**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.) |
|-----------------------------------------------------------------------------------------------------|------------------------------------------------------------|

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**THERMOENERGY      CORPORATON**

**INDEX      **

| ** **              |                                 |                                                                                                                                                                                                                                            | **Page****No.** |
|-------------------------|--------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------|
| Part                I.  | Financial                Information |                                                                                                                                                                                                                                            |            |
|                    | Item                1.               | Financial                Statements                                                                                                                                                                                                             |            |   |
|                    |                                 | Consolidated                Balance Sheets as of March 31, 2008 (Unaudited) and December 31,                2007                                                                                                                      |            | 3 |
|                    |                                 | Consolidated                Statements of Operations for the three months ended March 31, 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 three months                ended                March 31, 2008 |            | 5 |
|                    |                                 | Consolidated                Statements of Cash Flows for the three months ended March 31, 2008                and 2007 (Unaudited)                                                                                                         |            | 6 |
|                    |                                 | Notes                to Financial Statements (Unaudited)                                                                                                                                                                                        |            | 7 |
|                    | Item                2.               | Management's                Discussion and Analysis of Financial Condition and Results of                Operations                                                                                                                             |            | 13 |
|                    | Item 3                               | Quantitative              and              Qualitative Disclosures About Market Risk                                                                                                                                                            |            | 18 |
|                    | Item                4T.              | Controls                and Procedures                                                                                                                                                                                                          |            | 18 |
| Part                II. | Other                Information     |                                                                                                                                                                                                                                            |            |
|                    | Item                1.               | Legal                Proceedings                                                                                                                                                                                                                |            | 19 |
|                    | Item                1a.              | Risky              Factors                                                                                                                                                                                                                      |            | 19 |
|                    | Item                2.               | Unregistered                Sales of Equity Securities and Use of Proceeds                                                                                                                                                                      |            | 19 |
|                    | Item                3.               | Defaults                Upon Senior Securities                                                                                                                                                                                                  |            | 20 |
|                    | Item                4.               | Submission                of Matters to a Vote of Security Holders                                                                                                                                                                              |            | 20 |
|                    | Item                5.               | Other                Information                                                                                                                                                                                                                |            | 20 |
|                    | Item                6.               | Exhibits                                                                                                                                                                                                                                        |            | 21 |
| Signature               |                                 |                                                                                                                                                                                                                                            |

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**THERMOENERGY        CORPORATION**

**CONSOLIDATED        BALANCE SHEETS**

**(in        thousands, except for share and par value amounts )**

|                                                                                                                                                                                                                                                                             |   | **March 31, 2008** |    | **December 31, 2007** |   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|------------------------------|---------|---------------------------------|--------|
|                                                                                                                                                                                                                                                                             |   | **(Unaudited)**              |    |                            |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |
| **ASSETS**                                                                                                                                                                                                                                                                       |   |                         |    |                            |   |   |   |
| Current                  Assets:                                                                                                                                                                                                                                                 |   |                         |    |                            |   |   |   |
| Cash                                                                                                                                                                                                                                                                             |   | $                            | 1,509   |                            | $      | 3,185 |   |
| Accounts                  Receivable, net                                                                                                                                                                                                                                        |   |                         | 304     |                            |   | 260 |   |
| Inventories                                                                                                                                                                                                                                                                      |   |                         | 250     |                            |   | 184 |   |
| Other                  Current Assets                                                                                                                                                                                                                                            |   |                         | 292     |                            |   | 239 |   |
| Total                  Current Assets                                                                                                                                                                                                                                            |   |                         | 2,355   |                            |   | 3,868 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Property                  and Equipment, net of Accumluated Depreciation (2008 - $76; 2007                  -                  $85)                                                                                                                                              |   |                         | 318     |                            |   | 322 |   |
| Other                  Assets                                                                                                                                                                                                                                                    |   |                         | 24      |                            |   | 5 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| **Total                  Assets**                                                                                                                                                                                                                                                |   | $                            | 2,697   |                            | $      | 4,195 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                                                                              |   |                         |    |                            |   |   |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Current                  Liabilities:                                                                                                                                                                                                                                            |   |                         |    |                            |   |   |   |
| Accounts                  Payable                                                                                                                                                                                                                                                |   | $                            | 599     |                            | $      | 844 |   |
| Short                  Term Notes Payable                                                                                                                                                                                                                                        |   |                         | 573     |                            |   | 679 |   |
| Convertible                  Debt in Default                                                                                                                                                                                                                                     |   |                         | 3,003   |                            |   | 2,921 |   |
| Deferred                  Revenue                                                                                                                                                                                                                                                |   |                         | 548     |                            |   | 458 |   |
| Other                  Current Liabilities                                                                                                                                                                                                                                       |   |                         | 1,028   |                            |   | 1,552 |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                       |   |                         | 5,751   |                            |   | 6,454 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Long                  Term Liabilities:                                                                                                                                                                                                                                          |   |                         |    |                            |   |   |   |
| Deferred                  Comp Retirement Plan for Officers Net of Current Portion                                                                                                                                                                                               |   |                         | 293     |                            |   | 304 |   |
| Convertible                  Debt                                                                                                                                                                                                                                                |   |                         | 571     |                            |   | 512 |   |
| Total                  Long Term Liabilities                                                                                                                                                                                                                                     |   |                         | 864     |                            |   | 816 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Minority                  Interest in Subsidiary                                                                                                                                                                                                                                 |   |                         | (1,458  | )                               |   | (1,414 | ) |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| **Total                  Liabilities**                                                                                                                                                                                                                                           |   |                         | 5,157   |                            |   | 5,856 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Stockholders'                  Equity (Deficit):                                                                                                                                                                                                                                 |   |                         |    |                            |   |   |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Preferred                  Stock, $0.01 par value: authorized - 20,000,000 share; issued and                  outstanding: 2008 - 5,260,002; 2007 - 5,301,670 shares                                                                                                             |   |                         | 53      |                            |   | 53 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Common                  Stock, $.001 par value: authorized - 150,000,000 shares; issued:                  2008 -                  41,109,184 shares; 2007 - 40,817,516 shares; outstanding: 2008                  -                  41,025,387 shares; 2007 - 40,733,719 shares |   |                         | 41      |                            |   | 40 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Additional                  Paid-In Capital                                                                                                                                                                                                                                      |   |                         | 51,904  |                            |   | 50,794 |   |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| Accumulated                  Deficit                                                                                                                                                                                                                                             |   |                         | (54,458 | )                               |   | (52,548 | ) |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| **Total                  Equity (Deficit)**                                                                                                                                                                                                                                      |   |                         | (2,460  | )                               |   | (1,661 | ) |
|                                                                                                                                                                                                                                                                             |   |                         |    |                            |   |   |   |
| **TOTAL                  LIABILITIES AND EQUITY (DEFICIT)**                                                                                                                                                                                                                      |   | $                            | 2,697   |                            | $      | 4,195 |   |

----

**THERMOENERGY        CORPORATION**

**CONSOLIDATED        STATEMENTS OF OPERATIONS**

**(in        thousands, except per share amounts)**

|                                                             |   | **Three                  Months Ended** |   |
|------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                             |   | **March                  31,**          |   |
|                                                             |   | **2008**                                |   | **2007** |   |
|                                                             |   |                                    |   |   |   |
| Operating                  Income                                |   | $                                       | 409    |   | $ | 73 |   |
| Cost                  of Contract and Grant Income               |   |                                    | 413    |   |   | 39 |   |
| Gross                  Operating Income (Loss)                   |   |                                    | (4     | ) |   | 34 |   |
|                                                             |   |                                    |   |   |   |   |   |
| Operating                  Expenses:                             |   |                                    |   |   |   |   |   |
| General                  and Administrative                      |   |                                    | 999    |   |   | 314 |   |
| Selling                  Expense                                 |   |                                    | 67     |   |   | - |   |
| Option                  Expense                                  |   |                                    | 135    |   |   | 10 |   |
| Warrant                  Expense                                 |   |                                    | -      |   |   | 83 |   |
| Professional                  Fees                               |   |                                    | 229    |   |   | 326 |   |
| Travel                  and Entertainment                        |   |                                    | 224    |   |   | 88 |   |
| Total                  Operating Expenses                        |   |                                    | 1,654  |   |   | 821 |   |
|                                                             |   |                                    |   |   |   |   |   |
| Loss                  from Operations                            |   |                                    | (1,658 | ) |   | (787 | ) |
|                                                             |   |                                    |   |   |   |   |   |
| Other                  Income (Expense):                         |   |                                    |   |   |   |   |   |
| Interest                  Income                                 |   |                                    | 11     |   |   | 4 |   |
| Interest                  Expense                                |   |                                    | 307    |   |   | - |   |
| Total                  Other Income (Expense)                    |   |                                    | (296   | ) |   | 4 |   |
|                                                             |   |                                    |   |   |   |   |   |
| Net                  loss before minority interest in subsidiary |   |                                    | (1,954 | ) |   | (783 | ) |
| Minority                  interest in subsidiary                 |   |                                    | 44     |   |   | - |   |
|                                                             |   |                                    |   |   |   |   |   |
| Net                  Loss                                        |   | $                                       | (1,910 | ) | $ | (783 | ) |
|                                                             |   |                                    |   |   |   |   |   |
| Per                  Common Share:                               |   |                                    |   |   |   |   |   |
| Loss                  from Operations                            |   | $                                       | (0.04  | ) | $ | (0.03 | ) |
| Net                  Loss                                        |   | $                                       | (0.05  | ) | $ | (0.03 | ) |

----

**THERMOENERGY        CORPORATION**

**CONSOLIDATED        STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)**

**Period        Ended December 31, 2007 and the Three Months Ended March 31, 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 officers and directors                                                                                                                                                                                                                                                            |   |                |   |                                                   |   |                                 |   |                       | 904    |            |   |   |   |   | 904 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Stock                  issued for services (53,167 shares at an average price of                    $.097 per share)                                                                                                                                                                                                 |   |                | -      |                                                   |   | -                                    |   |                       | 52     |            |   | - |   |   | 52 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Warrants                  issued for services                                                                                                                                                                                                                                                                        |   |                |   |                                                   |   |                                 |   |                       | 331    |            |   |   |   |   | 331 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Converted                  Preferred Stock to Common Stock (897,001 shares)                                                                                                                                                                                                                                          |   |                | 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(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 feature 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 $.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 $.99 per                  share)                                                                                                                                                                                                              |   |                | -      |                                                   |   |                                 |   |                       | 30     |            |   |   |   |   | 30 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Issuance                  of Common Stock, December 2007, net of Issuance Costs of $667.284                  (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                                                                                                                                                                                                                                                                        |   |                |   |                                                   |   |                                 |   |                       | 83     |            |   |   |   |   | 83 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Stock                  grants issued to officers                                                                                                                                                                                                                                                                     |   |                | 1      |                                                   |   |                                 |   |                       | 277    |            |   |   |   |   | 278 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Warrants                  and beneficial conversion feature issued with 5% convertible note,                  March                  2008                                                                                                                                                                  |   |                |   |                                                   |   |                                 |   |                       | 750    |            |   |   |   |   | 750 |   |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Net                  Loss                                                                                                                                                                                                                                                                                            |   |                |   |                                                   |   |                                 |   |                       |   |            |   | (1,910 | ) |   | (1,910 | ) |
|                                                                                                                                                                                                                                                                                                                 |   |                |   |                                                   |   |                                 |   |                       |   |            |   |   |   |   |   |   |
| Balance                  (Deficit) March 31, 2008                                                                                                                                                                                                                                                                    |   | $                   | 41     |                                                   | $      | 53                                   |   | $                          | 51,904 |            | $      | (54,458 | ) | $ | (2,460 | ) |

----

**THERMOENERGY        CORPORATION**

**CONSOLIDATED        STATEMENTS OF CASH FLOWS**

**(in        thousands)**

|                                                                 |   | **Three                  Months Ended** |   |
|----------------------------------------------------------------------|--------|-----------------------------------------|--------|
|                                                                 |   | **March                  31,**          |   |
|                                                                 |   | **2008**                                |   | **2007** |   |
|                                                                 |   |                                    |   |   |   |
| Operating                  Activities:                               |   |                                    |   |   |   |   |   |
| Net                  Loss                                            |   | $                                       | (1,910 | ) | $ | (783 | ) |
|                                                                 |   |                                    |   |   |   |   |   |
| Items                  not requiring (providing) cash:               |   |                                    |   |   |   |   |   |
| Options                  issued to officers and directors            |   |                                    | -      |   |   | 10 |   |
| Warrants                  issued for services                        |   |                                    | 83     |   |   | 83 |   |
| Depreciation                  Expense                                |   |                                    | 6      |   |   | 7 |   |
| Minority                  Interest In Subsidiary                     |   |                                    | (44    | ) |   | - |   |
| Restricted                  Stock issued for services                |   |                                    | -      |   |   | 11 |   |
| Amortization                  of Discount on Convertible Debt        |   |                                    | 195    |   |   | - |   |
|                                                                 |   |                                    |   |   |   |   |   |
| Changes                  in:                                         |   |                                    |   |   |   |   |   |
| Accounts                  and Notes Receivable                       |   |                                    | (44    | ) |   | (93 | ) |
| Inventories                                                          |   |                                    | (66    | ) |   | - |   |
| Other                  Current Assets                                |   |                                    | (53    | ) |   | 28 |   |
| Accounts                  Payable                                    |   |                                    | (245   | ) |   | (119 | ) |
| Short                  Term Notes Payable                            |   |                                    | (220   | ) |   | - |   |
| Deferred                  Revenue                                    |   |                                    | 90     |   |   | - |   |
| Other                  Current Liabilities                           |   |                                    | (207   | ) |   | (39 | ) |
| Deferred                  Compensation Retirement Plan               |   |                                    | (11    | ) |   | (15 | ) |
|                                                                 |   |                                    |   |   |   |   |   |
| Net                  Cash used in operating activities               |   |                                    | (2,426 | ) |   | (910 | ) |
|                                                                 |   |                                    |   |   |   |   |   |
| Financing                  Activities:                               |   |                                    |   |   |   |   |   |
| Proceeds                  from issuance of Common Stock and Warrants |   |                                    | -      |   |   | 520 |   |
| Proceeds                  from Convertible Debentures                |   |                                    | 750    |   |   | 750 |   |
|                                                                 |   |                                    |   |   |   |   |   |
| Net                  cash provided by financing activities           |   |                                    | 750    |   |   | 1,270 |   |
|                                                                 |   |                                    |   |   |   |   |   |
| Increase                  (Decrease) in cash                         |   |                                    | (1,676 | ) |   | 360 |   |
| Cash,                  beginning of year                             |   |                                    | 3,185  |   |   | 637 |   |
| Cash,                  end of period                                 |   | $                                       | 1,509  |   | $ | 997 |   |

----

**THERMOENERGY      CORPORATION**

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

**March      31, 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)**

**March      31, 2008**

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

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

----

**THERMOENERGY      CORPORATION**

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

**March      31, 2008**

**NOTE      5: LEGAL MATTERS**

**NOTE      6: SEGMENTS**

----

**THERMOENERGY      CORPORATION**

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

**March      31, 2008**

**NOTE      6: SEGMENTS (continued)**

| **For                  the Period ended March 31, 2008** |
|----------------------------------------------------------|
| (in                  thousands)                          |

|                                                                     |   |   | **Water Group**  |   |   | **Power Group**   |   |   | **Total**   |   |
|--------------------------------------------------------------------------|--------|--------|----------------------------|--------|--------|----------------------------------|--------|--------|-----------------------|--------|
| Operating                  income:                                       |   |   |                       |   |   |                             |   |   |                  |   |
| Sales                  of wastewater treatment and recovery systems      |   | $      | 226                        |   | $      | -                                |   | $      | 226                   |   |
| Grant                  revenue                                           |   |   | -                          |   |   | 183                              |   |   | 183                   |   |
| Total                  operating income                                  |   |   | 226                        |   |   | 183                              |   |   | 409                   |   |
|                                                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Operating                  expenses:                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Cost                  of wastewater treatment and recovery systems sales |   |   | 351                        |   |   | 62                               |   |   | 413                   |   |
| General                  and administrative                              |   |   | 1,331                      |   |   | 121                              |   |   | 1,452                 |   |
| Selling                  expenses                                        |   |   | 67                         |   |   | -                                |   |   | 67                    |   |
| Total                  operating expenses                                |   |   | 1,749                      |   |   | 183                              |   |   | 1,932                 |   |
|                                                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Segment                  operating loss                                  |   | $      | (1,523                     | )      | $      | -                                |   | $      | (1,523                | )      |
|                                                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Total                  assets                                            |   | $      | 2,697                      |   | $      | -                                |   | $      | 2,697                 |   |
|                                                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Reconciliation                  to net loss:                             |   |   |                            |   |   |                                  |   |   |                       |   |
| Total                  segment operating loss                            |   |   |                            |   |   |                                  |   | $      | (1,523                | )      |
| Warrant                  and stock options                               |   |   |                            |   |   |                                  |   |   | (135                  | )      |
| Minority                  interest                                       |   |   |                            |   |   |                                  |   |   | 44                    |   |
| Other                  income (expense)                                  |   |   |                            |   |   |                                  |   |   | (296                  | )      |
|                                                                     |   |   |                            |   |   |                                  |   |   |                       |   |
| Net                  loss                                                |   |   |                            |   |   |                                  |   | $      | (1,910                | )      |

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**THERMOENERGY      CORPORATION**

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

**March      31, 2008**

**NOTE      6: SEGMENTS (continued)**

| **For                  the Period ended March 31, 2007** |
|----------------------------------------------------------|
| (in                  thousands)                          |

|                                               |   |   | **Water Group**  |   |   | **Power Group**  |   |   | **Total**  |   |
|----------------------------------------------------|--------|--------|----------------------------|--------|--------|----------------------------|--------|--------|-----------------|--------|
| Operating                  income:                 |   |   |                       |   |   |                       |   |   |            |   |
| New                  York contract revenue         |   | $      | -                          |   | $      | -                          |   | $      | -               |   |
| Grant                  revenue                     |   |   | -                          |   |   | 73                         |   |   | 73              |   |
| Total                  operating income            |   |   | -                          |   |   | 73                         |   |   | 73              |   |
|                                               |   |   |                            |   |   |                            |   |   |                 |   |
| Operating                  expenses:               |   |   |                            |   |   |                            |   |   |                 |   |
| Cost                  of contract or grant revenue |   |   | 0                          |   |   | 39                         |   |   | 39              |   |
| General                  and administrative        |   |   | 694                        |   |   | 34                         |   |   | 728             |   |
| Total                  operating expenses          |   |   | 694                        |   |   | 73                         |   |   | 767             |   |
|                                               |   |   |                            |   |   |                            |   |   |                 |   |
| Segment                  operating loss            |   | $      | (694                       | )      | $      | -                          |   | $      | (694            | )      |
|                                               |   |   |                            |   |   |                            |   |   |                 |   |
| Total                  assets                      |   | $      | 2,816                      |   | $      | -                          |   | $      | 2,816           |   |
|                                               |   |   |                            |   |   |                            |   |   |                 |   |
| Reconciliation                  to net loss:       |   |   |                            |   |   |                            |   |   |                 |   |
| Total                  segment operating loss      |   |   |                            |   |   |                            |   | $      | (694            | )      |
| Warrant                  and stock options         |   |   |                            |   |   |                            |   |   | (93             | )      |
| Other                  income (expense)            |   |   |                            |   |   |                            |   |   | 4               |   |
|                                               |   |   |                            |   |   |                            |   |   |                 |   |
| Net                  loss                          |   |   |                            |   |   |                            |   | $      | (783            | )      |

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**THERMOENERGY      CORPORATION**

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

**March      31, 2008**

**NOTE      7: SUBSEQUENT EVENTS**

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*General*

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*Current      Cash Requirements; Need for Additional Funds*

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*First      Quarter 2008 Compared to First Quarter 2007 *

*Recent      Developments*

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*Research      and Development*

*Expected      Changes in the Number of Employees*

*Off-Balance      Sheet Arrangements *

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

**Item      4T. Controls and Procedures.**

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**PART      II — OTHER INFORMATION**

**Item      1. Legal Proceedings.**

**Item      1a.  Risk      Factors**

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

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**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.**

| *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 |   | *      |
|   |   |                                                                                                        |   |   |
| 32.2   |   | Certification                of C.F.O. pursuant to Rule 13a-14(b) and 18 U.S.C. Section                1350 |   | *      |

**SIGNATURE**

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

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