<TABLE>

<CAPTION>       <S>                                                                     <C>


                                                  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, 2000                                       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                                    13,068,570 shares outstanding
                                                                as of March 31, 2000


                                               Documents Incorporated by Reference: Report on Form 8-K dated March 10, 2000.

</TABLE>
<PAGE>

                                                           Ariel Corporation
                                                                 Index

Part I.  Financial Information

Item 1.  Consolidated Financial Statements  (Unaudited)

          A. Consolidated balance sheets as of March 31, 2000 and
             December 31, 1999

          B. Consolidated statements of operations for the three months ended
             March 31, 2000 and 1999.

          C. Consolidated statements of cash flows for the three months ended
             March 31, 2000 and 1999.


          D. Notes to consolidated financial statements



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


<PAGE>

Part II.  Other Information

ITEM  I. - FINANCIAL STATEMENTS

<TABLE>
<CAPTION>             <S>                                                                <C>             <C>
                                                    ARIEL CORPORATION
                                                      BALANCE SHEETS
                                                        (Unaudited)

                                                                                           March 31,    December 31,
                                                                                             2000            1999
                                                                                        ------------    ------------
      ASSETS

CURRENT ASSETS:
       CASH AND CASH EQUIVALENTS ....................................................   $ 11,122,527    $  7,088,431
       ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
             ACCOUNTS OF $923,763 IN 2000 AND $1,019,731 IN 1999 ....................      1,968,415       3,091,362
       OTHER RECEIVABLES ............................................................        356,993         383,676
       INVENTORIES, NET .............................................................      3,104,783       3,303,057
       PREPAID EXPENSES .............................................................        670,521         775,943
                                                                                        ------------    ------------
                   TOTAL CURRENT ASSETS .............................................     17,223,239      14,642,469

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
            AND AMORTIZATION ........................................................      1,460,681       1,387,128

GOODWILL, INTANGIBLES AND OTHER ASSETS ..............................................      3,603,867       3,787,475


                                                                                        ------------    ------------
       TOTAL ASSETS .................................................................   $ 22,287,787    $ 19,817,072
                                                                                        ============    ============


LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE .............................................................   $    284,240    $  1,190,807
       ACCRUED EXPENSES .............................................................      2,028,669       3,510,566
       CURRENT PORTION OF LONG-TERM DEBT ............................................      1,821,410       1,895,926
       CURRENT PORTION OF CAPITAL LEASE .............................................        126,438         126,438
       ROYALTIES PAYABLE ............................................................         91,210          91,210
                                                                                        ------------    ------------

                   TOTAL CURRENT LIABILITIES ........................................      4,351,967       6,814,947


LONG-TERM PORTION OF CAPITAL LEASE ..................................................        188,309         215,901
LONG-TERM DEBT ......................................................................      1,653,048       1,788,985


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 - 13,068,570 AT MARCH 31, 2000
                                 AND 10,832,597 AT DECEMBER 31, 1999 ................         13,069          10,833

       ADDITIONAL PAID-IN CAPITAL ...................................................     45,769,138      37,627,809
       UNREALIZED GAIN / (LOSS) ON FOREIGN CURRENCY TRANSLATION .....................       (726,844)       (503,711)
       ACCUMULATED DEFICIT ..........................................................    (28,960,900)    (26,137,692)
                                                                                        ------------    ------------
                   TOTAL STOCKHOLDERS' EQUITY .......................................     16,094,463      10,997,239

                                                                                        ------------    ------------
       TOTAL LIABILITIES & STOCKHOLDERS' EQUITY .....................................     22,287,787      19,817,072
                                                                                        ============    ============



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


</TABLE>

<PAGE>

<TABLE>

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

                                                                           ARIEL CORPORATION
                                                                CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                              (Unaudited)

                                                                                                Three Months Ended March 31,
                                                                                                     2000            1999
                                                                                                 ============    ============

SALES .......................................................................................   $  2,072,221    $  3,073,529

COST OF GOODS SOLD ..........................................................................        868,374       1,393,598

                                                                                                 ------------    ------------
       GROSS PROFIT .........................................................................      1,203,847       1,679,931

EXPENSES:
     SALES AND MARKETING ....................................................................      1,266,834       1,524,903
     GENERAL AND ADMINISTRATIVE .............................................................      1,468,396       1,826,855
     RESEARCH AND DEVELOPMENT ...............................................................      1,281,626       1,352,127
                                                                                                 ------------    ------------

         TOTAL OPERATING EXPENSES ...........................................................      4,016,856       4,703,885

                                                                                                 ------------    ------------
       LOSS FROM OPERATIONS .................................................................     (2,813,009)     (3,023,954)

INTEREST INCOME .............................................................................        110,918         160,832

INTEREST EXPENSE ............................................................................       (110,133)       (142,961)

OTHER EXPENSE ...............................................................................           (753)         (2,734)

                                                                                                 ------------    ------------
       LOSS BEFORE INCOME TAXES .............................................................     (2,812,977)     (3,008,817)

      PROVISION FOR INCOME TAXES ............................................................              0               0

                                                                                                 ------------    ------------
       NET LOSS .............................................................................   ($ 2,812,977)   ($ 3,008,817)
                                                                                                 ------------    ------------



      BASIC EARNINGS/ (LOSS)  PER SHARE .....................................................   ($      0.24)   ($      0.31)
                                                                                                 ============    ============


OTHER COMPREHENSIVE INCOME / (LOSS), NET OF TAX:
      FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ..............................................       (147,268)       (182,939)

                                                                                                 ------------    ------------
                               COMPREHENSIVE (LOSS) .........................................     (2,960,245)     (3,191,756)
                                                                                                 ============    ============

      BASIC EARNINGS / (LOSS)  PER SHARE ....................................................          (0.24)          (0.33)
                                                                                                 ============    ============

      DILUTED EARNNGS / (LOSS)  PER SHARE ...................................................          (0.24)          (0.33)
                                                                                                 ============    ============


       BASIC WEIGHTED AVERAGE NUMBER OF
                                COMMON SHARES OUTSTANDING ...................................     11,703,359       9,755,150

       EFFECT OF DILUTIVE OPTIONS ...........................................................              0               0
                                                                                                 ------------    ------------

       DILUTED WEIGHTED AVERAGE NUMBER OF
                                COMMON SHARES OUTSTANDING ...................................     11,703,359       9,755,150
                                                                                                 ============    ============


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


</TABLE>

<PAGE>

<TABLE>

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

                                                                  ARIEL CORPORATION
                                                     CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                   (Unaudited)






                                                                                                For The Three Months Ended March 31,
                                                                                                          2000            1999
                                                                                                      ============    ============
Cash flows from operating activities:
Net Loss ...........................................................................................   ($ 2,812,977)   ($ 3,008,817)
Adjustments to reconcile net loss to net cash used in
     operating activities:
            Depreciation and amortization ..........................................................        243,905         226,765
            Amortization of goodwill & intangibles .................................................        233,467         357,182
            Amortization of debt issuance costs ....................................................         67,953          16,089
            (Recovery) of / provision for doubtful accounts ........................................         (1,793)        206,248
            Provision for inventory obsolescence ...................................................         91,659          25,861
(Increase) decrease in assets:
            Accounts receivable ....................................................................      1,119,738         467,739
            Other accounts receivables .............................................................       (122,392)        190,832
            Inventories ............................................................................        105,548         562,645
            Other assets ...........................................................................       (251,209)         65,583
Increase (decrease) in liabilities:
            Accounts payable and accrued expenses ..................................................     (2,340,170)     (3,592,153)
            Royalties payable, related parties .....................................................              0         (46,800)
                                                                                                        ------------    ------------
                                                                                                         (3,666,271)     (4,528,826)
                                                                                                        ------------    ------------

Cash flows from investing activities:
            Purchase of equipment ..................................................................       (320,896)       (321,162)
                                                                                                        ------------    ------------
                                                                                                           (320,896)       (321,162)
                                                                                                        ------------    ------------

Cash flows from financing activities:
            Proceeds from issuance of common stock, net ............................................      8,242,142               0
            Principal payments on capital lease obligation .........................................        (25,593)              0
            Principal payments on long-term debt ...................................................       (204,183)       (269,463)
            Proceeds from exercise of common stock options and warrants ............................         10,063               0
                                                                                                        ------------    ------------
                                                                                                          8,022,428        (269,463)
                                                                                                        ------------    ------------

Effect of exchange rate changes on cash ...........................................................         (1,166)        (18,294)
                                                                                                        ------------    ------------

Net increase (decrease) in cash ...................................................................      4,034,096      (5,137,745)

            Cash and cash equivalents, beginning of year ..........................................      7,088,431      17,996,575

                                                                                                      ------------    ------------
Cash and cash equivalents, end of period ..........................................................   $ 11,122,527    $ 12,858,830
                                                                                                      ============    ============




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

<PAGE>

                                Ariel Corp
                  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, 1999.
     As of March 31,  2000,  the  Company had  working  capital of  $12,871,272,
including  cash and cash  equivalents of  $11,122,527.  The Company has incurred
substantial operating losses and had an accumulated deficit of $28,960,900 as of
March 31, 2000.  It expects to continue to incur costs and expenses in excess of
expected  revenues  as it  continues  to execute  its  business  strategy in the
Internet  Service  Provider  (ISP) and  Original  Equipment  Manufacturer  (OEM)
markets.  If the Company does not successfully  execute its business strategy in
the ISP and OEM markets,  there is no assurance  that the Company will  generate
sufficient  cash flow from  operations to meet  anticipated  operating needs and
liquidate  liabilities  as they come due.  However,  the  Company  believes  its
existing  cash and cash  equivalents  will be  sufficient  to meet its presently
anticipated  cash needs through the end of 2000.  If necessary,  the Company may
delay or  eliminate  some  expenditures  and  planned  operations  in both North
America  and  Europe  may be  scaled  back or the  Company  may  need  to  raise
additional  funds to meet  obligations.  It would  seek to  raise  such  amounts
through a variety of options  including  borrowings  and  proceeds  from  future
equity  financing.  Additional  funding may not be  available  when needed or on
terms  acceptable to the Company,  which could have a material adverse effect on
its business,  financial  condition,  and results of  operations.  The financial
statements do not include any adjustments  that might result from the outcome of
these uncertainties.
     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, 2000 and the results of operations for the three months ended March
31,  2000  and  1999.  The  results  for  interim  periods  are not  necessarily
indicative of results for the full year.



2.   In June 1998, the Financial  Accounting  Standards Board (``FASB'')  issued
Statement of Financial  Accounting  Standards No. 133 (``FAS 133''),  Accounting
for  Derivative  Instruments  and Hedging  Activities.  FAS 133, as amended,  is
effective for all fiscal years  beginning after June 15, 2000. Due to the FASB's
exposure  draft issued March 3, 2000,  which would amend FAS 133, the unresolved
status of numerous  Derivative  Implementation  Group  interpretations,  and the
potential for additional  interpretations  yet to be issued,  Company management
decided not to adopt FAS 133 effective January 1, 2000. Ariel will adopt FAS 133
effective January 1, 2001;  however, it does not believe that such adoption will
have a material effect on its  consolidated  results of operations and financial
position.

         In December 1999, the  Securities and Exchange  Commission  (``SEC'')
issued Staff Accounting  Bulletin  No. 101(``SAB 101''),  Revenue Recognition in
Financial  Statements.  SAB 101 provides guidance on applying generally accepted
accounting principles to revenue recognition issues in financial statements.  In
March 2000, the SEC issued Staff Accounting  Bulletin  No. 101A  (``SAB 101A''),
Amendment:  Revenue  Recognition in Financial  Statements.  SAB 101A  delays the
implementation  date of SAB 101 for  registrants  with  fiscal  years that begin
between December 16,  1999 and March 15, 2000. The Company will adopt SAB 101 as
required in the second quarter of 2000; however, the Company does not believe it
will have a material effect on the Company's historical results of operations or
financial position.


3.       Inventories, net of allowance:
         Inventories, net of allowance, consists of the following:

<TABLE>

<CAPTION>      <S>                                              <C>            <C>
                                                                 March 31,      December 31,
                                                                    2000            1999
                                                                    ----            ----

Component Materials.......................................  $     594,239      $   371,821
Work-in process..........................................       1,703,451          814,923
Finished Goods..........................................          807,093        2,116,313
                                                                  -------        ---------
                                                               $3,104,783      $ 3,303,057
                                                               ===========     ===========

</TABLE>

4.       Debt

     As of March 31, 2000 the Company had total debt of $3,474,458 consisting of
notes due to  Transamerica  Business  Credit  Corporation's  Technology  Finance
Division of Farmington  Connecticut of $3,373,148  and acquired  foreign debt of
$101,310.

     Under its credit facility with Transamerica, outstanding debt of $3,373,148
as of March 31,2000 consisted of the following: a $2,173,312 remaining on a Term
Loan payable quarterly in arrears over twenty  consecutive  quarters  commencing
October 1, 1997, and  $1,199,836  drawn against a Revolver which matures on June
12, 2000.  The interest rate in effect under the Revolver is based on prime rate
plus 2.50% and is payable monthly in arrears. The interest rate in effect on the
term loan at March 31, 2000 was 12.099%.  Amounts  drawn on the credit  facility
are secured by inventory, cash and accounts receivable.

     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.

5.       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  Form
10K. 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
technology 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 ending March 31:

<TABLE>
<CAPTION>       <S>                                                  <C>                      <C>
     NORTH AMERICA:
              For the three months ending and as of:                 March 31, 2000           March 31, 1999
                                                                     --------------           --------------
              Revenues from external customers                           $1,954,617               $2,919,974
              Intersegment revenues                                               0                    5,250
              Segment profit / (loss)                                   (2,579,509)              (2,162,827)
              Segment assets                                             19,725,473               24,268,657

     EUROPE:
              For the three months ending and as of:                 March 31, 2000           March 31, 1999
                                                                     --------------           --------------
              Revenues from external customers                             $117,604                 $153,555
              Intersegment revenues                                               0                        0
              Segment profit / (loss)                                      (233,468)                (843,715)
              Segment assets                                              2,562,314                6,472,523

         A reconciliation of the Company's segment losses to the corresponding
         consolidated  amounts for the three months ending March 31, 2000 is as follows:

              Segment profit / (loss)                                    ($2,812,977)           ($3,006,542)
              Profit margins on intersegment revenues                               0                (2,275)
                                                                   -------------------       -----------------
              Net loss                                                   ($2,812,977)           ($3,008,817)
                                                                   ===================       =================
</TABLE>

6.       Stock Purchase Agreement

     On February 24, 2000 the Company entered into an agreement with a number of
investors to sell  2,151,000  shares of our common stock at a purchase  price of
$4.00  per share in a private  placement.  The  Company  also  issued  2,151,000
warrants to purchase common stock with an exercise price of $6.875. The warrants
are not  exercisable  until August 24, 2000.  The exercise price of the warrants
will be reset to the average  market price for the five  trading days  preceding
the one year  anniversary  date of the  agreement  provided the average price is
less  than  $6.875.  Under  the  terms of the  agreement,  the  Company  filed a
registration  statement  on April 4, 2000 to register  the shares sold and those
underlying the warrants.  That registration  statement was declared effective on
April 20, 2000.

     The agreement  also calls for the issuance of additional  shares at no cost
to these  investors  should  we sell  shares  of  common  stock,  or  securities
convertible  into  common  stock,  at a price less than  $4.00 per share  within
twenty four months of the this agreement. This provision requires the Company to
issue additional  shares such that the average share price of these investors is
equal to the then offered price.

     Additionally,   these   investors  have  the  right  of  first  refusal  to
participate  in any sale of our common  stock,  or securities  convertible  into
common stock, within the next twenty four months.

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

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.


                                                                           Three months ended
                                                                               March 31,

                                                                         2000              1999
                                                                         ----              ----

Sales                                                                    100%              100%

Cost of goods sold                                                        42                45
                                                                      -----------        ---------
     Gross profit                                                         58                55

 Expenses
     Sales and marketing                                                  61                50
     General and administrative                                           71                59
     Research and development                                             62                44
                                                                     -----------        ----------
     Total Operating Expenses                                            194               153

Loss from operations                                                    (136)              (98)

Interest income                                                            5                 5

Interest expense                                                          (5)               (5)

Other (expense) income                                                     *                  *
                                                                      -----------      ----------
    Loss before income taxes                                            (136)             (98)
                                                                      -----------      ----------

                 Net Loss                                               (136)%            (98)%
                                                                      ===========      ==========

o        Total is less than 1%

</TABLE>
<PAGE>

Three months ended March 31, 2000 as Compared to three months ended
March 31, 1999

Net Sales

     Worldwide  sales were $2,072,221 for the three months ended March 31, 2000,
a decrease  of  $1,001,308  compared  to net sales of  $3,073,529  for the three
months ended March 31, 1999. Domestic sales were $1,797,907 for the three months
ended March 31, 2000 compared to $2,682,539 for the three months ended March 31,
1999. In 1998 the Company began a shift from digital signal  processing (DSP) to
products and markets for dial-up  remote access  equipment  (RAS).  The domestic
sales  decrease  of $884,632  was due to reduced  demand for the  Company's  DSP
products from original equipment manufacturers (OEMs) resulting from this shift.
Such increases  were partially  offset by sales of the Company's RAS products to
Internet Service Providers (ISPs) of approximately $200,000. International sales
were $274,314 for the first quarter of 2000 including  U.S.  exports of $156,710
and sales from European operations of $117,604. This as compared to $390,990 for
the first quarter of 1999. The decrease of $116,676 in international  sales is a
result of a decrease in sales by international subsidiaries.

Gross Profit

     Gross profit decreased by $476,084 to $1,203,847 for the three months ended
March 31, 2000 from $1,679,931 for the three months ended March 31, 1999.  Gross
profit was 58% as a percent of sales for the three  months  ended March 31, 2000
compared to 55% for the three months ended March 31, 1999. The decrease in gross
profit was due to a reduction in sales that was partially offset by higher gross
profit rates that reflect the effect of OEM price increases initiated in 1999.

Sales and marketing

     Sales and marketing  expenses were $1,266,834 or 61% of sales for the three
months ended March 31, 2000 compared to $1,524,903 or 50% of sales for the three
months ended March 31,1999.  The decrease of $258,069 or 17% includes a decrease
in sales commission of approximately $105,000 due to lower revenues as well as a
reduction in wages of approximately $168,000 due to a restructuring of the sales
organization  completed  in  August of 1999.  Decreases  in  European  sales and
marketing  expenses of  approximately  $105,000 reflect the integration of sales
and marketing  functions at the Company's  foreign  subsidiaries with the parent
company.  The Company  also  realized a reduction  of  approximately  $38,000 in
advertising  and marketing  programs as the RS4200  product  release was delayed
until late in March 2000.  Such decreases were partially  offset by increases in
public and investor relations of approximately $157,000.


General and administrative

     General and  administrative  expenses were  $1,468,396 for the three months
ended March 31, 2000 compared to $1,826,855 for the three months ended March 31,
1999.  The decrease of $358,459  reflects a reduction in allowances for doubtful
accounts of approximately $200,000 as compared to the first quarter of the prior
year.  Other  decreases  include  reduced  consulting  and  recruiting  costs of
approximately  $86,000  related to the  appointment of a new management  team in
December 1998 and a reduction in sales and franchise taxes from the three months
ended March 31, 1999 of approximately  $40,000. The Company also reduced general
and administrative costs at its European subsidiaries of approximately $22,000.

Research and Development

     Research and  development  expenses  were  $1,281,626  for the three months
ended March 31, 2000 compared to $1,352,127 for the three months ended March 31,
1999,  a decrease of $70,501.  Decreases  include a reduction  of  approximately
$123,000  as  compared  with the three  months  ended March 31, 1999 for bonuses
payable  to  certain   engineers  in  conjunction  with  employment   contracts.
Additionally,  decreases  of  $83,000  resulted  from  the  integration  of  the
Company's  European  research and  development  projects  with those at its U.S.
headquarters.  These  reductions were partially  offset by increases in expenses
comprised  primarily of wages and wage related costs of  approximately  $143,000
for engineers  related to development of Linux operating  system  software,  the
Company's SS7 Gateway enabled remote access products and the  vice-president  of
engineering appointed in May of 1999.

     For the foregoing reasons the Company incurred a net loss of $2,812,977 for
the three  months ended March 31, 2000 as compared to losses of  $3,008,817  for
the three months ended March 31, 1999.

Liquidity and Capital Resources

     On February 24, 2000 the Company entered into an agreement with a number of
investors to sell  2,151,000  shares of our common stock at a purchase  price of
$4.00  per share in a private  placement.  The  Company  also  issued  2,151,000
warrants to purchase common stock with an exercise price of $6.875. The warrants
are not  exercisable  until August 24, 2000.  The exercise price of the warrants
will be reset to the average  market price for the five  trading days  preceding
the one year  anniversary  date of the  agreement  provided the average price is
less  than  $6.875.  Under  the  terms of the  agreement,  the  Company  filed a
registration  statement  on April 4, 2000 to register  the shares sold and those
underlying the warrants.  That registration  statement was declared effective on
April 20, 2000.

     The agreement  also calls for the issuance of additional  shares at no cost
to these  investors  should  we sell  shares  of  common  stock,  or  securities
convertible  into  common  stock,  at a price less than  $4.00 per share  within
twenty four months o f the this agreement.  This provision  requires the Company
to issue additional  shares such that the average share price of these investors
is equal to the then offered price.

     Additionally,   these   investors  have  the  right  of  first  refusal  to
participate  in any sale of our common  stock,  or securities  convertible  into
common stock, within the next twenty four months.

     As of March 31,  2000,  the  Company had  working  capital of  $12,871,272,
including  cash and cash  equivalents of  $11,122,527.  The Company has incurred
substantial operating losses and had an accumulated deficit of $28,960,900 as of
March 31, 2000.  It expects to continue to incur costs and expenses in excess of
expected  revenues  as it  continues  to execute  its  business  strategy in the
Internet  Service  Provider  (ISP) and  Original  Equipment  Manufacturer  (OEM)
markets.  If the Company does not successfully  execute its business strategy in
the ISP and OEM markets,  there is no assurance  that the Company will  generate
sufficient  cash flow from  operations to meet  anticipated  operating needs and
liquidate  liabilities  as they come due.  However,  the  Company  believes  its
existing  cash and cash  equivalents  will be  sufficient  to meet its presently
anticipated  cash needs through the end of 2000.  If necessary,  the Company may
delay or  eliminate  some  expenditures  and  planned  operations  in both North
America  and  Europe  may be  scaled  back or the  Company  may  need  to  raise
additional  funds to meet  obligations.  It would  seek to  raise  such  amounts
through a variety of options  including  borrowings  and  proceeds  from  future
equity  financing.  Additional  funding may not be  available  when needed or on
terms  acceptable to the Company,  which could have a material adverse effect on
its business, financial condition, and results of operations.

     As of March 31, 2000 the Company had total debt of $3,474,458 consisting of
notes due to  Transamerica  Business  Credit  Corporation's  Technology  Finance
Division of Farmington  Connecticut of $3,373,148  and acquired  foreign debt of
$101,310.

     Under its credit facility with Transamerica, outstanding debt of $3,373,148
as of March  31,2000  consisted  of a term  loan  and a  revolving  credit  line
(Revolver).  The remaining balance under the term loan is $2,173,312.  Principal
and interest are payable quarterly in arrears.  The final payment is due October
1, 2002.  There is $1,199,836 drawn against a Revolver which matures on June 12,
2000. The interest rate in effect under the Revolver is based on prime rate plus
2.50% and is payable monthly in arrears. The interest rate in effect on the term
loan at March 31, 2000 was 12.099%.

     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.

     During the three months  ended March 31, 2000,  there was a net increase in
cash and cash  equivalents  of  $4,033,935.  At March  31,  2000,  cash and cash
equivalents amounted to $11,122,527.  Working capital amounted to $12,871,272 at
March 31,  2000  compared  to cash and  equivalents  of  $7,088,431  and working
capital of $7,827,522 at December 31, 1999.

     Net cash used in operating  activities for the three months ended March 31,
2000 amounted to $3,663,000.  The negative cash flows from  operations  were the
due,  in part,  to the  Company's  net loss of  $2,812,977  which was  offset by
non-cash  expenditures  related  to  depreciation,  amortization,  reserves  and
allowances of $635,191. Other operating cash uses included decreases in accounts
payable  and  accrued  liabilities  of  $2,340,170  as  the  Company  paid  down
obligations  of its  subsidiary  and  accrued  costs  related to fiscal year end
bonuses and accrued  compensation and increases in inventory of $247,938 related
to the  introduction  of the RS4200.  Such decreases  were  partially  offset by
increases in operating cash due to reduced accounts receivable of $1,119,738.

     Net cash used in investing  activities for the three months ended March 31,
2000  amounted to $320,896  due to the  purchases  of  computer  and  peripheral
equipment related primarily to engineering equipment for the SS7 Gateway project
and acquisition of trade show booth equipment.

     Net cash  increases due to financing  activities for the three months ended
March 31, 2000 amounted to $8,022,428 which included proceeds of $8,242,142 from
the February 24, 2000 stock purchase  agreement net of costs and fees related to
the transaction. The increase was partially offset by principal payments on debt
and capital lease obligations of $229,776 during the three month period.

Readiness of Year 2000

     As of the date of this filing,  we have not  experienced  any problems with
our  internal  business  systems or products  and have not been  notified of any
problems by our suppliers.

Qualitative and Quantitative Disclosures About Market Risk

     The results of our  operations  and the valuation of some of our assets and
liabilities  are sensitive to changes in the general level of interest  rates in
the United States and foreign exchange rate fluctuations.

     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.



Part II. Other Information - None

Item 6.  Exhibits and Reports on Form 8-K
         a)    Exhibits -  Exhibit 27  Schedule of Financial Data
               (Filed Electronically)

         The follinwing reports on Form 8-K are incorporated by reference as
         part of this report:

         Incorporated herein by reference to Form 8-K dated March 10, 2000 -
         The Company raised $8.6 million through the private placement of
         2,151,000 shares of common stock.
         The offering included a matching number of warrants. The description
         and terms of the placement are set forth in a registration statement
         dated April 4, 2000.




                                                               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/ John R. Loprete
                                                       -------------------------
                                                       John R. Loprete
                                                       Vice President of Finance
                                                        and Principal Accounting
                                                                         Officer
Date:  May 15, 2000

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