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, 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 June 30, 2000:

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



<PAGE>


                          PART I: FINANCIAL INFORMATION

Item 1.  Financial Statements (Unaudited)


                        Report of Independent Accountants

Stockholders and Board of  Directors
ThermoEnergy Corporation

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

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

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

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


/s/ Kemp & Company

Little Rock, Arkansas
August 3, 2000

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

                                                                                       June 30,     December 31,
                                                                                         2000          1999
                                                                                         ----          ----
                                                                                      (Unaudited)    (Note 1)
ASSETS
<S>                                                                                <C>            <C>
Cash - Total Current Assets                                                        $   202,735    $   101,091

Advances to officers (Note 7)                                                           21,000        598,015
Accrued interest receivable - officers (Note 7)                                             80         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)
                                                                                   -----------    -----------
                                                                                             -              -
                                                                                   -----------    -----------
                                                                                   $   223,815    $   798,036
                                                                                   ===========    ===========


LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                                   $   258,334    $   661,176
Accrued interest payable - primarily to related parties                                613,667        414,425
Deferred compensation (Note 7)                                                         108,072      1,660,695
Notes payable to stockholders (Note 5)                                                 144,035        178,735
                                                                                   -----------    -----------
      Total Current Liabilities                                                      1,124,108      2,915,031

Convertible Debentures (Notes 2, 4 and 7)                                            4,139,723      2,199,379
                                                                                   -----------    -----------
      Total Liabilities                                                              5,263,831      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:

    Series A Common Stock;  Authorized - 10,000,000 shares; no shares issued and
    outstanding
    Series B Common Stock; Authorized - 65,000,000
    shares; June 30, 2000:  issued - 3,895,620 shares; outstanding -
    3,811,791 shares;  December 31, 1999:  issued - 3,883,618
    shares;  outstanding - 3,799,789 shares                                              3,896          3,884
  Additional paid-in capital                                                         4,682,789      4,658,797
  Deficit accumulated during the development stage                                  (9,726,701)    (8,979,055)
                                                                                   -----------    -----------
                                                                                    (5,040,016)    (4,316,374)
                                                                                   -----------    -----------
                                                                                   $   223,815    $   798,036
                                                                                   ===========    ===========
</TABLE>


See notes to financial statements.

<PAGE>
<TABLE>
<CAPTION>

                                               THERMOENERGY CORPORATION
                                             (A Development Stage Company)
                                               STATEMENTS OF OPERATIONS

                                    Cumulative
                                      During
                                   Development
                                  Stage Through          Six Months Ended            Three Months Ended
                                     June 30,                June 30,                     June 30,
                                       2000            2000             1999       2000              1999
                                       ----            ----             ----       ----              ----
                                   (Unaudited)              (Unaudited)                 (Unaudited)
                                   -----------              -----------                 -----------
Operating Expenses:
<S>                               <C>            <C>            <C>            <C>            <C>
  General and administrative      $ 7,209,185    $   448,395    $   535,642    $   225,599    $   356,471
  License and royalties fees          842,266         45,000         67,500         22,500         32,500
  Travel and entertainment          1,272,639         94,309         75,094         49,922         31,678
                                    ---------         ------         ------         ------         ------
                                    9,324,090        587,704        678,236        298,021        420,649
                                    ---------        -------        -------        -------        -------
Loss From Operations               (9,324,090)      (587,704)      (678,236)      (298,021)      (420,649)
                                   ----------       --------       --------       --------       --------
Other Income (Expense)
  Interest income                     184,570         22,877         18,791          8,860         10,035
  Gain on settlement of lawsuit
    (Note 6)                          317,423         23,644        243,779                       243,779
  Other                                49,550                        49,550                        49,550
  Interest expense                   (954,087)      (206,463)      (120,848)      (113,740)       (56,452)
                                     --------       --------       --------       --------        -------
                                     (402,544)      (159,942)       191,272       (104,880)       246,912
                                     --------       --------        -------       --------        -------
Net Loss                          $(9,726,634)   $  (747,646)   $  (486,964)   $  (402,901)   $  (173,737)
                                  ===========    ===========    ===========    ===========    ===========

Basic and Diluted
  Per Common Share (Note 4)
    Loss From Operations          $     (2.45)   $     (0.13)   $     (0.16)   $     (0.07)   $     (0.10)

    Net Loss                      $     (2.56)   $     (0.17)   $     (0.12)   $     (0.09)   $     (0.04)

</TABLE>

See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
           Periods Ended September 30, 1988 Through December 31, 1999
               and the Six Months Ended June 30, 2000 (Unaudited)

                                                                                          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>
<TABLE>
<CAPTION>

                            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 Six Months Ended
                            June 30, 2000 (Unaudited)

                                                                                         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>
<TABLE>
<CAPTION>



                            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 Six Months Ended
                            June 30, 2000 (Unaudited)

                                                                                         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>
<TABLE>
<CAPTION>



                            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 Six Months Ended June 30, 2000 (Unaudited)

                                                                                         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 $14,700 of notes payable
  to stockholders and accrued interest,
  April 2000 (9,502 shares)                             10             18,994                                 19,004
Net loss                                                                                (747,646)           (747,646)
                                                     -----          ---------         ----------          ----------

Balance (deficit), June 30, 2000                   $ 3,896         $4,682,789        $(9,726,701)        $(5,040,016)
                                                   =======         ==========        ===========         ===========
</TABLE>

See notes to financial statements.


<PAGE>
<TABLE>
<CAPTION>



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

                                                 Cumulative
                                                     During
                                                Development
                                              Stage Through                         Six Months Ended June 30,
                                              June 30, 2000                         2000                 1999
                                              -------------                         ----                 ----
                                                 (Unaudited)                     (Unaudited)         (Unaudited)
<S>                                             <C>                           <C>                   <C>
Operating activities:
  Net loss                                      $(9,726,634)                   $(747,646)           $(486,964)
  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                           (880,998)                     (84,000)             (84,000)
    Other receivables                              (121,032)                     (22,102)             (17,984)
    Accounts payable                                815,384                       24,585              211,359
    Accrued expenses                                806,683                      206,463              120,849
    Deferred compensation                         2,089,021                      229,344              185,795
                                                  ---------                      -------              -------
        Net cash used in
         operating activities                    (6,686,511)                    (417,000)            (289,724)
                                                  ---------                      -------              -------

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            2,250,000                      490,000              369,000
  Payments on notes payable                        (154,609)
  Other                                             108,410
                                                  ---------                      -------
         Net cash provided by
           financing activities                   6,594,972                      495,000              369,000
                                                  ---------                      -------              -------

Increase in cash                                    202,735                      101,644              298,055

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

Cash, end of period                             $   202,735                    $ 202,735            $ 411,275
                                                ===========                    =========            =========
</TABLE>

See notes to financial statements.


<PAGE>



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

NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited financial statements statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the six-month period ended June 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 $1,940,344 of such Debentures ($490,000 for cash, $427,427 in
satisfaction of accounts payable balances, $22,917 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 six months ended June
30, 2000.

NOTE 3:  COMMON STOCK

During 2000, a stockholder exercised warrants to purchase 2,500 shares of Series
B 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 February 2000,
the Board of Directors awarded 100,000  non-qualified  stock options to purchase
Series B Common  Stock to the  Company's  Executive  President  and Senior  Vice
President  of  Corporate  Technology.  The options  expire in five years and are
exercisable  at $2.00 per  share.  During  March  2000,  the Board of  Directors
awarded 250,000 non-qualified stock options to purchase Series B Common Stock to
both the Chief Executive  Officer and the President of the Company.  The options
expire in five years and are exercisable at $2.00 per share.  (See Note 6.)
<PAGE>
                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                  June 30, 2000

NOTE 4:  LOSS PER COMMON SHARE

Loss per common share is computed by dividing the net loss for the period by the
weighted average number of shares  outstanding  during the period,  adjusted for
stock options and warrants issued within twelve months of the Company's  initial
public offering filing date (February 27, 1992) which are treated as outstanding
for all periods presented. The adjusted weighted average number of common shares
used in the basic and diluted loss per share  computations were 3,806,179 shares
for the period cumulative since inception  through June 30, 2000,  4,449,000 and
4,133,272  shares  for the  six-month  periods  ended  June 30,  2000 and  1999,
respectively,  and 4,454,276 and 4,159,110  shares for the  three-month  periods
ended June 30, 2000 and 1999, respectively.

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

NOTE 5:  MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS

The Company has  incurred  net losses since  inception  and will likely  require
substantial  capital to  continue  commercialization  of the  Technologies.  The
financial  statements have been prepared assuming the Company will continue as a
going  concern,  realizing  assets and  liquidating  liabilities in the ordinary
course of business and do not reflect any adjustments that might result from the
outcome of the aforementioned  uncertainties.  Management is considering several
alternatives for mitigating  these conditions  during the next year. The Company
is authorized to issue up to $7,500,000 of Series 98 Convertible  Debentures and
to issue  Series B Common  Stock to the  holders of the  remaining  6.63%  notes
payable to stockholders  ($144,035 at June 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  may be  necessary  in the event  the  Company  takes on other
projects or makes an acquisition of another  company to facilitate the Company's
commercial demonstration of the Technologies.  If the Company is unable to enter
into commercially attractive  collaborative working arrangements for one or more
commercial or industrial projects,  the Company may sub-license the Technologies
to third parties.
<PAGE>



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

NOTE 5:  MANAGEMENT'S CONSIDERATION OF GOING CONCERN MATTERS

(CONTINUED)

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

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

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

NOTE 6:  COMMITMENTS AND CONTINGENCIES

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

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

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  (currently  designated  as Series A and  Series  B) to a single  class of
Common  Stock.  The  transfer  of the new  shares to  stockholders  has not been
completed as of the date of this report.
<PAGE>

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

NOTE 7:  DEFFERED 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 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.

Deferred Compensation                   $1,856,955
Advances to Officers                      (781,967)
Debentures Issued                       (1,000,000)
                                        ----------
Deferred Compensation after credit
for advances and issuance of Debenture  $   74,988

<PAGE>




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.  On January 14, 2000, the Company filed a patent application
with 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.  Another component of the Company's
business  strategy is to enter 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 formed ThermoEnergy Environmental Corporation
("TENC") with Foster Wheeler Environmental  Corporation ("FWENC") of Livingston,
New Jersey in September,  1998 to pursue clean water  projects  worldwide.  TENC
combines 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  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 joint marketing arrangements with Dan Cowart Inc., and
Mitusi & Co. (USA.) and plans to enter  project  specific  working  arrangements
when such projects are identified and funding is obtained.  The Company does not
currently possess the technical, operational or financial resources necessary to
construct or operate STORS , NitRem or ARP facilities at either a  demonstration
or commercial  facility level and has relied on US Government grants and funding
from its strategic partners to fund its demonstration projects.

     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. The Company has filed an over the counter bulletin board application with
the NASD.

STORS Demonstration Project

     In 1998, the San Bernardino  Valley  District  selected the City of Colton,
California to host a full-scale STORS/NitRem demonstration project, which was to
be funded by a $3,000,000 federal grant. The Company, the general contractor for
the  project,  contracted  with  Foster  Wheeler  Environmental  Corporation  to
fabricate,  install and operate the STORS  demonstration unit. At the conclusion
of the  demonstration  project,  all  right,  title  and  interest  to the  test
equipment  will be  vested in the  Environmental  Protection  Agency,  which was
authorized under the terms of the federal grant to administer the project.

     The Company is not required to make capital  contributions to this project.
The Company will not receive any revenues or earnings from the project, but will
be reimbursed for administrative and operating costs.

<PAGE>

New York City ARP Demonstration

     The second  commercial  scale nitrogen removal  demonstration  project is a
team effort between ThermoEnergy,  Foster Wheeler Environmental  Corporation and
the  City of New  York to test  the  Company's  capability  to  cost-effectively
eliminate the concentrated discharge, or centrate, from eight of New York City's
fourteen waste water treatment facilities.  The City of New York and the Company
signed a No Cost Test  Agreement  during  1996  which  allowed  the  Company  to
demonstrate, on site, the Company's nitrogen removal processes. During 1998, the
Company  signed an agreement with FWENC to provide up to $500,000 of the funding
necessary to demonstrate ARP and to design,  fabricate and operate the ARP pilot
plant at the  Staten  Island  wastewater  treatment  facility.  The New York ARP
demonstration  was  successfully  completed during December 1998. Based upon the
demonstration  results, the Company is actively seeking a privatized contract to
process all of New York City's centrate through it's joint venture with FWENC.

ThermoEnergy Integrated Power Systems

     TIPS converts a biomass, especially fossil fuels, such as coal, gas and oil
into   electricity   without   producing  any  emissions  while   simultaneously
sequestering the mercury and capturing the carbon dioxide (CO2)  by-products for
beneficial reuse. TIPS integrates the combustion of a biomass or fossil fuel and
the efficient  production of electricity with the recovery of CO2 in liquid form
and the elimination of both acid gas and particulate emissions.


<PAGE>



     TIPS is a novel approach to power production thermodynamics,  mass transfer
and heat  transfer.  TIPS can use air,  oxygen,  and oxygen  enriched air as the
oxidant,  and any  biomass or fossil fuel which can be pumped or  injected,  and
then combusted in a boiler. By changing the combustion and heat transfer process
parameters,  TIPS recovers the latent heat  vaporization  from  produced  water,
scrubs out the acids and  particulate  matter,  while its condenses and recovers
liquid CO2 as an integral part of the over-all process.

     Liquid CO2 represents a form of stored energy.  This stored energy can then
be used to generate  power for peak  demand  periods.  Additionally,  the United
States  Department of Energy ("DOE") has various programs  identifying other end
uses for liquid CO2. The success of DOE's programs depends on the development of
a low cost,  long-term source of liquid CO2.  Management  believes that TIPS may
potentially  be that source.  The TIPS  technology  can be used to  economically
retrofit  existing  fossil fuel power plants or used in the  construction of new
power generation facilities.  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 quality  problem,  acid rain and
global warming.

Strategic Corporate Relationships

     In September 1994, the Company and Foster Wheeler USA Corporation  executed
a non-binding  Worldwide  Marketing Agreement whereby both companies have agreed
to jointly market, develop and commercialize the Technologies on a non-exclusive
basis.  The  companies  have  agreed in  principle  to work  together to develop
marketing  strategies,  identify potential projects and develop joint proposals.
The agreement  contemplates  that when a potential  project is  identified,  the
Company will provide Foster Wheeler USA Corporation  with the necessary  process
and design information,  and Foster Wheeler USA Corporation will design, procure
and  construct the required  processing  facilities  for any contracts  awarded.
Under the agreement, each party is subject to confidentiality  obligations.  The
initial  term  of  the  agreement  is  ten  years  and  the  agreement  will  be
automatically  extended in three-year periods  thereafter.  The agreement may be
terminated by the mutual agreement of the parties.

     During 1998, the Company agreed to form TENC (the Company will own 49.9% of
TENC) with FWENC to pursue clean water projects  worldwide.  The main purpose of
the joint venture is to develop,  market and utilize the ARP technology.  During
August  1998,  the  Company  signed an  agreement  with  FWENC to  provide up to
$500,000 of the funding  necessary to demonstrate  ARP and to design,  fabricate
and  operate  the ARP pilot  plant at the  Staten  Island  wastewater  treatment
facility  (as more fully  described  above).  The Company  anticipates  that any
commercial  business  derived from the successful  demonstration  of ARP will be
conducted through TENC. At the option of the Company, projects utilizing NitRem,
DSR and STORS may be conducted through TENC.

     In March 1996,  the Company  entered  into a Marketing  Agreement  with the
Atlanta based Dan Cowart, Inc. ("DCI") to market,  develop and commercialize the
Technologies in Georgia and Florida. DCI is a multi-discipline  construction and
development firm for large scale real estate projects.  Under the agreement, the
Company has granted DCI the exclusive right to exploit any and all  applications
of  the  Technologies  for  municipal,   local   governmental  and  real  estate
development  markets in  Georgia  and  Florida,  and the  nonexclusive  right to
exploit any and all applications of NitRem for industrial markets in Georgia and
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.

     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.

     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.

     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.

Results of Operations

     For the six months ended June 30, 2000, the Company  incurred a net loss of
$747,646 as compared to $486,964 for the six months ended June 30, 1999. For the
three months ended June 30, 2000, the Company incurred a net loss of $402,901 as
compared to $173,737 for the three months  ended June 30,  1999.  The  principal
factor for the  increases  in the net  losses  between  the six and  three-month
periods was 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.

     Travel and entertainment expenses increased during the nine and three-month
periods  ended June 30, 2000,  compared to June 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.

Liquidity and Capital Resources

     During the six-month  period ended June 30, 2000, the Company used $417,000
of cash in operations compared to $289,724 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  ($144,035 at June
30,  2000) to shares  Common  Stock of the Company if  sufficient  funds are not
available to repay the notes at maturity. Management plans to meet the Company's
liquidity  needs during the year ending  December 31, 2000,  through  additional
borrowings  principally  from  stockholders  via  the  issuance  of  convertible
debentures  or from a public or  private  placement  offering  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 the
successful  demonstrations  of its  Technologies,  such as the New York City ARP
project and the Colton STORS/NitRem demonstration project.

    Currently,  there is no public  market for the Company's  Common  Stock.  As
previously  discussed,  the  Company  filed an over the counter  bulletin  board
application with the NASD during the quarter ended June 30, 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.


<PAGE>


                           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  (currently  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

(a)  Date of meeting:

     The Annual Meeting of stockholders of the Company was held on June 27, 2000
     in Atlanta, Georgia.

(b)  Election of Directors:

     Directors Elected                   For                      Withheld
     -----------------                   ---                      --------
     P. L. Montesi                       2,740,404                 66,726
     Jerald H. Sklar                     2,740,404                 66,726
     Andrew T. Melton                    2,740,404                 66,726
     Paul A. Loeffler                    2,740,404                 66,726

     Other Directors continuing in office:

     Dennis C. Cossey
     Dr. Louis J. Ortmann
     J. Donald Phillips

(c)  Additional matters voted upon:

     (1)  Ratification  of the  appointment  of Kemp &  Company  as  independent
          accountants of the Company for 2000.

          For                                 2,743,611
          Against                                   501
          Abstain                                62,625

     (2)  Reclassification  of all authorized and  outstanding  shares of Common
          Stock to a single  class of stock  and the  removal  of the  temporary
          restriction of transfer on all outstanding shares of Common Stock.

          For                                2,385,503
          Against                                1,187
          Abstain                                9,389


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 June
30, 2000.

<PAGE>
                                   SIGNATURES

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

     Date: August 11, 2000

                            THERMOENERGY CORPORATION

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