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, 2001    Commission file number: 0-25326

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

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

                                  609-860-2900
                     (Telephone number, including area code)
                   --------------------------------------------

     Indicate  by check  mark  whether  the  Issuer  (1) has filed  all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during  the  preceding  12 months  (or for such  shorter  period  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days.

                          Yes ( X )           No ( )

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

Common Stock, $.001 par value                     13,189,720 shares outstanding
                                                  as of June 30, 2001


                    Documents Incorporated by Reference: None


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





                                Ariel Corporation
                                      Index

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

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

                  A.       Consolidated Balance Sheets as of June 30, 2001 and December 31, 2000

                  B.       Consolidated Statements of Operations and Comprehensive Loss for the
                           three and six months ended June 30, 2001 and 2000

                  C.       Consolidated Statements of Cash Flows for the six months ended
                           June 30, 2001 and 2000

                  D.       Notes to Consolidated Financial Statements

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



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

Item 1.  Legal Proceedings
         -----------------

Item 2.  Changes in Securities and Use of Proceeds - none
         ------------------------------------------------

Item 3.  Defaults upon Senior Securities - none
         --------------------------------------

Item 4.  Submission of Matters to a Vote of Security Holders - none
         ----------------------------------------------------------

Item 5.  Other Information  - Form 8-K
         -----------------------------
</TABLE>


                                       2
<PAGE>
<TABLE>
<CAPTION>



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

                                                        ARIEL CORPORATION
                                                    CONSOLIDATED BALANCE SHEETS

                                                                           June 30,      December 31,
                                                                             2001            2000
                                                                             ----            ----
ASSETS                                                                    (Unaudited)
CURRENT ASSETS:
<S>                                                                    <C>             <C>
       CASH AND CASH EQUIVALENTS ....................................   $    111,919    $  1,129,246
       ACCOUNTS RECEIVABLE, NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS OF
          $175,292 IN 2001 AND $644,706 IN 2000 .....................        156,169       2,077,581
       OTHER RECEIVABLES ............................................         73,948         240,082
       INVENTORIES, NET .............................................      1,925,757       2,559,260
       PREPAID EXPENSES .............................................        344,197         495,859
                                                                        ------------    ------------
                          TOTAL CURRENT ASSETS ......................      2,611,990       6,502,028

EQUIPMENT, NET OF ACCUMULATED DEPRECIATION
         AND AMORTIZATION ...........................................        826,503       1,261,112

OTHER ASSETS ........................................................        664,532       1,444,911
                                                                        ------------    ------------
       TOTAL ASSETS .................................................   $  4,103,025    $  9,208,051
                                                                        ============    ============


LIABILITIES & STOCKHOLDERS' EQUITY / (DEFICIT)

CURRENT LIABILITIES:

       ACCOUNTS PAYABLE .............................................   $  1,963,862    $  1,705,696
       ACCRUED EXPENSES .............................................      1,173,798       1,688,971
       NOTES PAYABLE - CURRENT PORTION OF LONG-TERM DEBT ............     2,928,8566         520,263
       CURRENT PORTION OF CAPITAL-LEASE OBLIGATION ..................        110,033         110,033
       ROYALTIES PAYABLE ............................................         91,210          91,210
                                                                        ------------    ------------
                          TOTAL CURRENT LIABILITIES .................      6,267,759       4,116,173


CAPITAL-LEASE OBLIGATION, NET OF CURRENT PORTION ....................         46,569         104,966
NOTES PAYABLE - LONG TERM ...........................................        909,144       1,268,721

STOCKHOLDERS' EQUITY / (DEFICIT)
       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 - 13,189,720  AT JUNE 30, 2001
                    AND 13,073,920 AT DECEMBER 31, 2000 .............         13,190          13,074
       ADDITIONAL PAID-IN CAPITAL ...................................     46,432,178      46,436,667
       UNREALIZED LOSSES - FOREIGN CURRENCY TRANSLATION ADJUSTMENT ..       (959,090)       (945,806)
       ACCUMULATED DEFICIT ..........................................    (48,606,725)    (41,785,744)
                                                                        ------------    ------------
                          TOTAL STOCKHOLDERS' EQUITY / (DEFICIT) ....     (3,120,447)      3,718,191
                                                                        ------------    ------------

       TOTAL LIABILITIES & STOCKHOLDERS' EQUITY / (DEFICIT) .........   $  4,103,025    $  9,208,051
                                                                        ============    ============





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


</TABLE>

                                       3
<PAGE>


<TABLE>
<CAPTION>



                                                       Ariel Corporation
                               Consolidated Statements of Operations and Comprehensive Loss
                                                        (Unaudited)


                                                               Three Months Ended June 30,             Six Months Ended June 30,
                                                                   2001               2000               2001              2000
                                                              --------------     --------------     --------------     -------------
<S>                                                          <C>                 <C>               <C>                <C>
SALES ..................................................      $    470,176       $  1,097,211       $  1,351,832       $  3,169,432
COST OF GOODS SOLD .....................................           367,886          1,021,382            993,395          1,889,756
                                                              ------------       ------------       ------------       ------------
       GROSS PROFIT ....................................           102,290             75,829            358,437          1,279,676
EXPENSES:
     SALES AND MARKETING ...............................           952,017          1,601,702          2,016,870          2,868,535
     GENERAL AND ADMINISTRATIVE ........................         1,298,177          1,526,158          3,233,187          2,994,554
     RESEARCH AND DEVELOPMENT ..........................         1,110,112          1,387,654          2,200,628          2,669,280
     RESTRUCTURING AND SPECIAL CHARGES .................                 -          2,356,656                  -          2,356,656
                                                              ------------       ------------       ------------       ------------
         TOTAL OPERATING EXPENSES ......................         3,360,306          6,872,170          7,450,685         10,889,025
                                                              ------------       ------------       ------------       ------------
       LOSS FROM OPERATIONS ............................        (3,258,016)        (6,796,341)        (7,092,248)        (9,609,349)

INTEREST INCOME ........................................             3,758            129,237             11,027            240,155
INTEREST EXPENSE .......................................           (49,798)          (137,515)          (116,965)          (247,648)
OTHER INCOME, NET ......................................           331,909             19,056            377,205             18,303
                                                              ------------       ------------       ------------       ------------
       NET LOSS ........................................      ($ 2,972,147)      ($ 6,785,563)      ($ 6,820,981)      ($ 9,598,539)
                                                              ------------       ------------       ------------       ------------
OTHER COMPREHENSIVE LOSS, NET OF TAX:
    FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ...........              (845)           (70,378)           (13,284)          (146,244)
                                                              ------------       ------------       ------------       ------------
                           COMPREHENSIVE LOSS ..........      (  2,972,992)      (  6,855,941)      (  6,834,265)      (  9,744,783)
                                                              ============       ============       ============       ============
      BASIC AND DILUTED LOSS  PER SHARE ................      $      (0.23)      $      (0.52)      $      (0.52)      $      (0.78)
                                                              ============       ============       ============       ============










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

</TABLE>

                                       4
<PAGE>

<TABLE>
<CAPTION>




                                                         Ariel Corporation
                                                 Consolidated Statements of Cash Flows
                                                             (Unaudited)
                                                                                                    For The 6 Months Ended June 30,
                                                                                                       2001                2000
                                                                                                   -------------      --------------
Cash flows from operating activities:
<S>                                                                                         <C>                         <C>
Net Loss ...................................................................................        $(6,820,981)        $(9,598,539)
Adjustments to reconcile net loss to net cash used in operating activities:
                    Depreciation and amortization ..........................................            390,393             472,740
                    Amortization of goodwill & intangibles .................................             49,112             466,935
                    Amortization of debt issuance costs ....................................            139,493             139,493
                    Provision for doubtful accounts ........................................             37,712              13,207
                    Provision for inventory obsolescence ...................................             90,000             694,494
                    Non-Cash compensation expense ..........................................             89,817              29,939
                    Non-Cash restructuring and special charges .............................               --             2,050,511
(Increase) decrease in assets:
                    Accounts receivable ....................................................          1,994,795           2,231,052
                    Accounts receivable other ..............................................             42,271              27,108
                    Inventories ............................................................            612,535            (468,613)
                    Other assets ...........................................................            (44,263)           (186,421)
 Increase (decrease) in liabilities:
                    Accounts payable and accrued expenses ..................................           (338,170)         (2,104,813)
                                                                                                    -----------         -----------
                         Net cash used in operating activities .............................         (3,757,287)         (6,232,907)
                                                                                                    -----------         -----------
Cash flows from investing activities:
                    Purchase of investments ................................................           (220,000)               --
                    Proceeds from maturity of investments ..................................            350,000                --
                    Purchase of equipment ..................................................            (54,436)           (496,082)
                    Purchase price adjustment ..............................................            564,666                --
                                                                                                    -----------         -----------
                         Net cash provided by (used in) investing activities ...............            640,230            (496,082)
                                                                                                    -----------         -----------
Cash flows from financing activities:
                    Proceeds from exercise of common stock and warrants ....................            110,010           8,067,217
                    Principal payments on capital lease obligation .........................            (58,397)            (54,821)
                    Proceeds from promissory note ..........................................          2,325,000                --
                    Principal payments on short-term debt ..................................               --            (1,329,321)
                    Principal payments on long-term debt ...................................           (275,984)           (244,972)
                                                                                                    -----------         -----------
                         Net cash provided by financing activities .........................          2,100,629           6,438,103
                                                                                                    -----------         -----------
Effect of exchange rate changes on cash ....................................................               (900)            (48,340)
Net decrease in cash .......................................................................         (1,017,327)           (339,226)
Cash and cash equivalents, beginning of year ...............................................          1,129,246           7,088,431
                                                                                                    -----------         -----------
Cash and cash equivalents, end of period ...................................................        $   111,919         $ 6,749,205
                                                                                                    ===========         ===========


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


</TABLE>

                                       5
<PAGE>



                                Ariel Corporation
                   Notes to Consolidated Financial Statements
                                   (Unaudited)


1.       Basis of Presentation

     The financial statements included herein have been prepared by the Company,
pursuant to the Rules and Regulations of the Securities and Exchange Commission.
Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  condensed  or omitted  pursuant  to such rules and  regulations.  The
Company believes,  however,  that the disclosure contained herein is adequate to
make the information  presented not misleading.  The financial statements should
be read in conjunction with the financial  statements and notes thereto included
in the Company's Form 10-K for the year ended December 31, 2000.

     As  of  June  30,  2001,  the  Company  had  negative  working  capital  of
$3,655,769,  including cash and cash  equivalents  of $111,919.  The Company has
incurred  substantial  operating losses and had an accumulated  deficit of $48.6
million  as  of  June  30,  2001.   The  Company  has  incurred  net  losses  of
approximately  $15.6 million and $12.5 million for the years ended  December 31,
2000 and 1999, respectively,  and $6.8 million for the six months ended June 30,
2001 and  expects  to incur  costs and  expenses  in excess  of  revenues  as it
continues to execute its business strategy.  Absent the pending transaction with
Mayan Networks,  Inc. described below, in Note 5 and in Note 20 to the financial
statements  included  in its  Annual  Report  on Form  10-K for the  year  ended
December 31, 2000,  (which is contingent upon a number of factors),  the Company
has limited  financial  resources  available to support its ongoing  operations,
fund product  development  programs to develop and market new competitive remote
access  technology,  and pay its  obligations  as they become due. These factors
raise  substantial doubt concerning the Company's ability to continue as a going
concern.  The consolidated  financial  statements do not include any adjustments
relating to the  recoverability  and classification of asset carrying amounts or
the amount and  classification  of  liabilities  that  might  result  should the
Company be unable to  continue  as a going  concern.  The  Company's  ability to
continue as a going concern is dependent  upon the  consummation  of the pending
transaction with Mayan Networks,  Inc. as described below in Note 5, the ongoing
support of its stockholders,  creditors,  and certain key customers,  and/or its
ability to  successfully  develop  and market its  remote  access  products  and
technology at economically  feasible levels in a highly  competitive and rapidly
changing technology environment.

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

     In the opinion of the management of the Company, the accompanying unaudited
financial  statements  contain all  adjustments,  consisting of normal recurring
accruals,  necessary to present fairly the financial  position of the Company as
of June 30,  2001 and the  results  of  operations  for the three and six months
ended  June  30,  2001  and  2000.  The  results  for  interim  periods  are not
necessarily indicative of results for the full year.

                                       6
<PAGE>



2.       Inventories, net of allowance:
<TABLE>
<CAPTION>
         Inventories, net of allowance, consists of the following:
                                                    June 30,        December 31,
                                                     2001               2000
                                                  ----------         -----------
<S>                                              <C>                 <C>
Component Materials ....................          $  237,248          $  556,429
Work-in process ........................             311,372             557,632
Finished Goods .........................           1,377,137           1,445,199
                                                  ----------          ----------
                                                  $1,925,757          $2,559,260
                                                  ==========          ==========
</TABLE>

3.       Debt

     As of June 30, 2001 the Company had total debt of $3,838,000  consisting of
a Term Note due to Transamerica  Business Credit Corporation of $1,513,000 and a
promissory note due to Mayan Networks of $2,325,000.

     The Term Note is payable  quarterly  in  arrears  over  twenty  consecutive
quarters  commencing  October 1, 1997.  The interest  rate in effect on the term
loan at June 30, 2001 was 12.10%. It is  collateralized by accounts  receivable,
inventory, property and equipment, and intangible assets.

     The  Transamerica  credit  agreement  includes  a material  adverse  effect
clause,  whereby Transamerica can accelerate the due date of the loan if certain
changes in conditions  (financial  or  otherwise)  are deemed to have a material
adverse effect on the Company's  ability to meet its obligations.  The agreement
also includes a provision  whereby  Transamerica  may  accelerate  the remaining
balance to be due and payable in the event of a change in control.

     The  Company   believes  it  is  in  compliance  with  this  provision  and
Transamerica  has not communicated to the Company that a material adverse effect
has occurred.

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

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

     In June 2001,  the Note was  increased  to provide an aggregate of up to $4
million. The Company had drawn down $2,325,000 as of June 30, 2001. As of August
10, 2001 there is a total of $3,950,000 outstanding.




                                       7
<PAGE>



4.       Segment Data

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

   Summary information by segment as of and for the three and six months ended June 30:

<S>                                                                        <C>                  <C>
NORTH AMERICA:
         For the three months ended and as of:                             June 30, 2001        June 30, 2000
                                                                            ------------         ------------
         Revenues from external customers .........................         $    470,176          $  1,000,465
         Segment loss .............................................           (2,768,066)           (6,539,567)
         Segment assets ...........................................            3,838,347            12,403,309

EUROPE:
         For the three months ended and as of:                             June 30, 2001         June 30, 2000
                                                                            ------------          ------------
         Revenues from external customers .........................         $     - 0 -           $     96,746
         Segment loss .............................................             (204,081)             (233,468)
         Segment assets ...........................................              264,678             2,385,690


NORTH AMERICA:
         For the six months ended and as of:                               June 30, 2001         June 30, 2000
                                                                            ------------          ------------
         Revenues from external customers .........................         $  1,300,098          $  2,955,082
         Segment loss .............................................           (6,348,946)           (9,119,076)
         Segment assets ...........................................            3,838,347            12,403,309

EUROPE:
         For the six months ended and as of:                               June 30, 2001         June 30, 2000
                                                                            ------------          ------------
         Revenues from external customers .........................         $     51,734          $    214,350
         Segment loss .............................................             (472,035)             (466,935)
         Segment assets ...........................................              264,678             2,385,690



</TABLE>

                                       8
<PAGE>




5.         Merger Agreement

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

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

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

     The Company expects to complete the transaction by September 30, 2001.


6.    Recently Issued Accounting Standards

     In July 2001, the Financial Accounting Standards Board issued Statements of
Financial Accounting  Standards No. 141, Business  Combinations ("SFAS No. 141")
and No. 142,  Goodwill and Other  Intangible  Assets ("SFAS No.  142").  FAS 141
requires all business combinations initiated after June 30, 2001 to be accounted
for using the purchase  method.  Under FAS 142,  goodwill and intangible  assets
with indefinite lives are no longer amortized but are reviewed annually (or more
frequently if impairment indicators arise) for impairment.  Separable intangible
assets  that  are not  deemed  to have  indefinite  lives  will  continue  to be
amortized over their useful lives (but with no maximum life).  The  amortization
provisions of FAS 142 apply to goodwill and  intangible  assets  acquired  after
June 30, 2001. With respect to goodwill and intangible  assets acquired prior to
July 1, 2001,  the  Company is required  to adopt FAS 142  effective  January 1,
2002. The Company does not expect that the adoption of the provisions of FAS 142
that are effective January 1, 2002 will have a material impact on its results of
its operations or financial position.

7.     Subsequent Events

     On August 2,  2001 the  Company  committed  to a plan to  discontinue  it's
European  operations.  That plan is expected to be completed in September  2001.
Accordingly,  the  Company  expects  to record a  non-cash  operating  charge in
September 2001 to realize cumulative currency translation adjustments related to
these  operations.  As of June 30, 2001 the Company has accumulated  $959,090 in
currency translation charges.


                                       9
<PAGE>





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

COMPARISON OF RESULTS OF OPERATIONS

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

                                                             Six months ended
                                                                 June 30,

                                                            2001          2000
                                                            ----          ----
<S>                                                        <C>          <C>
Sales ............................................          100.0%       100.0%
Cost of goods sold ...............................           73.5         59.6
                                                            -----        -----
     Gross profit ................................           26.5         40.4
Expenses
     Sales and marketing .........................          149.2         90.5
     General and administrative ..................          239.2         94.5
     Research and development ....................          162.8         84.2
     Restructuring and other charges .............            --          74.4
                                                            -----        -----
     Total operating expenses ....................          551.2        343.6
                                                            -----        -----
Loss from operations .............................         (524.7)      (303.2)
Interest income ..................................            0.8          7.6
Interest expense .................................           (8.7)        (7.8)
Other income, net ................................           27.9          0.6
                                                            -----        -----
                 Net Loss
                                                           (504.7)%     (302.8)%
                                                            =====        =====



</TABLE>

                                       10
<PAGE>



Three months ended June 30, 2001 as compared to three months ended June 30, 2000
--------------------------------------------------------------------------------


Net Sales

     Worldwide  sales were  $470,176 for the three months ended June 30, 2001, a
decrease of $627,035  compared to net sales of  $1,097,211  for the three months
ended June 30,  2000.  Domestic  sales were  $444,468 for the three months ended
June 30, 2001 compared to $739,663 for the three months ended June 30, 2000. The
decrease in sales of  $295,195  was  attributable  to a decrease in sales of DSP
products  to original  equipment  manufacturers.  In June 2000 we  notified  our
customers  that we would no longer offer  certain  older DSP products due to the
lack of availability of component parts and the prohibitive  cost of production,
testing  and  technical  support  for these  older  products.  Therefore,  these
products  could no longer be made generally  available  after December 31, 2000.
This caused a one-time  increase in orders and sales for these  products in 2000
and a larger relative  decline in original  equipment  manufacturer  revenues in
2001. New original  equipment  manufacturer  projects typically require 18 to 24
months  from the award of a project to the  realization  of  revenue.  From 1997
through  1998  the  Company   curtailed   pursuit  of  new  original   equipment
manufacturer projects while it focused on PC manufacturers which has resulted in
fewer original equipment manufacturer revenues.  Decreases in original equipment
manufacturer  revenue were only  partially  offset by sales of the Company's RAS
products to ISPs due to a sudden and sharp decrease in capital  expenditures  by
Internet Service Providers and telecommunications vendors in 2001.

     International  sales were  $25,708 for the three months ended June 30, 2001
as  compared  to  $357,548  for  the  same  period  of  2000.   $96,746  of  the
international  sales  decrease was due to our decision in June 2000 to phase out
low-end basic rate ISDN (BRI)  products of our French  subsidiary,  SCii Telecom
SA. The decision  was based on reduced  sales of BRI products due to the loss of
major customers and advances in competing technologies. The remaining decline in
international  revenues is due to discontinued  DSP products as described in the
previous paragraph.

Gross Profit

     Gross profit for the three months ended June 30, 2001 increased  $26,461 to
$102,290  for the three  months  ended June 30, 2001 from  $75,829 for the three
months ended June 30,  2000.  Gross profit was 22% of sales for the three months
ended June 30, 2001  compared to 7% for the three months ended June 30, 2000. In
June 2000 we  recorded  $548,000  in  inventory  reserves  related to our RS2000
product.   Without  the  effect  of  these  reserves,  gross  margins  decreased
approximately  $521,000.  That  decrease  was due to reduced  sales of older DSP
products  which carry a higher gross margin as a percent to sales as well as the
impact  of  fixed  manufacturing  overhead  on  reduced  sales  for the  period.
Provisions for inventory in excess of expected demand were $45,000 for the three
months ended June 30, 2001 as we continue to review  expected  demand and reduce
the carrying value of inventory as necessary.

Sales and marketing

     Sales and marketing  expenses were $952,017 for the three months ended June
30, 2001  compared to $1,601,702  for the three months ended June 30, 2000.  The
decrease of $649,685 or 41% is due, in part,  to a decrease in  advertising  and
marketing expenses of approximately  $217,000 during the three months ended June
30,  2001 as  compared  to the  prior  year  period.  Other  decreases  included
participation in fewer trade shows resulting in reduced expenses for booth space
rental,  demonstration equipment and travel of approximately  $135,000,  $17,000
and $19,000, respectively. Additionally, expenses related to public and investor
relations  were  approximately  $88,000  less in the three months ended June 30,
2001 over the prior year  period.  Decreases  in  European  sales and  marketing
expenses of  approximately  $99,000 reflect the  discontinuance  of both DSP and
SCii's BRI products  and  consulting  and  recruiting  costs were  approximately
$65,000 less in the three months ended June 30, 2001 over the prior year period.

                                       11
<PAGE>


General and administrative

     General and  administrative  expenses were  $1,298,177 for the three months
ended June 30, 2001 compared to  $1,526,158  for the three months ended June 30,
2000.  The decrease of $227,981 is due primarily to a reduction in  amortization
expense. In February 2001, we reached a settlement with the former parent of our
French subsidiary,  Alis Technologies,  of approximately  $930,000.  Proceeds of
approximately  $565,000 were recorded as an adjustment to the purchase price and
offset against remaining goodwill and intangibles.  Accordingly, no amortization
expense was  recorded  for the three  months  ended June 30, 2001 as compared to
$233,468 in the second  quarter of fiscal  2000.  The  remaining  proceeds  were
payable in installments  and recorded as other income when received in May 2001.

     Additional expense  reductions  included  approximately  $50,000 in reduced
rents as a result  of  closing  or  reducing  the  size of our  branch  offices,
approximately $22,000 in reduced administrative costs of our European operations
and approximately $22,000 in reduced employee benefits costs related to our 401k
Plan.

     These decreases were partially offset by increases of approximately $84,000
in legal fees and $16,000 in  accounting  fees  related to our merger with Mayan
Networks of San Jose, CA (see Note 5).

Research and Development

     Research and  development  expenses  were  $1,110,112  for the three months
ended June 30, 2001 compared to  $1,387,654  for the three months ended June 30,
2000, a decrease of $277,542.  The decrease is primarily due to the reduction in
salaries and related expenses of $166,206 and savings of $53,045  resulting from
the  discontinuance  of  both  DSP  and  SCii's  BRI  products  .  Additionally,
depreciation  expense  was  down  approximately  $26,000  due to  lower  capital
spending and expenses related to employee  training and  professional  dues were
approximately $33,000 less than the three months ended June 30, 2000.

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 anticipating a savings of approximately $185,000 and $330,000 in 2000 and
2001,  respectively.  Accordingly,  the  Company  recorded  a special  charge of
approximately  $1,546,000 in June 2000 for the impairment of goodwill associated
with the Company's  1998  acquisition  of SCii Telecom,  S.A. (See Note 8 to our
financial statements for the year ended December 31, 2000 filed on Form 10-K.)

     In addition,  effective May 31, 2000 the Company  terminated the employment
of Jay H. 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
payable over one year and an estimated  value of $504,370 for one year extension
of stock options that vested during Mr. Atlas' employment.  As of June 30, 2001,
all accrued severance has been paid. No adjustments were made to the accrual and
no accrual remains.

     For the three months ended June 30, 2001 no special  charges were  recorded
resulting in a reduction in operating  expenses of $2,356,656 as compared to the
same period last year.

Other Income and Expense and Interest Income and Expense

     Interest  income was $125,479 less for the three months ended June 30, 2001
as compared to the three months ended June 30, 2000 due to less  available  cash
for  investment.   Interest  expense  decreased  approximately  $87,000  due  to
reduction  of the  Transamerica  debt  and a lower  interest  rate on the  MAYAN
Networks Promissory Note (see Note 3).

     Other income rose  $312,853  from the quarter  ended June 30, 2001 over the
same  quarter  last year due to the receipt of  $330,000  in  proceeds  from the
settlement  reached with Alis  Technologies  related to the  acquisition of SCii
Telecom, SA in November 1998.


     For the foregoing reasons the Company incurred a net loss of $2,972,147 for
the three months ended June 30, 2001 as compared to losses of $6,785,563 for the
three months ended June 30, 2000.

                                       12
<PAGE>



Six months ended June 30, 2001 as Compared to six months ended June 30, 2000
----------------------------------------------------------------------------

     Net Sales

     Worldwide  sales were  $1,351,832 for the six months ended June 30, 2001, a
decrease of $1,817,600  compared to net sales of  $3,169,432  for the six months
ended June 30, 2000.  Domestic  sales were  $1,241,814  for the six months ended
June 30, 2001 compared to $2,537,570 for the six months ended June 30, 2000. The
decrease in sales of $1,295,756 was  attributable  to a decrease in sales of DSP
products  to original  equipment  manufacturers.  In June 2000 we  notified  our
customers  that we would no longer offer  certain  older DSP products due to the
lack of availability of component parts and the prohibitive  cost of production,
testing  and  technical  support  for these  older  products.  Therefore,  these
products  could no longer be made generally  available  after December 31, 2000.
This caused a one-time  increase in orders and sales for these  products in 2000
and a larger relative  decline in original  equipment  manufacturer  revenues in
2001. New original  equipment  manufacturer  projects typically require 18 to 24
months  from the award of a project to the  realization  of  revenue.  From 1997
through  1998  the  Company   curtailed   pursuit  of  new  original   equipment
manufacturer projects while it focused on PC manufacturers which has resulted in
fewer original equipment manufacturer revenues.  Decreases in original equipment
manufacturer  revenue were only  partially  offset by sales of the Company's RAS
products to ISPs due to a sudden and sharp decrease in capital  expenditures  by
Internet Service Providers and telecommunications vendors in 2001.

     International sales were $110,018 for the six months ended June 30, 2001 as
compared  to  $631,862  for the same  period of 2000.  The  overall  decrease in
international  sales of $521,844 was due in part to our decision in June 2000 to
phase out low-end basic rate ISDN (BRI) products of our French subsidiary,  SCii
Telecom SA. The decision  was based on reduced  sales of BRI products due to the
loss of major customers and advances in competing technologies and resulted in a
decrease in sales of $162,618 for the six months ended June 30, 2001 as compared
to the six months ended June 30, 2000.  The remaining  decline in  international
revenues  of  $359,226  for the period is due to  discontinued  DSP  products as
described in the previous paragraph.

Gross Profit

     Gross profit for the six months ended June 30, 2001  decreased  $921,239 to
$358,437  for the six months  ended June 30,  2001 from  $1,279,676  for the six
months  ended June 30,  2000.  Gross  profit was 27% of sales for the six months
ended June 30, 2001  compared to 40% for the six months ended June 30, 2000.  In
June 2000 we  recorded  $548,000  in  inventory  reserves  related to our RS2000
product.   Without  the  effect  of  these  reserves,   gross  margins  decrease
approximately   $1,469,000.   That   decrease  was  due  to  reduced   sales  of
approximately  $1.8  million in older DSP  products  which carry a higher  gross
margin  as a  percent  to sales  as well as the  impact  of fixed  manufacturing
overhead on reduced sales for the period.  Provisions for inventory in excess of
expected  demand were  $90,000  for the six months  ended June 30,  2001,  as we
continue to review expected demand and reduce the carrying value of inventory as
necessary.

Sales and marketing

     Sales and marketing  expenses were $2,016,870 for the six months ended June
30, 2001  compared to  $2,868,535  for the six months  ended June  30,2000.  The
decrease  of  $851,665  or  30% is due to a  reduction  in  marketing  research,
tele-marketing and advertising of approximately  $218,000 as well as a reduction
of  approximately  $266,000  for trade show  related  expenses  as result of our
decision to reduce costs through  participation in fewer trade shows and events.
Decreases in European  sales and marketing  expenses of  approximately  $202,000
reflect the effect of  discontinuing  the BRI products of our French  subsidiary
and 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  $151,000 in public and investor relations programs as a result of
cost reduction  actions.  Such  decreases were partially  offset by increases of
approximately $31,000 in commissions for the six months ended. Though sales were
down overall,  sales to new original  equipment  manufacturing and ISP customers
were up which yield a higher commission than sales to existing customers.

                                       13
<PAGE>


General and administrative

     General and  administrative  expenses  were  $3,233,187  for the six months
ended June 30, 2001  compared to  $2,994,554  for the six months  ended June 30,
2000. The increase of $238,633 reflects  transaction costs related to our merger
with MAYAN  Networks  (see Note 5) which include  legal and  accounting  fees of
approximately  $340,000 and investment  banking fees of $275,000.  There were no
such  transaction  costs in the six months ended June 30, 2000.  These increases
were  partially  offset  by a reduced  amortization  of  approximately  $358,000
related in part to the impairment of goodwill  resulting from the  restructuring
plan  implemented in June 2000 that  discontinued the BRI products of our French
subsidiary,  SCii. Additionally,  we reduced general and administrative costs at
our European subsidiaries by approximately $50,000 during the period as compared
to the same period last year.

Research and Development

     Research and development  expenses were $2,200,628 for the six months ended
June 30, 2001 compared to $2,669,280 for the six months ended June 30, 2000. The
decrease  of  $468,652 is  comprised  primarily  of  decreases  in salaries  and
engineering  consulting fees of $276,390 and savings of $119,191  resulting from
the integration of the Company's European research and development projects with
those at its U.S.  headquarters.  Additionally,  decreases  in capital  spending
resulted in less depreciation and maintenance costs of approximately $64,000.

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 anticipating a savings of approximately $185,000 and $330,000 in 2000 and
2001,  respectively.  Accordingly,  the  Company  recorded  a special  charge of
approximately  $1,546,000 in June 2000 for the impairment of goodwill associated
with the Company's  1998  acquisition  of SCii Telecom,  S.A. (See Note 8 to our
financial statements for the year ended December 31, 2000 filed on Form 10-K.)

     On  August 2,  2001 we  committed  to a plan to  discontinue  our  European
operations.   That  plan  is  expected  to  be  completed  in  September   2001.
Accordingly,  we expects to record a non-cash operating charge in September 2001
to  realize  cumulative  currency  translation   adjustments  related  to  these
operations. There are accumulated currency translation charges of $959,090 as of
June 30, 2001.

     In addition,  effective May 31, 2000 the Company  terminated the employment
of Jay H. 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
payable over one year and an estimated  value of $504,370 for one year extension
of stock options that vested during Mr. Atlas' employment.  As of June 30, 2001,
all accrued severance has been paid. No adjustments were made to the accrual and
no accrual remains.

     For the six months  ended June 30, 2001 no special  charges  were  recorded
resulting in a reduction in operating  expenses of $2,356,656 as compared to the
same period last year.

                                       14
<PAGE>


Other Income and Expense and Interest Income and Expense

     Interest income was $229,128 less for the six months ended June 30, 2001 as
compared to the six months  ended June 30, 2000 due to less  available  cash for
investment.  Interest expense decreased approximately $131,000 due to reduction
of the  Transamerica  debt  and a  lower  interest  rate on the  MAYAN  Networks
Promissory Note (see Note 3).

     Other income rose $358,902 in the six month period ended June 30, 2001 over
the same period last year due to the  receipt of  proceeds  from the  settlement
reached with Alis Technologies related to the acquisition of SCii Telecom, SA in
November 1998. In February 2001, we reached a settlement  totaling $930,000 with
SCii 's former parent , Alis Technologies,  and received  approximately $600,000
towards the  settlement  during the quarter  ended  March  31,2001.  Proceeds of
approximately  $565,000 were recorded as an adjustment to the purchase price and
offset against remaining goodwill and intangibles at March 31,2001.


     For the foregoing reasons the Company incurred a net loss of $6,820,981 for
the six months ended June 30, 2001 as compared to losses of  $9,598,539  for the
six months ended June 30, 2000.


Liquidity and Capital Resources

     We have  incurred  net  losses of  approximately  $15.6  million  and $12.5
million for the years ended December 31, 2000 and 1999,  respectively,  and $6.8
million  for the six months  ended June 30,  2001 and expect to incur  costs and
expenses in excess of revenues as we continue to execute our  business  strategy
in the ISP and  original  equipment  manufacturer  markets.  Absent the  pending
transaction  with Mayan  Networks,  Inc.  described  in Note 5 to the  financial
statements we have limited financial  resources available to support our ongoing
operations,  fund  product  development  programs  to  develop  and  market  new
competitive  remote access  technology,  and pay its  obligations as they become
due.

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

     We  maintain  a  credit   facility  with   Transamerica   Business   Credit
Corporation.  Currently the Company has a five-year, $3 million term loan ("Term
Loan").  As of June 30, 2001,  there was $1,513,000  outstanding  under the Term
Loan. (See Note 3 to the Financial Statements.)

     We drew down $4 million under the Term Loan on June 12, 1997 when we signed
the  agreement.  Term Loan payments of principal and interest are due in arrears
in twenty consecutive quarterly  installments,  payable on the first day of each
calendar  quarter  commencing  October 1, 1997. The interest rate under the term
loan is based on the  weekly  average  of the  interest  rate on five  year U.S.
Treasury  Securities for stated periods plus an agreed upon number of additional
basis points.  At June 30, 2000,  the interest rate in effect was 12.10%.  It is
collateralized by accounts receivable,  inventory,  property and equipment,  and
intangible assets.

     On March 28, 2001,  we entered into an agreement  with Mayan  Networks (see
Note 5) which, among other things,  provides for a Promissory Note (the "Note").
The Note calls for Mayan  Networks to provide up to $2 million in debt financing
to us on an as needed basis until the  transaction  is  consummated or otherwise
terminated.  In June 2001, MAYAN increased the amount to provide an aggregate of
up to $4 million.  In the event Mayan chooses to terminate the merger  agreement
due to a superior  offer,  the Note becomes a term note with any  principal  and
accrued interest payable on the one year anniversary of the termination.  Should
the merger agreement  otherwise  terminate  amounts due on the Note would be due
and payable upon termination.

                                       15
<PAGE>


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

     We had drawn down  $2,325,000  as of June 30,  2001.  As of August 10, 2001
there is a total of $3,950,000 outstanding.

     During the six months ended June 30, 2001, there was a net decrease in cash
and cash equivalents of $1,017,327.  At June 30, 2001, cash and cash equivalents
amounted to $111,919. Working capital deficit amounted to $3,655,769 at June 30,
2001. This as compared to working capital of $2,385,855 at December 31, 2000.

     Net cash used in  operating  activities  for the six months  ended June 30,
2001 amounted to $3,757,287.  The negative cash flows from  operations  were due
primarily to the Company's net loss of $6,820,981,  before non-cash expenditures
related to compensation,  depreciation, amortization, reserves and allowances of
$769,527.  Increases in cash due to collections  of trade and other  receivables
accounted  for  approximately  $1,995,000  and  increases  in  cash  related  to
decreases in inventories accounted for approximately $613,000.

     Net cash provided by investing activities for the six months ended June 30,
2001  amounted to  $640,230  due to proceeds  received  in  connection  with the
settlement of a dispute with the Alis Technologies,  the seller of SCii, and net
proceeds of $130,000 from investments  that matured during the period.  Proceeds
of approximately $565,000 from the Alis Technologies settlement were recorded as
an adjustment to the SCii purchase price.

     Cash from financing  activities  increased by $2,100,629 for the six months
ended June 30, 2001.  The increase was due to proceeds  received under the terms
of a  promissory  note with  Mayan  Networks  in the  amount of  $2,325,000  and
proceeds from the exercise of warrants of $110,010.  Such increase was offset by
principal  payments on the Company's capital lease obligations and its Term Note
with Transamerica in the amounts of $58,397 and $275,984, respectively.



Interest rate risk

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

Foreign exchange risk

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

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

                                       16
<PAGE>


Part II.     Other Information

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

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

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

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

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS - none:
         -------------------------------------------------------------

ITEM 5.  OTHER INFORMATION:
         ------------------

     On April 5,  2001,  the  Company  filed a report  under Item 5. of Form 8-K
which contained the following:

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

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


     Exhibits - None







                                       17
<PAGE>








Signature

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


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






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

Date:  August 14, 2001