SECURITIES AND EXCHANGE COMMISSION

                              Washington, DC 20549
                       ----------------------------------

                                   Form 10-QSB

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

For the quarterly period ended September 30, 1996 Commission file number:0-25326

                                Ariel Corporation
             (exact name of registrant as specified in its charter)

                               Delaware 13-3137699
          (State of incorporation) (IRS employer identification number)
                                 2540 Route 130
                           Cranbury, New Jersey 08512
                    (Address of principal executive offices)

                                  609-860-2900
                     (Telephone number, including area code)
                  --------------------------------------------
     Check mark  whether  the issuer (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 ( )

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

           Common Stock, $.001 par value 8,905,075 shares outstanding
                            as of September 30, 1996


Documents Incorporated by Reference: None


                                     <PAGE>



                                                 Ariel Corporation
                                Form 10-QSB for Quarter Ended September 30, 1996
                                                       Index

Part I.  Financial Information

Item 1.  Financial Statements

                 A.       Unaudited Balance Sheet as of September 30, 1996

                 B.       Unaudited Statements of Operations for the three and
                          nine months ended September 30, 1996 and 1995.

                 C.       Unaudited Statements of Cash Flows for the nine months
                          ended September 30, 1996 and 1995.

                  D.       Unaudited Notes to Financial Statements



Item 2.  Management's Discussion and Analysis or Plan of Operation.



Part II.  Other Information





<PAGE>


<TABLE>

PART I. - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS

                                              ARIEL CORPORATION
                                                BALANCE SHEET
                                          As of September 30, 1996
                                                 (Unaudited)

<CAPTION>
<S>                                                                              <C>

                                                   ASSETS

CURRENT ASSETS:
       CASH AND CASH EQUIVALENTS ......................................   $ 13,847,764
       ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
             ACCOUNTS OF $197,678 .....................................      2,624,061
       OTHER RECEIVABLES ..............................................        166,815
       INVENTORIES ....................................................      3,003,136
       PREPAID EXPENSES ...............................................        201,165
                                                                             ---------
                  TOTAL CURRENT ASSETS ................................     19,842,941

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
            AND AMORTIZATION ..........................................      1,487,627

OTHER ASSETS ..........................................................        387,917
                                                                             =========
       TOTAL ASSETS ...................................................   $ 21,718,485
                                                                             =========


                                     LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE ...............................................   $  1,116,287
       ACCRUED EXPENSES ...............................................      1,174,859
       NOTES PAYABLE - CURRENT, NET OF DISCOUNT OF $8,595 .............        266,188
       ROYALTIES PAYABLE ..............................................         80,742
                                                                             ---------
                  TOTAL CURRENT LIABILITIES ...........................      2,638,076



STOCKHOLDERS' EQUITY
       PREFERRED  STOCK, $.001 PAR VALUE; 2,000,000 SHARES
              AUTHORIZED; SHARES ISSUED AND OUTSTANDING - NONE
       COMMON STOCK, $.001 PAR VALUE; 20,000,000 SHARES
              AUTHORIZED;  8,905,075 SHARES ISSUED AND OUTSTANDING ....          8,905
       ADDITIONAL PAID-IN CAPITAL .....................................     28,724,691
       ACCUMULATED DEFICIT ............................................     (9,653,187)
                                                                             ---------
                  TOTAL STOCKHOLDERS' EQUITY ..........................     19,080,409
                                                                             ---------
       TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .......................   $ 21,718,485
                                                                             =========

<FN>
                        See accompanying notes to unaudited financial statements.

</FN>

</TABLE>



<PAGE>

<TABLE>



                                                    ARIEL CORPORATION
                                                 STATEMENTS OF OPERATIONS
                                                       (Unaudited)

<CAPTION>

                                                                    Three Months Ended September 30, Nine Months Ended September 30,
                                                                             1996           1995           1996           1995
                                                                         -----------    -----------    -----------    -----------
<S>                                                                         <C>            <C>             <C>             <C>

SALES ................................................................   $ 3,760,367    $ 2,462,287    $ 8,943,415    $ 6,737,249

COST OF GOODS SOLD ...................................................     1,886,051      1,121,252      4,583,584      3,334,136

                                                                         -----------    -----------    -----------    -----------
                 GROSS PROFIT ........................................     1,874,316      1,341,035      4,359,831      3,403,113

EXPENSES:
     SALES AND MARKETING .............................................     1,024,198        750,216      2,972,661      1,977,163
     GENERAL AND ADMINISTRATIVE ......................................     1,045,844        769,854      3,158,795      2,080,644
     RESEARCH AND DEVELOPMENT ........................................     1,806,204        729,903      4,280,640      1,816,742

                                                                          -----------    -----------    -----------    -----------
     LOSS FROM OPERATIONS ............................................    (2,001,930)      (908,938)    (6,052,265)    (2,471,436)

INTEREST INCOME ......................................................       205,919         49,121        519,587        148,090

INTEREST EXPENSE .....................................................        (9,773)        (8,544)       (28,840)       (26,158)

OTHER INCOME .........................................................        40,642          4,402         59,858         17,992

                                                                          -----------    -----------    -----------    -----------
     LOSS BEFORE INCOME TAX ..........................................    (1,765,142)      (863,959)    (5,501,660)    (2,331,512)

     INCOME TAX ......................................................             0              0              0              0

                                                                          ===========    ===========    ===========    ===========
                   NET LOSS ..........................................   ($1,765,142)   ($  863,959)   ($5,501,660)   ($2,331,512)
                                                                          ===========    ===========    ===========    ===========



   WEIGHTED AVERAGE NUMBER OF COMMON
        SHARES OUTSTANDING ............................................     8,813,487      4,758,625      7,660,248      4,611,681
                                                                           ===========    ===========    ===========    ===========


    NET LOSS PER COMMON SHARE ..................................... ...   ($     0.20)   ($     0.18)   ($     0.72)   ($     0.51)
                                                                           ===========    ===========    ===========    ===========


<FN>
                          See accompanying notes to unaudited financial statements.
</FN>

</TABLE>



<PAGE>

<TABLE>


                                                                            ARIEL CORPORATION
                                                                         STATEMENTS OF CASH FLOWS
                                                                              (Unaudited)

                                                                      Nine Months Ended September 30,
                                                                                                    
                                                                                                         1996            1995
<CAPTION>
<S>                                                                                                         <C>              <C>    
                                                                                                     ------------    ------------

CASH FLOWS FROM OPERATING ACTIVITIES:

      NET LOSS ....................................................................................   $ (5,501,660)   $ (2,331,512)
      ADJUSTMENTS TO RECONCILE NET LOSS TO
                 NET CASH USED IN OPERATING ACTIVITIES:

      DEPRECIATION & AMORTIZATION .................................................................        392,457         193,423
      AMORTIZATION OF DISCOUNT ON ROYALTIES  PAYABLE ..............................................         24,026          21,984
      PROVISION FOR DOUBTFUL ACCOUNTS .............................................................         30,000          54,044
      PROVISION FOR INVENTORY OBSOLESCENCE ........................................................         30,000          30,000
      (INCREASE) DECREASE IN ASSETS:
            ACCOUNTS RECEIVABLE ...................................................................     (1,260,918)       (497,354)
            INVENTORIES ...........................................................................       (772,377)     (1,035,121)
            PREPAID EXPENSES ......................................................................        (97,343)       (236,690)
            SECURITY DEPOSITS .....................................................................         73,028        (211,412)
      INCREASE (DECREASE) IN LIABILITIES:
            ACCOUNTS PAYABLE ......................................................................        612,035         182,355
            ACCRUED EXPENSES ......................................................................        127,976          21,637
            ROYALTIES PAYABLE, RELATED PARTIES ....................................................          4,234         (50,076)
            NOTES PAYABLE .........................................................................        (78,509)           --

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

                 NET CASH USED IN OPERATING ACTIVITIES ............................................     (6,417,051)     (3,858,722)
                                                                                                      ------------    ------------

CASH FLOWS USED IN INVESTING ACTIVITIES:
      PURCHASE OF EQUIPMENT .......................................................................     (1,307,159)       (334,594)
                                                                                                       ------------    ------------

                 NET CASH USED IN INVESTING ACTIVITIES ............................................     (1,307,159)       (334,594)
                                                                                                       ------------    ------------

CASH FLOWS FROM FINANCING ACTIVITIES:
      PROCEEDS [NET] FROM SALE OF COMMON STOCK ....................................................          --          5,610,528
      PROCEEDS [NET] FROM EXERCISE OF WARRANTS ....................................................      6,529,528            --
      PROCEEDS [NET] FROM EXERCISE OF OPTIONS .....................................................        295,437            --
      PROCEEDS [NET] FROM EXERCISE OF UNDERWRITERS
           PURCHASE OPTION ........................................................................        768,000            --

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

                 NET CASH PROVIDED BY FINANCING ACTIVITIES ........................................      7,592,965       5,610,528
                                                                                                       ------------    ------------


NET (DECREASE) INCREASE IN CASH ...................................................................       (131,245)      1,417,212
      CASH AND CASH EQUIVALENTS, BEGINNING
          OF YEAR .................................................................................     13,979,009         313,189
                                                                                                       ============    ============
CASH AND CASH EQUIVALENTS, END OF PERIOD ..........................................................   $ 13,847,764    $  1,730,401
                                                                                                       ============    ============


<FN>
                              See accompanying notes to  unaudited financial statements.

</FN>


</TABLE>

<PAGE>



                                                 Ariel Corporation
                                           Notes to Financial Statements
                                                    (Unaudited)

Basis of Presentation

         The  financial  statements  included  herein have been  prepared by the
Company,  pursuant to the Rules and  Regulations  of the Securities and Exchange
Commission.  Certain information and footnote  disclosures  normally included in
financial  statements  prepared in accordance with generally accepted accounting
principles   have  been  condensed  or  omitted   pursuant  to  such  rules  and
regulations. The Company believes, however, that the disclosure contained herein
is adequate to make the  information  presented  not  misleading.  The financial
statements should be read in conjunction with the financial statements and notes
thereto  included in the Company's  Form 10-KSB for the year ended  December 31,
1995. Certain prior period amounts have been reclassified in order to conform to
the current period presentation.
         In the  opinion of the  management  of the  Company,  the  accompanying
unaudited  financial  statements  contain all adjustments,  consisting of normal
recurring accruals, which are necessary to present fairly the financial position
of the Company as of September  30, 1996 and the results of  operations  for the
three and nine months ended  September  30, 1996 and 1995 and the  statements of
cash flows for the nine months ended September 30, 1996 and 1995,  respectively.
The results for interim  periods are not  necessarily  indicative of results for
the full year.




<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

COMPARISON OF RESULTS OF OPERATIONS

The  following  table sets forth,  for the  periods  indicated,  the  percentage
relationship  that certain items of the Company's  results of operations bear to
total sales.

<TABLE>
<CAPTION>
<S>                                                                                 <C>     <C>           <C>      <C>   
 
                                                                               Three months ended     Nine months ended
                                                                                 September 30,           September 30,

                                                                                   1996     1995          1996     1995

Sales ..........................................................................    100%     100%          100%     100%

Cost of goods sold .............................................................     50       46            51       49
                                                                                   ----     ----          ----     ----

     Gross profit ..............................................................     50       54            49       51


Expenses

     Sales and marketing .......................................................     27       30            33       29

     General and administrative ................................................     28       31            35       31

     Research and development ..................................................     48       30            48       27
                                                                                   ----     ----          ----     ----

Loss from operations ...........................................................    (53)     (37)          (67)     (36)


Interest Income ................................................................      5        2             6        2

Interest Expense ...............................................................     --       --            --       --

Other Income ...................................................................      1       --            --       --
                                                                                   ----     ----           ----     ----

Loss before income tax benefit (provision) .....................................    (47)     (35)          (61)     (34)

Income tax benefit (provision) .................................................     --       --             --       --
                                                                                    ====      ====          ====     ====


                 Net Loss ......................................................    (47)%    (35)%         (61)%    (34)%
  
                                                                                    ====     ====          ====     ====
</TABLE>


<PAGE>





Three  months  ended  September  30,  1996 as  Compared  to three  months  ended
September 30, 1995


Net Sales
         Net sales were  $3,760,367  for the three  months ended  September  30,
1996, an increase of  $1,298,080 or 53% compared to net sales of $2,462,287  for
the three months  ended  September  30, 1995.  The increase in net sales for the
current  quarter  compared  to the prior year  quarter was the result of initial
shipments of the Company's computer telephony integration ("CTI") modem products
and shipments of the Company's OEM digital signal processing ("DSP") boards. One
customer accounted for approximately 36% of third quarter 1996 net sales.

Gross Profit
         Gross profit  increased by $533,281 or 40% to $1,874,316  for the three
months ended  September  30, 1996  compared to  $1,341,035  for the three months
ended  September 30, 1995.  Gross profit  margin  decreased to 50% for the three
months  ended  September  30, 1996  compared to 54% for the three  months  ended
September 30, 1995.  The Company's mix of products sold during the third quarter
of 1996 included a high volume of orders from one customer for the Company's OEM
DSP boards which  contained a somewhat lower gross profit margin compared to the
prior year third quarter.

Sales and marketing
         Sales and marketing  expenses  were  $1,024,198 or 27% of sales for the
three months ended  September  30, 1996 compared to $750,216 or 30% of sales for
the three  months  ended  September  30,  1995,  an increase of $273,982 or 37%.
Salaries and wages increased by approximately  $72,000 as the Company  increased
headcount in the sales support area to meet the increase in sales volume. Direct
sales force  commissions  increased  by  approximately  $61,000  reflecting  the
significant  increase in sales.  Marketing and advertising expenses increased by
approximately  $95,000 reflecting increased  expenditures for print advertising,
brochures and marketing programs associated with the introduction of certain new
products on OEM DSP and CTI, and also expenses  incurred in conjunction with the
establishment of the Company's home page on the Internet.

General and administrative
         General and administrative expenses were $1,045,844 or 28% of sales for
the three months ended  September  30, 1996 compared to $769,854 or 31% of sales
for the three months ended  September  30, 1995, an increase of $275,990 or 36%.
Recruitment  expenses increased by approximately  $111,000  reflecting  progress
payments for two  administrative  searches and significant print ad expenditures
for  recruitment  of engineers  and support  staff.  Rent  expense  increased by
$63,000  primarily  due to the  Company's  occupancy  of its 30,000  square foot
Corporate  Headquarters  in January  1996.  Depreciation  expense  increased  by
approximately $46,000 reflecting a significant increase in purchases of computer
equipment  related to the increase in headcount and furniture and fixtures needs
related to the Company's move to a larger  facility in January 1996.  Commercial
Insurance expense increased by $22,000 reflecting an increase in premium expense
due to an increase in coverage for Directors and Officers Liability insurance.

Research and Development
         Research and development  expenditures  were $1,806,204 or 48% of sales
for the three months  ended  September  30, 1996  compared to $729,903 or 30% of
sales for the three months ended  September 30, 1995, an increase of $1,076,301.
Salaries and wages increased by approximately  $256,000 reflecting the continued
hiring in 1996 of  engineering  staff to meet the demands for  internal  product
development in the CTI and Communications  Systems Group ("CSG").  Additionally,
the  Company  incurred  an increase  of  approximately  $384,500  in  consulting
expenses related to product development projects, and approximately $185,000 for
various product prototypes.

         For  the  foregoing  reasons,  the  Company  incurred  a  net  loss  of
$1,765,142 for the three months ended  September 30, 1996 compared to a net loss
of $863,959 for the three months ended September 30, 1995.
         .


<PAGE>



Nine months ended  September 30, 1996 as compared to nine months ended September
30, 1995


Net Sales
         Net sales were $8,943,415 for the nine months ended September 30, 1996,
an increase of  $2,206,166  or 33% compared to net sales of  $6,737,249  for the
nine months ended  September 30, 1995.  The increase in sales for the first nine
months  of 1996 is a result  of  shipments  of  Ariel's  OEM DSP  products.  One
customer  accounted  for  approximately  29% of total sales.  Additionally,  the
Company began initial shipments of the Company's high-density computer telephony
modems,  a significant  portion of which was shipped during the third quarter of
1996. The Company began  calendar year 1996 with a historically  low backlog but
after a low bookings  month in January  1996, it has  experienced  significantly
higher bookings through  September 30, 1996.  Bookings for the nine months ended
September  30, 1996 have  increased by  approximately  97% compared to the first
nine months of 1995.

Gross Profit
         Gross profit increased  $956,718 or 28% from $3,403,113 or 51% of sales
to  $4,359,831  or 49% of sales.  The  Company's mix of products sold during the
first nine months of 1996 included a high volume of orders from one customer for
the  Company's  OEM DSP boards  which  contained a somewhat  lower gross  profit
margin  compared  to the first nine  months of 1995.  Sales of certain  computer
telephony  modem  products  carried  higher gross profit  margins that  somewhat
offset this effect.

Sales and Marketing
         Sales and marketing  expenses  were  $2,972,661 or 33% of sales for the
nine months ended  September 30, 1996 compared to $1,977,163 or 29% of sales for
the nine  months  ended  September  30,  1995.  The  increase of $995,498 or 50%
includes an increase of approximately  $307,000 in salaries and wages reflecting
additions to the field sales force in San  Francisco,  California,  and one-time
severance costs  associated with closing the Company's  liaison office in Paris,
France,  as well as an increase in headcount  for its sales support area to meet
the  increase in sales  volume.  Direct  sales force  commissions  increased  by
approximately $144,800 reflecting the significant increase in sales for the nine
months ended September 30, 1996. Advertising and marketing expenses increased by
approximately  $268,000 reflecting increased expenditures for print advertising,
brochures and marketing programs associated with the introduction of certain new
products focused on OEM and CTI markets as well as certain expenses  incurred in
conjunction with the establishment of the Company's home page on the Internet.


General and Administrative
         General and administrative expenses were $3,158,795 or 35% of sales for
the nine months ended  September 30, 1996 compared to $2,080,644 or 31% of sales
for the nine months ended  September 30, 1995, an increase of $1,078,151 or 52%.
Salaries and wages increased by approximately $452,000 reflecting  non-recurring
severance expense of $284,000 related to certain management  personnel,  and the
addition of a full time human resource manager.  Depreciation  expense increased
throughout  the  company,   and  by   approximately   $117,000  in  general  and
administrative expense,  reflecting a significant increase in purchased computer
equipment  related to the increase in headcount  and furniture and fixture needs
related to the Company's move to a larger facility in January,  1996. Relocation
expense  increased by  approximately  $140,000  reflecting  the  relocation of a
senior  executive  and the  closing of the  Company's  liaison  office in Paris,
France.  Recruitment  expense  increased by  approximately  $166,000  reflecting
completed  searches  for  human  resource  and  accounting  positions,  progress
payments on two  administrative  searches in progress,  and expenses incurred to
date on print ads for  recruitment of engineers and support staff.  Rent expense
increased  by  approximately  $211,000  reflecting  principally,  the  Company's
occupancy of its 30,000 square foot Corporate Headquarters in January 1996.

Research and Development
         Research and development  expenditures  were $4,280,640 or 48% of sales
for the nine months ended  September  30, 1996  compared to $1,816,742 or 27% of
sales for the nine months ended September 30, 1995. Salaries and wages increased
by  approximately  $826,000  reflecting  a  significant  increase  in  hiring of
engineering staff to meet the demand of internal product development in both CTI
and CSG groups.  Additionally,  the Company  incurred an increase in  consulting
expenses  of  approximately  $452,700  related  to certain  product  development
projects and approximately $393,000 for product prototypes.

         For  the  foregoing  reasons,  the  Company  incurred  a  net  loss  of
$5,501,660  for the nine months ended  September 30, 1996 compared to a net loss
of $2,331,512 for the nine months ended September 30, 1995.




<PAGE>




Liquidity and Capital Resources
         On December 20, 1995, the Company completed a secondary offering of its
securities pursuant to which it sold 2,040,000 common shares at $7.50 per share.
After payment of certain  expenses  associated  with the  offering,  the Company
received net proceeds of approximately $14 million.
         On  January  1,  1996,   1,725,000   publicly   traded   warrants  were
outstanding.  Each  warrant  entitled  the holder to  purchase  one share of the
Company's  common  stock at a per share  price of $3.50.  Effective  January 24,
1996,  each warrant was eligible for exercise and under  certain  circumstances,
could be called for  redemption  by the Company at a price per warrant of $0.01.
On May 22, 1996, the Company notified all registered holders of warrants that it
had elected to redeem on or after June 28, 1996 all warrants  outstanding on the
redemption  date. Each holder of a warrant called for redemption could within 30
days,  elect to preempt the  redemption by exercising the warrant and purchasing
one share of common stock of the Company at the exercise price of $3.50. Through
September  30,  1996,  the  Company   received  net  proceeds  of  approximately
$6,530,000 with respect to the exercise of such warrants.
         For the  nine  months  ended  September  30,  1996,  net  cash  used in
operating  activities  amounted to approximately  $6,417,100.  The negative cash
flow from  operations was the result of Company's net loss of $5,501,660 for the
nine months ended September 30, 1996.  Additionally,  trade accounts  receivable
increased by  approximately  $1,260,900  from December 31, 1995  reflecting  the
significant  increase in sales volume  during the third  quarter of 1996.  Also,
inventories  increased by  approximately  $772,400 as a result of the  Company's
decision to order certain key raw material  components in ample quantity to meet
anticipated  shipment  of its CTI  products  which  began  shipping in the third
quarter of 1996.
         Cash used in investing  activities for the nine months ended  September
30,  1996  amounted to  approximately  $1,307,200  and  reflected  purchases  of
computer and  peripheral  equipment to support the increase in  engineering  and
professional  staff and office equipment and furniture  related to the Company's
relocation to a larger facility in January 1996.
         Cash  flow  from  financing   activities   amounted  to   approximately
$7,593,000  for  the  nine  months  ended  September  30,  1996.  As  previously
discussed,  the Company  received  $6,530,000  from the exercise of  outstanding
warrants.  Additionally,  the Company has received  $768,000  resulting from the
exercise of 150,000 unit purchase  options issued to the Company's  Underwriters
in  conjunction  with its Initial  Public  Offering.  Such options  entitled the
holder  to  purchase  for  an  aggregate  consideration  of  $768,000,   150,000
Underwriter  Units. Upon exercise,  each Underwriter Unit entitles the holder to
one share of  common  stock  and one  warrant.  Through  the nine  months  ended
September  30,  1996,  the  Company  received  approximately  $295,000  from the
exercise of outstanding stock options.


<PAGE>




Impact of the Adoption of Recently Issued Accounting Standards
         The Financial  Accounting Standards Board issued Statement of Financial
Accounting  Standards  No. 121,  "Accounting  for the  Impairment  of Long-Lived
Assets and  Long-Lived  Assets to Be  Disposed  Of" ("SFAS  121") in March 1995,
effective  January  1,  1996.  SFAS  121  requires  companies  to  review  their
long-lived   assets  and   certain   identifiable   intangibles   (collectively,
"Long-Lived  Assets") for impairment whenever events or changes in circumstances
indicate that the carrying value of a Long-Lived  Asset may not be  recoverable.
Impairment  is measured  using the lower of a  Long-Lived  Asset's book value or
fair value, as defined. The Company believes that, based upon current operations
and  prospects,  SFAS  121  will not have a  material  impact  on the  Company's
financial position or results of operations.
         The Financial  Accounting Standards Board issued Statement of Financial
Accounting Standards No. 123,  "Accounting for Stock-Based  Compensation" ("SFAS
123") in October 1995, effective January 1, 1996. SFAS 123 requires companies to
estimate  the  fair  value of  common  stock,  stock  options,  or other  equity
instruments  ("Equity  Instruments")  issued to employees  using pricing  models
which take into  account  various  factors  such as current  price of the common
stock,  volatility and expected life of the Equity Instrument.  SFAS 123 permits
companies  to either  provide  pro forma note  disclosure,  or adjust  operating
results,  for the  amortization of the estimated value of the Equity  Instrument
over the  vesting  period of the Equity  Instrument.  The Company has elected to
continue to account for stock options under Accounting  Principles Board Opinion
No. 25.


Part II.     Other Information

         Item 6.  Exhibits and Reports on Form 8-K
         A)       Exhibits - Exhibit 11
                            - Exhibit 27
         B)       Reports on Form 8-K - None.





<PAGE>




                                                     Signature

         Pursuant to the  requirements  of the Securities  Exchange Act of 1934,
the  registrant  has  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.


                                          Ariel Corporation
                                         ------------------------------------
                                          Registrant






                                          /S/ Gerard E. Dorsey 
                                          ----------------------------------
                                          Gerard E. Dorsey
                                          Chief Financial Officer and Principal
                                                   Accounting Officer
Date:  November 12, 1996

<PAGE>
<TABLE>

                                                                                                                         Exhibit 11

                                                                                      ARIEL CORPORATION
                                                                            STATEMENT OF COMPUTATION OF PER SHARE AMOUNTS
                                                             For the Three Months and Nine Months Ended September 30, 1996 and 1995


                                                               Three Months Ended September 30,   Nine Months Ended September 30,
<CAPTION>
<S>                                                                     <C>            <C>            <C>             <C> 
                                                                        1996           1995           1996            1995
                                                                     -----------    -----------    -----------    ------------

Primary:

      Net loss for the  period ...................................   $(1,765,142)   $  (863,959) $  (5,501,660)  $ (2,331,512)
                                                                      -----------    -----------    -----------    ------------
      Weighted average number of shares of common
         stock outstanding .......................................     8,813,487      4,758,625      7,660,248      4,611,681

      Shares issuable upon exercise of outstanding
         options and warrants ....................................          --             --             --             --

      Shares assumed to be acquired in accordance
         with the treasury stock method ..........................          --             --             --             --
                                                                                                                                   

      Shares used in computing per share loss ....................     8,813,487      4,758,625      7,660,248      4,611,681
                                                                      -----------    -----------    -----------    ------------

      Net loss per share .........................................    $    (0.20)         (0.18)          (0.72)        (0.51)
                                                                                                                                   


Fully Diluted:

      Net loss for the  period ...................................   $(1,765,142)   $  (710,232)  $ (5,501,660)   $(2,206,974)
                                                                      -----------    -----------    -----------    ------------

      Weighted average number of shares of common
         stock outstanding .......................................     8,813,487      4,758,625      7,660,248      4,611,681

      Shares issuable upon exercise of outstanding
         options and warrants ....................................     1,329,515      3,228,542      2,482,754      2,838,315

      Shares assumed to be acquired in accordance
         with the treasury stock method ..........................    (2,356,535)      (951,725)    (2,356,535)      (951,725)
                                                                      -----------     -----------    -----------    ------------
Shares used in computing per share loss .............................. 7,786,467       7,035,442      7,786,467      6,498,271
                                                                      -----------    -----------    -----------    ------------
      Net loss per share .........................................    $    (0.23)         (0.10)        (0.71)        (0.34)
                                                                      -----------    -----------    -----------    ------------

<PAGE>
</TABLE>