_____________________________





UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION





Washington,
D. C. 20549


__________________________





FORM
10-Q





T QUARTERLY
REPORT PURSUANT TO SECTION 13 or 15(d) OF THE





SECURITIES
EXCHANGE ACT OF 1934





FOR THE
QUARTERLY PERIOD ENDED MARCH 31, 2008





- OR
-





£ TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE





SECURITIES
EXCHANGE ACT OF 1934


__________________________





Commission
File No.  333-103749





MAINE
& MARITIMES CORPORATION





A Maine
Corporation





I.R.S.
Employer Identification No. 30-0155348





209 STATE
STREET, PRESQUE ISLE, MAINE 04769





(207)
760-2499


__________________________





Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes T.    No
£.





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a smaller reporting company. See the definitions of “large
accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule
12b-2 of the Exchange Act. (Check one):




Large
      accelerated filer £.
            Accelerated
      filer £.Non-accelerated
      filer £
            Smaller
      reporting company T.(Do
      not check if a smaller reporting
company)





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes £.    No
T.





Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of May 12, 2008.





Common
Stock, $7.00 par value – 1,677,862 shares













Glossary
of Terms





AMEX
            American
      Stock Exchange


Ashford
            Ashford
      Investments, Inc.


CES
            Competitive
      Energy Supplier


CMP
            Central
      Maine Power


Cornwallis
            Cornwallis
      Court Developments Ltd.


CPCN
            Certificate
      of Public Convenience and Necessity


EA
            Energy
      Atlantic, LLC


FAME
            Finance
      Authority of Maine


FASB
            Financial
      Accounting Standards Board


FERC
            Federal
      Energy Regulatory Commission


FIN
            FASB
      Interpretation Number


ISO-NE
            ISO
      New England


MAM
            Maine
      & Maritimes Corporation


MAM
      USG
            MAM
      Utility Services Group


Me&NB
            Maine
      & New Brunswick Electrical Power Company,
  Ltd


Mecel
            Mecel
      Properties Ltd


MEPCO
            Maine
      Electric Power Company, Inc.


MPC
            Maine
      Power Connection


MPS
            Maine
      Public Service Company


MPUC
            Maine
      Public Utilities Commission


MTI
            Maricor
      Technologies, Inc.


MW
            Megawatt


MWH
            Megawatt
      Hour


OATT
            Open
      Access Transmission Tariff


OCI
            Other
      Comprehensive Income


PCB
            Poly
      Chlorinated Bi-phenol


SFAS
            Statement
      of Financial Accounting Standards


SOS
            Standard
      Offer Service


TMG
            The
      Maricor Group


TMGC
            The
      Maricor Group, Canada Ltd


TMGNE
            The
      Maricor Group New England





2





PART
1. FINANCIAL INFORMATION


Item
1. Financial Statements





See the
following exhibits: Maine & Maritimes Corporation ("MAM" or the "Company")
and subsidiaries Consolidated Financial Statements, including (1) an unaudited
statement of consolidated operations for the quarter ended March 31, 2008, and
for the corresponding period of the preceding year; (2) an unaudited statement
of consolidated cash flows for the period January 1 (beginning of the fiscal
year) through March 31, 2008, and for the corresponding period of the preceding
year; (3) an unaudited consolidated balance sheet as of March 31, 2008; (4) an
audited consolidated balance sheet as of December 31, 2007, the end of MAM's
preceding fiscal year; and (5) an unaudited statement of consolidated common
shareholders’ equity for the period January 1 (beginning of the fiscal year)
through March 31, 2008.





In the
opinion of Management, the accompanying unaudited consolidated financial
statements present fairly the financial position of the Company and its
Subsidiaries at March 31, 2008; the results of their operations for the three
months ended March 31, 2008 and 2007; and their cash flows for the three months
ended March 31, 2008, and 2007.





MAM
is the parent holding company for the following wholly-owned
subsidiaries:





1.
            Maine
      Public Service Company (“MPS”) and its wholly-owned inactive Canadian
      subsidiary Maine & New Brunswick Electrical Power Company, Ltd
      (“Me&NB”);


2.
            MAM
      Utility Services Group (“MAM USG”), a wholly-owned United States
      subsidiary;


3.
            The
      Maricor Group (“TMG”) and its wholly-owned United States subsidiary The
      Maricor Group New England (“TMGNE”) and TMG’s wholly-owned Canadian
      subsidiary The Maricor Group, Canada Ltd (“TMGC”) and TMGC’s wholly-owned
      Canadian subsidiary, Mecel Properties Ltd (“Mecel”), all of which are
      classified as discontinued operations;
and


4.
            Energy
      Atlantic, LLC (“EA”), an inactive
subsidiary.








Maine
& Maritimes Corporation and Subsidiaries





(1)  Indicates
      inactive companies


(2)  Companies
      classified as Discontinued Operations in these financial
      statements.





General
Descriptions of the Parent Company and its Subsidiaries:





Continuing
Operations:





•
            Maine
      & Maritimes Corporation is a holding company incorporated in the State
      of Maine, and is the ultimate parent company for all business
      segments.  MAM maintains investments in a regulated electric
      transmission and distribution utility and an unregulated utility services
      company, both operating within the State of Maine and classified for
      financial reporting purposes as continuing operations.  MAM is
      headquartered in Presque Isle,
Maine.





•
            Maine
      Public Service Company is a regulated electric transmission and
      distribution utility serving all of Aroostook County and a portion of
      Penobscot County in northern Maine.  Since March 1, 2000, the
      date retail electric competition in Maine commenced, customers in MPS’s
      service territory have been purchasing energy from suppliers other than
      MPS.  This energy comes from Competitive Electricity Suppliers
      (“CES”) or, if customers are unable or do not wish to choose a competitive
      supplier, the Standard Offer Service (“SOS”) provider.  SOS
      providers are determined through a bid process conducted by the Maine
      Public Utilities Commission (“MPUC”).  MPS provides the
      transportation through its transmission and distribution wires
      infrastructure.  Its service area covers approximately 3,600
      square miles, with a population of 73,000.  The utility is
      regulated by the Federal Energy Regulatory Commission (“FERC”) and the
      MPUC.  MPS is headquartered in Presque Isle,
    Maine.





3





Electric
sales in the Company’s territory are seasonal, and the Company’s results of
operations reflect this seasonal nature.  The highest usage occurs
during the five heating season months, from November through March, due to
heating-related requirements and shorter daylight hours.  The rate
year is divided into two periods, with higher rates in place in the winter
months to encourage conservation.  Also, due to the climate in the
northern Maine area, the majority of MPS’s construction program is completed
during the spring, summer and fall months.





•
            Maine
      & New Brunswick Electrical Power Company, Ltd., is an inactive
      Canadian subsidiary of MPS, which, prior to deregulation and generation
      divestiture, owned MPS’s Canadian electric generation
    assets.





•
            MAM
      Utility Services Group is a wholly-owned subsidiary of MAM, incorporated
      in the State of Maine on September 27, 2007.  MAM USG provides
      utility-related services to clients on projects that MPS could not or
      would not be required to provide under State and Federal
      regulations.  These services include transmission line and
      substation design and build services for generator projects outside the
      MPS service territory and contract work within MPS’s
      territory.  MAM USG is focused on areas such as transmission
      infrastructure to support renewable generation, utility asset maintenance
      contracts and other utility-related
services.





Equity
Investments





•
            MAM
      was a 50% owner of Maricor Properties Ltd, a Canadian company formerly
      wholly-owned by MAM, and its wholly-owned Canadian subsidiary Cornwallis
      Court Developments Ltd. (“Cornwallis”).  MAM divested its 50%
      ownership of Maricor Properties on March 31, 2008, through a share
      redemption agreement with Ashford Investments, Inc.
      (“Ashford”).





•
            MAM
      was also a 50% owner of Maricor Ashford, an inactive joint venture with
      Ashford.  As of September 12, 2007, MAM sold its 50% ownership
      of Maricor Ashford to Ashford.





Discontinued
Operations





•
            The
      Maricor Group was a facilities engineering and solutions company providing
      mechanical, electrical and plumbing/fire protection engineering consulting
      design services, energy efficiency solutions, facilities condition
      assessments, lifecycle asset management solutions, and emissions reduction
      services.  TMG operated primarily within the New England region
      of the United States and the eastern Canadian provinces, particularly
      Atlantic Canada, through its subsidiaries TMGNE and TMGC.  The
      legal entities of TMG, TMGNE and TMGC are expected to be dissolved upon
      sale of Mecel Properties.





•
            TMGC
      is also the parent company of Mecel Properties Ltd.  Mecel was
      formerly a Canadian subsidiary of Maricor Properties Ltd and owns the
      office building that housed the Halifax, Nova Scotia, operating division
      of The Maricor Group, Canada Ltd.  TMGC is seeking to divest its
      ownership of Mecel during the first half of 2008.





•
            Energy
      Atlantic, LLC is a licensed, but currently inactive, CES of retail
      electricity.





•
            Maricor
      Technologies, Inc. (“MTI”) was a former wholly-owned subsidiary of
      MAM.  Substantially all of the assets of MTI were sold on April
      13, 2007, and the legal entity of MTI was dissolved on June 28,
      2007.  The activity of MTI through dissolution of the company is
      reported in discontinued operations





4





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Statements of Consolidated Operations(Unaudited)





(In
      thousands of dollars except shares and per share amounts)
            
            Three
      Months Ended March 31,2008
            
            
            2007Operating
      RevenuesRegulated
      Revenues
            
            $
            10,891
            
            
            $
            10,915Unregulated
      Utility Services Revenues
            
            
            1,296
            
            
            
            -Total
      Operating Revenues
            
            
            12,187
            
            
            
            10,915Operating
      ExpensesRegulated
      Operation and Maintenance
            
            
            3,337
            
            
            
            3,377Unregulated
      Utility Services Operation and Maintenance
            
            
            1,180
            
            
            
            -Other
      Unregulated Operation and Maintenance (1)
            
            
            95
            
            
            
            492Depreciation
            
            
            755
            
            
            
            711Amortization
      of Stranded Costs
            
            
            2,728
            
            
            
            2,804Amortization
            
            
            53
            
            
            
            55Taxes
      Other Than Income
            
            
            454
            
            
            
            444Provision
      for Income Taxes—Regulated
            
            
            1,364
            
            
            
            1,317Benefit
      of Income Taxes—Unregulated
            
            
            (2
            )
            
            
            (241
            )Total
      Operating Expenses
            
            
            9,964
            
            
            
            8,959Operating
      Income
            
            
            2,223
            
            
            
            1,956Other
      Income (Deductions)Equity
      in Income of Associated Companies
            
            
            25
            
            
            
            (72
            )Interest
      and Dividend Income
            
            
            4
            
            
            
            7Provision
      for Income Taxes
            
            
            (29
            )
            
            
            (1
            )Other—Net
            
            
            5
            
            
            
            (25
            )Total
      Other Income (Deductions)
            
            
            5
            
            
            
            (91
            )Income
      Before Interest Charges
            
            
            2,228
            
            
            
            1,865Interest
      ChargesLong-Term
      Debt and Notes Payable
            
            
            655
            
            
            
            761Less
      Stranded Costs Carrying Charge
            
            
            (402
            )
            
            
            (456
            )Total
      Interest Charges
            
            
            253
            
            
            
            305Net
      Income from Continuing Operations
            
            
            1,975
            
            
            
            1,560Discontinued
      OperationsLoss
      from Operations
            
            
            (15
            )
            
            
            (350
            )Income
      Tax Benefit
            
            
            6
            
            
            
            141Loss
      from Discontinued Operations
            
            
            (9
            )
            
            
            (209
            )Net
      Income Available for Common Stockholders
            
            $
            1,966
            
            
            $
            1,351Average
      Shares of Common Stock Outstanding
            
            
            1,677,862
            
            
            
            1,646,823Basic
      Earnings Per Share of Common Stock From Continuing
    Operations
            
            $
            1.18
            
            
            $
            0.95Basic
      Loss Per Share of Common Stock From Discontinued
Operations
            
            
            (0.01
            )
            
            
            (0.13
            )Basic
      Earnings Per Share of Common Stock From Net Income
            
            $
            1.17
            
            
            $
            0.82Diluted
      Earnings Per Share of Common Stock From Continuing
    Operations
            
            $
            1.18
            
            
            $
            0.94Diluted
      Loss Per Share of Common Stock From Discontinued
Operations
            
            
            (0.01
            )
            
            
            (0.13
            )Diluted
      Earnings Per Share of Common Stock From Net Income
            
            $
            1.17
            
            
            $
            0.81





(1)  Other
unregulated operation and maintenance expense is the activity of the holding
company, including corporate costs directly associated with unregulated
operations and common costs not allocated to the regulated utility or
unregulated utility services.





See Notes
to Consolidated Financial Statements





5





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Statements of Consolidated Cash Flows(Unaudited)





(In
      thousands of dollars)
            
            Three
      Months Ended March 31,2008
            
            
            2007Cash
      Flow From Operating ActivitiesNet
      Income
            
            $
            1,966
            
            
            $
            1,351Adjustments
      to Reconcile Net Income to Net Cash Provided by
Operations:Depreciation
            
            
            755
            
            
            
            711Amortization
      of Intangibles
            
            
            53
            
            
            
            55Amortization
      of Seabrook
            
            
            278
            
            
            
            278Amortization
      of Cancelled Transmission Plant
            
            
            64
            
            
            
            64Deferred
      Income Taxes—Net
            
            
            1,588
            
            
            
            1,083Deferred
      Investment Tax Credits
            
            
            (5
            )
            
            
            (21
            )Change
      in Deferred Regulatory and Debt Issuance Costs
            
            
            1,299
            
            
            
            1,222Change
      in Benefit Obligations
            
            
            97
            
            
            
            (90
            )Change
      in Current Assets and Liabilities:Accounts
      Receivable and Unbilled Revenue from Utility
            
            
            (970
            )
            
            
            114Other
      Current Assets
            
            
            (180
            )
            
            
            (101
            )Accounts
      Payable
            
            
            353
            
            
            
            (2,022
            )Other
      Current Liabilities
            
            
            292
            
            
            
            257Other—Net
            
            
            6
            
            
            
            1,043Operating
      Cash Flows from Continuing Operations
            
            
            5,596
            
            
            
            3,944Operating
      Cash Flows from Discontinued Operations
            
            
            103
            
            
            
            (414
            )Net
      Cash Flow Provided By Operating Activities
            
            
            5,699
            
            
            
            3,530Cash
      Flow From Financing ActivitiesRepayments
      of Long-Term Debt
            
            
            (2,876
            )
            
            
            (157
            )Additions
      of Long-Term Debt
            
            
            -
            
            
            
            89Short-Term
      Debt Repayments, Net
            
            
            (3,000
            )
            
            
            (2,420
            )Net
      Cash Flow Used For Financing Activities
            
            
            (5,876
            )
            
            
            (2,488
            )Cash
      Flow From Investing ActivitiesCash
      Paid for Stock Contingencies from Acquisition Agreements
            
            
            -
            
            
            
            (69
            )Change
      in Restricted Investments
            
            
            2,243
            
            
            
            1Investment
      in Fixed Assets
            
            
            (1,914
            )
            
            
            (1,157
            )Net
      Cash Flow Provided by (Used For) Investing Activities
            
            
            329
            
            
            
            (1,225
            )Increase
      (Decrease) in Cash and Cash Equivalents
            
            
            152
            
            
            
            (183
            )Cash
      and Cash Equivalents at Beginning of Period
            
            
            910
            
            
            
            898Cash
      and Cash Equivalents at End of Period
            
            $
            1,062
            
            
            $
            715Supplemental
      Disclosure of Cash Flow Information:Cash
      Paid During the Period for:Interest
            
            $
            701
            
            
            $
            789Income
      Taxes
            
            $
            16
            
            
            $
            136Non-Cash
      Activities:Fair
      Market Value of Stock Issued to Directors
            
            $
            7
            
            
            $
            6Capital
      Leases
            
            $
            -
            
            
            $
            117








See Notes
to Consolidated Financial Statements





6





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Consolidated
Balance Sheets





(In
      Thousands of Dollars)
            
            March 31,
            
            
            December 31,2008
            
            
            2007ASSETS
            
            (Unaudited)
            
            
            (Audited)Plant:Electric
      Plant in Service
            
            $
            105,860
            
            
            $
            104,289Non-Utility
      Plant
            
            
            59
            
            
            
            3Less
      Accumulated Depreciation
            
            
            (44,983
            )
            
            
            (44,212
            )Net
      Plant in Service
            
            
            60,936
            
            
            
            60,080Construction
      Work-in-Progress
            
            
            3,180
            
            
            
            3,035Total
      Plant Assets
            
            
            64,116
            
            
            
            63,115Investments
      in Associated Companies
            
            
            871
            
            
            
            940Net
      Plant and Investments in Associated Companies
            
            
            64,987
            
            
            
            64,055Current
      Assets:Cash
      and Cash Equivalents
            
            
            1,062
            
            
            
            910Accounts
      Receivable (less allowance for uncollectible accounts of $244 in 2008 and
      $247 in 2007)
            
            
            8,743
            
            
            
            7,921Accounts
      Receivable from Associated Companies
            
            
            529
            
            
            
            377Unbilled
      Revenue from Utility
            
            
            911
            
            
            
            1,170Inventory
            
            
            1,110
            
            
            
            819Unbilled
      Contract Revenue
            
            
            255
            
            
            
            -Prepayments
            
            
            316
            
            
            
            427Current
      Assets of Discontinued Operations
            
            
            628
            
            
            
            756Total
      Current Assets
            
            
            13,554
            
            
            
            12,380Regulatory
      Assets:Uncollected
      Maine Yankee Decommissioning Costs
            
            
            4,093
            
            
            
            4,774Recoverable
      Seabrook Costs
            
            
            9,171
            
            
            
            9,449Regulatory
      Assets—Deferred Income Taxes
            
            
            5,374
            
            
            
            5,481Regulatory
      Assets—Post-Retirement Medical Benefits
            
            
            2,568
            
            
            
            2,574Deferred
      Fuel and Purchased Energy Costs
            
            
            29,696
            
            
            
            30,859Cancelled
      Transmission Plant
            
            
            191
            
            
            
            254Unamortized
      Premium on Early Retirement of Debt
            
            
            841
            
            
            
            893Deferred
      Regulatory Costs
            
            
            1,181
            
            
            
            1,302Total
      Regulatory Assets
            
            
            53,115
            
            
            
            55,586Other
      Assets:Unamortized
      Debt Issuance Costs
            
            
            237
            
            
            
            289Restricted
      Investments (at cost, which approximates market)
            
            
            223
            
            
            
            2,466Other
      Assets
            
            
            857
            
            
            
            849Total
      Other Assets
            
            
            1,317
            
            
            
            3,604Total
      Assets
            
            $
            132,973
            
            
            $
            135,625





See Notes
to Consolidated Financial Statements





7





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Capitalization
and Liabilities





(In
      Thousands of Dollars)
            
            March 31,
            
            
            December 31,2008
            
            
            2007Capitalization
      (see accompanying statement):
            
            (Unaudited)
            
            
            (Audited)Shareholders’
      Equity
            
            $
            44,658
            
            
            $
            42,941Long-Term
      Debt
            
            
            26,488
            
            
            
            27,427Total
      Capitalization
            
            
            71,146
            
            
            
            70,368Current
      Liabilities:Long-Term
      Debt Due Within One Year
            
            
            2,226
            
            
            
            4,163Notes
      Payable to Banks
            
            
            5,000
            
            
            
            8,000Accounts
      Payable
            
            
            5,284
            
            
            
            4,699Accounts
      Payable—Associated Companies
            
            
            228
            
            
            
            234Accrued
      Employee Benefits
            
            
            1,151
            
            
            
            1,377Customer
      Deposits
            
            
            61
            
            
            
            61Taxes
      Accrued
            
            
            260
            
            
            
            116Interest
      Accrued
            
            
            155
            
            
            
            201Unearned
      Revenue
            
            
            235
            
            
            
            42Current
      Liabilities of Discontinued Operations
            
            
            527
            
            
            
            537Total
      Current Liabilities
            
            
            15,127
            
            
            
            19,430Deferred
      Credits and Other Liabilities:Accrued
      Removal Obligations
            
            
            5,650
            
            
            
            5,699Carrying
      Value of Interest Rate Hedge
            
            
            2,647
            
            
            
            2,255Uncollected
      Maine Yankee Decommissioning Costs
            
            
            4,093
            
            
            
            4,774Other
      Regulatory Liabilities
            
            
            252
            
            
            
            343Deferred
      Income Taxes
            
            
            23,186
            
            
            
            21,864Accrued
      Postretirement Benefits and Pension Costs
            
            
            8,317
            
            
            
            8,226Investment
      Tax Credits
            
            
            54
            
            
            
            59Miscellaneous
            
            
            2,501
            
            
            
            2,607Total
      Deferred Credits and Other Liabilities
            
            
            46,700
            
            
            
            45,827Commitments,
      Contingencies, and Regulatory Matters (Note 8)Total
      Capitalization and Liabilities
            
            $
            132,973
            
            
            $
            135,625





See Notes
to Consolidated Financial Statements





8





MAINE
& MARITIMES CORPORATION AND SUBSIDIARIES


Statement
of Consolidated Shareholders’ Equity (Unaudited)





(In
thousands of dollars, except share information)





Common SharesCommon Shares Issued and
      Outstanding
            
            
            Par Value Issued ($7/Share)
            
            
            Paid-In Capital
            
            
            Retained Earnings
            
            
            Accumulated Other Compre-hensive Income
      (Loss)
            
            
            TotalBalance,
      December 31, 2007
            
            
            1,677,664
            
            
            $
            11,744
            
            
            $
            1,954
            
            
            $
            29,898
            
            
            $
            (655
            )
            
            $
            42,941Common
      Stock  Issued
            
            
            198
            
            
            
            1
            
            
            
            5
            
            
            
            
            
            
            
            
            
            
            
            6Net
      Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,966
            
            
            
            
            
            
            
            1,966Other
      Comprehensive Loss:Changes
      in Value of Foreign Exchange Translation Loss, Net of Tax Benefit of
      $11
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (17
            )
            
            
            (17
            )Unrealized
      Gain on Investments Available for Sale, Net of Tax Benefit of
      $2
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (3
            )
            
            
            (3
            )Change
      in Fair Value of Interest Rate Hedge, Net of Tax Benefit of
      $157
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (235
            )
            
            
            (235
            )Total
      Other Comprehensive Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (255
            )Total
      Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,711Balance,
      March 31, 2008
            
            
            1,677,862
            
            
            $
            11,745
            
            
            $
            1,959
            
            
            $
            31,864
            
            
            $
            (910
            )
            
            $
            44,658





MAM had
five million shares of $7 par value per share common stock authorized, with
1,677,862 and 1,677,664 shares issued and outstanding as of March 31, 2008, and
December 31, 2007, respectively. At March 31, 2008, and December 31, 2007, MAM
had 500,000 shares of $0.01 per share preferred stock authorized, with none
issued or outstanding.





See Notes
to Consolidated Financial Statements.




9




NOTES
TO CONSOLIDATED


FINANCIAL
STATEMENTS





1.    ACCOUNTING
POLICIES





Consolidation
and Basis of Presentation





The
accompanying consolidated financial statements include the accounts of Maine
& Maritimes Corporation (“MAM” or the “Company”) and the following
wholly-owned subsidiaries and affiliates:





1.
            Maine Public Service Company
      (“MPS”) and its wholly-owned inactive Canadian subsidiary Maine & New
      Brunswick Electrical Power Company, Ltd
    (“Me&NB”);


2.
            MAM
      Utility Services Group (“MAM USG”), a wholly-owned United States
      subsidiary;


3.
            The
      Maricor Group (“TMG”) and its wholly-owned United States subsidiary The
      Maricor Group New England, Inc. (“TMGNE”) and TMG’s wholly-owned Canadian
      subsidiary The Maricor Group, Canada Ltd (“TMGC”) and TMGC’s wholly-owned
      Canadian subsidiary Mecel Properties Ltd. (“Mecel”), all of which are
      classified as discontinued operations;
and


4.
            Energy Atlantic, LLC (“EA”), an
      inactive subsidiary.





Maricor
Technologies, Inc. (“MTI”) was a former wholly-owned subsidiary of
MAM.  Substantially all of the assets of MTI were sold on April 13,
2007, and the legal entity of MTI was dissolved on June 28, 2007.  The
activity of MTI through dissolution of the company is reported in discontinued
operations.





MAM was a
50% owner of Maricor Properties Ltd, a Canadian company formerly wholly-owned by
MAM, and its wholly-owned Canadian subsidiary Cornwallis Court Developments Ltd.
(“Cornwallis”).  MAM divested its 50% ownership of Maricor Properties
on March 31, 2008, through a share redemption agreement with Ashford
Investments, Inc. (“Ashford”).





MAM was
also a 50% owner of Maricor Ashford, an inactive joint venture with
Ashford.  As of September 12, 2007, MAM sold its 50% ownership of
Maricor Ashford to Ashford.





MAM is
listed on the American Stock Exchange (“AMEX”) under the symbol
“MAM.”




All
inter-company transactions between MAM and its subsidiaries have been eliminated
in consolidation.





Accounting
Policies





The
Company’s accounting policies are those disclosed in its 2007 Annual Report on
Form 10-K, which is hereby incorporated by this reference.





New
Accounting Pronouncements





On March
19, 2008, the Financial Accounting Standards Board (“FASB”) issued FASB
Statement of Financial Accounting Standards (“SFAS”) No. 161, Disclosures about Derivative
Instruments and Hedging Activities – an Amendment of FASB Statement
133.This statement enhances the required disclosures about
derivatives and hedging activities, including how an entity uses derivative
instruments, how the entity accounts for these instruments, and how the
derivative instruments and hedging activities affect an entity’s financial
position, financial performance and cash flows.  Specific enhancements
from this new standard include disclosure of:





·
            The
      objectives for using derivative instruments, disclosed in terms of
      underlying risk and accounting
designation;


·
            The
      fair values of derivative instruments and their gains and losses in a
      tabular format; and


·
            Information
      about contingent features related to credit
  risk.





This
standard also requires a cross-reference from the derivative footnote to other
footnotes in which derivative-related information is disclosed.  SFAS
161 is effective for fiscal years and interim periods beginning after November
15, 2008.  MAM’s use of derivatives is limited to cash flow interest
rate derivatives to fix the interest rates on MPS’s two remaining variable rate
long-term debt issues.  The additional disclosure requirements are not
expected to have a material impact on MAM’s financial statements.





10





2.    INCOME
TAXES





A summary
of Federal, Canadian and State income taxes charged (credited) to income is
presented below. For accounting and ratemaking purposes, income tax provisions
(benefits) included in “Operating Expenses” reflect taxes applicable to revenues
and expenses allowable for ratemaking purposes on MPS regulated activities and
unregulated activities for MAM, MAM USG, TMG and MTI.  The tax effect
of items not included in rate base or normal operating activities is allocated
as “Other Income (Deductions).”





The
foreign income taxes include only the Canadian income taxes for Maine & New
Brunswick and Mecel.  The Canadian operations of TMG are consolidated
in the MAM US tax return as a division, and are included in Federal income
taxes.





(In
      thousands of dollars)
            
            For the Quarters Ending
      March 31,2008
            
            
            2007Current
      income taxesFederal
            
            $
            -
            
            
            $
            -State
            
            
            -
            
            
            
            -Foreign
            
            
            -
            
            
            
            4Total
      current income taxes
            
            
            -
            
            
            
            4Deferred
      income taxesFederal
            
            
            1,043
            
            
            
            647State
            
            
            347
            
            
            
            290Total
      deferred income taxes
            
            
            1,390
            
            
            
            937Investment
      credits, net
            
            
            (5
            )
            
            
            (5
            )Total
      income taxes
            
            $
            1,385
            
            
            $
            936Allocated
      to:Operating
      income-  Regulated
            
            $
            1,364
            
            
            $
            1,317-  Unregulated
            
            
            (2
            )
            
            
            (241
            )Subtotal
            
            
            1,362
            
            
            
            1,076Discontinued
      Operations
            
            
            (6
            )
            
            
            (141
            )Total
      Operating
            
            
            1,356
            
            
            
            935Other
      income
            
            
            29
            
            
            
            1Total
            
            $
            1,385
            
            
            $
            936





For the
three months ended March 31, 2008, and 2007, the effective income tax rates were
41.3% and 40.9%, respectively.  The principal reason for the effective
tax rate differing from the US federal income tax rate is the earnings from
investments, which is partly offset by the empowerment zone credit adjustment
and investment tax credit amortization.





The
Company has not accrued U.S. income taxes on the undistributed earnings of
Me&NB, as the withholding taxes due on the distribution of any remaining
amount would be principally offset by foreign tax credits. No dividends were
received from Me&NB in the first quarters of 2008 or 2007.





In June
2006, the FASB issued FASB Interpretation Number (“FIN”) 48, “Accounting for Uncertainty in Income
Taxes, an Interpretation of FASB Statement 109.”This
statement clarifies the criteria that an individual tax position must satisfy
for some of all of the benefits of that position to be recognized in a company’s
financial statements.  FIN 48 requires a tax position must be
more-likely-than-not in order for the position to be recognized in the financial
statements.





Effective
January 1, 2007, the Company adopted the provisions of FIN 48.  There
were no adjustments required to the reported tax benefits from the adoption of
this standard.  The Company does not expect that the amounts of
unrecognized tax benefits will change significantly in the next twelve
months.  As of March 31, 2008 and 2007, the Company has accrued no
interest or penalties related to uncertain tax positions.





In the
first quarter of 2008, the Company was under audit by the State of Maine for its
2005 and 2006 State income and sales tax returns.  This review was
completed during the first quarter of 2008, with no material
adjustments.  These returns could remain subject to audit, if the US
Federal income tax returns for those years are selected for
audit.  The statutes of limitations for audits by Federal, Maine,
Massachusetts and Canadian tax authorities have expired for all tax years ending
December 31, 2003, or earlier.





As
required by SFAS 109 and FIN 48, Management of the Company has evaluated the
positive and negative evidence bearing upon the realizability of the Company’s
deferred tax assets, which consist principally of pension and post-retirement
benefits, net operating loss carryforwards, earnings on investments, and
accumulated Other Comprehensive Income (“OCI”) on MPS’s interest rate hedges.
For the quarter ended March 31, 2008, and the year ended December 31, 2007,
Management evaluated the deferred tax assets and determined a valuation
allowance was needed on the earnings on investments.  Certain
distributions from MPS’s investments have been treated for tax purposes as
dividend income, resulting in a deferred tax asset.  As this will
become a capital loss for tax purposes, the Company cannot be assured capital
gains will exist to allow for the use of this loss, and a valuation allowance
has been provided.





11





The
following summarizes accumulated deferred income tax (assets) and liabilities
established on temporary differences under SFAS 109 as of March 31, 2008, and
December 31, 2007:





(In
      thousands of dollars)March 31, 2008
            
            
            December 31, 2007Seabrook
            
            $
            4,970
            
            
            $
            5,124Property
            
            
            9,584
            
            
            
            9,527Flexible
      pricing revenue
            
            
            354
            
            
            
            403Deferred
      fuel
            
            
            11,847
            
            
            
            12,311Pension
      and post-retirement benefits
            
            
            (2,201
            )
            
            
            (2,173
            )Net
      Operating Loss Carryforwards
            
            
            (10
            )
            
            
            (2,095
            )Other
      Comprehensive Income
            
            
            (1,013
            )
            
            
            (853
            )Deferred
      Directors' Compensation
            
            
            (335
            )
            
            
            (388
            )Other
            
            
            (10
            )
            
            
            8Net
      Accumulated Deferred Income Tax Liability from Continuing
      Operations
            
            $
            23,186
            
            
            $
            21,864Other
      Comprehensive Income
            
            
            528
            
            
            
            538Other
            
            
            (16
            )
            
            
            (11
            )Net
      Accumulated Deferred Income Tax Liability of Discontinued
      Operations
            
            $
            512
            
            
            $
            527Net
      Accumulated Deferred Income Tax Liability
            
            $
            23,698
            
            
            $
            22,391





3.    SEGMENT
INFORMATION





The
Company is organized based on products and services.  Management
monitors the operations of the Company in the following operating
segments:





·
            Regulated
      electric utility: MPS and its inactive wholly-owned Canadian subsidiary,
      Me&NB;





·
            Unregulated
      utility services: MAM USG;





·
            Unregulated
      engineering services: TMG and its subsidiaries and product and service
      lines, classified as discontinued
operations;





·
            Unregulated
      software technology: MTI, classified as discontinued operations;
      and





·
            Other:
      Corporate costs directly associated with the unregulated subsidiaries,
      common costs not allocated to the regulated utility and inter-company
      eliminations.




The
accounting policies of the segments are the same as those described in Note 1,
“Accounting Policies.”  MAM provides certain administrative support
services to MPS and MAM USG, and provided similar services to TMG, and MTI and
their subsidiaries.  The costs of services provided to MPS and MAM USG
are billed to MPS and MAM USG based on a combination of direct charges and
allocations.  The cost of corporate services provided to the other
unregulated entities remains at the holding company, and is not allocated or
charged to the various subsidiaries.





MPS also
provides services to MAM and other affiliates, including administrative
services, such as information technology, human resources and accounting, and
operational services.  The administrative services are billed to MAM
at cost through inter-company transactions.  Operational services for
which MPS has an established rate for charging third parties are charged at
those established rates.





12




(In
      thousands of dollars)Quarter
      Ended March 31, 2008UnregulatedRegulatedElectricUtility
            
            
            Utility Services
            
            
            Engineering Services
            
            
            Software Technology
            
            
            Other
            
            
            TotalRevenues
      from External CustomersRegulated
      Operating Revenues
            
            $
            10,901
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            (10
            )
            
            $
            10,891Unregulated
      Utility Operating Revenues
            
            
            -
            
            
            
            1,296
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            1,296Total
      Operating Revenues
            
            
            10,901
            
            
            
            1,296
            
            
            
            -
            
            
            
            -
            
            
            
            (10
            )
            
            
            12,187Operating
      ExpensesRegulated
      Operation & Maintenance
            
            
            3,337
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,337Unregulated
      Operation & Maintenance
            
            
            -
            
            
            
            1,180
            
            
            
            -
            
            
            
            -
            
            
            
            95
            
            
            
            1,275Depreciation
            
            
            754
            
            
            
            1
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            755Amortization
      of Stranded Costs
            
            
            2,728
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,728Amortization
            
            
            53
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            53Taxes
      Other than Income
            
            
            453
            
            
            
            2
            
            
            
            -
            
            
            
            -
            
            
            
            (1
            )
            
            
            454Income
      Taxes
            
            
            1,364
            
            
            
            64
            
            
            
            -
            
            
            
            -
            
            
            
            (66
            )
            
            
            1,362Total
      Operating Expenses
            
            
            8,689
            
            
            
            1,247
            
            
            
            -
            
            
            
            -
            
            
            
            28
            
            
            
            9,964Operating
      Income (Loss)
            
            
            2,212
            
            
            
            49
            
            
            
            -
            
            
            
            -
            
            
            
            (38
            )
            
            
            2,223Other
      Income (Deductions)Equity
      in Income (Loss) of Associated Companies
            
            
            33
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (8
            )
            
            
            25Interest
      and Dividend Income
            
            
            13
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (9
            )
            
            
            4Other
      (Deductions) Income
            
            
            (72
            )
            
            
            46
            
            
            
            -
            
            
            
            -
            
            
            
            2
            
            
            
            (24
            )Total
      Other (Deductions) Income
            
            
            (26
            )
            
            
            46
            
            
            
            -
            
            
            
            -
            
            
            
            (15
            )
            
            
            5Income
      (Loss) Before Interest Charges
            
            
            2,186
            
            
            
            95
            
            
            
            -
            
            
            
            -
            
            
            
            (53
            )
            
            
            2,228Interest
      Charges
            
            
            199
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            54
            
            
            
            253Income
      (Loss) from Continuing Operations
            
            
            1,987
            
            
            
            95
            
            
            
            -
            
            
            
            -
            
            
            
            (107
            )
            
            
            1,975Loss
      from Discontinued Operations:Loss
      From Operations
            
            
            -
            
            
            
            -
            
            
            
            (15
            )
            
            
            -
            
            
            
            -
            
            
            
            (15
            )Benefit
      of Income Taxes
            
            
            -
            
            
            
            -
            
            
            
            6
            
            
            
            -
            
            
            
            -
            
            
            
            6Loss
      from Discontinued Operations
            
            
            -
            
            
            
            -
            
            
            
            (9
            )
            
            
            -
            
            
            
            -
            
            
            
            (9
            )Net
      Income (Loss)
            
            $
            1,987
            
            
            $
            95
            
            
            $
            (9
            )
            
            $
            -
            
            
            $
            (107
            )
            
            $
            1,966Total
      Assets
            
            $
            130,543
            
            
            $
            1,614
            
            
            $
            638
            
            
            $
            -
            
            
            $
            178
            
            
            $
            132,973





13




(In
      thousands of dollars)Quarter
      Ended March 31, 2007UnregulatedRegulatedElectricUtility
            
            
            Utility Services
            
            
            EngineeringServices
            
            
            SoftwareTechnology
            
            
            Other
            
            
            TotalRevenues
      from External CustomersRegulated
      Operating Revenues
            
            $
            10,915
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            -
            
            
            $
            10,915Operating
      ExpensesRegulated
      Operation & Maintenance
            
            
            3,377
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3,377Unregulated
      Operation & Maintenance
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            492
            
            
            
            492Depreciation
            
            
            711
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            711Amortization
      of Stranded Costs
            
            
            2,804
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            2,804Amortization
            
            
            55
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            55Taxes
      Other than Income
            
            
            441
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            3
            
            
            
            444Income
      Taxes
            
            
            1,317
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (241
            )
            
            
            1,076Total
      Operating Expenses
            
            
            8,705
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            254
            
            
            
            8,959Operating
      Income (Loss)
            
            
            2,210
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (254
            )
            
            
            1,956Other
      Income (Deductions)Equity
      in Loss of Associated Companies
            
            
            (38
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (34
            )
            
            
            (72
            )Interest
      and Dividend Income
            
            
            17
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (10
            )
            
            
            7Other
      Deductions
            
            
            (20
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (6
            )
            
            
            (26
            )Total
      Other Deductions
            
            
            (41
            )
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (50
            )
            
            
            (91
            )Income
      (Loss) Before Interest Charges
            
            
            2,169
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (304
            )
            
            
            1,865Interest
      Charges
            
            
            214
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            91
            
            
            
            305Income
      (Loss) from Continuing Operations
            
            
            1,955
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            (395
            )
            
            
            1,560Loss
      from Discontinued Operations:Loss
      From Operations
            
            
            -
            
            
            
            -
            
            
            
            (142
            )
            
            
            (208
            )
            
            
            -
            
            
            
            (350
            )Benefit
      of Income Taxes
            
            
            -
            
            
            
            -
            
            
            
            63
            
            
            
            78
            
            
            
            -
            
            
            
            141Loss
      from Discontinued Operations
            
            
            -
            
            
            
            -
            
            
            
            (79
            )
            
            
            (130
            )
            
            
            -
            
            
            
            (209
            )Net
      Income (Loss)
            
            $
            1,955
            
            
            $
            -
            
            
            $
            (79
            )
            
            $
            (130
            )
            
            $
            (395
            )
            
            $
            1,351Total
      Assets
            
            $
            136,488
            
            
            $
            -
            
            
            $
            7,555
            
            
            $
            1,272
            
            
            $
            650
            
            
            $
            145,965





4.    INVESTMENTS
IN ASSOCIATED COMPANIES





Maricor
Properties Ltd





On March
31, 2008, MAM divested its 50% interest in Maricor Properties and its subsidiary
Cornwallis and settled all accounts receivables from associated companies for
$535,000 Canadian or $529,000 US.  This divestiture resulted in a
$3,000 gain, reported in the Consolidated Statement of Operations within
“Other-Net.”  This transaction also released the $1.7 million letter
of credit from Bank of America and released MAM from any obligations associated
with the long-term debt of Maricor Properties and Cornwallis.  The
divestiture was accomplished through a Redemption Agreement signed with Ashford,
the other 50% owner of Maricor Properties.  On April 22, 2008, the
proceeds from this sale and other available funds were used to repay the
remaining $850,000 balance of MAM’s term note with Bank of America.





For the
first quarter of 2008, MAM recorded equity in the loss of Maricor Properties of
$8,000.





Maine
Yankee and MEPCO





MPS owns
5% of the common stock of Maine Yankee Atomic Power Company (“Maine Yankee”), a
jointly-owned nuclear electric power company, and 7.49% of the common stock of
MEPCO, a jointly-owned electric transmission company. Although MPS’s ownership
percentage of these entities is relatively low, it does have influence over the
operating and financial decisions of these companies through board
representation, and therefore MPS records its investment in MEPCO and Maine
Yankee using the equity method.  This is consistent with industry
practice for similar jointly-owned units.





No
dividends were paid by Maine Yankee in the first quarters of 2008 or
2007.  MPS received dividends of $2,000 from MEPCO in both the first
quarters of 2008 and 2007.





14





Substantially
all earnings of Maine Yankee and MEPCO are distributed to investor
companies.





5.    STOCK
COMPENSATION PLAN





Upon
approval by MPS’s shareholders in June 2002, MPS adopted the 2002 Stock Option
Plan (the “Plan”). The Plan was subsequently adopted by MAM after its formation.
The Plan is administered by the members of the Performance and Compensation
Committee of the Board of Directors, who are not employees of the Company or its
subsidiaries. The Company may grant options to its employees for up to 150,000
shares of common stock, provided that the maximum aggregate number of incentive
shares which may be issued under the Plan pursuant to incentive stock options
shall be 120,000 shares. The exercise price for shares to be issued under any
incentive stock option shall not be less than one-hundred percent (100%) of the
fair market value of such shares on the date the option is granted. An option’s
maximum term is ten years.





As of
March 31, 2008, the former CEO has been the only employee to receive stock
options, with 3,932 options outstanding for the remainder of the original
ten-year term of these options.





The
Company accounts for the fair value of its grants under the Plan in accordance
with the expense provisions of SFAS 123(R), “Accounting for Stock-Based
Compensation.”





The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions used for the grants:





Year
      of Issuance
            
            2003
            
            
            2002Number
      of Options Granted
            
            
            1,966
            
            
            
            1,966Vesting
      Period
            
            3
      years
            
            
            3
      yearsNumber
      of Options Vested and Exercisable
            
            
            1,966
            
            
            
            1,966Dividend
      Yield
            
            
            4.60
            %
            
            
            4.70
            %Volatility
            
            
            20.00
            %
            
            
            20.00
            %Risk-Free
      Interest Rate
            
            
            3.00
            %
            
            
            4.60
            %Expected
      Life
            
            7
      years
            
            
            7
      years





A summary
of the status of the Company’s stock option plan as of March 31, 2008, and
changes during the year then ended is presented below:





Shares
            
            
            Average
      Exercise PriceOptions
            
            2008
            
            
            2008Outstanding
      at December 31, 2007
            
            
            3,932
            
            
            $
            30.28Granted
            
            
            -
            
            
            
            -Exercised
            
            
            -
            
            
            
            -Expired
            
            
            -
            
            
            
            -Forfeited
            
            
            -
            
            
            
            -Outstanding
      at March 31, 2008
            
            
            3,932
            
            
            $
            30.28Options
      exercisable at March 31, 2008
            
            
            3,932
            
            
            $
            30.28Weighted-average
      fair value of options granted
            
            $
            4.17





The
following table summarizes information about fixed stock options outstanding at
March 31, 2008:





Options Outstanding
            
            
            Options ExercisableRange of ExercisePrices
            
            
            Number Outstanding at3/31/08
            
            Weighted- Average RemainingContractual
      Life
            
            Weighted- AverageExercise
    Price
            
            
            Number Exercisable at3/31/08
            
            
            Weighted- AverageExercise
    Price$
            30.10
      - $30.45
            
            
            
            3,932
            
            4.67
      yrs
            
            $
            30.28
            
            
            
            3,932
            
            
            $
            30.28





15





Dilutive
earnings per share impact of outstanding stock options:





Quarters
      Ended March 31,2008
            
            
            2007Net
      Income (in thousands)
            
            $
            1,966
            
            
            $
            1,351Shares
      Used in Computation of EarningsWeighted-Average
      Common Shares Outstanding in Computation of Basic Earnings per
      Share
            
            
            1,677,862
            
            
            
            1,646,823Dilutive
      Effect of Common Stock Options
            
            
            176
            
            
            
            -Dilutive
      Effect of Preferred Shares
            
            
            -
            
            
            
            8,211Shares
      Used in Computation of Earnings per Common Share Assuming
      Dilution
            
            
            1,678,038
            
            
            
            1,655,034Net
      Income per Share (Basic)
            
            $
            1.17
            
            
            $
            0.82Net
      Income per Share (Diluted)
            
            $
            1.17
            
            
            $
            0.81





6.    DEFERRED
DIRECTORS’ COMPENSATION





The
compensation program for the MAM Board of Directors includes an option for the
director to defer some or all of his or her fees, rather than taking those fees
in cash each quarter.  The first deferral option grants the director a
number of phantom shares of stock, with the number granted equivalent to the
fees earned for the quarter, divided by the closing share price on the last day
of that quarter.  The cumulative deferred phantom shares are marked to
the closing share price on the last day of each quarter, and the adjustment is
recorded as expense.  If applicable, any dividends paid are also
converted to an equivalent number of phantom shares, and are added to the
cumulative deferred total.





During
the first quarter of 2008, the equivalent of 1,331 shares was deferred, bringing
the total deferred through March 31, 2008, to the equivalent of 32,649
shares.  The share price on that date was $27.80, resulting in a
$908,000 liability recorded on the Consolidated Balance Sheet under
“Miscellaneous Liabilities.”  A $1 increase in MAM's stock price would
increase this liability by approximately $33,000. A $1 decrease in MAM's stock
price would decrease this liability by approximately $33,000. This unfunded
liability is payable upon termination of services of the
director.  The plan allows for a lump sum distribution or a monthly
payment over ten years.  All directors currently participating in this
deferral plan have elected the ten-year payment option.





The
second deferral option allows directors to postpone payment of their fees in
cash, and earn interest on the deferred amounts at a rate adjusted quarterly to
the five-year Treasury Note rate.  The unfunded obligation under this
deferral program is $20,000, and is also recorded under “Miscellaneous
Liabilities” on the Consolidated Balance Sheets.”





7.    BENEFIT
PROGRAMS





The
Company provides certain pension, post-retirement and welfare benefit programs
to its employees. Benefit programs are an integral part of the Company’s
commitment to hiring and retaining employees, providing market-based
compensation that rewards individual and corporate performance. The Company
offers welfare benefit plans to all employees, consisting of health care, life
insurance, long-term disability, and accidental disability insurance. The
Company also offers a retirement savings program to most employees in the form
of a 401(k) plan. This plan allows voluntary contributions by the employee and
may contain a contribution by the Company.





On August
17, 2006, the Pension Protection Act was signed into law.  Included in
this legislation are new minimum funding rules that will go into effect for plan
years beginning in 2008.  The funding target is 100% of a plan’s
liability, with any shortfall amortized over seven years.  There are
lower funding targets, between 92% and 100%, available to well-funded plans
during the transition period.





U.
S. Defined Benefit Pension Plan





The
Company has a non-contributory defined benefit pension plan covering MPS and
certain former MAM employees.  No employees of other unregulated
businesses are eligible for this benefit plan. Benefits under the plan are based
on employees’ years of service and compensation prior to
retirement.





On
December 31, 2006, future salary and service accruals for current participants
in the plan ceased, and any new employees hired on or after January 1, 2006, are
not eligible for the pension plan.  The Company agreed to additional
employer contributions to the Retirement Savings Plan to compensate employees in
part or in full, depending on their number of years of service, for this lost
benefit.  This additional contribution ranges from 5% to 25% of each
eligible employee’s gross base pay, and is immediately fully
vested.  This contribution was $171,000 and $201,000 in the first
quarters of 2008 and 2007, respectively.





The
Company’s policy has been to fund pension costs accrued.  The Company
expects to contribute approximately $41,000 per quarter during 2008 for 2008
plan year estimated payments, and does not anticipate any additional
contributions for the 2007 plan year.





16





The
following table sets forth the plans’ net periodic benefit cost:





(In
      thousands of dollars)
            
            Pension BenefitsQuarters Ended March31,2008
            
            
            2007Interest
      cost
            
            $
            268
            
            
            $
            301Expected
      return on plan assets
            
            
            (305
            )
            
            
            (271
            )Recognized
      net actuarial (gain)
            
            
            19
            
            
            
            -Net
      periodic benefit cost
            
            $
            (18
            )
            
            $
            30





Health
Care Benefits





The
Company provides certain health care benefits to eligible
employees.  Eligible employees share in the cost of their medical
benefits, in addition to plan deductibles and coinsurance
payments.  The plan also covers retiree medical coverage for employees
of Maine Public Service Company, the regulated utility.  Employees
hired on or after October 1, 2005, are not eligible for post-retirement medical
coverage.





The
following table sets forth the plans’ net periodic benefit cost:





(In
      thousands of dollars)
            
            Health Care BenefitsQuarters Ended March31,2008
            
            
            2007Service
      cost
            
            $
            51
            
            
            $
            45Interest
      cost
            
            
            137
            
            
            
            124Expected
      return on plan assets
            
            
            (56
            )
            
            
            (53
            )Amortization
      of transition obligation
            
            
            18
            
            
            
            18Amortization
      of prior service cost
            
            
            (15
            )
            
            
            (15
            )Recognized
      net actuarial (gain)
            
            
            49
            
            
            
            45Net
      periodic benefit cost
            
            $
            184
            
            
            $
            164





8.    COMMITMENTS,
CONTINGENCIES AND REGULATORY MATTERS





Federal
Energy Regulatory Commission 2007 Open Access Transmission Tariff Formula Rate
Filing





On May
21, 2007, MPS filed its updated rates under the 2007 Open Access Transmission
Tariff (“OATT”) formula pursuant to Docket ER00-1053 for both wholesale and
retail customers. The revenue increases were approximately $54,000 for wholesale
customers, effective June 1, 2007, and $345,000 for retail customers, effective
July 1, 2007.  The parties have reached a settlement in principle,
with no material change to the rates in the original filing.





Stakeholder
Initiative Regarding the Competitiveness and Reliability of the Northern Maine
Power Grid





On
November 16, 2006, the MPUC issued an Order in Docket No. 2006-513 concluding
that northern Maine lacks a competitive power market. In an effort to deal with
this lack of competition and the system reliability issues raised by the
Company’s unsuccessful bid to secure a certificate for the construction of a new
transmission line, the MPUC held a three-day stakeholders conference in December
2006, in an attempt to resolve, on a collaborative basis, the issues raised in
these cases. As a result of this effort, two parallel initiatives have been
launched:





(a) the
stakeholders were asked to develop a protocol allowing for the possibility of
generation suppliers obtaining long-term power delivery commitments through the
Standard Offer process and not through the Company. This could encourage the
construction of new generation in the Company’s service territory, and/or secure
the availability of existing on-system generating sources on a long-term
(multi-year) basis.  In September 2007, the MPUC provided a Report to
the Maine Legislature stating that “a long-term standard offer solicitation,
without a transmission line development component, is not sufficiently likely to
address the lack of competition in the area and may be
counterproductive.”  At this time, the Company cannot predict whether
all of the stakeholders will reach agreement on any such protocol initiative, or
whether it will be finalized and accepted by the MPUC;





17





(b) the
stakeholders were asked to address the feasibility of one or more proposals for
transmission projects interconnecting the northern Maine grid with the ISO New
England (“ISO-NE”) grid, possibly by means of a tap into the MEPCO 345 kV
transmission line that connects the high voltage systems of Maine and New
Brunswick, Canada.





On July
26, 2007, MPS and Central Maine Power (“CMP”), pursuant to Section II 46-48 of
the ISO-NE OATT, requested that ISO-NE study a transmission upgrade that would
interconnect MPS with the ISO-NE operated transmission system. The preliminary
study results indicate there would be economic and reliability benefits for
Maine and the entire New England region as a result of constructing a new
high-voltage transmission line that would interconnect MPS with ISO-NE.
Accordingly, while the results remain preliminary, MPS and CMP have begun
preparations to file for approval of the new line with the MPUC during
2008.





Coincident
with this effort, on February 26, 2008, MPS conditionally requested ISO-NE’s
consent for MPS to become a member of ISO-NE, more specifically an Additional
Participating Transmission Owner as set forth in Section 11.05 of the
Transmission Operating Agreement. The request was conditioned on a number of
significant factors and necessary approvals, including (a) that the costs of new
line and portions of MPS’s existing transmission system be included in New
England regional rates in a manner such that northern Maine consumers will
obtain economic benefits from joining ISO-NE that outweigh the costs to them;
(b) that the new line be constructed, energized and included in the ISO-NE
Regional Network Service transmission rate; and (c) that the MPUC grant a
Certificate of Public Convenience and Necessity (“CPCN”) for the project and
concur with MPS becoming an Additional Participating Transmission
Owner.





Due to
the impending CPCN filing expected to be filed with the MPUC during the third
quarter of 2008, on April 11, 2008, MPS petitioned the MPUC to terminate MPUC
Docket No. 2006-513.  MPS expects a decision in this Docket in the
near future, but cannot predict the outcome of this effort.





MPUC
Investigation of Maine Utilities Continued Participation in ISO-NE





On April
8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of Maine
utilities continued participation in ISO-NE and the New England Regional
Transmission Organization.  MPS is not currently a member of
ISO-NE.  However, as noted in the Stakeholder Initiative Regarding the
Competitiveness and Reliability of the Northern Maine Power Grid discussed
above, the Company has requested to become a member of ISO-NE if certain
conditions are met.  MPS will be an active participant in this
Docket.





Wheelabrator-Sherman





MPS was
ordered into a Power Purchase Agreement with Wheelabrator-Sherman in 1986, which
required the purchase of the entire output (up to 126,582 MWH per year) of a
17.6 MW biomass plant through December 31, 2006.  Total stranded costs
included as regulatory assets under the caption “Deferred Fuel and Purchased
Energy Costs” in the Consolidated Balance Sheet related to this contract are
$29.7 million and $30.9 million at March 31, 2008, and December 31, 2007,
respectively.





Poly
Chlorinated Bi-Phenol Transformers





In
response to a Maine environmental regulation to phase out Poly Chlorinated
Bi-phenol (“PCB”) transformers, MPS has a program to eliminate transformers on
its system that do not meet the State environmental guidelines. The Company is
in the process of inspecting almost 13,000 distribution transformers over a
ten-year period. MPS is currently in its eighth year of this ten-year program.
Approximately 35% of the transformers inspected require “in service” PCB oil
sampling.  In addition, transformers that pass the inspection criteria
will be refitted with new lightning arrestors and animal guards, where
necessary. The current total estimated cost of the project is $3.0 million; as
of March 31, 2008, $2.4 million of this total has been spent.  The
remaining cost of the project has been accrued on the Consolidated Balance Sheet
as “Accrued Removal Obligations.”





18





Off-Balance
Sheet Arrangements





The
Company has several operating leases for office and field equipment, vehicles
and office space, accounted for in accordance with SFAS 13, Accounting for
Leases.  The following summarizes payments for leases for a
period in excess of one year for the quarters ended March 31, 2008, and
2007:





(In
      thousands of dollars)
            
            2008
            
            
            2007Equipment
            
            $
            5
            
            
            $
            6Building
            
            
            32
            
            
            
            77Vehicles
            
            
            -
            
            
            
            9Rights
      of Way
            
            
            -
            
            
            
            26Total
            
            $
            37
            
            
            $
            118





The
future minimum lease payments have not changed materially from the amounts
reported as of December 31, 2007.  Please refer to MAM’s 2007 Form
10-K for these future lease payments.





Financial
Information System Hosting Agreement





In 2007,
the Company renegotiated its Financial Information System hosting agreement with
OneNeck IT Services to host and provide technical and functional support for the
integrated Oracle Financial Information System.  The base hosting fees
are $537,500 per year for 2007 through 2013.





9.    FAIR
VALUE DISCLOSURES





On
January 1, 2008, the Company adopted SFAS 157, “Fair Value
Measurements.”  SFAS 157 defines fair value, establishes a
framework for measuring fair value, and expands disclosures requirements about
fair value measurements.  This standard applies to reported balances
that are required or permitted to be measured at fair value under existing
accounting pronouncements.  The standard does not require any new fair
value measurements.





SFAS 157
emphasizes that fair value is a market-based measurement, not an entity-specific
measurement. Therefore, a fair value measurement should be determined based on
the assumptions that market participants would use in pricing the asset or
liability. SFAS 157 establishes a three-level fair value hierarchy as the basis
for considering market participant assumptions in fair value
measurements.  The input levels are defined as follows:





·
            Level
      1 inputs:  Unadjusted quoted prices in active markets for
      identical assets or liabilities that the Company has the ability to
      access.





·
            Level
      2 inputs:  Inputs other than quoted prices included in Level 1
      that are observable for the asset or liability, either directly or
      indirectly, including quoted prices for similar assets and liabilities in
      active markets, as well as other observable inputs for the asset or
      liability, such as interest rates, foreign exchange rates, and yield
      curves that are observable at commonly quoted
  intervals.





·
            Level
      3 inputs:  Unobservable inputs for the asset or liability,
      typically based on an entity’s own assumptions, as there is little, if
      any, related market activity.





In
instances where the determination of the fair value measurement is based on
inputs from different levels of the fair value hierarchy, the level in the fair
value hierarchy within which the entire fair value measurement falls is based on
the lowest level input that is significant to the fair value measurement in its
entirety. The Company’s assessment of the significance of a particular input to
the fair value measurement in its entirety requires judgment, and considers
factors specific to the asset or liability.





Currently,
the Company uses interest rate swaps to manage its interest rate
risk.  The valuation of these instruments is determined using widely
accepted valuation techniques including discounted cash flow analysis on the
expected cash flows of each derivative.  This analysis reflects the
contractual terms of the derivatives, including the period to maturity, and uses
observable market-based inputs.  This valuation relies on Level 2
inputs.





The fair
value of the interest rate hedges, as of March 31, 2008, was a liability of
$2.65 million, compared to a liability of $2.26 million at December 31, 2007, a
loss in fair value of $392,000.  This loss, less the deferred income
tax benefit of $157,000, from December 31, 2007, to March 31, 2008, has been
reported as “Other Comprehensive Income (Loss)” on the Consolidated Statement of
Shareholders’ Equity.





19





10.    CAPITAL
LEASES





MPS
financed certain of its 2006 and 2007 vehicle and computer equipment purchases
through capital leases, totaling $820,000.  The remaining liability as
of March 31, 2008, for these capital lease arrangements is approximately
$600,000, and is recorded within “Miscellaneous Liabilities” on the Consolidated
Balance Sheet.  Future minimum lease payments have not changed from
the amounts reported as of December 31, 2007.  Please refer to MAM’s
2007 Form 10-K for these future lease payments.





11.    DISCONTINUED
OPERATIONS





The
Maricor Group





The
operations of TMG largely ceased during 2007, with the sale of substantially all
of the assets of TMGC in June 2007, and the closure of TMGNE in August
2007.  The activity presented in discontinued operations is primarily
the activity of Mecel, a wholly-owned Canadian subsidiary of TMGC which MAM is
actively working to sell.





The net
loss for unregulated engineering services is composed of the
following:





(in
      thousands of dollars)
            
            Quarters Ended
    March 31,2008
            
            
            2007Loss
      From Operations:Operating
      Revenue
            
            $
            20
            
            
            $
            1,667Expenses
            
            
            (35
            )
            
            
            (1,809
            )Loss
      from Operations
            
            
            (15
            )
            
            
            (142
            )Benefit
      of Income Taxes
            
            
            6
            
            
            
            63Net
      Loss — Unregulated Engineering Services
            
            $
            (9
            )
            
            $
            (79
            )





The
unregulated engineering services balance sheets as of March 31, 2008, and
December 31, 2007, were as follows:





(in
      thousands of dollars)
            
            March31,
            
            
            December31,2008
            
            
            2007Assets:Cash
      and Cash Equivalents
            
            $
            56
            
            
            $
            48Accounts
      Receivable, Net
            
            
            7
            
            
            
            15Other
      Current Assets
            
            
            18
            
            
            
            114Current
      Assets
            
            
            81
            
            
            
            177Fixed
      Assets, Net of Depreciation
            
            
            557
            
            
            
            578Total
      Assets
            
            $
            638
            
            
            $
            755Shareholder's
      Equity and Liabilities:Shareholder's
      (Deficit) Equity
            
            $
            (4,990
            )
            
            $
            (4,966
            )Accounts
      Payable and Accrued Employee Benefits
            
            
            10
            
            
            
            6Intercompany
      Accounts Payable
            
            
            1,308
            
            
            
            1,402Other
      Current Liabilities
            
            
            528
            
            
            
            531Current
      Liabilities
            
            
            1,846
            
            
            
            1,939Intercompany
      Notes Payable
            
            
            3,782
            
            
            
            3,782Total
      Shareholder's Equity and Liabilities
            
            $
            638
            
            
            $
            755





Maricor
Technologies





MAM
divested all of the assets reported as Unregulated Software Technology during
2007.  The operations for this segment have been classified as
discontinued operations.





20





The
operating revenue and net loss for unregulated software technology for the first
quarters of 2007 was as follows:





(in
      thousands of dollars)
            
            March 31,2007Loss
      From Operations:Operating
      Revenue
            
            $
            102Expenses
            
            
            (310
            )Loss
      From Operations
            
            
            (208
            )Benefit
      of Income Taxes
            
            
            78Net
      Loss — Unregulated Software Technology
            
            $
            (130
            )





There was
no impact on earnings in the first quarter of 2008, and no assets, liabilities
or equity remaining in MTI at December 31, 2007, or March 31, 2008.





12.     SUBSEQUENT
EVENTS





Bank
of America Financing





In
February 2008, MPS reached terms on amendments to its debt agreements with Bank
of America.  These amendments were approved by the MPUC on May 1,
2008, and formalized and implemented effective May 2, 2008. The amendments
include various reductions in interest rates on the lines of credit and
decreased letter of credit fees on the MPS financing with Bank of
America.  MAM USG also executed a $500,000 line of credit with Bank of
America, effective in early May 2008.  This line of credit will be
used to fund working capital needs.





21





PART
1. FINANCIAL INFORMATION





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





Forward-Looking
Statements





This
filing contains certain “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995, related to the expected future
performance of our plans and objectives, such as forecasts and projections of
expected future performance or statements of Management’s plans and objectives.
These forward-looking statements may be contained in filings with the SEC and in
press releases and oral statements. We use words such as “anticipate,”
“estimate,” “predict,” “expect,” “project,” “intend,” “plan,” “believe,” and
other words and terms of similar meaning in connection with any discussion of
future operating or financial performance. These statements are based on the
current expectations, estimates or projections of Management and are not
guarantees of future performance. Some or all of these forward-looking
statements may not turn out to be what the Company expected. Actual results will
differ, and some of the differences may be material.




Factors
that could cause actual results to differ materially from our projections
include, among other matters, legislation and regulation; construction of new
transmission facilities; development of MAM USG; attraction and retention of
qualified employees; economy of the region and general economic conditions;
competitive conditions; holding company structures; interest rate and debt
covenant risk; pension plan investments; information technology; environmental
risks; aging infrastructure and reliability; weather; vandalism, terrorism and
other illegal acts; alternative generation options; professional liability;
final settlement of remaining obligations of discontinued operations;
divestiture of unregulated real estate; and foreign operations. Therefore, no
assurances can be given that the outcomes stated in such forward-looking
statements and estimates will be achieved.





Accounting
Policies





Critical
accounting policies are disclosed in the Company’s 2007 Annual Report on Form
10-K.





Results of
Operations and Executive Overview





Net
Income and Earnings Per Share





Quarters Ended March31,(Dollars
      in Thousands Except per Share Amounts)
            
            2008
            
            
            2007Income
      (Loss) from Continuing OperationsRegulated
      Electric Utility
            
            $
            1,987
            
            
            $
            1,955Unregulated
      Utility Services
            
            
            95
            
            
            
            -Other*
            
            
            (107
            )
            
            
            (395
            )Income
      from Continuing Operations
            
            
            1,975
            
            
            
            1,560Loss
      from Discontinued OperationsUnregulated
      Engineering Services
            
            
            (9
            )
            
            
            (79
            )Unregulated
      Software Technology
            
            
            -
            
            
            
            (130
            )Loss
      from Discontinued Operations
            
            
            (9
            )
            
            
            (209
            )Net
      Income
            
            $
            1,966
            
            
            $
            1,351Basic
      Income Per Share
            
            $
            1.17
            
            
            $
            0.82




*The
“Other” line includes corporate costs directly associated with the unregulated
subsidiaries, common costs not allocated to the regulated utility or unregulated
utility services and inter-company eliminations.





Net
income above is allocated based upon the segments as presented in Note 3,
“Segment Information,” of the Consolidated Financial Statements.  The
results by segment are explained more fully in the following
sections.





The trend
of improved financial performance that began in 2007 has continued into 2008,
with $614,000 more consolidated net income, an increase of 46%, and $0.35 more
earnings per share in the first quarter of 2008 than in the first quarter of
2007.  The first quarter results of continuing operations were $2.0
million in 2008, compared to $1.6 million in 2007, with the focus on core
utility competencies, including cost reductions at MPS and the first significant
activity for MAM USG.  With the divestiture of all but one office
building of the former unregulated operations during 2007, the loss from
discontinued operations was reduced from $209,000 or $0.13 per share in the
first quarter of 2007, to just $9,000 and $0.01 per share in the first quarter
of 2008.





This
quarter is the first time we have differentiated MAM USG as a separate segment
of our business.  We have made good progress in obtaining electrical
procurement, construction, engineering, and project management work within this
segment.  We expect this trend to continue as we complete these
projects and pursue additional opportunities.  We continue to view
this segment as a way to leverage our core utility competencies as a means to
provide incremental income and growth.





22





Our work
also continues with the Maine Power Connection (“MPC”) project to develop, with
our partner CMP, a high capacity transmission line connecting our service
territory, with its existing and proposed generation, including renewable
generation, to the New England power grid.  During April of 2008, we
filed a Form 8-K and a related press release outlining the details of this
proposed project.  Some facts about the MPC project:





·
            A
      proposed a 345 kV transmission line to support interconnection requests
      for more than 800 MW of potential renewable
  generation;


·
            Line
      length between 150 and 200 miles;
and


·
            Total
      estimated cost $400-$500 million





There are
several potential benefits of this proposed line including:





·
            Introduce
      / increase of competition in Northern Maine electricity
      market;


·
            Provide
      economic benefits for region from potentially lower rates, now and in the
      future;


·
            Enhance
      overall market access to renewable energy
  sources;


·
            Increase
      system reliability;


·
            Reduce
      overall greenhouse gases and compliance with the regional greenhouse gas
      initiative;


·
            Stimulate
      local economy;


·
            Enhance
      State and local tax base; and


·
            Provide
      shareholders additional investment in income-producing
    assets.





We are
expecting to file for regulatory approvals and are completing required
electrical and economic costs and benefits analyses, expecting completion this
summer.   During this time, we continue to secure regional
support for the project with stakeholders in Maine and New England and are
working toward a targeted operational date in late 2010.





On March
31, 2008, MAM successfully divested its 50% interest in Maricor Properties and
its subsidiary Cornwallis for $535,000 Canadian or $529,000 US.  This
transaction also released the $1.7 million letter of credit from Bank of America
and freed MAM of any obligations associated with the long-term debt of Maricor
Properties and Cornwallis.  The divestiture was accomplished through a
Redemption Agreement signed with Ashford, the other 50% owner of Maricor
Properties.  On April 22, 2008, the proceeds from this sale and other
available funds were used to repay the remaining $850,000 balance of MAM’s term
note with Bank of America.




Interest
Expense





Interest
charges for continuing operations fell from $305,000 in the first quarter of
2007 to $253,000 in the first quarter of 2008.  The decrease is
primarily due to lower debt balances, with almost $5.9 million of short- and
long-term debt repaid in just the first quarter of 2008.  This
reduction in debt is in accordance with the cash priorities outlined in the 2007
MAM Form 10-K.





Income
Tax Expense / Benefit





The
regulated provision for income taxes increased $47,000 from 2007 to
2008.  Most of this increase is attributable to the increase in the
effective tax rate, from 40.9% in 2007 to 41.3% in 2008, due to earnings from
investments.  The remainder of the increase, approximately $12,000, is
due to the increase in net income at MPS.





The
benefit of income taxes for unregulated continuing operations decreased from
$241,000 in the first quarter of 2007 to $2,000 in the first quarter of
2008.  The decrease is a result of the combination of lower costs at
the holding company and income from MAM USG.





Taxes
Other Than Income





Taxes
other than income are primarily payroll and property taxes.  These
taxes increased $10,000 from prior year to $454,000 for the quarter ended March
31, 2008.





23





Regulated
Operations





Regulated
operations include MPS and Me&NB, the Company’s regulated subsidiary and its
inactive unregulated Canadian subsidiary:





Quarters
      EndedMarch 31,2008
            
            
            2007Net
      Income — Regulated Electric Utility (In thousands)
            
            $
            1,987
            
            
            $
            1,955Earnings
      Per Share from Regulated Electric Utilities
            
            $
            1.18
            
            
            $
            1.19





Regulated
Operating Revenue





Consolidated
revenues (in thousands of dollars) and Megawatt Hours (“MWH”) for the quarters
ended March 31, 2008, and 2007, are as follows:





2008
            
            
            2007Dollars
            
            
            MWH
            
            
            Dollars
            
            
            MWHResidential
            
            $
            4,345
            
            
            
            51,422
            
            
            $
            4,337
            
            
            
            51,997Large
      Commercial
            
            
            1,347
            
            
            
            38,004
            
            
            
            1,483
            
            
            
            42,733Medium
      Commercial
            
            
            1,854
            
            
            
            26,346
            
            
            
            1,948
            
            
            
            27,834Small
      Commercial
            
            
            2,488
            
            
            
            25,929
            
            
            
            2,516
            
            
            
            26,555Other
      Retail
            
            
            233
            
            
            
            850
            
            
            
            228
            
            
            
            847Total
      Regulated Retail
            
            
            10,267
            
            
            
            142,551
            
            
            
            10,512
            
            
            
            149,966Other
      Regulated Operating Revenue
            
            
            634
            
            
            
            
            
            
            
            403Total
      Regulated Revenue
            
            $
            10,901
            
            
            
            
            
            
            $
            10,915





MPS
revenue decreased slightly, $14,000 or 0.1% from the first quarter of 2007 to
the first quarter of 2008.  Large commercial customer revenue fell
$136,000, approximately $130,000 of which is due to mill closures and cutbacks
in the area.  The duration of these cutbacks and closures and their
ultimate impact on MPS revenue is unknown at this time; however, there have been
no changes in the status of these operations to date in the second
quarter.





Medium
and small commercial customer revenue also decreased, down approximately
$122,000.  The decrease is due to a 2,114 MWH or 3.9% decrease in
volume, which reduced revenue by approximately $163,000.  This
reduction in revenue is due to small and medium commercial customers who have
ceased or cut back their operations since last year, or implemented conservation
efforts.  Prices for these customers were up on average, contributing
$41,000 more revenue than prior year.  Revenue from residential and
other retail customers increased, up $13,000.





Other
regulated operating revenue continued to grow in the first quarter of 2008, up
$234,000 or 58%.  Wheeling revenue was up $279,000 for the first three
months of 2008 compared to the first three months of 2007.  This
increase was partly offset by smaller decreases in other types of other
regulated operating revenue.





MPS’s
transmission rates are based on the Company’s revenue requirement (transmission
expenses plus the allowed return on assets) less the wheeling revenue
earned.  The rates go into effect on July 1 each year, and are
calculated from the financial results of the previous calendar
year.  Similar to the increase in wheeling revenue in 2007 over 2006,
the additional wheeling revenue earned during 2008 will offset the revenue
requirement in the establishment of the rates that will go into effect on July
1, 2009.





For more
information on regulatory orders approving the most recent rate increases, see
Part II, Item 1, “Legal Proceedings.”





24





Regulated
Utility Expenses





For the
quarters ended March 31, 2008, and 2007, regulated operation and maintenance
expenses are as follows:





(In
      thousands of dollars)
            
            2008
            
            
            2007Regulated
      Operation and MaintenanceLabor
            
            $
            1,263
            
            
            $
            1,119Benefits
            
            
            395
            
            
            
            446Outside
      Services
            
            
            261
            
            
            
            199Holding
      Company Management Costs
            
            
            275
            
            
            
            436Insurance
            
            
            131
            
            
            
            142Regulatory
      Expenses
            
            
            311
            
            
            
            253Transportation
            
            
            241
            
            
            
            315Other
            
            
            460
            
            
            
            467Total
      Regulated Operation and Maintenance
            
            $
            3,337
            
            
            $
            3,377





Regulated
operation and maintenance expense decreased approximately $40,000 or 1.2% from
the first quarter of 2007 to the first quarter of 2008.  The largest
expense reductions were:





·
            Benefits
      expenses were reduced $51,000 from 2007 to 2008.  Effective
      December 31, 2006, future salary and service accruals for current
      participants in the plan ceased.  The Company agreed to employer
      contributions of 5% to 25% of each eligible employee’s gross base pay to
      compensate in part or in full for this lost benefit.  These
      contributions decreased $30,000 from the first quarter of 2007 to the
      first quarter of 2008.  Pension and post-retirement medical
      expenses also decreased, down approximately $25,000, based on the
      actuarial estimates for 2008 compared to
2007.





·
            Holding
      company management costs dropped $161,000, due to a $201,000 reduction in
      directors’ fees allocated to MPS in the first quarter of 2008 compared to
      the first quarter of 2007.  The deferred portion of directors’
      compensation is adjusted to the current stock price each quarter; the
      increase in stock price in the first quarter of 2007 resulted in higher
      expense for that period.  This reduction in expense was partly
      offset by other smaller increases in holding company
  costs.





·
            Transportation
      expense fell $74,000, returning to near the 2006 levels of
      expense.  During the first quarter of 2007, additional
      maintenance work was required on the vehicle fleet, resulting in
      higher-than-normal expense.





These
expense reductions were partly offset by the following cost
increases:





·
            Labor
      expense has increased approximately $144,000.  As noted in the
      March 31, 2007, MAM Form 10-Q, labor costs in that period were unusually
      low, due to the milder weather and fewer outages.  Overtime
      labor for the first quarter returned to more normal levels in the first
      quarter of 2008, increasing labor expense approximately
      $70,000.  Further, approximately $37,000 was paid under the
      Company’s profit sharing plan.  The remaining increase is due to
      normal pay increases.





·
            Expense
      for outside services increased $62,000 year-over-year.  The
      increase is primarily due to $49,000 of engineering and information
      technology services that were outsourced in late 2007 and early
      2008.





·
            Regulatory
      expenses have increased $58,000, due to higher regulatory assessment
      rates.





The
remainder of the decrease in expense is due to other smaller changes in various
expense categories.





Stranded
cost expenses of the regulated utility are as follows:





(In
      thousands of dollars)
            
            2008
            
            
            2007Stranded
      CostsMaine
      Yankee
            
            $
            588
            
            
            $
            720Seabrook
            
            
            384
            
            
            
            384Deferred
      Fuel
            
            
            1,560
            
            
            
            1,504Cost
      Incentive Refund
            
            
            62
            
            
            
            63Cancelled
      Transmission Plant
            
            
            64
            
            
            
            63Special
      Discounts
            
            
            70
            
            
            
            70Total
      Stranded Costs
            
            $
            2,728
            
            
            $
            2,804





25





The
stranded cost expenses presented above for both 2008 and 2007 reflect the impact
of MPS’s most recent stranded cost rate case, MPUC Docket No.
2006-506.  The amortization amounts for the rest of 2008 are expected
to remain consistent with the first quarter.  The changes from prior
year are a result of the timing of recovery of stranded costs under the Docket,
primarily related to Maine Yankee and deferred fuel.  The recovery of
Maine Yankee in the Docket correlates to Maine Yankee’s cost budget, which is
decreasing over time, while the recovery of deferred fuel is the levelizing
mechanism.




Unregulated
Utility Services





Unregulated
Utility Services is comprised of the operations of MAM USG.  MAM USG
was created in September 2007, and is being presented as a separate segment for
the first time in this report.  This segment earned $95,000 for the
first quarter of 2008, or $0.06 per share.  The activity for the
quarter includes work performed on two significant wind farm projects outside of
MPS’s service territory, as well as other smaller projects.





Other
Continuing Operations





Quarters
      EndedMarch 31,2008
            
            
            2007Net
      Loss — Other Continuing Operations (in thousands)
            
            $
            (107
            )
            
            $
            (395
            )Loss
      Per Share from Other Continuing Operations
            
            $
            (0.06
            )
            
            $
            (0.24
            )





Other
continuing operations are the common costs of MAM that cannot be allocated to
MPS or MAM USG, the corporate costs of MAM directly associated with the former
unregulated businesses and intercompany eliminations.  The divestiture
of the unregulated software technology and engineering services operations
reduced the costs included in this segment; however, some of these costs are
expected to continue subsequent to the divestiture of the unregulated operations
without other cost reduction or recovery efforts.





The
operating expenses of this segment decreased from $492,000 in the first quarter
of 2007 to $95,000 in the first quarter of 2008.  The majority of this
decrease is due to the shift of internal labor and external resources from the
former unregulated operations to the on-going utility and utility-related
operations which are charged directly to those segments.





Discontinued
Operations





Quarters Ended
    March 31,(In
      thousands of dollars)
            
            2008
            
            
            2007Net
      Loss — Discontinued Operations
            
            $
            (9
            )
            
            $
            (209
            )Basic
      Loss Per Share from Discontinued Operations
            
            $
            (0.01
            )
            
            $
            (0.13
            )





With the
sale of substantially all of the assets of TMGC and MTI, and the closure of the
TMGNE office, the net loss from discontinued operations was $9,000 or $0.01 for
the first quarter of 2008, compared to a net loss of $209,000 or $0.13 for the
same period of 2007.  Management anticipates divesting the remaining
discontinued operations, Mecel, during the second quarter of 2008.





Off-Balance
Sheet Arrangements and Financial Information System Hosting
Agreement





Please
refer to Note 8 of the financial statements.





Liquidity
and Capital Resources





MAM has
substantially improved its liquidity position as of March 31, 2008, compared
with the same quarter end in 2007.  We have focused on paying down
approximately $5.9 million of debt in just the first quarter of 2008, $4.9
million of which was short-term debt or the portion of long-term debt due within
one year.  We have also substantially improved our cash flow from
operating activities, which increased by 61% year over year due to favorable
differences in net income, accounts payable and deferred income
taxes.





The
Company’s cash and cash equivalents as of March 31, 2008, were $1.1 million, up
from $910,000 at December 31, 2007.  The “Statements of Consolidated
Cash Flows” of the Company’s Consolidated Financial Statements as presented in
Part I, Item 1 of this Form 10-Q, reflects the Company’s sources and uses of
capital.





Cash flow
provided by operating activities for the first quarter of 2008 was $5.7 million,
compared to $3.5 million in the first quarter of 2007.  The increase
in net income of $615,000 from the first quarter of 2007 to the first quarter of
2008 and the changes in accounts payable and deferred income taxes were the
largest factors in the increase in operating cash flow
period-over-period.  Net cash flow provided by operating activities
was reduced the first quarter of 2008, compared to the first quarter of 2007 by
$1.1 million from the change in accounts receivable and unbilled
revenue.





26





Cash flow
used for financing included the repayment of short- and long-term debt totaling
$5.9 million in the first quarter of 2008.  Cash flow used for
financing activities for the first three months of 2007 totaled $2.5 million, as
long- and short-term debt was reduced.





Cash flow
provided by investing activities for the first quarter of 2008 were $329,000,
largely as a result of the change in restricted investments which provided cash
flows from the capital reserve account upon final payment of the 1998 FAME Notes
obligation.  This source of cash was offset by investments in fixed
assets of $1.9 million, approximately $757,000 more than for the same period of
2007.  For the first three months of 2007, cash flow used for
investing activity totaled $1.2 million, most of which was the investment in
fixed assets.  Approximately $69,000 was used in the first quarter of
2007 for settlement of the stock contingencies associated with acquisitions in
2003 and 2004.  The final stock contingency obligations from TMG
acquisitions were settled in September 2007.





In
accordance with rate stipulations approved by the MPUC, for ratemaking purposes,
MPS is required to maintain a capital structure not to include more than 51%
common equity for the determination of delivery rates.   Also, in
the order approving the reorganization of MPS and the formation of MAM, the
parties stipulated to several restrictions on the capital structure of MPS and
MPS’s ability to make dividend payments to MAM.  As of March 31, 2008,
MPS is in compliance with these conditions.




As part
of the refinancing of short-term borrowings during 2005 and continuing under the
revised terms in May of 2008, MAM and MPS agreed to certain financial and other
covenants, such as debt service coverage and earnings before interest and taxes
ratios. In the event of a default, the various lenders could require immediate
repayment of the debt. A default could also trigger increases in interest rates,
difficulty obtaining other sources of financings and cross-default provisions
within the debt agreements.  MAM and MPS are in compliance with all
debt covenants as of March 31, 2008.





In
February 2008, MPS reached terms on amendments to its debt agreements with Bank
of America.  These amendments were approved by the MPUC on May 1,
2008, and formalized and implemented effective May 2, 2008. The amendments
include various reductions in interest rates on the lines of credit and
decreased letter of credit fees on the MPS financing with Bank of America. The
letter of credit fees are estimated to save $555,000 over the remaining term of
the bonds, through 2021. The savings related to the interest rate reductions on
the lines of credit are dependent on the level of borrowing under those
lines.  MAM USG also executed a $500,000 line of credit with Bank of
America, effective in early May 2008.  This line of credit will be
used to fund working capital needs.





Regulatory
Proceedings





For
regulatory proceedings, see Part II, Item 1, “Legal Proceedings,” which is
incorporated in this section by this reference.






Item
4T. Controls and Procedures





The
principal executive officer and principal financial officer evaluated the
effectiveness of the Company's disclosure controls and procedures as of the end
of the period covered by this report.  "Disclosure controls and
procedures" are controls and other procedures of a company that are designed to
ensure that information required to be disclosed by the company in the reports
that it files or submits under the Securities Exchange Act of 1934, within the
time periods specified in the SEC rules and forms, is recorded, processed,
summarized and reported, and is accumulated and communicated to the Company's
Management, including its principal executive officer and principal financial
officer, as appropriate to allow timely decisions regarding required
disclosure.  Based on their evaluation, the Company’s principal
executive officer and principal financial officer concluded that the Company's
disclosure controls and procedures are effective.





We
maintain a system of internal control over financial reporting designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with accounting principles generally accepted in the United States of America.
There was no change in our internal control over financial reporting that
occurred during the most recent fiscal quarter that materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.





27





PART
II. OTHER INFORMATION





Item
1. Legal Proceedings





Federal
Energy Regulatory Commission 2007 Open Access Transmission Tariff Formula Rate
Filing





On May
21, 2007, MPS filed its updated rates under the 2007 Open Access Transmission
Tariff (“OATT”) formula pursuant to Docket ER00-1053 for both wholesale and
retail customers. The revenue increases were approximately $54,000 for wholesale
customers and $345,000 for retail customers. These rates were effective as of
July 1, 2007.  The parties have reached a settlement in principle,
with no material change to the rates in the original filing.





Stakeholder
Initiative Regarding the Competitiveness and Reliability of the Northern Maine
Power Grid





On
November 16, 2006, the MPUC issued an Order in Docket No. 2006-513 concluding
that northern Maine lacks a competitive power market. In an effort to deal with
this lack of competition and the system reliability issues raised by the
Company’s unsuccessful bid to secure a certificate for the construction of a new
transmission line, the MPUC held a three-day stakeholders conference in December
2006, in an attempt to resolve, on a collaborative basis, the issues raised in
these cases. As a result of this effort, two parallel initiatives have been
launched:





(a) the
stakeholders were asked to develop a protocol allowing for the possibility of
generation suppliers obtaining long-term power delivery commitments through the
Standard Offer process and not through the Company. This could encourage the
construction of new generation in the Company’s service territory, and/or secure
the availability of existing on-system generating sources on a long-term
(multi-year) basis.  In September 2007, the MPUC provided a Report to
the Maine Legislature stating that “a long-term standard offer solicitation,
without a transmission line development component, is not sufficiently likely to
address the lack of competition in the area and may be
counterproductive.”  At this time, the Company cannot predict whether
all of the stakeholders will reach agreement on any such protocol initiative, or
whether it will be finalized and accepted by the MPUC;





(b) the
stakeholders were asked to address the feasibility of one or more proposals for
transmission projects interconnecting the northern Maine grid with the ISO New
England (“ISO-NE”) grid, possibly by means of a tap into the MEPCO 345 kV
transmission line that connects the high voltage systems of Maine and New
Brunswick, Canada.





On July
26, 2007, MPS and Central Maine Power (“CMP”), pursuant to Section II 46-48 of
the ISO-NE OATT, requested that ISO-NE study a transmission upgrade that would
interconnect MPS with the ISO-NE operated transmission system. The preliminary
study results indicate there would be economic and reliability benefits for
Maine and the entire New England region as a result of constructing a new
high-voltage transmission line that would interconnect MPS with ISO-NE.
Accordingly, while the results remain preliminary, MPS and CMP have begun
preparations to file for approval of the new line with the MPUC during
2008.





Coincident
with this effort, on February 26, 2008, MPS conditionally requested ISO-NE’s
consent for MPS to become a member of ISO-NE, more specifically an Additional
Participating Transmission Owner as set forth in Section 11.05 of the
Transmission Operating Agreement. The request was conditioned on a number of
significant factors and necessary approvals, including (a) that the costs of new
line and portions of MPS’s existing transmission system be included in New
England regional rates in a manner such that northern Maine consumers will
obtain economic benefits from joining ISO-NE that outweigh the costs to them;
(b) that the new line be constructed, energized and included in the ISO-NE
Regional Network Service transmission rate; and (c) that the MPUC grant a
Certificate of Public Convenience and Necessity (“CPCN”) for the project and
concur with MPS becoming an Additional Participating Transmission
Owner.





Due to
the impending CPCN filing expected to be filed with the MPUC during the third
quarter of 2008, on April 11, 2008, MPS petitioned the MPUC to terminate MPUC
Docket No. 2006-513.  MPS expects a decision in this Docket in the
near future, but cannot predict the outcome of this effort.





MPUC
Investigation of Maine Utilities Continued Participation in ISO-NE





On April
8, 2008, the MPUC initiated an investigation in Docket No. 2008-156 of Maine
utilities continued participation in ISO-NE and the New England Regional
Transmission Organization.  MPS is not currently a member of
ISO-NE.  However, as noted in the Stakeholder Initiative Regarding the
Competitiveness and Reliability of the Northern Maine Power Grid discussed
above, the Company has requested to become a member of ISO-NE if certain
conditions are met.  MPS will be an active participant in this
Docket.





Item
1A.  Risk Factors





The Risk
Factors identified in Item 1A. of MAM’s 2007 Form 10-K are incorporated herein
by reference.  The following risk factors include new risk factors
identified during the quarter, as well as risk factors that have changed
materially since year-end.





28





Construction
of New Transmission Facilities





MPS,
working with CMP, is seeking to develop a 345 kV transmission line to connect
northern Maine to the ISO-NE control area, together with related system
upgrades.  MPS expects this line, if built, will increase reliability
and competition and meet new load growth requirements from potential renewable
generation projects.  This project is being undertaken coincident with
an on-going system impact study at ISO-NE, which was triggered by
interconnection requests in connection with proposed new generation
projects.  Local, state and federal regulatory approvals and permits
are required for this project.  We may or may not be able to obtain
the approvals required for this proposed transmission project.  The
project is also dependent on the development of additional generation and the
needs of generators in our service territory.  Other factors, such as cost
and availability of materials, labor and subcontractors may increase the cost of
the project or delay its completion.





The
Company has submitted notice to ISO-NE that, subject to certain conditions, it
will seek to become a member of ISO-NE.  Among the conditions is the
requirement that the cost of the transmission project be included in the ISO-NE
regional transmission rates.  The Company cannot predict the outcome
of this request, and it is possible that the conditions necessary for membership
will not be met.





Finally,
the Company will be seeking financing for this project.  Financing
risks, including the type, cost and availability of financing, are also risks in
the development of this line.





Economy
of the Region and General Economic Conditions





MPS
operations are restricted to a territory in Aroostook County and northern
Penobscot County, Maine.  Our business follows the economy of the
region we serve.  During 2007, as energy supply rates increased, MPS
experienced an increase in the number of disconnection notices to customers and
payment arrangements for overdue bills.  With the rise in heating
costs this winter, we are anticipating potentially slower collections or an
increase in uncollectible accounts during 2008.  MPS has adjusted its
reserve for uncollectible accounts based on the current indicators, and we will
continue to closely monitor collection rates.





Limited
population growth and economic expansion in the region could also negatively
impact the utility’s ability to maintain their customer base.  Potato
farming and processing and the manufacturing of forest products, principally
lumber, plywood, and oriented strand board, continue to be dominant economic
forces within MPS’s service area.  Temporary plant shutdowns and slow
economic growth can reduce our earnings.  Potential renewable energy
and other generation projects in our service territory may mitigate these
factors.  Also, MPS participates in APP, a public/private partnership
for economic progress.  The efforts of APP are intended to increase
the area’s emphasis on economic development.





Equity
Price Risk





Market
price protection was given by MTI when it sold its assets to HCI Systems Assets
Management, LLC (“HCI”).  Under this agreement, HCI converted its
remaining 6,500 preferred shares to 26,000 common shares in April
2007.  If the average closing stock price of MAM’s stock had been less
than $25 for the ten trading days prior to March 31, 2008, HCI would have been
entitled to additional shares of common stock.  MAM’s stock remained
above this level, and no additional shares were granted.





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





None.





Item
3. Defaults upon Senior Securities





None





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





None





Item
5. Other Information





None





Item
6. Exhibits





29





The
following exhibits are attached:





·
            Exhibit 31 Rule 13a-14(a)/15d-14(a)
      Certifications





·
            Exhibit 32 Certification of Financial Reports Pursuant to
      18 USC Section 1350





30





SIGNATURE





Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.





MAINE
& MARITIMES CORPORATION


(Registrant)





Date:  May
12, 2008





/s/ Randi
J. Arthurs


_______________


Randi J.
Arthurs


Vice
President Accounting, Controller


and
Assistant Treasurer




31