Securities and Exchange Commission

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

                                    Form 10-Q

                Quarterly Report pursuant to Section 13 or 15(d)
                     of the securities exchange act of 1934

 For the quarterly period ended March 31, 2001  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)
                  --------------------------------------------

     Indicate  by 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                  13,073,920 shares outstanding
                                                as of March 31, 2001


                    Documents Incorporated by Reference: None



                                       1
<PAGE>



<TABLE>
<CAPTION>
<S>     <C>




                                Ariel Corporation
                                      Index

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

Item 1.  Consolidated Financial Statements  (Unaudited)
         ----------------------------------

                  A.       Consolidated balance sheets as of March 31, 2001 and December 31, 2000

                  B.       Consolidated statements of operations and comprehensive losses for the
                           three months ended March 31, 2001 and 2000

                  C.       Consolidated statements of cash flows for the three months
                           ended March 31, 2001 and 2000.

                  D.       Notes to consolidated financial statements



Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.
         --------------------------------------------------------------------------------------



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

Item 1.   Legal Proceedings

Item 2.   Changes in Securities

Item 3.   Defaults on Senior Securities

Item 4.   Submission of Matters to a Vote of Shareholders

Item 5.   Other Information

Item 6.   Exhibits and Reports on Form 8-K






</TABLE>


                                       2
<PAGE>




<TABLE>
<CAPTION>


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


                                                        ARIEL CORPORATION
                                                    CONSOLIDATED BALANCE SHEETS


                                                                                         March 31,     December 31,
                                                                                           2001           2000
                                                                                           ----           ----
ASSETS                                                                                  (Unaudited)

CURRENT ASSETS:
<S>                                                                                 <C>              <C>
       CASH AND CASH EQUIVALENTS .................................................   $    423,477    $  1,129,246
       ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
         $547,715 IN 2001 AND $644,706 IN 2000, RESPECTIVELY......................        421,939       2,077,581
       OTHER RECEIVABLES .........................................................        209,448         240,082
       INVENTORIES, NET ..........................................................      2,279,477       2,559,260
       PREPAID EXPENSES ..........................................................        482,957         495,859
                                                                                      -----------    ------------
                          TOTAL CURRENT ASSETS ...................................      3,817,298       6,502,028

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
            AND AMORTIZATION .....................................................      1,058,656       1,261,112

OTHER ASSETS .....................................................................        673,891       1,444,911

                                                                                     ------------    ------------
       TOTAL ASSETS ..............................................................   $  5,549,845    $  9,208,051
                                                                                     ============    ============


LIABILITIES & STOCKHOLDERS' EQUITY / (DEFICIT)

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE ..........................................................   $  1,661,925    $  1,705,696
       ACCRUED EXPENSES ..........................................................      1,800,652       1,688,971
       NOTES PAYABLE - CURRENT PORTION OF LONG-TERM DEBT .........................        886,126         520,263
       CURRENT PORTION OF CAPITAL-LEASE OBLIGATION ...............................        110,033         110,033
       ROYALTIES PAYABLE .........................................................         91,210          91,210
                                                                                     ------------    ------------
                          TOTAL CURRENT LIABILITIES ..............................      4,549,946       4,116,173




CAPITAL-LEASE OBLIGATION, NET OF CURRENT PORTION .................................         76,059         104,966
NOTES PAYABLE - LONG TERM ........................................................      1,066,922       1,268,721


STOCKHOLDERS' EQUITY
       PREFERRED STOCK, $.001 PAR VALUE:
                AUTHORIZED - 2,000,000 SHARES
                          ISSUED AND OUTSTANDING - NONE

       COMMON STOCK, $.001 PAR VALUE:
                AUTHORIZED - 20,000,000 SHARES
                ISSUED AND OUTSTANDING - 13,073,920  AT MARCH  31, 2001
                AND DECEMBER 31, 2000 ............................................         13,074          13,074
       ADDITIONAL PAID-IN CAPITAL ................................................     46,436,667      46,436,667
       UNREALIZED LOSSES - FOREIGN CURRENCY TRANSLATION ADJUSTMENT ...............       (958,245)       (945,806)
       ACCUMULATED DEFICIT .......................................................    (45,634,578)    (41,785,744)
                                                                                      ------------    ------------
       TOTAL STOCKHOLDERS' EQUITY / (DEFICIT) ....................................       (143,082)      3,718,191
                                                                                      ------------    ------------


       TOTAL LIABILITIES & STOCKHOLDERS' EQUITY / (DEFICIT) ......................  $   5,549,845   $   9,208,051
                                                                                      ============    ===========




                           The accompanying notes are an integral part of the financial statements.
</TABLE>


                                       3
<PAGE>



<TABLE>
<CAPTION>






                                ARIEL CORPORATION
         CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSSES
                                   (Unaudited)

                                                           Three Months Ended March 31,

                                                                2001             2000
                                                           ------------    ------------
<S>                                                         <C>             <C>
SALES ..................................................   $    881,656    $  2,072,221
COST OF GOODS SOLD .....................................        625,508         868,374
                                                           ------------    ------------
       GROSS PROFIT ....................................        256,148       1,203,847
EXPENSES:
     SALES AND MARKETING ...............................      1,064,854       1,266,834
     GENERAL AND ADMINISTRATIVE ........................      1,935,011       1,468,396
     RESEARCH AND DEVELOPMENT ..........................      1,090,516       1,281,626
                                                           ------------    ------------
         TOTAL OPERATING EXPENSES ......................      4,090,380       4,016,856
                                                           ------------    ------------
       LOSS FROM OPERATIONS ............................     (3,834,232)     (2,813,009)

INTEREST INCOME ........................................          7,269         110,918
INTEREST EXPENSE .......................................        (67,167)       (110,133)
OTHER INCOME / (EXPENSE) ...............................         45,296            (753)
                                                           ------------    ------------
        NET LOSS .......................................   $ (3,848,834)   $ (2,812,977)
                                                           ------------    ------------
      OTHER COMPREHENSIVE LOSS, NET OF TAX
            FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ...        (12,439)       (147,268)
                                                           ------------    ------------
                               COMPREHENSIVE LOSS ......   $ (3,861,273)   $ (2,960,245)
                                                           ============    ============
      BASIC AND DILUTED LOSS PER SHARE .................   $      (0.29)   $      (0.24)
                                                           ============    ============



        The accompanying notes are an integral part of the financial statements.

</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>


                                                          Ariel Corporation
                                                Consolidated Statements of Cash Flows
                                                           (Unaudited)
                                                                                                       For The Three Months
                                                                                                          Ended March 31,
                                                                                                       2001                 2000
                                                                                                  ------------       ---------------
Cash flows from operating activities:
<S>                                                                                            <C>                  <C>
Net Loss .................................................................................        $ (3,848,834)        $ (2,812,977)
Adjustments to reconcile net loss to net cash used in operating activities:
              Depreciation and amortization ..............................................             203,529              243,905
              Amortization of goodwill & intangibles .....................................              49,112              233,467
              Amortization of debt issuance costs ........................................              69,746               67,953
              Provision / (recovery) for doubtful accounts ...............................              12,956               (1,793)
              Provision for inventory obsolescence .......................................              45,000               91,659
              Non-cash compensation expense ..............................................              59,878                 --
(Increase) decrease in assets
              Accounts receivable ........................................................           1,757,033            1,119,738
              Other receivables ..........................................................            (115,539)            (122,392)
              Inventories ................................................................             240,678              105,548
              Other assets ...............................................................            (111,539)            (251,209)
Increase (decrease) in liabilities:
              Accounts payable and accrued expenses ......................................             134,558           (2,340,170)
                                                                                                     ------------       ------------
              Net cash used in operating activities ......................................          (1,503,422)          (3,666,271)
                                                                                                     ------------       ------------
Cash flows from investing activities:
              Purchase of equipment ......................................................              (3,620)            (320,896)
              Purchase of investments ....................................................            (220,000)                --
              Proceeds from maturity of investments.......................................             350,000                 --
              Purchase price adjustment ..................................................             564,430                 --
                                                                                                     ------------       ------------
              Net cash provided by (used in) investing activities ........................             690,810             (320,896)
                                                                                                     ------------       ------------
Cash flows from financing activities:
      Principal payments on capital lease obligation .....................................             (28,907)             (25,593)
      Principal payments on long-term debt ...............................................            (163,752)            (204,183)
      Proceeds from bridge-loan ..........................................................             300,000                 --
      Proceeds from issuance of common stock, net ........................................                --              8,242,142
      Proceeds from exercise of common stock options and warrants ........................                --                 10,063
                                                                                                      ------------      ------------
              Net cash provided by financing activities ..................................             107,341            8,022,429
                                                                                                      ------------      ------------
Effect of exchange rate changes on cash and cash equivalents .............................                (498)              (1,166)
Net (decrease) / increase  in cash and cash equivalents ..................................            (705,769)           4,034,096
Cash and cash equivalents, beginning of period ...........................................           1,129,246            7,088,431
                                                                                                     ------------       ------------
Cash and cash equivalents, end of period .................................................        $    423,477         $ 11,122,527
                                                                                                    ==============      ============

</TABLE>


        The accompanying notes are an integral part of the financial statements.


                                       5
<PAGE>



                               Ariel Corporation
                   Notes to Consolidated Financial Statements
                                   (Unaudited)


1.       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-K for the year ended December 31, 2000.

     As of March 31, 2001, the Company had negative working capital of $732,648,
including  cash and cash  equivalents  of  $423,477.  The Company  has  incurred
substantial operating losses and had an accumulated deficit of $45,662,779 as of
March 31,  2001.  The Company has  incurred  net losses of  approximately  $15.6
million  and $12.5  million  for the years  ended  December  31,  2000 and 1999,
respectively,  and $3.8  million for the three  months  ended March 31, 2001 and
expects to incur costs and  expenses in excess of  revenues as it  continues  to
execute its  business  strategy in the ISP and OEM  markets.  Absent the pending
transaction  with Mayan  Networks,  Inc.  described  below and in Note 20 to the
financial  statements  included  in its Annual  report on Form 10-K for the year
ended  December 31, 2000,  (which is contingent  upon a number of factors),  the
Company  has  limited  financial  resources  available  to support  its  ongoing
operations,  fund  product  development  programs,  to  develop  and  market new
competitive  remote access  technology,  and pay its  obligations as they become
due.

     These factors raise  substantial  doubt concerning the Company's ability to
continue  as a going  concern.  The  consolidated  financial  statements  do not
include any adjustments  relating to the  recoverability  and  classification of
asset carrying  amounts or the amount and  classification  of  liabilities  that
might result  should the Company be unable to continue as a going  concern.  The
Company's  ability  to  continue  as a  going  concern  is  dependent  upon  the
consummation of the pending  transaction with Mayan Networks,  Inc. as described
below in Note 5, the ongoing support of its stockholders, creditors, and certain
key customers,  and/or its ability to successfully develop and market its remote
access  products and  technology  at  economically  feasible  levels in a highly
competitive and rapidly changing technology environment.

     As  discussed in Note 5, the Company has a pending  transaction  with Mayan
Networks  Corporation which the Company believes,  if consummated,  will provide
adequate financial resources to support the Company through March 2002. There is
no  assurance,  however,  that the  Company  will be able to close  the  pending
transaction   or  that  such  financial   resources   provided  by  the  pending
transaction,  if closed,  will be  sufficient  to support the  Company  until it
reaches a successful level of operations.

     In the opinion of the management of the Company, the accompanying unaudited
financial  statements  contain all  adjustments,  consisting of normal recurring
accruals,  necessary to present fairly the financial  position of the Company as
of March 31, 2001 and the results of operations for the three months ended March
31,  2001  and  2000.  The  results  for  interim  periods  are not  necessarily
indicative of results for the full year.



                                       6
<PAGE>


2.       Inventories, net of allowance:
<TABLE>
<CAPTION>

         Inventories, net of allowance, consists of the following:

                                                   March 31,        December 31,
                                                     2001               2000
                                                  ----------         -----------
<S>                                               <C>                 <C>
Component Materials ....................          $  260,276          $  556,429
Work-in process ........................             353,504             557,632
Finished Goods .........................           1,665,697           1,445,199
                                                  ----------          ----------
                                                  $2,279,477          $2,559,260
                                                  ==========          ==========
</TABLE>

3.       Debt

     As of March 31, 2001 the Company had total debt of $1,953,048 consisting of
a Term Note due to Transamerica  Business Credit Corporation of $1,653,048 and a
bridge loan due to Mayan Networks of $300,000.

     As of March 31, 2001  outstanding  debt of $1,653,048  remained on the Term
Note payable quarterly in arrears over twenty  consecutive  quarters  commencing
October 1, 1997.  The interest rate in effect on the term loan at March 31, 2000
was 12.10%.

     The  Transamerica  credit  agreement  includes  a material  adverse  effect
clause,  whereby Transamerica can accelerate the due date of the loan if certain
changes in conditions  (financial  or  otherwise)  are deemed to have a material
adverse  effect on the Company's  ability to meet its  obligations.  The Company
believes  it is in  compliance  with this  provision  and  Transamerica  has not
communicated to the Company that a material adverse effect has occurred.

     On March 28, 2001, the Company  entered in an agreement with Mayan Networks
(see Note 5) which,  among other  things,  provides for a  Promissory  Note (the
"Note").  The Note calls for Mayan  Networks to provide up to $2 million in debt
financing  to the  Company  on an as  needed  basis  until  the  transaction  is
consummated or otherwise terminated. In the event Mayan chooses to terminate the
merger  agreement due to a superior offer, the note becomes a term note with any
principal  and  accrued  interest  payable  on the one year  anniversary  of the
termination.  Should the merger agreement otherwise terminate amounts due on the
Note would be due and payable upon termination.

     The Company  must  maintain  compliance  with certain  representations  and
warranties and not be in breach of the covenants of the merger agreement to draw
down funds against the Note.  The Note has an annual  interest rate of 8% and is
secured by  subordinated  security  agreements  on the  Company's  tangible  and
intellectual property.

     The Company had drawn down $300,000 as of March 31, 2001. As of the May 15,
2001 there is a total of $1,650,000 outstanding.


                                       7
<PAGE>



4.       Segment Data

     Segments  are  comprised  of European and North  American  operations.  The
accounting  policies  of the  segments  are the same as those  described  in the
"Summary  of  Significant  Accounting  Policies"  in  Note  1 of  the  Company's
financial  statements  included  in its Annual  Report on Form 10-K for the year
ended December 31, 2000.  Segment profit includes  operating  expenses  directly
attributable  to  the  segment  including  administrative,  selling,  marketing,
research and development  costs and taxes.  Certain expenses managed outside the
reportable  segments are excluded.  Costs  excluded from segment  profit include
charges for in-process research and development and costs related to mergers and
acquisitions.  The  Company  does not  include  intercompany  transfers  between
segments for management reporting purposes. Summary information by segment as of
and for the three months ended March 31:


<TABLE>
<CAPTION>

     NORTH AMERICA:
          For the three months ended and as of:                                    March 31, 2001           March 31, 2000
                                                                                   --------------           --------------
<S>                                                                              <C>                         <C>
         Revenues from external customers ..................................     $    829,922                $  1,954,617
         Segment loss ......................................................       (3,580,880)                 (2,579,509)
         Segment assets ....................................................        5,016,204                  19,725,473

     EUROPE:
         For the three months ended and as of:                                     March 31, 2001           March 31, 2000
                                                                                   --------------           --------------
         Revenues from external customers ..................................     $     51,734                $    117,604
         Segment (loss) ....................................................         (267,954)                   (233,468)
         Segment assets ....................................................          533,641                   2,562,314


</TABLE>



                                       8
<PAGE>


5.       Merger Agreement

     On March 28, 2001 the Company entered into a definitive  agreement and plan
of merger with Mayan  Networks  Corporation of San Jose,  California  which upon
consummation requires the Company to, among other things, effect a reverse stock
split and to issue additional shares to Mayan Network's shareholders immediately
after the reverse  stock  split.  Upon  consummation  of the  transaction  Mayan
Network shareholders will control approximately 90% of the Company's outstanding
voting stock.

     The merger will be accounted for under the purchase method.  Because Mayan
will own  approximately  90% of the common  stock of Ariel (on a diluted  basis)
after the merger,  the merger  will be  accounted  for as a reverse  acquisition
which results in Mayan being the acquirer of Ariel for accounting purposes.

     The  consummation  of the  transaction  requires,  among other things,  the
approval of the plan of merger by shareholders of both companies,  the filing of
a registration  statement  with the  Securities and Exchange  Commission on Form
S-4, the effectiveness of the shares to be issued in that filing and the listing
of those shares on the NASDAQ National Market.

     The Company expects to complete the transaction by August 31, 2001.



                                       9
<PAGE>



ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
         -----------------------------------------------------------
         AND RESULTS OF OPERATIONS.
         -----------------------------

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>

                                                            Three months ended
                                                                 March 31,

                                                            2001           2000
                                                            ----           ----

<S>                                                     <C>               <C>
Sales ............................................          100%           100%
Cost of goods sold ...............................           71             42
                                                           ----           ----
     Gross profit ................................           29             58
Expenses
     Sales and marketing .........................          121             61
     General and administrative ..................          219             71
     Research and development ....................          124             62
                                                           ----           ----
     Total operating expenses ....................          464            194
                                                           ----           ----
Loss from operations .............................         (435)          (136)
Interest Income ..................................            1              5
Interest Expense .................................           (8)            (5)
Other (expense) Income ...........................            5              *
                                                           ----           ----
                 Net Loss ........................         (437)%         (136)%
                                                           ====           ====
*       Total is less than 1%

</TABLE>




                                       10
<PAGE>



     Three  months  ended March 31, 2001 as compared to three months ended March
31, 2000

Net Sales

     Worldwide  sales were $881,656 for the three months ended March 31, 2001, a
decrease of $1,190,565  compared to net sales of $2,072,221 for the three months
ended March 31, 2000.  Domestic  sales were  $797,346 for the three months ended
March 31, 2001 compared to $1,797,907 for the three months ended March 31, 2000.
The decrease in sales of $1,000,561 was  attributable  to a decrease in sales of
DSP products to OEMs.  In June 2000 we notified our  customers  that we would no
longer  offer  certain  older DSP products  due to the lack of  availability  of
component  parts and the prohibitive  cost of production,  testing and technical
support for these older products.  Therefore,  these products could no longer be
made  generally  available  after  December  31,  2000.  This  caused a one-time
increase in orders and sales for these products and a larger relative decline in
OEM revenue in 2001.  New OEM projects  typically  require 18-24 months from the
award of a project to the  realization  of a ramp in revenue.  From 1997 through
1998 the Company  curtailed  pursuit of new OEM projects  while it focused on PC
manufacturers.  This  additionally  contributed  to  decreases  in  overall  OEM
revenues.  Decreases in OEM revenues were only partially  offset by sales of the
Company's  RAS  products  to ISPs due to a sudden and sharp  decrease in capital
expenditures by Internet Service Providers and telecommunications vendors.

     International  sales were $84,310 for the three months ended March 31, 2001
(including  U.S.  exports  of  $32,576  and sales from  European  operations  of
$51,734.)  Compared to $274,314 for the same period of 2000.  In June 2000,  the
Company  decided to phase out  low-end  basic rate ISDN  (BRI)  products  of its
French  subsidiary,  SCii Telecom SA. The decision was based on reduced sales of
BRI  products  due to the loss of major  customers  and  advances  in  competing
technologies. Accordingly, the decrease of $190,004 reflects a decrease in sales
of BRI products.

Gross Profit

     Gross  profit  decreased by $947,699 to $256,148 for the three months ended
March 31, 2001 from $1,203,847 for the three months ended March 31, 2000.  Gross
profit was 29% of sales for the three  months  ended March 31, 2001  compared to
58% for the three months ended March 31, 2000.  The decrease in gross profit was
due the reduced sales of older DSP  products.  The decrease in gross profit as a
percentage of sales is primarily due to the loss of higher gross margin sales to
OEM  customers  for both RAS and DSP  products  as well as the  impact  of fixed
manufacturing  overhead on reduced sales for the period.  Reserves for inventory
in excess of expected  demand did not  materially  impact  gross  profit for the
three  months  ended March 31, 2001,  however,  the Company  continues to review
expected demand and adjust the carrying value of inventory as necessary.


                                       11
<PAGE>


Sales and marketing

     Sales and  marketing  expenses were  $1,064,854  for the three months ended
March 31, 2001 compared to $1,266,834 for the three months ended March 31, 2000.
The decrease of $201,980 or 16% is primarily due to decreased  participation  in
trade  shows  during the three  months  ended  March 31, 2001 as compared to the
prior year  period.  Such  decreases  were  related to booth space and travel of
approximately $76,000 and $37,000, respectively.  Additionally, expenses related
to public and investor  relations were  approximately  $63,000 less in the three
months  ended March 31, 2001 over the prior year  period.  Decreases in European
sales and marketing expenses of approximately $80,000 reflect the discontinuance
of both DSP and SCii's BRI products.  Such decreases  were  partially  offset by
increased  salaries  and  the  deployment  of  product  demonstration  units  of
approximately $20,000 and $27,000, respectively.

General and administrative

     General and  administrative  expenses were  $1,935,011 for the three months
ended March 31, 2001 compared to $1,468,396 for the three months ended March 31,
2000. The increase of $466,075 is due to the accrual of  approximately  $582,000
for  professional  fees related to the merger of the Company with Mayan Networks
of San Jose, CA (see Note 5). Other increases included  increased  directors and
officers  insurance  premiums of $33,330 and  increases  in reserves  for future
warranty costs of $40,000.  Such increases were partially  offset by a reduction
in  amortization  expense of  approximately  $183,000,  related to the Company's
November 1998  acquisition  of Scii.  In February  2001,  the Company  reached a
settlement  with  SCii's  former  parent,   Alis   Technologies,   and  received
approximately $600,000 towards the settlement during the quarter ended March 31,
2001. Proceeds of approximately  $565,000 were reflected as an adjustment to the
purchase price and offset against  remaining  goodwill and  intangibles at March
31, 2001.

Research and Development

     Research and  development  expenses  were  $1,090,516  for the three months
ended March 31, 2001 compared to $1,281,626 for the three months ended March 31,
2000, a decrease of $191,110.  The decrease is primarily due to the reduction in
salaries and related expenses of $196,220 and savings of $66,000  resulting from
the  discontinuance  of both DSP and SCii's BRI products.  Such  decreases  were
offset by  increases  in  contract  labor and  material  costs of  approximately
$72,000  for  engineers  related to  development  of the  Company's  SS7 Gateway
enabled remote access products.

     For the foregoing reasons the Company incurred a net loss of $3,848,834 for
the three  months ended March 31, 2001 as compared to losses of  $2,960,245  for
the three months ended March 31, 2000.

                                       12
<PAGE>


Liquidity and Capital Resources

     We have  incurred  net  losses of  approximately  $15.6  million  and $12.5
million for the years ended December 31, 2000 and 1999,  respectively,  and $3.8
million for the three  months ended March 31, 2001 and expect to incur costs and
expenses in excess of revenues as we continue to execute our  business  strategy
in the ISP and OEM markets.  Absent the pending transaction with Mayan Networks,
Inc. described in Note 5 to the financial statements (which is contingent upon a
number of factors), we have limited financial resources available to support our
ongoing operations,  fund product development programs to develop and market new
competitive  remote access  technology,  and pay its  obligations as they become
due.

     These factors raise substantial doubt concerning our ability to continue as
a going  concern.  The  consolidated  financial  statements  do not  include any
adjustments  relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
we be unable to continue as a going concern.  Our ability to continue as a going
concern is dependent upon the ongoing  support of our  stockholders,  creditors,
and certain key customers,  the  consummation  of the pending  transaction  with
Mayan  Networks,  Inc. (or the closing of similar debt or equity  transactions),
and/or our ability to successfully develop and market our remote access products
and  technology at  economically  feasible  levels in a highly  competitive  and
rapidly changing technology environment.

     We  maintain  a  credit   facility  with   Transamerica   Business   Credit
Corporation.  Currently the Company has a five-year, $3 million term loan ("Term
Loan").  As of March 31, 2001, there was $1,653,048  outstanding  under the Term
Loan. (See Note 3 to the Financial Statements.)

     We drew down $4 million under the Term Loan on June 12, 1997 when we signed
the  agreement.  Term Loan payments of principal and interest are due in arrears
in twenty consecutive quarterly  installments,  payable on the first day of each
calendar  quarter  commencing  October 1, 1997. The interest rate under the term
loan is based on the  weekly  average  of the  interest  rate on five  year U.S.
Treasury  Securities for stated periods plus an agreed upon number of additional
basis points. At December 31, 2000, the interest rate in effect was 12.10%.

     On March 28, 2001,  we entered into an agreement  with Mayan  Networks (see
Note 5) which, among other things,  provides for a Promissory Note (the "Note").
The Note calls for Mayan  Networks to provide up to $2 million in debt financing
to us on an as needed basis until the  transaction  is  consummated or otherwise
terminated.  In the event Mayan chooses to terminate the merger agreement due to
a superior  offer,  the Note becomes a term note with any  principal and accrued
interest  payable on the one year  anniversary  of the  termination.  Should the
merger agreement  otherwise  terminate  amounts due on the Note would be due and
payable upon termination.

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<PAGE>


     We must maintain compliance with certain representations and warranties and
not be in breach of the  covenants  of the merger  agreement  to draw down funds
against the Note.  The Note has an annual  interest rate of 8% and is secured by
subordinated security agreements on our tangible and intellectual property.

     We had drawn down  $300,000 as of March 31, 2001.  As of May 15, 2001 there
is a total of $1,650,000 outstanding.

     During the three months  ended March 31, 2001,  there was a net decrease in
cash  and  cash  equivalents  of  $705,769.  At March  31,  2001,  cash and cash
equivalents  amounted to $423,477.  Working capital deficit amounted to $732,648
at March 31, 2001. This as compared to working capital of $2,385,855 at December
31, 2000.

     Net cash used in operating  activities for the three months ended March 31,
2001 amounted to $1,503,422.  The negative cash flows from  operations  were due
primarily to the Company's net loss of $3,848,834,  before non-cash expenditures
related to  depreciation,  amortization,  reserves and  allowances  of $440,221.
Increases in cash due to collections of trade and other  receivables,  accounted
for approximately $1,998,000.

     Net cash provided by investing  activities for the three months ended March
31, 2001 amounted to $690,810 due to proceeds of approximately $565,000 received
in connection with the settlement of a dispute with the Alis  Technologies,  the
seller of SCii,  and net  proceeds of $130,000  from  investments  that  matured
during the period.  The  proceeds  from the Alis  Technologies  settlement  were
recorded as an adjustment to the SCii purchase price.

     Cash from financing  activities  increased by $107,341 for the three months
ended March 31, 2001. The increase was due to proceeds  received under the terms
of a Bridge Loan with Mayan  Networks in the amount of $300,000.  Such  increase
was offset by principal  payments on the Company's capital lease obligations and
its Term  Note  with  Transamerica  in the  amounts  of  $28,907  and  $163,752,
respectively.

Interest rate risk.

     Our  interest  income is  sensitive  to  changes  in the  general  level of
interest rates in the United  States,  as our  investments  are in United States
dollar cash  equivalents  and short-term  instruments.  Our interest  expense is
sensitive  to  changes  in the  general  level of  interest  rates in the United
States, because the computation of interest due on our debt in the United States
is based on key interest rate  indicators  used in the United States such as the
prime rate.

Foreign exchange risk

     We  currently  have  foreign  subsidiaries  that  conduct and report  their
operations in local currency.  The primary foreign currency is the French Franc.
Other  currencies  include  the  British  Pound and the German  Deutschmark.  On
January 1, 1999,  eleven member countries  (including France and Germany) of the
European Union  established  fixed conversion  rates between their existing,  or
local, currencies and one common currency, the euro. The euro trades on currency
exchanges  and may be used in  business  transactions.  Conversion  to the  euro
eliminates currency exchange risk between the participating member countries.

     Due to the limited  contribution of our foreign subsidiaries to our results
of operations and the short-term nature of our cash equivalents, investments and
debt, we do not believe we have material market risk exposure.



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Part II.     Other Information

ITEM 1.  LEGAL PROCEEDINGS:
         ------------------

     We are not engaged in any material legal  proceedings.  We may from time to
time  become a party to various  legal  proceedings  in the  ordinary  course of
business.

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS - none.
         -------------------------------------------------

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - none.
         ---------------------------------------


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS:
         ------------------------------------------------------

     On February 15, 2001 we held a special meeting of stockholders  through the
solicitation of proxies.  The meeting was originally  scheduled for December 20,
2000 and  adjourned  until  February  15, 2001 in order to obtain the  necessary
quorum to conduct  the  business of the  meeting.  The  stockholders  voted on a
proposal  concerning  the issuance of 2,151,000  shares of common stock upon the
exercise of warrants  issued by us in  conjunction  with a private  placement of
common  stock  completed on February 24, 2000 and to approve the issuance to the
investors in the February 2000 private  placement of up to 2,151,000  additional
warrants.

      The voting totals were as follows:

      For:    5,037,829              Against: 776,287          Abstain: 765,537


ITEM 5.  OTHER INFORMATION:

     On March 28,  2001,  the  Company  filed a report of  unscheduled  material
events under Item 5, of Form 8K which contained the following:

     (A) The  Company  had  entered  into an  Agreement  and Plan of Merger (the
"Agreement") with Mayan Networks  Corporation  ("Mayan") pursuant to which Mayan
will acquire and merge into Ariel.  The closing of the  transaction is scheduled
to occur  during the third  quarter of 2001,  subject to a number of  conditions
including:  1)  approval  by the  stockholders  of  both  Ariel  and  Mayan;  2)
effectiveness  of a  Registration  Statement  on Form S-4  related to the shares
issued to Mayan stockholders in the transaction;  3) regulatory  approval by the
NASD authorizing  listing of the Ariel common shares to be issued in the merger;
and 4) any  other  requisite  consents  from  governmental  entities  have  been
obtained.  All  conditions  to closing the  Agreement are fully set forth in the
Agreement  which was annexed to the filing as Exhibit "1". Upon  consummation of
the transaction,  Mayan's  securities  holders will hold ninety (90%) percent of
the outstanding  securities and Ariel's  securities  holders will hold ten (10%)
percent of the outstanding securities of the combined entity.

     (B) In October  1998,  Ariel  adopted a Rights Plan  ("Plan")  which may be
activated upon the occurrence of certain events  including the  acquisition by a
third party of a stated  percentage of the Company's  common stock.  In order to
specifically  state the proposed merger  transaction  between Ariel and Mayan is
not an event that would  constitute  a trigger  of the  provisions  of the Plan,
Ariel has amended the Plan  specifically  stating that the proposed  transaction
with Mayan falls outside the ambit of the Plan. The plan was attached as Exhibit
"2" to the filing.


ITEM 6. Exhibits -  None



                                       15
<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







                            ----------------------------------------------------
                             John R. Loprete
                             Vice President of Finance and Principal Accounting
                             Officer


Date:  May 15, 2001













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