<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, 1997                                      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                                   9,169,325 shares outstanding
                                                               as of March 31, 1997


                                     Documents Incorporated by Reference: None


</TABLE>
<PAGE>



                                                 Ariel Corporation
                                                       Index

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

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

                A.       Balance sheet  -  March 31, 1997 and December 31, 1996

                B.       Statements of operations for the three months ended
                         March 31, 1997 and 1996.



                C.       Statements of cash flows for the three months
                         ended March 31, 1997 and 1996.



                D.       Notes to financial statements



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



Part II.  Other Information







































                                                                   2

<PAGE>




PART I. - FINANCIAL INFORMATION
          ---------------------

ITEM 1. - FINANCIAL STATEMENTS
          --------------------
                                                 ARIEL CORPORATION
                                                  BALANCE SHEETS
<TABLE>
<CAPTION>
<S>                                                                                                <C>             <C>
                                                                                                     March 31,      December 31,
                                                                                                        1997            1996
                                                                                                   ------------    ------------
                                                                                                    (Unaudited)      (Audited)
                                      ASSETS
CURRENT ASSETS:
    CASH & CASH EQUIVALENTS ....................................................................   $  4,968,318    $  4,626,583
    MARKETABLE SECURITIES ......................................................................      2,350,000       5,999,377
    ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR ..................................................      2,845,945       3,199,542
       DOUBTFUL ACCOUNTS OF $212,678 AT MARCH 31, 1997
       AND DECEMBER 31, 1996
    OTHER RECEIVABLES ..........................................................................        120,222         190,023
    INVENTORIES ................................................................................      3,944,320       3,528,252
    PREPAID EXPENSES ...........................................................................        314,220         156,005
                                                                                                   ------------    ------------

                TOTAL CURRENT ASSETS ...........................................................     14,543,025      17,699,782

    EQUIPMENT, NET OF ACCUMULATED DEPRECIATION AND
          AMORTIZATION .........................................................................      2,574,724       2,036,897

    OTHER ASSETS ...............................................................................        400,747         366,385
                                                                                                   ------------    ------------
                         TOTAL ASSETS ..........................................................   $ 17,518,496    $ 20,103,064
                                                                                                   ============    ============

                          LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:
    ACCOUNTS PAYABLE ...........................................................................   $    995,667    $  1,840,986
    ACCRUED EXPENSES ...........................................................................      1,797,474       1,826,591
    NOTES PAYABLE - CURRENT ....................................................................         39,255         154,021
    ROYALTIES PAYABLE ..........................................................................         62,252          82,571
                                                                                                   ------------    ------------
       TOTAL CURRENT LIABILITIES ...............................................................      2,894,648       3,904,169



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 - 9,169,325 AT MARCH 31, 1997
         AND 8,949,975 AT DECEMBER 31, 1996 ....................................................          9,169           8,950
    ADDITIONAL PAID-IN CAPITAL .................................................................     30,219,674      29,321,748
    UNEARNED COMPENSATION EXPENSE RELATED TO STOCK
         OPTIONS ...............................................................................       (134,114)       (178,919)

    ACCUMULATED DEFICIT .......................................................................     (15,470,881)    (12,952,984)
                                                                                                   ------------    ------------
       TOTAL SHAREHOLDERS' EQUITY ..............................................................     14,623,848      16,198,895
                                                                                                   ------------    ------------
    TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .................................................   $ 17,518,496    $ 20,103,064
                                                                                                   ============    ============




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



                                                                       3
</TABLE>

<PAGE>



                                ARIEL CORPORATION
                            STATEMENTS OF OPERATIONS
                                   (Unaudited)

<TABLE>
<CAPTION>
<S>                                                                                                  <C>            <C>
                                                                                                     Three months Ended March 31,
                   
                                                                                                           1997          1996
                                                                                                      -----------    -----------
SALES .............................................................................................   $ 4,519,526    $ 1,522,379
COST OF GOODS SOLD ................................................................................     2,392,892        819,717
                                                                                                      -----------    -----------
                       GROSS PROFIT ...............................................................     2,126,634        702,662
EXPENSES:
          SALES AND MARKETING .....................................................................     1,148,424        949,259
          GENERAL AND ADMINISTRATIVE ..............................................................       943,645        831,565
          RESEARCH AND DEVELOPMENT ................................................................     2,665,376      1,095,667
                                                                                                      -----------    -----------
                       TOTAL OPERATING EXPENSES ...................................................     4,757,445      2,876,491
                                                                                                      -----------    -----------
              LOSS FROM OPERATIONS ................................................................    (2,630,811)    (2,173,829)

INTEREST INCOME ...................................................................................       118,356        168,700
INTEREST EXPENSE ..................................................................................        (3,974)        (9,438)
OTHER (EXPENSE) INCOME ............................................................................        (1,468)        14,749
                                                                                                      -----------    -----------
          LOSS BEFORE INCOME TAXES ................................................................    (2,517,897)    (1,999,818)

INCOME TAXES ......................................................................................          -             -
                                                                                                      -----------    -----------
                         NET LOSS .................................................................   ($2,517,897)   ($1,999,818)
                                                                                                      ===========    ===========
          WEIGHTED AVERAGE NUMBER OF COMMON
              SHARES OUTSTANDING ..................................................................     9,066,638      6,871,615
                                                                                                      ===========    ===========
                 NET LOSS PER SHARE ...............................................................   ($     0.28)   ($     0.29)
                                                                                                      ============   ============




























<FN>

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


                                                                           4
</TABLE>
<PAGE>


<TABLE>

                                                      ARIEL CORPORATION
                                                  STATEMENTS OF CASH FLOWS
                                                         (Unaudited)

<CAPTION>
<S>                                                                                          <C>                    <C>  
                                                                                             For The Three Months Ended March 31,
                                                                            

                                                                                                       1997                1996
                                                                                                    ----------          ----------
Cash flows from operating activities:

Net loss .......................................................................................  $ (2,517,897)       $ (1,999,818)

Adjustments to reconcile net loss to net cash used in operating activities:

          Depreciation and amortization ........................................................       256,913             105,797
          Amortization of discount on royalties payable ........................................         2,998               7,880
          Amortization of discounts on investments .............................................         4,319                 -
          Provision for inventory obsolescense .................................................        15,000                 -
          Non-cash compensation expense ........................................................        44,705                 -

(Increase) decrease in assets:

          Accounts receivable ..................................................................       423,400             454,476
          Inventories ..........................................................................      (431,069)           (319,044)
          Other assets .........................................................................      (192,578)             86,652

 Increase (decrease) in liabilities:

          Accounts payable and accrued expenses ................................................      (845,281)             17,612
          Royalties payable ....................................................................       (20,320)             (2,478)
          Notes payable ........................................................................      (117,764)                 -
                                                                                                     ----------          ----------
               Net cash used in operating activities ...........................................    (3,377,573)         (1,648,923)
                                                                                                     ----------          ----------

Cash flows from investing activities:

          Proceeds from the sale and maturity of investments ...................................     3,643,594                -
          Purchase of equipment ................................................................      (822,430)           (750,765)
                                                                                                     ----------          ----------
               Net cash provided by (used in) investing activities .............................     2,821,164            (750,765)
                                                                                                     ----------          ----------

Cash flows from financing activities:

          Proceeds from exercise of redeemable common stock
             purchase warrants ................................................................            -               387,358
          Proceeds from exercise of common stock options ......................................        898,145                -
                                                                                                     ----------           ---------
               Net cash provided by financing activities ......................................        898,145             387,358
                                                                                                     ----------           ---------

Net increase (decrease) in cash ...............................................................        341,735          (2,012,330)
          Cash and cash equivalents, begining of year .........................................      4,626,583          13,979,009
                                                                                                     ----------         -----------
Cash and cash equivalents, end of period ......................................................    $ 4,968,318        $ 11,966,679
                                                                                                   ============       =============








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

                                                                      5
</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, 1996.  The year end
balance sheet data was derived from audited  financial  statements  but does not
include all disclosures required by generally accepted accounting principles.
     In the opinion of the management of the Company, the accompanying unaudited
financial  statements  contain all  adjustments,  consisting of normal recurring
accruals,  which are necessary to present  fairly the financial  position of the
Company as of March 31, 1997 and the results of operations  for the three months
ended  March  31,  1997 and  1996.  The  results  for  interim  periods  are not
necessarily indicative of results for the full year.

<TABLE>

2. Inventories, net of allowance:
<CAPTION>
<S>                                                                     <C>         <C>   
         Inventories, net of allowance, consists of the following:
                                                                         March 31,   December 31,
                                                                           1997          1996
                                                                        ----------   -----------

         Component Materials ........................................   $1,160,751   $1,313,092
         Work-in process ............................................      868,054      620,367
         Finished Goods .............................................    1,915,515    1,594,793
                                                                        -----------  ----------

                                                                        $3,944,320   $3,528,252
                                                                        ===========  ==========



</TABLE>




















                                                                      6

<PAGE>

<TABLE>
                                                                                       
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.

<CAPTION>
<S>                                                                                         <C>       <C>
                                                                                            Three months ended
                                                                                                  March 31,

                                                                                              1997     1996
                                                                                             -------  -------
Sales .....................................................................................    100%     100%

Cost of goods sold ........................................................................     53       54
                                                                                              -----    -----

     Gross profit .........................................................................     47       46


Expenses

     Sales and marketing ..................................................................     25       62

     General and administrative ...........................................................     21       55

     Research and development .............................................................     59       72
                                                                                               ----     ----

     Total Operating Expenses .............................................................    105      189

Loss from operations ......................................................................    (58)    (143)


Interest Income ...........................................................................      3       11

Interest Expense ..........................................................................      *       (1)

Other (expense) Income ....................................................................      *        1
                                                                                               ----     ----

    Loss before income taxes ..............................................................    (55)    (132)

     Income taxes .........................................................................     --       --
                                                                                               ----     ----


                 Net Loss .................................................................    (55)%   (132)%
                                                                                               ====     ====
*  Total is less than 1%


</TABLE>















                                                                         7

<PAGE>





Three  months  ended March 31, 1997 as Compared to three  months ended March 31,
1996


Net Sales

     Worldwide  sales were $4,519,526 for the three months ended March 31, 1997,
an increase of $2,997,147  or 197%  compared to net sales of $1,522,379  for the
three months ended March 31, 1996.  Domestic sales were $4,262,421 for the three
months ended March 31, 1997  compared to  $1,109,814  for the three months ended
March 31, 1996. One customer purchased one digital signal processing ("DSP") OEM
product  that  accounted  for  approximately  54% of total  sales  for the first
quarter of 1997. The Company's  backlog of $3,594,651 at March 31, 1997 does not
contain any additional orders for such customer.  Export sales were $257,105 for
the first  quarter of 1997 compared to $412,565 for the first quarter of 1996, a
decrease of $155,460.

Gross Profit

     Gross profit  increased to $2,126,634  for the three months ended March 31,
1997 from  $702,662 for the three  months  ended March 31, 1996,  an increase of
$1,423,972 or 203%.  Gross profit  margin also  increased to 47.1% for the three
months  ended  March 31,  1997 from 46.2% for the three  months  ended March 31,
1996. The improvement in the gross margin  percentage is primarily  reflected in
cost  reductions  of certain  components  of OEM products  sold during the three
months ended March 31, 1997.

Sales and marketing

     Sales and marketing  expenses were $1,148,424 for the first quarter of 1997
compared to $949,259 for the first quarter of 1996.  The increase of $199,165 or
21% for the first quarter of 1997 includes  approximately  $62,000 for increased
sales commissions  resulting from the increase in sales for the first quarter of
1997.   Advertising  expense  increased  by  approximately   $58,000  reflecting
increased print  advertising for the Company's T-1 Modem product and certain DSP
OEM products.  Trade show expense increased by approximately  $28,000 reflecting
increased  activity related to the Company's  Computer Telephony ("CTI") product
line.

General and administrative

     General and administrative  expenses were $943,645 for the first quarter of
1997  compared  to  $831,566  for the first  quarter of 1996.  The  increase  of
approximately  $112,000  includes  approximately  $36,000 for  increased  health
insurance expense incurred by the Company and approximately $24,000 in increased
expense related to the Company's  matching  contribution  under its 401(k) Plan.
Such  increases  reflect the increase in the number of employees  from the first
quarter of 1996.









                                                                   8

<PAGE>

     In  addition,   consulting  expense  increased  by  approximately  $50,000
reflecting  principally  the use of certain  outside  consultants for management
process issues.  Rent expense  increased by approximately  $37,000 for the first
quarter of 1997 as a result of the  Communications  Systems Group's ("CSG") move
to approximately 10,000 square feet of space in Piscataway, New Jersey.

Research and Development

     Research and development  expenditures  were $2,665,376 or 59% of sales for
the three months ended March 31, 1997 compared to $1,095,667 or 72% of sales for
the three  months  ended March 31,  1996,  an increase  of  $1,569,709  or 143%.
Salaries and wages increased by  approximately  $444,000 due primarily to hiring
additional engineers to meet the internal product development milestones for its
CTI and CSG products.  The company incurred  approximately  $700,000 for outside
contract labor in conjunction  with  development of certain  products related to
the Company's CTI and ADSL  technologies.  The Company expects such expenditures
to  decrease  from  the  first  quarter  as the use of  outside  contract  labor
decelerates.

     For the foregoing  reasons,  the Company  incurred a net loss of $2,517,897
for the three months ended March 31, 1997  compared to a net loss of  $1,999,818
for the three months ended March 31, 1996.


Liquidity  and Capital  Resources

     During the three  months ended March  31,1997,  there was a net increase of
$341,735 in cash and cash  equivalents,  including a net amount of $3,643,594 in
proceeds  from the maturity and sale of  investments  in  marketable  securities
which  were  used to fund  operations.  Cash and cash  equivalents  amounted  to
$4,968,318 at March 31, 1997.  Marketable  securities  amounted to $2,350,000 at
March 31,  1997.  Working  capital  amounted  to  $11,648,377  at March 31, 1997
compared to $13,795,613 at December 31, 1996, a decrease of $2,147,236.

     Net cash used in operating  activities for the three months ended March 31,
1997 was  $3,377,573.  The negative cash flow from  operations was primarily the
result of the Company's net loss of  $2,517,897.  Additionally,  trade  accounts
payable  decreased by $845,281 during the three months ended March 31, 1997. Net
cash used in operating  activities for the three months ended March 31, 1996 was
$1,648,923.  The  negative  cash  flow  from  operations  was the  result of the
Company's  net  loss of  $1,999,818  partially  offset  by a  decrease  in trade
accounts  receivable of $531,750  reflecting  lower  shipments  during the first
quarter of 1996.

     Net cash provided by investing  activities for the three months ended March
31, 1997 was $2,821,164.  This included net proceeds of $3,643,594 from maturity
and subsequent sale of high quality government agency securities.  The Company's
capital  expenditures  amounted to $794,740 for the three months ended March 31,
1997  reflecting  purchases of computers  and  peripheral  equipment  related to
engineering  staff and final test and assembly in manufacturing  and also office
furniture  related to the Company's  relocation of its CSG group to  Piscataway,
New Jersey in January 1997. Net cash used in investing  activities for the three
months ended March 31, 1996 was $822,430 and consisted primarily of purchases of
computer and  peripheral  equipment to support the increase in  engineering  and
support staff and also  purchases of office  furniture  related to the Company's
relocation to a larger facility in January 1996.




                                                           9
<PAGE>

     Cash flows  provided by financing  activities  amounted to $898,145 and was
the result of proceeds  from the  exercise of common  stock  options.  Cash flow
provided  by  financing  activities  for the three  months  ended March 31, 1996
amounted  to $387,358 as a result of the  exercise of the  Company's  redeemable
common stock purchase  warrants.

     The Company  recently signed a proposal  letter with a lending  institution
under  which the  Company  would  obtain a total  credit  facility  of up to $13
million. Such proposal is subject to additional due diligence on the part of the
lending institution and the negotiation of specific loan documents  satisfactory
to both the Company and the lending institution. The Company expects to complete
this  transaction  no later than June 15, 1997.  Management  believes that cash,
cash equivalents, marketable securities, and the above described credit facility
will be adequate to support  operating cash  requirements  for at least the next
twelve months.

     Statements  contained in this Form 10-Q that are not  historical  facts are
forward looking  statements that are made pursuant to the safe harbor provisions
of the  Private  Securities  Litigation  Reform  Act of  1995.  Forward  looking
statements involve risks and uncertainties, including the timely development and
acceptance  of new  products,  the impact of  competitive  products and pricing,
changing  market  conditions  and the  other  risks  detailed  in the  Company's
prospectus  and from time to time in other  filings.  Actual  results may differ
materially from those projected.  These forward looking statements represent the
Company's  judgement  as of the date of this  document.  The Company  disclaims,
however, any intent or obligation to update these forward looking statements.

Impact of the Adoption of Recently Issued Accounting  Standards

     In February 1997, the Financial Accounting Standards Board issued Statement
of Financial  Accounting  Standards No. 128.  "Earnings per Share" ("SFAS 128"),
which  simplifies   existing   computational   guidelines,   revises  disclosure
requirements  and increases the  comparability  of earnings per share data on an
international  basis. The Company is currently  evaluating the impact of the new
statement.  This  statement is effective  for financial  statements  for periods
ending  after  December 15, 1997 and requires  restatement  of all  prior-period
earnings per share data presented.









                                                            10

<PAGE>



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

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

         a)    Exhibits -
                  Exhibit 11 - Statement of Computation of Per Share Amounts
                  Exhibit 27 - Financial Data Schedule (filed electronically)

         b)       Reports on Form 8-K - None.










































                                                                     11

<PAGE>



                                                     Signature

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

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



                                          /S/ Gerard E. Dorsey
                                         --------------------------------------
                                         Gerard E. Dorsey
                                         Chief Financial Officer and Principal
                                         Accounting Officer

Date:  May 14, 1997









































                                                                   12



<PAGE>

<TABLE>



                                                                                                                   EXHIBIT 11


                                                                ARIEL COPRORATION
                                                  STATEMENT OF COMPUTATION OF PER SHARE AMOUNTS
                                                FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996





                                                                                          Three Months Ended March 31,
<CAPTION>
<S>                                                                                    <C>                <C>
                                                                                             1997              1996
                                                                                          ----------        -----------
Primary:

     Net loss for the period .......................................................... $ (2,517,897)      $ (1,999,818)
                                                                                          ===========        ===========

     Weighted average number of shares of common
      stock outstanding ...............................................................    9,066,638          6,871,615

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

     Shares assumed to be acquired in accordance
      with the treasury stock method ..................................................         -                  -
                                                                                           -----------       -----------
     Shares used in computing per share loss ..........................................     9,066,638         6,871,615
                                                                                           ===========       ===========
     Net loss per share ...............................................................  $      (0.28)     $      (0.29)
                                                                                           ===========       ===========


Fully Diluted:

      Net loss for the period .......................................................... $ (2,517,897)      $ (1,999,818)
                                                                                          ===========        ===========

     Weighted average number of shares of common
      stock outstanding ...............................................................    9,066,638          6,871,615

     Shares issuable upon exercise of outstanding
      options and warrants ............................................................    2,026,614          3,271,387

     Shares assumed to be acquired in accordance
      with the treasury stock method ..................................................   (1,885,200)        (1,651,904)
                                                                                           -----------       -----------
     Shares used in computing per share loss ..........................................    9,208,052          8,491,098
                                                                                           ===========       ===========
     Net loss per share ...............................................................  $     (0.27)     $       (0.24)
                                                                                           ===========       ===========

</TABLE>
<PAGE>