##### 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 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2003

OR

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

FOR THE TRANSITION PERIOD FROM ______________  TO ______________

COMMISSION FILE NUMBER 33-46104-FW

THERMOENERGY CORPORATION

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


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


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

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



---



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

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

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

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: 16,369,795 shares of common
stock as of November 10, 2003.

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





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TABLE OF CONTENTS



|                                                        |  |  |  |  |  |  |  | 
|------------------------------------------------------- |  |  |  |  |  |  |  | 
|BALANCE SHEETS                                         
|STATEMENTS OF OPERATIONS                               
|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY (DEFICIT)
|NOTES TO FINANCIAL STATEMENTS (Unaudited)              
|PART II- OTHER INFORMATION                             
|SIGNATURES                                             
|EX-31.1 SECTION 302 CERTIFICATION OF THE CEO           
|EX-31.2 SECTION 302 CERTIFICATION OF THE CFO           
|EX-32.1 SECTION 906 CERTIFICATION OF THE CEO           
|EX-32.2 SECTION 906 CERTIFICATION OF THE CFO           
|Ex-99.1 Letter of Intent                               



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##### Table of Contents






THERMOENERGY CORPORATION
(A Development Stage Company)
BALANCE SHEETS

September 30,
    
    December 31,2003
    
    2002(Unaudited)
    
    (Note 1)ASSETSCash  Total Current Assets
    
    $
    4,983
    
    
    $
    211,329Property and equipment, at cost:Equipment, furniture and fixtures
    
    
    19,809
    
    
    
    19,809Less accumulated depreciation
    
    
    (19,809
    )
    
    
    (19,809
    )
    
    
    
    $
    4,983
    
    
    $
    211,329LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current maturities of Convertible Debentures (Notes 2 and 3)
    
    $
    
    
    
    $
    225,623Advances from officers
    
    
    58,000Accounts payable
    
    
    507,317
    
    
    
    332,221Accrued interest payable  primarily to related parties
    
    
    
    
    
    
    2,807,637Deferred compensation (Note 3)
    
    
    261,806
    
    
    
    74,000Total Current Liabilities
    
    
    827,123
    
    
    
    3,439,481Convertible Debentures (Notes 2 and 3)
    
    
    
    
    
    
    5,519,988Total Liabilities
    
    
    827,123
    
    
    
    8,959,469Stockholders equity (deficit) (Notes 2, 3, 4, 6 and 7):Preferred stock, non-voting, $1 par value:Authorized
 10,000,000 shares; none issued Common Stock, $.001 par value: authorized  75,000,000
shares;September 30, 2003: issued  15,723,957 shares; outstanding  15,640,128 shares; December 31, 2002: issued
 shares; outstanding  5,900,772 shares
    
    
    15,724
    
    
    
    5,985Additional paid-in capital
    
    
    19,321,544
    
    
    
    9,158,209Deficit accumulated during the development stage
    
    
    (20,159,408
    )
    
    
    (17,912,334
    )(822,140
    )
    
    
    (8,748,140
    )$
    4,983
    
    
    $
    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
    
    Nine Months Ended
    
    Three Months EndedSeptember 30,
    
    September 30,
    
    September 30,2003
    
    2003
    
    2002
    
    2003
    
    2002(Unaudited)
    
    (Unaudited)
    
    (Unaudited)Operating Expenses:General and administrative
    
    $
    11,541,209
    
    
    $
    1,098,683
    
    
    $
    904,293
    
    
    $
    577,049
    
    
    $
    281,822Payments under licenses
    
    
    1,162,266
    
    
    
    75,000
    
    
    
    75,000
    
    
    
    25,000
    
    
    
    25,000Travel and entertainment
    
    
    2,075,488
    
    
    
    89,054
    
    
    
    189,160
    
    
    
    13,245
    
    
    
    63,53114,778,963
    
    
    
    1,262,737
    
    
    
    1,168,453
    
    
    
    615,294
    
    
    
    370,353Loss From Operations
    
    
    (14,778,963
    )
    
    
    (1,262,737
    )
    
    
    (1,168,453
    )
    
    
    (615,294
    )
    
    
    (370,353
    )Other Income (Expense)Interest income
    
    
    237,113
    
    
    
    134
    
    
    
    9,555
    
    
    
    19
    
    
    
    2,144Gain on settlement of lawsuit
    
    
    317,423Other
    
    
    59,574
    
    

    
    
    
    
    

    10,024
    
    
    
    
    
    
    
    10,024Interest expense
    
    
    (4,216,523
    )
    
    
    (984,471
    )
    
    
    (759,048
    )
    
    
    (398,732
    )
    
    
    (263,902
    )(3,602,413
    )
    
    
    (984,337
    )
    
    
    (739,469
    )
    
    
    (398,713
    )
    
    
    (251,734
    )Net Loss
    
    $
    (18,381,376
    )
    
    $
    (2,247,074
    )
    
    $
    (1,907,922
    )
    
    $
    (1,014,007
    )
    
    $
    (622,087
    )Basic and Diluted
per Common Share (Note 2)Loss From Operations
    
    $
    (3.22
    )
    
    $
    (0.15
    )
    
    $
    (0.21
    )
    
    $
    (0.05
    )
    
    $
    (0.06
    )Net Loss
    
    $
    (4.00
    )
    
    $
    (0.27
    )
    
    $
    (0.34
    )
    
    $
    (0.08
    )
    
    $
    (0.11
    )


See notes to financial statements.

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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 Nine Months Ended
September 30, 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 Nine Months Ended
September 30, 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 Nine Months Ended
September 30, 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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##### 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 Nine Months Ended
September 30, 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 Nine Months Ended
September 30, 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
    )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 nonofficer 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
    
    
    
    
    
    
    
    10,130,147Net loss
    
    
    
    
    
    
    
    
    
    
    (2,247,074
    )
    
    
    (2,247,074
    )Balance (deficit), September 30, 2003
    
    $
    15,724
    
    
    $
    19,321,544
    
    
    $
    (20,159,408
    )
    
    $
    (822,140
    )


See notes to financial statements.

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##### Table of Contents



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

CumulativeDuringDevelopmentStage Through
    
    Nine Months Ended September 30,September 30, 2003
    
    2003
    
    2002(Unaudited)
    
    (Unaudited)
    
    (Unaudited)Operating activities:Net loss
    
    $
    (18,381,376
    )
    
    $
    (2,247,074
    )
    
    $
    (1,907,922
    )Items not requiring
(providing) cash:Depreciation
    
    
    19,809Expenses funded by Common
Stock issuance
    
    
    708,338Other
    
    
    (117,054
    )
    
    
    6,492Changes in:Advances to officers
    
    
    (1,437,516
    )
    
    
    
    
    
    
    (110,500
    )Other receivables
    
    
    (142,468
    )
    
    
    
    
    
    
    (4,182
    )Accounts payable
    
    
    1,282,403
    
    
    
    175,096
    
    
    
    (21,527
    )Accrued expenses
    
    
    4,314,117
    
    
    
    1,197,853
    
    
    
    759,048Deferred compensation
    
    
    3,430,086
    
    
    
    480,287
    
    
    
    265,156Net cash used in
operating activities
    
    
    (10,323,661
    )
    
    
    (387,346
    )
    
    
    (1,019,927
    )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
    
    
    
    
    
    
    
    564,716Proceeds from notes payable and
advances from officers
    
    
    1,803,609
    
    
    
    138,000Proceeds from Convertible Debentures
    
    
    3,798,000
    
    
    
    73,000Payments on notes payable and
advances from officers
    
    
    (184,609
    )
    
    
    (30,000
    )Other
    
    
    108,410Net cash provided by
financing activities
    
    
    10,034,370
    
    
    
    181,000
    
    
    
    564,716Increase (decrease) in cash
    
    
    4,983
    
    
    
    (206,346
    )
    
    
    (455,211
    )Cash, beginning of period
    
    
    0
    
    
    
    211,329
    
    
    
    557,870Cash, end of period
    
    $
    4,983
    
    
    $
    4,983
    
    
    $
    102,659


See notes to financial statements.

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 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-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine-month
periods ended September 30, 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 as filed with the Securities and Exchange Commission on
April 25, 2003 (the Form 10-KSB).

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 4,592,217 shares for the
period cumulative since inception through September 30, 2003, 8,475,364 and
5,692,656 shares for the nine-month periods ended September 30, 2003 and 2002,
respectively, and 13,427,593, and 5,804,056 shares for the three-month periods
ended September 30, 2003 and 2002, and, respectively.

NOTE 3: CONVERTIBLE DEBENTURES AND ADVANCES FROM OFFICERS

On April 29, 2003, the Companys Board of Directors approved the Companys sale
of its Series 03 Convertible Debentures (the Series 03 Debentures). The
Series 03 Debentures were offered at a discount of 20% from par value and were
convertible according to the terms set forth

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

NOTE 3: CONVERTIBLE DEBENTURES AND ADVANCES FROM OFFICERS (CONTINUED)

by the Board of Directors into shares of the Companys common stock, $.001 par
value per share (the Common Stock), at $1.05 per share.

During the second quarter of 2003, the Company sold $91,250 (par amount) of the
Series 03 Debentures for $73,000 in cash. The Company also issued during the
second quarter of 2003 an aggregate of $428,101 (par amount) of the Series 03
Debentures to certain officers of the Company in satisfaction of $50,000 of
advances to the Company from those officers and in satisfaction of $292,481 of
deferred compensation owed by the Company to its officers.

During the nine months ended September 30, 2003, the Company received $138,000
in advances from officers. Repayments of the advances during that period
aggregated $80,000 ($30,000 in cash and $50,000 in Series 03 Debentures as
described above).

During July and August 2003, the Company received commitments from the holders
of 100% of the Series 03 Debentures as well as commitments from holders of 100%
of the Companys outstanding Series 98 Convertible Debentures (the Series 98
Debentures), Series 01 Convertible Debentures (the Series 01 Debentures) and
Series 02 Convertible Debentures (the Series 02 Debentures, and collectively
with the Series 98 Debentures, the Series 01 Debentures and the Series 03
Debentures, the Debentures) to convert the outstanding principal amount (plus
all accrued interest) of the Debentures into shares of the Companys Common
Stock at $1.05 per share (the Conversion). The Debentures were scheduled to
mature beginning in January 2004. A total of 9,647,759 shares were issued to
the Debenture holders during the quarter ended September 30, 2003.

NOTE 4: 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. During April 2003, the Company issued
26,597 shares of Common Stock at $1.05 per share for the conversion of $15,000
of the Series 98 Debentures and accrued interest thereon. During July 2003,
the Company issued 15,000 shares of Common Stock to the nonofficer members of
the Board of Directors of the Company. Compensation expense of $15,000 was
recorded in connection with the issuance of these shares. As described in Note
3, the Company issued 9,647,759 shares of Common Stock during July and August
2003 in satisfaction of all outstanding Debentures and related accrued
interest.

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

NOTE 5: MANAGEMENTS CONSIDERATION OF GOING CONCERN MATTERS

The Company has incurred net losses since inception and will likely require
substantial capital to continue commercialization of the Companys Technologies
(as such term is defined herein under Managements Discussion and Analysis 
Business Plan  Development and Commercialization of Technologies). The
financial statements have been prepared assuming the Company will continue as a
going concern, realizing assets and liquidating liabilities in the ordinary
course of business and do not reflect any adjustments that might result from
the outcome of the aforementioned uncertainties. Management is considering
several alternatives for mitigating these conditions during the next year. The
Company is 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. 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 7).

The Company has to secure additional 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 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 to satisfy the Companys liquidity needs, it will
be unable to remain in operation. At September 30, 2003, the Company did not
have sufficient cash on hand or access to capital to fund its outstanding
accounts payable.

NOTE 6: COMMITMENTS

Pursuant to the terms of a letter agreement dated June 26, 2003, the Company
has engaged Prospect Street Ventures 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, Prospect Street will receive shares of Common Stock as
a retainer fee and will receive additional shares of Common Stock on a monthly
basis during the course of the engagement. Prospect Street Ventures will also
be entitled to a success fee upon the completion of any transaction. In
addition, Prospect Street Ventures will also be entitled to compensation if
certain transactions are completed within two years of the termination of the
agreement.

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THERMOENERGY CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (Unaudited)
September 30, 2003

NOTE 6: COMMITMENTS (CONTINUED)

The Company has previously engaged other financial advisors to assist it in the
raising of capital and its consideration of various strategic alternatives. The
Company has not completed any transactions as a result of these engagements.
Although the Company is no longer using the services of those advisors,
pursuant to the terms of the Companys agreements with those advisors, any
capital or strategic transactions completed by the Company in the future may
result in cash and/or equity compensation being due to such advisors under the
tail provisions of the agreements.

During the quarter ended September 30, 2003, the Company signed a nonbinding
letter of intent regarding a possible acquisition of Container Service Co., an
Oregon corporation (CSC). The letter of intent indicated that the shares of
the Companys Common Stock would be issued in exchange for all of the
outstanding shares of CSC if the parties agree to the transaction. However,
the letter of intent provides CSC, at its sole discretion, with the right to
return the shares of the Companys Common Stock at any time prior to December
31, 2003 and receive the CSC equity from the Company.

NOTE 7: SUBSEQUENT EVENTS

During October 2003, the Company offered its Common Stock at a price of $0.30
per share to certain current stockholders of the Company in order to fund its
immediate cash needs. As of October 31, 2003, a total of 709,667 shares were
sold to stockholders pursuant to this offer.

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

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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; (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.

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
September 30, 2003, the Company had available cash of $4,983 (compared to
$102,659 available cash as of September 30, 2002), while its current
liabilities were $827,123. Management anticipates that its cash requirements
during the next 12 months to implement the Companys marketing and development
strategies will be approximately $400,000 in the event that the Company does
not obtain any contracts to utilize its Technologies, and, if it does obtain
any such contracts, it is anticipated that the cash requirements will range
from $600,000 to $1,200,000. At September 30, 2003, and as of the date of this
filing, the Company did not and does not have sufficient cash on hand or access
to capital to pay its outstanding accounts payable or to fund its future
activities.

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During July and August 2003, the Company received commitments from holders of
100% of the Debentures that those holders would participate in the Conversion.
Thereafter, pursuant to the terms of the Conversion, the Company issued
9,647,759 shares of Common Stock to satisfy $10,130,147 of the outstanding
principal and related interest of the Debentures. The Conversion eliminated
the risk of default on the terms of the Debentures which were scheduled to
mature beginning in January 2004. The Company believes that the Conversion, by
eliminating a substantial amount of current debt, should assist the Company in
raising capital in the short term to fund its immediate cash needs and in the
next 12 months to enable it to implement its marketing and development strategy
and continue its operations.

During the fourth quarter of 2003, the Company offered its Common Stock at a
price of $0.30 per share to certain current stockholders in an effort to fund
its immediate cash needs. As of October 31, 2003, a total of 709,667 shares
were sold to stockholders pursuant to this offer. This offering was not
registered under the Securities Act of 1933, as amended.

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. These alternatives include the
issuance of other equity or debt securities, bridge financing arrangements with
commercial lenders or various combinations of the above alternatives. 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 order to assist it with the foregoing, as discussed in Note 6 of the Notes
To Financial Statements herein, the Company has engaged Prospect Street
Ventures to serve as its exclusive financial advisor in connection with the
raising of capital and the Companys consideration of various strategic
alternatives. The Company is not currently in negotiations with any potential
investor.

In addition to these financing alternatives, in an effort to raise capital to
meet the Companys obligations during the next 12 months, management continues
to review the possible ramifications of sublicensing or selling one or more of
its Technologies. The Company is currently discussing possible business
arrangements, including sublicensing and/or a joint venture, with an
international engineering/construction firm engaged in the wastewater treatment
and power plant design markets. However, as of the date of this filing, the
Company has not signed any agreement in connection with the sublicensing or
purchasing 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

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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.

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.

On September 2, 2003, the Company entered into a nonbinding letter of intent
with Container Service Co., an Oregon corporation (CSC), regarding a possible
acquisition of CSC. The parties have continued to negotiate, but no agreement
has been reached on any material terms. There can be no assurance that any
transaction will be consummated.

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. In addition to the
possible CSC acquisition discussed above, the Company is currently searching
for additional 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 filing, the Company does not
have a consummated 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 or otherwise.

Results of Operations

For the nine months ended September 30, 2003, the Company incurred a net loss
of $2,247,074 compared to $1,907,922 for the nine months ended September 30,
2002. For the three months ended September 30, 2003, the Company incurred a
net loss of $1,014,007 compared to $622,087 for the three months ended
September 30, 2002. General and administrative expenses increased during the
nine-month and the three-month periods ended September 30, 2003, compared to
September 30, 2002 due primarily to fees incurred in connection with the
Companys agreement with a financial advisor (see Note 6 of Notes to Financial
Statements). Travel and entertainment expenses decreased during the same
periods due to the Companys limited financial resources during the 2003
period. Interest expense for the nine months and three months ended September
30, 2003 increased compared to the same periods for 2002 due to the issuance of
Series 02 Debentures ($300,000 during December 2002) and of Series 03
Debentures ($519,351 during the second quarter of 2003) and due to call
premiums aggregating approximately $246,000 associated with the conversion of
these Debentures during the third quarter of 2003 (see Note 3 of Notes to
Financial Statements). No cash interest has been paid during 2003.

Liquidity and Capital Resources

During the nine-month period ended September 30, 2003, the Company used
$387,346 of cash in operations compared to $1,019,927 in the comparable period
of 2002. This decrease is consistent with the Companys efforts to conserve
cash due to the decline in the Companys available funds and its inability to
raise significant capital to implement its plan of operations.

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 nine months ended September 30, 2003 was limited to borrowings from
officers and the sale of $91,250 of Series 03 Convertible Debentures for
$73,000 in cash. During the nine months ended September 30, 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.

During October 2003, the Company sold 709,667 shares of Common Stock at $0.30
per share to stockholders of the Company in order to provide working capital
for the Companys operations.

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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.

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 SEC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.

Please see Note 3 in Part I hereof for information concerning the Companys
conversion of its convertible debentures.

Item 3. Defaults Upon Senior Securities.

None.

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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 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 2002.99.1
    
    Letter of Intent between Container Services Company and the Company


(b) No reports on Form 8-K were filed during the quarterly
period ended September 30, 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: November 13, 2003
    
    THERMOENERGY CORPORATION/s/  P.L. MontesiP.L. Montesi, President, Treasurer
and Principal Financial Officer


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