**UNITED        STATES**

**SECURITIES        AND EXCHANGE COMMISSION**

**Washington,        DC 20549**

**FORM        10-QSB**

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

----

----

**THERMOENERGY        CORPORATON**

**INDEX        **

| ** **                | ** ** | ** **                             | ** ** | ** **                                                                                                                                                     | ** ** | **Page****No.** |
|---------------------------|------------|----------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------|
| Part                  I.  |       | Financial                  Information |
|                      |       | Item                  1.               |       | Financial                  Statements                                                                                                                          |       |            |
|                      |       |                                   |       | Balance                  Sheets as of September 30, 2005 (Unaudited) and December 31,                  2004                                               |       | 1               |
|                      |       |                                   |       | Statements                  of Operations for the nine months and three months ended September                  30,                  2005 and 2004 (Unaudited) |       | 2               |
|                      |       |                                   |       | Statement                  of Changes in Stockholders’ Equity (Deficit) for the nine months ended                  September 30, 2005                    |       | 3               |
|                      |       |                                   |       | Statements                  of Cash Flows for the nine months ended September 30, 2005 and                  2004                  (Unaudited)                  |       | 4               |
|                      |       |                                   |       | Notes                  to Financial Statements (Unaudited)                                                                                                     |       | 5               |
|                      |       | Item                  2.               |       | Management's                  Discussion and Analysis or Plan of Operation                                                                                     |       | 7               |
|                      |       | Item                  3.               |       | Controls                  and Procedures                                                                                                                       |       | 11              |
| 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                                                                                                                                                       |       | 13              |
| Signature                 |       |                                   |

----

**PART        I – FINANCIAL INFORMATION**

**Item        1. Financial        Statements**

**THERMOENERGY        CORPORATION**

**BALANCE        SHEETS**

|                                                                                                                                                                                                                                                                                                               |   | **September                  30,****2005****(Unaudited)** |        |   | **December                  31,****2004****(Note                  1**)**** |        |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------|-------------|--------|----------------------------------------------------------------------------|-------------|
| **ASSETS**                                                                                                                                                                                                                                                                                                         |   |                                                      |        |   |                                                                       |        |   |
| Cash                                                                                                                                                                                                                                                                                                               |   | $                                                         | 5,692,567   |   | $                                                                          | 364,337     |   |
| Accounts                Receivable                                                                                                                                                                                                                                                                                 |   |                                                      | 115,107     |   |                                                                       |        |   |
| Advances                to officers, including accrued                interest                                                                                                                                                                                                                                     |   |                                                      |        |   |                                                                       | 212,654     |   |
| Total                  Current Assets                                                                                                                                                                                                                                                                              |   |                                                      | 5,807,674   |   |                                                                       | 576,991     |   |
| Property                  and equipment, at cost:                                                                                                                                                                                                                                                                  |   |                                                      |        |   |                                                                       |        |   |
| Equipment,                  furniture and fixtures                                                                                                                                                                                                                                                                 |   |                                                      | 54,262      |   |                                                                       | 19,809      |   |
| Less                  accumulated depreciation                                                                                                                                                                                                                                                                     |   |                                                      | (19,809     | )      |                                                                       | (19,809     | ) |
| Net                  Property and Equipment                                                                                                                                                                                                                                                                        |   |                                                      | 34,453      |   |                                                                       |        |   |
| Total                  Assets                                                                                                                                                                                                                                                                                      |   | $                                                         | 5,842,127   |   | $                                                                          | 576,991     |   |
|                                                                                                                                                                                                                                                                                                               |   |                                                      |        |   |                                                                       |        |   |
| **LIABILITIES                  AND STOCKHOLDERS' EQUITY (DEFICIT)**                                                                                                                                                                                                                                                |   |                                                      |        |   |                                                                       |        |   |
| Accounts                  payable                                                                                                                                                                                                                                                                                  |   | $                                                         | 180,792     |   | $                                                                          | 539,946     |   |
| Notes                  Payable (Bridge Loan)                                                                                                                                                                                                                                                                       |   |                                                      | -           |   |                                                                       | -           |   |
| Deferred                  compensation                                                                                                                                                                                                                                                                             |   |                                                      | -           |   |                                                                       | 663,165     |   |
| Deferred                  compensation retirement plan for officer                                                                                                                                                                                                                                                 |   |                                                      | 40,000      |   |                                                                       | -           |   |
| Total                  Current Liabilities                                                                                                                                                                                                                                                                         |   |                                                      | 220,792     |   |                                                                       | 1,203,111   |   |
|                                                                                                                                                                                                                                                                                                               |   |                                                      |        |   |                                                                       |        |   |
| Deferred                  compensation retirement plan for officer                                                                                                                                                                                                                                                 |   |                                                      | 397,250     |   |                                                                       | 3,245,000   |   |
| Total                  Liabilities                                                                                                                                                                                                                                                                                 |   |                                                      | 618,042     |   |                                                                       | 4,448,111   |   |
|                                                                                                                                                                                                                                                                                                               |   |                                                      |        |   |                                                                       |        |   |
| Stockholders'                  equity (deficit):                                                                                                                                                                                                                                                                   |   |                                                      |        |   |                                                                       |        |   |
| Preferred                  stock, non-voting, $1 par value:                                                                                                                                                                                                                                                        |   |                                                      |        |   |                                                                       |        |   |
| Authorized                  - 10,000,000 shares; September 30, 2005: Issued - 6,198,671                  shares; outstanding - 6,198,671 shares                                                                                                                                                                    |   |                                                      | 6,198,671   |   |                                                                       | -           |   |
| Common                  Stock, $.001 par value; authorized - 75,000,000 shares;September                  30, 2005: Issued - 23,220,612 shares; outstanding - 23,136,783                  shares; December 31, 2004: Issued - 22,692,274 shares; outstanding                  -                  22,608,445 shares |   |                                                      | 23,221      |   |                                                                       | 22,692      |   |
|                                                                                                                                                                                                                                                                                                               |   |                                                      |        |   |                                                                       |        |   |
| Additional                  paid-in capital                                                                                                                                                                                                                                                                        |   |                                                      | 27,546,288  |   |                                                                       | 22,046,714  |   |
| Retained                  Earning (Deficit)                                                                                                                                                                                                                                                                        |   |                                                      | (28,544,095 | )      |                                                                       | (25,940,526 | ) |
| Total                  Stockholder’s Equity                                                                                                                                                                                                                                                                  |   |                                                      | 5,224,085   |   |                                                                       | (3,871,120  | ) |
| Total                  Liabilities & Stockholder’s Equity                                                                                                                                                                                                                                                |   | $                                                         | 5,842,127   |   | $                                                                          | 576,991     |   |

**See        notes to financial statements.**

----

**THERMOENERGY        CORPORATION**

**STATEMENTS        OF OPERATIONS**

|                                                  |   |  **Nine                    Months Ended****September                    30,** |       |  **Three                    Months Ended******September                    30,**** |   |
|-------------------------------------------------------|--------|------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|--------|
|                                                  |   |  **2005**                                                                     |       |  **2004**                                                                          |   |  **2005** |   |  **2004** |   |
|                                                  |   |  **(Unaudited)**                                                              |       |  **(Unaudited)**                                                                   |   |
| Operating                  Revenue:                   |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Water                  Group Revenue                  |   | $                                                                                  | 97,872     |                                                                                    |   | - |   | $ | 97,572 |   |   | - |   |
| ThermoEnergy                  Power Systems Revenue   |   |                                                                               | 1          |                                                                                    |   | - |   |   | 1 |   |   | - |   |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Total                    Revenue                      |   |                                                                               | 97,572     |                                                                                    |   | - |   |   | 97,572 |   |   | - |   |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Operating                    Expenses:                |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| General                    and administrative         |   |                                                                               | 2,509,456  |                                                                                    |   | 1,248,351 |   |   | 1,410,808 |   |   | 210,663 |   |
| Payments                    under licenses            |   |                                                                               | 105,219    |                                                                                    |   | 75,000 |   |   | 85,219 |   |   | 25,000 |   |
| Travel                    and entertainment           |   |                                                                               | 162,052    |                                                                                    |   | 115,079 |   |   | 76,998 |   |   | 23,169 |   |
|                                                  |   |                                                                               | 2,713,909  |                                                                                    |   | 1,438,430 |   |   | 1,573,025 |   |   | 258,832 |   |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Loss                    From Operations               |   |                                                                               | (2,616,337 | )                                                                                       |   | (1,438,430 | ) |   | (1,475,453 | ) |   | (258,832 | ) |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Other                    Income (Expense)             |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Interest                    income                    |   |                                                                               | 12,691     |                                                                                    |   | 1,607 |   |   | 5,092 |   |   | 164 |   |
| Gain                    on settlement of lawsuit      |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Other                                                 |   |                                                                               | 77         |                                                                                    |   |   |   |   |   |   |   |   |   |
| Interest                    expense                   |   |                                                                               | -          |                                                                                    |   | - |   |   | - |   |   | - |   |
|                                                  |   |                                                                               | 12,768     |                                                                                    |   | 1,607 |   |   | 5,092 |   |   | 164 |   |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Net                    Loss                           |   | $                                                                                  | (2,603,569 | )                                                                                       | $      | (1,436,823 | ) |   | (1,470,361 | ) | $ | (258,668 | ) |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Basic                    and Diluted per Common Share |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Loss                    From Operations               |   | $                                                                                  | (0.11      | )                                                                                       | $      | (0.07 | ) | $ | (0.06 | ) | $ | (0.01 | ) |
|                                                  |   |                                                                               |       |                                                                                    |   |   |   |   |   |   |   |   |   |
| Net                    Loss                           |   | $                                                                                  | (0.10      | )                                                                                       | $      | (0.07 | ) | $ | (0.05 | ) | $ | (0.01 | ) |

**See        notes to financial statements.**

----

**THERMOENERGY        CORPORATION**

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

**Period        Ended December 31, 2004 and the Nine Months Ended**

**September        30, 2005 (Unaudited)**

|                                                                                                                                                                                                          |   |                  **Common****Stock** |   |  ****Preferred******Stock** |   |  **Additional****Paid-in******Capital**** |   |  ****Retained******Earnings** |       |  **Total** |   |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------------------------|--------|----------------------------------|--------|------------------------------------------------|--------|------------------------------------|------------|-----------------|--------|
| Balance                  (deficit), December 31,                  2004                                                                                                                                             |   | $                                         | 22,692 |                             |   |                                           |   | $                                  | 22,046,714 |            | $      | (25,940,526 | ) | $ | (3,871,120 | ) |
| Issuance                  of stock for account payable                  balances, June 2005,                  (534,177 shares at aprice                  of $1.32 per share)                                       |   |                                      | 534    |                             |   |                                           |   |                               | 704,580    |            |   |   |   |   | 705,114 |   |
| Settlement                  of DeferredCompensation                  RetirementPlan                  of Officer                                                                                                    |   |                                      |   |                             |   |                                           |   |                               | 2,707,750  |            |   |   |   |   | 2,707,750 |   |
| Issuance                  of Preferred Stock and                  warrants, July 2005(6,198,671                  shares at a priceof                  $1.20 per share)                                             |   |                                      |   |                             |   | 6,198,671                                      |   |                               | 1,239,734  |            |   |   |   |   | 7,438,405 |   |
| Issuance                  of stock for officer bonus,                  July 2005 (25,000shares                  at a price of $1.40per                  share                                                      |   |                                      | 25     |                             |   |                                           |   |                               | 34,975     |            |   |   |   |   | 35,000 |   |
| Acquired                  and cancelled stockfrom                  shareholder, August2005                  (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,                  September2005                  (110,544 shares at aprice                  of $1.29 per share) |   |                                      | 111    |                             |   |                                           |   |                               | 142,491    |            |   |   |   |   | 142,602 |   |
| Reduction                  in balance ofdeferred                  compensation byissuing                  Stock Options,September                  2005                                                            |   |                                      |   |                             |   |                                           |   |                               | 795,734    |            |   |   |   |   | 795,734 |   |
| Net                  Loss                                                                                                                                                                                          |   |                                      |        |                             |   |                                                |   |                               |            |            |   | (2,603,569 | ) |   | (2,603,569 | ) |
| Balance                  (deficit), September  30,                  2005                                                                                                                                      |   | $                                         | 23,221 |                             | $      | 6,198,671                                      |   | $                                  | 27,546,288 |            | $      | (28,544,055 | ) | $ | 5,224,085 |   |

**See        notes to financial statements.**

----

**THERMOENERGY        CORPORATION**

**STATEMENTS        OF CASH FLOWS**

|                                                                                                                  |   |  **Nine                  Months Ended September 30,** |       |
|-----------------------------------------------------------------------------------------------------------------------|--------|------------------------------------------------------------|------------|
|                                                                                                                  |   |  **2005**                                             |       |  **2004** |   |
|                                                                                                                  |   |  **(Unaudited)**                                      |       |  **(Unaudited**)**** |   |
|                                                                                                                  |   |                                                       |       |   |   |   |   |
| Operating                  activities:                                                                                |   |                                                       |       |   |   |   |   |
| Net                  loss                                                                                             |   | $                                                          | (2,603,569 | ) | $ | (1,436,823 | ) |
| Items                  not requiring (providing) cash:                                                                |   |                                                       |       |   |   |   |   |
| Depreciation                                                                                                          |   |                                                       |       |   |   |   |   |
| Expenses                  funded by Preferred Stock issuanceExpenses                  funded by Common Stock issuance |   |                                                       | 882,182    |   |   |   |   |
| Other                                                                                                                 |   |                                                       |       |   |   |   |   |
| Changes                  in:                                                                                          |   |                                                       |       |   |   |   |   |
| Advances                  to officers                                                                                 |   |                                                       | (212,654   | ) |   |   |   |
| Other                  receivables                                                                                    |   |                                                       | 115,107    |   |   |   |   |
| Accounts                  payable                                                                                     |   |                                                       | (359,153   | ) |   | 193,583 |   |
| Accrued                  expenses                                                                                     |   |                                                       | 180,793    |   |   |   |   |
| Deferred                  compensation                                                                                |   |                                                       | (471,309   | ) |   | 321,425 |   |
| Deferred                  compensation retirement plan                                                                |   |                                                       | 30,000     |   |   |   |   |
| Net                  cash used in operating activities                                                                |   |                                                       | (2,438,603 | ) |   | (921,815 | ) |
|                                                                                                                  |   |                                                       |       |   |   |   |   |
| Investing                  activities:                                                                                |   |                                                       |       |   |   |   |   |
| Purchase                  of fixed assets                                                                             |   |                                                       | 34,453     |   |   |   |   |
| Other                                                                                                                 |   |                                                       |       |   |   |   |   |
| Net                  cash used by investing activities                                                                |   |                                                       | (34,453    | ) |   |   |   |
| Financing                  activities:                                                                                |   |                                                       |       |   |   |   |   |
| Proceeds                  from issuance of Common Stock and warrants                                                  |   |                                                       |       |   |   | 905,555 |   |
| Proceeds                  from notes payable and advances from officers                                               |   |                                                       | 328,428    |   |   |   |   |
| Proceeds                  from Issuance of Preferred Stock                                                            |   |                                                       | 7,438,405  |   |   |   |   |
| Proceeds                  from Bridge Loan                                                                            |   |                                                       | 100,000    |   |   |   |   |
| Payments                  on Bridge Loan                                                                              |   |                                                       | (100,000   | ) |   |   |   |
| Other                                                                                                                 |   |                                                       |       |   |   |   |   |
| Net                  cash provided by financing activities                                                            |   |                                                       | 7,766,833  |   |   | 905,555 |   |
| Increase                  (decrease) in cash                                                                          |   |                                                       | 5,328,230  |   |   | (16,260 | ) |
| Cash,                  beginning of period                                                                            |   |                                                       | 364,337    |   |   | 62,303 |   |
| Cash,                  end of period                                                                                  |   | $                                                          | 5,692,567  |   | $ | 46,043 |   |

**See        notes to financial statements.**

----

**THERMOENERGY        CORPORATION**

**NOTES        TO FINANCIAL STATEMENTS **

**(Unaudited)        September 30, 2005**

**NOTE        1: BASIS OF PRESENTATION**

**NOTE        2: LOSS PER COMMON SHARE**

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

----

**THERMOENERGY        CORPORATION**

**NOTES        TO FINANCIAL STATEMENTS **

**(Unaudited)        September 30, 2005**

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

----

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

*Forward-Looking        Statements*

----

*General*

*Plan        of Operation *

----

* Current        Cash Requirements; Need for Additional Funds *

----

*Recent        Developments *

----

*Research        and Development During the Next 12 Months *

*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.**

----

**Item        6. Exhibits.**

| **Exhibit** |                                                                                                                                                                                                                     |
|-------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **Number**  | **Description                  of Exhibits**                                                                                                                                                                             |
| 31.1        | Certification                  pursuant to Securities and Exchange Act Rules 13a-14 and 15d-14,                  as                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of                  2002. |
| 31.2        | Certification                  pursuant to Securities and Exchange Act Rules 13a-14 and 15d-14,                  as                  adopted pursuant to Section 302 of the Sarbanes-Oxley Act of                  2002. |
| 32.1        | Certification                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                  906 of                  the Sarbanes-Oxley Act of 2002.                                               |
| 32.2        | Certification                  pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section                  906 of                  the Sarbanes-Oxley Act of 2002.                                               |

----

**SIGNATURE**

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

----