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**UNITED      STATES**

**SECURITIES      AND EXCHANGE COMMISSION**

**Washington,      DC 20549**

**FORM      10-QSB**

**THERMOENERGY      CORPORATION**

| ARKANSAS(State                or Other Jurisdiction ofIncorporation                or Organization) | 71-00659511(IRS                Employer Identification No.) |
|-----------------------------------------------------------------------------------------------------|-------------------------------------------------------------|

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**THERMOENERGY      CORPORATON**

**INDEX      **

|                   |                                 |   | **Page****No.**                                                                                                                                                                                                                    |
|------------------------|--------------------------------------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| Part                I. | Financial                Information |   |                                                                                                                                                                                                                               |
|                   | Item                1.               |   | Financial                Statements                                                                                                                                                                                                |   |   |
|                   |                                 |   | Balance                Sheets as of March 31, 2006 (Unaudited) and December 31,                2005                                                                                                                      |   | 3 |
|                   |                                 |   | Statements                of Operations for the three months ended March 31, 2006 and 2005                (Unaudited)                                                                                                         |   | 4 |
|                   |                                 |   | Statements                of Changes in Stockholders’ Equity (Deficit) for the period ended January                1, 2005 through December 31, 2005 and the three months ended March                31,                2006 |   | 5 |
|                   |                                 |   | Statements                of Cash Flows for the three months ended March 31, 2006 and 2005                (Unaudited)                                                                                                         |   | 6 |
|                   |                                 |   | Notes                to Financial Statements (Unaudited)                                                                                                                                                                           |   | 7 |
|                   | Item                2.               |   | Management's                Discussion and Analysis or Plan of Operation                                                                                                                                                           |   | 9 |
|                   | Item                3.               |   | Controls                and Procedures                                                                                                                                                                                             |   | 12 |

| Part                II. | Other                Information |   |                                                                       |
|-------------------------|----------------------------------|--------|----------------------------------------------------------------------------|
|                    | Item                1.           |   | Legal                Proceedings                                           |   | 12 |
|                    | Item                2.           |   | Unregistered                Sales of Equity Securities and Use of Proceeds |   | 12 |
|                    | Item                3.           |   | Defaults                Upon Senior Securities                             |   | 12 |
|                    | Item                4.           |   | Submission                of Matters to a Vote of Security Holders         |   | 12 |
|                    | Item                5.           |   | Other                Information                                           |   | 12 |
|                    | Item                6.           |   | Exhibits                and Reports on Form 8-K                            |   | 13 |

| Signature |   | 13 |
|-----------|--------|----|

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**PART      I - FINANCIAL INFORMATION**

**THERMOENERGY        CORPORATION**

**BALANCE      SHEETS**

|       |   | **March                31, 2006****(Unaudited)** |   | **December                31,****2005****(Note                1)** |   |
|------------|--------|--------------------------------------------------|--------|--------------------------------------------------------------------|--------|
| **ASSETS** |   |                                             |   |                                                               |   |

| Current              Assets:                                                                                                                                                                         |   |   |        |   |   |        |   |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|--------|-------------|--------|--------|-------------|--------|
| Cash                                                                                                                                                                                                 |   | $      | 3,019,512   |   | $      | 4,325,801   |   |
| Accounts                Receivable                                                                                                                                                                   |   |        | 527,164     |   |   | 310,467     |   |
| Other                Current Assets                                                                                                                                                                  |   |   | 166,529     |   |   | 118,450     |   |
|                                                                                                                                                                                                 |   |   |        |   |   |        |   |
| Total                Current Assets                                                                                                                                                                  |   |   | 3,713,205   |   |   | 4,754,718   |   |
|                                                                                                                                                                                                 |   |   |        |   |   |        |   |
| Property                and equipment, at cost:                                                                                                                                                      |   |   |        |   |   |        |   |
| Equipment,                furniture and fixtures                                                                                                                                                     |   |   | 126,555     |   |   | 108,622     |   |
| Less                accumulated depreciation                                                                                                                                                         |   |   | (25,361     | )      |   | (19,809     | )      |
| Total                Fixed Assets                                                                                                                                                                    |   |   | 101,194     |   |   | 88,813      |   |
|  **TOTAL                ASSETS**                                                                                                                                                                |   | $      | 3,814,399   |   | $      | 4,843,531   |   |
|                                                                                                                                                                                                 |   |   |        |   |   |        |   |
| **LIABILITIES                AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                    |   |   |        |   |   |        |   |
| **LIABILITIES**                                                                                                                                                                                      |   |   |        |   |   |        |   |
| Current                Liabilities:                                                                                                                                                                  |   |   |        |   |   |        |   |
| Accounts                Payable                                                                                                                                                                      |   | $      | 253,894     |   | $      | 318,272     |   |
| Total                Current Liabilities                                                                                                                                                             |   |   | 253,894     |   |   | 318,272     |   |
| Long                Term Liabilities:                                                                                                                                                                |   |   |        |   |   |        |   |
| Deferred                Comp Retirement Plan for officer                                                                                                                                             |   |   | 335,000     |   |   | 350,000     |   |
| Total                Long Term Liabilities                                                                                                                                                           |   |   | 335,000     |   |   | 350,000     |   |
| **TOTAL                LIABILITIES**                                                                                                                                                                 |   |   | 588,894     |   |   | 668,272     |   |
|                                                                                                                                                                                                 |   |   |        |   |   |        |   |
| **EQUITY**                                                                                                                                                                                           |   |   |        |   |   |        |   |
| Stockholders'                equity (deficit):                                                                                                                                                       |   |   |        |   |   |        |   |
| Preferred                stock, $1 par value: authorized - 10,000,000                                                                                                                                |   |   |        |   |   |        |   |
| shares;                issued: 2006 - 6,198,671 shares; 2005 - 6,198,671;outstanding:                2006 and 2005 - 6,198,671                                                                       |   |   | 6,198,671   |   |   | 6,198,671   |   |
| Common                Stock, $.001 par value; authorized - 75,000,000 shares;issued:                2006 and 2005 - 23,220,612 shares; outstanding: 2006 and                2005 - 23,136,815 shares |   |   | 23,221      |   |   | 23,221      |   |
| Additional                paid-in Capital                                                                                                                                                            |   |   | 29,512,129  |   |   | 29,130,717  |   |
| Accumulated                Deficit                                                                                                                                                                   |   |   | (31,177,320 | )      |   | (31,177,350 | )      |

| Net                Income (Loss)                                   |   |   | (1,331,196 | )      |   | -         |   |
|--------------------------------------------------------------------|--------|--------|------------|--------|--------|-----------|--------|
|                                                               |   |   |       |   |   |      |   |
| **TOTAL                EQUITY**                                    |   |   | 3,225,505  |   |   | 4,175,259 |   |
|                                                               |   |   |       |   |   |      |   |
| **TOTAL                LIABILITIES AND STOCKHOLER’S EQUITY** |   | $      | 3,814,399  |   | $      | 4,843,531 |   |

**See      notes to financial statements.**

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**THERMOENERGY      CORPORATION**

**STATEMENTS      OF OPERATIONS**

|                                      |   | **Three                Months Ended** |       |
|-------------------------------------------|--------|---------------------------------------|------------|
|                                      |   | **March                31,**          |       |
|                                      |   | **2006**                              |       | **2005** |   |
|                                      |   | **(Unaudited)**                  |       |
| **Operating                Income:**      |   |                                  |       |    |   |
| Water                Group                |   | $                                     | 60,000     |   |   |  |   |
| Power                Group                |   |                                  | 192,123    |   |   |   |   |
| Total                Operating Inc.       |   |                                  | 252,123    |   |   |   |   |
|                                      |   |                                  |       |   |   |   |   |
| Operating                Expenses:        |   |                                  |       |   |   |   |   |
| General                & Admin.       |   |                                  | 1,469,051  |   |   | 161,382 |   |
| Payments                under licenses    |   |                                  | 10,000     |   |   | 10,000 |   |
| Travel                & Entertainment |   |                                  | 124,268    |   |   | 30,716 |   |
|  Total                Operating Exp. |   |                                  | 1,603,319  |   |   | 202,098 |   |
|                                      |   |                                  |       |   |   |   |   |
| Loss                From Operations       |   |                                  | (1,351,196 | ) |   | (202,098 | ) |
|                                      |   |                                  |       |   |   |   |   |
| Other                Income (Expense):    |   |                                  |       |   |   |   |   |
| Interest                income            |   |                                  | 20,000     |   |   | 3,193 |   |
| Total                Other Income         |   |                                  | 20,000     |   |   | 3,193 |   |
|                                      |   |                                  |       |   |   |   |   |
| Net                Loss                   |   | $                                     | (1,331,196 | ) | $ | (198,905 | ) |
|                                      |   |                                  |       |   |   |   |   |
| Per                Common Share:          |   |                                  |       |   |   |   |   |
| Loss                From Operations       |   | $                                     | (0.04      | ) | $ | (0.01 | ) |
|                                      |   |                                  |       |   |   |   |   |
| Net                Loss                   |   | $                                     | (0.04      | ) | $ | (0.01 | ) |

**See      notes to financial statements.**

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**THERMOENERGY      CORPORATION**

**STATEMENTS      OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)**

**Period      Ended December 31, 2005 and the Three Months Ended**

**March      31, 2006 (Unaudited)**

|                                                                                                                                                                                                                                                                        | ** ** | **Common                  Stock** | ** ** | **Series                  A Convertible Preferred Stock** | ** ** | **Additional                  Paid-in Capital** | ** ** | **Accumulated                  Deficit** | ** ** | **Total**  |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|-----------------------------------------------------------|------------|-------------------------------------------------|------------|------------------------------------------|------------|------------|------------|
|                                                                                                                                                                                                                                                                        |       |                              |       |                                                      |       |                                            | ** ** | ** **                               | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Balance                  (deficit) January 1, 2005                                                                                                                                                                                                                          |       | $                                 | 22,692     |                                                      |       |                                            |       | $                                        | 22,046,714 |       | $          | (25,940,526 | ) | $ | (3,871,120 | ) |
| Issuance                  of stock for account payable balances (534,177 shares at a price                  of $1.32                  per share)                                                                                                                            |       |                              | 534        |                                                      |       |                                            |       |                                     | 704,580    |       |       |   |   |   | 705,750 |   |
| Settlement                  of Deferred Compensation Retirement Plan of Officer                                                                                                                                                                                             |       |                              |       |                                                      |       |                                            |       |                                     | 2,707,750  |       |       |   |   |   | 2,707,750 |   |
| Issuance                  of Series A Convertible Preferred Stock and warrants (“units”) July 2005,                  net of issuance costs of $452,619 (6,198,571 shares and 2,798,400                  warrants                  at a price of $1.20 per unit) | ** ** | ** **                        |       |                                                      |       | 6,198,671                                       |       |                                     | 787,115    |       |       |   |   |   | 6,985,786 |   |
| Issuance                  of stock for Officer bonus (25,000 share at a price of $1.40 per                  share)                                                                                                                                                          |       |                              | 25         |                                                      |       |                                            |       |                                     | 34,975     |       |       |   |   |   | 35,000 |   |
| Acquired                  and cancelled stock from shareholder, August 2005 (141,383 shares                  at a                  price of $0.89 per share)                                                                                                                |       |                              | (141       | )                                                         |       |                                            |       |                                     | (125,690   | )          |       |   |   |   | (125,831 | ) |
| Issuance                  of stock in partial retirement of deferred compensation, September                  2005                  (110,544 shares at a price of $1.29 per share)                                                                                          |       |                              | 111        |                                                      |       |                                            |       |                                     | 142,491    |       |       |   |   |   | 142,602 |   |
| Warrant                  issued for services                                                                                                                                                                                                                                |       |                              |       |                                                      |       |                                            |       |                                     | 1,775,245  |       |       |   |   |   | 1,775,245 |   |
| Warrant                  price adjustment - private placement units                                                                                                                                                                                                         |       |                              |       |                                                      |       |                                            |       |                                     | 261,803    |       |       |   |   |   | 261,803 |   |
| Reduction                  in balance of deferred compensation by issuing Stock Options, September                  2005                                                                                                                                                    |       |                              |       |                                                      |       |                                            |       |                                     | 795,734    |       |       |   |   |   | 795,734 |   |
| Net                  Loss                                                                                                                                                                                                                                                   |       |                              |       |                                                      |       |                                            |       |                                     |       |       |       | (5,236,824 | ) |   | (5,236,824 | ) |
| Balance                  December 31, 2005                                                                                                                                                                                                                                  |       | $                                 | 23,221     |                                                      | $          | 6,198,671                                       |       | $                                        | 29,130,717 |       | $          | (31,177,350 | ) | $ | 4,175,259 |   |
| Net                  Loss                                                                                                                                                                                                                                                   |       |                              |            |                                                      |       |                                                 |       |                                     |            |       | $          | (949,784 | ) | $ | (949,784 | ) |
| Balance                  March 31, 2006                                                                                                                                                                                                                                     |       | $                                 | 23,221     |                                                      | $          | 6,198,671                                       |       | $                                        | 29,130,717 |       | $          | (32,483,635 | ) | $ | 3,225,475 |   |

**See      notes to financial statements.**

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**THERMOENERGY      CORPORATION**

**STATEMENTS      OF CASH FLOWS**

|                                                                               |   | **Three                Months Ended March 31,** |       |
|------------------------------------------------------------------------------------|--------|-------------------------------------------------|------------|
|                                                                               |   |  **2006**                                  |       | **2005** |   |
|                                                                               |   |  **(Unaudited)**                           |       | **(Unaudited)** |   |
|                                                                               |   |                                       |       |   |   |
| Operating                activities:                                               |   |                                       |       |   |   |
| Net                loss                                                            |   | $                                               | (1,331,196 | ) | $ | (198,905 | ) |
| Items                not requiring (providing) cash:                               |   |                                            |       |   |   |   |   |
| Depreciation                                                                       |   |                                            | 5,552      |   |   |   |   |
| Expense                of options issued to officers and directors                 |   |                                            | 298,333    |   |   |   |   |
| Expense                of warrants vesting during the first                quarter |   |                                            | 83,079     |   |   |   |   |
| Changes                in:Advances                to officers                      |   |                                            |       |   |   | (58,622 | ) |
| Accounts                receivables                                                |   |                                            | (216,697   | ) |   |   |   |
| Other                receivables                                                   |   |                                            | (65,000    | ) |   |   |   |
| Accounts                payable                                                    |   |                                            | (64,378    | ) |   | (156,222 | ) |
| Accrued                expenses                                                    |   |                                            | 16,952     |   |   |   |   |
| Deferred                compensation                                               |   |                                            |       |   |   | 155,121 |   |
| Deferred                compensation retirement plan                               |   |                                            | (15,000    | ) |   |   |   |
| Net                cash used in operating activities                               |   |                                            | (1,288,355 | ) |   | (258,628 | ) |
|                                                                               |   |                                            |       |   |   |   |   |
| Investing                activities:                                               |   |                                            |       |   |   |   |   |
| Purchase                of fixed assets                                            |   |                                            | (17,934    | ) |   |   |   |
| Net                Cash used in investing activities                               |   |                                            | (17,934    | ) |   |   |   |
| Financing                activities:                                               |   |                                            |       |   |   |   |   |
| Other                                                                              |   |                                            |       |   |   |   |   |
| Net                cash provided by financing activities                           |   |                                            | 0          |   |   |   |   |
| Increase                (decrease) in cash                                         |   |                                            | (1,306,289 | ) |   | (258,628 | ) |
| Cash,                beginning of period                                           |   |                                            | 4,325,801  |   |   | 364,337 |   |
| Cash,                end of period                                                 |   | $                                               | 3,019,512  |   | $ | 105,709 |   |

**See      notes to financial statements.**

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**THERMOENERGY      CORPORATION**

**NOTES      TO FINANCIAL STATEMENTS (Unaudited)**

**March      31, 2006**

**NOTE      1: BASIS OF PRESENTATION**

**NOTE      2: LOSS PER COMMON SHARE**

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

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**THERMOENERGY      CORPORATION**

**NOTES      TO FINANCIAL STATEMENTS (Unaudited)**

**March      31, 2006**

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

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**Item      2. Management’s Discussion and Analysis or Plan of      Operation.**

*Forward-Looking      Statements*

*General*

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*Plan      of Operation *

* Current      Cash Requirements; Need for Additional Funds *

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*Research      and Development During the Next 12 Months *

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*Expected      Changes in the Number of Employees *

*Off-Balance      Sheet Arrangements *

**Item      3. Controls and Procedures.**

**PART      II -- OTHER INFORMATION**

**Item      1. Legal Proceedings.**

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

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

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

**Item      5. Other Information.**

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**Item      6. Exhibits.**

| 31.1       |   | Certification of C.E.O. pursuant to              Rule              13a-14(a)                  | Filed herewith              |
|------------|--------|---------------------------------------------------------------------------------------------------------|-----------------------------|
| 31.2       |   | Certification of C.F.O. pursuant to              Rule              13a-14(a)                            | Filed herewith              |
| 32.1       |   | Certification of C.E.O. pursuant to              Rule              13a-14(b) and 18 U.S.C. Section 1350 | Filed herewith              |
| 32.2  |   | Certification of C.F.O. pursuant to              Rule              13a-14(b) and 18 U.S.C. Section 1350 | Filed              herewith |

**SIGNATURE**

|         |                                                                             |                                                |
|--------------|----------------------------------------------------------------------------------|-----------------------------------------------------|
|         | THERMOENERGY              CORPORATION                                            |
|    |                                                                        |                                           |
|         | By:                                                                    | /s/ Dennis              C.              Cossey |
|         | Dennis              C. Cossey, Chairman and Chief Executive              Officer |

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