,  future
pay scales,  interest  rates,  rates of return on investments and future medical
costs.  The  estimates  of  these  future  employee  costs  are  allocated  in a
systematic  manner to the years when  service is  rendered to the Company by the
employee.  The annual cost is comprised of the service cost component related to
current  employee  service,  an  interest  cost  related to the  increase in the
benefit  obligations  due to the passage of time (the  benefit  obligations  are
stated at a present  value  which  increases  each year as the  discount  period
decreases),  less the  earnings  achieved  on assets  invested  in the  employee
benefit  plan.  Differences  between the  estimates  and actual  experience  are
deferred and amortized to expense over a period of time.

PENSION PLANS

         The Company has  retirement  plans  covering  portions of domestic  and
foreign employees. The foreign plan consists of one defined benefit plan for the
Company's U.K. employees. The Company funds the domestic plan in accordance with
the Employee Retirement Income Security Act of 1974 (ERISA) and the foreign plan
in accordance  with the U.K.  Pensions Act 1995 and related  regulations  in the
United  Kingdom.  Pension  expense is actuarially  determined in accordance with
generally  accepted  accounting  principles  and  differs  from  amounts  funded
annually.

         The  Company has a domestic  defined  benefit  pension  plan for hourly
employees  which provides  benefits based on employees'  years of service.  Plan
assets are invested in short-term securities, equity securities and real estate.
The Company has a foreign defined  benefit  pension plan covering  substantially
all employees which provide  stipulated  amounts at retirement based on years of
service and earnings.  Plan assets are invested in  securities,  real estate and
cash.  The following  table  summarizes  the  components of domestic and foreign
pension expense:

                                                            Year ended
                                                            ----------
                                                  12/31/01   12/31/00   12/31/99
                                                  --------   --------   --------
         Domestic pension expense:                         (In thousands)
Service cost-benefits earned during the period    $    58    $    73    $    75
Interest cost on projected benefit obligation .       163        152        146
Expected return on plan assets ................      (184)      (177)      (174)
Recognized net actuarial loss .................        27         44         52
Amortization of transition, asset .............         0          0          2
Amortization of prior service cost ............        17         10         11
                                                  -------    -------    -------
     Net domestic pension expense .............   $    81    $   102    $   112
                                                  =======    =======    =======

     Foreign pension expense:
Service cost-benefits earned during the period    $   561    $   675    $   761
Interest cost on projected benefit obligation .     1,284      1,324      1,265
Estimated return on plan assets ...............    (1,617)    (1,774)    (1,568)
Recognized net actuarial loss .................      --            5         32
Amortization of transition asset ..............      --         --          (39)
                                                  -------    -------    -------
     Net foreign pension expense ..............   $   228    $   230    $   451
                                                  =======    =======    =======

         The Company's  funding policy is guided by government  regulations  and
the  Company's  desire to accumulate  sufficient  assets in the benefit plans to
meet  obligations  for  retirement  benefits.  At any point in time there may be
differences  between  the  estimates  used  in  establishing  pension  cost  for
accounting  purposes,  the criteria for funding  amounts and actual  experience,
thus  there  will  always  be  an  amount  by  which  the  Company  is  over  or
under-funded.

         The following table sets forth the funded status under U.S.  accounting
standards  of the  domestic  and  foreign  defined  benefit  plans  and  amounts
recognized in the balance sheets:


Page 32 of 49
<PAGE>

<TABLE>
<CAPTION>

                                                             Domestic                  Foreign
                                                           December 31,              December 31,
                                                         2001        2000          2001        2000
                                                         ----        ----          ----        ----

Change in Projected Benefit Obligation
   <S>                                                <C>          <C>          <C>          <C>
   Balance at the beginning of the year ...........   $  2,308     $  2,407     $ 22,675     $ 23,666
   Service cost ...................................         58           73          561          675
   Interest cost ..................................        163          152        1,283        1,323
   Plan participant contributions .................       --           --            180          196
   Actuarial (gain) losses ........................        328         (270)         677         (316)
   Foreign currency exchange rates ................       --           --           (575)      (1,852)
   Benefits paid ..................................       (115)        (134)        (965)      (1,017)
   Other ..........................................       --             80          (80)        --
                                                      --------     --------     --------     --------
   Balance at the end of the period ...............   $  2,742     $  2,308     $ 23,756     $ 22,675
                                                      ========     ========     ========     ========
Change in Fair Value Plan Assets
   Balance at the beginning of the year ...........   $  2,371     $  2,279     $ 24,198     $ 26,788
   Actual return on assets ........................        (26)          26       (2,398)        (649)
   Contributions - employer .......................       --            200          799          946
   Contributions - employee .......................       --           --            180          196
   Foreign currency exchange rates ................       --           --           (700)      (2,066)
   Benefits paid ..................................       (115)        (134)        (966)      (1,017)
                                                      --------     --------     --------     --------
   Balance at the end of the period ...............   $  2,230     $  2,371     $ 21,113     $ 24,198
                                                      ========     ========     ========     ========
Funded status of the plan
   (Under) over funded ............................   ($   512)    $     63     ($ 2,643)    $  1,523
   Unrecognized net actuarial (gain)  loss ........      1,011          500        5,959        1,293
   Unamortized prior service cost .................        110          135         --           --
                                                      --------     --------     --------     --------
   Prepaid Pension Expense ........................   $    609     $    698     $  3,316     $  2,816
   Charge for minimum liability requirement .......     (1,121)        --         (5,959)        --
                                                      --------     --------     --------     --------
   Net pension asset (liability) ..................   ($   512)    $    698     ($ 2,643)    $  2,816
                                                      ========     ========     ========     ========
   Intangible pension asset .......................   $    110         --           --           --
                                                      ========     ========     ========     ========
   Discount rate ..................................       6.00%        7.25%        5.75%        6.00%
   Rate of increase in future compensation levels .        N/A          N/A         2.50%        3.00%
   Expected long-term rate of return on plan assets       8.00%        8.00%        6.50%        7.00%
</TABLE>

          The foreign plan experienced a significant decline in the value if its
     assets  during  2001.  As a  result  of the  poor  investment  performance,
     mid-year  the plan's  trustees  moved the asset  management  to a different
     investement manager. The decline in the assets resulted in a requirement to
     record a minimum  pension  liability of $2.6 million for the foreign  plan.
     This requirement resulted in a net of tax charge to stockholders' equity of
     $4.2  million in 2001.  This charge was required to write down the existing
     prepaid  pension  asset  and  establish  a net  liability.  This  charge is
     recorded as part of comprehensive income (loss) in the stockholders' equity
     section of the balance sheet. At December 31, 2001, for the foreign pension
     plan, the accumulated benefit obligation was $23.7 million.


Page 33 of 49
<PAGE>

          The funded  status under  regulatory  guidelines  in the U.K.  used to
     determine  legally  required  minimum  funding  amounts  for the  Company's
     foreign  plan  can  vary  significantly  from the  funded  status  for U.S.
     accounting  purposes.  The amount of Company  contributions  to the pension
     plan is based upon a minimum  funding  computation  under U.K.  guidelines.
     This  minimum  funding  computation  must be performed at least every three
     years.  Under the last computation  performed,  Company is required to make
     annual  contributions to the pension plan for past service of approximately
     $265,000 a year. Based upon the nature of the minimum funding  computation,
     this amount is subject to change the next time a computation  is performed.
     The next computation  must be performed using  information as of the end of
     March 2002.

          The  Company is also  required to make  contributions  to the plan for
     current  benefits  earned.  This  amount  was  approximately  $534,000  and
     $379,000 in 2001 and 2000. The Company anticipates that it will continue to
     be  required  to  make  substanial  contributions  in  the  same  order  of
     maginitude to the U.K. pension plan in the coming years; however, the level
     of future  contributions is subject to several factors including investment
     performance   on  existing   assets.   The  Company  also  made  a  special
     contribution in 2000 of approximately $302,000. U.K. government regulations
     require that by the year 2012, the plan be fully funded under the statutory
     minimum funding computation.

          The Company  changed the  domestic  discount  rate in 2001 and 2000 in
     response  to year-end  interest  rates.  The Company had a minimum  pension
     liability of $512,000 for its U.S. pension plan at December 31, 2001, and a
     minimum  pension  liability  of  $2,643,000  for its U.K.  pension  plan at
     December 31, 2001.  No minimum  pension  liability was required at December
     31,  2000.  The  adjustments  to the  minimum  liability  were  recorded as
     comprehensive  income  (loss)  included  in  stockholders'  equity,  net of
     applicable  income taxes. For pension related matters,  comprehensive  loss
     was  $4,821,000  in fiscal 2001 and  comprehensive  income was  $613,000 in
     fiscal 2000 (see Note 12).

          The  Company  has a  domestic  401(k)  retirement  plan  for  salaried
     employees   which   includes   matching  and   discretionary   non-matching
     contributions  by  the  Company.   Approximately  $101,000,  $107,000,  and
     $112,000 of Company  contributions  were expensed in fiscal 2001,  2000 and
     1999, respectively.

     POST-EMPLOYMENT BENEFITS OTHER THAN PENSIONS

          The  Company  generally  provides  health  care  benefits  to eligible
     domestic  union  retired  employees  who  retired  prior to 1994 and  their
     dependents  through age 65. The Company is self-insured for claims prior to
     age 65 and pays these as incurred.  Retired  employees and their dependents
     were entitled to select Supplemental  Medicare Coverage A and B only at age
     65. The Company  pays 100% of the  monthly  Medicare  premiums  for most of
     these  individuals and 75% for the remaining  individuals.  Eligibility for
     these  retiree  health care  benefits was attained upon reaching age 60 and
     completing 10 years of service.

          The   following   table   summarizes   the   Company's   expense   for
     post-employment benefits other than pensions.

<TABLE>
<CAPTION>

                                                                   Year ended
                                                       12/31/01      12/31/00     12/31/99
                                                       --------      --------     --------
                                                                  (In thousands)

     <S>                                                  <C>           <C>         <C>
     Service cost- benefits earned during the period      --            --          --
     Interest cost on accumulated postretirement
       benefit obligation ..........................     $ 46         $ 54         $ 49
     Amortization of net loss (gain) ...............      (30)         (15)         --
                                                         ----         ----         ----
     Net periodic postretirement benefit costs .....     $ 16         $ 39         $ 49
                                                         ====         ====         ====
</TABLE>


Page 34 of 49
<PAGE>

         The Company's non-pension post-retirement benefit plans are not funded.
The status of the plans are as follows:

                                                        12/31/01      12/31/00
                                                        --------      --------
                                                             (In thousands)
   Accumulated postretirement benefit obligation:
     Beginning of the year .........................     $   786       $   918
     Interest cost .................................          46            54
     Recognized actuarial (gain) loss ..............          68          (123)
     Benefits Paid .................................         (58)          (63)
                                                         -------       -------
     End of the year ...............................         842           786
     Unrecognized actuarial (gain) loss ............         234           332
                                                         -------       -------
   Accrued postretirement benefit obligation .......     $ 1,076       $ 1,118
                                                         =======       =======

         The  assumed   discount  rate  used  in  determining   the  accumulated
post-retirement  benefit obligation was 6.00% and 7.25% at December 31, 2001 and
2000, respectively.  The change in assumptions did not have a material impact on
the obligation or net periodic  post-retirement benefit cost. The assumed health
care cost trend rate used in measuring the accumulated  post-retirement  benefit
obligation  was 7.5% at December 31,  2001.  The trend rate used for 2002 is 10%
and  declines  1.0% per year to 5.0% by the year 2007 and  remains at that level
thereafter.  The assumed health care cost trend rate has a significant effect on
the amounts reported. A  one-percentage-point  change in the assumed health care
cost trend rate would have the following effects:


                                                        1-Percentage-Point
                                                      Increase      Decrease
                                                      ----------------------
                                                          (In thousands)

  Increase (decrease) in the interest cost
   components in 2001                                   $  3         $  (3)
  Increase (decrease) in postretirement benefit
   obligation as of 2001                                $785         $(690)

NOTE 12 - ACCUMULATED COMPREHENSIVE INCOME (LOSS)

         The components of other comprehensive income (loss) are as follows:
<TABLE>
<CAPTION>

                                                       Foreign
                                                       Currency        Minimum
                                                      Translation      Pension
                                                      Adjustments     Liability       Total
                                                     ------------     ---------       -----
                                                                   (In thousands)
<S>                                                    <C>            <C>            <C>
Balance at December 31, 1998 ......................    ($   64)       ($1,577)       ($1,641)
Cumulative translation adjustment .................       (245)          --             (245)
Minimum pension liability adjustment ..............       --            1,399          1,399
Deferred taxes relating to minimum
  pension liability ...............................       --             (435)          (435)
                                                        ------         ------         ------
Balance at December 31, 1999 ......................       (309)          (613)          (922)
Cumulative translation adjustment .................       (885)          --             (885)
Minimum pension liability adjustment ..............       --            1,005          1,005
Deferred taxes relating to minimum
  pension liability ...............................       --             (392)          (392)
                                                        ------         ------         ------
Balance at December 31, 2000 ......................     (1,194)             0         (1,194)
Cumulative translation adjustment .................       (226)          --             (226)
Minimum pension liability adjustment ..............       --           (6,970)        (6,970)
Deferred taxes relating to minimum
  pension liability ...............................       --            2,149          2,149
                                                        ------         ------         ------
Balance at December 31, 2001                           ($1,420)       ($4,821)       ($6,241)
                                                        ======         ======         ======
</TABLE>

Page 35 of 49
<PAGE>

NOTE 13 - PROVISION FOR INCOME TAXES

         Pre-tax income (loss) and provision  (benefit) for income taxes for the
years ended December 31, 2001, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>

                                                                                 Year ended
                                                                    12/31/01      12/31/00    12/31/99
                                                                    --------      --------    --------

The domestic and foreign  components  of                                      (In  thousands)
income  (loss)  before
income taxes are:
                           <S>                                       <C>           <C>         <C>
                           Domestic .............................    ($    25)     $ 1,203     $ 2,284
                           United Kingdom .......................       1,212       (2,169)        591
                                                                      -------      -------     -------
                                                                      $ 1,187      $  (966)    $ 2,875
                                                                      =======      =======     =======
The provision (benefit) for income taxes is:
                      Current:
                           United States ........................     $   (25)     $   392     $   825
                           United Kingdom .......................          34            0         110
                           State ................................          (6)         107         208
                                                                      -------      -------     -------
                                                                            3          499       1,143
                                                                      -------      -------     -------

                      Deferred:
                           United States ........................          37           (1)        (49)
                           United Kingdom .......................         352         (481)         47
                           State ................................           5            0         (26)
                                                                      -------      -------     -------
                                                                          394         (482)        (28)
                                                                      -------      -------     -------
                                                                      $   397      $    17     $ 1,115
                                                                      =======      =======     =======

         Deferred tax liabilities (assets) result from the following differences
between financial reporting and tax accounting

                                                                                  12/31/01    12/31/00
                                                                                  --------    --------
                                                                                      (In thousands)
                Deferred tax liabilities:
                -------------------------
                Fixed Assets ...................................................   $   337     $   615
                Pension ........................................................      --         1,120
                Inventory valuation ............................................        81         102
                Intangibles ....................................................        44          89
                Other ..........................................................        22          24
                                                                                   -------     -------
                Total deferred tax liabilities .................................       484       1,950
                                                                                   -------     -------
                Deferred tax assets:
                --------------------
                Pension ........................................................      (938)       --
                Non pension postretirement benefits ............................      (398)       (447)
                Warranty cost accruals .........................................      (152)       (270)
                Vacation reserve ...............................................       (98)        (98)
                Bad debt reserve ...............................................       (31)        (36)
                Net operating loss carryforward ................................      (190)       (641)
                Other reserves .................................................       (52)        (71)
                Other ..........................................................        (2)          3
                                                                                   -------     -------
                Total deferred tax assets ......................................    (1,861)     (1,560)
                                                                                   -------     -------
                Net deferred tax (asset) liability before valuation allowance ..    (1,377)        390
                Valuation allowance ............................................       190         197
                                                                                   -------     -------
                Net deferred tax (asset) liability .............................   ($1,187)    $   587
                                                                                   =======     =======
</TABLE>

A valuation  allowance of $197,000 was  established  in 2000.  The Net Operating
Loss Carry-forward  relates to the Company's U.K.  operations and can be carried
forward indefinitely.


Page 36 of 49
<PAGE>

         A reconciliation from statutory U.S. federal income taxes to the actual
income taxes is as follows:

                                                           Year ended
                                                12/31/01    12/31/00   12/31/99
                                                --------    --------   --------
                                                         (In thousands)

Statutory provision (benefit) ..............    $   404     $  (328)    $   978
U.S.--U.K. rate differential ...............        (48)         87         (44)
State income taxes, net of federal benefit .       --            71         120
Permanent differences ......................         41           2          75
Valuation allowance ........................       --           197        --
Other ......................................       --           (12)        (14)
                                                -------     -------     -------
Actual provision ...........................    $   397     $    17     $ 1,115
                                                =======     =======     =======

NOTE 14 - EARNINGS PER SHARE

         The  following  table sets forth the  computation  of basic and diluted
earnings per share:


                                                        Year ended
                                            12/31/01     12/31/00      12/31/99
                                            --------     --------      --------
                                             (In thousands, except share data)
Net income (loss) applicable to
   common stockholders ................    $     790    ($    983)    $    1,760
                                           =========    =========     ==========

Weighted average number of common
   shares outstanding - basic .........    5,228,500    5,249,228      5,447,807
Effect of dilutive stock  options .....        2,040         --            6,195
                                           ---------    ---------     ----------

Weighted average number of
   common shares outstanding - diluted     5,230,540    5,249,228      5,454,002
                                           =========    =========     ==========

Net income (loss) per share-basic .....    $    0.15    ($   0.19)    $     0.32
                                           =========    =========     ==========
Net income (loss) per share-diluted ...    $    0.15    ($   0.19)    $     0.32
                                           =========    =========     ==========


NOTE 15 - FOREIGN CURRENCY CONTRACTS

         The Company,  from time to time, enters into foreign exchange contracts
for  non-trading  purposes,  exclusively  to minimize  its  exposure to currency
fluctuations on trade receivables,  firm commitments and payables.  As a result,
changes in the values of foreign currency contracts offset changes in the values
of the  underlying  assets and  liabilities  due to changes in foreign  exchange
rates,  effectively  deferring cash gains and losses on trade receivables,  firm
commitments and payables and the related hedges until the date the  transactions
are  settled  in  cash.  The  Company  is  exposed  to  loss  in  the  event  of
nonperformance  by the Company's  bank, the other party to the foreign  exchange
contracts. The Company does not anticipate nonperformance by its bank.

         As of December 31, 2001, all of the Company's  foreign exchange forward
contracts were designated as fair value hedges.  As such,  there were no charges
to the statement of operations related to these contracts. At December 31, 2001,
the  difference  between  the spot rate and the  contract  rate for the  foreign
exchange forwards was less than $1,000.


Page 37 of 49
<PAGE>

NOTE 16 - FOREIGN OPERATIONS, EXPORT SALES AND MAJOR CUSTOMERS

         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.

         The following provides gross revenue by product and geographic area for
the years ended December 31, 2001, 2000 and 1999:


                                                          Year ended
                                              ---------------------------------
                                                 2001        2000        1999
                                                 ----        ----        ----
                                                        (In thousands)
   Sale by Product Line
   --------------------
   New Machines ..........................     $23,854     $29,000     $33,192
   Spares ................................      14,061      17,471      18,981
   Repairs ...............................      15,241      16,270      20,620
   Other .................................       3,093       1,482       1,662
                                               -------     -------     -------
   Total .................................     $56,249     $64,223     $74,455
                                               =======     =======     =======


   Geographic Sales by Destination
   -------------------------------
   United States .........................     $26,070     $41,365     $41,601
   United Kingdom ........................       2,037       3,572       4,889
   Europe (excluding U.K.) ...............      17,254       7,200      15,958
   North America (excluding U.S.) ........       2,767       4,522       2,766
   Asia ..................................       6,048       5,049       5,964
   Middle East ...........................         146         970         432
   Other .................................       1,927       1,545       2,845
                                               -------     -------     -------
       Total .............................     $56,249     $64,223     $74,455
                                               =======     =======     =======


         There  are no sales  to a  single  customer  that  exceeded  10% of the
Company's revenue for the years ended December 31, 2001, 2000 and 1999.

         The Company operates a global business with  interdependent  operations
and employs a global management  approach.  In consideration of certain economic
factors,  the  distribution  of  customer  orders and  associated  revenues  and
expenses  between the U.S. or U.K. is at the discretion of management.  As such,
the chart below should not be construed as indicative of U.S. and U.K. operating
results were the Company not to operate in such a manner.

Page 38 of 49
<PAGE>

         Net sales to unaffiliated customers, operating income and assets of the
U.S. and U.K.  operations for the years ended  December 31, 2001,  2000 and 1999
are as follows:
<TABLE>
<CAPTION>

                                              United       United
                                              States       Kingdom      Consolidated
                                              --------------------------------------
                                                        (In  thousands)
    Year ended 12/31/01:
          <S>                                 <C>          <C>           <C>
          Sales to unaffiliated Customers     $ 30,849     $ 25,400      $ 56,249
          Operating income ..............     $     10     $  1,104      $  1,114
          Long-lived assets .............     $  4,379     $  4,742      $  9,121
          Total assets ..................     $ 21,008     $ 14,958      $ 35,966

     Year ended 12/31/00:
          Sales to unaffiliated Customers     $ 48,427     $ 15,796      $ 64,223
          Operating income (loss) .......     $  1,131     ($ 1,968)     ($   837)
          Long-lived assets .............     $  5,472     $  7,879      $ 13,351
          Total assets ..................     $ 22,592     $ 21,340      $ 43,932

     Year ended 12/31/99:
          Sales to unaffiliated Customers     $ 48,218     $ 26,237      $ 74,455
          Operating income ..............     $    564     $    640      $  1,204
          Long-lived assets .............     $  5,713     $  8,704      $ 14,417
          Total assets ..................     $ 24,451     $ 24,411      $ 48,862
</TABLE>


NOTE 17 - QUARTERLY FINANCIAL DATA (UNAUDITED):

         Summarized quarterly financial data for fiscal 2001 and 2000:
<TABLE>
<CAPTION>

                                                                           (In thousands except per share data)
                                                                                         Quarter
                                                             ----------------------------------------------------------------
                                                                 First            Second           Third           Fourth
                                                             --------------   --------------   --------------  --------------
Fiscal 2000
<S>                                                                <C>              <C>              <C>             <C>
Net Sales                                                          $11,555          $15,270          $17,488         $19,910
                                                             ==============   ==============   ==============  =============
Gross Margin                                                       $ 2,077          $ 3,997          $ 4,066         $ 5,018
                                                             ==============   ==============   ==============  =============
Net income (loss)                                                 ($ 1,480)        ($   132)        ($   133)        $   762
                                                             ==============   ==============   ==============  =============
Basic and diluted net income (loss) per common share              ($  0.28)        ($  0.03)        ($  0.03)        $  0.15
                                                             ==============   ==============   ==============  =============
Basic weighted average shares outstanding (000's)                    5,250            5,250            5,250           5,243
                                                             ==============   ==============   ==============  =============
Diluted weighted average shares outstanding (000's)                  5,250            5,250            5,250           5,243
                                                             ==============   ==============   ==============  =============

                                                                           (In thousands except per share data)
                                                                                         Quarter
                                                             -----------------------------------------------------------------
                                                                 First            Second           Third           Fourth
                                                             --------------   --------------   --------------  -------------
Fiscal 2001
Net Sales                                                          $11,080          $12,355          $15,847         $16,967
                                                             ==============   ==============   ==============  =============
Gross Margin                                                       $ 2,472          $ 2,418          $ 4,425         $ 4,529
                                                             ==============   ==============   ==============  =============
Net income (loss)                                                 ($   607)        ($   573)         $   923         $ 1,047
                                                             ==============   ==============   ==============  =============
Basic and diluted net income (loss) per common share              ($  0.12)        ($  0.11)         $  0.18         $  0.20
                                                             ==============   ==============   ==============  =============
Basic weighted average shares outstanding (000's)                    5,230            5,229            5,228           5,228
                                                             ==============   ==============   ==============  =============
Diluted weighted average shares outstanding (000's)                  5,230            5,229            5,228           5,235
                                                             ==============   ==============   ==============  =============
</TABLE>


Page 39 of 49
<PAGE>

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

         None.


























Page 40 of 49
<PAGE>

                                    PART III

ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

         The  information  called  for by this  item is  incorporated  herein by
reference to the definitive  Proxy Statement to be filed with the Securities and
Exchange  Commission  not later than 120 days after the year ended  December 31,
2001 and  delivered to  stockholders  in connection  with the Annual  Meeting of
Stockholders to be held on June 12, 2002.

ITEM 11 - EXECUTIVE COMPENSATION

         The  information  called  for by this  item is  incorporated  herein by
reference to the definitive  Proxy Statement to be filed with the Securities and
Exchange  Commission  not later than 120 days after the year ended  December 31,
2001 and  delivered to  stockholders  in connection  with the Annual  Meeting of
Stockholders to be held on June 12, 2002.

ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  information  called  for by this  item is  incorporated  herein by
reference to the definitive  Proxy Statement to be filed with the Securities and
Exchange  Commission  not later than 120 days after the year ended  December 31,
2001 and  delivered to  stockholders  in connection  with the Annual  Meeting of
Stockholders to be held on June 12, 2002.

ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  information  called  for by this  item is  incorporated  herein by
reference to the definitive  Proxy Statement to be filed with the Securities and
Exchange  Commission  not later than 120 days after the year ended  December 31,
2001 and  delivered to  stockholders  in connection  with the Annual  Meeting of
Stockholders  to be held on June  12,  2002.  See  also  Notes  to  Consolidated
Financial Statements, Note 4, appearing in Item 8 herein.



















Page 41 of 49
<PAGE>

                                    PART IV

ITEM 14 - EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K

    (a)  Documents Filed as Part of Form 10-K
                                                                          Page
                                                                          ----

         1.   Financial Statements

         Report of Independent Auditors.....................................19
         Consolidated Balance Sheets as of December 31, 2001 and 2000.......20
         Consolidated Statements of Operations for the years ended
           December 31, 2001, 2000 and 1999.................................21
         Consolidated Statements of Stockholders' Equity for the years
           ended December 31, 2001, 2000 and 1999...........................22
         Consolidated Statements of Cash Flows for years ended
           December 31, 2001, 2000 and 1999.................................23
         Notes to Consolidated Financial Statements......................24 - 39

         2.   Financial Statement Schedule

         Report of Independent Auditors on Financial Statement Schedule.....48
         Schedule II - Valuation and Qualifying Accounts....................49

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


















Page 42 of 49
<PAGE>

<TABLE>
<CAPTION>

3. Exhibits                                                                                                 Page
Exhibits                                                                                                    ----
--------

<S>                     <C>                                                                                  <C>
Exhibit 3(a)            Articles of Incorporation - Filed as an exhibit to the Registrant's
                        Registration Statement as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 3(b)            By-laws - Filed as an exhibit to the Registrant's
                        Registration Statement as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 4               Amended and restated Credit Agreement between Farrel Corporation
                        and Chase Manhattan Bank dated January 23, 1998.  Filed as an exhibit
                        to the Registrant's Form 10K for the year ended December 31, 1997.                   N/A

Exhibit 4               First amendment to the amended and restated Credit Agreement
                        Between Farrel Corporation and Chase Manhattan Bank dated
                        November 30, 1998. Filed as an exhibit to the
                        Registrants's Form 10K for the year ended December
                        31, 1998.                                                                            N/A

Exhibit 4               Notice of commitment reduction between Farrel Corporation and The
                        Chase Manhattan Bank dated October 16, 2000.  Filed as an exhibit to the
                        Registrant's Form 10K for the year ended December 31, 2000.                          N/A

Exhibit 4               Second amendment to the amended and restated Credit Agreement between
                        Farrel Corporation and Chase Manhattan Bank dated December 27, 2000.
                        Filed as an exhibit to the Registrant's Form 10K for the year ended
                        December 31, 2000.                                                                   N/A

Exhibit 4               Notice of commitment reduction between Farrel Corporation and The
                        Chase Manhattan Bank dated March 28, 2001. Filed as an exhibit to the
                        Registrant's Form 10K for the year ended December 31, 2000.                          N/A

Exhibit 4               Amendment to Credit Agreement and Waiver for the Amended and
                        Restated Credit Agreement between Farrel Corporation and Chase
                        Manhattan Bank dated January 23, 1998. Filed as an
                        exhibit to the Registrant's Form 10Q for the quarter
                        ended July 1, 2001.                                                                  N/A

Exhibit 4               Revolving Credit and Term Loan Agreement dated June 15, 2001,
                        between Farrel Corporation, Farrel Limited and First Union National.
                        Filed as an exhibit to the Registrant's Form 10Q for the
                        quarter ended July 1, 2001.                                                          N/A

Exhibit 4               Revolving Promissory Note dated June 18, 2001, between Farrel
                        Corporation, Farrel Limited and First Union National Bank.
                        Filed as an exhibit to the Registrant's Form 10Q for the
                        quarter ended July 1, 2001.                                                          N/A

Exhibit 4               Term Promissory Note dated June 18, 2001, between Farrel Limited
                        and First Union National Bank. Filed as an exhibit to the
                        Registrant's Form 10Q for the quarter ended July 1, 2001.                            N/A


Page 43 of 49
<PAGE>

Exhibit 4               Letter Agreement Dated March 18, 2002, modifying the Revolving Credit
                        and Term Loan Agreement dated June 15, 2001, between Farrel Corporation,
                        Farrel Limited and First Union National Bank                                         50

Exhibit 10(b)           Employment Agreement between Rolf K. Liebergesell
                        and the Registrant, dated November 1, 1991.
                        Filed as an exhibit to the Registrant's Registration Statement
                        as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 10(b)           First Amendment to Employment Agreement between Rolf K. Liebergesell
                        and Registrant effective as of December 1, 1997. Filed as an exhibit to the
                        Registrant's Form 10Q for the quarter ended March 29, 1998.                          N/A

Exhibit 10(d)           Standard Corporate Financial Services contract between
                        First Funding Corporation and the Registrant, dated June 17, 1986,
                        as amended by a Letter Agreement dated  November 1, 1991.
                        Filed as an exhibit to the Registrant's Registration Statement
                        as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 10(e)           1997 OMNIBUS Stock Incentive Plan - Filed as an exhibit to the
                        Registrant's definitive Proxy Statement re: Annual Meeting on
                        May 23, 1997 and incorporated herein by reference.                                   N/A

Exhibit 10(f)           1997 Employee's Stock Purchase Plan - Filed on the Registrant's
                        Registration Statement as Form S-8 (No. 333-30735) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 10(g)           Environmental Agreement between USM Corporation and the
                        Registrant dated as of May 12, 1986. Filed as
                        an exhibit to the Registrant's Registration Statement
                        as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 10(h)           Form of Director Indemnification Agreement.
                        Filed as an exhibit to the Registrant's Registration Statement
                        as Form S-1 (No. 33-43539) and incorporated
                        herein by reference.                                                                 N/A

Exhibit 10(i)           Environmental Settlement Agreement between The Black & Decker
                        Corporation and the Registrant dated February 17, 1995.
                        Filed as an exhibit to the Registrant's Form 10K for the year
                        ended December 31, 1994.                                                             N/A

Exhibit 10(j)           Secondment Agreement between Karl N. Svensson and the
                        Registrant, dated March 3, 1995.
                        Filed as an exhibit to the Registrant's Form 10Q for the quarter
                        ended June 30, 1996.                                                                 N/A

Exhibit 10(k)           Agreement of Purchase and Sale of certain property located
                        in Derby, CT between National RE/sources Acquisition, LLC
                        and Farrel Corporation dated July 17, 1998, and reinstatement
                        agreement dated October 15, 1998. Filed as an exhibit to the Registrants's
                        Form 10K for the year ended December 31, 1998.                                       N/A


Page 44 of 49
<PAGE>

Exhibit 11              Letter dated February 8, 2002, amending the Standard Corporate Financial
                        Services contract between First Funding Corporation and the Registrant,
                        dated June 17, 1986.                                                                 51

Exhibit 11              Statement re: Computation of per share earnings.                                     37

Exhibit 21              Subsidiaries - Filed as an exhibit to the Registrant's Registration Statement
                        as Form S-1 (No. 33-43539) and incorporated herein by reference.                     N/A

Exhibit 23              Consent of Ernst & Young LLP                                                         52
</TABLE>



(b)  Reports on Form 8K.

No such reports were filed by the Company during the year ended December 31,
2001.


Page 45 of 49
<PAGE>

                                   SIGNATURES
                                   ----------

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


                                    Farrel Corporation




                                    /s/ Walter C. Lazarcheck
                                    ------------------------------------------
                                    Walter C. Lazarcheck
                                    Vice President and Chief Financial Officer



                                    March 25, 2002
                                    ------------------------------------------
                                    Date

























Page 46 of 49
<PAGE>

                                   SIGNATURES
                                   ----------

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
this  report has been  signed  below by the  following  persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>

<S>                             <C>                                             <C>
Signature                       Title                                           Date
---------                       -----                                           ----

/s/ Rolf K. Liebergesell        Chief Executive Officer, President and          March 25, 2002
------------------------                                                        -----------------------
Rolf K. Liebergesell             Chairman of the Board


/s/ Walter C. Lazarcheck        Vice President - Chief Financial Officer        March  25, 2002
------------------------                                                        -----------------------
Walter C. Lazarcheck             (Chief Accounting Officer)


/s/ Charles S. Jones            Director                                        March  25, 2002
-------------------------                                                       -----------------------

Charles S. Jones


/s/ James A. Purdy              Director                                        March 25, 2002
-------------------------                                                       -----------------------

James A. Purdy


/s/ Glenn Angiolillo            Director                                        March  25, 2002
-------------------------                                                       -----------------------

Glenn Angiolillo


/s/ Alberto Shaio               Director                                        March  25, 2002
-------------------------                                                       -----------------------

Alberto Shaio
</TABLE>


Page 47 of 49
<PAGE>

                        Report of Independent Auditors on
                    Consolidated Financial Statement Schedule


The Board of Directors and Stockholders
Farrel Corporation


We have audited the consolidated  financial  statements of Farrel Corporation as
of  December  31,  2001 and 2000,  and for each of the three years in the period
ended  December 31, 2001,  and have issued our report  thereon dated February 1,
2001,  (included  elsewhere in this Annual Report on Form 10-K). Our audits also
included the financial statement schedule for the years ended December 31, 2001,
2000 and 1999  listed in Item  14(a) of this Form  10-K.  This  schedule  is the
responsibility of the Company's management.  Our responsibility is to express an
opinion based on our audits.

In our  opinion,  the  financial  statement  schedule  referred  to above,  when
considered  in  relation  to the basic  financial  statements  taken as a whole,
presents fairly in all material respects the information set forth therein.

                                       Ernst & Young LLP

Stamford, Connecticut
February 1, 2002





















Page 48 of 49
<PAGE>

                                                                    SCHEDULE II
                               FARREL CORPORATION
                        VALUATION AND QUALIFYING ACCOUNTS




The  allowances  for doubtful  receivables  and reserves for excess and obsolete
inventory  items have been  deducted  in the  balance  sheets from the assets to
which they apply.  The accrued  warranty  costs are shown as  liabilities in the
balance sheet.

<TABLE>
<CAPTION>

COLUMN A                                      COLUMN B                   COLUMN C                    COLUMN D        COLUMN E
-----------------------------------------  ----------------  ---------------------------------  -------------------  -------------
                                                                                  Charged
                                             Balance at        Charged to       (credited)
                                              beginning        Costs and         to other                              Balance at
Name of Debtor                                of period         Expenses       accounts (1)       Deductions (2)     end of period
-----------------------------------------  ----------------  ---------------  ----------------  -------------------  -------------
Year ended 12/31/99
-------------------
Allowance for doubtful
 <S>                                                 <C>              <C>                <C>             <C>             <C>
  receivables                                        $  297           $  163             ($ 4)           ($  271)        $  185
Reserve for excess and obsolete
  inventory items                                    $1,550           $  106             ($21)           ($  281)        $1,354
Accrued warranty
  costs                                              $1,683           $1,426             ($30)           ($1,450)        $1,629
Year ended 12/31/00
-------------------
Allowance for doubtful
  receivables                                        $  185           $  194              $ 1            ($  241)        $  139
Reserve for excess and obsolete
  inventory items                                    $1,354           $  379             ($18)           ($  271)        $1,444
Accrued warranty
  costs                                              $1,629           $1,285              $22            ($1,861)        $1,075
Year ended 12/31/01
-------------------
Allowance for doubtful
  receivables                                        $  139           $   69              $ 0            ($   29)        $  179
Reserve for excess and obsolete
  inventory items                                    $1,444           $  540             ($11)           ($   48)        $1,925
Accrued warranty
  costs                                              $1,075           $  949             ($ 9)           ($1,011)        $1,004
</TABLE>



(1)  Represents foreign currency translation  adjustments charged or credited to
     stockholders' equity.
(2)  Represents  accounts  receivable  written  off,  obsolete  inventory  items
     written off,  reductions in accrued warranty costs to reflect  expenditures
     incurred.




Page 49 of 49