UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


(Mark One)

[x]  QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES  EXCHANGE ACT
     OF 1934

                  For the quarterly period ended March 31, 2001

[_]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

      For the transition period from _________________ to _________________

                       Commission file number 33-46104-FW

                            THERMOENERGY CORPORATION
        (Exact name of small business issuer as specified in its charter)

             ARKANSAS                                  71-00659511
  (State or other jurisdiction              (IRS Employer Identification No.)
of incorporation or organization)

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

                                 (501) 376-6477
                           (Issuer's telephone number)


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


                APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
                   PROCEEDINGS DURING THE PRECEDING FIVE YEARS

Check whether the  registrant  filed all  documents  and reports  required to be
filed by Section l2, 13 or 15(d) of the Exchange Act after the  distribution  of
securities under a plan confirmed by a court. Yes [_] No [x]


                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest  practicable date:  4,186,228 common shares as of March
31, 2001.

Transitional Small Business Disclosure Format (Check one): Yes [_] No [x]

<PAGE>

PART 1 - FINANCIAL INFORMATION

Item 1.  Financial Statements.

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                         March 31,          December 31,
                                                                            2001                2000
                                                                        ------------        ------------
                                                                         (Unaudited)          (Note 1)
<S>                                                                     <C>                 <C>
ASSETS

Cash - Total Current Assets                                             $    446,759        $    495,959

Advances to officers                                                         230,000             138,000
Accrued interest receivable - officers                                         7,823               3,899
Property and equipment, at cost:
  Equipment                                                                   14,818              14,818
  Furniture and fixtures                                                       4,991               4,991
  Less accumulated depreciation                                              (19,809)            (19,809)
                                                                        ------------        ------------
                                                                                  --                  --
                                                                        ------------        ------------

                                                                        $    684,582        $    637,858
                                                                        ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                        $    383,212        $    382,750
Accrued interest payable - primarily to related parties                    1,149,279             954,734
Deferred compensation                                                        356,482             265,941
                                                                        ------------        ------------
      Total Current Liabilities                                            1,888,973           1,603,425

Convertible Debentures (Note 2)                                            4,696,722           4,701,722
                                                                        ------------        ------------
      Total Liabilities                                                    6,585,695           6,305,147

Stockholders' equity (deficit) (Notes 2 and 4):
  Preferred stock, non-voting, $1 par value:
    Authorized - 10,000,000 shares; none issued
  Common Stock, $.001 par value:
    Authorized - 75,000,000 shares
    March 31, 2001:  issued - 4,270,057 shares; outstanding -
    4,186,228 shares;  December 31, 2000:  issued - 4,123,824
    shares;  outstanding - 4,039,995 shares                                    4,270               4,124
  Additional paid-in capital                                               5,621,825           5,329,505
  Deficit accumulated during the development stage                       (11,527,208)        (11,000,918)
                                                                        ------------        ------------
                                                                          (5,901,113)         (5,667,289)
                                                                        ------------        ------------

                                                                        $    684,582        $    637,858
                                                                        ============        ============
</TABLE>

See notes to financial statements.


                                       2
<PAGE>


                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                               Cumulative
                                                 During
                                               Development
                                              Stage Through                  Three Months Ended
                                                 March 31,                        March 31,
                                                   2001                  2001                   2000
                                               ------------          ------------           ------------
                                                (Unaudited)                      (Unaudited)
<S>                                            <C>                   <C>                    <C>
Operating Expenses:
  General and administrative                   $  8,227,021          $    265,426           $    222,796
  Payments under licenses                           897,266                10,000                 22,500
  Travel and entertainment                        1,438,966                64,952                 44,387
                                               ------------          ------------           ------------
                                                 10,563,253               340,378                289,683
                                               ------------          ------------           ------------
Loss From Operations
                                                (10,563,253)             (340,378)              (289,683)
                                               ------------          ------------           ------------
Other Income (Expense)
  Interest income                                   203,541                 8,633                 14,017
  Gain on settlement of lawsuit                     317,423                                       23,644
  Other                                              49,550                    -
  Interest expense                               (1,534,402)             (194,545)               (92,723)
                                               ------------          ------------           ------------
                                                   (963,888)             (185,912)               (55,062)
                                               ------------          ------------           ------------

Net Loss                                       $(11,527,141)         $   (526,290)          $   (344,745)
                                               ============          ============           ============

Basic and Diluted
  per Common Share (Note 2)
    Loss From Operations                       $      (2.75)         $      (0.08)          $      (0.07)

    Net Loss                                   $      (3.00)         $      (0.12)          $      (0.08)
</TABLE>

See notes to financial statements.


                                       3
<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
             STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
           Periods Ended September 30, 1988 Through December 31, 2000
              and the Three Months Ended March 31, 2001 (Unaudited)

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

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

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

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

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

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

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

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

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

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

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

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

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

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


                                       4
<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 2000
             and the Three Months Ended March 31, 2001 (Unaudited)

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

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

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

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

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

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

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

Issuance of warrants to stockholder                                            6,333                           6,333

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

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


                                       5
<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 2000
             and the Three Months Ended March 31, 2001 (Unaudited)


<TABLE>
<CAPTION>
                                                                                                      Deficit
                                                                                                    Accumulated
                                                                                   Additional        During the
                                                                   Common            Paid-in        Development
                                                                    Stock            Capital            Stage               Total
                                                                 -----------       -----------       -----------        -----------
<S>                                                              <C>               <C>               <C>                <C>
Net loss                                                         $                 $                 $(1,207,921)       $(1,207,921)
                                                                 -----------       -----------       -----------        -----------

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

Issuance of warrants to stockholders                                                   226,000                              226,000

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

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

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

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

Issuance of warrants to stockholders                                                     9,760                                9,760

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

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

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

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

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

Issuance of warrants to stockholders                                                     5,340                                5,340

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


                                       6
<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
        STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) CONTINUED
           Periods Ended September 30, 1988 Through December 31, 2000
             and the Three Months Ended March 31, 2001 (Unaudited)


<TABLE>
<CAPTION>
                                                                                                     Deficit
                                                                                                   Accumulated
                                                                                  Additional        During the
                                                                   Common           Paid-in        Development
                                                                   Stock            Capital            Stage              Total
                                                                ------------      ------------      ------------       ------------
<S>                                                             <C>               <C>               <C>                <C>
Balance (deficit), September 30, 1996                           $      3,241      $  3,843,918      $ (5,541,401)      $ (1,694,242)
Issuance of stock, July 1997 (50,000
  shares at $2.00 per share                                               50            99,950                              100,000
Conversion of $338,100 of notes payable
  to stockholders and accrued interest,
  July 1997 (195,596 shares)                                             196           390,996                              391,192
Net loss                                                                                              (1,196,036)        (1,196,036)
                                                                ------------      ------------      ------------       ------------

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

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

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

Balance (deficit), December 31, 1999                                   3,884         4,658,797        (8,979,055)        (4,316,374)
Issuance of stock for exercise of warrants
  by stockholders, various months
  (130,000 shares at $2.00 per share)                                    130           259,870                              260,000
Conversion of $158,735 of notes payable to
  stockholders and accrued interest, various
  months (110,206 shares)                                                110           220,302                              220,412
Issuance of compensatory stock options                                                 190,536                              190,536
Net loss                                                                                              (2,021,863)        (2,021,863)
                                                                ------------      ------------      ------------       ------------
Balance (deficit), December 31, 2000                                   4,124         5,329,505       (11,000,918)        (5,667,289)
Issuance of stock for exercise of warrants by
  stockholders, various months (143,250
  shares at $2.00 per share)                                             143           286,357                              286,500
Conversion of $5,000 of Convertible Debentures
  plus interest (2,983 shares at $2.00 per share)                          3             5,963                                5,966
Net loss                                                                                                (526,290)          (526,290)
                                                                ------------      ------------      ------------       ------------
Balance (deficit), March 31, 2001                               $      4,270      $  5,621,825      $(11,527,208)      $ (5,901,113)
                                                                ============      ============      ============       ============
</TABLE>

See notes to financial statements.


                                       7
<PAGE>

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


<TABLE>
<CAPTION>
                                                      Cumulative
                                                        During
                                                     Development
                                                     Stage Through                Three Months Ended March 31,
                                                     March 31, 2001               2001                    2000
                                                      ------------            ------------            ------------
                                                       (Unaudited)             (Unaudited)             (Unaudited)
<S>                                                   <C>                     <C>                     <C>
Operating activities:
  Net loss                                            $(11,527,141)           $   (526,290)           $   (344,745)
  Items not requiring
  (providing) cash:
    Depreciation                                            19,809
    Expenses funded by Common
      Stock issuance                                       625,338
      Other                                               (123,546)                                        (23,644)
  Changes in:
    Advances to officers                                (1,089,998)                (92,000)                (35,000)
    Other receivables                                     (128,775)                 (3,924)                (13,335)
    Accounts payable                                       940,262                     462                  (1,599)
    Accrued expenses                                     1,400,633                 195,511                  92,723
    Deferred compensation                                2,337,431                  90,541                 113,151
                                                      ------------            ------------            ------------
        Net cash used in
         operating activities                           (7,545,987)               (335,700)               (212,449)
                                                      ------------            ------------            ------------
Investing activities:
  Purchase of fixed assets                                 (19,808)
  Other                                                    314,082                                          23,644
                                                      ------------            ------------            ------------
         Net cash provided by
          investing activities                             294,274                                          23,644
                                                      ------------            ------------            ------------
Financing activities:
  Proceeds from issuance of
    Common Stock and warrants                            3,267,062                 286,500                   5,000
  Proceeds from notes payable                            1,665,609
  Proceeds from convertible debentures                   2,812,000                                         122,000
  Payments on notes payable                               (154,609)
  Other                                                    108,410
                                                      ------------            ------------            ------------
         Net cash provided by
           financing activities                          7,698,472                 286,500                 127,000
                                                      ------------            ------------            ------------

Increase (decrease) in cash                                446,759                 (49,200)                (61,805)

Cash, beginning of period                                        0                 495,959                 101,091
                                                      ------------            ------------            ------------

Cash, end of period                                   $    446,759            $    446,759            $     39,286
                                                      ============            ============            ============
</TABLE>

See notes to financial statements.


                                       8
<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                 March 31, 2001


NOTE 1:  BASIS OF PRESENTATION

The accompanying unaudited financial statements statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information and with the  instructions to Form 10-Q and Article 10 of Regulation
S-X.  Accordingly,  they do not include  all of the  information  and  footnotes
required by generally  accepted  accounting  principles  for complete  financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included.  Operating results for the three-month period ended March 31, 2001 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended December 31, 2001.

During March 2001, the U.S. Patent and Trademark  Office granted a patent to the
Company's Executive Vice President,  as inventor of the ThermoEnergy  Integrated
Power  Systems  ("TIPS"),   who  had  assigned  his  rights  in  the  patent  to
ThermoEnergy  Power Systems,  LLC ("LLC"), a Deleware limited liability company.
the  organizational  documents  for the LLC  provide  for 85%  ownership  by the
Company and 15% ownership by the Company's  Executive Vice  President.  Since no
value was assigned to the patent rights for financial reporting purposes and the
Company  has not made  any  capital  contributions  to the  LLC,  the  financial
statements included herein do not differ from those that would be presented on a
consolidated basis.

The  balance  sheet at  December  31,  2000 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, 2000.

NOTE 2:  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
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  3,841,302  shares for the
period  cumulative  since  inception  through  March  31,  2001,  4,550,798  and
4,443,724  shares for the  three-month  periods  ended  March 31, 2001 and 2000,
respectively.

Warrants to purchase approximately 1,400,000 shares of Common Stock (see Note 4)
and stock options awarded to officers and others for 1,500,000  shares of Common
Stock were not included in the  computation  of diluted loss per share since the
effect  would be  antidilutive.  At March  31,  2001,  the  Company  had  issued
$4,696,722 of 15% Convertible  Debentures,  due January 15, 2003. The holders of
the Debentures can convert the principal amount and accrued interest ($1,149,279
at March 31, 2001) into shares of Common Stock at the conversion  price of $2.00
per share at any time prior to the maturity date.

NOTE 3:  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  approximately  $2,000,000  more of Series 98 Convertible
Debentures,  if necessary to raise working  capital.  As more fully described in
Note 7 of Notes to Financial  Statements in the Company's  Annual Report on Form
10-K for the year ended  December  31,  2000,  the Company  has  entered  into a
warrant  agreement  with an  individual  which can  provide  $250,000 of working
capital on a quarterly basis through  September of 2002.  Management is actively
pursuing  commercial  contracts  to produce  fees from  projects  involving  the
Technologies.  The  sale of  stock  pursuant  to  private  placement  or  public
offerings is another alternative under consideration by management.

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  agreements  with third
parties in order to pursue this business strategy.

NOTE 4:  SUBSEQUENT EVENTS

During April 2001,  warrants  issued in connection  with the  Centerpoint  Power
Corporation agreement for the purchase of 338,637 shares of Common Stock at $.16
per share were exercised and warrants for the purchase of 181,619 shares at $.16
per share expired.


                                       9

<PAGE>

Item 2 - Management's Discussion and Analysis or Plan of Operations

A description of the business plan of the Company over the next twelve months is
described as follows:

     Cash Requirements.  The Company has incurred net losses since inception and
will require substantial additional capital to continue commercialization of the
previously   demonstrated  clean  water  and  clean  energy   technologies  (the
"Technologies")  and  a  clean  energy  technology  known  as  the  ThermoEnergy
Integrated  Power System  ("TIPS"),  which converts any biomass into electricity
without  producing air emissions,  and is aimed at competing  with  conventional
energy (fossil fuel) conversion technologies. The exact cash requirements of the
Company  for the next 12 months are not  currently  known and will depend on the
level of activity  required in pursuing  commercialization  of its Technologies.
Reference is made to the Financial  Statements in the Company's Annual Report on
Form 10-K/A for the year ended December 31, 2000, for past cash requirements. It
is unlikely that cash requirements will decrease,  and if there is a substantial
increase in business activity the cash  requirements  will likely increase.  The
Company  entered into a warrant  agreement  with Dan Cowart,  Atlanta,  Georgia,
which has provided $250,000 of working capital for each of the last two quarters
and can provide $250,000 each quarter through September of 2002. The arrangement
with Mr. Cowart is more fully explained in Note 7 to the Financial Statements of
the Company's Annual Report on Form 10-K/A for the year ended December 31, 2000.
The  Company  has  also  been  able to  sell  its  Series  98,  15%  Convertible
Debentures,  from  time  to  time  in the  past,  and  is  authorized  to  issue
approximately $2,000,000 more of these Debentures, if necessary to raise working
capital.  Selling additional stock in a private placement or public offering are
other possible alternatives.

     Product  Research and Development.  The Company is the exclusive  worldwide
licensee (except for STORS in Japan) for three clean water process  technologies
and one process equipment  technology  developed by Battelle Memorial  Institute
("BMI").  The four BMI licensed  technologies  address  wastewater  problems for
municipal and broad-based  industrial 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  Balanced  vessel reactor
system, (the "DSR") (TM), is the unique reactor equipment in which the STORS and
NitRem  chemistries are conducted (STORS,  NitRem,  ARP and DSR are collectively
referred to as the "Water  Technologies").  The Water  Technologies  have all be
successfully  demonstrated,  and  management  is  actively  pursuing  commercial
contracts to produce  profits  and/or  royalties from projects  involving  these
Water Technologies.  The Company is heavily reliant on the ability and financial
resources of  established  third parties,  such as Foster Wheeler  Environmental
Corporation  collaborating with the Company in the venture known as ThermoEnergy
Environmental,  LLC  ("TENC")  which  pursues  clean water  projects  worldwide.
Product research and development in the Water  Technologies at the Company level
will not be great in the next 12 months,  because the work that is now  required
for  development  of each of them is the  design  and field  engineering  of any
actual commercial projects that can be obtained, which will be done primarily by
Foster Wheeler Environmental Corporation.

     The Company  hopes to obtain a U. S.  government  grant to pay the costs of
demonstrating the TIPS process,  but there is no assurance that its efforts will
be successful.

     Sales or Purchases of Plant and Equipment. Company currently owns no plants
and equipment.  Purchases or sales of equipment, if any, will be based on a firm
contract from a governmental  entity or corporation  acquiring equipment for use
with one of the demonstrated  Technologies.  That equipment would be financed in
reliance on the credit of the prospective customer.

     New Employees.  The Company does plan to hire additional  employees  unless
the TENC joint venture is successful in selling a Water Technology  project to a
prospective customer.


                                       10
<PAGE>

Results of Operations

For the three months ended March 31,  2001,  the Company  incurred a net loss of
$526,290 as compared to $344,745 for the three months ended March 31, 2000.  The
principal  factors for the increase in the net loss between the two periods were
increases in operating expenses and interest expense.

General  and  administrative  expenses  and  travel and  entertainment  expenses
increased during the three-month periods ended March 31, 2001, compared to March
31, 2000, 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 an additional  $2,179,966 of 15% Convertible  Debentures.
As more  fully  describe  in Note 10 to  Financial  Statements  included  in the
Company's  Annual  Report on Form 10-K for the year  ended  December  31,  2000,
during the three-month  period ended March 31, 2000, the Company recorded a gain
of $23,644 in connection with the settlement of a lawsuit.

Liquidity and Capital Resources

During the three-month period ended March 31, 2001, the Company used $335,700 of
cash in operations compared to $212,449 in the comparable period of 2000.

During  2000 and 2001,  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
converted  the  remaining  6.63%  notes  to  shares  of  Company  Common  Stock.
Management  plans to meet the Company's  liquidity  needs during the year ending
December 31, 2001, through additional  borrowings  principally from the issuance
of the Company's 15 % Convertible Debentures.  As more fully described in Note 7
of Notes to Financial Statements,  the Company entered into an agreement with an
individual on October 4, 2000 for the issuance of warrants to purchase 1,000,000
shares of the Company's Common Stock at $2.00 per share. That individual, who is
an officer of the  Georgia  corporation  with which the  Company has a marketing
agreement has exercised  the right to purchase  125,000  shares on two occasions
within the  required  three month  periods that he must do so since a portion of
his warrants expire every three months if they are not exercised.

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.


                                       11
<PAGE>

Net Operating Losses

The Company had net  operating  loss  carryforwards  as of December  31, 2000 of
approximately $7,800,000 which expire in the years 2003 through 2020. 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  $2,994,000
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.

The Company has historically  lacked the financial and other resources necessary
to respond to requests  for  proposals  and market 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.  For these reasons the Company has
relied on its joint  venture  (TENC)  working  arrangement  with Foster  Wheeler
Environmental  Corporation and its Marketing  Agreement with DCI to enable it to
identify and fund work required in making a bid on the Atlanta  project and TENC
for other projects. The Company believes that establishing such relationships is
the most efficient and effective way to commercialize the Technologies.

Successful  demonstrations  of ARP in New York City and STORS/  NitRem in Colton
have been funded through  government grants and by Foster Wheeler  Environmental
Corporation,   either   through   TENC  or  by  separate   expenditures.   These
demonstrations  were  not  revenue  producing,  and  the  Company  will  require
additional  investment capital,  expected to be both debt and equity to continue
its operations.

                           PART II- OTHER INFORMATION

Item 1. Legal Proceedings

     None

Item 2. Change in Securities

     Dan Cowart paid  $250,000 to the  Company,  when he  exercised  warrants to
     purchase 125,000 shares of restricted  Common Stock at a price of $2.00 per
     share on March 1, 2001. An exemption for this  transaction is claimed under
     Section 4(2) of the Securities  Act. Mr. Cowart has filed a Form 13(d),  as
     to his ownership of the Company.  His  representatives  have done extensive
     due  diligence  on the  Company  and in its  book  and  records.  He or his
     representative  have had continuing access to executives of the Company and
     information regarding the Company. He controls Dan Cowart, Inc., which is a
     party  to  a  marketing   agreement   with  the  Company  to  sell  Company
     Technologies.

Item 3. Defaults Upon Senior Securities

     None

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

     None

Item 5. Other Information.

     (a) Colton Demonstration of STORS Process.

The  written  final  report on the  successful  demonstration  of the  Company's
Sludge-to-Oil  Reactor System ("STORS") at the Colton Water Reclamation Facility
("CWRF") in Colton,  California  from May to  September  2000 was not  published
until the first  quarter of 2001.  A summary of that report was  included in the
Annual  Report for the year 2000,  filed with the SEC.  The  Company  and Foster
Wheeler Environmental Corporation,  its contractor for the project, believe that
the  Colton  demonstration  successfully  showed  that the STORS  process  is an
economically  viable  and  effective  technology  for the  treatment  and volume
reduction of municipal  sludges and also concluded that all the key technologies
and equipment of the process provided acceptable performance.


                                       12
<PAGE>

Extensive testing and analysis has provided  sufficient data to evaluate process
operating conditions and characterize the Reactor products, such that commercial
designs  are  expected to be cost  competitive  for both  capital and  operating
costs. Relying on data from the Colton demonstration, ThermoEnergy Environmental
Limited Liability Company ("TENC") has begun work on responding to a Request for
Proposal ("RFP") from the City of Atlanta, Georgia for sludge disposal. TENC, as
has  been  previously  reported,  is a  joint  venture  between  Foster  Wheeler
Environmental  Corporation,  a wholly  owned  subsidiary  of Foster  Wheeler USA
Corporation, which owns 50.1% of TENC and the Company which owns 49.9% .

     (b) TIPS Technology

On March 6, 2001, United States Patent No. 6,196,000 was granted to its inventor
Alex  Fassbender  under the caption  Power  System With  Enhanced  Thermodynamic
Efficiency  And Pollution  Control.  Mr.  Fassbender,  who is the Executive Vice
President  of the  Company  and its  chief  technology  officer  had  previously
assigned  his  rights in the  patent to Thermo  Energy  Power  Systems,  LLC,  a
Delaware limited liability company and eight-five percent (85%) owned subsidiary
of the Company.  For his  contribution of the patent Mr.  Fassbender  received a
fifteen percent (15%) ownership interest in Thermo Energy Power Systems, LLC.

The Company refers to this technology as "TIPS".  It was patentable,  because it
is a novel approach to power production  thermodynamics,  mass transfer and heat
transfer,  but this  technology  has not been  demonstrated.  TIPS  converts any
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 the fuel used with the  efficient  production of
electricity.  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  that  can  then be used to  generate  power  for  peak  demand  periods.
Management  believes that TIPS may potentially be a low cost long-term source of
liquid CO2.  Management  also believes that the TIPS  technology  can be used to
economically  retrofit  existing  fossil  fuel  power  plants  or  used  in  the
construction of new power generation facilities and has the potential to replace
the current  conventional  coal,  gas or heavy oil combustion  power  generation
facilities that contribute  significantly  to global air quality  problem,  acid
rain and global warming.

     (c) Atlanta Bid.

Working with Foster Wheeler  Environmental  Corporation through their TENC joint
venture and with  Atlanta  based Dan Cowart,  Inc.  ("DCI")  with which it has a
Marketing  Agreement,  the TENC joint venture is in the process of responding to
an RFP from the City of Atlanta to provide technology and equipment that will be
used to treat that  City's  sewer  sludge now being  disposed  of using  another
technology.

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 March
31, 2001.

                                   SIGNATURES

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

Date:  May 14, 2001.
                                    THERMOENERGY CORPORATION

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


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