On November 13, 2012, ThermoEnergy Corporation was notified by the New York City Department of Environmental Protection (the ‘DEP') that Contract PO-98B between the company and the City of New York, dated May 11, 2010, relating to the 26th Ward waste water pollution control plant has been terminated effective November 29, 2012. The company understands that the termination of the Contract was due to the DEP's decision to pursue an alternate ammonia reduction project. Under the Contract, the company was engaged by the City of New York to (a) provide engineering and design services with respect to the rehabilitation of the Cake Storage Building, process equipment, and miscellaneous systems at the 26th Ward waste water pollution control plant, (b) supply and install its proprietary ARP® equipment at the 26th Ward waste water pollution control plant, and (c) operate and maintain the System at the 26th Ward waste water pollution control plant for a period of twelve months.

The company had expected to complete its services under the Contract in or about June 2015. To date, the company has billed an aggregate of $14,839,000 for goods and services under the Contract, of which amount $13,358,000 has been paid and $1,481,000 remains outstanding. The company expects to bill DEP an additional amount for costs associated with termination of the Contract.

Had the Contract remained in force through completion, it expected to bill an additional $7,702,000 for goods and services.