FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   (Mark One)

           [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000

          [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934
                        FOR THE TRANSITION PERIOD FROM TO

                       COMMISSION FILE NUMBER 33-46104-FW

                                   -----------

                            THERMOENERGY CORPORATION

                            ------------------------
            (EXACT NAME OF REGISTRATION AS SPECIFIED IN ITS CHARTER)

                       Arkansas                     71-00659511
            --------------------------------- ----------------------
             (State or other jurisdiction of      (I.R.S.Employer
            of incorporation or organization)    Identification Number)


           323 Center Street, Suite 1300, Little Rock, Arkansas 72201
           -----------------------------------------------------------
                    (Address of principal executive offices)
                                   (Zip Code)

                                 (501) 376-6477
              ----------------------------------------------------
              (Registrant's telephone number, including area code)


              ----------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)

     Indicate  by check mark  whether the  registrant  (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
    -------     -------


     The number of shares  outstanding of each of the issuer's classes of common
stock, as of March 31, 2000:

           3,811,791 shares of Common Stock, par value $.001 per share



<PAGE>

ITEM 1.  FINANCIAL INFORMATION

                               Accountant's Report

Stockholders and Board of  Directors
ThermoEnergy Corporation

We have  reviewed  the  accompanying  condensed  balance  sheet of  ThermoEnergy
Corporation  as of March 31,  2000,  and the  related  condensed  statements  of
operations and cash flows for the  three-month  periods ended March 31, 2000 and
1999, and for the period cumulative  during  development stage through March 31,
2000, and the related  condensed  statements of changes in stockholders'  equity
(deficit) for the periods ended September 30, 1988 through March 31, 2000. These
financial statements are the responsibility of the Company's management.

We conducted our review in accordance with standards established by the American
Institute  of  Certified  Public  Accountants.  A review  of  interim  financial
information consists principally of applying analytical  procedures to financial
data, and making  inquiries of persons  responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, which will be performed for the full
year with the  objective  of  expressing  an  opinion  regarding  the  financial
statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our review, we are not aware of any material  modifications that should
be made to the accompanying condensed financial statements referred to above for
them to be in conformity with generally accepted accounting principles.

We have  previously  audited,  in accordance  with generally  accepted  auditing
standards,  the balance  sheet of  ThermoEnergy  Corporation  as of December 31,
1999, and the related statements of operations,  stockholders'  equity, and cash
flows for the year then ended and for the period cumulative  during  development
stage through December 31, 1999, not presented  herein,  and in our report dated
March 3, 2000,  we  expressed  an opinion on those  financial  statements  which
contained an explanatory paragraph relating to the Company's ability to continue
as  a  going  concern.  In  our  opinion,  the  information  set  forth  in  the
accompanying  condensed balance sheet as of December 31, 1999, is fairly stated,
in all  material  respects,  in relation to the balance  sheet from which it has
been derived.

Little Rock, Arkansas
May 3, 2000

<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                                 BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                                        March 31,          December 31,
                                                                                          2000                1999
                                                                                          ----                ----
                                                                                    (Unaudited)             (Note 1)
ASSETS

<S>                                                                               <C>                 <C>
Cash - Total Current Assets                                                       $     39,286        $     101,091

Advances to officers                                                                   633,015              598,015
Accrued interest receivable - officers                                                 112,265               98,930
Property and equipment, at cost:
  Equipment                                                                             14,818               14,818
  Furniture and fixtures                                                                 4,991                4,991
  Less accumulated depreciation                                                        (19,809)             (19,809)
                                                                                 -------------       --------------
                                                                                             -                    -
                                                                                 -------------       --------------

                                                                                   $   784,566         $    798,036
                                                                                   ===========         ============


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                                   $   464,200         $    661,176
Accrued interest payable - primarily to related parties                                507,148              414,425
Deferred compensation                                                                1,773,846            1,660,695
Notes payable to stockholders (Note 5)                                                 178,735              178,735
                                                                                  ------------        -------------
      Total Current Liabilities                                                      2,923,929            2,915,031

Convertible Debentures (Notes 2 and 4)                                               2,516,756            2,199,379
                                                                                    ----------         ------------
      Total Liabilities                                                              5,440,685            5,114,410

Stockholders' equity (deficit) (Notes 3 and 4):
 Preferred stock, non-voting,  $1  par value:
  Authorized - 10,000,000 shares; none issued
 Common Stock, $.001 par value:
    Series A Common Stock;  Authorized - 10,000,000
    shares; no shares issued and outstanding
    Series B Common Stock; Authorized - 65,000,000
    shares; March 31, 2000:  issued - 3,886,118 shares; outstanding -
    3,802,289 shares;  December 31, 1999:  issued - 3,883,618
    shares;  outstanding - 3,799,789 shares                                              3,886                3,884
 Additional paid-in capital                                                          4,663,795            4,658,797
 Deficit accumulated during the development stage                                   (9,323,800)          (8,979,055)
                                                                                   -----------          -----------
                                                                                    (4,656,119)          (4,316,374)
                                                                                   -----------          -----------

                                                                                   $   784,566         $    798,036
                                                                                   ===========         ============
</TABLE>
See notes to financial statements.

<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                            STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>

                                         Cumulative
                                           During
                                        Development
                                       Stage Through            Three Months Ended
                                            March 31,                 March 31,
                                             2000                2000            1999
                                             ----                ----            ----
                                         (Unaudited)                 (Unaudited)

<S>                                          <C>                <C>             <C>
Operating Expenses:
  General and administrative            $  6,983,586       $  222,796      $  179,171
  Payments under licenses                    819,766           22,500          35,000
  Travel and entertainment                 1,222,717           44,387          43,416
                                           ---------           ------          ------
                                           9,026,069          289,683         257,587
                                           ---------          -------         -------

Loss From Operations                      (9,026,069)        (289,683)       (257,587)
                                         -----------        ---------       ---------

Other Income (Expense)
  Interest income                            175,710           14,017           8,756
  Gain on settlement of lawsuit
    (Note 6)                                 317,423           23,644
  Other                                       49,550
  Interest expense                          (840,347)         (97,723)        (64,396)
                                            --------          -------         -------
                                            (297,664)         (55,062)        (55,640)
                                            --------          -------         -------

Net Loss                               $  (9,323,733)      $ (344,745)     $ (313,227)
                                      ==============      ===========     ===========

Basic and Diluted
  Per Common Share (Note 4)

    Loss From Operations                 $     (2.38)       $   (0.07)      $   (0.06)

    Net Loss                             $     (2.46)       $   (0.08)      $   (0.08)
</TABLE>

See notes to financial statements.

<PAGE>
                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
           Periods Ended September 30, 1988 Through December 31, 1999
                           and the Three Months Ended
                           March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>

                                                                                           Deficit
                                                                                       Accumulated
                                                                   Additional          During the
                                                    Common            Paid-in         Development
                                                     Stock            Capital                Stage             Total
                                                     -----            -------                -----             -----
<S>                                                  <C>                <C>                <C>                  <C>
Issuance of stock, January 1988,
  (2,205,762 shares at $.08 per share)             $ 2,206         $  178,094           $                   $180,300

Net loss                                                                                 (290,483)          (290,483)
                                                  --------           --------            --------           --------

Balance (deficit), September 30, 1988                2,206            178,094            (290,483)          (110,183)

Conversion of $412,000 of debentures
  and accrued interest, September 1989
  (306,335 shares)                                     306            456,695                                457,001

Net loss                                                                                 (338,985)          (338,985)
                                                  --------           --------            --------           --------

Balance (deficit), September 30, 1989                2,512            634,789            (629,468)             7,833

Net loss                                                                                 (255,036)          (255,036)
                                                  --------           --------            --------           --------

Balance (deficit), September 30, 1990                2,512            634,789            (884,504)          (247,203)

Conversion of $63,000 of unsecured
  debentures and accrued interest at 10%,
  March 1991, (44,286 shares)                           44             70,813                                70,857

Issuance of stock, May - June 1991
  (387,880 shares:  366,630 at $1.60
  per share;  21,250 shares at $.80 per
  share)                                               388            603,219                                603,607

Issuance of stock for interest, June 1991,
 (1,375 shares at $1.60 per share)                       1              2,199                                  2,200

Issuance of stock for expenses
  incurred by stockholders, July 1991
  (5,081 shares at $1.60 per share)                      5              8,124                                  8,129

Net loss                                                                                 (670,179)          (670,179)
                                                  --------           --------            --------           --------

Balance (deficit), September 30, 1991                2,950          1,319,144          (1,554,683)          (232,589)
</TABLE>



<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 1999
                           and the Three Months Ended
                           March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Deficit
                                                                                     Accumulated
                                                                    Additional        During the
                                                    Common            Paid-in        Development
                                                      Stock           Capital              Stage              Total
                                                      -----           -------              -----              -----
<S>                                                  <C>                <C>                <C>                  <C>
Issuance of stock, October - December
  1991 (150,925 shares at $1.60 per
  share)                                           $   151          $ 241,329    $                        $ 241,480

Shares purchased in rescission offer
  (10,562 shares)                                      (11)           (16,888)                              (16,899)

Issuance of stock, public offering, August-
  September 1992 (344 shares at $16.00
  per share)                                             1              5,499                                 5,500

Net loss                                                                                (562,751)          (562,751)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1992                3,091          1,549,084         (2,117,434)          (565,259)

Issuance of stock, public offering October
  1992 - September 1993 (92,785 shares
  at $16.00 per share)                                  93          1,484,457                             1,484,550

Issuance of stock for exercise of stock
  options, May 1993 (2,500 shares at
  $1.60 per share)                                       3              3,997                                 4,000

Issuance of warrants to stockholder                                     6,333                                 6,333

Conversion of $103,000 of notes payable
  to stockholders and accrued interest,
  December 1992 (6,438 shares)                           6            102,994                               103,000

Issuance of stock for consulting
  services, June 1993 (9,375 shares
  at $16.00 per share)                                   9            149,991                               150,000
</TABLE>

<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 1999
                           and the Three Months Ended
                           March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Deficit
                                                                                     Accumulated
                                                                   Additional         During the
                                                    Common            Paid-in        Development
                                                     Stock            Capital              Stage              Total
                                                     -----            -------              -----              -----

<S>                                              <C>                    <C>                <C>                <C>
Net loss                                         $                 $                 $(1,207,921)       $(1,207,921)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1993                3,202          3,296,856         (3,325,355)           (25,297)

Issuance of warrants to stockholders                                  226,000                               226,000

Issuance of stock for exercise of stock options
 March 1994 (3,750 shares at $1.60 per share)            4              5,996                                 6,000

Issuance of stock for exercise of warrants by
  stockholder, August 1994 (3,677 shares at
  at $13.60 per share)                                   4             49,997                                50,001

Net loss                                                                                (767,427)          (767,427)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1994                3,210          3,578,849         (4,092,782)          (510,723)

Issuance of warrants to stockholders                                    9,760                                 9,760

Issuance of stock, May 1995 (6,250
  shares at $8.00 per share)                             6             49,994                                50,000

Issuance of stock for exercise of
  warrants by stockholder, June 1995
 (6,250 shares at $8.00 per share)                       6             49,994                                50,000

 Issuance of stock for expenses, July
  1995 (18,750 shares at $8.00 per share)               19            149,981                               150,000

Net loss                                                                                (896,998)          (896,998)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1995                3,241          3,838,578         (4,989,780)        (1,147,961)

Issuance of warrants to stockholders                                    5,340                                 5,340

Net loss                                                                                (551,621)         (551,621)
                                                  --------           --------           --------           --------
</TABLE>



<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 1999
                           and the Three Months Ended
                           March 31, 2000 (Unaudited)
<TABLE>
<CAPTION>

                                                                                         Deficit
                                                                                     Accumulated
                                                                   Additional         During the
                                                    Common            Paid-in        Development
                                                     Stock            Capital              Stage              Total
                                                     -----            -------              -----              -----

<S>                                                   <C>               <C>                <C>                  <C>
Balance (deficit), September 30, 1996               $3,241         $3,843,918        $(5,541,401)       $(1,694,242)
Issuance of stock, July 1997 (50,000
  shares at $2.00 per share                             50             99,950                               100,000
Conversion of $338,100 of notes payable
  to stockholders and accrued interest,
  July 1997 (195,596 shares)                           196            390,996                               391,192
Net loss                                                                              (1,196,036)        (1,196,036)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1997                3,487          4,334,864         (6,737,437)        (2,399,086)
Net loss                                                                                (797,099)          (797,099)
                                                  --------           --------           --------           --------

Balance (deficit), September 30, 1998                3,487          4,334,864         (7,534,536)        (3,196,185)
Net loss                                                                                (243,660)          (243,660)
                                                  --------           --------           --------           --------

Balance (deficit), December 31, 1998                 3,487          4,334,864         (7,778,196)        (3,439,845)
Issuance of stock in connection with 10%
  notes payable to stockholders, January
  1999 (67,600 shares at par value)                     67                                   (67)
Conversion of $238,165 of notes payable to
   stockholders and accrued interest, various
   months during 1999 (147,602 shares)                 148            295,056                               295,204
Issuance of stock for expenses, August
   1999 (181,619 shares at $.16 per share)             182             28,877                                29,059
Net loss                                                                              (1,200,792)        (1,200,792)
                                                  --------           --------           --------           --------

Balance (deficit), December 31, 1999                 3,884          4,658,797         (8,979,055)        (4,316,374)
Issuance of stock for exercise of warrants
  by stockholder, February 2000
  (2,500 shares at $2.00 per share)                      2              4,998                                 5,000
Net loss                                                                                (344,745)          (344,745)
                                                  --------           --------           --------           --------

Balance (deficit), March 31, 2000                  $ 3,886         $4,663,795        $(9,323,800)       $(4,656,119)
                                                   =======         ==========        ===========        ===========
</TABLE>


See notes to financial statements.


<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                 Cumulative
                                                     During
                                                Development
                                              Stage Through                       Three Months Ended March 31,
                                             March 31, 2000                         2000                 1999
                                             --------------                         ----                 ----
                                                 (Unaudited)                  (Unaudited)          (Unaudited)
<S>                                                  <C>                             <C>                  <C>
Operating activities:
  Net loss                                      $(9,323,733)                   $(344,745)           $(313,227)
  Items not requiring
  (providing) cash:
    Depreciation                                     19,809
    Expenses funded by Common
      Stock issuance                                625,338
    Other (Note 6)                                 (314,082)                     (23,644)
  Changes in:
    Advances to officers                           (831,998)                     (35,000)             (42,000)
    Other receivables                              (112,265)                     (13,335)              (8,538)
    Accounts payable                                789,200                       (1,599)             (17,641)
    Accrued expenses                                692,943                       92,723               64,396
    Deferred compensation                         1,972,828                      113,151               92,591
                                               ------------                  -----------          -----------
        Net cash used in
         operating activities                    (6,481,960)                    (212,449)            (224,419)
                                                -----------                  -----------          -----------
Investing activities:
  Purchase of fixed assets                          (19,808)
  Other                                             314,082                       23,644
                                                -----------                  -----------          -----------
         Net cash provided by
          investing activities                      294,274                       23,644
                                                -----------                  -----------          -----------
Financing activities:
  Proceeds from issuance of
    Common Stock and warrants                     2,725,562                        5,000
  Proceeds from notes payable                     1,665,609
  Proceeds from convertible debentures            1,882,000                      122,000              135,000
  Payments on notes payable                        (154,609)
  Other                                             108,410
                                                -----------                  -----------          -----------
         Net cash provided by
           financing activities                   6,226,972                      127,000              135,000
                                                -----------                  -----------          -----------

Increase (decrease) in cash                          39,286                      (61,805)             (89,419)

Cash, beginning of period                                 0                      101,091              113,220
                                                -----------                  -----------          -----------

Cash, end of period                            $     39,286                  $    39,286          $    23,801
                                               ============                  ===========          ===========

</TABLE>


See notes to financial statements.


<PAGE>



                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                 March 31, 2000

NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited financial statements statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three-month period ended March 31, 2000 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended December 31, 2000.

The  balance  sheet at  December  31,  1999 has been  derived  from the  audited
financial  statements  at that date but does not include all of the  information
and footnotes required by generally accepted accounting  principles for complete
financial statements.

For further information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended December
31, 1999.

NOTE 2:  CONVERTIBLE DEBENTURES

During February 2000, the Company's Board of Directors  approved the issuance of
up  to  $7,500,000  (an  increase  of  $5,000,000  from  the  amount  previously
authorized) of the Series 98, 15% Convertible Debentures,  due January 15, 2003.
The Company issued $317,377 of such  Debentures  ($122,000 for cash and $195,377
in  satisfaction of an accounts  payable  balance) during the three months ended
March 31, 2000.

NOTE 3:  COMMON STOCK

During February 2000, a stockholder  exercised warrants to purchase 2,500 shares
of Series B Common Stock at $2.00 per share.  During February 2000, the Board of
Directors  awarded  100,000  non-qualified  stock  options to purchase  Series B
Common Stock to the Company's  Executive  President and Senior Vice President of
Corporate  Technology.  The options expire in five years and are  exercisable at
$2.00 per share.  During  March 2000,  the Board of  Directors  awarded  250,000
non-qualified  stock options to purchase Series B Common Stock to both the Chief
Executive  Officer and the President of the Company.  The options expire in five
years and are exercisable at $2.00 per share.

<PAGE>
                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                 March 31, 2000

NOTE 4:  LOSS PER COMMON SHARE

Loss per common share is computed by dividing the net loss for the period by the
weighted average number of shares  outstanding  during the period,  adjusted for
stock options and warrants issued within twelve months of the Company's  initial
public offering filing date (February 27, 1992) which are treated as outstanding
for all periods presented. The adjusted weighted average number of common shares
used in the basic and diluted loss per share  computations were 3,796,624 shares
for the period cumulative since inception through March 31, 2000,  4,443,724 and
4,107,148  shares for the  three-month  periods  ended  March 31, 2000 and 1999,
respectively.

Warrants  to purchase  approximately  671,000  shares of Series B Common  Stock,
stock  options  awarded to officers for 300,000  shares of Series B Common Stock
and stock  options for up to 750,000  shares of Series B Common  Stock under the
1997 Stock Option Plan, were not included in the computation of diluted loss per
share since the effect would be antidilutive. At March 31, 2000, the Company had
issued  $2,516,756  of 15%  Convertible  Debentures,  due January 15, 2003.  The
holders of the Debentures can convert the principal  amount and accrued interest
into shares of Series B Common Stock at the conversion  price of $2.00 per share
at any time prior to the maturity date.

NOTE 5:  MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS

The Company has  incurred  net losses since  inception  and will likely  require
substantial  capital to  continue  commercialization  of the  Technologies.  The
financial  statements have been prepared assuming the Company will continue as a
going  concern,  realizing  assets and  liquidating  liabilities in the ordinary
course of business and do not reflect any adjustments that might result from the
outcome of the aforementioned  uncertainties.  Management is considering several
alternatives for mitigating  these conditions  during the next year. The Company
is authorized to issue up to $7,500,000 of Series 98 Convertible  Debentures and
to issue  Series B Common  Stock to the  holders of the  remaining  6.63%  notes
payable to stockholders  ($158,735 at March 31, 2000) upon maturity. The sale of
stock pursuant to private  placement or public  offerings and fees from projects
involving  the  Technologies  are other  alternatives  management  is  pursuing.
Additional  funds  may be  necessary  in the event  the  Company  takes on other
projects or makes an acquisition of another  company to facilitate the Company's
commercial demonstration of the Technologies.  If the Company is unable to enter
into commercially attractive  collaborative working arrangements for one or more
commercial or industrial projects,  the Company may sub-license the Technologies
to third parties.

<PAGE>
                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                 March 31, 2000

NOTE 5:  MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS (CONTINUED)

During January 2000, the Company filed a patent application for the ThermoEnergy
Corporation Integrated Power Systems ("TIPS") technology, a clean energy process
for  converting  fossil  fuels  to  energy  without  air  emissions.  Management
anticipates  that  the  Company  will  rely on its  own  resources  and  that of
strategic partners in the energy business to develop TIPS.

The overall  goal of the  Company is to  successfully  complete a  demonstration
project for the  Technologies.  Management  plans to utilize  any  demonstration
facilities to expand the  visibility  of the Company in  municipal,  industrial,
Department  of  Defense  and   Department  of  Energy   markets.   A  successful
demonstration   project  is  the  single  most  important   business  factor  in
implementation of the Company's plan of operations.

Management  has  determined  that the  financial  success of the  Company may be
largely dependent upon the ability and financial  resources of established third
parties  collaborating  with the Company with respect to projects  involving the
Technologies.  The Company has entered  into  agreements  with third  parties in
order to pursue this business strategy.

NOTE 6:  CONTINGENCIES

During  1998,  the Company  filed a lawsuit  seeking  compensatory  and punitive
damages from the  broker-dealer  involved in the  Company's  1997 failed  public
offering.  During 1999, the Company and the broker-dealer entered into a release
and  settlement  agreement.  In  connection  with this  agreement,  the  Company
received $75,000 in cash, 50,000 shares of common stock of the parent company of
the broker-dealer  (the "Stock"),  and 20,000 warrants to purchase shares of the
Stock at a price of $4.00 per share for a period of five  years from the date of
the  agreement.  The Company sold all 50,000 shares of the Stock during 1999 and
exercised warrants for 5,000 shares of the Stock which were sold during 1999.

During  January 2000,  the Company  exercised the remaining  warrants for 15,000
shares of the Stock  which were sold  simultaneously  upon the  exercise  of the
warrants. A gain of $23,644 was realized in connection with this transaction.


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

General

     The Company is the exclusive worldwide (except STORS in Japan) licensee for
four clean water  environmental  technologies  developed  by  Battelle  Memorial
Institute  ("Battelle") and the exclusive owner of a clean energy technology for
which  it has  filed a  patent.  The four  Battelle  licensed  technologies  are
primarily aimed at solving waste water problems for broad-based  markets.  These
technologies   include  three  chemical  process   technologies   known  as  the
Sludge-To-Oil  Reactor System ("STORS") (TM),  Nitrogen  Removal  ("NitRem") and
Ammonia  Recovery  Process  ("ARP") (TM).  The fourth  technology,  a dual-shell
pressure  balance vessel,  known as the Dual-Shell  Reactor ("DSR") (TM), is the
unique reactor equipment in which the STORS and NitRem chemistries are conducted
(collectively,  STORS,  NitRem,  ARP  and  DSR  are  referred  to as the " Water
Technologies").  The Company's  applications of the Water Technologies eliminate
damaging  organic and nitrogenous  contaminants  from  municipal,  Department of
Defense ("DOD") and industrial waste streams.

STORS Demonstration Project

     In  May  of  1996,  ThermoEnergy  and  Battelle  representatives  met  with
officials at San Bernardino Valley Water District ("SBVWD") to discuss siting of
a  full-scale  STORS/NitRem  demonstration  project (the  "Project")  in the San
Bernardino area. Subsequently,  the United States House and Senate approved ( PL
104-204, September 26, 1996) a $3,000,000 federal grant to SBVWD for the design,
construction  and  operation  of  a  large-scale  STORS  Waste  Water  Treatment
Demonstration  Facility.  The General Accounting Office authorized the EPA's San
Francisco  office to disburse  the grant  funds and  otherwise  administer  this
grant. In March, 1998, the SBVWD selected the City of Colton, California to host
the Project. On September 3, 1998, the Company signed an agreement with the City
of Colton for the Company to demonstrate its  STORS/NitRem  technology.  The EPA
grant has paid for the construction of the demonstration and the test equipment.
At the conclusion of the demonstration project, all right, title and interest to
the test  equipment  shall be vested in the EPA.  The Company is not required to
make capital contributions to this project, and will not receive any revenues or
earnings from it, but will be reimbursed for administrative and operating costs.
Subsequently   the  Company   contracted   with  Foster  Wheeler   Environmental
Corporation ("FWENC") ( See strategic  relationships) to fabricate,  install and
operate  the STORS  demonstration  unit.  The  Company  is the  project  general
contractor,   and,   through  December  31,  1999,  the  Company  has  disbursed
approximately $2,451,000 to subcontractors and other vendors,  (primarily FWENC)
out of $2,560,000  available for construction and equiping the project.  Once in
operation, the Colton STORS facility will have a larger processing capacity than
70% of the existing  municipal  wastewater  plants in the US. The  demonstration
project is scheduled to begin operations in the second quarter of 2000.

New York City ARP Demonstration

     The second  commercial scale nitrogen removal  demonstration  project was a
team  effort  between  ThermoEnergy,  FWENC and the City of New York to test the
Company's capability to cost-effectively  eliminate the concentrated  discharge,
or  centrate,  from eight of New York  City's  fourteen  waste  water  treatment
facilities. The City of New York and the Company signed a No Cost Test Agreement
in July 1996 which allowed the Company to  demonstrate,  on site,  the Company's
nitrogen  removal  processes,  including  NitRem and ARP. The Company decided to
demonstrate  the  capabilities  of its ARP  technology at New York City's Staten
Island wastewater treatment facility.  On August 4, 1998, the Company contracted
with FWENC for FWENC to provide up to $500,000 funding  necessary to demonstrate
ARP and to design,  fabricate  and operate the ARP pilot plant.  (See  Strategic
Corporate  relationships).  The New  York  ARP  demonstration  was  successfully
completed  on  December  18,  1998.  Based  on the  data  generated  during  the
demonstration  and computer  modeling for large-scale  commercial  systems,  the
economics of the Centrate Ammonia Recovery,  or ARP process,  are excellent when
compared to alternative  sources such as steam stripping,  hot air stripping and
biological nitrogen reduction  technologies.  Depending on the throughput of the
commercial system, on a privatized basis, the cost to the client  (municipality)
to  treat  ammonia  laden  wastes  with ARP at the  concentrations  found in the
centrate,  would be between 3 cents and 4 cents per  gallon,  including  capital
equipment recovery overhead.  Based upon the demonstration  results, the Company
is  actively  seeking a  privatized  contract  to process all of New York City's
centrate through it's joint venture with FWENC.

Results of Operations

     For the three months ended March 31, 2000, the Company  incurred a net loss
of $344,745 as compared to $313,227 for the three months ended March 31, 1999.

     General and administrative expenses increased during the three month period
ended March 31, 2000,  compared to March 31 1999,  due to the Company's  efforts
regarding the projects discussed above. Interest expense increased significantly
between the same two periods  primarily due to the issuance of $1,425,756 of 15%
Convertible Debentures.


     During 1998, the Company filed a lawsuit seeking  compensatory and punitive
damages from the  broker-dealer  involved in the  Company's  1997 failed  public
offering.  During 1999, the Company and the broker-dealer entered into a release
and settlement agreement. In connection with the agreement, the Company received
$75,000 in cash,  50,000  shares of common  stock of the  parent  company of the
broker-dealer (the "Stock"), and 20,000 warrants to purchase shares of the Stock
at a price of $4.00 per share  for a period of five  years  from the date of the
agreement.  The Company sold all 50,000 shares of the Stock during 1999 and also
exercised  warrants  for 5,000  shares of the Stock which were sold during 1999.
During January,  2000, the Company  exercised the remaining  warrants for 15,000
shares of the Stock  which were sold  simultaneously  with the  exercise  of the
warrants.  A gain of $23,644 was  recorded in the  accompanying  March 31, 2000,
financial statements in connection with this transaction.

Liquidity and Capital Resources

     During the period ended March 31, 2000,  the Company used  $212,449 of cash
in operations  compared to $224,419,  in the comparable  period or 1999.  During
1992,  the  Company  initiated a public  offering of 125,000  shares of Series B
Common Stock at a price of $16.00 per share.  The  offering  was  conducted on a
"best  efforts"  basis,  primarily  by  directors  and  officers of the Company.
Effective January 5, 1994, the offering was terminated. A total of 93,129 shares
were sold at a price of $16.00 per share and an  additional  6,438  shares  were
issued at $16.00 per share in  satisfaction of notes payable and related accrued
interest. Currently, there is no public market for the Series B Common Stock. As
previously discussed, the Company's proposed 1997 public offering did not occur.

     During the  quarters  ended  March 31,  2000 and 1999,  the Company met its
liquidity  needs  primarily  from  borrowings  from  stockholders.  The  Company
converted substantially all of its outstanding 10% notes payable to stockholders
to Series 98, 15%  Convertible  Debentures  and plans to convert  the  remaining
6.63% notes  payable to  stockholders  to shares of Series B  restricted  Common
Stock of the Company if sufficient funds are not available to repay the notes at
maturity. Management plans to meet the Company's liquidity needs during the year
ending  December  31,  2000,  through  additional  borrowings  principally  from
shareholders  via the  issuance  of  convertible  debentures,  from a public  or
private  placement  offering  of  common  stock and from the  proceeds  from the
settlement of the Company's lawsuit against its former  underwriter.  Management
plans to meet long-term  liquidity  needs  primarily from revenues  derived from
commercial  contracts the Company hopes to obtain  subsequent to the  successful
demonstrations  of its  Technologies,  such as the DoD Army  NitRem and New York
City ARP projects and the upcoming Colton STORS/NitRem demonstration project.

Net Operating Losses

     The Company had net operating loss carry forwards as of December 31, 1999
of  approximately  $6,450,000 which expire in the years 2003 through 2019.  The
amount of net  operating  loss carried  forward that can be used in any one year
will be limited by the  applicable tax laws which are in effect at the time such
carry forward can be utilized. A valuation allowance of approximately $2,454,000
has been  established  to offset any benefit from the net  operating  loss carry
forwards  as it  cannot be  determined  when or if the  Company  will be able to
utilize the net operating losses.

<PAGE>

                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     None

Item 2.  Change in Securities

     None

Item 3.  Defaults Upon Senior Securities

     None

Item 4.  Submission of Matters to a Vote of Securities Holders

     None

Item 5.  Other Information

     None

Item 6.  Exhibits and Report on Form 8-K

     (a) Financial Data Schedule on Exhibit 27.

     (b) No other reports on Form 8-K have been filed during the quarter  ending
         June 30, 2000.

<PAGE>

                                   SIGNATURES

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

     Date: May 11, 2000

                            THERMOENERGY CORPORATION

                              BY:/s/ P.L. Montesi
                                 -------------------
                                 P. L. MONTESI
                                 President, Treasurer and
                                 Principal Financial Officer