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 June 30, 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
of incorporation or organization)                            Identification No.)

           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 [ ]

                      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:  4,728,226  common  shares  as of
June 30, 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>

                                                                          June 30,          December 31,
                                                                            2001               2000
                                                                       ------------        ------------
                                                                        (Unaudited)          (Note 1)
<S>                                                                    <C>                 <C>
ASSETS

Cash - Total Current Assets                                            $    387,877        $    495,959

Advances to officers                                                        326,000             138,000
Accrued interest receivable - officers                                       12,801               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)
                                                                       ------------        ------------
                                                                                 --                  --
                                                                       ------------        ------------
                                                                       $    726,678        $    637,858
                                                                       ============        ============

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Accounts payable                                                       $    432,235        $    382,750
Accrued interest payable - primarily to related parties                   1,326,010             954,734
Deferred compensation                                                       457,881             265,941
                                                                       ------------        ------------
      Total Current Liabilities                                           2,216,126           1,603,425

Convertible Debentures (Note 2)                                           4,668,356           4,701,722
                                                                       ------------        ------------
      Total Liabilities                                                   6,884,482           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
    June 30, 2001:  issued - 4,812,055 shares; outstanding -
    4,728,226 shares;  December 31, 2000:  issued - 4,123,824
    shares;  outstanding - 4,039,995 shares                                   4,812               4,124
  Additional paid-in capital                                              6,082,187           5,329,505
  Deficit accumulated during the development stage                      (12,244,803)        (11,000,918)
                                                                       ------------        ------------
                                                                         (6,157,804)         (5,667,289)
                                                                       ------------        ------------
                                                                       $    726,678        $    637,858
                                                                       ============        ============
</TABLE>

See notes to financial statements.

<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)

                            STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
                                         Cumulative
                                           During
                                        Development
                                       Stage Through        Six Months Ended         Three Months Ended
                                          June 30,               June 30,                  June 30,
                                            2001            2001         2000         2001         2000
                                            ----            ----         ----         ----         ----
                                        (Unaudited)             (Unaudited)              (Unaudited)
<S>                                    <C>             <C>            <C>          <C>          <C>
     Operating Expenses:
       General and administrative      $  8,660,740    $   699,145    $ 448,395    $ 433,719    $ 225,599
       Payments under licenses              907,266         20,000       45,000       10,000       22,500
       Travel and entertainment           1,517,332        143,318       94,309       78,366       49,922
                                       ------------    -----------    ---------    ---------    ---------
                                         11,085,338        862,463      587,704      522,085      298,021
                                       ------------    -----------    ---------    ---------    ---------
     Loss From Operations               (11,085,338)      (862,463)    (587,704)    (522,085)    (298,021)
                                       ------------    -----------    ---------    ---------    ---------

     Other Income (Expense)
       Interest income                      212,446         17,538       22,877        8,905        8,860
       Gain on settlement of lawsuit        317,423                      23,644
       Other                                 49,550
       Interest expense                  (1,738,817)      (398,960)    (206,463)    (204,415)    (113,740)
                                       ------------    -----------    ---------    ---------    ---------
                                         (1,159,398)      (381,422)    (159,942)    (195,510)    (104,880)
                                       ------------    -----------    ---------    ---------    ---------

     Net Loss                          $(12,244,736)   $(1,243,885)   $(747,646)   $(717,595)   $(402,901)
                                       ============    ===========    =========    =========    =========

     Basic and Diluted
       per Common Share (Note 2)
         Loss From Operations          $      (2.87)   $     (0.19)   $   (0.13)   $   (0.11)   $   (0.07)

         Net Loss                      $      (3.17)   $     (0.27)   $   (0.17)   $   (0.15)   $   (0.09)
</TABLE>

See notes to financial statements.

<PAGE>

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

<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 Six Months Ended June 30, 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>

<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 Six Months Ended June 30, 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>

<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 Six Months Ended June 30, 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 (318,500 shares
       at $2.00 per share and 338,637 shares at $.16
       per share)                                                         657         690,525                          691,182
     Conversion of $33,366 of Convertible Debentures
       plus interest, various months, (31,094 shares at
       $2.00 per share)                                                    31          62,157                           62,188
     Net loss                                                                                       (1,243,885)     (1,243,885)
                                                                  -----------     -----------     ------------     -----------
     Balance (deficit), June 30, 2001                             $     4,812     $ 6,082,187     $(12,244,803)    $(6,157,804)
                                                                  ===========     ===========     ============     ===========
</TABLE>

See notes to financial statements.

<PAGE>

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

<TABLE>
<CAPTION>
                                                            Cumulative
                                                              During
                                                           Development
                                                           Stage Through             Six Months Ended June 30,
                                                           June 30, 2001             2001                2000
                                                           -------------             ----                ----
                                                           (Unaudited)            (Unaudited)         (Unaudited)
<S>                                                       <C>                    <C>                   <C>
Operating activities:
       Net loss                                           $(12,244,736)          $(1,243,885)          $(747,646)
       Items not requiring
       (providing) cash:
         Depreciation                                           19,809
         Expenses funded by Common
           Stock issuance                                      700,338                75,000
         Other                                                (123,546)                                  (23,644)
       Changes in:
         Advances to officers                               (1,185,998)             (188,000)            (84,000)
         Other receivables                                    (133,753)               (8,902)            (22,102)
         Accounts payable                                      989,285                49,485              24,585
         Accrued expenses                                    1,605,220               400,098             206,463
         Deferred compensation                               2,438,830               191,940             229,344
                                                          ------------           -----------           ---------
             Net cash used in
              operating activities                          (7,934,551)             (724,264)           (417,000)
                                                          ------------           -----------           ---------
     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                           3,596,744               616,182               5,000
       Proceeds from notes payable                           1,665,609
       Proceeds from convertible debentures                  2,812,000                                   490,000
       Payments on notes payable                              (154,609)
       Other                                                   108,410
                                                          ------------           -----------           ---------
              Net cash provided by
                financing activities                         8,028,154               616,182             495,000
                                                          ------------           -----------           ---------

     Increase (decrease) in cash                               387,877              (108,082)            101,644

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

     Cash, end of period                                  $    387,877           $   387,877           $ 202,735
                                                          ============           ===========           =========
</TABLE>

See notes to financial statements.

<PAGE>

                            THERMOENERGY CORPORATION
                          (A Development Stage Company)
                    NOTES TO FINANCIAL STATEMENTS (Unaudited)
                                  June 30, 2001

NOTE 1: BASIS OF PRESENTATION

The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting  principles for interim financial information
and  with the  instructions  to Form  10-Q and  Article  10 of  Regulation  S-X.
Accordingly,  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 and six-months  periods ended June 30, 2001 are
not  necessarily  indicative  of the results  that may be expected  for the year
ended December 31, 2001.

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/A  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  3,857,367  shares for the
period cumulative since inception through June 30, 2001, 4,628,768 and 4,449,000
shares for the six-month periods ended June 30, 2001 and 2000, respectively, and
4,711,364 and 4,454,276  shares for the three-month  periods ended June 30, 2001
and 2000, respectively.

Warrants to purchase  approximately  1,200,000  shares of Common Stock 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 June 30, 2001,  the Company had issued  $4,668,356  of 15%
Convertible  Debentures,  Series '98 due  January 15,  2003.  The holders of the
Debentures can convert the principal amount and accrued interest  ($1,326,010 at
June 30, 2001) into shares of Common Stock at the conversion  price of $2.00 per
share at any time prior to the maturity date. The Company halted the sale of the
Series '98 Debentures as of June 20, 2001 and on that date  authorized a new '01
series of  convertible  debentures in the principal  amount of  $3,000,000.  The
Series '01  Debentures  bear interest at the rate of 10% per annum,  mature July
15, 2006 and are convertible in to common stock of the Company at a price of Six
Dollars ($6) per share at any time prior to the maturity date (See Note 4 ).

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
halted the sale of its Series '98  Debentures  as of June 20, 2001,  and on that
date  authorized a new '01 series of  convertible  debentures  in the  principal
amount of $3,000,000. The Series '01 Debentures bear interest at the rate of 10%
per annum,  mature July 15, 2006 and are  convertible  in to common stock of the
Company  at a price of Six  Dollars  ($6) per  share.  A copy of the form of the
Series '01 Debenture

<PAGE>

accompanies this filing. The Series '01 Debentures will be sold to raise working
capital  (See Note 4). As more fully  described  in Note 7 of Notes to Financial
Statements  in the  Company's  Annual  Report on Form  10-K/A 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 the period July 1, 2001 through July 23, 2001 the Company issued $340,000
of the Series '01 convertible Debentures for cash.

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  three
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  in the  Company's  Annual  Report on Form  10-K/A for the year ended
December 31, 2000. The Company halted the sale of its Series '98 15% Debentures,
which are convertible  into shares of the Company at a price of $2 per share, as
of June 20, 2001. As of that date the Board of Directors authorized a new series
of  convertible  debentures in the principal  amount of  $3,000,000,  designated
Series  '01.  The Series '01  Debentures  bear  interest  at the rate of 10% per
annum,  mature  July 15,  2006 and are  convertible  in to  common  stock of the
Company at a price of Six Dollars ($6) per share. During the period July 1, 2001
through July 23, 2001 the Company issued  $340,000 of the Series '01 convertible
Debentures for cash. The Company will attempt to sell the Series '01 Debentures,
as necessary to raise working capital to support an increased level of sales and
marketing  activity.  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 been
successfully demonstrated, and management

<PAGE>

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
pursuing 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 Water Technologies. That equipment would be financed in reliance
on the credit of the prospective customer.

     New  Employees.  The  Company  does not plan to hire  additional  employees
unless it can raise sufficient operating capital to pay for a such an expense or
if the TENC joint venture is successful in selling a Water Technology project to
a prospective customer.

Results of Operations

For the six  months  ended June 30,  2001,  the  Company  incurred a net loss of
$1,243,885,  as compared to $747,646 for the six months ended June 30, 2000. For
the three  months  ended  June 30,  2001,  the  Company  incurred  a net loss of
$717,595 as compared to $402,901 for the three  months ended June 30, 2000.  The
principal  factors  for  the  increase  in the  net  loss  between  the  six and
three-month periods were increases in operating expenses and interest expense.

General  and  administrative  expenses  and  travel and  entertainment  expenses
increased during the six and three-month  periods ended June 30, 2001,  compared
to June 30, 2000, due to the Company's  efforts to obtain  commercial  contracts
and promote the TIPS process.  Interest expense increased  significantly between
the  same  two  periods  primarily  due to the  effect  of the  15%  Convertible
Debentures.

Liquidity and Capital Resources

During the  six-month  period ended June 30, 2001,  the Company used $724,264 of
cash in operations compared to $417,000 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 Series '01 10 % Convertible Debentures. As more fully described
in Note 7 of Notes to Financial  Statements  in the  Company's  annual report on
Form 10-K/A for the year ended  December 31, 2000,  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
three  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  based on its
successful demonstrations of its Technologies.

<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
entered into agreements with third parties to pursue marketing,  development and
testing of the Company's  Technologies.  The Company believes that  establishing
such  relationships is the most efficient and effective way to commercialize the
Technologies.

                           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 June
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  representatives  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

     (a) Date of Annual Meeting.

The annual  shareholders  meeting of the Company was held on June 29,  2001,  in
Atlanta, Georgia.

     (b) Election of Directors.

     Directors Elected                         For       Withheld
     -----------------                         ---       --------
     Dr. Louis J. Ortmann                   3,150,114     17,385
     John Corcoran                          3,150,114     17,385
     Dennis C. Cossey                       3,150,114     17,385

     Other Directors continuing in office:
     P.L. Montesi
     Jerald H. Sklar
     Andrew . Melton
     Dr. Paul A. Loeffler

<PAGE>

     (c)  Additional matters voted on:

     Ratification   of  the   appointment  of  Kemp  &  Company  as  independent
accountants  of the Company for 2001 (For - 3,149,615;  Against - 71;  Abstain -
7,813).

These are changes to the 10-Q sent to you by Joel Sklar on 8/10/01. Because the
Changes are substantial I am sending the full paragraphs.

     Item 5.  Other Information.

     (a) STORS Process.

The  Company  and  Foster  Wheeler  Environmental  Corporation,  the  lead  sub-
contractor  for the  successful  demonstration  of the  Company's  Sludge-To-Oil
reactor system ("STORS") at the Colton Water  Reclamation  Facility  ("CWRF") in
Colton,  California,  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.  The Company and Foster
Wheeler   Environmental   Corporation   have   continued   to  market  STORS  to
municipalities.  Working  with Foster  Wheeler  Environmental  Corporation,  the
Company has also proposed  utilizing STORS in its response to a competitive bid,
Request For Proposal from the City of Atlanta, Georgia. See Section 5(c), below.

     (b) TIPS Technology.

Based on the grant of United States Patent No. 6,196,000 under the caption Power
System With Enhanced Thermodynamic  Efficiency And Pollution Control referred to
by the Company as "TIPS".  Management  believes that the TIPS  technology can be
used to economically  retrofit  existing  fossil fuel power plants,  so that the
polluting  emissions  from those plants can be  significantly  reduced.  Without
outside  funding the Company does not have  sufficient  resources  with which to
demonstrate this technology. One source of funding would be to apply to the U.S.
Department  of  Energy  for a grant to  demonstrate  the  effectiveness  of this
technology, as it did for STORS. The Company does not know when it will actually
apply  for a grant,  nor does the  Company  have the  ability  to  evaluate  the
likelihood that it will receive a grant.

     (c)  Atlanta Bid.

Foster  Wheeler  Environmental  Corporation  and the Company were aware that the
City of Atlanta was  preparing  the RFP for treatment of its sewer sludge before
it was  published  and had  planned  to  respond  to the RFP in the  name of the
ThermoEnergy  Environmental  Corporation ("TENC") a joint venture, formed by the
Company  (49.9%  owner)  and Foster  Wheeler  Environmental  Corporation  (50.1%
owner).  The Company in prior filings reported this.  However,  when the RFP was
published,  it contained  criteria  regarding  financial  strength and operating
history  that TENC could not meet.  By bidding  directly  and not  through  TENC
Foster  Wheeler  Environmental  Corporation  could  meet  these  thresholds  for
responding  to the  RFP.  Foster  Wheeler  Environmental  Corporation  with  the
Company's  participation,  has  responded  to an RFP from the City of Atlanta to
provide  technology  and equipment that will use the STORS process to treat that
City's sewage sludge (biosolids). No decision has been announced on that bid. If
Foster  Wheeler  Environmental  Corporation  is  successful  in its bid, the two
parties will participate in the work and share in any profits in the same manner
that they would have under the TENC joint venture agreement.

     (d) Election of Officers.

Following  the  shareholders  meeting on June 29,  2001,  the Board of Directors
elected the following slate of officers.

      Chairman of the Board,  Chief Executive Officer
           and Secretary                                      Dennis Cossey
      President and Treasurer                                 P. L. Montesi
      Executive Vice President                                Alex  Fassenbender

<PAGE>

Item 6. Exhibits and Report on Form 8-K.

     (a)  None.

     (b)  No reports on Form 8-K have been filed  during the quarter  ended June
          30, 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: August 13, 2001.
                                    THERMOENERGY CORPORATION


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