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 JUNE 30, 1998

          [ ] 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)

                               Innotek Corporation
              ----------------------------------------------------
              (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


<PAGE>



such reports), and (2) has been subject to such filing requirements for the past
90 days.

YES    X     NO
    -------     -------
              APPLICABLE ONLY TO CORPORATE ISSUERS:

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

3,402,968 shares of Common Stock, par value $.001 per share



<PAGE>



                                             THERMOENERGY CORPORATION
                                           (A Development Stage Company)

                                                  BALANCE SHEETS

                                               June 30,           September 30,
                                                1998                  1997
                                                ----                  ----
                                             (Unaudited)
                                     ASSETS

Cash - Total Current Assets                  $    183,165        $      65,046

Advances to officers                              338,365              258,365
Accrued interest receivable - officers             42,195               23,669
Property and equipment, at cost:
  Equipment                                        14,818               14,818
  Furniture and fixtures                            4,991                4,991
  Less accumulated depreciation                   (19,102)             (16,978)
                                            -------------       --------------
                                                      707                2,831
                                          ---------------      ---------------

                                              $   564,432         $    349,911
                                              ===========         ============


                                  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                             $   782,316         $    778,712
Accrued expenses:
   Salaries                                      776,520              590,976
   Interest - stockholders                       175,680               92,893
Deferred compensation                            248,519              233,516
Notes payable to stockholders (Note 2)           932,900            1,052,900
                                            ------------          -----------
      Total Current Liabilities                2,915,935            2,748,997
Convertible Debentures (Note 2)                  656,000
                                            ------------         ------------
      Total Liabilities                        3,571,935            2,748,997

Stockholders'  equity (deficit) (Note 3): 
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; 
    issued - 3,486,797 shares; outstanding -
    3,402,968 shares                                     3,487             3,487
  Additional paid-in capital                         4,334,864         4,334,864
  Deficit accumulated during the development stage  (7,345,854)      (6,737,437)
                                                    -----------      -----------
                                                    (3,007,503)      (2,399,086)
                                                     ----------      -----------

                                                    $   564,432     $    349,911
                                                     ===========    ============




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
                                June 30,               June 30,                       June 30,
                                   1998          1998           1997             1998         1997
                                   ----          ----           -----            ----         ----
                                (Unaudited)          (Unaudited)                     (Unaudited)
<S>                              <C>           <C>           <C>             <C>            <C>  

Operating Expenses:
  General and administrative   $ 5,480,238    $   465,540    $   519,753    $   303,693    $   125,596
  Payments under licenses ..       652,266
  Travel and entertainment .       982,830         64,223        132,645          9,596         32,762
                                 -----------     -----------   -----------      -----------  -----------

                                  7,115,334        529,763        652,398        313,289        158,358
                                  -----------    -----------    -----------    -----------   -----------


Loss From Operations .......    (7,115,334)      (529,763)      (652,398)      (313,289)      (158,358)
                                                                                                       

Other Income (Expense)
  Interest income ..........        95,671         19,037          9,361          6,721          4,036
  Interest expense .........      (326,191)       (97,691)       (57,573)       (40,429)       (25,224)
                                 -----------     -----------   -----------      -----------  -----------
                                  (230,520)       (78,654)       (48,212)       (33,708)       (21,188)
                                -----------     -----------    -----------      -----------  -----------

Net Loss ...................   $(7,345,854)   $  (608,417)   $  (700,610)     $(346,997)   $  (179,546)
                                ===========     ===========    ===========     ===========  ===========

Basic and Diluted

  Per Common Share (Note 4)    
Loss From Operations ...   $     (1.90)   $        (0.13)   $    (0.17)       $   (0.08)   $    (0.04)

    Net Loss ...............   $  1.97)      $     (0.15)   $    (0.18)     $     (0.09)   $    (0.05)

</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 September 30, 1997 and the
                   Nine Months Ended June 30, 1998 (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

</TABLE>


<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED

       Periods Ended September 30, 1988 Through September 30, 1997 and the
                   Nine Months Ended June 30, 1998 (Unaudited)

<TABLE>
<CAPTION>


                                                                       Deficit
                                                                     Accumulated
                                                        Additional   During the
                                        Common           Paid-in     Development
                                         Stock            Capital       Stage           Total
  
<S>                                     <C>            <C>            <C>            <C>

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)

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


</TABLE>


<PAGE>









                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED

       Periods Ended September 30, 1988 Through September 30, 1997 and the
                   Nine Months Ended June 30, 1998 (Unaudited)

<TABLE>
<CAPTION>


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

<S>                                                 <C>             <C>            <C>                  <C>    

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

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
  $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)

</TABLE>





<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED

       Periods Ended September 30, 1988 Through September 30, 1997 and the
                   Nine Months ended June 30, 1998 (Unaudited)

                                                                               
<TABLE>
<CAPTION>
                                                                                        Deficit 
                                                                                      Accumulated
                                                                   Additional          During the
                                                  Common             Paid-in          Development
                                                    Stock            Capital               Stage           Total
<S>                                                  <C>            <C>              <C>                <C>  

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)
                                                   -----------     ------------    -------------       -------------

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                                                                               (608,417)           (608,417)
                                                  -------------     ------------   ------------         ------------

Balance (deficit), June 30, 1998
  (Unaudited)                                      $ 3,487         $4,334,864       $(7,345,854)        $(3,007,503)
                                                   =======         ==========        ============        ===========

</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 June 30,
                                                   June 30, 1998                   1998               1997
                                                     (Unaudited)               (Unaudited)         (Unaudited)
<S>                                                  <C>                          <C>                <C>  

Operating activities:
  Net loss                                         $(7,345,854)                 $ (608,417)          $(700,610)
  Items not requiring
  (providing) cash:
    Depreciation                                        19,102                       2,124               1,197
    Expenses funded by Common
      Stock issuance                                   596,279                  -------------         ---------
    Other                                                3,341                
  Changes in:
    Advances to officers                              (537,348)                    (80,000)           (127,165)
    Other assets                                       (42,195)                    (18,526)           (135,793)
    Accounts payable                                   782,316                       3,604              94,504
    Accrued expenses                                   952,200                     268,331             236,081
    Deferred compensation                              447,501                      15,003              13,570
                                                   -------------                ------------         -----------
        Net cash used in
         operating activities                       (5,124,658)                   (417,881)           (618,216)
                                                    -----------                 -----------          ----------

Investing activities:
  Purchase of fixed assets                             (19,808)                
  Other                                                 (3,341)                 ------------        ----------- 
         Net cash used in                            -----------
          investing activities                         (23,149)                 ------------       ------------
                                                     -----------
Financing activities:
  Proceeds from issuance of
    Common Stock and warrants                        2,720,562
  Proceeds from notes payable                        1,665,609                      20,000             606,000
  Proceeds from convertible debentures                 991,000                     516,000
  Payments on notes payable                           (154,609)
  Other                                                108,410
                                                     ----------                 ----------           ---------
         Net cash provided by
           financing activities                      5,330,972                     536,000             606,000
                                                    -----------                 ----------          ----------

Increase (decrease) in cash                            183,165                     118,119             (12,216)

Cash, beginning of period                                    0                      65,046              62,333
                                                   ------------                 -----------        -----------

Cash, end of period                                 $  183,165                 $   183,165          $   50,117
                                                    ===========                  =========          ==========
</TABLE>

See notes to financial statements.





<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1998
                                    UNAUDITED


NOTE 1:  FINANCIAL STATEMENTS

The balance sheet as of June 30, 1998,  the  statements  of operations  and cash
flows cumulative during  development stage through June 30, 1998, the statements
of operations  for the nine months and three months ended June 30, 1998 and 1997
and the statements of changes in  stockholders'  equity (deficit) and cash flows
for the nine months  ended June 30,  1998,  have been  prepared by  ThermoEnergy
Corporation (the "Company"), formerly Innotek Corporation, without audit. In the
opinion of management,  all  adjustments  (consisting  only of normal  recurring
items) necessary to present fairly the financial position, results of operations
and cash flows at June 30,  1998 and for all periods  presented  have been made.
Operating  results for the nine months  ended June 30, 1998 are not  necessarily
indicative  of the  results  that may be  expected  for the entire  year  ending
September 30, 1998.

Certain  information  and footnote  disclosures  normally  included in financial
statements prepared in accordance with generally accepted accounting  principles
have been  omitted in  accordance  with  Article  10 of  Regulation  S-X.  These
financial statements should be read in conjunction with the financial statements
and notes thereto included in the Company's September 30, 1997 Form 10-K.

NOTE 2: NOTES PAYABLE TO STOCKHOLDERS AND CONVERTIBLE
DEBENTURES

During  November 1997, the Company  executed a 10% note payable to a stockholder
for $20,000.  As more fully described  below,  during February 1998, the Company
issued  convertible  debentures  in exchange  for  $140,000 of the 10% notes and
related accrued  interest.  At June 30, 1998, the Company was committed to issue
53,600 shares of Series B Common Stock to the holders of the notes.

During January 1998, the Company's  Board of Directors  approved the issuance of
up to $1,000,000 of Series 98, 15% Convertible Debentures, due January 15, 2003.
Debentures with an aggregate principal balance of $500,000 were sold for cash to
related parties during 1998.  Debentures with an aggregate  principal balance of
$156,000 were issued to certain  stockholders  during  February 1998 in exchange
for the 10% notes and related accrued  interest due to them by the Company.  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.




<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1998
                                    UNAUDITED


NOTE 3:  COMMON STOCK

During 1994 and 1996, the Company's  stockholders  approved  four-to-one reverse
stock splits of the  Company's  Common  Stock.  These  reverse stock splits were
implemented  on March 5, 1997.  All numbers of Common Stock shares and per share
data have been restated to reflect the reverse stock splits.

During  October  1996,  the  Board of  Directors  of the  Company  approved  the
execution of a nonbinding  letter of intent with a NASD member  broker-dealer to
act as managing  underwriter in connection with a proposed public  offering.  In
order to comply with the  pre-conditions  set forth in the letter of intent, the
Board of Directors  approved a resolution for a four-to-one  reverse stock split
of the Company's Common Stock in addition to the four-to-one reverse stock split
approved  by  stockholders  in  1994.  The  Board  of  Directors  also  approved
amendments  to the  Company's  Articles  of  Incorporation  as  follows:  (1) To
authorize  the  designation  of  10,000,000  shares as Series A Common Stock and
65,000,000  shares as Series B Common Stock,  which are  convertible to Series A
Common Stock  commencing  12 months after the effective  date of a  registration
statement  for the proposed  offering  subject to certain  conditions,  from the
75,000,000  shares of $0.001 par value Common Stock authorized  originally under
the Company's Articles of Incorporation; (2) To authorize the designation of and
reclassification  of all shares of Common  Stock issued prior to the adoption of
the  proposed  amendments  to the Articles of  Incorporation  to Series B Common
Stock;  and (3) To change the name of the Company  from Innotek  Corporation  to
ThermoEnergy  Corporation.  Stockholders' approval of these matters was obtained
on December 12, 1996 during a special stockholders' meeting.

During  October 1997,  the  broker-dealer  informed the Company that it would be
unable to complete the proposed  public  offering.  The Company  terminated  its
relationship with the broker -dealer and filed a complaint with the NASD against
the firm.

The Company's  1997 Stock Option Plan contains  automatic  grant  provisions for
non-employee  Directors  of the  Company.  At June 30,  1998,  the  Company  was
committed to issue options under the automatic grant provisions for 5,000 shares
of Series B Common Stock.

NOTE 4:  LOSS PER COMMON SHARE

During 1997, the Financial  Accounting Standards Board issued Statement No. 128,
"Earnings per Share".  Statement No. 128 simplifies the  calculation of earnings
per share and requires that all prior period earnings per share data be restated
to conform with the provisions of the Statement.  Since the Company must use the
computational guidance contained in SAB 83 Topic 4D as described below, adoption
of this Statement had no effect on prior period loss per share data.


<PAGE>





                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                  June 30, 1998
                                    UNAUDITED




NOTE 4:  LOSS PER COMMON SHARE (CONTINUED)

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  in  accordance  with SAB 83 Topic 4D,  after  giving
effect to the reverse stock splits described in Note 3.

The  adjusted  weighted  average  number of common  shares used in the basic and
diluted  loss per  share  computations  were  3,738,233  shares  for the  period
cumulative  since  inception  through June 30, 1998, and 4,045,558 and 3,799,554
shares for the nine-month and three-month  periods ended June 30, 1998 and 1997,
respectively.

Warrants to purchase  approximately 736,000 shares of Series B Common Stock, and
stock options under the 1997 Stock Option Plan,  which provides for the issuance
of up to  750,000  shares of Series B Common  Stock,  were not  included  in the
computation  of diluted loss per share since the effect  would be  antidilutive.
See Note 2 for information regarding convertible debentures issued during 1998.

NOTE 5:  MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS

The Company has incurred net losses since inception.  Additionally,  substantial
capital will likely be required to commercialize the Company's 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,  including  the  sale of stock
pursuant  to a public  or  private  placement  offering,  sales  of  convertible
debentures  and warrants for Common Stock and fees from  projects  involving the
Company's  technologies.  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
                                  June 30, 1998
                                    UNAUDITED




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


The overall  goal of the  Company is to  successfully  complete a  demonstration
project  for  all  of its  technologies.  The  Company  completed  a  successful
demonstration  of  its  NitRem  process  utilizing  the   dual-shell-reactor  in
September of 1997.  Final test results were prepared in May 1998. The Company is
using  the  successful  test  data  to  market  NitRem  units.   The  successful
demonstration of NitRem and the Company's other  technologies 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
Company's  technologies.  The Company has entered into marketing agreements with
third parties in order to pursue this business strategy.
















<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                          NOTES TO FINANCIAL STATEMENTS
                                 March 31, 1998
                                    UNAUDITED



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

General

     ThermoEnergy   Corporation  ("Company")  is  a  development  stage  company
involved in the marketing and development of certain environmental  technologies
primarily  used for solving waste water  problems.  These  technologies  include
three chemical  processes  known as the  Sludge-To-Oil  Reactor System  (STORS),
Nitrogen Removal  (NitRem) and the Ammonia Recovery Process ("ARP").  The fourth
technology,  a  dual-shell  pressure  balance  vessel,  known as the  Dual-Shell
Reactor ("DSR"),  is the unique reactor  equipment in which the STORS and NitRem
chemistries  are  conducted  (STORS,   NitRem,  ARP  and  DSR  are  referred  to
collectively  as the  "Technologies").  The Company's  application  of STORS and
NitRem  through the use of a STORS-DSR,  NitRem-DSR,  or a  combination  of both
types of equipment,  are designed to eliminate  damaging organic and nitrogenous
contaminants,  respectively,  from municipal and industrial  waste streams.  The
Company's  ARP process is designed to recover  ammonia from fluid waste  streams
resulting in the  manufacture of various  by-products  such as ammonium  sulfate
fertilizer,  when  sulfuric  acid is added to the  highly  concentrated  ammonia
stream that is recovered.

     The  Company  is the  exclusive  worldwide  licensee  for the  Technologies
(except for STORS in Japan) which were developed by Battelle Memorial  Institute
("Battelle"), an independent research and development organization.  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's  business  strategy  is based upon
entering into collaborative working  relationships with established  engineering
and environmental  companies, or formal joint venture agreements relative to the
application of the technologies for specified industries or markets. The Company
is  currently  negotiating  project-specific  working  arrangements  with Foster
Wheeler  Environmental  Corporation.   The  Company  also  has  joint  marketing
arrangements  with Roy F.  Weston,  Inc.,  Dan  Cowart,  Inc.,  and Mitsui & Co.
(U.S.A.),  Inc. and plans to enter project  specific working  arrangements  when
such projects are identified and funding is obtained. The Company has not

<PAGE>

generated  any  operating  revenues  or  any  profits.   The  Company  completed
demonstration of its NitRem-DSR technology at the TRIES, Radford Army Ammunition
Plant project in Radford,  Virginia in September 1997.  This NitRem-DSR  project
took a  wastewater  stream  containing  dinitrotoluene  (DNT)  and  successfully
reduced the concentration of DNT from 120,000 ppb to less than 5 ppb,  acheiving
a destruction  efficiency of 99.996%,  well below National  Pollution  Discharge
Elimination  System (NPDES) discharge limits.  Based on these test results,  the
Company, individually and jointly with Foster Wheeler Environmental Corporation,
is actively  marketing the NitRem-DSR units to potential  industrial clients and
to various divisions within the DOD.

     The Company has a project to  demonstrate  its ARP  technology  at New York
City's Staten Island wastewater treatment facility. The demonstration project is
scheduled to begin August of 1998 and will run for 150 consecutive  days. Foster
Wheeler  Environmental  Corporation  has agreed to pay for all expenses for this
project  not to  exceed  $500,000.  On  March  17,  1998,  the  city of  Colton,
California  agreed to host a STORS  demonstration  project.  This  demonstration
project will be funded by a  $3,000,000  EPA grant to the San  Bernardino  Water
Valley District and the City of Colton. The Company will not be required to make
capital  contributions  to this  project  and the  Company  will not receive any
revenues or earnings.  The Company will be  reimbursed  for  administrative  and
operating costs from the STORS demonstration  project. The demonstration project
is  scheduled  to  begin  in  August  of 1998  upon  release  of the  $3,000,000
congressional  appropriation  by the  Region 9 U.S.  EPA  Office  to the City of
Colton. Design plans for the STORS plant have been completed.

     Since its formation in 1988, the Company has devoted  substantially  all of
its  resources to funding the payments due under license  agreements,  searching
for  opportunities to employ its  technologies in  demonstration  facilities and
seeking   capital   necessary  to  sustain  the  Company's   efforts.   After  a
demonstration unit has been successfully operated and the Technologies have been
proven commercially viable, the Company may still require additional  investment
capital and/or debt financing to continue its operations.

Plan of Operations

     The  Company  had  planned to use the net  proceeds  of a  proposed  public
offering to fund the  operations of the Company hire  additional  personnel.  As
discussed in Note 3 of Notes to Financial  Statements,  the managing underwriter
of the proposed  offering  notified the Company in October 1997 that it would be
unable to complete the offering.  The Company now plans to use the proceeds from
the  sale of its  Series  98  Convertible  Debentures  (see  Note 2 of  Notes to
Financial  Statements) to satisfy the cash requirements for its basic operations
for the next year ending  September 30, 1998.  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 its
technologies.

     The overall goal of the Company is to successfully complete a demonstration
project for STORS at Colton,  California,  in the San  Bernardino  Water  Valley
District and the ARP project at New York's  Staten Island  Wastewater  Treatment
Plant, through all of the projects and strategic working arrangements  discussed
above. Management plans to utilize these demonstration  facilities to expand the
visibility of the Company in the  municipal,  industrial,  Department of Defense
and  Department of Energy  markets.  A successful  demonstration  project is the
single most important  business  factor in the  implementation  of the Company's
plan of operation. The Company believes that such projects, if successful,  will
allow the  Company to  generate  income  through  the  commercialization  of the
Technologies.

Results of Operations

     For the nine months ended June 30, 1998, the Company incurred a net loss of
$608,417 as compared to $700,610 for the nine months ended June 30, 1997.

     General and  administrative  expenses and travel expenses  decreased during
the nine month period ended June 30, 1998, compared to June 30, 1997, due to the
Company's  efforts to conserve  cash due to the failure of the  proposed  public
offering.  Interest expense increased significantly between the same two periods
due to the increase in notes payable to stockholders and the issuance of the 15%
Convertible Debentures.

Liquidity and Capital Resources

     During the period ended June 30, 1998, the Company used $417,881 of cash in
operations  compared to $618,216 in 1997.  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 1998,  1997 and 1996, the Company met its liquidity  needs primarily
from borrowings from stockholders (see Note 2 of Notes to Financial Statements).
Management  plans to meet the Company's  liquidity  needs during the year ending
September  30, 1998 with proceeds from the sale of  convertible  debentures  and
public or private placement offerings of Common Stock.  Management plans to meet
long-term  liquidity  needs  primarily  from  revenues  derived from  commercial
contracts the Company hopes to obtain subsequent to successful demonstrations of
its  Technologies,  such as the  Radford  NitRem,  New York City  NitRem and San
Bernardino STORS demonstration projects.

Recent Pronouncements of the Financial Accounting Standards Board.

     During 1997, the Financial  Accounting Standards Board issued Statement No.
128, "Earnings per Share",  Statement No. 130, "Reporting Comprehensive Income",
and Statement No. 131,  "Disclosures about Segments of an Enterprise and Related
Information".  See Note 4 of  Notes  to  Financial  Statements  for  information
regarding  Statement No. 128.  Statement No. 130, which is effective  during the
year ending  September  30, 1999,  establishes  new rules for the  reporting and
display of comprehensive income and its components. Application of Statement No.
130 will not impact  amounts  previously  reported  for net income or affect the
comparability  of previously  issued  financial  statements.  Statement No. 131,
which is  effective  during the year  ending  September  30,  1999,  changes the
requirements for reporting  segment  information in annual and interim financial
statements.  The  industry  segment  approach  under  Statement  No.  14 will be
replaced  with a management  approach of  reporting  financial  and  descriptive
information about operating segments.

Net Operating Losses

     The Company had net operating loss carry forwards as of September 30, 1997,
of  approximately  $5,500,000  which expire in the years 2003 through 2012.  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 $2,125,000
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

     Neither the Company nor any of its  subsidiaries  is a party to any pending
legal  proceedings,  nor are any legal  proceedings  pending of which any of the
Company's property is the subject.

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) 27.1 Financial Data Schedule

     (b) No other reports on Form 8-K have been filed during the quarter  ending
         June 30, 1998.
<PAGE>



                          SIGNATURES

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

     Date: August 7, 1998

                              THERMOENERGY CORPORATION


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



<PAGE>