**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-Q**

| DELAWARE(State                or Other Jurisdiction ofIncorporation                or Organization) | 71-0659511(IRS                Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------|

----

**THERMOENERGY      CORPORATON**

**INDEX      **

| ** **              | ** ** | ** **                           | ** ** | ** **                                                                                                                                                                                                                                   | ** ** | **Page****No.** |
|-------------------------|------------|--------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| Part                I.  |       | Financial                Information |
|                    |       | Item                1.               |       | Financial                Statements                                                                                                                                                                                                          |       |            |
|                    |       |                                 |       | Consolidated                Balance Sheets as of June 30, 2008 (Unaudited) and December 31,                2007                                                                                                                    |       | 3               |
|                    |       |                                 |       | Consolidated                Statements of Operations for the six months ended June 30, 2008 and                2007 (Unaudited)                                                                                                         |       | 4               |
|                    |       |                                 |       | Consolidated                Statements of Changes in Stockholders’ Equity (Deficit) for the period                ended January 1, 2007 through December 31, 2007 and the six months                ended                June 30, 2008 |       |  5         |
|                    |       |                                 |       | Consolidated                Statements of Cash Flows for the six months ended June 30, 2008 and                2007 (Unaudited)                                                                                                         |       | 6               |
|                    |       |                                 |       | Notes                to Consolidated Financial Statements (Unaudited)                                                                                                                                                                        |       | 7               |
|                    |       | Item                2.               |       | Management's                Discussion and Analysis of Financial Condition and Results of                Operations                                                                                                                          |       | 16              |
|                    |       | Item                3.               |       | Quantitative                and Qualitative Disclosures About Market Risk                                                                                                                                                                    |       | 21              |
|                    |       | Item                4.               |       | Controls                and Procedures                                                                                                                                                                                                       |       | 21              |
| Part                II. |       | Other                Information     |
|                    |       | Item                1.               |       | Legal                Proceedings                                                                                                                                                                                                             |       | 22              |
|                    |       | Item 1A.                        |       | Risk              Factors                                                                                                                                                                                                               |       | 22              |
|                    |       | Item                2.               |       | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                                                   |       | 22              |
|                    |       | Item                3.               |       | Defaults                Upon Senior Securities                                                                                                                                                                                               |       | 23              |
|                    |       | Item                4.               |       | Submission                of Matters to a Vote of Security Holders                                                                                                                                                                           |       | 23              |
|                    |       | Item                5.               |       | Other                Information                                                                                                                                                                                                             |       | 24              |
|                    |       | Item                6.               |       | Exhibits                                                                                                                                                                                                                                     |       | 24              |
| Signature               |       | 25                                   |

----

| **THERMOENERGY                CORPORATION**                                               |
|-------------------------------------------------------------------------------------------|
| **CONSOLIDATED                BALANCE SHEETS**                                            |
| **(in                thousands, except for share and par value amounts                )** |

|                                                                                                                           |   | **June                30, 2008** |         | **December                31,2007** |   |
|--------------------------------------------------------------------------------------------------------------------------------|--------|----------------------------------|--------------|-------------------------------------|--------|
|                                                                                                                           |   | **(Unaudited)**                  |         |                                |   |
| **ASSETS**                                                                                                                     |   |                             |         |                                |   |
| Current                Assets:                                                                                                 |   |                             |         |                                |   |
| Cash                                                                                                                           |   | $                                | 265          |                                | $      | 3,185 |   |
| Accounts                Receivable, net                                                                                        |   |                             | 270          |                                |   | 260 |   |
| Inventories                                                                                                                    |   |                             | 275          |                                |   | 184 |   |
| Other                Current Assets                                                                                            |   |                             | 219          |                                |   | 239 |   |
| Total                Current Assets                                                                                            |   |                             | 1,029        |                                |   | 3,868 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Property                and Equipment, net of Accumluated Depreciation (2008 - $107; 2007                -                $56) |   |                             | 376          |                                |   | 322 |   |
| Other                Assets                                                                                                    |   |                             | 24           |                                |   | 5 |   |
|                                                                                                                           |   |                             |    |                                |   |    |   |
| **Total                Assets**                                                                                                |   | $                                | 1,429        |                                | $      | 4,195 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                              |   |                             |         |                                |   |   |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Current                Liabilities:                                                                                            |   |                             |         |                                |   |   |   |
| Accounts                Payable                                                                                                |   | $                                | 690          |                                | $      | 844 |   |
| Short                Term Notes Payable                                                                                        |   |                             | -            |                                |   | 679 |   |
| Convertible                Debt in Default                                                                                     |   |                             | 3,055        |                                |   | 2,921 |   |
| Deferred                Revenue                                                                                                |   |                             | 204          |                                |   | 458 |   |
| Other                Current Liabilities                                                                                       |   |                             | 1,253        |                                |   | 1,552 |   |
| Total                Current Liabilities                                                                                       |   |                             | 5,202        |                                |   | 6,454 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Long                Term Liabilities:                                                                                          |   |                             |         |                                |   |   |   |
| Deferred                Comp Retirement Plan for Officers Net of Current Portion                                               |   |                             | 282          |                                |   | 304 |   |
| Convertible                Debt                                                                                                |   |                             | 609          |                                |   | 512 |   |
| Total                Long Term Liabilities                                                                                     |   |                             | 891          |                                |   | 816 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Minority                Interest in Subsidiary                                                                                 |   |                             | (1,500       | )                                   |   | (1,414 | ) |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| **Total                Liabilities**                                                                                           |   |                             | 4,593        |                                |   | 5,856 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Stockholders'                Equity (Deficit):                                                                                 |   |                             |         |                                |   |   |   |
| Preferred                Stock, $0.01 par value: authorized - 20,000,000 shares;                                               |   |                             |         |                                |   |   |   |
| issued                and outstanding: 2008 - 218,334; 2007 - 5,301,670 shares                                                 |   |                             | 2            |                                |   | 53 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Common                Stock, $.001 par value: authorized - 150,000,000 shares;                                                 |   |                             |         |                                |   |   |   |
| issued:                2008 - 49,332,207 shares; 2007 - 40,817,516 shares;                                                     |   |                             |         |                                |   |   |   |
| outstanding:                2008 - 49,248,410 shares; 2007 - 40,733,719 shares                                                 |   |                             | 49           |                                |   | 40 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Additional                Paid-In Capital                                                                                      |   |                             | 55,008       |                                |   | 50,794 |   |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| Accumulated                Deficit                                                                                             |   |                             | (58,223      | )                                   |   | (52,548 | ) |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| **Total                Equity (Deficit)**                                                                                      |   |                             | (3,164       | )                                   |   | (1,661 | ) |
|                                                                                                                           |   |                             |         |                                |   |   |   |
| **TOTAL                LIABILITIES AND EQUITY (DEFICIT)**                                                                      |   | $                                | 1,429        |                                | $      | 4,195 |   |

| See                notes to consolidated financial statements. |   |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|

----

| **THERMOENERGY                CORPORATION**                                |
|----------------------------------------------------------------------------|
| **CONSOLIDATED                STATEMENTS OF OPERATIONS**                   |
| **(in                thousands, except per share                amounts)** |

|                                                           |   | **Six                Months Ended** |   | **Three                Months Ended** |   |
|----------------------------------------------------------------|--------|-------------------------------------|--------|---------------------------------------|--------|
|                                                           |   | **June                30,**         |   | **June                30,**           |   |
|                                                           |   | **2008**                            |   | **2007**                              |   | **2008** |   | **2007** |   |
| Operating                Income                                |   | $                                   | 1,185  |                                  | $      | 182 |   | $ | 776 |   | $ | 108 |   |
| Cost                of Contract and Grant Income               |   |                                | 1,134  |                                  |   | 76 |   |   | 722 |   |   | 36 |   |
| Gross                Operating Income (Loss)                   |   |                                | 51     |                                  |   | 106 |   |   | 54 |   |   | 72 |   |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Operating                Expenses:                             |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| General                and Administrative                      |   |                                | 2,053  |                                  |   | 946 |   |   | 1,003 |   |   | 632 |   |
| Selling                Expense                                 |   |                                | 155    |                                  |   | - |   |   | 88 |   |   | - |   |
| Option                Expense                                  |   |                                | 1,277  |                                  |   | 128 |   |   | 1,277 |   |   | 118 |   |
| Warrant                Expense                                 |   |                                | 699    |                                  |   | 166 |   |   | 616 |   |   | 83 |   |
| Professional                Fees                               |   |                                | 774    |                                  |   | 635 |   |   | 544 |   |   | 309 |   |
| Travel                and Entertainment                        |   |                                | 360    |                                  |   | 257 |   |   | 136 |   |   | 170 |   |
| Total                Operating Expenses                        |   |                                | 5,318  |                                  |   | 2,132 |   |   | 3,664 |   |   | 1,312 |   |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Loss                from Operations                            |   |                                | (5,267 | )                                     |   | (2,026 | ) |   | (3,610 | ) |   | (1,240 | ) |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Other                Income (Expense):                         |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Interest                Income                                 |   |                                | 16     |                                  |   | 6 |   |   | 5 |   |   | 3 |   |
| Interest                Expense                                |   |                                | 509    |                                  |   | - |   |   | 201 |   |   | - |   |
| Total                Other Income (Expense)                    |   |                                | (493   | )                                     |   | 6 |   |   | (196 | ) |   | 3 |   |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Net                loss before minority interest in subsidiary |   |                                | (5,760 | )                                     |   | (2,020 | ) |   | (3,806 | ) |   | (1,237 | ) |
| Minority                interest in subsidiary                 |   |                                | 85     |                                  |   | - |   |   | 41 |   |   | - |   |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Net                Loss                                        |   | $                                   | (5,675 | )                                     | $      | (2,020 | ) | $ | (3,765 | ) | $ | (1,237 | ) |
|                                                           |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Per                Common Share:                               |   |                                |   |                                  |   |   |   |   |   |   |   |   |   |
| Loss                from Operations                            |   | $                                   | (0.12  | )                                     | $      | (0.08 | ) | $ | (0.08 | ) | $ | (0.05 | ) |
| Net                Loss                                        |   | $                                   | (0.13  | )                                     | $      | (0.08 | ) | $ | (0.08 | ) | $ | (0.05 | ) |

| See                notes to consolidated financial statements. |   |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|--------|

----

| **THERMOENERGY                CORPORATION**                                                                         |
|---------------------------------------------------------------------------------------------------------------------|
| **CONSOLIDATED                STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**                                        |
| **Period                Ended December 31, 2007 and the Six Months Ended June 30, 2008                (Unaudited)** |
| **(in                thousands)**                                                                                   |

|                                                                                                                                                                                                                                                                                                                                                                                                 |   | **Common                Stock** |         | **Series                A Convertible Preferred Stock** |   | **Additional                Paid-In Capital** |   | **Accumulated                Deficit** |         | **Total** |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------|--------------|---------------------------------------------------------|--------|-----------------------------------------------|--------|----------------------------------------|--------------|-----------|--------|
| Balance                (Deficit) January 1, 2007                                                                                                                                                                                                                                                                                                                                                     |   |                            | 23           |                                                    |   | 6,198                                         |   |                                   | 29,863       |      |   | (34,871 | ) |   | 1,213 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Options                issued to directors                                                                                                                                                                                                                                                                                                                                                           |   |                            |         |                                                    |   |                                          |   |                                   | 904          |      |   |   |   |   | 904 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Stock                issued for services                                                                                                                                                                                                                                                                                                                                                             |   |                            | -            |                                                    |   | -                                             |   |                                   | 52           |      |   | - |   |   | 52 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Warrants                issued for services                                                                                                                                                                                                                                                                                                                                                          |   |                            |         |                                                    |   |                                          |   |                                   | 331          |      |   |   |   |   | 331 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Converted                    Preferred Stock to Common Stock (897,001 shares at an average                    price of                    $0.764 per share)                                                                                                                                                                                                                                          |   |                            | 1            |                                                    |   | (686                                          | )      |                                   | 685          |      |   |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                of Common Stock (1,238,095 at $0.42 per share)                                                                                                                                                                                                                                                                                                                               |   |                            | 1            |                                                    |   | -                                             |   |                                   | 519          |      |   | - |   |   | 520 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                    of Common Stock from Cashless Exercise of Warrants, Various 2007,                    Issued                    113,886 Shares                                                                                                                                                                                                                                            |   |                            | -            |                                                    |   | -                                             |   |                                   | -            |      |   | - |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                        of Common Stock, June 2007, net of Issuance Costs of $99,721.17                        (4,000,000                        shares at $0.75 per share) and 2,000,000 warrants at a price                        equal to a 12                        month average with a floor of $0.75 and a ceiling of $1.50                        per                        share |   |                            | 4            |                                                    |   |                                          |   |                                   | 2,896        |      |   |   |   |   | 2,900 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Warrants                    and beneficial conversion option issued with Convertible                    Notes                                                                                                                                                                                                                                                                                        |   |                            |         |                                                    |   |                                          |   |                                   | 944          |      |   |   |   |   | 944 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Reincorporated                    in Delaware and reduced par value of preferred                    shares                                                                                                                                                                                                                                                                                           |   |                            |         |                                                    |   | (5,459                                        | )      |                                   | 5,459        |      |   |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                  of common stock (4,588,088 shares at $0.50 per share) and common                  stock                  warrants for CASTion acquisition                                                                                                                                                                                                                                  |   |                            | 5            |                                                    |   |                                          |   |                                   | 4,163        |      |   |   |   |   | 4,168 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                of common stock, July 2007 (30,000 shares at $0.99 per                share)                                                                                                                                                                                                                                                                                                 |   |                            | -            |                                                    |   |                                          |   |                                   | 30           |      |   |   |   |   | 30 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issuance                      of Common Stock, December 2007, net of Issuance Costs of $667,283.76                      (6,666,667 shares at $0.75 per share) and 10,000,000 warrants                      at a price                      of $1.50 per share                                                                                                                                        |   |                            | 6            |                                                    |   |                                          |   |                                   | 4,326        |      |   |   |   |   | 4,332 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Warrants                  Issued as Broker Compensation for Private Placement of Common                  Stock                                                                                                                                                                                                                                                                                       |   |                            |         |                                                    |   |                                          |   |                                   | 622          |      |   |   |   |   | 622 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Net                Loss                                                                                                                                                                                                                                                                                                                                                                              |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   | (17,677 | ) |   | (17,677 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |    |                                                    |   |                                     |   |                                   |    |      |   |    |   |   |    |   |
| Balance                (Deficit) December 31, 2007                                                                                                                                                                                                                                                                                                                                                   |   | $                               | 40           |                                                    | $      | 53                                            |   | $                                      | 50,794       |      | $      | (52,548 | ) | $ | (1,661 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Warrants                issued for services                                                                                                                                                                                                                                                                                                                                                          |   |                            |         |                                                    |   |                                          |   |                                   | 699          |      |   |   |   |   | 699 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Issued                190,000 shares of Common Stock for Services                                                                                                                                                                                                                                                                                                                                    |   |                            |         |                                                    |   |                                          |   |                                   | 247          |      |   |   |   |   | 247 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Cashless                    exercise of 2,581,164 warrants for 1,272,351 shares of Common                    Stock                                                                                                                                                                                                                                                                              |   |                            | 1            |                                                    |   |                                          |   |                                   | (1           | )         |   |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Exercised                    572,968 warrants for 572,968 shares of Common Stock (average                    price of                    $0.606 per share)                                                                                                                                                                                                                                           |   |                            | 1            |                                                    |   |                                          |   |                                   | 347          |      |   |   |   |   | 348 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Stock                grants issued to officers                                                                                                                                                                                                                                                                                                                                                       |   |                            | 1            |                                                    |   |                                          |   |                                   | 277          |      |   |   |   |   | 278 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Stock                options issued to officers, directors and employees                                                                                                                                                                                                                                                                                                                             |   |                            | -            |                                                    |   | -                                             |   |                                   | 1,277        |      |   | - |   |   | 1,277 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Converted                Preferred Stock to Common Stock (5,041,668 shares)                                                                                                                                                                                                                                                                                                                          |   |                            | 5            |                                                    |   | (51                                           | )      |                                   | 46           |      |   |   |   |   | - |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Convertible                    Note converted to Common Stock (1,146,036 shares at $0.50 per                    share)                                                                                                                                                                                                                                                                               |   |                            | 1            |                                                    |   |                                          |   |                                   | 572          |      |   |   |   |   | 573 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Warrants                    and beneficial conversion feature issued with 5% convertible                    note, March                    2008                                                                                                                                                                                                                                                      |   |                            |         |                                                    |   |                                          |   |                                   | 750          |      |   |   |   |   | 750 |   |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   |   |   |   |   |   |
| Net                Loss                                                                                                                                                                                                                                                                                                                                                                              |   |                            |         |                                                    |   |                                          |   |                                   |         |      |   | (5,675 | ) |   | (5,675 | ) |
|                                                                                                                                                                                                                                                                                                                                                                                                 |   |                            |    |                                                    |   |                                     |   |                                   |    |      |   |    |   |   |    |   |
| Balance                (Deficit) June 30, 2008                                                                                                                                                                                                                                                                                                                                                       |   | $                               | 49           |                                                    | $      | 2                                             |   | $                                      | 55,008       |      | $      | (58,223 | ) | $ | (3,164 | ) |

| See                notes to consolidated financial statements. |   |   |   |
|----------------------------------------------------------------|--------|--------|--------|

----

| **THERMOENERGY                  CORPORATION**              |
|------------------------------------------------------------|
| **CONSOLIDATED                  STATEMENTS OF CASH FLOWS** |
| **(in                  thousands)**                        |

|                                                                 |   | **Six                  Months Ended** |         |
|----------------------------------------------------------------------|--------|---------------------------------------|--------------|
|                                                                 |   | **June                  30,**         |         |
|                                                                 |   | **2008**                              |         | **2007** |   |
| Operating                  Activities:                               |   |                                  |         |   |   |
| Net                  Loss                                            |   | $                                     | (5,675       | ) | $ | (2,020 | ) |
|                                                                 |   |                                  |         |   |   |   |   |
| Items                  not requiring (providing) cash:               |   |                                  |         |   |   |   |   |
| Options                  issued to officers, directors and employees |   |                                  | 1,277        |   |   | 128 |   |
| Warrants                  issued for services                        |   |                                  | 699          |   |   | 166 |   |
| Depreciation                  Expense                                |   |                                  | 23           |   |   | 13 |   |
| Minority                  Interest In Subsidiary                     |   |                                  | (86          | ) |   | - |   |
| Restricted                  Stock issued for services                |   |                                  | 247          |   |   | 11 |   |
| Amortization                  of Discount on Convertible Debt        |   |                                  | 285          |   |   | 8 |   |
|                                                                 |   |                                  |         |   |   |   |   |
| Changes                  in:                                         |   |                                  |         |   |   |   |   |
| Accounts                  and Notes Receivable                       |   |                                  | (10          | ) |   | (508 | ) |
| Inventories                                                          |   |                                  | (91          | ) |   | - |   |
| Other                  Current Assets                                |   |                                  | 1            |   |   | 40 |   |
| Accounts                  Payable                                    |   |                                  | (154         | ) |   | 62 |   |
| Short                  Term Notes Payable                            |   |                                  | (220         | ) |   | - |   |
| Deferred                  Revenue                                    |   |                                  | (254         | ) |   | - |   |
| Other                  Current Liabilities                           |   |                                  | 39           |   |   | (144 | ) |
| Deferred                  Compensation Retirement Plan               |   |                                  | (22          | ) |   | (23 | ) |
|                                                                 |   |                                  |    |   |   |    |   |
| Net                  Cash used in operating activities               |   |                                  | (3,941       | ) |   | (2,267 | ) |
|                                                                 |   |                                  |         |   |   |   |   |
| Investing                  Activities:                               |   |                                  |         |   |   |   |   |
| Purchases                  of Property and Equipment                 |   |                                  | (77          | ) |   | - |   |
|                                                                 |   |                                  |    |   |   |    |   |
| Net                  cash used in investing activities               |   |                                  | (77          | ) |   | - |   |
|                                                                 |   |                                  |         |   |   |   |   |
| Financing                  Activities:                               |   |                                  |         |   |   |   |   |
| Proceeds                  from issuance of Common Stock and Warrants |   |                                  | 348          |   |   | 3,420 |   |
| Proceeds                  from Convertible Debentures                |   |                                  | 750          |   |   | 750 |   |
|                                                                 |   |                                  |    |   |   |    |   |
| Net                  cash provided by financing activities           |   |                                  | 1,098        |   |   | 4,170 |   |
|                                                                 |   |                                  |         |   |   |   |   |
| Increase                  (Decrease) in cash                         |   |                                  | (2,920       | ) |   | 1,903 |   |
| Cash,                  beginning of year                             |   |                                  | 3,185        |   |   | 637 |   |
| Cash,                  end of period                                 |   | $                                     | 265          |   | $ | 2,540 |   |

| See                  notes to consolidated financial statements. |   |   |   |   |
|------------------------------------------------------------------|--------|--------|--------|--------|

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      1: BASIS OF PRESENTATION**

**NOTE      2: LOSS PER COMMON SHARE**

**NOTE      3: MANAGEMENT’S CONSIDERATION OF GOING CONCERN MATTERS**

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      3: MANAGEMENT’S CONSIDERATION OF GOING CONCERN MATTERS      (Continued)**

**NOTE      4: ISSUANCE OF CONVERTIBLE PROMISSORY NOTE, WARRANTS AND COMMON      STOCK**

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      4: ISSUANCE OF CONVERTIBLE PROMISSORY NOTE, WARRANTS AND COMMON STOCK      (Continued)**

**NOTE      5: LEGAL MATTERS**

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      6: SEGMENTS**

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      6: SEGMENTS (Continued)**

**For        the Six Months ended June 30, 2008**

|                                                                   |   | **Water Group** |   | **Power Group** |   | **Total** |   |
|------------------------------------------------------------------------|--------|----------------------|--------|----------------------|--------|-----------|--------|
| Operating                income:                                       |   |                 |   |                 |   |      |   |
| Sales                of wastewater treatment and recovery systems      |   | $                    | 902    |                 | $      | -         |   | $ | 902 |   |
| Grant                revenue                                           |   |                 | -      |                 |   | 283       |   |   | 283 |   |
| Total                operating income                                  |   |                 | 902    |                 |   | 283       |   |   | 1,185 |   |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Operating                expenses:                                     |   |                 |   |                 |   |      |   |   |   |   |
| Cost                of wastewater treatment and recovery systems sales |   |                 | 1,051  |                 |   | 83        |   |   | 1,134 |   |
| General                and administrative                              |   |                 | 2,987  |                 |   | 200       |   |   | 3,187 |   |
| Selling                expenses                                        |   |                 | 155    |                 |   | -         |   |   | 155 |   |
| Total                operating expenses                                |   |                 | 4,193  |                 |   | 283       |   |   | 4,476 |   |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Segment                operating loss                                  |   | $                    | (3,291 | )                    | $      | -         |   | $ | (3,291 | ) |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Total                assets                                            |   | $                    | 1,429  |                 | $      | -         |   | $ | 1,429 |   |
|                                                                   |   |                 |   |                 |   |           |   |   |   |   |
| Reconciliation                to net loss:                             |   |                 |        |                 |   |           |   |   |   |   |
| Total                segment operating loss                            |   |                 |        |                 |   |           |   | $ | (3,291 | ) |
| Warrant                and stock options                               |   |                 |        |                 |   |           |   |   | (1,976 | ) |
| Minority                interest                                       |   |                 |        |                 |   |           |   |   | 85 |   |
| Other                income (expense)                                  |   |                 |        |                 |   |           |   |   | (493 | ) |
|                                                                   |   |                 |        |                 |   |           |   |   |   |   |
| Net                loss                                                |   |                 |        |                 |   |           |   | $ | (5,675 | ) |

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      6: SEGMENTS (Continued)**

| **For                the Six Months ended June 30, 2007** |
|-----------------------------------------------------------|
| (in                thousands)                             |

|                                             |   | **Water Group** |   | **Power Group** |   | **Total** |   |
|--------------------------------------------------|--------|----------------------|--------|----------------------|--------|-----------|--------|
| Operating                income:                 |   |                 |   |                 |   |      |   |
| New                York contract revenue         |   | $                    | -      |                 | $      | -         |   | $ | - |   |
| Grant                revenue                     |   |                 | -      |                 |   | 182       |   |   | 182 |   |
| Total                operating income            |   |                 | -      |                 |   | 182       |   |   | 182 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Operating                expenses:               |   |                 |        |                 |   |           |   |   |  |   |
| Cost                of contract or grant revenue |   |                 | -      |                 |   | 76        |   |   | 76 |   |
| General                and administrative        |   |                 | 1,732  |                 |   | 106       |   |   | 1,838 |   |
| Total                operating expenses          |   |                 | 1,732  |                 |   | 182       |   |   | 1,914 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |

| Segment                operating loss |   | $ | (1,732 | ) | $ | - |   | $ | (1,732 | ) |
|---------------------------------------|--------|---|--------|---|---|---|--------|---|--------|---|

|                                        |   |   |   |   |   |   |   |
|---------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Total                assets                 |   | $      | 4,767  |   | $      | -      |   | $ | 4,767 |   |
|                                        |   |   |        |   |   |        |   |   |  |   |
| Reconciliation                to net loss:  |   |   |        |   |   |        |   |   |  |   |
| Total                segment operating loss |   |   |        |   |   |        |   | $ | (1,732 | ) |
| Warrant                and stock options    |   |   |        |   |   |        |   |   | (294 | ) |
| Other                income (expense)       |   |   |        |   |   |        |   |   | 6 |   |
|                                        |   |   |        |   |   |        |   |   |  |   |
| Net                loss                     |   |   |        |   |   |        |   | $ | (2,020 | ) |

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      6: SEGMENTS (Continued)**

**For        the Three Months ended June 30, 2008**

|                                                                   |   | **Water Group** |   | **Power Group** |   | **Total** |   |
|------------------------------------------------------------------------|--------|----------------------|--------|----------------------|--------|-----------|--------|
| Operating                income:                                       |   |                 |   |                 |   |      |   |
| Sales                of wastewater treatment and recovery systems      |   | $                    | 676    |                 | $      | -         |   | $ | 676 |   |
| Grant                revenue                                           |   |                 | -      |                 |   | 100       |   |   | 100 |   |
| Total                operating income                                  |   |                 | 676    |                 |   | 100       |   |   | 776 |   |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Operating                expenses:                                     |   |                 |   |                 |   |      |   |   |   |   |
| Cost                of wastewater treatment and recovery systems sales |   |                 | 700    |                 |   | 22        |   |   | 722 |   |
| General                and administrative                              |   |                 | 1,605  |                 |   | 78        |   |   | 1,683 |   |
| Selling                expenses                                        |   |                 | 88     |                 |   | -         |   |   | 88 |   |
| Total                operating expenses                                |   |                 | 2,393  |                 |   | 100       |   |   | 2,493 |   |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Segment                operating loss                                  |   | $                    | (1,717 | )                    | $      | -         |   | $ | (1,717 | ) |
|                                                                   |   |                 |   |                 |   |      |   |   |   |   |
| Total                assets                                            |   | $                    | 1,429  |                 | $      | -         |   | $ | 1,429 |   |
|                                                                   |   |                 |   |                 |   |           |   |   |   |   |
| Reconciliation                to net loss:                             |   |                 |        |                 |   |           |   |   |   |   |
| Total                segment operating loss                            |   |                 |        |                 |   |           |   | $ | (1,717 | ) |
| Warrant                and stock options                               |   |                 |        |                 |   |           |   |   | (1,893 | ) |
| Minority                interest                                       |   |                 |        |                 |   |           |   |   | 41 |   |
| Other                income (expense)                                  |   |                 |        |                 |   |           |   |   | (196 | ) |
|                                                                   |   |                 |        |                 |   |           |   |   |   |   |
| Net                loss                                                |   |                 |        |                 |   |           |   | $ | (3,765 | ) |

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      6: SEGMENTS (Continued)**

| **For                the Three Months ended June 30, 2007** |
|-------------------------------------------------------------|
| (in                thousands)                               |

|                                             |   | **Water Group** |   | **Power Group** |   | **Total** |   |
|--------------------------------------------------|--------|----------------------|--------|----------------------|--------|-----------|--------|
| Operating                income:                 |   |                 |   |                 |   |      |   |
| New                York contract revenue         |   | $                    | -      |                 | $      | -         |   | $ | - |   |
| Grant                revenue                     |   |                 | -      |                 |   | 108       |   |   | 108 |   |
| Total                operating income            |   |                 | -      |                 |   | 108       |   |   | 108 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Operating                expenses:               |   |                 |        |                 |   |           |   |   |  |   |
| Cost                of contract or grant revenue |   |                 | -      |                 |   | 36        |   |   | 36 |   |
| General                and administrative        |   |                 | 1,039  |                 |   | 72        |   |   | 1,111 |   |
| Total                operating expenses          |   |                 | 1,039  |                 |   | 108       |   |   | 1,147 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Segment                operating loss            |   | $                    | (1,039 | )                    | $      | -         |   | $ | (1,039 | ) |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Total                assets                      |   | $                    | 4,767  |                 | $      | -         |   | $ | 4,767 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Reconciliation                to net loss:       |   |                 |        |                 |   |           |   |   |  |   |
| Total                segment operating loss      |   |                 |        |                 |   |           |   | $ | (1,039 | ) |
| Warrant                and stock options         |   |                 |        |                 |   |           |   |   | (201 | ) |
| Other                income (expense)            |   |                 |        |                 |   |           |   |   | 3 |   |
|                                             |   |                 |        |                 |   |           |   |   |  |   |
| Net                loss                          |   |                 |        |                 |   |           |   | $ | (1,237 | ) |

----

**THERMOENERGY      CORPORATION**

**NOTES      TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)**

**June      30, 2008**

**NOTE      7: SUBSEQUENT EVENTS**

----

**Item      2. Management’s Discussion and Analysis of Financial Condition and Results of      Operations. **

*General*

----

*Current      Cash Requirements; Need for Additional Funds*

----

----

*Second      Quarter 2008 Compared to Second Quarter 2007 *

----

*Six      Months Ended June 30, 2008 Compared to Six Months Ended June 30,      2007*

*Recent      Developments*

*Research      and Development*

*Expected      Changes in the Number of Employees*

----

*Off-Balance      Sheet Arrangements *

**Item      3. Quantitative and Qualitative Disclosures About Market      Risk.**

**Item      4. Controls and Procedures.**

----

**PART      II — OTHER      INFORMATION**

**Item      1. Legal Proceedings.**

**Item      1A. Risk Factors.**

**Item      2. Unregistered Sales of Equity Securities and Use of      Proceeds.**

| *Date*                          | *Shareholder*                                                   | *Number                  of Shares* |
|---------------------------------|-----------------------------------------------------------------|-------------------------------------|
| April                  4, 2008  | Robert                  S. Trump                                | 1,146,036                           |
| April                  29, 2008 | Alliance                  Advisors, LLC                         | 90,000                              |
| April                  29, 2008 | KWS                  Trust                                      | 50,000                              |
| April                  29, 2008 | Howard                  W. Carroll Trust                        | 50,000                              |
| May                  16, 2008   | Kern                  Family Trust of 1995                      | 20,384                              |
| June                  2, 2008   | Martin                  A. Roenigk                              | 550,000                             |
| June                  10, 2008  | George                  R. Haines II and/or Elizabeth F. Haines | 30,209                              |
| June                  10, 2008  | Security                  Equity Fund, Mid Cap Value Series     | 1,745,000                           |
| June                  10, 2008  | SBL                  Fund, Series V                             | 1,130,000                           |
| June                  10, 2008  | Security                  Mid Cap Growth Fund                   | 745,000                             |
| June                  10, 2008  | SBL                  Fund, Series J                             | 1,380,000                           |

----

**Item      3. Defaults Upon Senior Securities.**

**Item      4. Submission of Matters to a Vote of Security Holders.**

| 1. | The                election of two directors to serve on our Board of Directors for                a term of                three years until the 2011 Annual Meeting and until their respective                successors are duly elected and                qualified; |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 2. | Ratifying                the appointment of Kemp & Company as our independent registered public                accounting firm for the fiscal year ending December 31, 2008;                and |
|----|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

| 3 | Approving                the ThermoEnergy Corporation 2008 Incentive Stock                Plan.  |
|---|-------------------------------------------------------------------------------------------------------|

| *Nominee*                                | *Votes                  For* | *Votes                  Withheld* |
|------------------------------------------|------------------------------|-----------------------------------|
| Alexander                  G. Fassbender | 32,863,446                   | 2,485,138                         |
| Andrew                  T. Melton        | 33,113,423                   | 2,235,161                         |

| *For*      | *Against* | *Abstain* |
|------------|-----------|-----------|
| 33,675,670 | 1,478,753 | 194,161   |

----

| *For*      | *Against* | *Abstain* | *Broker                  Non-Votes* |
|------------|-----------|-----------|-------------------------------------|
| 25,185,210 | 1,808,731 | 800,895   | 7,553,748                           |

**Item      5. Other Information.**

**Item      6. Exhibits.**

| *Exhibit* |   | *Description*                                                                                               |   |            |
|-----------|--------|-------------------------------------------------------------------------------------------------------------|--------|------------|
| *Number*  |   | *Of                Exhibit*                                                                                 |   | *Location* |
| 31.1      |   | Certification                of C.E.O. pursuant to Rule 13a-14(a)                                           |   | *          |
|      |   |                                                                                                        |   |       |
| 31.2      |   | Certification                of C.F.O. pursuant to Rule 13a-14(a)                                           |   | *          |
|      |   |                                                                                                        |   |       |
| 32.1      |   | Certification                of C.E.O. pursuant to Rule 13a-14(b) and 18 U.S.C. Section                1350 |   | *          |
|      |   |                                                                                                        |   |       |
| 32.3      |   | Certification                of C.F.O. pursuant to Rule 13a-14(b) and 18 U.S.C. Section                1350 |   | *          |

----

**SIGNATURE**

|                  |                                                                                  |                              |
|-----------------------|---------------------------------------------------------------------------------------|-----------------------------------|
| Date: August 15, 2008 |                                                                                  | THERMOENERGY CORPORATION          |
|             |                                                                             |                         |
|                       |                                                                                       | /s/              Dennis C. Cossey |
|                  | Dennis                C. Cossey, Chairman, and Chief                Executive Officer |

----