##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-QSB

[x]
    
    QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2003OR[  ]
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACTFOR THE TRANSITION PERIOD FROM ____________________________ TO  ____________________________


COMMISSION FILE NUMBER 33-46104-FW

THERMOENERGY CORPORATION

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


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


323 CENTER STREET, SUITE 1300, LITTLE ROCK, ARKANSAS 72201
(Address of principal executive offices)

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



---

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


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

Check whether the registrant filed all documents and reports required to be
filed by Section 12, 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: 5,977,369 shares of common
stock as of May 12, 2003.

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





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TABLE OF CONTENTS



|                                                        |  |  |  |  |  |  |  | 
|------------------------------------------------------- |  |  |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION                         
|BALANCE SHEETS                                         
|STATEMENTS OF OPERATIONS                               
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
|STATEMENTS OF CASH FLOWS                               
|NOTES TO FINANCIAL STATEMENTS (Unaudited)              
|PART II- OTHER INFORMATION                             
|SIGNATURES                                             
|CERTIFICATIONS                                         
|EX-99.1 SECTION 906 CERTIFICATION OF THE CEO           
|EX-99.2 SECTION 906 CERTIFICATION OF THE CFO           



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##### Table of Contents






PART I  FINANCIAL INFORMATION

Item 1.  Financial Statements.

THERMOENERGY CORPORATION
(A Development Stage Company)




BALANCE SHEETS


March 31,
    
    December 31,2003
    
    2002(Unaudited)
    
    (Note 1)ASSETSCash  Total Current Assets
    
    $
    44,172
    
    
    $
    211,329Property and equipment, at cost:Equipment, furniture and fixtures
    
    
    19,809
    
    
    
    19,809Less accumulated depreciation
    
    
    (19,809
    )
    
    
    (19,809
    )
    
    
    
    $
    44,172
    
    
    $
    211,329LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current maturities of Convertible Debentures
    
    $
    4,484,345
    
    
    $
    225,623Advances from officers
    
    
    45,000Accounts payable
    
    
    313,793
    
    
    
    332,221Accrued interest payable  primarily to related parties
    
    
    3,090,167
    
    
    
    2,807,637Deferred compensation
    
    
    232,793
    
    
    
    74,000Total Current Liabilities
    
    
    8,166,098
    
    
    
    3,439,481Convertible Debentures (Note 5)
    
    
    1,261,266
    
    
    
    5,519,988Total Liabilities
    
    
    9,427,364
    
    
    
    8,959,469Stockholders 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, 2003: issued  6,034,601 shares; outstanding
 5,950,772 shares; December 31, 2002: issued  5,984,601
shares; outstanding  5,900,772 shares
    
    
    6,035
    
    
    
    5,985Additional paid-in capital
    
    
    9,158,159
    
    
    
    9,158,209Deficit accumulated during the development stage
    
    
    (18,547,386
    )
    
    
    (17,912,334
    )(9,383,192
    )
    
    
    (8,748,140
    )$
    44,172
    
    
    $
    211,329


See notes to financial statements.

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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)




STATEMENTS OF OPERATIONS

CumulativeDuringDevelopmentStage Through
    
    Three Months EndedMarch 31,
    
    March 31,2003
    
    2003
    
    2002(Unaudited)
    
    (Unaudited)Operating Expenses:General and administrative
    
    $
    10,728,768
    
    
    $
    286,242
    
    
    $
    207,462Payments under licenses
    
    
    1,112,266
    
    
    
    25,000
    
    
    
    25,000Travel and entertainment
    
    
    2,027,796
    
    
    
    41,362
    
    
    
    68,88013,868,830
    
    
    
    352,604
    
    
    
    301,342Loss From Operations
    
    
    (13,868,830
    )
    
    
    (352,604
    )
    
    
    (301,342
    )Other Income (Expense)Interest income
    
    
    237,061
    
    
    
    82
    
    
    
    4,360Gain on settlement of lawsuit
    
    
    317,423Other
    
    
    59,574Interest expense
    
    
    (3,514,582
    )
    
    
    (282,530
    )
    
    
    (243,097
    )(2,900,524
    )
    
    
    (282,448
    )
    
    
    (238,737
    )Net Loss
    
    $
    (16,769,354
    )
    
    $
    (635,052
    )
    
    $
    (540,079
    )Basic and Dilutedper Common Share (Note 2)Loss From Operations
    
    $
    (3.13
    )
    
    $
    (0.06
    )
    
    $
    (0.05
    )Net Loss
    
    $
    (3.79
    )
    
    $
    (0.11
    )
    
    $
    (0.10
    )


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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, 2002 and the Three Months Ended
March 31, 2003 (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
    )


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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, 2002 and the Three Months Ended
March 31, 2003 (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
    )


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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, 2002 and the Three Months Ended
March 31, 2003 (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
    )


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THERMOENERGY CORPORATION
(A Development Stage Company)
STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT) CONTINUED
Periods Ended September 30, 1988 Through December 31, 2002 and the Three Months Ended
March 31, 2003 (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
    )


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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, 2002 and the Three Months Ended
March 31, 2003 (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, February
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
    )Net loss
    
    
    
    
    
    
    
    
    
    
    (635,052
    )
    
    
    (635,052
    )Balance (deficit), March 31, 2003
    
    $
    6,035
    
    
    $
    9,158,159
    
    
    $
    (18,547,386
    )
    
    $
    (9,383,192
    )


See notes to financial statements.

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##### Table of Contents



THERMOENERGY CORPORATION
(A Development Stage Company)




STATEMENTS OF CASH FLOWS


CumulativeDuringDevelopmentStage Through
    
    Three Months Ended March 31,March 31, 2003
    
    2003
    
    2002(Unaudited)
    
    (Unaudited)
    
    (Unaudited)Operating activities:Net loss
    
    $
    (16,769,354
    )
    
    $
    (635,052
    )
    
    $
    (540,079
    )Items not requiring
(providing) cash:Depreciation
    
    
    19,809Expenses funded by Common
Stock issuance
    
    
    708,338Other
    
    
    (123,546
    )Changes in:Advances to officers
    
    
    (1,437,516
    )
    
    
    
    
    
    
    (44,000
    )Other receivables
    
    
    (142,468
    )
    
    
    
    
    
    
    (1,405
    )Accounts payable
    
    
    1,088,879
    
    
    
    (18,428
    )
    
    
    (89,897
    )Accrued expenses
    
    
    3,398,794
    
    
    
    282,530
    
    
    
    243,097Deferred compensation
    
    
    3,108,592
    
    
    
    158,793
    
    
    
    83,192Net cash used in
operating activities
    
    
    (10,148,472
    )
    
    
    (212,157
    )
    
    
    (349,092
    )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
    
    
    4,508,960
    
    
    
    
    
    
    
    229,116Proceeds from notes payable and
advances from officers
    
    
    1,710,609
    
    
    
    45,000Proceeds from Convertible Debentures
    
    
    3,725,000Payments on notes payable
    
    
    (154,609
    )Other
    
    
    108,410Net cash provided by
financing activities
    
    
    9,898,370
    
    
    
    45,000
    
    
    
    229,116Increase (decrease) in cash
    
    
    44,172
    
    
    
    (167,157
    )
    
    
    (119,976
    )Cash, beginning of period
    
    
    0
    
    
    
    211,329
    
    
    
    557,870Cash, end of period
    
    $
    44,172
    
    
    $
    44,172
    
    
    $
    437,894


See notes to financial statements.

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THERMOENERGY CORPORATION
(A Development Stage Company)




NOTES TO FINANCIAL STATEMENTS (Unaudited)


March 31, 2003


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-month period ended March 31,
2003 are not necessarily indicative of the results that may be expected for the
year ended December 31, 2003.

The balance sheet at December 31, 2002 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, 2002.

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 the Companys 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 5,942,994, 5,712,077, and
4,424,389 shares for the periods ended March 31, 2003 and 2002, and cumulative
since inception through March 31, 2003, respectively.

NOTE 3:  COMMON STOCK

During January 2003, the Companys Board of Directors approved the issuance of
50,000 shares of Common Stock to a shareholder in exchange for warrants
previously purchased by the shareholder.

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2003

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 (defined
below in Business Plan  Development and Commercialization of Technologies).
Furthermore, the Company has $4,484,345 of Series 98 Debentures that mature
within one year (see Note 5). 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.

The Company is currently seeking both short-term and longer-term financing and
considering various strategic alternatives to fund the Companys present and
future operations and development activities and to otherwise satisfy the
Companys liquidity needs. Management is seeking the necessary funds to meet
the Companys immediate or near-term liquidity needs through various
alternatives, including through the issuance of Common Stock or other equity or
debt securities. Due to, among other things, the existing trading price of the
Companys Common Stock and the Companys financial condition, the Company has
only successfully completed one such transaction in recent months, a
transaction whereby the Company raised $300,000 by issuing $300,000 of Series
02, 15% Convertible Debentures (the Series 02
Debentures) in December 2002. No assurances can be given that such short-term financing will be
available to the Company on favorable terms or otherwise or in a timely manner.
See Note 5 for a discussion of a new series of convertible debentures approved
by the Board of Directors during April 2003.

The Company will likely be required to secure bridge financing in the immediate
or near-term to provide the necessary liquidity to enable the Company to raise
additional capital through the sale of equity or debt securities or through
other alternatives. In the event the Company is unable to obtain necessary
financing and obtain necessary capital in the near or long-term to fund its
continued operations and development activities, the Company will consider
various alternatives, including, but not limited to, the sale or sublicensing
of its Technologies and/or filing a petition under federal bankruptcy laws. If
the Company does not raise the necessary capital in the immediate or near-term
to fund the Companys present and future operations and development activities
and to otherwise satisfy the Companys liquidity needs, the Company will be
unable to remain in operation.

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
March 31, 2003

NOTE 4:  MANAGEMENTS CONSIDERATION OF GOING CONCERN MATTERS (continued)

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

NOTE 5:  SUBSEQUENT EVENTS

On April 15, 2003, the holder of $96,000 of the Companys Series 98 Debentures
(which had agreed to extend the maturity date of such Debentures to April 15,
2003) agreed to convert $15,000 of the Debentures and accrued interest thereon
to 26,597 shares of the Companys Common Stock, based on a conversion price of
$1.05 per share, and to extend the maturity of the remaining $81,000 of the
Series 98 Debentures until July 1, 2003.

On April 29, 2003, the Companys Board of Directors approved the sale of up to
$500,000 of Series 03 Convertible Debentures. The Debentures would bear
interest at a rate of 15% and would mature in five years, subject to a two-year
call provision at par. The Debentures, which will be offered at a discount of
20% from par, would be convertible into shares of the Companys Common Stock at
$1.05 per share.

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. 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

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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; (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 2002 Form 10-KSB for
the year ended December 31, 2002 as filed with the Commission on April 25, 2003
(the Form 10-KSB).

Business Plan

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 twelve months.

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, 2003, the Company had
available cash of $44,172 comparable to $211,329 available cash as of March 31,
2002. As discussed in the Form 10-KSB, management anticipates that its cash
requirements during the next 12 months to implement the Companys marketing and
development strategies will range from $600,000 to $1,200,000,
including license-related payments during the second and third
quarters of 2003 of approximately $100,000 due to BMI (as defined below in Development and
Commercialization of Technologies).

The Company has an aggregate of approximately $210,623 of Series 98, 15%
unsecured convertible debentures (the Series 98 Debentures) that will mature
on July 1 and September 15, 2003, of which $81,000 will mature on July 1 and
$129,623 will mature on September 15, 2003. The holder of the $129,623 Series
98 Debentures agreed on May 7, 2003 to extend the maturity date of those
debentures from May 15, 2003 to September 15, 2003. The
principal and accrued interest of the Series 98 Debentures are convertible into
shares of Common Stock at the conversion price of $1.05. The Company does not
expect any of the holders of the Series 98 Debentures due on July 1 or
September 15, 2003 to convert the debentures into Common Stock unless the stock
price rises above the $1.05 conversion price. The Company does not currently
have the cash necessary to pay the Series 98 Debentures that mature on July 1
or September 15. If the Company cannot negotiate extensions on the July 1 or
September 15, 2003 Series 98 Debentures, or if the Company cannot raise the
necessary capital to retire the Series 98 Debentures, then the Company will be
in default under those debentures.

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In addition, the Company has an aggregate of approximately $4,258,722 of the
Series 98 Debentures that previously were extended to a January 15, 2004
maturity date from a January 15, 2003 maturity date. The Company hopes that
the Common Stock of the Company will be trading above the $1.05 conversion
price at the maturity date and that the holders of the January 15, 2004
debentures will convert the principal and accrued interest of the debentures
into Common Stock. However, there is no assurance that the Common Stock of the
Company will be at a price that is greater than the conversion price or that
the holders will elect to convert. The Company does not have the cash to pay
the holders of the Series 98 Debentures that mature on January 15, 2004. If
the Company does not raise the necessary capital to retire the Series 98
Debentures that expire on January 15, 2004 or negotiate further extensions with
the holders, then the Company will default on the terms of those debentures.

In addition to the amounts that might be required to repay the debentures due
to mature on July 1 and September 15, 2003, and January 15, 2004, respectively,
the Company will need to raise capital in the next 12 months in order to
continue its operations. The Company and its financial advisor are currently
seeking both short-term and longer-term financing and considering various
strategic alternatives to fund the Companys present and future operations and
development activities. These alternatives include the issuance of Common
Stock, the issuance of other equity or debt securities (including the issuance
of Series 03 Convertible Debentures authorized by the Board of Directors on
April 29, 2003 (see Note 5 of Notes to Financial Statements)) or bridge
financing arrangements with commercial lenders. However, as of the date of
this quarterly filing, the Company has not raised any capital during 2003. 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.

In addition to these financing alternatives, in an effort to raise capital to
meet the Companys obligations during the next 12 months, management is
reviewing the possible benefits and ramifications of sublicensing or selling
one or more of its Technologies. However, the Company does not know if there
would be any interest in sublicensing or purchasing any of the Technologies and
the Company has not entered into any negotiations with any person in connection
with any sublicense or sale of any of the Technologies. In the event the
Company is unable to obtain funds necessary to continue operations, it will
consider other alternatives, including, but not limited to, filing a petition
under federal bankruptcy laws.

Development and Commercialization of Technologies.The Company is the
exclusive worldwide licensee (except for STORS, as defined below, in Japan) for
three clean water process technologies and one process equipment technology
developed by Battelle Memorial Institute (BMI). The Company also owns the
rights to the ThermoFuel Process (ThermoFuel), a patent-pending renewable
energy process that represents an advance of the Sludge-To-Oil Reactor System
(STORS). The five technologies are primarily aimed at solving wastewater
problems for broad-based municipal and industrial markets. These technologies
include four chemical process technologies: STORS, ThermoFuel, the Ammonia
Recovery Process (ARP), and the Nitrogen Removal Process (NitRem). The
Company has a hardware technology known as the Dual-Shell Reactor System
(DSR), in which STORS and NitRem chemical processes are conducted. These
five technologies are collectively referred to as the Water Technologies.

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The Company is also the exclusive owner 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, and is aimed at competing with conventional
energy conversion technologies. In addition, TIPS removes and captures carbon
dioxide (CO2) in liquid form for sequestration or beneficial reuse. TIPS and
the Water Technologies are collectively referred to as the Technologies.

Because the Company does not currently possess the technical, operational or
financial resources necessary to construct or operate STORS, ThermoFuel,
NitRem, ARP or TIPS facilities or a commercial facility without external
project funding and the ability to source engineering skills, the Company
continues to pursue strategic partners with the ability to assist in the
marketing and commercialization of the Technologies.

In June 2002, the Company signed a letter of intent with Shenzhen Fuhaoheng
Investment Co., LTD., a Chinese corporation (SFIC), to form a joint venture
to design, construct and operate wastewater treatment plants with the Peoples
Republic of China (PRC) using the Technologies (the Chinese Letter of
Intent). Although the Chinese Letter of Intent expired on December 31, 2002,
the Company has maintained communications with SFIC regarding its efforts to
obtain funding for any such project.

If a joint venture is formed as was contemplated in the Chinese Letter of
Intent, its first project would be a commercial scale pilot plant located in
Shenzhen, PRC. Based upon the pilot projects performance, it was anticipated
that the joint venture would plan to pursue commercial, municipal and
industrial wastewater treatment projects throughout China. Since the Chinese
Letter of Intent has expired and the Company has not been able to raise the
capital for its participation in the contemplated joint venture, there can be
no assurance that the Company could ever form a joint venture in China or any
other foreign country.

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. Even though
demonstration units have been successfully operated and the Water Technologies
have been proven viable in demonstrations (STORS  Colton Demonstration
Project; NitRem  Radford Army Ammunition Plant; and ARP  New York City
Demonstration and Colton Demonstration Project), none of the Technologies have
been implemented on a permanent basis by a municipal or industrial customer.
The Company has historically lacked the financial and other resources necessary
to market the Technologies or to build demonstration projects.

The Company requires significant capital expenditures for the Companys
participation into the wastewater and sludge treatment markets or the
acceptability of its Technologies in such markets. The Companys ability to
penetrate these markets depends on (1) successfully commercializing one or more
of its Technologies and (2) fully developing and demonstrating TIPS.

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Purchase of Plant or Significant Equipment. The Company currently owns no
plants and equipment. As discussed in the Form 10-KSB, the Company and its
financial advisor are currently searching for possible acquisition targets with
complementary products and services to the Companys Technologies and an
established recurring stream of revenue from operations. As of the date of
this quarterly filing, the Company does not have a transaction to report, and
there can be no assurance that the Company will be able to consummate any such
transaction in the next 12 months.

Results of Operations

For the three months ended March 31, 2003, the Company incurred a net loss of
$635,052 compared to $540,079 for the three months ended March 31, 2002.
General and administrative expenses increased during the three-month periods
ended March 31, 2003, compared to March 31, 2002 due primarily to compensation
increases provided for in the Companys employment agreements with its officers
and due to increases in professional fees. Travel and entertainment expenses
decreased during the same periods due to the Companys efforts to conserve cash
during the first quarter of 2003. Interest expense for the three months ended
March 31, 2003 increased compared to the same period for 2002 due to the
issuance of $300,000 of Series 02 Convertible Debentures during December 2002
and due to the effect of interest compounding.

Liquidity and Capital Resources

During the three-month period ended March 31, 2003, the Company used $212,157
of cash in operations compared to $349,092 in the comparable period of 2002.
This decrease is consistent with the Companys efforts to conserve cash.

Due to, among other things, the existing trading price of the Companys Common
Stock and the Companys financial condition, the Companys source of funds for
the three months ended March 31, 2003 was limited to borrowings from officers.
During the quarter ended March 31, 2002 the Company met its liquidity needs
primarily from the issuance of Common Stock for cash. See Business Plan 
Cash Requirements herein for a discussion of cash requirements for the year
ending December 31, 2003.

If the Company is able to meet its immediate liquidity needs through the sale
of equity and/or debt securities, and thereafter to successfully demonstrate
its Technologies, management hopes to be able to meet the longer-term liquidity
needs of the Company primarily from revenues derived from commercial contracts
the Company hopes to obtain.

Net Operating Losses

The Company had net operating loss carryforwards as of December 31, 2002 of
approximately $12,100,000, which expire in the years 2003 through 2022. 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 $4,603,000
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.

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Item 3.  Controls and Procedures.

Based on their most recent evaluation, which was completed within ninety (90)
days of the filing of this Form 10-QSB, the Companys Chief Executive Officer
and Principal Financial Officer believe the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed by
the Company in this report is accumulated and communicated to the Companys
management, including its Chief Executive Officer and Principal Financial
Officer, as appropriate, to allow timely decisions regarding required
disclosure. There were no significant changes in the Companys internal
controls or other factors that could significantly affect these controls
subsequent to the date of their evaluation and there were no corrective actions
with regard to significant deficiencies and material weaknesses.




PART II  OTHER INFORMATION

Item 1.  Legal Proceedings.

None.

Item 2.  Change in Securities.

None.

Item 3.  Defaults Upon Senior Securities.

None.

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

None.

Item 5.  Other Information.

None.

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

(a)    The following exhibits are filed as part of this report:

EXHIBITNUMBER
    
    Description of Exhibits99.1
    
    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 2002.99.2
    
    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, 2003.

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SIGNATURES

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

Date: May 14, 2003
    
    
    
    THERMOENERGY CORPORATION/s/ P.L. MONTESIP.L. Montesi, President, Treasurerand Principal Financial Officer


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CERTIFICATIONS

CERTIFICATION OF THE CEO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 AND 15d-14
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, Dennis C. Cossey, certify that:

1.       I have reviewed this quarterly report on Form 10-QSB of ThermoEnergy
Corporation;

2.       Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4.       The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a)      designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b)      evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date,); and

c)      presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.       The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

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a)      all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and

b)      any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and

6.       The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date:
    
    May 14, 2003/s/ Dennis C. CosseyDennis C. CosseyChief Executive Officer


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CERTIFICATION OF THE CFO PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14 AND 15d-14
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002

I, P. L. Montesi, certify that:

1.       I have reviewed this quarterly report on Form 10-QSB of ThermoEnergy
Corporation;

2.       Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under
which such statements were made, not misleading with respect to the period
covered by this quarterly report;

3.       Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;

4.       The registrants other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:

a)       designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b)       evaluated the effectiveness of the registrants disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the Evaluation Date,); and

c)       presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.       The registrants other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent functions):

a)       all significant deficiencies in the design or operation of
internal controls which could adversely affect the registrants
ability to record, process, summarize and report financial data and
have identified for the registrants auditors any material
weaknesses in internal controls; and

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b)       any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrants
internal controls; and

6.       The registrants other certifying officers and I have indicated in this
quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and
material weaknesses.

Date:
    
    May 14, 2003/s/ P. L. MontesiP. L. MontesiPresident, Treasurer and Principal Financial Officer


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