<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 June 30, 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                                   13,073,920 shares outstanding
                                                                as of June 30, 2000



                                               Documents Incorporated by Reference: None
</TABLE>

<PAGE>


<TABLE>
<CAPTION>
<S>                                                                                     <C>
                                                           Ariel Corporation
                                                                 Index

Part I.  Financial Information

Item 1.  Financial Statements  (Unaudited)

                  A.       Consolidated balance sheets as of June 30, 2000 and December 31, 1999

                  B.       Consolidated statements of operations for the three and six months ended
                           June 30, 2000 and 1999

                  C.       Consolidated statements of cash flows for the six months ended June 30, 2000 and 1999.

                  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

Items 4. Submission of Matters to a Vote of Shareholders
A.       Annual Meeting and Proxies
B.       Election of Director
C.       Other Matters and Results

Item 5. Other Information

Item 6. Exhibits and Reports on Form 8-K


</TABLE>

<PAGE>

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

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

                                                                      ARIEL CORPORATION
                                                                 CONSOLIDATED BALANCE SHEETS
                                                                         (Unaudited)

                                                                                    June 30,      December 31,
                                                                                      2000            1999
                                                                                  ------------    ------------
                                        ASSETS

CURRENT ASSETS:
       CASH AND CASH EQUIVALENTS ..............................................   $  6,749,205    $  7,088,431
       ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL
             ACCOUNTS OF $1,007,203 IN 2000 AND $1,019,731 IN 1999 ............        841,053       3,091,362
       OTHER RECEIVABLES ......................................................        336,642         383,676
       INVENTORIES, NET .......................................................      3,074,080       3,303,057
       PREPAID EXPENSES .......................................................        755,091         775,943
                                                                                  ------------    ------------
       TOTAL CURRENT ASSETS ...................................................     11,756,071      14,642,469

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
            AND AMORTIZATION ..................................................      1,406,121       1,387,128

GOODWILL, INTANGIBLES AND OTHER ASSETS ........................................      1,626,807       3,787,475
                                                                                     ---------       ---------
       TOTAL ASSETS ...........................................................   $ 14,788,999    $ 19,817,072
                                                                                  ============    ============

                          LIABILITIES & STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
       ACCOUNTS PAYABLE .......................................................   $    290,093    $  1,190,807
       ACCRUED EXPENSES .......................................................      2,248,288       3,510,566
       CURRENT PORTION OF LONG-TERM DEBT ......................................        572,987       1,895,926
       CURRENT PORTION OF CAPITAL LEASE .......................................        126,438         126,438
       ROYALTIES PAYABLE ......................................................         91,210          91,210
                                                                                  ------------    ------------
       TOTAL CURRENT LIABILITIES ..............................................      3,329,016       6,814,947

       LONG-TERM PORTION OF CAPITAL LEASE .....................................        161,080         215,901
       LONG-TERM DEBT .........................................................      1,528,737       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 - 13,073,920 AT JUNE 30, 2000
                                 AND 10,832,597 AT DECEMBER 31, 1999 ..........         13,074          10,833
       ADDITIONAL PAID-IN CAPITAL .............................................     46,436,668      37,627,809
       UNREALIZED GAIN / (LOSS) ON FOREIGN CURRENCY TRANSLATION ...............       (933,839)       (503,711)
       ACCUMULATED DEFICIT ....................................................    (35,745,737)    (26,137,692)
                                                                                   -----------     -----------
       TOTAL STOCKHOLDERS' EQUITY .............................................      9,770,166      10,997,239
                                                                                   -----------      ----------

       TOTAL LIABILITIES & STOCKHOLDERS' EQUITY ...............................     14,788,999      19,817,072
                                                                                  ============    ============


                               The accompanying notes are an integral part of the financial statements

</TABLE>
<PAGE>

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


                                                                                 ARIEL CORPORATION
                                                                         CONSOLIDATED STATEMENTS OF OPERATIONS
                                                                                    (Unaudited)


                                                              Three Months Ended June 30,     Six Months Ended June 30,
                                                                 2000            1999             2000           1999
                                                              ----------      ----------     -----------     -----------
SALES ...................................................   $  1,097,211    $  2,760,021    $  3,169,432    $  5,824,661

COST OF GOODS SOLD ......................................      1,021,382       1,129,731       1,889,756       2,521,869
                                                            ------------    ------------    ------------    ------------
       GROSS PROFIT .....................................         75,829       1,630,290       1,279,676       3,302,792

EXPENSES:
     SALES AND MARKETING ................................      1,601,702       1,630,492       2,868,535       3,155,795
     GENERAL AND ADMINISTRATIVE .........................      1,526,158       1,925,207       2,994,554       3,738,654
     RESEARCH AND DEVELOPMENT ...........................      1,387,654       1,359,278       2,669,280       2,712,961
     RESTRUCTURING AND SPECIAL CHARGES ..................      2,356,656               0       2,356,656               0
                                                            ------------    ------------    ------------    ------------
         TOTAL OPERATING EXPENSES .......................      6,872,170       4,914,977      10,889,025       9,607,410
                                                            ------------    ------------    ------------    ------------
       LOSS FROM OPERATIONS .............................     (6,796,341)     (3,284,687)     (9,609,349)     (6,304,618)

INTEREST INCOME .........................................        129,237         132,502         240,155         293,350

INTEREST EXPENSE ........................................       (137,515)       (146,550)       (247,648)       (292,051)

OTHER INCOME, NET .......................................         19,056          30,799          18,303          28,575
                                                            ------------    ------------    ------------    ------------
       LOSS BEFORE INCOME TAXES .........................     (6,785,563)     (3,267,936)     (9,598,539)     (6,274,744)

      PROVISION FOR INCOME TAXES ........................              0               0               0               0
                                                            ------------    ------------    ------------    ------------
       NET LOSS .........................................   ($ 6,785,563)   ($ 3,267,936)   ($ 9,598,539)   ($ 6,274,744)
                                                            ============    ============    ============    ============


OTHER COMPREHENSIVE LOSS, NET OF TAX:
      FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ..........       (136,617)       (112,215)       (283,884)       (295,154)
                                                                 -------        --------        --------        --------
                               COMPREHENSIVE (LOSS) .....     (6,855,941)     (3,380,151)     (9,744,783)     (6,569,898)
                                                              ==========      ==========      ==========      ==========

Basic and Diluted Per Share Data:
---------------------------------
      BASIC LOSS  PER SHARE .............................          (0.52)          (0.33)          (0.78)          (0.64)
                                                                   =====           =====           =====           =====

      DILUTED LOSS  PER SHARE ...........................          (0.52)          (0.33)          (0.78)          (0.64)
                                                                   =====           =====           =====           =====


       BASIC WEIGHTED AVERAGE NUMBER OF
                                COMMON SHARES OUTSTANDING     13,073,920       9,760,150      12,376,934       9,760,150

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

       DILUTED WEIGHTED AVERAGE NUMBER OF
                                COMMON SHARES OUTSTANDING     13,073,920       9,760,150      12,376,934       9,760,150


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

</TABLE>

<PAGE>
<TABLE>
<CAPTION>
<S>                                                                     <C>              <C>
                                         ARIEL CORPORATION
                                 CONDOLIDATED STATEMENTS OF CASH FLOWS
                                   For The Six months Ended June 30,
                                             (Unaudited)

                                                                            2000             1999
                                                                            ----             ----
Cash flows from operating activities:
Net Loss ...........................................................   ($ 9,598,539)   ($ 6,274,744)
Adjustments to reconcile net loss to net cash used in
     operating activities:
         Depreciation and amortization .............................        472,740         458,780
         Amortization of goodwill & intangibles ....................        466,935         515,930
         Amortization of debt issuance costs .......................        139,493          32,181
         Provision for doubtful accounts ...........................         13,207         270,093
         Provision for inventory obsolescence ......................        694,494         (65,321)
         Non-Cash compensation expense .............................         29,939               0
         Non-Cash restructuring and special charges ................      2,050,511               0
(Increase) decrease in assets:
         Accounts receivable .......................................      2,231,052         961,142
         Other receivables .........................................         27,108         261,030
         Inventories ...............................................       (468,613)        810,959
         Other assets ..............................................       (186,421)       (117,030)
Increase (decrease) in liabilities:
         Accounts payable and accrued expenses .....................     (2,104,813)     (2,820,300)
         Royalties payable, related parites ........................              0         (53,389)
                                                                         ----------      ----------
         Net cash used in operating activities .....................     (6,232,907)     (6,020,669)
                                                                         ----------      ----------

Cash flows from investing activities:
         Purchase of equipment .....................................       (496,082)       (349,366)
                                                                          ----------      ----------
         Net cash used in  investing activities ....................       (496,082)       (349,366)
                                                                           --------        --------

Cash flows from financing activities:
         Principal payments on capital lease obligation ............        (54,821)              0
         Principal payments on long-term debt ......................       (244,972)       (575,888)
         Principal payments on short-term debt .....................     (1,329,321)              0
         Proceeds from issuance of common stock.....................      8,067,217               0
                                                                         ----------       ----------
         Net cash provided by (used in) financing activities .......      6,438,103        (575,888)
                                                                          ---------        --------

Effect of exchange rate changes on cash ............................        (48,340)        (24,085)

Net increase (decrease) in cash ....................................       (339,226)     (6,970,008)

         Cash and cash equivalents, beginning of year ..............      7,088,431      17,996,575
                                                                          ---------      ----------
Cash and cash equivalents, end of period ...........................   $  6,749,205    $ 11,026,567
                                                                       ============    ============


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

</TABLE>

<PAGE>

                                                 Ariel Corporation
                                            Notes to 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 June 30,  2000,  the  Company  had  working  capital  of  $8,427,055,
including cash and cash equivalents of $6,749,205.  The Company's use of working
capital may be negatively impacted by its ability to convert current inventories
into cash.  Inventories  net of reserves for excess and obsolete  material  were
$3,074,080 as of June 30, 2000. The Company has incurred  substantial  operating
losses and has an  accumulated  deficit of  $35,745,737  as of June 30, 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. 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.

     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 June 30,  2000 and the  results  of  operations  for the three and six months
ended  June  30,  2000  and  1999.  The  results  for  interim  periods  are not
necessarily indicative of results for the full year.

2.       Restructuring and other charges

     In June 2000,  the  Company  recorded  restructuring  and other  charges of
$2,356,656.  $1,546,141 reflects the partial impairment of the carrying value of
goodwill  recorded  with the  Company's  November  1998  purchase  of SCii.  The
write-down of goodwill  resulted from the Company's  June 2000 decision to phase
out SCii's  low-end basic rate ISDN (BRI)  products and to dismiss  certain SCii
employees related to these products and technologies.  The decision was based on
reduced sales of BRI products due to the loss of major customers and advances in
competing  technologies.  Accordingly,  future  BRI  sales  forecasts  have been
reduced.  As a result,  the Company has recognized the impairment of goodwill to
the extent that undiscounted future cash flows from operating  activities do not
exceed the carrying value of the goodwill.

     The Company utilizes an undiscounted cash flows valuation method to measure
the carrying value of goodwill not identified with long lived assets.

     In addition,  effective May 31, 2000 the Company  terminated the employment
of Jay Atlas,  its president  and Chief  Executive  Officer,  and entered into a
termination  and separation  agreement with Mr. Atlas. As a result of Mr. Atlas'
termination agreement,  the Company recorded a restructuring charge of $810,515,
which reflects  severance and related employee benefits payments of $306,145 and
an estimated  value of $504,370 for the  extension of stock  options that vested
during Mr.  Atlas'  employment.  As of June 30,  2000,  $10,577  of the  accrued
severance has been paid.


3.       Inventories, net of allowance:

         Inventories, net of allowance, consists of the following:
<TABLE>
<CAPTION>
<S>                                                                     <C>             <C>
                                                                          June 30,       December 31,
                                                                            2000              1999
                                                                            ----              ----
         Component Materials.........................................  $  433,354        $   371,821
         Work-in process...........................................       712,971            814,923
         Finished Goods..........................................       1,927,755          2,116,313
                                                                        ---------          ---------
                                                                       $3,074,080         $3,303,057
                                                                       ==========         ==========
</TABLE>

4.       Debt

     As of June 30, 2000 the Company had total debt of $2,101,724  consisting of
a term note due to Transamerica Business Credit Corporation's Technology Finance
Division of Farmington  Connecticut of $2,049,000  and acquired  foreign debt of
$52,724.

     As  of  June  30,  2000,  under  its  credit  facility  with  Transamerica,
outstanding  debt of  $2,049,000  remained on a Term Loan  payable  quarterly in
arrears over twenty  consecutive  quarters  commencing  October 1, 1997. Amounts
previously drawn against a revolving credit line (Revolver), matured on June 12,
2000,  and have been paid in full.  The interest rate in effect on the term loan
at June 30, 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.

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 and six months ended
June 30:

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

     NORTH AMERICA:                                             For the three months           For the six months
                                                                Ended June 30, 2000            Ended June 30, 2000
                                                                --------------------           ------------------
              Revenues from external customers                        $1,000,465                    $2,955,082
              Intersegment revenues                                       41,360                        41,360
              Segment profit / (loss)                                 (6,539,567)                   (9,119,076)
              Segment assets                                          12,403,309                    12,403,309

     EUROPE:

              Revenues from external customers                           $96,746                     $214,350
              Intersegment revenues                                            0                            0
              Segment profit / (loss)                                   (233,468)                    (466,935)
              Segment assets                                           2,385,690                    2,385,690


         A  reconciliation  of the Company's  segment  losses to the  corresponding  consolidated  amounts for the three and six
 months ended June 30, 2000 is as follows:

              Segment profit / (loss)                                ($6,773,035)                 ($9,586,011)
              Margins on intersegment revenues                           (12,528)                     (12,528)
                                                                  ----------------             ---------------
              Net loss                                               ($6,785,563)                 ($9,598,539)
                                                                  ================            ================
</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 September 1, 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 offer to sell the  Company's  common  stock,  or  securities
convertible  into common  stock,  within the next  twenty four months  under the
terms then offered.



<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.

                                                            Six months ended
                                                                 June 30,

                                                            2000          1999
                                                            ----          ----
Sales ..............................................         100%          100%

Cost of goods sold .................................          60            43
                                                            ----          ----

     Gross profit ..................................          40            57

Expenses:
     Sales and marketing ...........................          91            54
     General and administrative ....................          95            64
     Research and development ......................          84            47
     Restructuring and special charges .............          74             *
                                                            ----          ----
Total operating expenses ...........................         344           165
                                                            ----          ----
Loss from operations ...............................        (304)         (108)

Interest income                                                8             5

Interest expense                                              (8)           (5)

Other income / (expense)............................           *             *
                                                            ----          ----
    Loss before income taxes .......................        (304)         (108)
                                                            ----          ----
                 Net Loss ..........................        (304)%        (108)%
                                                            ====          ====
o        Total is less than 1%

</TABLE>

<PAGE>

Three months ended June 30, 2000 as Compared to three months ended June 30, 1999

Net Sales

     Worldwide sales were $1,097,211 for the three months ended June 30, 2000, a
decrease of $1,662,810  compared to net sales of $2,760,021 for the three months
ended June 30,  1999.  Domestic  sales were  $739,663 for the three months ended
June 30, 2000 compared to  $2,426,820  for the three months ended June 30, 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 $1,687,157  was due to reduced demand for the Company's  older
DSP products from original  equipment  manufacturers  (OEMs) resulting from this
shift.  Such  decreases  were  partially  offset by sales of the  Company's  RAS
products  to  Internet  Service  Providers  (ISPs)  of  approximately  $139,874.
International  sales were $357,548 for the second quarter of 2000 including U.S.
exports of $260,802  and sales from  European  operations  of  $96,746.  This as
compared to $333,201  for the second  quarter of 1999.  The  increase of $24,347
over prior year  reflects  and  increase of US exports in the second  quarter of
2000 of $89,882, offset by a decrease in sales of Basic Rate ISDN (BRI) products
at international subsidiaries.

Gross Profit

     Gross profit  decreased by $1,554,461 to $75,829 for the three months ended
June 30, 2000 from  $1,630,290  for the three months ended June 30, 1999.  Gross
profit was 7% as a percent  of sales for the three  months  ended June 30,  2000
compared  to 59% for the three  months  ended June 30,  1999.  Gross  profit was
reduced by  $548,000  for  additional  inventory  reserves  recorded  during the
quarter.  The  Company  introduced  the RS 4200 in the  fall of 1999  which  has
improved price and performance over the RS 2000. RS 4200 began shipping in March
of 2000.  As a result,  on hand  quantities of the RS 2000 are expected to be in
excess of future  demand and a reserve  was  recorded  to write off  $325,000 of
excess RS2000 inventory.  Additionally,  certain older DSP products are expected
to be in excess of future  demand  and a reserve of  $223,000  was  recorded  to
write-off excess material.  Gross profit percent for the three months ended June
30, 2000 was 57% before giving effect to this write down.

     The  decrease  in  gross  profit  percentage  was  also  impacted  by fixed
manufacturing  overhead  costs on  reduced  sales  volume  for the  period.  The
decrease was partially  offset by the shipment of products  that had  previously
been  written  down,   resulting  in  higher  margins  in  the  current  period.
Additionally,  higher  gross  profit  rates  reflect  the  effect  of OEM  price
increases initiated in 1999.

Sales and marketing

     Sales and  marketing  expenses were  $1,601,702  for the three months ended
June 30, 2000 compared to  $1,630,492  for the three months ended June 30, 1999.
The  decrease  of $28,790  or 2%  includes a  decrease  in sales  commission  of
approximately  $71,565 due to lower  revenues as well as a reduction in wages of
approximately  $220,540 resulting from a restructuring of the sales organization
completed  in  August  of  1999.  The  Company  also  realized  a  reduction  of
approximately  $126,000 in advertising and marketing programs.  The reduction is
due to the  introduction,  during the same  period last year,  of the  Company's
PowerPOP TM  architecture. Such decreases were partially  offset by increases in
public and investor relations of approximately  $128,000 and $158,000 related to
increased  participation in trade shows during the second quarter of fiscal year
2000.  Additionally,  Sales and  Marketing  expenses  of  European  subsidiaries
increased by approximately $112,000 due to the introduction of RS4200 and RS2000
products to European OEM markets.


General and administrative

     General and  administrative  expenses were  $1,526,158 for the three months
ended June 30, 2000 compared to  $1,925,207  for the three months ended June 30,
1999.  The decrease of $399,049  reflects a reduction in allowances for doubtful
accounts of approximately $50,000 as compared to the second quarter of the prior
year.  Other  decreases  include  reduced  consulting  and  recruiting  costs of
approximately  $87,000  related to the  appointment of a new management  team in
December    1998.    In    addition,     a    reduction    in    salaries    and
depreciation/amortization   expense  of   approximately   $53,000  and  $46,000,
respectively,  contributed  to the overall  decrease.  The Company  also reduced
general and administrative  costs at its European  subsidiaries by approximately
$139,000.

Research and Development

     Research and  development  expenses  were  $1,387,654  for the three months
ended June 30, 2000 compared to  $1,359,278  for the three months ended June 30,
1999.  The increase of $28,376 is  comprised  primarily of decreases in salaries
and  related  expenses of $102,709  and savings of $112,430  resulting  from the
integration of the Company's  European  research and  development  projects with
those at its U.S.  headquarters.  Such  decreases  were offset by  increases  of
$26,502 in depreciation of test lab equipment  acquired in October 1999, as well
as, labor and material costs of approximately  $212,205 for engineers related to
development of Linux related software,  the Company's SS7 Gateway enabled remote
access products and the vice-president of engineering appointed in May of 1999.

Restructuring and other  charges

     In June  2000  the  board of  directors  approved  a plan to phase  out the
Company's low end products and reduce  ongoing  investment in these  products in
Europe.  Accordingly,  the Company  recorded a special  non-recurring  charge of
approximately  $2,356,000  including the impairment of goodwill of approximately
$1,546,000  associated with the Company's 1998 acquisition of SCii Telecom, S.A.
(see Note 2 to the financial statements).

     In addition,  effective May 31, 2000 the Company  terminated the employment
of Jay Atlas,  its President  and Chief  Executive  Officer,  and entered into a
termination  and separation  agreement with Mr. Atlas. As a result of Mr. Atlas'
termination agreement,  the Company recorded a restructuring charge of $810,515,
which reflects  severance and related employee benefits payments of $306,145 and
an estimated  value of $504,370 for the  extension of stock  options that vested
during Mr.  Atlas'  employment.  As of June 30,  2000,  $10,577 of the accrued
severance has been paid.

     For the foregoing reasons the Company incurred a net loss of $6,785,563 for
the three months ended June 30, 2000 as compared to losses of $3,267,936 for the
three months ended June 30, 1999.




Six months ended June 30, 2000 as Compared to six months ended June 30, 1999

Net Sales

     Worldwide  sales were  $3,169,432 for the six months ended June 30, 2000, a
decrease of $2,655,229  compared to net sales of  $5,824,661  for the six months
ended June 30, 1999.  Domestic  sales were  $2,537,570  for the six months ended
June 30, 2000 compared to $5,282,012  for the six months ended June 30, 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 $2,744,442  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 $339,874. International sales
were  $631,862 for the six months end June 30, 2000  including  U.S.  exports of
$417,512 and sales from  European  operations  of $214,350.  This as compared to
$542,649  for the same period of 1999.  The  increase of $89,213 over prior year
reflects  and  increase  of US  exports  in the  second  quarter  of 2000 of RAS
products  , offset  by a  decrease  in sales of BRI  products  at  international
subsidiaries.

Gross Profit

     Gross profit decreased by $2,023,116 to $1,279,676 for the six months ended
June 30, 2000 from  $3,302,792  for the six months  ended June 30,  1999.  Gross
profit was reduced by $548,000 for additional inventory reserves recorded during
the second quarter. The Company introduced the RS 4200 in the fall of 1999 which
has improved price and  performance  over the RS 2000. RS 4200 began shipping in
March of 2000. As a result, on hand quantities of the RS 2000 are in expected to
be in excess of future  demand and a reserve was  recorded to write off $325,000
of  excess  RS2000  inventory.  Additionally,  certain  older DSP  products  are
expected to be in excess of future demand and a reserve of $223,000 was recorded
to write-off  excess  material.  Gross profit percent for the three months ended
June 30, 2000 was 57% before giving effect to this write down.

     The decrease in gross profit  percentage was also impacted by certain fixed
manufacturing overhead costs on reduced sales volume for the period.The decrease
was  partially  offset by the  shipment of products  during the period which had
been previously  written down,  resulting in higher margins on such products for
the current period

Sales and marketing

     Sales and marketing  expenses were $2,868,535 for the six months ended June
30, 2000  compared to  $3,155,795  for the six months  ended June  30,1999.  The
decrease  of  $287,260  or  9%  includes  a  decrease  in  sales  commission  of
approximately  $177,000 due to lower revenues as well as a reduction in wages of
approximately  $389,000 resulting from a restructuring of the sales organization
completed in August of 1999.  Decreases in European sales and marketing expenses
of  approximately  $72,000  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  $145,000 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  $274,000 and increased  participation in trade shows
during the second quarter of fiscal year 2000, of approximately $192,000.


General and administrative

     General and  administrative  expenses  were  $2,994,554  for the six months
ended June 30, 2000  compared to  $3,738,654  for the six months  ended June 30,
1999.  The decrease of $744,100  reflects a reduction in allowances for doubtful
accounts  of  approximately  $256,000 as compared to the first six months of the
prior year. Other decreases  include reduced  consulting and recruiting costs of
approximately  $184,000  related to the  appointment of a new management team in
December  1998;  a  decrease  of  approximately  $106,000  in  amortization  and
depreciation,  and a reduction in sales and franchise  taxes from the six months
ended June 30,  1999 of  approximately  $50,000.  The  Company  further  reduced
general and administrative  costs at its European  subsidiaries by approximately
$150,000 during the period compared to prior year.

Research and Development

     Research and development  expenses were $2,669,280 for the six months ended
June 30, 2000 compared to  $2,712,961  for the six months ended June 30, 1999.
The  decrease of $43,681.  is  comprised  primarily of decreases in salaries and
related  expenses  of  $82,688  and  savings  of  $197,118  resulting  from  the
integration of the Company's  European  research and  development  projects with
those at its U.S.  headquarters.  Such  decreases  were offset by  increases  in
depreciation and maintenance of $64,862 and $33,524,  respectively, for test lab
equipment  acquired in October  1999,  as well as, labor and  material  costs of
approximately  $114,058 for engineers  related to  development  of Linux related
software,  the Company's  SS7 Gateway  enabled  remote  access  products and the
vice-president of engineering appointed in May of 1999.


Restructuring and special charges

     In June  2000  the  board of  directors  approved  a plan to phase  out the
Company's low end products and reduce  ongoing  investment in these  products in
Europe.  Accordingly,  the Company  recorded a special  non-recurring  charge of
approximately  $2,356,000  including the impairment of goodwill of approximately
$1,546,000  associated with the Company's 1998 acquisition of SCii Telecom, S.A.
(see note 2 to the financial statements).

     In addition,  effective May 31, 2000 the Company  terminated the employment
of Jay Atlas,  its President  and Chief  Executive  Officer,  and entered into a
termination  and separation  agreement with Mr. Atlas. As a result of Mr. Atlas'
termination agreement,  the Company recorded a restructuring charge of $810,515,
which reflects  severance and related employee benefits payments of $306,145 and
an estimated  value of $504,370 for the  extension of stock  options that vested
during Mr.  Atlas'  employment.  As of June 30,  2000,  $10,577  of the  accrued
severance has been paid.

     For the foregoing reasons the Company incurred a net loss of $9,598,539 for
the six months ended June 30, 2000 as compared to losses of  $6,274,744  for the
six months ended June 30, 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 September 1, 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 the Company 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,  for twenty-four months from the date of the agreement, these
investors  have the right of first refusal to participate in any future sales of
our common stock, or securities  convertible into common stock,  under the terms
then offered.

     As of June 30,  2000,  the  Company  had  working  capital  of  $8,427,055,
including cash and cash equivalents of $6,749,205.  The Company's use of working
capital may be negatively impacted by its ability to convert current inventories
into cash.  Inventories  net of reserves for excess and obsolete  material  were
$3,074,080 as of June 30, 2000. The Company has incurred  substantial  operating
losses and has an  accumulated  deficit of  $35,745,737  as of June 30, 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. 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 June 30, 2000 the Company had total debt of $2,101,724  consisting of
a term note due to Transamerica Business Credit Corporation's Technology Finance
Division of Farmington  Connecticut of $2,049,000  and acquired  foreign debt of
$52,724.

     Under its credit facility with Transamerica, outstanding debt of $2,049,000
as of June  30,2000  remains on a Term Loan  payable  quarterly  in arrears over
twenty consecutive quarters commencing October 1, 1997. Amounts previously drawn
against a revolving  credit line  matured on June 12, 2000 and have been paid in
full. The interest rate in effect on the term loan at June 30, 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 six months ended June 30, 2000, there was a net decrease in cash
and cash  equivalents of $339,226.  At June 30, 2000, cash and cash  equivalents
amounted to $6,749,205.  Working capital amounted to $8,427,055 at June 30, 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 six months  ended June 30,
2000 amounted to $6,232,907.  The negative cash flows from  operations were due,
primarily,  to  the  Company's  net  loss  of  $9,598,539  reduced  by  non-cash
expenditures related to depreciation,  amortization,  reserves and allowances of
$1,816,808 and impairment of goodwill and  restructuring  charges of $2,050,511.
Other  operating  cash uses included  decreases in accounts  payable and accrued
liabilities of $2,104,813 as the Company paid down obligations of its subsidiary
and accrued costs  related to fiscal year end bonuses and accrued  compensation.
Such cash decreases were partially  offset by increases due to reduced  accounts
receivable of $2,231,052.

     Net cash used in  investing  activities  for the six months  ended June 30,
2000  amounted to $496,082  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 six months ended
June 30, 2000 amounted to $6,438,103 which included  proceeds of $8,067,217 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 $1,629,114 during the six 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.

<PAGE>


Part II.     Other Information

Item 1. Legal Proceedings
         None
Item 2. Changes in Securities
         None
Item 3. Defaults Upon Senior Securities
         None
Item 4. Submission of Matters to a Vote of Shareholders

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

a.)      The Company held its annual meeting of stockholders, through the solicitation of proxies, on June 8, 2000.
b.)      Dennis Schneider, President and Chief Executive Officer was elected as a director for a term of three years.
c.)      In addition,  the  stockholders  voted to amend the Company's  Certificate of  Incorporation,  increasing the number
         of shares authorized   from   20,000,000   to   40,000,000.

         Finally,   the   stockholders   voted  to  ratify  the  selection  of
         PricewaterhouseCoopers, LLP as the Company's auditors for the fiscal year ending December 31, 2000.

              The voting totals were as follows:

(i)      Election of Dennis I. Schneider

                           For:   9,575,125;                  Against :  0;            Withheld:  76,435

(ii)     Amendment to the Certificate of Incorporation

                           For:  9,513,266;                   Against:  0;              Abstain:  21,187

(iii)    Proposal  to ratify  PricewaterhouseCoopers,  LLP as  Independent  Public  Accountants  for the  Company
         for the year  ending December 31, 2000.

                           For:  9,584,976;                   Against:  33,591          Abstain:  32,993

Item 5. Other Information
         None

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



</TABLE>

<PAGE>
                                       Signature

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


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



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



Date:  August 14, 2000