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 SEPTEMBER 30, 2000 OR

[ ] 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 registrant 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 September 30, 2000:

           3,870,068 shares of Common Stock, par value $.001 per share


<PAGE>





                          PART I: FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)
<TABLE>
<CAPTION>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                                 BALANCE SHEETS

                                                                                 September 30,          December 31,
                                                                                         2000                  1999
                                                                                         ----                  ----
                                                                                   (Unaudited)              (Note 1)
ASSETS

<S>                                                                                     <C>                    <C>
Cash - Total Current Assets                                                    $        72,555        $     101,091

Advances to officers (Note 7)                                                           76,000              598,015
Accrued interest receivable - officers (Note 7)                                          1,090               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)
                                                                                --------------       --------------
                                                                                             -                    -
                                                                                --------------       --------------
                                                                                 $     149,645         $    798,036
                                                                                ==============       ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                                 $     287,642         $    661,176
Accrued interest payable - primarily to related parties                                775,433              414,425
Deferred compensation (Note 7)                                                         186,973            1,660,695
Notes payable to stockholders (Note 5)                                                  55,835              178,735
                                                                                --------------       --------------
      Total Current Liabilities                                                      1,305,883            2,915,031

Convertible Debentures (Notes 2, 4 and 7)                                            4,326,722            2,199,379
                                                                                --------------       --------------
      Total Liabilities                                                              5,632,605            5,114,410

Stockholders' equity (deficit) (Notes 3, 4 and 6):
  Preferred Stock, non-voting, $1 par value
    Authorized - 10,000,000 shares; none issued Common Stock, $.001 par value:
    Authorized - 75,000,000
    September 30, 2000; issued - 3,953,897;
        outstanding - 3,870,068
    December 31, 1999: issued - 3,883,618;
         outstanding - 3,799,789                                                         3,954                3,884
  Additional paid-in capital                                                         4,799,285            4,658,797
  Deficit accumulated during the development stage                                 (10,286,199)          (8,979,055)
                                                                                --------------         ------------
                                                                                    (5,482,960)          (4,316,374)
                                                                                --------------         ------------
                                                                                 $     149,645         $    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           Nine Months Ended                 Three Months Ended
                                   September 30,             September 30,                     September 30,
                                                               --------------                    -------------
                                        2000              2000            1999             2000             1999
                                        ----              ----            ----             ----             ----
                                    (Unaudited)               (Unaudited)                       (Unaudited)

<S>                                     <C>             <C>             <C>             <C>             <C>
Operating Expenses:
  General and administrative      $  7,496,732    $    735,942    $    725,828    $    287,547    $    190,186
  License and royalties fees           864,766          67,500          83,750          22,500          16,250
  Travel and entertainment        ------------    ------------    ------------    ------------    ------------
                                     1,334,076         155,746         128,789          61,437          53,695
                                  ------------    ------------    ------------    ------------    ------------
                                     9,695,574         959,188         938,367         371,484         260,131
                                  ------------    ------------    ------------    ------------    ------------

Loss From Operations                (9,695,574)       (959,188)       (938,367)       (371,484)       (260,131)
                                  ------------    ------------    ------------    ------------    ------------
Other Income (Expense)
  Interest income                      186,676          24,983          32,692           2,106          13,901
  Gain on settlement of lawsuit
    (Note 6)                           317,423          23,644         243,779
  Other                                 49,550                          49,550
  Interest expense
                                    (1,144,207)       (396,583)       (215,400)       (190,120)        (94,552)
                                  ------------    ------------    ------------    ------------    ------------
                                      (590,558)       (347,956)        110,621        (188,014)        (80,651)
                                  ------------    ------------    ------------    ------------    ------------

Net Loss                          $(10,286,132)   $ (1,307,144)   $   (827,746)   $   (559,498)   $   (340,782)
                                  ============    ============    ============    ============    ============

Basic and Diluted
  Per Common Share (Note 4)
    Loss From Operations          $      (2.54)   $      (0.21)   $      (0.23)   $      (0.08)   $      (0.06)

    Net Loss                      $      (2.70)   $      (0.29)   $      (0.20)   $      (0.12)   $      (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 Nine Months Ended
                         September 30, 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 Nine Months Ended
                         September 30, 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 Nine Months Ended
                         September 30, 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 Nine Months Ended
                         September 30, 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
Conversion of $102,900 of notes payable
  to stockholders and accrued interest,
  various months during 2000 (67,779 shares)              68         135,490                         135,558
Net loss
                                                                                  (1,307,144)     (1,307,144)
                                                ------------    ------------    ------------    ------------
Balance (deficit), September 30, 2000           $      3,954    $  4,799,285    $(10,286,199)   $ (5,482,960)
                                                ============    ============    ============    ============
</TABLE>


See notes to financial statements.


<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                            STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                        Cumulative
                                           During
                                         Development
                                        Stage Through    Nine Months Ended September 30,
                                      September 30, 2000     2000          1999
                                      ------------------     ----          ----
                                         (Unaudited)      (Unaudited)      (Unaudited)
<S>                                           <C>            <C>              <C>
Operating activities:
  Net loss                               $(10,286,132)   $ (1,307,144)   $   (827,746)
  Items not requiring
  (providing) cash:
    Depreciation                               19,809
    Expenses funded by Common
      Stock issuance                          625,338
    Other (Note 6)                           (314,082)        (23,644)       (218,779)
  Changes in:
    Advances to officers                     (935,998)       (139,000)       (133,000)
    Other receivables                        (122,042)        (23,112)        (28,568)
    Accounts payable                          844,691          53,892         170,312
    Accrued expenses                          996,803         396,583         215,403
    Deferred compensation                   2,167,922         308,245         281,374
                                         ------------    ------------    ------------
        Net cash used in
         operating activities              (7,003,691)       (734,180)       (541,004)
                                         ------------    ------------    ------------

Investing activities:
  Purchase of fixed assets                    (19,808)
  Other                                       314,082          23,644         218,779
                                         ------------    ------------    ------------
         Net cash provided by
          investing activities                294,274          23,644         218,779
                                         ------------    ------------    ------------

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      2,437,000         677,000         469,000
  Payments on notes payable                  (154,609)
  Other                                       108,410
                                         ------------    ------------    ------------
         Net cash provided by
           financing activities             6,781,972         682,000         469,000
                                         ------------    ------------    ------------

Increase (decrease) in cash                    72,555         (28,536)        146,775

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

Cash, end of period                      $     72,555    $     72,555    $    259,995
                                         ============    ============    ============
</TABLE>



See notes to financial statements.


<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                               September 30, 2000



NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited financial 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, statements do not include all information and footnotes required by
generally accepted accounting principles for complete financial  statements.  In
the opinion of  management,  the financial  statements  include all  adjustments
(consisting of normal recurring  accruals)  considered  necessary for their fair
presentation.  Operating  results for the nine-month  period ended September 30,
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 $2,127,343 of such Debentures ($677,000 for cash, $427,427 in
satisfaction of accounts payable balances, $22,916 in satisfaction of a 10% note
payable to a stockholder and $1,000,000 in satisfaction of deferred compensation
balances,  as more  fully  described  in Note 7) during  the nine  months  ended
September 30, 2000. (See Note 8.)

NOTE 3:  COMMON STOCK

During 2000, a stockholder exercised warrants to purchase 2,500 shares of Common
Stock at $2.00 per share and the Company issued 9,502 shares to holders of 6.63%
notes  payable  to  stockholders  which had  matured.  During  2000 the Board of
Directors awarded Dennis Cossey, Alex Fassbender, P. L. Montesi, and Waring Cox,
PLC a total of 720,000  non-qualified stock options to purchase shares of Common
Stock  exercisable  at $2.00  per  share.  On  September  18,  2000 the Board of
Directors  awarded  two other  individuals  a total of 20,000  stock  options to
purchase  shares of Common Stock  exercisable at $2.00 per share.  In October of
2000 the Board of Directors awarded certain officers,  directors and consultants
a total of 440,000  non-qualified  stock options exercisable at $7.00 per share,
the market price on the date of grant,  October 11, 2000.  All of these  options
expire five years from the date of grant. (See Note 8.) At the annual meeting of
stockholders  held on June 27, 2000,  approval was obtained to reclassify all of
the authorized and outstanding  shares of Common Stock  (formerly  designated as
Series A and Series B) to a single class of Common Stock.

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 3,816,384 shares
for the period cumulative since inception through September 30, 2000,  4,466,434
and 4,148,389  shares for the  nine-month  periods ended  September 30, 2000 and
1999,  respectively,  and  4,500,924 and  4,178,131  shares for the  three-month
periods ended September 30, 2000 and 1999, respectively.

Warrants to purchase approximately 671,000 shares of Common Stock, stock options
awarded to officers and other  related  parties for  1,480,000  shares of Common
Stock and stock options for up to 750,000  shares of 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 September 30, 2000, the Company
had issued $4,326,722 of 15% Convertible  Debentures,  due January 15, 2003. The
holders of the Debentures can convert the principal  amount and accrued interest
into shares of Common  Stock at the  conversion  price of $2.00 per share at any
time prior to the maturity date. (See Note 8.)

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 described
in Item 2 below.  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 (see Note 8) and to issue Common
Stock to the  holders of the  remaining  6.63%  notes  payable  to  stockholders
($55,835 at September  30, 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
will 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.

During October 2000, the Company  received a Notice of Allowance from the Patent
and Trademark Office for the ThermoEnergy  Corporation  Integrated Power Systems
("TIPS")  technology,  a clean  energy  process for  converting  fossil fuels to
energy without air emissions. The Company has limited resources for this purpose
but  anticipates  that it will be able to rely on the resources of its strategic
partners, its fossil fuel burning customers,  and its strategic partners' fossil
fuel burning customers.  Management has applied to the U.S. department of Energy
("DOE") for a $3 million grant to develop and demonstrate  the TIPS  technology.
If the Company is unable to secure the  necessary  funding from these sources it
will be  required  either  to incur  further  debt or to sell  stock  to  secure
funding;  moreover, there is no assurance that it will be successful in pursuing
either course of action.

The  Company  has  successfully   completed   demonstrations   of  each  of  its
technologies  except  TIPS,  and has used  those  demonstrations  to expand  its
visibility in each of the markets in which it is pursuing customers.

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 January 2000 the Company  realized a gain of $23,644 on the sale of stock
that it received in settlement of the law suit that it had filed in 1998 against
the broker-dealer involved in the Company's 1997 failed public offering. This is
the final amount that the Company will receive in that matter.

NOTE 7:  DEFERRED COMPENSATION

During 1991, the Board of Directors adopted a resolution  specifying  amounts of
deferred  compensation  for  the  Company's  Chief  Executive  Officer  and  the
Company's President for services rendered prior to September 30, 1991. The Board
of Directors also approved  employment  agreements  with the officers  effective
January  1,  1992  specifying  minimum  levels  of  compensation  and  terms  of
employment. The agreements provide a minimum annual salary of $72,000 to each of
the individuals  with 10% annual  increases until the salary for each individual
reaches $175,000.  The agreements  provide that any amounts earned as salary and
incentive  compensation  but not paid by the Company are  classified as deferred
compensation  and accrue interest  (which is added to the deferred  compensation
balance)  based on the  prime  rate of a local  bank  until  payment.  The Board
resolution  also provides  that amounts due from officers may be offset  against
accrued deferred compensation.

On May 23, 2000,  the Company  issued  $1,000,000 of Series 98, 15%  Convertible
Debentures  to the  officers  described  above in  partial  satisfaction  of the
outstanding net deferred  compensation balance (deferred  compensation amount of
$1,856,955 less $781,967 of advances to officers and related accrued interest in
accordance with the Board resolution) as of that date.


NOTE 8:  SUBSEQUENT EVENT

On October 4, 2000, the Company entered into an agreement with an individual, an
officer of the  Georgia  corporation  with  which the  Company  has a  marketing
agreement,  which provides for the purchase of $375,000 of the Company's  Series
98,  15%  Convertible  Debentures  and the  issuance  of  warrants  to  purchase
1,000,000  shares of the Company's Common Stock at $2.00 per share. The warrants
are  exercisable  beginning  on the date of issuance  and ending on September 1,
2002, but the right to purchase  portions of the shares expires in 125,000 share
increments   beginning  December  1,  2000  and  approximately  every  3  months
thereafter through September 1, 2002.


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
clean water environmental  technologies developed by Battelle Memorial Institute
("Battelle"),  an independent  research and  development  organization,  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
wastewater 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 waste streams.  In October 2000, the Company received a Notice of Allowance
from the US Patent and Trademark  Office for the  ThermoEnergy  Integrated Power
Systems  ("TIPS")  technology.  TIPS  chemically  converts  the energy in fossil
fuels,  such as coal,  gas and oil without  producing any air  emissions,  while
simultaneously  sequestering  the mercury and capturing the CO2 (in liquid form)
by-products for beneficial reuse. This technology will be developed primarily to
compete  with  coal  combustion   electricity  generation  facilities  that  are
currently  responsible  for global air  quality  problems,  acid rain and global
warming.

     The Company intends to sell equipment (i.e. STORS-DSR,  NitRem-DSR, or ARP)
and services to government and industrial users,  sublicense the Technologies to
industrial users or third parties,  or build,  own and operate  municipal and/or
industrial waste water treatment facilities. The Company intends to continue its
collaborative   working   relationships   with   established   engineering   and
environmental  companies for specified  industries or markets.  On September 11,
1998, the Company agreed to form ThermoEnergy Environmental Corporation ("TENC")
with Foster  Wheeler  Environmental  Corporation  ("FWENC") of  Livingston,  New
Jersey to pursue clean water  projects  worldwide.  This new entity will combine
the Company's state-of-the-art clean water technologies with FWENC's engineering
expertise   and   global   presence   to   pursue   industrial   and   municipal
water/wastewater  projects around the world. It is thereafter  anticipated  that
any commercial business derived from the successful demonstration of ARP will be
engaged through TENC. At the option of the Company,  projects  utilizing NitRem,
DSR and STORS may also be engaged through TENC.

      The Company also has a marketing  agreement with Dan Cowart, Inc. ("DCI"),
of Atlanta, GA, to market the Company's wastewater treatment technologies within
in the City of Atlanta  (GA) and State of Florida.  The Company has entered into
two separate Memorandums of Understanding (MOU). The first MOU with Mitsui & Co.
(USA), Inc. and Foster Wheeler Environmental Corporation is to pursue wastewater
treatment  opportunities in Mexico,  Brazil and Peru, pending the success of the
STORS  demonstration  project in Colton,  CA as detailed in the  projects  final
report to be issued by the US EPA's Environmental  Technology Evaluation Center.
The report is currently scheduled for release in January 2001. The second MOU is
with the  Tennessee  Valley  Authority  (TVA).  TVA will  market  the  Company's
wastewater  treatment  technologies  to its client  base and  ThermoEnergy  will
market  TVA's  patented   constructed   wetlands  technology  to  municipal  and
industrial clients.

     During the quarter  ended June 30,  2000,  the  investment  banking firm of
Morgan Keegan & Co., Inc.  agreed to be a market maker for the Company's  Common
Stock and an over the  counter  Bulletin  Board  application  was filed with the
NASD. The Company's Common Stock began trading on September 20, 2000.

STORS

     During third quarter of 2000 the Company, with Foster Wheeler Environmental
Corporation  as a  contractor,  successfully  completed  a full scale  STORS/ARP
demonstration  project  at the  wastewater  treatment  facility  of the  city of
Colton, California.  This demonstration project was funded by $3 million federal
grant,  and  all  of  the  test  equipment  became  the  property  of  the  U.S.
Environmental Protection Agency at the conclusion of the project. In the opinion
of Foster Wheeler Environmental Corporation the demonstration was a success, and
based on those  results  the Company  has agreed to design,  build,  operate and
certify the  performance  of any STORS  facility for which the joint  venture is
able to  secure  a  contract.  Representatives  of  various  municipalities  and
engineering consulting firms visited the Colton demonstration project and Foster
Wheeler  Environmental  Corporation is actively pursuing project sales with this
group.

New York City ARP Demonstration

     The  Company  and Foster  Wheeler  Environmental  Corporation  conducted  a
commercial  scale  nitrogen  removal  demonstration  to  demonstrate  ARP and to
design,  fabricate  and  operate an ARP pilot  plant at New York  City's  Staten
Island  wastewater  treatment  facility.   The  demonstration  was  successfully
completed  during  December  1998,  and since that time the Company has actively
sought a privatized contract to process all of New York City's centrate.

TIPS

     TIPS converts  biomass  including  fossil  fuels,  into  electricity  while
eliminating  virtually all air emissions of NOx, SOx,  Mercury,  or  particulate
matter (greater than 2.5-3.0 microns). In addition, TIPS simultaneously captures
carbon dioxide (CO2) in liquid form for  sequestration or beneficial reuse. When
used as a gasifier,  TIPS is a cost-effective  method of generating hydrogen for
fuel cells.  Alex  Fassbender,  Executive Vice President of the Company,  is the
inventor of this process.  An application for a patent for TIPS was filed and in
October 2000, the U.S. Patent and Trademark Office informed the Company that all
twenty-seven  claims,  which had been made in the patent  application,  had been
granted.  In order for a patent to issue,  technical drawings  demonstrating the
patent must be delivered to the Patent and Trademark Office and a fee paid. Work
on the  drawings  is in  process,  and the  Company  intends  to pay the fee and
complete  the process  expeditiously.  Mr.  Fassbender  has  assigned all of his
right, title and interest in TIPS to ThermoEnergy Power Systems, LLC in exchange
for a fifteen percent interest in that entity.  ThermoEnergy Power Systems,  LLC
is recently formed and will be 85% owned by the Company when it is capitalized.

     The Company has applied to the U.S.  Department of Energy  ("DOE") for a $3
million  grant  to  demonstrate  TIPS.  Management  believes  that  TIPS has the
potential to replace the current  conventional coal, gas or heavy oil combustion
technologies,  which are primarily  responsible  for global air problems such as
smog,  acid  rain and  global  warming.  It is  further  believed  that the TIPS
technology  can be used to  economically  retrofit  existing  fossil  fuel power
plants  as well  as in the  construction  of new  power  generation  facilities.
Additionally,  there are  commercial  uses for liquid CO2,  provided a low cost,
long-term source for liquid CO2 can be developed.  Should the Company be able to
obtain a grant in an amount  sufficient  to  successfully  demonstrate  the TIPS
technology,  it is possible that TIPS may (1) be instrumental in providing a low
cost long term source of liquid  CO2,  and (2)  replace  relatively  inefficient
existing  conventional  coal,  gas, and heavy oil combustion  technologies  that
create substantial air pollution.

Strategic Corporate Relationships

     Since  1994,  the  Company  and Foster  Wheeler  USA  Corporation  ("Foster
Wheeler") have jointly marketed,  developed and commercialized the technologies.
The  Company  provides  Foster  Wheeler  with the  necessary  process and design
information,  and Foster Wheeler  designs,  procures and constructs the required
facilities for. In 1998, the Foster Wheeler (through its wholly owned subsidiary
Foster Wheeler Environmental Corporation) and the Company d to form ThermoEnergy
Environmental  Limited Liability Company ("TENC") to pursue clean water projects
utilizing the ARP technology. The Company will own 49.9% of TENC. Both Companies
continue to seek business  opportunities for TENC, and this strategic  corporate
relationship  has been the source of technical and  financial  assistance to the
Company in its  various  demonstration  projects.  The  Company  intends to rely
heavily  on the joint  venture  for its sales and  marketing  efforts  with Alex
Fassbender, Executive Vice President and Dennis Cossey, Chief Executive Officer,
playing a  leading  role in those  efforts.  As yet the  joint  venture  has not
successfully  secured  any  commercial  business  using  the  companies  various
technologies.

     In March 1996,  the Company  entered  into a Marketing  Agreement  with the
Atlanta based Dan Cowart, Inc. ("DCI") to market,  develop and commercialize the
Company's   wastewater  treatment   technologies.   DCI  is  a  multi-discipline
construction and development  firm for large-scale  real estate  projects.  This
Marketing  Agreement  has been  amended and  restated  this  quarter.  Under the
amended and restated  terms,  the Company has granted DCI the exclusive right to
exploit  any  and  all  applications  of  the  Company's   wastewater  treatment
technologies  for municipal,  local  governmental,  real estate  development and
industrial markets in the City of Atlanta, Georgia and the State of Florida, and
the  nonexclusive  right to  exploit  any and all  applications  of  NitRem  for
industrial markets in the City of Atlanta, Georgia and the State of Florida. The
agreement contemplates the formation of a joint venture between the companies to
construct and operate future  projects.  The Company will provide  technical and
administrative  support to assist DCI in its efforts to obtain such projects. If
DCI is successful in signing a customer, the Company will pay DCI a one time fee
of 62,500 warrants for shares of unregistered stock in the Company.

     During the quarter  ended June 30, 2000,  the Company  received a letter of
intent  from the  Tennessee  Valley  Authority  ("TVA")  to  jointly  market the
Company's  technologies  to the TVA client base.  In addition,  the Company will
market TVA's patented constructed wetlands process.

     The Company has entered into a Memorandum  of  Understanding  with Mitsui &
Co.  (USA),  Inc.  and  Foster  Wheeler  Environmental   Corporation  to  pursue
wastewater  treatment  opportunities  in Mexico,  Brazil and Peru,  pending  the
success of the STORS  demonstration  project in Colton.  An EPA final  report is
scheduled for release in January 2001.

     The Company  has  historically  lacked the  financial  and other  resources
necessary to market the  Technologies or to build  demonstration  projects.  The
Company  believes that its joint venture (TENC) working  arrangement with Foster
Wheeler  Environmental  Corporation will enable the Company to identify and fund
future projects.  The Company believes that establishing  such  relationships is
the most efficient and effective way to commercialize the Technologies.  Despite
its  successful  demonstrations,   the  Company  may  still  require  additional
investment capital and/or debt financing to continue its operations.

Results of Operations

     For the nine months ended  September 30, 2000,  the Company  incurred a net
loss of $1,307,144  as compared to $827,746 for the nine months ended  September
30, 1999. For the three months ended September 30, 2000, the Company  incurred a
net loss of  $559,498  as  compared  to  $340,782  for the  three  months  ended
September 30, 1999.  The  principal  factors for the increases in the net losses
between the nine and three-month periods were the $243,779 gain on settlement of
the  lawsuit,  more  fully  described  in  Note 10 to the  financial  statements
included in the Company's  Annual  Report on Form 10-K,  recorded by the Company
during the second quarter of 1999 and the increase in interest expense discussed
in the following paragraph.

     General and administrative  expenses and travel and entertainment  expenses
increased  during the nine and  three-month  periods  ended  September 30, 2000,
compared to September  30, 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 15%  Convertible  Debentures
(see Note 2 of Notes to Financial Statements).

Liquidity and Capital Resources

     During the  nine-month  period ended  September 30, 2000,  the Company used
$734,180 of cash in operations  compared to $541,004 in the comparable period of
1999.

     During 2000 and 1999,  the Company met its liquidity  needs  primarily from
borrowings from  stockholders.  The Company converted 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  ($55,835  at
September 30, 2000) to shares  Common Stock of the Company if  sufficient  funds
are not  available  to repay the notes at maturity.  As more fully  described in
Note 2 to Financial Statements, Management plans to meet the Company's liquidity
needs during the year ending December 31, 2000,  through  additional  borrowings
principally from the issuance of the Company's 15 % Convertible  Debentures.  As
more fully  described  in Note 8 of Notes to Financial  Statements,  the Company
entered into an agreement with an individual on October 4, 2000 for the purchase
of $375,000 of the  Company's  15%  Convertible  Debentures  and the issuance of
warrants to purchase 1,000,000 shares of the Company's Common Stock at $2.00 per
share.

     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 New York City ARP
project and the Colton STORS/NitRem demonstration project.

     As previously  discussed,  the Company  filed an over the counter  Bulletin
Board  application  with the NASD during the quarter ended June 30, 2000 and the
Company's Common Stock began trading on September 20, 2000.

Net Operating Losses

     The Company had net operating loss carryforwards 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
carryforward can be utilized. A valuation allowance of approximately  $2,454,000
has  been  established  to  offset  any  benefit  from  the net  operating  loss
carryforwards  as it cannot be determined when or if the Company will be able to
utilize the net operating losses.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

     The  information  called  for by  this  item,  to  the  extent  that  it is
applicable to the Company,  is provided under Item 2 -  Management's  Discussion
and Analysis of Financial Condition and Results of Operations.



                           PART II - OTHER INFORMATION

Item 1.  Legal Proceedings

     None

Item 2.  Change in Securities

     At the annual meeting of stockholders  held on June 27, 2000,  approval was
obtained to reclassify all of the authorized  and  outstanding  shares of Common
Stock  (previously  designated  as Series A and  Series B) to a single  class of
Common  Stock  and to  remove  the  temporary  restriction  on  transfer  of all
outstanding  shares  of  Common  Stock.  The  transfer  of  the  new  shares  to
stockholders has not been completed as of the date of this report.

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  reports  on Form 8-K have  been  filed  during  the  quarter  ended
September 30, 2000.
















                                   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: November 14, 2000

                            THERMOENERGY CORPORATION

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