##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-QSB x
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004 OR o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 FOR THE TRANSITION PERIOD FROM _________________ TO _________________ COMMISSION FILE NUMBER 33-46104-FW THERMOENERGY CORPORATION (Exact Name of 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, Including Area Code)    Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. x o
 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. o o
 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: 20,913,944 shares of common
stock as of May 14, 2004. Transitional Small Business Disclosure Format (Check one): Yes o No x




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TABLE OF CONTENTS  PART 1  FINANCIAL INFORMATIONBALANCE SHEETSSTATEMENTS OF OPERATIONSSTATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)STATEMENTS OF CASH FLOWSNOTES TO FINANCIAL STATEMENTS (Unaudited)PART II  OTHER INFORMATIONSIGNATURESEX-31.1  SECTION 302 CEO CERTIFICATIONEX-31.2  SECTION 302 CFO CERTIFICATIONEX-32.1 SECTION 906 CERTIFICATION OF THE CEOEX-32.2 SECTION 906 CERTIFICATION OF THE CFO    Table of Contents  
 PART 1  FINANCIAL INFORMATION Item 1. Financial Statements. THERMOENERGY CORPORATION
(A Development Stage Company) 
 BALANCE SHEETS
 March 31,
    
    December 31,2004
    
    2003(Unaudited)
    
    (Note 1)ASSETSCash  Total Current Assets
    
    $
    385,907
    
    
    $
    62,303Property and equipment, at cost:Equipment, furniture and fixtures
    
    
    19,809
    
    
    
    19,809Less accumulated depreciation
    
    
    (19,809
    )
    
    
    (19,809
    )
    
    
    
    $
    385,907
    
    
    $
    62,303LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Accounts payable
    
    $
    641,305
    
    
    $
    763,410Deferred compensation
    
    
    198,426
    
    
    
    101,923Total Current Liabilities
    
    
    839,731
    
    
    
    865,333Deferred compensation retirement plan for officer
    
    
    3,245,000
    
    
    
    3,245,000Total Liabilities
    
    
    4,084,731
    
    
    
    4,110,333Stockholders equity (deficit) (Notes 3 and 5):Preferred stock, non-voting, $1 par value:Authorized - 10,000,000 shares; none issuedCommon Stock, $.001 par value: authorized  75,000,000 shares;
March 31, 2004: issued  20,891,002 shares; outstanding -
20,807,173 shares; December 31, 2003: issued  17,781,073
shares; outstanding  17,697,244 shares
    
    
    20,891
    
    
    
    17,781Additional paid-in capital
    
    
    20,952,633
    
    
    
    19,949,589Deficit accumulated during the development stage
    
    
    (24,672,348
    )
    
    
    (24,015,400
    )(3,698,824
    )
    
    
    (4,048,030
    )$
    385,907
    
    
    $
    62,303
 See notes to financial statements. -1-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company) 
 STATEMENTS OF OPERATIONS CumulativeDuringDevelopment
    
    Three Months EndedStage Through
    
    March 31,March 31,2004
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)Operating Expenses:General and administrative
    
    $
    15,933,651
    
    
    $
    600,705
    
    
    $
    286,242Payments under licenses
    
    
    1,212,266
    
    
    
    25,000
    
    
    
    25,000Travel and entertainment
    
    
    2,145,795
    
    
    
    31,856
    
    
    
    41,36219,291,712
    
    
    
    657,561
    
    
    
    352,604Loss From Operations
    
    
    (19,291,712
    )
    
    
    (657,561
    )
    
    
    (352,604
    )Other Income (Expense)Interest income
    
    
    237,887
    
    
    
    613
    
    
    
    82Gain on settlement of lawsuit
    
    
    317,423Other
    
    
    59,574Interest expense
    
    
    (4,217,488
    )
    
    
    
    
    
    
    (282,530
    )(3,602,604
    )
    
    
    613
    
    
    
    (282,448
    )Net Loss
    
    $
    (22,894,316
    )
    
    $
    (656,948
    )
    
    $
    (635,052
    )Basic and Diluted
per Common Share (Note 2)Loss From Operations
    
    $
    (3.85
    )
    
    $
    (0.03
    )
    
    $
    (0.06
    )Net Loss
    
    $
    (4.57
    )
    
    $
    (0.03
    )
    
    $
    (0.11
    )
 See notes to financial statements. -2-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company) 
 STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
 Periods Ended
September 30, 1988 Through December 31, 2003 and the Three
Months Ended
March 31, 2004 (Unaudited)
 DeficitAccumulatedAdditional
    
    
    
    
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalIssuance of stock, January 1988,
(2,205,762 shares at $.08
per share)
    
    $
    2,206
    
    
    $
    178,094
    
    
    $
    
    
    
    $
    180,300Net 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
    
    
    
    
    
    
    
    457,001Net loss
    
    
    
    
    
    
    
    
    
    
    (338,985
    )
    
    
    (338,985
    )Balance (deficit),
September 30, 1989
    
    
    2,512
    
    
    
    634,789
    
    
    
    (629,468
    )
    
    
    7,833Net 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
    
    
    
    
    
    
    
    70,857Issuance 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
    
    
    
    
    
    
    
    603,607Issuance of stock for interest,
June 1991, (1,375 shares at
$1.60 per share)
    
    
    1
    
    
    
    2,199
    
    
    
    
    
    
    
    2,200Issuance of stock for
expenses incurred by
stockholders, July 1991
(5,081 shares at $1.60 per share)
    
    
    5
    
    
    
    8,124
    
    
    
    
    
    
    
    8,129Net loss
    
    
    
    
    
    
    
    
    
    
    (670,179
    )
    
    
    (670,179
    )Balance (deficit), September 30,
1991
    
    
    2,950
    
    
    
    1,319,144
    
    
    
    (1,554,683
    )
    
    
    (232,589
    )
 -3-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2003 and the Three Months Ended
March 31, 2004 (Unaudited) DeficitAccumulatedAdditional
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalIssuance of stock, October -
December 1991 (150,925
shares at $1.60 per share)
    
    $
    151
    
    
    $
    241,329
    
    
    $
    
    
    
    $
    241,480Shares 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
    
    
    
    
    
    
    
    5,500Net 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
    
    
    
    
    
    
    
    1,484,550Issuance of stock for exercise
of stock options, May 1993
(2,500 shares at $1.60 per share)
    
    
    3
    
    
    
    3,997
    
    
    
    
    
    
    
    4,000Issuance of warrants to
stockholder
    
    
    
    
    
    
    6,333
    
    
    
    
    
    
    
    6,333Conversion of $103,000 of notes
payable to stockholders and accrued
interest, December 1992 (6,438 shares
at $16.00 per share)
    
    
    6
    
    
    
    102,994
    
    
    
    
    
    
    
    103,000Issuance of stock for
consulting services, June
1993 (9,375 shares at
$16.00 per share)
    
    
    9
    
    
    
    149,991
    
    
    
    
    
    
    
    150,000Net loss
    
    
    
    
    
    
    
    
    
    
    (1,207,921
    )
    
    
    (1,207,921
    )Balance (deficit), September 30,
1993
    
    
    3,202
    
    
    
    3,296,856
    
    
    
    (3,325,355
    )
    
    
    (25,297
    )
 -4-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2003 and the Three Months Ended
March 31, 2004 (Unaudited) DeficitAccumulatedAdditional
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalIssuance of warrants to stockholders
    
    $
    
    
    
    $
    226,000
    
    
    $
    
    
    
    $
    226,000Issuance of stock for exercise
of stock options, March 1994
(3,750 shares at $1.60 per share)
    
    
    4
    
    
    
    5,996
    
    
    
    
    
    
    
    6,000Issuance of stock for exercise
of warrants by stockholder,
August 1994 (3,677 shares at
$13.60 per share)
    
    
    4
    
    
    
    49,997
    
    
    
    
    
    
    
    50,001Net 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
    
    
    
    
    
    
    
    9,760Issuance of stock, May 1995
(6,250 shares at $8.00 per share)
    
    
    6
    
    
    
    49,994
    
    
    
    
    
    
    
    50,000Issuance of stock for
exercise of warrants by
stockholder, June 1995
(6,250 shares at $8.00 per share)
    
    
    6
    
    
    
    49,994
    
    
    
    
    
    
    
    50,000Issuance of stock for expenses, July 1995
(18,750 shares at $8.00 per share)
    
    
    19
    
    
    
    149,981
    
    
    
    
    
    
    
    150,000Net 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
    
    
    
    
    
    
    
    5,340Net loss
    
    
    
    
    
    
    
    
    
    
    (551,621
    )
    
    
    (551,621
    )Balance (deficit), September 30, 1996
    
    
    3,241
    
    
    
    3,843,918
    
    
    
    (5,541,401
    )
    
    
    (1,694,242
    )Issuance of stock, July 1997
(50,000 shares at $2.00 per share)
    
    
    50
    
    
    
    99,950
    
    
    
    
    
    
    
    100,000Conversion of $338,100 of notes payable
to stockholders and accrued interest, July
1997 (195,596 shares at $2.00 per share)
    
    
    196
    
    
    
    390,996
    
    
    
    
    
    
    
    391,192Net 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
    )
 -5-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2003 and the Three Months Ended
March 31, 2004 (Unaudited) DeficitAccumulatedAdditional
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalBalance (deficit), September 30, 1998
    
    $
    3,487
    
    
    $
    4,334,864
    
    
    $
    (7,534,536
    )
    
    $
    (3,196,185
    )Net loss (three months)
    
    
    
    
    
    
    
    
    
    
    (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 at $2.00 per share)
    
    
    148
    
    
    
    295,056
    
    
    
    
    
    
    
    295,204Issuance of stock for exercise of warrants by
stockholders, August 1999 (181,619 shares
at $.16 per share)
    
    
    182
    
    
    
    28,877



    
    
    
    
    
    
    
    29,059Net 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 during
2000 (130,000 shares at $2.00 per share)
    
    
    130
    
    
    
    259,870
    
    
    
    
    
    
    
    260,000Conversion of $158,735 of notes payable to
stockholders and accrued interest, various
months during 2000 (110,206 shares at
$2.00 per share)
    
    
    110
    
    
    
    220,302
    
    
    
    
    
    
    
    220,412Issuance of compensatory stock options
    
    
    
    
    
    
    190,536
    
    
    
    
    
    
    
    190,536Net 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 during
2001 (496,250 shares at $2.00 per share
and 338,637 shares at $.16 per share)
    
    
    834
    
    
    
    1,045,848
    
    
    
    
    
    
    
    1,046,682Conversion of $117,377 of Convertible
Debentures plus accrued interest, various
months during 2001 (82,808 shares at $2.00
per share)
    
    
    83
    
    
    
    165,533
    
    
    
    
    
    
    
    165,616Net loss
    
    
    
    
    
    
    
    
    
    
    (2,567,968
    )
    
    
    (2,567,968
    )Balance (deficit), December 31, 2001
    
    
    5,041
    
    
    
    6,540,886
    
    
    
    (13,568,886
    )
    
    
    (7,022,959
    )
 -6-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2003 and the Three Months Ended
March 31, 2004 (Unaudited) DeficitAccumulatedAdditional
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalIssuance of stock, various months 2002
(282,358 shares at $2.00 per share)
    
    $
    283
    
    
    $
    564,433
    
    
    $
    
    
    
    $
    564,716Conversion of $100,000 of Convertible
Debentures plus accrued interest, various
months 2002 (55,000 shares at $2.00 per
share)
    
    
    55
    
    
    
    109,945
    
    
    
    
    
    
    
    110,000Issuance of stock in satisfaction of deferred
compensation balances with officers, various
months 2002, (82,793 shares at $2.00 per share)
    
    
    83
    
    
    
    165,503
    
    
    
    
    
    
    
    165,586Issuance of stock for 10% stock dividend,
June 2002, (522,931 shares at $3.40 per share)
    
    
    523
    
    
    
    1,777,442
    
    
    
    (1,777,965
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (2,565,483
    )
    
    
    (2,565,483
    )Balance (deficit), December 31, 2002
    
    
    5,985
    
    
    
    9,158,209
    
    
    
    (17,912,334
    )
    
    
    (8,748,140
    )Issuance of stock in exchange for outstanding
warrants held by stockholder, January 2003
(50,000 shares at $2.00 per share)
    
    
    50
    
    
    
    (50
    )Conversion of $15,000 of Convertible
Debentures plus accrued interest, April 2003
(26,597 shares at $1.05 per share)
    
    
    26
    
    
    
    27,901
    
    
    
    
    
    
    
    27,927Issuance of stock for compensatory awards
to non-officer members of the Board of Directors,
July 2003 (15,000 shares at $1.00 per share)
    
    
    15
    
    
    
    14,985
    
    
    
    
    
    
    
    15,000Conversion of all outstanding Convertible
Debentures plus accrued interest, July and
August 2003 (9,647,759 shares at $1.05 per
share)
    
    
    9,648
    
    
    
    10,120,499
    
    
    
    
    
    
    
    10,130,147Issuance of stock for consulting services, various
months 2003 (54,493 shares at an average price
of $.54 per share)
    
    
    55
    
    
    
    29,260
    
    
    
    
    
    
    
    29,315Issuance of stock in partial satisfaction of deferred
compensation balances with officers, November
2003, (1,006,287 shares at $.30 per share)
    
    
    1,006
    
    
    
    300,880
    
    
    
    
    
    
    
    301,886Issuance of stock, various months 2003
(996,336 shares at $.30 per share)
    
    
    996
    
    
    
    297,905
    
    
    
    
    
    
    
    298,901Net loss
    
    
    
    
    
    
    
    
    
    
    (6,103,066
    )
    
    
    (6,103,066
    )Balance (deficit), December 31, 2003
    
    
    17,781
    
    
    
    19,949,589
    
    
    
    (24,015,400
    )
    
    
    (4,048,030
    )
 -7-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2003 and the Three Months Ended
March 31, 2004 (Unaudited) DeficitAccumulatedAdditional
    
    During theCommon
    
    Paid-in
    
    DevelopmentStock
    
    Capital
    
    Stage
    
    TotalIssuance of stock for accounts payable balances,
various months 2004 (323,153 shares at an
average price of $.52644 per share)
    
    $
    323
    
    
    $
    169,798
    
    
    $
    
    
    
    $
    170,121Issuance of stock, various months 2004
(2,786,776 shares at $.30 per share)
    
    
    2,787
    
    
    
    833,246
    
    
    
    
    
    
    
    836,033Net loss
    
    
    
    
    
    
    
    
    
    
    (656,948
    )
    
    
    (656,948
    )Balance (deficit), March 31, 2004
    
    $
    20,891
    
    
    $
    20,952,633
    
    
    $
    (24,672,348
    )
    
    
    (3,698,824
    )
 See notes to financial statements. -8-




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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company) 
 STATEMENTS OF CASH FLOWS
 CumulativeDuringDevelopment
    
    Three Months Ended March 31,Stage ThroughMarch 31, 2004
    
    2004
    
    2003(Unaudited)
    
    (Unaudited)
    
    (Unaudited)Operating activities:Net loss
    
    $
    (22,894,316
    )
    
    $
    (656,948
    )
    
    $
    (635,052
    )Items not requiring
(providing) cash:Depreciation
    
    
    19,809Expenses funded by Common
Stock issuance
    
    
    737,653Other
    
    
    (123,546
    )Changes in:Advances to officers
    
    
    (1,437,516
    )Other receivables
    
    
    (142,468
    )Accounts payable
    
    
    1,586,512
    
    
    
    48,016
    
    
    
    (18,428
    )Accrued expenses
    
    
    4,314,117
    
    
    
    
    
    
    
    282,530Deferred compensation
    
    
    3,675,084
    
    
    
    96,503
    
    
    
    158,793Deferred compensation retirement plan
    
    
    3,245,000
    
    
    
    
    
    
    
    Net cash used in
operating activities
    
    
    (11,019,671
    )
    
    
    (512,429
    )
    
    
    (212,157
    )Investing activities:Purchase of fixed assets
    
    
    (19,808
    )Other
    
    
    314,082Net cash provided by
investing activities
    
    
    294,274Financing activities:Proceeds from issuance of
Common Stock and warrants
    
    
    5,643,894
    
    
    
    836,033Proceeds from notes payable and
advances from officers
    
    
    1,803,609
    
    
    
    
    
    
    
    45,000Proceeds from Convertible Debentures
    
    
    3,798,000Payments on notes payable and advances
from officers
    
    
    (242,609
    )Other
    
    
    108,410Net cash provided by
financing activities
    
    
    11,111,304
    
    
    
    836,033
    
    
    
    45,000Increase (decrease) in cash
    
    
    385,907
    
    
    
    323,604
    
    
    
    (167,157
    )Cash, beginning of period
    
    
    0
    
    
    
    62,303
    
    
    
    211,329Cash, end of period
    
    $
    385,907
    
    
    $
    385,907
    
    
    $
    44,172
 See notes to financial statements. -9-




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THERMOENERGY CORPORATION
(A Development Stage Company) 
 NOTES TO FINANCIAL STATEMENTS (Unaudited)
 March 31, 2004
 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-QSB and Item 310(b) of
Regulation S-B. 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, 2004 are not necessarily indicative of the results that may be
expected for the year ended December 31, 2004. The balance sheet at December 31, 2003 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-KSB for the year
ended December 31, 2003. 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 after
giving effect, where appropriate, to stock dividends, stock splits and nominal
issuances of Common Stock, warrants and stock options which occurred within
twelve months of the initial public offering filing date (February 27, 1992).
Stock options and warrants issued after the one year period referred to above,
and the dilutive effect of convertible debentures were not included in the
computation of diluted loss per share since the effect would be antidilutive.
The adjusted weighted average number of common shares used in the basic and
diluted loss per share computations were 19,338,032, 5,942,994, and 5,011,288
shares for the periods ended March 31, 2004 and 2003, and cumulative since
inception through March 31, 2004, respectively. NOTE 3: COMMON STOCK During the first quarter of 2004, the Company issued 323,153 shares of Common
Stock to settle accounts payable balances aggregating $170,121 and 2,786,776
shares for cash at $.30 per share. During February 2004, the Board of Directors granted stock options to a member
of the Board of Directors for the purchase of 50,000 shares of the Companys
Common Stock at $.50 per share. -10-




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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2004 NOTE 3: COMMON STOCK (continued) On March 23, 2004, the Board of Directors approved a rescission offer to
stockholders who purchased the Companys Common Stock during the fourth quarter
of 2003 and the first quarter of 2004 due to the determination that an
exemption from the registration requirements of the Securities Act of 1933 was
not available. The purchasers did not require the Company to repurchase any of
the shares pursuant to this offer. NOTE 4: 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. 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. NOTE 5: COMMITMENTS Pursuant to the terms of a letter agreement dated June 26, 2003, the Company
engaged Prospect Street Ventures (PSV) to serve as its exclusive financial
advisor in connection with the raising of capital and the Companys
consideration of various strategic alternatives. As compensation for its
services to the Company, PSV is entitled to receive shares of Common Stock as a
retainer fee and additional shares of Common Stock on a monthly basis during
the course of the engagement. PSV is also entitled to a success fee upon the
completion of any transaction and to compensation if certain transactions are
completed within two years of the termination of the agreement. At March 31,
2004, the Company has recognized a liability aggregating $418,375 (which is
included in accounts payable in the March 31, 2004 Balance Sheet), for PSVs
services since the inception of the agreement. No amounts have been paid to
PSV (in cash or Common Stock) during 2003 or 2004. Item 2. Managements Discussion and Analysis or Plan of Operation. Forward-Looking Statements The following discussion should be read in conjunction with the financial
statements and the notes to the financial statements appearing elsewhere in
this quarterly report on Form 10-QSB. -11-




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The following discussion and the information contained elsewhere in this
quarterly report contains statements that are forward-looking statements as
defined within the meaning of the Private Securities Litigation Reform Act of
1995. Forward-looking statements give the Companys current expectations of
forecasts of future events. All statements other than statements of current or
historical fact contained in this quarterly report, including statements
regarding the Companys future financial position, business strategy, budgets,
projected costs and plans and objectives of management for future operations,
are forward-looking statements. The words anticipate, believe, continue,
estimate, expect, intend, may, plan, will, and similar expressions,
as they relate to the Company, are intended to identify forward-looking
statements. These statements are based on the Companys current plans, and
actual future activities and the Companys results of operations may be
materially different from those set forth in the forward-looking statements.
These forward-looking statements are subject to risks and uncertainties that
could cause actual results to differ materially from the statements made.
These include, but are not limited to, the risks and uncertainties associated
with statements relating to: (i) the ability of the Company to fund its
continued operations and development activities, primarily through the
availability of debt and equity financing on terms that are acceptable or
otherwise to the Company; (ii) the Companys ability to commercialize its
Technologies (as defined below); (iii) changes in government policy and in
legislation and regulation of the waste treatment industry that adversely
affect the Companys business prospects; and (iv) general economic and market
conditions. Any or all of the forward-looking statements in this quarterly report may turn
out to be inaccurate. The Company has based these forward-looking statements
largely on its current expectations and projections about future events and
financial trends that it believes may affect its financial condition, results
of operations, business strategy and financial needs. The forward-looking
statements can be affected by inaccurate assumptions or by known or unknown
risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking
statements after the date of this quarterly report. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting
on its behalf are expressly qualified in their entirety by the cautionary
statements contained in this report and in the Companys Form 10-KSB. The Companys filing with the Securities and Exchange Commission, including its
reports under the Securities and Exchange Act of 1934, as amended, can be found
through the Companys website at http://www.thermoenergy.com/financial.htm.
The information contained in the Companys website is not deemed to be a part
of this filing. General ThermoEnergy Corporation, an Arkansas corporation (the Company), was
incorporated in January 1988, for the purpose of developing and marketing
certain environmental technologies. The Company is the exclusive worldwide
licensee (except for STORS, as defined below, in Japan) for three clean water
process technologies developed by Battelle Memorial Institute (BMI). The
Company owns the rights to the ThermoFuel Process (ThermoFuel), a patent- -12-




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pending renewable energy process that represents an advancement of the
Sludge-To-Oil Reactor System (STORS), and also owns the rights to Enhanced
Biogas Production (Enhanced Biogas Production) under a license agreement with
Alexander G. Fassbender (Fassbender), the Companys Executive Vice-President
of Technology. The five chemical process technologies (STORS, ThermoFuel, the
Ammonia Recovery Process (ARP), the Nitrogen Removal Process (NitRem) and
Enhanced Biogas Production) are primarily aimed at solving wastewater problems
for broad-based municipal and industrial markets. The Company also is the
exclusive worldwide licensee for a hardware technology developed by BMI known
as the Dual-Shell Reactor System (DSR), in which STORS and NitRem are
conducted. These six technologies are collectively referred to as the Water
Technologies. The Company is also the
owner, along with Fassbender, of a patented clean energy technology known as
the ThermoEnergy Integrated Power System (TIPS), which
converts fossil fuels (including coal, oil and natural gas) and biomass into
electricity without producing air emissions. TIPS and the Water Technologies
are collectively referred to as the Technologies. Plan of Operations The Company has historically lacked the financial and other resources necessary
to market the Technologies or to build demonstration projects. The following
summary sets forth the Companys plan of operations for the next 12 months. Current Cash Requirements; Need for Additional Funds The Company will require substantially more cash to satisfy its anticipated
operating expenses for the next 12 months than it has available. As of March
31, 2004, the Company had a cash balance of $385,907 (compared to $44,172
available cash as of March 31, 2003), while its current liabilities were
$839,731. The Company has no debt instruments outstanding due to the
conversion of all of its debentures during 2003. Management anticipates that
its cash requirements during the next 12 months to implement the Companys
marketing and development strategies will range from $500,000 (assuming no
commercialization of the Technologies) to $1,000,000 (assuming there are
expenses associated with one or more commercial sales of the Technologies).
Substantially all the anticipated cash requirements will be for intellectual
property rights, executive compensation and marketing and development expense.
Based upon the Companys available cash and its current and possible
requirements and obligations, the Company must raise additional capital to fund
its operations beyond June 30, 2004. In offerings of its stock during the fourth quarter of 2003 and the first
quarter of 2004, the Company sold an aggregate of 1,028,002 shares of its
Common Stock to certain existing stockholders of the Company for $0.30 per
share (the Stockholder Placements). The aggregate gross proceeds from the
Stockholder Placements were approximately $308,400. In the first quarter of
2004, the Company also issued and sold an aggregate of 2,686,492 shares of its
Common Stock to certain new investors referred to the Company by Prospect
Street Ventures, an investment banking and financial advisory firm engaged by
the Company in 2003 to assist in its capital raising activities (PSV), for
$0.30 per share (the PSV Placement and collectively with the Stockholder
Placements, the Stock Placements). The aggregate gross proceeds of the -13-




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PSV Placement were approximately $806,000. Pursuant to the Stock Placements,
the Company issued an aggregate of 3,714,494 shares of its Common Stock for
aggregate gross proceeds of approximately $1,114,348. None of the shares sold in the Stock Placements were registered under the
Securities Act of 1933, as amended (the Securities Act), and the Company
concluded that there was no available exemption from the registration
requirements of the Securities Act. Accordingly, on April 10, 2004, the Company commenced a
rescission offer to the purchasers of Common Stock in the Stock Placements.
The rescission offer terminated on May 10, 2004. None of the purchasers of
Common Stock in the Stock Placements rescinded their purchases. The Company and PSV are continuing to seek both short-term and longer-term
financing and are considering various strategic alternatives to fund the
Companys operations and development activities. These alternatives include
the issuance of Common Stock, the issuance of other equity or debt securities
or bridge financing arrangements with commercial lenders. In the event that
the Company cannot raise the necessary capital in the immediate or near-term to
fund the Companys present and future operations and development activities,
the Company will not be able to continue its operations. Research and Development During the Next 12 Months The Company will continue to conduct computer modeling with respect to its
Technologies and processes. Due to the current financial condition of the
Company, however, there are no plans to conduct any product research and
development activities in the next 12 months. Purchase of Plant or Significant Equipment The Company and PSV continue to search for possible acquisition targets that
possess both products and services which complement or enhance the Technologies
and which have revenues from operations. Management believes that the
acquisition of, or merger with, a business with a recurring stream of revenue
would enhance the Companys ability to obtain longer-term financing. While the
current financial condition of the Company would make an acquisition in the
next 12 months difficult, management hopes that debt or equity acquisition
financing would become available if an appropriate target was found. Expected Changes in the Number of Employees The Company does not foresee any increase in the number of employees in the
next 12 months unless a commercial contract is signed. Off-Balance Sheet Arrangements The Company does not have any off-balance sheet arrangements. -14-




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Item 3. Controls and Procedures. The Company, under the direction of its Chief Executive Officer and its
Principal Financial Officer, has established disclosure controls and procedures
that are designed to ensure that information required to be disclosed by the
Company in the reports that it files or submits under the Securities Exchange
Act of 1934, as amended, is recorded, processed, summarized, and reported
within the time periods specified in the Securities and Exchange Commissions
rules and forms. The disclosure controls and procedures are also intended to
ensure that such information is accumulated and communicated to the Companys
management, consisting of the Chief Executive Officer and the Principal
Financial Officer, as appropriate to allow timely decisions regarding required
disclosures. The Chief Executive Officer and Principal Financial Officer have reviewed and
evaluated the Companys disclosure controls and procedures as of the end of the
period covered by this report. Based on, and as of the effective date of, that
review and evaluation, the Chief Executive Officer and Principal Financial
Officer have concluded that the Companys disclosure controls and procedures
are effectively serving the stated purposes. In addition, no changes in the Companys internal control over financial
reporting occurred during the period covered by this report that materially
affected, or are reasonably likely to materially affect, the Companys internal
controls over financial reporting. 
 PART II  OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Change in Securities and Small Business Issuer Purchases of Equity Securities. See Part II, Item 5, Recent Sales of Unregistered Securities included in the
Companys annual report on Form 10-KSB for the year ended December 31, 2003,
filed with the Securities and Exchange Commission on March 30, 2004. Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Securities Holders. None. Item 5. Other Information. The Company and New York City officials are continuing to negotiate for a
500,000 gallon per day ARP facility to be located at one of New York Citys
eight water pollution control plant de-watering facilities. The Company
believes that, based upon the current negotiations, the -15-




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Company would be able to meet the operational requirements of the contract by
hiring subcontractors. No definitive contract has been executed with New York
City and no assurance can be given that any final agreement will be reached. Item 6. Exhibits and Report on Form 8-K. (a) The following exhibits are filed as part of this report: ExhibitNumber
    
    Description of Exhibits31.1
    
    Certification of the Companys Chief Executive Officer pursuant to
Securities and Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of the Companys Principal Financial Officer pursuant
to Securities and Exchange Act Rules 13a-14 and 15d-14, as adopted
pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of the Companys Chief Executive Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification of the Companys Principal Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(b) No reports on Form 8-K were filed during the quarterly
period ended March 31, 2004.
 -16-




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SIGNATURES In accordance with the requirements of the Securities Exchange Act of
1934, as amended, the registrant caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized. Date: May 17, 2004
    THERMOENERGY CORPORATION/s/ P.L. MontesiP.L. Montesi, President, Treasurerand Principal Financial Officer -17-