** **

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

** **

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**FORM 10-Q**

** **

**x QUARTERLY REPORT PURSUANT TO SECTION 13or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**FOR THE QUARTERLY PERIODENDED MARCH 31, 2006**

** **

**- OR -**

** **

**o TRANSITION REPORT PURSUANT TO SECTION 13OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

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**Commission File No. 333-103749**

 

**MAINE & MARITIMES CORPORATION**

**A Maine Corporation**

** **

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

 

**209 STATE STREET, PRESQUEISLE, MAINE 04769**

**(207) 760-2499**

** **

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Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2) hasbeen subject to such filing requirements for the past 90 days. Yes x.   No o.

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

Large accelerated filer o.         Acceleratedfiler o.         Non-acceleratedfiler x.

Indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Act). Yes o.   No x.

Indicate the number of shares outstanding of each ofthe issuer’s classes of common stock, as of the close of the period covered bythis report.

CommonStock, $7.00 par value — 1,637,211 shares

 

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***Glossary of Terms***
| AFUDC      | Allowances for the cost of equity and borrowed funds  used during construction |
|------------|--------------------------------------------------------------------------------|
| AMEX       | American Stock Exchange                                                        |
| BHE        | Bangor Hydro-Electric Company                                                  |
| CES        | Competitive Energy Supplier                                                    |
| CMMS       | Computerized Maintenance Management System                                     |
| CMP        | Central Maine Power Company                                                    |
| Cornwallis | Cornwallis Court Developments Ltd                                              |
| EA         | Energy Atlantic, LLC                                                           |
| Eastcan    | Eastcan Consulting Engineers                                                   |
| EBIT       | Earnings Before Interest and Taxes                                             |
| FAME       | Finance Authority of Maine                                                     |
| FERC       | Federal Energy Regulatory Commission                                           |
| FIN        | FASB Interpretation Number                                                     |
| GAAP       | Generally Accepted Accounting Principles                                       |
| LIBOR      | London InterBank Offering Rate                                            |
| MAM        | Maine & Maritimes Corporation                                         |
| M&R    | Morris & Richards Consulting Engineers                                |
| Me&NB  | Maine & New Brunswick Electrical Power  Company, Ltd             |
| MEPCO      | Maine Electric Power Company, Inc.                                        |
| MPS        | Maine Public Service Company                                                   |
| MPUC       | Maine Public Utilities Commission                                         |
| MTI        | Maricor Technologies, Inc.                                                |
| MW         | Megawatt                                                                       |
| MWH        | Megawatt hour                                                                  |
| NMISA      | Northern Maine Independent System Administrator                           |
| OATT       | Open Access Transmission Tariff                                                |
| OCI        | Other Comprehensive Income                                                     |
| PCB        | Poly Chlorinated Bi-phenol                                                     |
| PPA        | Power Purchase Agreement                                                       |
| RES        | RES Engineering, Inc.                                                     |
| SEC        | Securities and Exchange Commission                                             |
| SFAS       | Statement of Financial Accounting Standards                                    |
| SOS        | Standard Offer Service                                                         |
| T&D    | Transmission and Distribution                                                  |
| TMG        | The Maricor Group                                                              |
| TMGC       | The Maricor Group, Canada Ltd                                                  |
| TMGNE      | The Maricor Group New England                                                  |
| VCC        | Vitale, Caturano & Company                                            |
| VEBA       | Voluntary Employee Benefit Association                                         |
| WPS-PDI    | WPS-Power Development, Inc.                                               |
| WS         | Wheelabrator-Sherman                                                           |

 

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**PART 1. FINANCIAL INFORMATION**

***Item 1.Financial Statements***

Seethe following exhibits: Maine & Maritimes Corporation (“MAM” or the “Company”)and subsidiaries Consolidated Financial Statements, including (1) anunaudited statement of consolidated operations for the quarter ended March 31,2006, and for the corresponding period of the preceding year; (2) anunaudited statement of consolidated cash flows for the period January 1(beginning of the fiscal year) through March 31, 2006, and for thecorresponding period of the preceding year; (3) an unaudited consolidatedbalance sheet as of March 31, 2006; (4) an audited consolidatedbalance sheet as of December 31, 2005, the end of Maine &Maritimes Corporation’s preceding fiscal year; and (5) an unauditedstatement of consolidated shareholders’ equity for the period January 1(beginning of the fiscal year) through March 31, 2006.

Inthe opinion of management, the accompanying unaudited consolidated financialstatements present fairly the financial position of the Company and itsSubsidiaries at March 31, 2006, and December 31, 2005; the results oftheir operations for the three months ended March 31, 2006 and 2005; andtheir cash flows for the three months ended March 31, 2006, and 2005.

**MAM is the parentholding company for the following wholly-owned subsidiaries:**

1.               Maine Public Service Company (“MPS”) and itswholly-owned Canadian subsidiary Maine & New Brunswick ElectricalPower Company, Ltd (“Me&NB”), which is currently inactive;

2.               The Maricor Group and its wholly-ownedUnited States subsidiary The Maricor Group New England (“TMGNE”) and itswholly-owned Canadian subsidiary The Maricor Group, Canada Ltd (“TMGC”);

3.               Maricor Properties Ltd, (“Maricor Properties”),a Canadian subsidiary and its wholly-owned Canadian subsidiaries MecelProperties Ltd (“Mecel”) and Cornwallis Court Developments Ltd (“Cornwallis”);

4.               Maricor Technologies, Inc. (“MTI”), aU.S. wholly-owned subsidiary; and

5.               Energy Atlantic, LLC (“EA”), an inactivesubsidiary.

***Maine & Maritimes Corporation and Subsidiaries***

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*   Maine &New Brunswick Electrical Power Company, Ltd and Energy Atlantic, LLC areinactive companies.

3

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***General Descriptions of theParent Company and its Subsidiaries:***

·          Maine &Maritimes Corporation is a holding company incorporated in the state of Maine,and is the ultimate parent company for all business segments. MAM maintainsinvestments in (a) a regulated electric transmission and distributionutility operating within the state of Maine, United States of America, (b) mechanical,electrical and plumbing/fire protection engineering, facility asset lifecyclemanagement, energy efficiency, and asset development companies within theUnited States and Canada, (c) real estate investment and developmentcompanies in Canada, and (d) a facilities asset governance, lifecyclemanagement and sustainability software development company in the United States.MAM is headquartered in Presque Isle, Maine.

·          The Maricor Group is anenergy asset development and mechanical, electrical and plumbing/fireprotection engineering consulting firm providing energy efficiency, facilitieslifecycle asset management, facility condition assessment, fee-for-serviceengineering design and emissions reduction services focusing on sustainabilityand Leadership in Energy and Environmental Design (“LEED”TM). The Maricor Groupoperates primarily within the New England region of the United States and theeastern Canadian provinces, particularly Atlantic Canada. TMG was formed in November 2003,and is headquartered in Presque Isle, Maine, with offices in Hudson and Boston,Massachusetts; Moncton and Saint John, New Brunswick; and Halifax, Nova Scotia.

·          The Maricor Group NewEngland is a mechanical and electrical engineering subsidiary of The MaricorGroup with offices in Hudson and Boston, Massachusetts, offering the servicesof The Maricor Group within New England, particularly the greater Boston areaand other regions of the Commonwealth of Massachusetts. TMGNE was acquired byTMG on June 15, 2004. TMGNE, formerly RES Engineering, Inc., wasacquired by TMG in mid-June, 2004.

·          The Maricor Group,Canada Ltd is the Canadian subsidiary of The Maricor Group offering its parentcompany’s defined services primarily within the eastern Canadian provinces,particularly Atlantic Canada. Headquartered in Moncton, New Brunswick, itmaintains offices in Saint John, New Brunswick, as well as Halifax, Nova Scotia. TMGC acquired its first mechanical andelectrical engineering services company, Eastcan Consultants, Inc. (“Eastcan”)on December 1, 2003. On June 1, 2004, TMGC acquired Morris &Richards Consulting Engineers (“M&R”). Both companies are now operatingdivisions of TMGC.

·          Maricor Properties Ltd (“MaricorProperties”) is a Canadian real estate development, redevelopment andinvestment company focused on sustainable development and “smart growth”principles within second and third tier Canadian markets emphasizing thedevelopment and revitalization of downtowns and existing suburbs. It seeks todevelop or invest in public and private facility projects involving the renewalor development of building infrastructure within revitalization districtspromoting renewal of existing areas, thus negating the need for extension ofadditional infrastructure and promotion of sprawl. It utilizes the services ofThe Maricor Group in its development and redevelopment projects. MaricorProperties Ltd was organized on May 28, 2004, in Nova Scotia, Canada.

·          Mecel Properties Ltd isa Canadian subsidiary of Maricor Properties Ltd and currently owns the officebuilding housing the Halifax, Nova Scotia operating division of The MaricorGroup, Canada Ltd. It was acquired on June 1, 2004, in conjunction withthe acquisition of M&R by TMGC.

·          Cornwallis CourtDevelopments Ltd is a wholly-owned Canadian subsidiary of Maricor Properties,acquired on October 7, 2005. Cornwallis currently owns and operates the J.Angus MacDonald Building located in Halifax, Nova Scotia, Canada.

·          Maricor Technologies, Inc.(“MTI”), formed on February 14, 2005, develops information technology andsoftware products for sustainable governance of facilities, infrastructure andbuildings. On February 14, 2005, it purchased, through a three-waytransaction, the “Strategic Asset Management” software technology assets ofDelinea Corporation of Dallas, Texas, which were formerly owned byHCI Systems Assets Management, LLC. The Maricor Group, which owns achannel market license for certain Atlantic Canadian and New England marketsand vertical sectors, utilizes the software in the delivery of its sustainableasset management services. MTI markets its products throughout North Americaand is headquartered in Presque Isle, Maine, with an office in Portland, Maine.

MaricorTechnologies’ software products currently include “iPlanTM” and “BuildingBlocksTM.”  iPlanTM is a web-based softwaretool serving the facility capital planning, performance management andstakeholder reporting of organizations. It integrates with enterprise systemsto support technically driven capital planning, project management andbudgeting processes enabling or supporting (a) lifecycle capital planningand forecasting, (b) capital funds management, (c) capitalperformance management, (d) stakeholder reporting, (e) energyefficiency and emissions analysis, (f) energy assessments and relatedcapital planning, (g) security assessments and related capital planning,and (h) facility condition assessment and related capital planning. “BuildingBlocksTM” is a proactive computerized maintenance management system (“CMMS”)software solution for managing both the total lifecycle of assets and the dailyoperation of facilities.

4

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·          Maine Public ServiceCompany is a regulated electric transmission and distribution utility servingall of Aroostook County and a portion of Penobscot County in northern Maine.Since March 1, 2000, the date retail electric competition in Mainecommenced, customers in MPS’s service territory have been purchasing energyfrom suppliers other than MPS. This energy comes from Competitive ElectricitySuppliers (“CES”) or, if customers are unable or do not wish to choose acompetitive supplier, the Standard Offer Service (“SOS”) provider. SOSproviders are determined through a bid process conducted by the Maine PublicUtilities Commission (“MPUC”). MPS provides the transportation through itstransmission and distribution wires infrastructure. Its service area coversapproximately 3,600 square miles, with a population of 72,000. The utility isregulated by the Federal Energy Regulatory Commission (“FERC”) and the MPUC.MPS is headquartered in Presque Isle, Maine.

Electricsales in the Company’s territory are seasonally influenced, and the Company’sresults of operations reflect this seasonal nature. The highest usage occursduring the five heating season months, from November through March dueto heating-related requirements and shorter daylight hours. The rate year isdivided into two periods, with higher rates in place in the winter months toencourage 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 & NewBrunswick Electrical Power Company, Ltd is an inactive Canadian subsidiary ofMPS, which, prior to deregulation and generation divestiture, owned MPS’sCanadian electric generation assets. Me&NB was incorporated in 1903 underthe laws of the Province of New Brunswick, Canada.

·          Energy Atlantic, LLC isa licensed, but currently inactive, CES of retail electricity, and isclassified as discontinued operations. EA formerly competed for electric supplycustomers within the northern and southern regions of the state of Maine as aCES from March 1, 2000, through February 28, 2004, and also providedthe Standard Offer supply for Central Maine Power Company’s (“CMP’s”) territoryfrom March 1, 2000, through February 28, 2002, and 20% of the mediumnon-residential SOS in MPS’s territory from March 1, 2000, through February 28,2001.

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIESStatements of Consolidated Operations (Unaudited)**
| **(In thousands of dollars except shares and per share amounts)** | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                                                                     | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **Operating Revenues**                                                                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Regulated                                                                                                      |       | $                                                | 10,051     |   | $ | 10,315 |   |
| Unregulated                                                                                                    |       | 1,662                                            |       | 1,421 |   |
|                                                                                                           |       |                                             |       |   |   |
| **Total Revenues**                                                                                             |       | 11,713                                           |       | 11,736 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Operating Expenses**                                                                                         | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Regulated Operation & Maintenance                                                                     |       | 3,745                                            |       | 3,353 |   |
| Unregulated Operation & Maintenance                                                                   |       | 2,291                                            |       | 1,937 |   |
| Depreciation                                                                                                   |       | 770                                              |       | 707 |   |
| Amortization of Stranded Costs                                                                                 |       | 2,810                                            |       | 2,786 |   |
| Amortization                                                                                                   |       | 192                                              |       | 107 |   |
| Taxes Other Than Income                                                                                        |       | 533                                              |       | 474 |   |
| Provision for Income Taxes—Regulated                                                                      |       | 750                                              |       | 1,079 |   |
| Benefit of Income Taxes—Unregulated                                                                       |       | (460                                             | )          | (252 | ) |
|                                                                                                           |       |                                             |       |   |   |
| **Total Operating Expenses**                                                                                   |       | 10,631                                           |       | 10,191 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Operating  Income**                                                                                          |       | 1,082                                            |       | 1,545 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Other Income (Deductions)**                                                                                  | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Equity in (Loss) Income of Associated Companies                                                                |       | (8                                               | )          | 49 |   |
| Interest and Dividend Income                                                                                   |       | 6                                                |       | 3 |   |
| Allowance for Equity Funds Used During Construction                                                            |       | 1                                                |       | 4 |   |
| Provision for Income Taxes                                                                                     |       | (22                                              | )          | (1 | ) |
| Other—Net                                                                                                 |       | (46                                              | )          | (26 | ) |
|                                                                                                           |       |                                             |       |   |   |
| **Total**                                                                                                      |       | (69                                              | )          | 29 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Income  Before Interest Charges**                                                                            |       | 1,013                                            |       | 1,574 |   |
| Interest Charges                                                                                               |       |                                             |       |   |   |
| Long-Term Debt and Notes Payable                                                                               |       | 881                                              |       | 647 |   |
| Less Stranded Costs Carrying Charge                                                                            |       | (401                                             | )          | (340 | ) |
| Less Allowance for Borrowed Funds Used During  Construction                                                    |       | —                                           |       | (2 | ) |
|                                                                                                           |       |                                             |       |   |   |
| **Total**                                                                                                      |       | 480                                              |       | 305 |   |
|                                                                                                           |       |                                             |       |   |   |
| **Net  Income from Continuing Operations**                                                                     |       | 533                                              |       | 1,269 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Discontinued Operations**                                                                                    | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Income from Discontinued Operations                                                                            |       | —                                           |       | 13 |   |
| Income Tax Provision                                                                                           |       | —                                           |       | (5 | ) |
|                                                                                                           |       |                                             |       |   |   |
| **Income  from Discontinued Operations**                                                                       |       | —                                           |       | 8 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Net  Income Available for Common Stockholders**                                                              |       | $                                                | 533        |   | $ | 1,277 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Average  Shares of Common Stock Outstanding**                                                                |       | 1,637,211                                        |       | 1,635,906 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Basic  Earnings Per Share of Common Stock From Continuing Operations**                                       |       | $                                                | 0.33       |   | $ | 0.78 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Basic  Earnings Per Share of Common Stock From Discontinued Operations**                                     |       | —                                           |       | — |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Basic  Earnings Per Share of Common Stock From Net Income**                                                  |       | $                                                | 0.33       |   | $ | 0.78 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Diluted  Earnings Per Share of Common Stock From Continuing Operations**                                     |       | $                                                | 0.33       |   | $ | 0.78 |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Diluted  Earnings Per Share of Common Stock From Discontinued Operations**                                   |       | —                                           |       | — |   |
| ** **                                                                                                     | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Diluted Earnings Per Share of  Common Stock From Net Income**                                                |       | $                                                | 0.33       |   | $ | 0.78 |   |

 

See Notes to Consolidated Financial Statements

6

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIESStatements of Consolidated Cash Flows (Unaudited)**
| **(In thousands of dollars)**                             | ** ** | **Three Months Ended  March 31,** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------------------------|------------|
| ** **                                                               | ** ** | **2006**                                         | ** ** | **2005** | ** ** |
| **Cash Flow From Operating  Activities**                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Net Income                                                               |       | $                                                | 533        |   | $ | 1,277 |   |
| Adjustments to  Reconcile Net Income to Net Cash Provided by Operations: |       |                                             |       |   |   |
| Depreciation                                                             |       | 770                                              |       | 707 |   |
| Amortization                                                             |       | 458                                              |       | 385 |   |
| Deferred Income Taxes—Net                                           |       | 318                                              |       | 240 |   |
| Change in Deferred Regulatory and Debt Issuance  Costs                   |       | (1,438                                           | )          | (675 | ) |
| Amortization of W/S Upfront Payment                                      |       | 363                                              |       | 363 |   |
| Change in Benefit Obligations                                            |       | 163                                              |       | 315 |   |
| Change in  Current Assets and Liabilities:                               |       |                                             |       |   |   |
| Accounts Receivable and Unbilled Revenue                                 |       | 924                                              |       | 443 |   |
| Other Current Assets                                                     |       | (146                                             | )          | 647 |   |
| Accounts Payable                                                         |       | 409                                              |       | (1,133 | ) |
| Other Current Liabilities                                                |       | 9                                                |       | (191 | ) |
| Other—Net                                                           |       | (106                                             | )          | 185 |   |
|                                                                     |       |                                             |       |   |   |
| **Net  Cash Flow Provided By Operating Activities**                      |       | 2,257                                            |       | 2,563 |   |
|                                                                     |       |                                             |       |   |   |
| **Cash Flow From Financing  Activities**                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Dividend Payments                                                        |       | —                                           |       | (409 | ) |
| Repayments of Long-Term Debt                                             |       | (195                                             | )          | (150 | ) |
| Short-Term Repayments, Net                                               |       | (1,044                                           | )          | (74 | ) |
|                                                                     |       |                                             |       |   |   |
| **Net  Cash Flow Used For Financing Activities**                         |       | (1,239                                           | )          | (633 | ) |
|                                                                     |       |                                             |       |   |   |
| **Cash Flow From Investing  Activities**                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Cash Paid on Stock Price Protection Agreements                           |       | (244                                             | )          | — |   |
| Acquisitions, Net of Cash Acquired                                       |       | —                                           |       | (50 | ) |
| Change in Restricted Investments                                         |       | (1                                               | )          | (1 | ) |
| Investment in Fixed Assets                                               |       | (1,246                                           | )          | (1,840 | ) |
|                                                                     |       |                                             |       |   |   |
| **Net  Cash Flow Used For Investing Activities**                         |       | (1,491                                           | )          | (1,891 | ) |
|                                                                     |       |                                             |       |   |   |
| **Increase  (Decrease) in Cash and Cash Equivalents**                    |       | (473                                             | )          | 39 |   |
| **Cash  and Cash Equivalents at Beginning of Period**                    |       | 781                                              |       | 1,193 |   |
|                                                                     |       |                                             |       |   |   |
| **Cash  and Cash Equivalents at End of Period**                          |       | $                                                | 308        |   | $ | 1,232 |   |
|                                                                     |       |                                             |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information:**                   | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| **Cash Paid During the Period  for:**                                    | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Interest                                                                 |       | $                                                | 843        |   | $ | 631 |   |
| Income Taxes                                                             |       | $                                                | —     |   | $ | 3 |   |
| **Non-Cash Activities:**                                                 | ** ** | ** **                                       | ** ** | ** ** | ** ** |
| Value of Preferred Stock Issued for Acquisition                          |       | $                                                | —     |   | $ | 950 |   |
| Fair Market  Value of Stock Issued to Directors                          |       | $                                                | 6          |   | $ | 7 |   |

 

See Notes to Consolidated Financial Statements

7

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIESConsolidated Balance Sheets (Unaudited)**
| **(In thousands  of dollars)**                                                                    | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                                                        | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Plant:**                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| Electric Plant in Service                                                                         |       | $99,009            |       | $98,998               |       |
| Non-Utility Plant                                                                                 |       | 10,046             |       | 10,217                |       |
| Less Accumulated Depreciation                                                                     |       | (41,701            | )          | (40,845               | )          |
|                                                                                              |       |               |       |                  |       |
| Net Plant in Service                                                                              |       | 67,354             |       | 68,370                |       |
| Construction Work-in-Progress                                                                     |       | 2,158              |       | 1,883                 |       |
|                                                                                              |       |               |       |                  |       |
| Total                                                                                             |       | 69,512             |       | 70,253                |       |
|                                                                                              |       |               |       |                  |       |
| **Investment  in Associated Companies**                                                           |       | 2,033              |       | 1,994                 |       |
| ** **                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Net  Plant and Investments in Associated Companies**                                            |       | 71,545             |       | 72,247                |       |
| ** **                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Current Assets:**                                                                               | ** ** | ** **         | ** ** | ** **            | ** ** |
| Cash and Cash Equivalents                                                                         |       | 308                |       | 781                   |       |
| Accounts Receivable (less allowance for  uncollectible accounts of $392 in 2006 and $372 in 2005) |       | 7,671              |       | 7,963                 |       |
| Unbilled Revenue                                                                                  |       | 912                |       | 1,071                 |       |
| Inventory                                                                                         |       | 545                |       | 600                   |       |
| Income Tax Refund Receivable                                                                      |       | 640                |       | 973                   |       |
| Prepayments                                                                                       |       | 344                |       | 479                   |       |
| Unbilled Contract Revenue                                                                         |       | 1,014              |       | 816                   |       |
|                                                                                              |       |               |       |                  |       |
| Total                                                                                             |       | 11,434             |       | 12,683                |       |
|                                                                                              |       |               |       |                  |       |
| **Regulatory Assets:**                                                                            | ** ** | ** **         | ** ** | ** **            | ** ** |
| Uncollected Maine Yankee Decommissioning Costs                                                    |       | 10,038             |       | 10,795                |       |
| Recoverable Seabrook Costs                                                                        |       | 11,391             |       | 11,669                |       |
| Regulatory Assets—Deferred Income Taxes                                                      |       | 5,687              |       | 5,794                 |       |
| Regulatory Assets—Post-Retirement Medical Benefits                                           |       | 109                |       | 115                   |       |
| Deferred Fuel and Purchased Energy Costs                                                          |       | 31,184             |       | 29,906                |       |
| Regulatory Asset—Power Purchase Agreement  Restructuring                                     |       | 1,088              |       | 1,451                 |       |
| Unamortized Premium on Early Retirement of Debt                                                   |       | 1,256              |       | 1,308                 |       |
| Deferred Regulatory Costs                                                                         |       | 1,325              |       | 1,334                 |       |
|                                                                                              |       |               |       |                  |       |
| Total                                                                                             |       | 62,078             |       | 62,372                |       |
|                                                                                              |       |               |       |                  |       |
| **Other Assets:**                                                                                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Intangible Assets (net of accumulated amortization  of $395 in 2006 and $284 in 2005)             |       | 728                |       | 103                   |       |
| Goodwill                                                                                          |       | 6,364              |       | 6,374                 |       |
| Unamortized Debt Issuance Costs                                                                   |       | 610                |       | 424                   |       |
| Restricted Investment (at cost, which approximates  market)                                       |       | 2,454              |       | 2,453                 |       |
| Miscellaneous                                                                                     |       | 1,667              |       | 1,119                 |       |
|                                                                                              |       |               |       |                  |       |
| Total                                                                                             |       | 11,823             |       | 10,473                |       |
|                                                                                              |       |               |       |                  |       |
| **Total Assets**                                                                                  |       | $156,880           |       | $157,775              |       |

 

See Notes to ConsolidatedFinancial Statements

8

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIESCapitalization and Liabilities (Unaudited)**
| **(In thousands of dollars)**                     | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                                       | ** ** | **2006**           | ** ** | **2005**              | ** ** |
| **Capitalization:**                                              | ** ** | ** **         | ** ** | ** **            | ** ** |
| Shareholders’ Equity (see accompanying statements)          |       | $                  | 48,425     |                  | $          | 47,786 |   |
| Long-Term Debt                                                   |       | 35,404             |       | 35,614                |       |
|                                                             |       |               |       |                  |       |
| Total                                                            |       | 83,829             |       | 83,400                |       |
|                                                             |       |               |       |                  |       |
| **Current  Liabilities:**                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| Long-Term Debt Due Within One Year                               |       | 2,614              |       | 2,612                 |       |
| Notes Payable to Banks                                           |       | 12,951             |       | 14,098                |       |
| Accounts Payable                                                 |       | 4,983              |       | 4,465                 |       |
| Accounts Payable—Associated Companies                       |       | 256                |       | 250                   |       |
| Accrued Employee Benefits                                        |       | 1,319              |       | 1,433                 |       |
| Customer Deposits                                                |       | 41                 |       | 36                    |       |
| Interest Accrued                                                 |       | 184                |       | 146                   |       |
| Deferred Contract Revenue                                        |       | 98                 |       | 132                   |       |
|                                                             |       |               |       |                  |       |
| Total                                                            |       | 22,446             |       | 23,172                |       |
|                                                             |       |               |       |                  |       |
| **Deferred  Credits and Other Liabilities:**                     | ** ** | ** **         | ** ** | ** **            | ** ** |
| Accrued Removal Obligations                                      |       | 5,477              |       | 5,683                 |       |
| Carrying Value of Interest Rate Hedge                            |       | 780                |       | 1,387                 |       |
| Uncollected Maine Yankee Decommissioning Costs                   |       | 10,038             |       | 10,795                |       |
| Other Regulatory Liabilities                                     |       | 424                |       | 458                   |       |
| Deferred Income Taxes                                            |       | 27,779             |       | 27,333                |       |
| Accrued Post-retirement Benefits and Pension Costs               |       | 4,814              |       | 4,655                 |       |
| Investment Tax Credits                                           |       | 100                |       | 106                   |       |
| Miscellaneous                                                    |       | 1,193              |       | 786                   |       |
|                                                             |       |               |       |                  |       |
| Total                                                            |       | 50,605             |       | 51,203                |       |
|                                                             |       |               |       |                  |       |
| **Commitments,  Contingencies, and Regulatory Matters (Note 8)** |       | —             |       | —                |       |
| ** **                                                       | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Total Capitalization and  Liabilities**                        |       | $                  | 156,880    |                  | $          | 157,775 |   |

 

See Notes to Consolidated Financial Statements

9

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIESStatement of Consolidated Shareholders’ Equity (Unaudited)**
| **(In thousands of dollars, except share information)** | ** ** |
|---------------------------------------------------------------------------------------|------------|
| ** **                                                                            | ** ** | **Shares Issued  and Outstanding** | ** ** | **Common** | ** ** | **Preferred** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                                            | ** ** | **Common** | ** ** | **Preferred** | ** ** | **Par Value  Issued  ($7/Share)** | ** ** | **Paid-In  Capital** | ** ** | **Par Value  Issued  ($0.01/Share)** | ** ** | **Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Income (Loss)** | ** ** | **Total** | ** ** |
| **Balance,  December 31, 2005**                                                  |       | 1,636,779 |   | 9,500 |   | $ | 11,458 |   | $ | 1,387 |   | $ | — |   | $ | 950 |   | $ | 34,187 |   | $ | (196 | ) | $ | 47,786 |   |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Common Stock   Issued                                                            |       | 432 |   |   |   | 3 |   | 3 |   |   |   |   |   |   |   |   |   | 6 |   |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Stock Contingency  from                                                               |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Acquisitions                                                                          |       |   |   |   |   |   |   | (244 | ) |   |   |   |   |   |   |   |   | (244 | ) |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Net Income                                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   | 533 |   |   |   | 533 |   |
| Other  Comprehensive                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income (Loss):                                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Changes in Value of Foreign Exchange Translation Loss,  Net of Tax Benefit of $13     |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   | (20 | ) | (20 | ) |
| Changes in Value of Interest Rate Hedge, Net of Tax  Provision of $243                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 364 |   | 364 |   |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total Other  Comprehensive                                                            |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Income                                                                                |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 344 |   |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| Total  Comprehensive Income                                                           |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   | 877 |   |
|                                                                                  |       |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |   |
| **Balance, March 31, 2006**                                                      |       | 1,637,211 |   | 9,500 |   | $ | 11,461 |   | $ | 1,146 |   | $ | — |   | $ | 950 |   | $ | 34,720 |   | $ | 148 |   | $ | 48,425 |   |

 

MAMhad five million shares of $7 per share common stock authorized, with 1,637,211and 1,636,779 shares issued and outstanding as of March 31, 2006, and December 31,2005, respectively. At March 31, 2006 and December 31, 2005, MAM had500,000 shares of $.01 per share preferred stock authorized, with 9,500 sharesissued and outstanding.

See Notes to Consolidated Financial Statements.

10

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**NOTES TO CONSOLIDATED**

**FINANCIAL STATEMENTS**

**1.**                 ACCOUNTING POLICIES

**Consolidation and Basisof Presentation**

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

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

2.               The Maricor Group (“TMG”,formerly known as Maine & Maritimes Energy Services) and itswholly-owned United States subsidiary The Maricor Group New England (“TMGNE”,formerly known as RES Engineering, Inc.) and TMG’s wholly-owned Canadiansubsidiary The Maricor Group, Canada Ltd (“TMGC,” formerly Maricor Ltd);

3.               Maricor PropertiesLtd (“Maricor Properties”), a Canadian subsidiary and its wholly-owned Canadiansubsidiaries, Cornwallis Court Developments Ltd (“Cornwallis”) and MecelProperties Ltd (“Mecel”), as well as a 50% owner of Maricor Ashford Ltd;

4.               Maricor Technologies, Inc.(“MTI”), a U.S. wholly-owned subsidiary; and

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

MAM,a holding company organized effective June 30, 2003, owns all of thecommon stock of the above subsidiaries. MAM is listed on the American StockExchange (“AMEX”) under the symbol MAM.

TheMaricor Group and The Maricor Group, Canada Ltd were organized on November 6,2003, and November 12, 2003, respectively. On June 15, 2004, TheMaricor Group acquired RES Engineering Inc. (now The Maricor Group, NewEngland), a Massachusetts corporation providing mechanical and electricalengineering services located in Hudson, Massachusetts with an additional officein Boston, Massachusetts. In separate transactions, The Maricor Group, CanadaLtd acquired Eastcan Consultants, Inc. (“Eastcan”), a New Brunswick,Canada corporation and its subsidiaries and affiliates effective December 1,2003; and Morris & Richard Consulting Engineers, Ltd. (“M&R”), aNova Scotia, Canada corporation and its subsidiaries and affiliates effective June 1,2004. Both companies were mechanical and electrical engineering firms withprincipal places of business located in New Brunswick and Nova Scotia, Canadarespectively. Eastcan and M&R were amalgamated into a single Canadian entity,The Maricor Group, Canada Ltd which is a wholly-owned subsidiary of The MaricorGroup.

MaricorProperties Ltd was organized on June 1, 2004, in connection with theM&R acquisition, and was the entity that acquired, through the amalgamationof the M&R subsidiaries and affiliates, Mecel Properties Limited, a NovaScotia, Canada corporation. The Mecel real estate (an office building locatedin Halifax, Nova Scotia) is currently occupied and used as the principalplace of business of the The Maricor Group, Canada Ltd’s Nova Scotia division.On August 13, 2004, Maricor Properties Ltd completed the acquisition of amulti-tenant mid-rise office facility at 77 Vaughan Harvey Boulevard in thedowntown area of Moncton, New Brunswick, Canada (the “Vaughan Harvey Property”)from Sun Life Assurance Company of Canada (“Sun Life”). Maricor Properties Ltdhas undertaken significant renovations of the office complex, particularlyrelated to mechanical and electrical systems, as well as certain exterior andinterior renovations. Mechanical and electrical engineering services inconnection with the renovations were provided by The Maricor Group, Canada Ltd.The Maricor Group, Canada Ltd’s New Brunswick division relocated its principaloperations in the facility during the fourth quarter of 2004.

OnFebruary 22, 2005, the Company announced the formation of MaricorTechnologies, Inc. (“MTI”), a wholly-owned, technology-based subsidiary.Concurrently, MTI acquired lifecycle asset management and capital budgetplanning software assets that complement MAM’s U.S. and Canadian engineeringand facilities lifecycle asset management services companies. MTI isheadquartered in Presque Isle, Maine, with offices in Portland, Maine.

Allinter-company transactions between MAM and its direct and indirect subsidiarieshave been eliminated in consolidation.

**Critical AccountingPolicies**

TheCompany’s accounting policies have not changed since December 31,2005. The critical accounting policies disclosed in the Company’s 2005 AnnualReport on Form 10-K are incorporated herein by reference.

11

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**2.**                 INCOME TAXES

Asummary of Federal, Canadian and State income taxes charged (credited) toincome is presented below. For accounting and ratemaking purposes, income taxprovisions (benefits) included in “Operating Expenses” reflect taxes applicableto revenues and expenses allowable for ratemaking purposes on MPS regulatedactivities and unregulated activities for MAM, TMG, Me&NB, TMGC, and MTI. Thetax effect of items not included in rate base or normal operating activities isallocated as “Other Income (Deductions).”

 

| (In thousands of dollars) | ** ** | **For the Quarters Ending March 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------------------------------|------------|
| ** **                               | ** ** | **2006**                                                       | ** ** | **2005** | ** ** |
| Current income taxes                     |       |                                                           |       |   |   |
| Federal                                  |       | $                                                              | 228        |   | $ | 537 |   |
| State                                    |       | 51                                                             |       | 200 |   |
| Canadian                                 |       | (159                                                           | )          | (111 | ) |
|                                     |       |                                                           |       |   |   |
| Total current  income taxes              |       | 120                                                            |       | 626 |   |
|                                     |       |                                                           |       |   |   |
| Deferred income taxes                    |       |                                                           |       |   |   |
| Federal                                  |       | 180                                                            |       | 194 |   |
| State                                    |       | 18                                                             |       | 19 |   |
| Canadian                                 |       | —                                                         |       | — |   |
|                                     |       |                                                           |       |   |   |
| Total deferred income taxes              |       | 198                                                            |       | 213 |   |
|                                     |       |                                                           |       |   |   |
| Investment  credits, net                 |       | (6                                                             | )          | (6 | ) |
| Total income taxes                       |       | $                                                              | 312        |   | $ | 833 |   |
|                                     |       |                                                           |       |   |   |
| Allocated to:                            |       |                                                           |       |   |   |
| Operating income                         |       |                                                           |       |   |   |
| -  Regulated                   |       | $                                                              | 750        |   | $ | 1,079 |   |
| -  Unregulated                 |       | (460                                                           | )          | (252 | ) |
|                                     |       |                                                           |       |   |   |
| Subtotal                                 |       | 290                                                            |       | 827 |   |
| Discontinued  Operations                 |       | —                                                         |       | 5 |   |
|                                     |       |                                                           |       |   |   |
| Total Operating                          |       | 290                                                            |       | 832 |   |
| Other income                             |       | 22                                                             |       | 1 |   |
| Total                                    |       | $                                                              | 312        |   | $ | 833 |   |

 

Forthe three months ended March 31, 2006, and 2005, the effective income taxrates were 36.9% and 39.4%, respectively. The principal reasons for theeffective tax rates differing from the US federal income tax rate areincreased presence in Canada, and certain expenses under US GAAP that are notdeductible for Canadian tax purposes.

TheCompany has not accrued U.S. income taxes on the undistributed earnings ofMe&NB, as the withholding taxes due on the distribution of any remainingamount would be principally offset by foreign tax credits. No dividends werereceived from Me&NB in 2005 or 2004.

Asrequired by SFAS No. 109, Management of the Company has evaluated thepositive and negative evidence bearing upon the realizability of the Company’sdeferred tax assets, which consist principally of pension and post-retirementbenefits and accumulated Other Comprehensive Income (“OCI”) — interest ratehedge. In addition, the Company has accumulated approximately $355,000 of netoperating losses in Canada, which we believe are fully recognizable in futureyears. For the quarter ended March 31, 2006, and the year ended December 31,2005, Management evaluated the deferred tax asset valuation allowance anddetermined that no adjustment was needed.

Thefollowing summarizes accumulated deferred income tax (assets) and liabilitiesestablished on temporary differences under SFAS 109 as of March 31, 2006,and December 31, 2005:

12

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| (In thousands of dollars) | ** ** | ** **                   | ** ** | ** **                      | ** ** |
|------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| ** **                               | ** ** | **March 31, 2006** | ** ** | **December 31, 2005** | ** ** |
| Seabrook                                 |       | $                            | 6,197      |                            | $          | 6,350 |   |
| Property                                 |       | 8,899                        |       | 8,899                           |       |
| Flexible pricing  revenue                |       | 588                          |       | 584                             |       |
| Deferred fuel                            |       | 12,441                       |       | 11,931                          |       |
| Wheelabrator-Sherman  up-front payment   |       | 434                          |       | 579                             |       |
| Pension and  post-retirement benefits    |       | (979                         | )          | (938                            | )          |
| OCI                                      |       | 107                          |       | (142                            | )          |
| Other                                    |       | 92                           |       | 70                              |       |
|                                     |       |                         |       |                            |       |
| Net accumulated  deferred income taxes   |       | $                            | 27,779     |                            | $          | 27,333 |   |

 

**3.**                 DISCONTINUEDOPERATIONS — ENERGY ATLANTIC

The Company recognized income from discontinued operations associatedwith termination of the activity of its competitive energy supplier, EnergyAtlantic, of $8,000 for the quarter ended March 31, 2005, classified asdiscontinued operations in the Statement of Consolidated Operations.  Energy Atlantic had no impact on operations inthe first quarter of 2006. The following table summarizes the statement ofoperations for EA:

|                                                                    | ** ** | **Quarter Ended** | ** ** |
|--------------------------------------------------------------------|------------|------------------------|------------|
| **(In thousands of dollars)**                       | ** ** | **March 31,**     | ** ** |
| ** **                                                         | ** ** | **2006**               | ** ** | **2005** | ** ** |
| Revenue                                                            |       | $                      | —     |   | $ | — |   |
| Expenses                                                           |       | —                 |       | (13 | ) |
| Other income,  deductions and interest                             |       | —                 |       | — |   |
|                                                               |       |                   |       |   |   |
| Pretax income  from discontinued operations                        |       | —                 |       | 13 |   |
| Income tax  (provision)                                            |       | —                 |       | (5 | ) |
|                                                               |       |                   |       |   |   |
| Income from  discontinued operations                               |       | $                      | —     |   | $ | 8 |   |
|                                                               |       |                   |       |   |   |
| Income per share from  discontinued operations (basic and diluted) |       | $                      | —     |   | $ | — |   |

 

Themajor classes of assets and liabilities of the discontinued operations includedin the Company’s consolidated balance sheets as of March 31, 2006, and December 31,2005 are as follows:

| (In thousands of dollars) | ** ** | **March 31,** | ** ** |
|------------------------------------------|------------|--------------------|------------|
| ** **                               | ** ** | **2006**           | ** ** | **2005** | ** ** |
| **Assets**                               |       |               |       |   |   |
| Cash and Cash  Equivalents               |       | $                  | —     |   | $ | 107 |   |
| Income tax  benefit - Intercompany       |       | 229                |       | 257 |   |
| Other Assets                             |       | —             |       | 2 |   |
|                                     |       |               |       |   |   |
| Total Assets                             |       | $                  | 229        |   | $ | 366 |   |
|                                     |       |               |       |   |   |
| **Liabilities**                          |       |               |       |   |   |
| Accounts payable                         |       | $                  | 3          |   | $ | 6 |   |
|                                     |       |               |       |   |   |
| Total  Liabilities                       |       | $                  | 3          |   | $ | 6 |   |

 

**4.**                 SEGMENT INFORMATION

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

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

·                  Unregulatedengineering services: The Maricor Group and all of its subsidiaries and productand service lines;

·                  Unregulatedreal estate development and investments: Maricor Properties Ltd and itssubsidiaries Mecel Properties Ltd and Cornwallis Court Developments Ltd, andall of their real estate holdings, as well as its joint venture, MaricorAshford, Ltd;

·                  Unregulatedsoftware technology: Maricor Technologies, Inc.;

·                  Unregulatedenergy marketing: EA, an inactive subsidiary; and

13

----

 

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

The segment information for 2005 has been reclassifiedto conform to the 2006 presentation.

The accounting policiesof the segments are the same as those described in Note 1, “Summary ofSignificant Accounting Policies.”  MAMprovides certain administrative support service to MPS, TMG, MaricorProperties, MTI and their subsidiaries. The cost of services provided to MPS isbilled to MPS based on a combination of direct charges and allocations. Thecost of corporate service provided to the other unregulated entities remains atthe holding company, and is not allocated or charged to the varioussubsidiaries. MPS also provides services to MAM and other affiliates. Theseservices are billed to MAM at cost through inter-company transactions.
| ** **                                           | ** ** | **(In thousands of dollars)**              | ** ** | ** **      | ** ** |
|------------------------------------------------------|------------|--------------------------------------------|------------|-----------------|------------|
| ** **                                           | ** ** | **Three Months Ended March 31, 2006** | ** ** | ** **      | ** ** |
| ** **                                           | ** ** | **Regulated**                              | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Electric**                               | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                           | ** ** | **Utility**                                | ** ** | **Services**    | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from External  Customers                     |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Regulated                                            |       | $                                          | 10,051     |            | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 10,051 |   |
| Unregulated                                          |       | —                                     |       | 1,349           |       | 345 |   | 38 |   | — |   | (70 | ) | 1,662 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Operating Revenues                             |       | 10,051                                     |       | 1,349           |       | 345 |   | 38 |   | — |   | (70 | ) | 11,713 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                   |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance           |       | 3,745                                      |       | —          |       | — |   | — |   | — |   | — |   | 3,745 |   |
| Unregulated Operation & Maintenance         |       | —                                     |       | 1,526           |       | 199 |   | 199 |   | — |   | 367 |   | 2,291 |   |
| Depreciation                                         |       | 715                                        |       | 4               |       | 50 |   | — |   | — |   | 1 |   | 770 |   |
| Amortization of Stranded Cost                        |       | 2,810                                      |       | —          |       | — |   | — |   | — |   | — |   | 2,810 |   |
| Amortization                                         |       | 79                                         |       | 22              |       | 91 |   | — |   | — |   | — |   | 192 |   |
| Taxes Other than Income                              |       | 485                                        |       | 20              |       | — |   | 12 |   | — |   | 16 |   | 533 |   |
| Income Taxes                                         |       | 750                                        |       | (110            | )          | (78 | ) | (69 | ) | — |   | (203 | ) | 290 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Operating Expenses                             |       | 8,584                                      |       | 1,462           |       | 262 |   | 142 |   | — |   | 181 |   | 10,631 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                             |       | 1,467                                      |       | (113            | )          | 83 |   | (104 | ) | — |   | (251 | ) | 1,082 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                           |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies             |       | 47                                         |       | —          |       | (55 | ) | — |   | — |   | — |   | (8 | ) |
| Interest and Dividend Income                         |       | 5                                          |       | 9               |       | 1 |   | — |   | — |   | (9 | ) | 6 |   |
| Other Income (Deductions)                            |       | (60                                        | )          | (7              | )          | — |   | — |   | — |   | — |   | (67 | ) |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Other Income (Deductions)                      |       | (8                                         | )          | 2               |       | (54 | ) | — |   | — |   | (9 | ) | (69 | ) |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges               |       | 1,459                                      |       | (111            | )          | 29 |   | (104 | ) | — |   | (260 | ) | 1,013 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Interest Charges                                     |       | 256                                        |       | 58              |       | 115 |   | — |   | — |   | 51 |   | 480 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income (Loss)  from Continuing  Operations |       | 1,203                                      |       | (169            | )          | (86 | ) | (104 | ) | — |   | (311 | ) | 533 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income from  Discontinued Operations                 |       | —                                     |       | —          |       | — |   | — |   | — |   | — |   | — |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Net Income  (Loss)                                   |       | $                                          | 1,203      |            | $          | (169 | ) | $ | (86 | ) | $ | (104 | ) | $ | — |   | $ | (311 | ) | $ | 533 |   |
|                                                 |       |                                       |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                         |       | $                                          | 131,370    |            | $          | 11,373 |   | $ | 8,782 |   | $ | 1,870 |   | $ | 229 |   | $ | 3,256 |   | $ | 156,880 |   |

 

14

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| ** **                                                 | ** ** | **(In  thousands of dollars)**              | ** ** | ** **      | ** ** |
|------------------------------------------------------------|------------|---------------------------------------------|------------|-----------------|------------|
| ** **                                                 | ** ** | **Three  Months Ended March 31, 2005** | ** ** | ** **      | ** ** |
| ** **                                                 | ** ** | **Regulated**                               | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **Electric**                                | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                                 | ** ** | **Utility**                                 | ** ** | **Services**    | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from External  Customers                           |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Regulated                                                  |       | $                                           | 10,315     |            | $          | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 10,315 |   |
| Unregulated                                                |       | —                                      |       | 1,403           |       | 69 |   | 3 |   | — |   | (54 | ) | 1,421 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Operating Revenues                                   |       | 10,315                                      |       | 1,403           |       | 69 |   | 3 |   | — |   | (54 | ) | 11,736 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Operating Expenses                                         |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance       |       | 3,353                                       |       | —          |       | — |   | — |   | — |   | — |   | 3,353 |   |
| Unregulated Operation & Maintenance          |       | —                                      |       | 1,472           |       | 75 |   | 23 |   | — |   | 367 |   | 1,937 |   |
| Depreciation                                               |       | 691                                         |       | 3               |       | 13 |   | — |   | — |   | — |   | 707 |   |
| Amortization of Stranded Cost                              |       | 2,786                                       |       | —          |       | — |   | — |   | — |   | — |   | 2,786 |   |
| Amortization                                               |       | 73                                          |       | 34              |       | — |   | — |   | — |   | — |   | 107 |   |
| Taxes Other than Income                                    |       | 438                                         |       | 22              |       | — |   | 2 |   | — |   | 12 |   | 474 |   |
| Income Taxes                                               |       | 1,079                                       |       | (15             | )          | (10 | ) | (9 | ) | — |   | (218 | ) | 827 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Operating Expenses                                   |       | 8,420                                       |       | 1,516           |       | 78 |   | 16 |   | — |   | 161 |   | 10,191 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                                   |       | 1,895                                       |       | (113            | )          | (9 | ) | (13 | ) | — |   | (215 | ) | 1,545 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                                 |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies                   |       | 49                                          |       | —          |       | — |   | — |   | — |   | — |   | 49 |   |
| Interest and Dividend Income                               |       | 3                                           |       | —          |       | — |   | — |   | — |   | — |   | 3 |   |
| Other Income (Deductions)                                  |       | (8                                          | )          | (1              | )          | 1 |   | — |   | — |   | (15 | ) | (23 | ) |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Other Income (Deductions)                            |       | 44                                          |       | (1              | )          | 1 |   | — |   | — |   | (15 | ) | 29 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges                     |       | 1,939                                       |       | (114            | )          | (8 | ) | (13 | ) | — |   | (230 | ) | 1,574 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Interest Charges                                           |       | 241                                         |       | 38              |       | 22 |   | — |   | — |   | 4 |   | 305 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income (Loss)  from Continuing  Operations  |       | 1,698                                       |       | (152            | )          | (30 | ) | (13 | ) | — |   | (234 | ) | 1,269 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Income from  Discontinued Operations                       |       | —                                      |       | —          |       | — |   | — |   | 8 |   | — |   | 8 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Net Income  (Loss)                                         |       | $                                           | 1,698      |            | $          | (152 | ) | $ | (30 | ) | $ | (13 | ) | $ | 8 |   | $ | (234 | ) | $ | 1,277 |   |
|                                                       |       |                                        |       |            |       |   |   |   |   |   |   |   |   |   |   |
| Total Assets                                               |       | $                                           | 137,818    |            | $          | 6,439 |   | $ | 2,565 |   | $ | 1,598 |   | $ | 366 |   | $ | 2,827 |   | $ | 151,613 |   |

 

**5.**                 INVESTMENTS INASSOCIATED COMPANIES

**Maricor Ashford Ltd**

Maricor Properties Ltd is a partner in Maricor AshfordLtd, a joint venture with Ashford Investments, Ltd., an unaffiliated realestate management company. Maricor Ashford Ltd is a real estate development andredevelopment company based in Moncton, New Brunswick, Canada. Managementreviewed the characteristics of this joint venture in accordance with FinancialAccounting Standards Board Interpretation No. 46(R), “Consolidation ofVariable Interest Entities, an Interpretation of ARB 51” (“FIN 46(R)”), anddetermined that Maricor Properties Ltd is not the primary beneficiary of thisjoint venture. Accordingly, the activity of Maricor Ashford Ltd has beenrecorded in these financial statements under the equity method, and MaricorAshford Ltd is not consolidated with these financial statements.

**Maine Yankee and MEPCO**

MPSowns 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 stockof the Maine Electric Power Company (“MEPCO,”) a jointly-owned electrictransmission company. MPS records its investment in MEPCO and Maine Yankeeusing the equity method, consistent with APB18 and industry practice.

Dividendsreceived from Maine Yankee during the first quarter of 2006 were approximately$41,000. Maine Yankee did not pay a dividend in the first quarter of 2005. Duringthe first quarter of 2006 and 2005, dividends from MEPCO were approximately$169,000 and $2,000, respectively. Substantially all earnings of Maine Yankeeand MEPCO are distributed to investor companies.

15

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**6.**                 STOCKCOMPENSATION PLAN

Uponapproval by MPS’s shareholders in June 2002, MPS adopted the 2002 StockOption Plan (the “Plan”). The Plan was subsequently adopted by the Companyafter its formation. The Plan provides designated employees of the Company andits Subsidiaries with stock ownership opportunities and additional incentivesto contribute to the success of the Company, and to attract, reward and retainemployees of outstanding ability. The Plan is administered by the members ofthe Performance and Compensation Committee of the Board of Directors, who arenot employees of the Company or its subsidiaries. The Company may grant optionsto its employees for up to 150,000 shares of common stock, provided that themaximum aggregate number of shares which may be issued under the Plan pursuantto incentive stock options shall be 120,000 shares. The exercise price forshares to be issued under any incentive stock option shall not be less thanone-hundred percent (100%) of the fair market value of such shares on the datethe option is granted. An option’s maximum term is ten years. As of March 31,2006, the CEO has been the only employee to receive stock options.

TheCompany accounts for the fair value of its grants under the Plan in accordancewith the provisions of Statement of Financial Accounting Standards No. 123(R),“Share-Based Payment.”

| Year of Issuance                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Number of  Options Granted                |       | 5,250    |       | 5,250    |       | 5,250    |       | 5,250    |       |
| Vesting Period                            |       | 3 years  |       | 3 years  |       | 3 years  |       | 3 years  |       |
| Number of  Options Vested and Exercisable |       | —   |       | —   |       | —   |       | 5,250    |       |
| Dividend Yield                            |       | 4.08%    |       | 4.75%    |       | 4.60%    |       | 4.70%    |       |
| Volatility                                |       | 20.0%    |       | 20.0%    |       | 20.0%    |       | 20.0%    |       |
| Risk-Free  Interest Rate                  |       | 3.80%    |       | 4.33%    |       | 3.00%    |       | 4.60%    |       |
| Expected Life                             |       | 7 years  |       | 7 years  |       | 7 years  |       | 7 years  |       |

 

Thestock options are valued using the Black-Scholes valuation model. The totalvalue of all options granted as of March 31, 2006, is approximately$68,000, and is recorded within Miscellaneous Liabilities on the ConsolidatedBalance Sheets. Compensation expense of $8,000 was recognized during the firstquarter of 2006, none of which was capitalized.

Asummary of the status of the Company’s stock option plan as of March 31,2006, and changes during the quarter then ended is presented below:

|                                                 | ** ** | **Shares** | ** ** | **Average  Exercise Price** | ** ** |
|-------------------------------------------------|------------|------------|------------|----------------------------------|------------|
| **Options**                                     | ** ** | **2006**   | ** ** | **2006**                         | ** ** |
|                                            |       |       |       |                             |       |
| Outstanding at  December 31, 2005          |       | 21,000     |       | $                                | 29.80      |   |
| Granted                                         |       | —     |       | —                           |       |
| Exercised                                       |       | —     |       | —                           |       |
| Expired                                         |       | —     |       | —                           |       |
| Forfeited                                       |       | —     |       | —                           |       |
|                                            |       |       |       |                             |       |
| Outstanding at  March 31, 2006             |       | 21,000     |       | $                                | 29.80      |   |
|                                            |       |       |       |                             |       |
| Options  exercisable at March 31, 2006     |       | 5,250      |       | $                                | 30.45      |   |
| Weighted-average  fair value of options granted |       | $          | 4.31       |                             |       |   |
|                                            |       |       |       |                             |       |
|                                                 |            |            |            |                                  |            |  |  |

 

Thefollowing table summarizes information about fixed stock options outstanding atMarch 31, 2006*:*
| ** **                                  | ** ** | **Options Outstanding**             | ** ** | **Options Exercisable**                                  | ** ** |
|---------------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Number  Outstanding at  3/31/06** | ** ** | **Weighted-  Average  Remaining  Contractual Life** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Number  Exercisable at  3/31/06** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $26.65 - $32.00                   |       | 21,000                                   |       | 7.92 yrs                                                 |       | $ | 29.80 |   | 5,250 |   | $ | 30.45 |   |
|                                             |            |                                          |            |                                                          |            |  |  |  |  |  |  |  |  |

 

Dilutiveearnings per share impact of outstanding stock options:

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|                                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|------------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2006**                                             | ** ** | **2005** | ** ** |
| Net Income (in  thousands)                                                             |       | $                                                    | 533        |   | $ | 1,277 |   |
| Shares used in  computation:                                                           |       |                                                 |       |   |   |
| Weighted-average common shares outstanding in  computation of basic earnings per share |       | 1,637,211                                            |       | 1,635,906 |   |
| Dilutive effect  of preferred stock                                                    |       | 9,500                                                |       | 5,955 |   |
| Shares used in  computation of earnings per common share assuming dilution             |       | 1,646,711                                            |       | 1,641,861 |   |
| Net income per  share basic                                                            |       | $                                                    | 0.33       |   | $ | 0.78 |   |
| Net income per common  share diluted                                                   |       | $                                                    | 0.33       |   | $ | 0.78 |   |

 

**7.**                 BENEFIT PROGRAMS

TheCompany provides certain pension, post-retirement and welfare benefit programsto its employees. Benefit programs are an integral part of the Company’scommitment to hiring and retaining top grade employees, providing market-basedcompensation that rewards individual and corporate performance. Competitivemarket-based total compensation benchmarks include funded benefit programs,salary, bonuses, incentives, and commissions. The Company offers welfarebenefit plans to all employees, consisting of healthcare, life insurance,long-term disability, and accidental disability insurance. The Company alsooffers retirement savings programs to most employees in the form of 401(k) plansin the United States or Canadian Pension Plans in Canada. These plans allowvoluntary contributions by the employee and may contain a contribution by theCompany.

**U. S. Defined BenefitPension Plan**

TheCompany has a non-contributory defined benefit pension plan covering MainePublic Service and certain MAM employees. Employees of non-regulated companies,with the noted exception of certain MAM employees, are not eligible for thisbenefit plan. Benefits under the plan are based on employees’ years of serviceand compensation prior to retirement. New employees hired on or after January 1,2006, are not eligible for the Company’s pension plan.

TheCompany’s policy has been to fund pension costs accrued. In accordance withthat policy, the Company plans to contribute approximately $165,000 to thepension plan for 2005 in 2006, prior to the filing of its 2005 corporate incometax return.  The Company also expects tocontribute approximately $214,000 per quarter during 2006 for 2006 estimatedpayments, and an additional $650,000 in 2007 for 2006 prior to the filing ofthe 2006 corporate income tax return.

**Health Care Benefits**

The Company providescertain health care benefits to eligible employees. Eligible employees share inthe cost of their medical benefits, in addition to plan deductibles andcoinsurance payments. The plan also covers retiree medical coverage foremployees of Maine Public Service Company, the regulated utility. In 2005,certain amendments were made to the plan, including the following: employeeshired on or after October 1, 2005, are not eligible for post-retirementmedical coverage. Effective January 1, 2006, certain retiree co-pays wereincreased, and spousal contributions commenced.

Based on prior MPUCaccounting orders, the Company established a regulatory asset of approximately$1.06 million, representing deferred post-retirement benefits. As an element ofits four-year rate plan, the company began recovering these deferred expensesover a ten-year period, along with the annual expenses in excess ofpay-as-you-go expenses, starting in 1996. This regulatory asset became fullyamortized in December 2005.

The Company alsomaintains a Voluntary Employee Benefit Association (“VEBA”) trust fund, anindependent external trust fund for union retiree medical payments.

Thefollowing table sets forth the plans’ net periodic benefit cost:

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| (In thousands of dollars) | ** ** | **Pension Benefits**                   | ** ** | **Health Care Benefits** | ** ** |
|------------------------------------------|------------|---------------------------------------------|------------|------------------------------------|------------|
| ** **                               | ** ** | **Quarters Ended March 31,** | ** ** |
| ** **                               | ** ** | **2006**                                    | ** ** | **2005**                           | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                             |       | $                                           | 122        |                               | $          | 120 |   | $ | 46 |   | $ | 48 |   |
| Interest cost                            |       | 283                                         |       | 284                                |       | 126 |   | 134 |   |
| Expected return  on plan assets          |       | (270                                        | )          | (281                               | )          | (54 | ) | (54 | ) |
| Amortization of  transition obligation   |       | —                                      |       | —                             |       | 36 |   | 36 |   |
| Amortization of  prior service cost      |       | 23                                          |       | 23                                 |       | (15 | ) | (15 | ) |
| Recognized net  actuarial (gain)         |       | 26                                          |       | 9                                  |       | 43 |   | 46 |   |
|                                     |       |                                        |       |                               |       |   |   |   |   |
| Net periodic benefit  cost               |       | $                                           | 184        |                               | $          | 155 |   | $ | 182 |   | $ | 195 |   |

 

**8.**                 COMMITMENTS,CONTINGENCIES AND REGULATORY MATTERS

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPS filed notice with theMPUC under Docket No. 2006-24 that it intended to seek a 4% increasein overall electric rates. Subsequently, on March 13, 2006, the Companyfiled for an increase in distribution revenue of $3.24 million, a 9.9% increasein average electric delivery rates. The Company is currently participating indiscovery on its request and expects to implement new distribution rates notlater than December 1, 2006, per the rate examiner’s schedule.

**Federal Energy Regulatory Commission2005 Open Access Transmission Tariff Formula Rate Filing**

On May 31, 2005, pursuant to Section 205 ofthe Federal Power Act, 16 U.S.C. Section 824d, and Title 18 CFRSections 35.11 and 35.13 of the regulations of the FERC, MPS submitted forfiling its proposed revisions to its FERC Open Access Transmission Tariff inDocket No. ER 05 (the “2005 OATT”) to modify its transmission rateformula. MPS filed its updated rates under the 2005 OATT formula on June 15,2005, pursuant to Docket ER00-1053 with an effective date of June 1,2005, for both wholesale and retail customers, subject to a customer refundthat may occur as a result of the proceeding and potential settlementnegotiations. The retail transmission revenue requirement was increased by$288,670 on June 1, 2005, under the 2005 OATT. This represented anincrease of 8% to the transmission component of retail delivery rates or anoverall impact on total retail delivery rates of 0.7%. The primary reasons forthe increase were the increase to costs due to mandated Sarbanes-Oxleyrequirements, and the purchase of a new Oracle-based accounting system.

As part of the settlement data request process, theCompany identified several adjustments to its FERC Form 1 filing for 2004,which flow through the Company’s transmission rate formula. The approximate netimpact of these corrections, once implemented, will be to reduce the overallincrease to the projected retail transmission revenue and result in a revisedprojected net increase to the retail transmission revenue requirement of$238,422 instead of the previously projected increase of $388,923. Thisadjustment will flow through Schedule 1.1.2 of the MPS OATT to be effective June 1,2006, and will be passed through retail rates on July 1, 2006, when theretail rates are next adjusted. The Company has reported to FERC as scheduledthat the parties are proceeding with the settlement process and will continueto provide progress reports as required. Thefinal Settlement Agreement for the 2005 OATT was filed with the FERC on April 14,2006; the agreement changed the amount of this increase to retail customersfrom $388,923 to $272,263. The Company is currently awaiting final approval tothe 2005 OATT Settlement Agreement from the FERC, which is expected by June 1,2006.

**Request for Issuance of Certificatesof Public Convenience and Necessity in Connection With the Construction of aProposed Transmission Line**

On October 4, 2004, MPS filed a Petition with theMPUC requesting the issuance of Certificate of Public Convenience and Necessity(“CPCN”) pursuant to 35-A M.R.S.A. Section 3132 to construct a 138kV transmission line originating at an existing substation in Limestone, Maineand extending to the Canadian Border near Hamlin, Maine.

The project was proposed in order to ensure thereliability and integrity of the MPS transmission grid under scenarios ofreduced on-system generator availability and peak load growth. MPS submittedthat the available firm transfer capability of the transmission system whenadded to the remaining on-system hydro generation was not sufficient to meetpeak load conditions, should existing on-system wood-fired generation becomeunavailable. The proposed line would have addressed this by significantlyincreasing the load-serving capability of the northern Maine region and wouldhave served to reinforce the vital transmission ties between northern Maine andthe New Brunswick transmission grid. Additional benefits of the proposed lineincluded the potential for increasing the number of competitive retail electricsuppliers and increasing the attractiveness of the region for development ofadditional generation, such as wind farms, by providing increased transmissionexport capacity.

The MPUC Commissioners deliberated the Docket on August 29,2005, and denied the petition, determining that there was no immediatereliability risk in northern Maine. The Commission concluded that the risk oflosing on-system wood-fired generation was

18

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not sufficient to warrant the new transmission line. TheCommission issued the Order on October 21, 2005, that described actions tobe taken by MPS and the Northern Maine Independent System Administrator (“NMISA”)to reduce certain risks identified by MPS. The Company filed forreconsideration of the Order on November 8, 2005 based on the likelihoodthat Linekin Bay Energy Company, LLC may elect to utilize the CPCN filed inthis Docket in order to construct transmission facilities necessary to connecttheir proposed generation project to the MPS electrical system. On March 30,2006, the Company filed a status report with the Commission with regard to theproposed transmission facilities. MPS expects the MPUC to respond to the statusreport in the near future.  Additionally,on November 23, 2005, the Commission granted a MPS request for waiver ofthe specific requirements of the October 21, 2005 Order until the NMISAfinalized their proposed market rule changes that were presented to theCommission on or about March 1, 2006. Through December 31, 2005,approximately $844,000 was spent on this transmission project. MPS expects toseek recovery of these costs in its transmission rates and is currentlypursuing other recovery options. MPS believes it is probable the amountsdeferred can be recovered, either through future rate cases or through sale ofthe assets to a third party.

**Requestfor Issuance of Certificate of Public Necessity in Connection with TransmissionService Reservations**

In September 2004, MPS entered into a CommitmentAgreement with NB Power. Under this Agreement, which was subject to MPSobtaining all necessary regulatory approvals, MPS proposed to reserve 35 MW oftransmission capacity on the NB Power system in conjunction with theconstruction of a new 345 kV transmission line to be constructed from PointLepreau near Saint John, NB to Orrington, Maine. NB Power will own and operatethe portion of the line on its side of the border, while Bangor Hydro-ElectricCompany (“BHE”) will own and operate the portion of the line on the U.S. sideof the border known as the Northeast Reliability Interconnect (“NRI”). BHEfiled for a Certificate of Public Convenience and Necessity for this line on November 5,2004, in MPUC Docket No. 2004-771. MPS filed a petition with theMPUC seeking approval to make the reservation required under the CommitmentAgreement on December 13, 2004, in MPUC Docket No. 2004-775which was subsequently changed to MPUC Docket No. 2004-538 Phase II.On October 7, 2005, MPS proposed several changes to the CommitmentAgreement, to include a reduction in the reservation quantity from 35 MW to 20MW. Hearings on Phase II were conducted on December 6 and 7, 2005. On March 10,2006 the Commission issued an Order in Phase II denying the certificate ofpublic convenience and necessity that would allow MPS to enter into theCommitment Agreement with NB Power Transmission Corporation. Subsequently, MPSnotified NB Power that the Commitment Agreement was terminated on March 13,2006.

**MPUC Approves the Pass-Through of RetailTransmission Rates to MPS Retail Jurisdictional Customers, and the Increase toDSM Mil Rate, MPUC Docket No. 2003-516**

Per agreement with the Maine Public UtilitiesCommission, the new transmission rates for retail customers (above) were putinto retail rates on July 1, 2005, to coincide with MPS’s related Statejurisdictional compliance filing in MPUC Docket No. 2003-516 toincrease the DSM Mil Rate. These rates were approved by the MPUC on June 20,2005. Per this filing, total retail delivery rates increased by 1.1%.

**MPUC Approves StrandedCost Revenue Requirements Effective March 1, 2004**

In an Order dated February 27,2004, MPS received final approval from the MPUC for the stranded cost revenuecomponent of its electric delivery rates, effective March 1, 2004. UnderTitle 35-A of the Maine Revised Statutes Annotated, Section 3208,the MPUC is required to periodically investigate and adjust the stranded costcharges reflected in the rates of a transmission and distribution utility. Inaccordance with this provision, on September 16, 2003, in Docket No. 2003-666,the MPUC issued a notice of investigation in order to determine whether MPS’srates should be changed effective March 1, 2004, to reflect any changes inMPS’s stranded costs. On February 27, 2004, the MPUC issued an orderapproving a stipulation under which MPS is allowed to recover $11.8 million peryear to satisfy its approved stranded cost revenue requirements for the “rateeffective period” beginning March 1, 2004, and ending on December 31,2006. The approved revenue requirement for the rate effective period ended February 29,2004 was $11.54 million. Under the approved stipulation MPS’s stranded costrates approved in Docket No. 2003-85 will remain in effect duringthe rate effective period. The stipulation approved by the MPUC in Docket 2003-666also approved and reaffirmed each of the elements and associated balances ofMPS’s recoverable stranded costs.

As explained more fullybelow, during the course of Docket 2003-666 the parties reviewed themanner in which MPS was recovering and accounting for its carrying chargesassociated with the deferred fuel element of its stranded cost. As a result ofthe stipulation approved in Docket No. 2003-666, MPS will recorddeferred income tax expense associated with deferred fuel carrying chargesduring the rate effective period from March 1, 2004, through December 31,2006, as compared to past treatment where such expense was deferred for futurerecovery. Because the deferred fuel carrying charge component of MPS’s strandedcosts is not expected to fully amortize until 2012, the Company anticipatesthat deferred income tax expense will be incurred through 2012, subject tofuture stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240,the parties stipulated that MPS would accrue carrying costs on its unrecoveredfuel balance (the “deferred fuel account”) during the respective rate effectiveperiod at its net-of-tax cost of capital rate. Consistent with the stipulationin Docket No. 2001-240, MPS accrued a carrying charge using the netof tax rate of 7.98% through October 31, 2003, applied against itsunrecovered deferred fuel balance. From November 1, 2003, to December 31,2003, MPS accrued its carrying charge using a net of tax rate of 7.06%, basedon the cost of capital approved in Docket No. 2003-85 (described inDocket 2003-85 Partial Stipulation filed on September 2, 2003).

19

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During the course of theDocket 2003-666 proceeding, MPS determined that it had not previouslyrecognized accumulated deferred income taxes with respect to the carryingcharges on the deferred fuel account and that the recording of a deferred taxliability to its balance sheet pursuant to FAS 109 in the amount of $2.896million was required; of this, $2.739 million was recorded as of December 31,2003. The deferred fuel balance as of March 1, 2004, prior to anyadjustment was projected to be $18.8 million. Under the stipulation MPS wasallowed to adjust its accumulated deferred income tax account and the deferredfuel balance by $2.896 million, as of March 1, 2004, resulting in a totalprojected deferred balance as of March 1, 2004 of $21.734 million. Underthe approved stipulation the parties also agreed that the return component onthe deferred fuel balance should be reduced in such a manner that ratepayerswere held harmless on a net present value basis as a result of the March 1,2004 adjustment to the deferred fuel balance. During the rate effective periodending on December 31, 2006, the overall pre-tax return component on thedeferred fuel balance will be 8.28%, reflecting a 6.17% return on equity. Thereturn on the deferred fuel balance will be reviewed in future stranded costrate setting proceedings and will be adjusted as necessary in order that thepresent value of the revenue requirements of the deferred fuel account withoutthe adjustments described above equals the present value of the revenuerequirements of the deferred fuel account with the adjustments. MPS concludesthat as a result of this stipulation and the foregoing described adjustment tothe deferred fuel balance and the accumulated deferred income tax liabilitythat no further adjustment is necessary under FAS 109 in order to reflect priorunrecorded deferred income taxes.

The decreased cost ofcapital rate beginning on March 1, 2004, will have an impact on futurestranded cost earnings and cash flow, but will not impact future distributionor transmission earnings. In the year 2004, the Company recorded deferredincome tax expense of approximately $412,000 associated with the deferred fuelcarrying charges. The amount of deferred income tax expense recorded in futureyears will vary depending upon the amount of the accrued carrying charge in anyyear, and the tax rates then in effect. Earnings from carrying charges on theCompany’s stranded costs in 2004 were approximately $267,000 lower than theamount that would have been recorded had the Company continued to use theoriginal cost of capital on its deferred fuel balance, for a total earningsimpact of $679,000 in 2004. The impact on future earnings resulting from theagreed upon lower cost of capital, when compared against the cost of capitalused in prior stranded cost filings, will vary. Schedules filed by the Companyas part of the stipulation in Docket No. 2003-666 reflect the deferredfuel balance as of March 1, 2003, certain additions relating to theWheelabrator-Sherman above-market contract through December 2006 and theamortization of the deferred fuel balance though 2012. Applying theseassumptions, current tax rates and the agreed upon cost of capital, the Companyanticipates that the impact on future earnings resulting from recordingdeferred income taxes on accrued carrying charges and applying a lower cost ofcapital to the deferred fuel balance could range from $1.0 million in 2005,increasing to $1.2 million in 2007, then gradually decreasing to $17,000 in2012. These amounts may vary with changes in the deferred fuel balance andother variables which the Company cannot predict with certainty at this time.Management continues to analyze means to help mitigate the impact of thisstipulation on future net incomes and cash flows.

In addition to the returnallowed on its deferred fuel account as set forth above, under the approvedstipulation MPS shall be allowed to recover the following pre-tax returns onthe applicable stranded cost rate base components during the rate effectiveperiod: (i) the pre-tax return on unrecovered balance of theWheelabrator-Sherman Contract Buy Down shall be 2.79% plus its FAME issuancecosts; (ii) the pre-tax return on the unrecovered Seabrook Investment andapproved special rate contract costs shall be 11.74%; and, (iii) thepre-tax return on the Maine Yankee decommissioning related costs shall be8.56%.

**Wheelabrator-Sherman**

MPS was ordered into a PowerPurchase Agreement (“PPA”) with Wheelabrator-Sherman (“WS”) in 1986, whichrequired the purchase of the entire output (up to 126,582 MWH per year) of a17.6 MW biomass plant through December 31, 2006. The PPA was subsequentlyamended in 1997, with WS agreeing to price reductions of $10.0 million throughthe end of the original term in exchange for an up-front payment of $8.7million in May 1998. The MPUC’s December 1997 approval of the amendedPPA included a determination that the up-front payment would be treated asstranded cost and, therefore, recovered in rates of the transmission anddistribution company. Total stranded cost included as a regulatory asset underthe caption “deferred fuel and purchased energy cost” in the accompanyingbalance sheet related to this contract was $31.2 million at March 31,2006, and $29.9 million at December 31, 2005, respectively.

MPS and WS also agreed torenew the PPA for an additional six years at agreed-upon prices and an increaseof output to 136,982 MW beginning in 2001. Energy supply purchases under thiscontract through February 29, 2000, were $2.6 million. Purchases from WSafter March 1, 2000, are reflected as stranded costs.

MPS estimates its remainingcommitment to purchase power under this contract to be $8.9 million from April 1,2006, through December 31, 2006. Since March 1, 2004, WPS-PDI haspurchased 100% of WS’s output.

**Poly ChlorinatedBi-Phenol Transformers**

Inresponse to a Maine environmental regulation to phase out Poly ChlorinatedBi-phenol (“PCB”) transformers, MPS has implemented a program to eliminatetransformers on its system that do not meet the new State environmentalguidelines. The program is in the process of testing almost 13,000 distributiontransformers over a ten-year period. MPS is currently in its fifth year of thisten-

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year program. In addition,transformers that pass the inspection criteria are being refurbished andrefitted with lightning arrestors and animal guards. The current estimated costof the project is $2.6 million and, as of March 31, 2006, $1.59 millionhas been spent on this effort. The $1.04 million remaining cost of the projecthas been accrued on the Balance Sheet as “Accrued Removal Obligations.”

**Off-Balance SheetArrangements**

The Maricor Ashford Ltdjoint venture is a variable interest entity, as defined by Financial AccountingStandards Board Interpretation No. 46, “Consolidation of Variable InterestEntities,” (“FIN 46”) promulgated on January 17, 2003. However, Managementhas determined that Maricor Ashford should not be consolidated with thesefinancial statements, as Maricor Properties is not the primary beneficiary ofthe joint venture.

The Company has severaloperating leases for office and field equipment, vehicles and office space,accounted for in accordance with Statement of Financial Accounting Standards No. 13,“Accounting for Leases,” (“SFAS 13”). The following summarizes payments forleases for a period in excess of one year for the quarters ended March 31,2006, and 2005:

 

| (In thousands of dollars) | ** ** | **2006** | ** ** | **2005** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Office Equipment                         |       | $        | 4          |     | $          | 12 |   |
| Building                                 |       | 50       |       | 188      |       |
| Vehicles                                 |       | 2        |       | 8        |       |
| Rights of Way                            |       | —   |       | 31       |       |
| Total                                    |       | $        | 56         |     | $          | 239 |   |

 

Thefuture minimum lease payments for the items listed above for the next fiveyears are as follows:

**Future Minimum Lease Payments By Year For All Items**

| Years | ** ** | **Minimum Lease Payments** | ** ** |
|-------|------------|--------------------------------------|------------|
| 2006  |       | $                                    | 249        |   |
| 2007  |       | $                                    | 214        |   |
| 2008  |       | $                                    | 203        |   |
| 2009  |       | $                                    | 185        |   |
| 2010  |       | $                                    | 71         |   |

 

**Maricor Properties’ Leases**

MaricorProperties leases office space to TMGC in Moncton, New Brunswick and Halifax,Nova Scotia. All other net operating leases are to outside third parties. Theminimum lease revenue expected from the third-party lease arrangements does notinclude utilities and maintenance expenses that will be paid by the thirdparties.

**5-Year Minimum Lease Payments for ExternalParties Leases**

| Years | ** ** | **Minimum Lease Revenue** | ** ** |
|-------|------------|-------------------------------------|------------|
| 2006  |       | $                                   | 632        |   |
| 2007  |       | $                                   | 650        |   |
| 2008  |       | $                                   | 660        |   |
| 2009  |       | $                                   | 644        |   |
| 2010  |       | $                                   | 582        |   |

 

**Financial InformationSystem Hosting Agreement**

InDecember 2003, the Company entered into a ten-year agreement wherebyDelinea Corporation provides hosting services and technical and functionalsupport for the integrated Oracle Financial Information System. Hosting feesare $575,000 per year for years 2006-2013.

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**9.**                 2005 ACQUISITIONOF LIFECYCLE ASSET MANAGEMENT SOFTWARE

OnFebruary 22, 2005, the Company announced the formation of MaricorTechnologies, Inc. (“MTI”), a wholly-owned, technology-based subsidiaryheadquartered in Presque Isle, Maine, with offices in Portland, Maine. Concurrently,MTI acquired lifecycle asset management and capital budgeting planning softwareassets that complement MAM’s U.S. and Canadian engineering and facilitieslifecycle asset management services companies. The software was acquiredthrough a three-way transaction involving Delinea Corporation of Dallas, Texasand HCI Systems Asset Management, LLC, (“HCI”) of Portland, Maine.

Theaggregate purchase price was $1.3 million, consisting of $50,000 cash, $950,000of convertible preferred stock and a $200,000 “put option,” discussed below, aswell as $100,000 in external costs for the purchase of the software. Inaccordance with SFAS No. 150, which requires certain financing instrumentsbe recorded as debt, the Company has determined that the preferred shares areappropriately recorded as equity. Certain software license rights costing$262,000 transferred from MAM to MTI were not included in the aggregatepurchase price. These rights are associated with the software purchased fromHCI. Pursuant to EITF 04-1, “Accounting for Pre-existing Relationshipsbetween the Parties to a Business Combination,” these transferred rights havebeen included in MTI’s amortizable software asset. The assets acquired did notinclude purchased research and development costs. MTI is to receiveapproximately $12,000 to accept responsibility for HCI’s existing servicecontracts. This arrangement is not considered in the determination of purchaseprice of the software and is recorded as a liability, Unearned MaintenanceRevenue. Upon analysis of comparable software owned by competitors, it wasdetermined the purchase price approximated the fair value of the software beingacquired; therefore, no goodwill or other intangible assets were recorded in thistransaction. Operating results beginning from the transaction closing date areincluded in the financial statements of this Form 10-Q.

Asdescribed above, MTI recorded a $200,000 “put option” associated with thisacquisition because HCI was granted future rights to acquire MTI common stockor additional cash payments, with MAM holding certain Call Rights. As a resultof these rights, one of three alternative events will occur during thefour-year period following closing:

1.                     HCI can choose to acquire, at no cost, MTIshares equal to 10 percent of the shares issued and outstanding at the time ofexercise (a 20 day “Option Period” following the 4th anniversary of theclose) by executing the HCI Stock Option.

2.                     HCI can receive $200,000 cash by exercising aPut Option during the “Option Period” described in 1 above, as long as theyhave not exercised the Stock Option.

3.                     MAM can cancel HCI’s rights described in 1and 2 above by paying HCI $300,000 in cash and $300,000 in MAM Stock, a totalof $600,000, under the terms of their Call Option.

Alternative2 is the minimum known and measurable event, therefore, $200,000 was recordedas a “put option” and included in the purchase price.

Thefollowing table summarizes the estimated fair values of the assets acquired andthe liabilities assumed at the date of acquisition. Should the Company incurfurther costs associated with the purchase of the software, the aggregatepurchase price will be adjusted and disclosed accordingly.

**At February 15, 2005**

| (In thousands of dollars)                 | ** ** | ** ** | ** ** |
|----------------------------------------------------------|------------|------------|------------|
| Current assets —  Accounts receivable               |       | $          | 12         |   |
| Computer  Software                                       |       | 1,294      |       |
| Computer  Hardware                                       |       | 7          |       |
|                                                     |       |       |       |
| Total assets acquired                                    |       | $          | 1,313      |   |
|                                                     |       |       |       |
| Current  liabilities — Unearned Maintenance Revenue |       | 12         |       |
| Long-term debt                                           |       | —     |       |
|                                                     |       |       |       |
| Total liabilities acquired                               |       | 12         |       |
|                                                     |       |       |       |
| Net assets  acquired                                     |       | $          | 1,301      |   |

 

**10.**          SUBSEQUENT EVENTS

**New FinancingArrangements**

OnMay 5, 2006, MAM borrowed $400,000 from Katahdin Trust Company through a 5-monthunsecured note. The loan is at a variable rate of the 3-month LondonInterbank Offered Rate (“LIBOR”) plus 3.50%. The interest rate as of the dateof borrowing was 8.63%. Monthly payments of interest only are due throughoutthe term of the loan, with a full repayment of principal due at the end of theterm.

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**Maine Yankee Settlement**

Aspreviously reported, Maine Yankee retained the right to recover damages fromtermination of its decommissioning contract with Stone & Webster. UnderDocket No. ER98-580-004, the FERC accepted Maine Yankee’sproposed Incentive Budget Reconciliation Statement in conjunction with theStone & Webster bankruptcy proceeding. Maine Yankee received $1.35million in this settlement. The proceeds were distributed among the owners ofMaine Yankee. MPS’s share of this distribution was $67,500, and was received inApril 2006.

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**PART 1.FINANCIAL INFORMATION**

***Item 2.Management’s Discussion and Analysis of Financial Condition and Results ofOperations***

**Forward-LookingStatements**

The discussion below may contain “forward-lookingstatements” as defined in the Private Securities Litigation Reform Act of 1995,related to the expected future performance of our plans and objectives, such asexpected future earnings from The Maricor Group. There can be no assurance thatactual results will not materially differ from expectations. Factors that couldcause actual results to differ materially from our projections include, amongother matters, electric utility restructuring; future economic conditions;changes in tax rates; interest rates or rates of inflation; developments in ourlegislative, regulatory, and competitive environment; technology displacement;consumer decisions; and the decommissioning cost of Maine Yankee.

***Executive Overview***

MAM’s operating results were significantly impacted bya number of factors, particularly the unseasonably warm weather during thefirst quarter. MPS’s contribution to MAM’s earnings was approximately $264,000less than the same quarter in 2005 as a result of decreased energy usageresulting from unseasonably warm weather. Its earnings continue to be impactedby increased distribution operating costs that are currently not fullyrecovered as a part of its MPUC approved distribution rates, as well as theimpact of a lower rate of return on its stranded costs deferred fuel balanceresulting from its March 1, 2004, stipulation in its Stranded Cost RateCase with the MPUC. To address MPS’s lagging distribution return on rate base,the Company filed a request with the MPUC on March, 13, 2006, for a 9.9% or$3.24 million increase in average electric delivery rates. MPS expects toimplement new distribution rates not later than December 1, 2006. However,at this time Management cannot predict with certainty whether a rate increasewill be approved.

The Maricor Group and its subsidiaries, The MaricorGroup, Canada Ltd and The Maricor Group New England, experienced a modestdecrease in revenues as compared to the same period in 2005. Additionally, itsearnings were slightly less than the same period in 2005 due to several keyfactors. These include (a) a lack of operating capital to fund adequateorganic growth, including the hiring of additional engineers and businessdevelopers in all operating markets, (b) costs associated with longersales cycle, but higher value and margin projects, products, and services, (c) delaysin executing its mergers and acquisitions “roll-up” strategy and (d) NorthAmerica’s growing shortage of qualified professional engineering staff andengineering technicians.

Maricor Properties Ltd and its subsidiariesexperienced a significant increase in quarterly revenues, an increase ofapproximately $276,000, as opposed to the same quarter in 2005, primarily as aresult of improved real estate leasing efforts and the acquisition ofCornwallis Court Developments Ltd in October 2005. While Maricor Propertieshas successfully leased all of its commercial space, a number of leases andoccupancies did not occur until late in the first quarter or early secondquarter of 2006. Further, since a 60,000 square foot facility owned byCornwallis Court Developments Ltd was leased when the Company was acquired, weare required to amortize the value of the leases, as intangible assets, overthe term of the leases as opposed to a longer amortization schedule for thebuilding asset itself. Consequently, this accelerated depreciation of theleases impacted Maricor Properties’ earnings by approximately $79,000. Further,Maricor Properties experienced an approximate $55,000 loss in its jointventure, Maricor Ashford Ltd, primarly due to costs associated with identifyingand/or planning acquisitions and new property developments.

Maricor Technologies, Inc. spent significantefforts during the first quarter developing new and expanded software productofferings. As an early stage start-up software firm, its earnings were impactedby its amortization of software acquired and other research and development andoperating costs that cannot be capitalized under SFAS 86. MTI lost $92,000 inthe first quarter of 2006, compared to a loss of $13,000 in the first quarterof 2005. Amortization of software acquired increased $89,000 year-over-year.

MAM and its subsidiaries will continue to face cashflow challenges during 2006, largely due to MPS’s deferral of its stranded costrecovery until the 2007 through 2012 timeframe. Management is taking steps tobridge necessary cash flows until 2007 when MAM’s cash flow situation shouldimprove. Collectively, MAM’s unregulated diversification and growth strategyremains in its infancy stages. Improved economic performance of existingunregulated subsidiary operations is important and steps are being taken toimprove such performance. However, Management continues to believe thatadequate capitalization, increased pace of acquisitions, and enhanced businessdevelopment are critical to the financial performance of MAM’s unregulatedorganizations, both in the near and long-terms. Key to their overall growthwill be their ability to raise growth capital, which may take a number ofdifferent forms, and the speed in which they can identify, acquire and integratetargeted acquisitions.

Management does recognize a number of short-termfinancial and operating challenges; however, we believe our long-term outlookis encouraging.  Management remainsconvinced that its unregulated value propositions are closely aligned withincreasing market demands and trends. To improve long-term shareholder valueand earnings, Management believes that the Company must increase its pace oforganic and inorganic unregulated growth, while forming capital in an equallytimely manner supportive of such growth. As previously noted, Management doesnot believe a status quo or “stay as you are” strategic option exists to createlong-term shareholder value for MAM. Further, given the impact of electricderegulation, generation divestiture, and disaggregation of the 

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electric utility industry within Maine, combined withthe lagging economy of MPS’s service area, Management does not believereverting to its core regulated wires business can generate adequate long-termshareholder value. However, Management also believes that the performance ofits regulated operations must be continually enhanced.

Through more timely execution of MAM’s inorganicunregulated growth strategy, including formation of growth capital, as well asimproved organic growth, and MPS’s proposed distribution rate increase,Management is focused on increasing earnings across all business lines. Shouldthe Company not achieve a level of unregulated growth consistent with the needto create long-term shareholder value within a reasonable timeframe, Managementand the Board of Directors will need to assess strategic alternatives to thecurrent growth strategy. Resulting actions could involve the sale or partialsale of certain or all unregulated assets or other alternatives, recognizingthe need to act prudently in protecting and enhancing long-term shareholdervalue. Further, if the Company does not receive an adequate distribution rateincrease to cover its utility costs and allow for a fair distribution return onrate base, Management will need to assess strategic options to preserve andgrow shareholder value. However, Management does believe that the timely andefficient implementation of the Company’s growth strategy, cost control withinits utility operations, and implementation of prudent rate increase requestswhen warranted can result in achieving desired long-term shareholder value.

Given MAM’s need to reinvest in its future and expandits scale to improve its overall financial performance, particularly itsunregulated operations, Management cannot warrant that it will continue to paydividends at historic levels or on a continuing basis until its cash flows andearning performance improve. Further, Management believes that it must addressthe under-capitalization issues facing the Company before considering adividend for its common shareholders. However, it is the goal of Management toexpeditiously enhance the performance of the Company and to seek to continue asa yield and growth-at-a-reasonable price stock. Management believes itsstrategy is sound and that meaningful progress is being made in the firm’soverall structural and economic transition.

Management recognizes that MAM faces a number of majorchallenges, including (a) capital formation, (b) its pace of acquisitions,and (c) evolving trends within the regulated electric utility sector. GivenMAM’s need for growth capital, Management will be required to evaluate andpotentially implement an array of capital formation strategies that could proveto be dilutive, at least in the short-term. Given the limited number ofpotential acquisition candidates, Management cannot assure with certainty thateach acquisition will prove to be accretive. Further, given current merger andacquisition trends within the electric utility industry to attain scale andcreate increased shareholder value, Management anticipates that its regulatedutility operations will be impacted over the coming years by scale-relatedpressures.

***Overview of Company Strategy***

MAM’s overall strategy was developed in response to anumber of converging macro-economic trends that Management believes are drivingmarket opportunities, both near- and long-term. The continuing turbulencewithin the energy industry, exacerbated by geo-political conflicts and growingthird-world demand for energy, is having significant price, supply, andsecurity impacts on businesses and organizations within North America. While anincreasing emphasis is being placed on supply-side issues by North Americangovernments, we see expanding governmental mandates and a renewedcustomer-driven need to improve energy efficiency and control energy-relatedcosts. As energy-related issues remain at the forefront of public policyissues, and an increasing cost and reliability concern for businesses andorganizations, MAM believes there will be an increasing demand for energyefficiency-related services and solutions, including an expanded market-placeinterest in “on-site” and alternative energy electric generation.

While energy costs and reliability remain a concern,businesses and organizations are facing a significant financial challenge asthey realize the economic threats created by escalating deferred maintenanceliabilities. As businesses and organizations under-funded their capital renewaland asset maintenance programs year after year, many are now faced withstaggering deferred maintenance liabilities. In many cases the deferredmaintenance on facility and energy-related assets threatens the continuedviability of such assets. Increasingly, MAM believes businesses andorganizations are requiring more intensive capital expenditure planning,working to ensure that every capital dollar spent is the most optimalinvestment they can make. Further, to address burgeoning deferred maintenanceliabilities, organizations are looking to advanced business processes that canhelp extend the functional and economic lifecycle of physical assets. MAMbelieves that by enhancing the energy efficiency and controlling organizationsenergy-related expenditures that an entity can “free-up” capital to addresstheir deferred maintenance liabilities. By designing and building newenergy-related and energy efficient facilities-related infrastructure,operating costs can be reduced while built environment assets are renewed.

While energy and deferred maintenance liabilities areof growing concern within the marketplace, Management believes there is anincreasing North American awareness of climate change and the need to addressemissions reductions. We believe that energy efficiency, alternative “on-site”generation, and sustainable asset management techniques are key to reducingemissions from the built environment. We continue to see growing businessinterests and government mandates to address climate change, particularlywithin the northeast United States and Canada. As more and more businesses andgovernments adopt a sustainable approach to their actions, we believeopportunities will evolve related to the market demand for sustainable assetmanagement and energy-related solutions.

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As evidenced by the passage of the Sarbanes-Oxley Actand other regulatory actions, there are increasing interests in and growingmandates to improve the transparency of asset governance reporting. Businessesand organizations are being pressed to provide increasing details concerningthe performance of owned assets, both from an economic and environmentalperspective. Consequently, we also see an emergence of market interests inimproved asset governance reporting, a critical part of MTI’ssustainability-centric solutions that also address organization’s energy,emissions reductions, and deferred maintenance needs.

We believe the convergence of these issues will createa substantial marketplace demand, with current solutions and services beingminimal. Addressing these issues and advancing businesses’ and organizations’achievement of a stakeholder-centric “triple bottom line” requires theintegration of physical, intellectual, and technology-based assets that whencombined result in dynamic solutions to growing challenges regarding the aginginfrastructure, climate change, energy pricing and security, and our ability tosupport the changing needs of society. Through the amalgamation of diverse, butrelevant skills and technologies in the building sciences, engineering,information technology, and energy consulting fields, MAM is positioning itselfto be a leading professional services, product and asset-based solutionscompany.

MAM’s unregulated operations are increasingly focusedon sustainable solutions, progressively building professional servicescompetencies to provide products, services, and solutions, such as (a) sustainableuniversity and college campus planning with a strong focus on on-campus energyinfrastructure, (b) energy efficiency evaluations and solutions focused onthe governments, hospitals, universities, schools, institutional and officecommercial markets, (c) sustainable asset management ranging from facilityinfrastructure condition assessments to capital planning to facility renewal, (d) on-siteenergy asset development including co-generation, alternative fuel anddistributed generation solutions, (e) energy supply management, (f) sustainablereal estate development and renewal, including public and private partnerships suchas the construction and ownership of university dormitories, (g) sustainableand transparent asset governance and reporting, and (h) LEEDTM engineeringdesign services.

MAM’s execution strategy involves a combination oforganic and inorganic strategies. However, key to amassing the requisite talentand core competencies is an aggressive acquisitions program. Simply hiring oneindividual talent at a time will not enable the necessary ramping-up of thebusiness to achieve the required scale and desired level of profitability. Recognizingthat there are limited acquisition opportunities across North America, MAM’sefficiency in identifying potential targets, undertaking due diligence, formingcapital and closing transactions in a timely manner is critical. Given thatfew, if any, potential acquisition candidates exist today that provide the fullarray of proposed integrated sustainable services, products, and assets, MAMrecognizes its need to acquire companies that bring discrete portions of thevalue proposition and amalgamate integrated services offerings across acquiredcompanies through the organic development of a high level business developmentand transaction structuring organization. Such a high level, organically grownbusiness development staff will require experienced individuals with a highdegree of relative domain knowledge, as well as experience in structuringfinancial transactions, often referred to as financial engineers. Through thesesenior staff members, solutions to clients’ needs can be crafted using multiplediscreet offerings or capabilities, integrated into a seamless solution. Eachindividual offering will continue to be sold on a “one-off” basis, such asselling engineering design services. However, the more complex and higher valueintegrated offerings will be sold and managed by a higher level businessdevelopment organization currently being organized and staffed.

While Management believes MAM’s strategy iswell-aligned with existing and projected macro-economic trends, it believes itssuccess will depend on the Company’s ability to expeditiously (a) recruit,train and execute a high level business development organization, (b) hirehighly qualified professional engineers, technicians, architects, environmentalscientists and other professional services supporting the built environment, (c) identify, acquire and integrate multiple companies providing required corecompetencies and (d)  form adequate working and growth capital to supportthe Company’s organic and inorganic growth strategies. Management furtherbelieves, given its holding company structure, that the Company’s unregulatedoperations must achieve increased scale, allowing for necessary critical massto support corporate-related costs and ensure meaningful contribution toearnings per share.

MAM’s strategy includes the continuing operation ofits regulated utility, Maine Public Service Company. However, given theprojected decline in its regulatory rate base, as stranded cost recoveryoccurs, Management believes earnings will decline and then become more static. MPSwill continue to be challenged by cost pressures and, while a long-termmeaningful contributor to earnings per share, Management does not believe itcan create growing long-term shareholder value unless unregulated operationsare grown in a more expeditious manner. Management recognizes that in thepost-Public Utilities Holding Company Act repeal era, approved as part of theU.S. 2005 Energy Policy Act, there is an increasing probability of utilitymergers. We believe these mergers will result in extremely large regulatedutilities serving multiple jurisdictions and with a scale allowing forpotentially decreasing per unit cost services in the transmission anddistribution areas. Over time, Management expects that scale will play animportant role in the success formula for all regulated utilities. Consequently,we recognize that strategies must be developed and implemented to address thispotential trend that could impact the earnings and future of MPS.

**Accounting Policies**

The Company’s critical accounting policies have notchanged since December 31, 2005. The critical accounting policiesdisclosed in the Company’s 2005 Annual Report on Form 10-K areincorporated herein by reference.

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***Overall Results of Operations—Consolidated***

*NetIncome and Earnings Per Share*

|                                                                                   | ** ** | **Quarters Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                        | ** ** | **March 31,**      | ** ** |
| **(dollars in thousands except per share amounts)** | ** ** | **2006**                | ** ** | **2005** | ** ** |
| Income from Continuing  Operations                                                |       |                    |       |   |   |
| Regulated Electric Utility                                                        |       | $                       | 1,203      |   | $ | 1,698 |   |
| Unregulated Engineering Services                                                  |       | (169                    | )          | (152 | ) |
| Unregulated Real Estate Holdings                                                  |       | (86                     | )          | (30 | ) |
| Unregulated Software Technology                                                   |       | (104                    | )          | (13 | ) |
| Other*                                                                            |       | (311                    | )          | (234 | ) |
| Income from  Discontinued Operations                                              |       | —                  |       | 8 |   |
|                                                                              |       |                    |       |   |   |
| Net Income                                                                        |       | $                       | 533        |   | $ | 1,277 |   |

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*                    *The “Other” line includes corporate costs directly associated with theunregulated subsidiaries, common costs not allocated to the regulated utilityand inter-company eliminations.*

The 2005 Presentation has been changed to beconsistent with 2006. Net income above is allocated based upon the segmentallocation as presented in Note 4 of the financial statements.

Total revenue was flat in the first quarter of 2006compared to the same period of 2005. The regulated electric utility earned$264,000 or 3% less revenue than in 2005, primarily due to lower sales volumeto residential and small commercial customers as a result of the mild weatherduring the first quarter of 2006. The unregulated operating segments increasedtheir total revenue by approximately $241,000 or 17% from the first quarter of2005 to the first quarter of 2006. The largest increase in unregulated revenuewas a $276,000 increase in unregulated real estate rental income. This revenuewas from the execution of the real estate investment strategy, through theacquisition of Cornwallis Court Developments and its J. Angus MacDonaldBuilding in Halifax, Nova Scotia, Canada, in October 2005 and the leasingof the remaining available space in the Vaughan Harvey property in Moncton, NewBrunswick, Canada. This increase was partly offset by a $54,000 or 4% decreasein unregulated engineering revenue from the first quarter of 2005 to the firstquarter of 2006.

The net income decreased approximately $744,000 from2005 to 2006, with $495,000 of the decrease in the regulated electric utilitysegment. This decrease in net income is attributable to both a decrease in theoperating revenue in the first quarter, and an increase in expenses, primarilydue to the mix of capital versus operation and maintenance work in each year. Unregulatedoperations incurred a net loss of $670,000 for the first quarter of 2006,compared to a net loss of $429,000 for the same period of 2005, an additionalloss of $241,000.  Additionalamortizations contributed to this loss, including amortization of thepre-existing leases purchased with the Cornwallis Court Developmentsacquisition of $79,000 and amortization of the MTI capitalized software costsof $89,000.

The results of each operating segment are explainedmore fully in the following sections.

***Interest Expense***

Consolidated gross interest expense increased from$647,000 in the first quarter of 2005 to $881,000 in the first quarter of 2006.The increase is attributable to both an increase in the Company’s total debtoutstanding and an increase in interest rates.

***Income Tax Expense / Benefit***

The income tax provision for regulated operationsdecreased from $1.08 million in the first quarter of 2005 to $750,000 in thefirst quarter of 2006, while the income tax benefit from unregulated operationsincreased from $252,000 to $460,000 in the same period, due to the decrease innet income.

***Taxes Other Than Income***

Taxes other than income increased $59,000, from$474,000 in the first quarter of 2005 to $533,000 in the first quarter of 2006.Of this increase, $47,000 was in the regulated utility segment, partly due toan increase in the estimated expense for property taxes.

***Regulated Operations***

The following discussion includes the operations ofMPS and Me&NB, the Company’s regulated subsidiary and inactive 

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unregulated Canadiansubsidiary:

|                                                              | ** ** | **Quarter Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **March 31,**     | ** ** |
| ** **                                                   | ** ** | **2006**               | ** ** | **2005** | ** ** |
| Net Income —  Regulated Electric Utility (In thousands) |       | $                      | 1,203      |   | $ | 1,698 |   |
| Earnings Per Share from  Regulated Electric Utilities        |       | $                      | 0.73       |   | $ | 1.04 |   |

 

MPS’s core T&D earnings were $1.20 million for thefirst quarter of 2006, compared to $1.70 million for the first quarter of 2005. The changes in operating revenue andexpense are explained below.

***Regulated Operating Revenue***

Consolidated revenues and Megawatt Hours (“MWH”) forthe quarters ended March 31, 2006, and 2005, are as follows:

|                                    | ** ** | **2006**    | ** ** | **2005** | ** ** |
|------------------------------------|------------|-------------|------------|----------|------------|
| ** **                         | ** ** | **Dollars** | ** ** | **MWH**  | ** ** | **Dollars** | ** ** | **MWH** | ** ** |
| Residential                        |       | $           | 3,935      |     | 50,306     |   | $ | 4,005 |   | 51,316 |   |
| Large Commercial                   |       | 1,605       |       | 43,974   |       | 1,626 |   | 43,505 |   |
| Medium  Commercial                 |       | 1,815       |       | 26,528   |       | 1,801 |   | 26,840 |   |
| Small Commercial                   |       | 2,285       |       | 25,495   |       | 2,361 |   | 26,770 |   |
| Other Retail                       |       | 208         |       | 853      |       | 207 |   | 844 |   |
|                               |       |        |       |     |       |   |   |   |   |
| Total Regulated  Retail            |       | 9,848       |       | 147,156  |       | 10,000 |   | 149,275 |   |
|                               |       |        |       |     |       |   |   |   |   |
| Other Regulated  Operating Revenue |       | 203         |       |     |       | 315 |   |   |   |
|                               |       |        |       |     |       |   |   |   |   |
| Total Regulated Revenue            |       | $           | 10,051     |     |       |   | $ | 10,315 |   |   |   |

 

Total revenue decreased $264,000 or 3%  from thefirst quarter of 2005 to the same period of 2006. Residential and smallcommercial sales volume decreased by 2,285 MWH or 2.9%, as a result of mildweather in January and February 2006.

Revenue from medium and large commercial customers didnot change materially. Revenue dollars for these customer classes increased by$7,000, while sales volume decreased 157 MWH.

Other regulated operating revenue decreasedapproximately $111,000. Unbilled revenue decreased $82,000 from 2005 to 2006,while miscellaneous service revenue has decreased approximately $31,000.

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

***Regulated Utility Expenses***

For the quarters ended March 31, 2006, and 2005,regulated operation and maintenance expenses and stranded costs are as follows:

| (In thousands of dollars)                    | ** ** | **2006** | ** ** | **2005** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Regulated Operation and  Maintenance                        |       |     |       |     |       |
| Transmission and Distribution                               |       | $        | 1,040      |     | $          | 571 |   |
| Customer Service                                            |       | 308      |       | 267      |       |
| Administrative and General                                  |       | 2,397    |       | 2,515    |       |
| Total Regulated Operation and Maintenance                   |       | $        | 3,745      |     | $          | 3,353 |   |
|                                                        |       |     |       |     |       |
| Stranded Costs                                              |       |     |       |     |       |
| Wheelabrator-Sherman                                        |       | $        | 2,118      |     | $          | 1,808 |   |
| Maine Yankee                                                |       | 774      |       | 706      |       |
| Seabrook                                                    |       | 384      |       | 384      |       |
| Amortization of Wheelabrator-Sherman Restructuring  Payment |       | 363      |       | 363      |       |
| Deferred Fuel                                               |       | (899     | )          | (545     | )          |
| Special Discounts                                           |       | 70       |       | 70       |       |
| Total Stranded  Costs                                       |       | $        | 2,810      |     | $          | 2,786 |   |

 

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Transmission and distribution expenses are up$469,000, from $571,000 in the first quarter of 2005 to $1.04 million in thefirst quarter of 2006. As described more fully in Note 8 of the financialstatements, MPS is required to replace all transformers contaminated withPoly-Chlorinated Bi-Phenol. Most of the cost of testing the transformers in thefield is expensed as incurred. The 2006 phase of this project was nearlycompleted during the first quarter, incurring $197,000 of additional expenseover 2005. The Company also spent an additional $109,000 on transmission anddistribution overhead line maintenance during the first three months of 2006,compared to the same period of 2005.

Customer service expenses also increased from 2005 to2006, by approximately $41,000, from increases in labor expense for meterreading and customer records.

Administrative and general expenses have decreasedapproximately $118,000. Corporate costs allocated to MPS decreasedapproximately $231,000, primarily due to a decrease in Sarbanes-Oxleycompliance costs. This decrease was partly offset by an increase in the workerscompensation insurance costs of approximately $103,000. This premium has beenrenegotiated during 2006.

***Unregulated Engineering Services***

The following section details the operations of theunregulated engineering services operating segment, including The Maricor Groupand its subsidiaries, The Maricor Group, New England (formerly RES Engineering, Inc.),and The Maricor Group, Canada Ltd (formerly Maricor Ltd).

Net income and earnings per share from thesesubsidiaries for the quarters ended March 31, 2006, and 2005 are asfollows:

|                                                   | ** ** | **Quarter Ended March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands of dollars)**      | ** ** | **2006**                                   | ** ** | **2005** | ** ** |
| Net Loss —  Unregulated Engineering Services |       | $                                          | (169       | ) | $ | (152 | ) |
|                                                   |            |                                            |            |  |  |  |  |

 

***Unregulated EngineeringServices—Operating Revenue***

Unregulated engineering services revenues for thequarters ended March 31, 2006, and 2005:

| (In thousands of dollars)         | ** ** | **2006** | ** ** | **2005** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| The Maricor  Group New England                   |       | $        | 471        |     | $          | 588 |   |
| The Maricor  Group, Canada Ltd                   |       | 878      |       | 815      |       |
| Total Unregulated  Engineering Operating Revenue |       | $        | 1,349      |     | $          | 1,403 |   |

 

Total revenue for the segment decreased 4% or $54,000from the first quarter of 2005. The decrease in revenue was driven by TheMaricor Group New England, down $117,000 or 20%. This decrease in revenue waspartly offset by an increase in revenue from The Maricor Group, Canada, of$63,000 or 8%.

The principal areas of practice which generate revenuefor the three companies are mechanical and electrical engineering design anddesign/build projects on a fee-for-service basis. Increasingly, the focus ofThe Maricor Group is shifting to facility lifecycle asset management, energyefficiency and emissions reductions, as well as development of end-user energyassets, such as central utility plants.

***Unregulated Engineering ServicesOperating Expenses***

Unregulated engineering services operating expensesfor the quarters ended March 31, 2006, and 2005:

| (In thousands of dollars)      | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|
| Unregulated  Operation & Maintenance |       | $        | 1,526      |     | $          | 1,472 |   |
| Depreciation                                  |       | 4        |       | 3        |       |
| Amortization                                  |       | 22       |       | 34       |       |
| Taxes Other than  Income                      |       | 20       |       | 22       |       |
| Income Taxes                                  |       | (110     | )          | (15      | )          |
| Total Unregulated  Operating Expenses         |       | $        | 1,462      |     | $          | 1,516 |   |

 

Unregulated operating expenses decreased $54,000. Thisdecrease in expense and the offseting decrease in revenue resulted in anoperating loss in both 2006 and 2005 of $113,000. The operation and maintenanceexpenses include the direct and indirect costs of 

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the engineering projects.

***Unregulated Real EstateSubsidiary Results***

The following section details the operations of theunregulated real estate segment:

|                                                           | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------------------|------------|------------------------|------------|
| ** **                                                | ** ** | **March 31,**     | ** ** |
| ** **                                                | ** ** | **2006**               | ** ** | **2005** | ** ** |
| Net Income —  Unregulated Real Estate (In thousands) |       | $                      | (86        | ) | $ | (30 | ) |
|                                                           |            |                        |            |  |  |  |  |

 

Maricor Properties incurred an additional $56,000 netloss in the first quarter of 2006, compared to the first quarter of 2005. Aspart of the acquisition of Cornwallis Court Developments in the fourth quarterof 2005, Maricor Properties was required to value pre-existing leases acquiredas separate intangible assets. The purchase price allocation for MaricorProperties was completed during the first quarter, and resulted in anadditional $91,000 of amortization of these leases. Maricor Properties alsoincurred a loss in the Maricor Ashford joint venture of approximately $55,000.

During the first quarter of 2006, the last remainingspaces available in the Vaughan Harvey building were leased or firm letters ofcommitment were signed. All leaseable square footage of Maricor Properties isnow committed to tenants. Certain tenant improvements have been completed orare now under construction to meet lease requirements.

***Unregulated Software Technology***

The following section details the operations of theunregulated real estate segment:

|                                                                   | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                        | ** ** | **March 31,**     | ** ** |
| ** **                                                        | ** ** | **2006**               | ** ** | **2005** | ** ** |
| Net Income —  Unregulated Software Technology (In thousands) |       | $                      | (104       | ) | $ | (13 | ) |
|                                                                   |            |                        |            |  |  |  |  |

 

Maricor Technologies announced the release of a numberof new iPlanTM sustainable solutions and governance software in early April,2006. These new sustainable solutions and governance software include: (a) sustainablefacility governance technology, (b) energy governance, (c) securitygovernance, and (d) demand side management solutions. These new softwarereleases will allow the Company to increasingly transition from their start-upand development phase into a more active operational, marketing and salesphase.

The Company incurred a loss of $104,000 in the firstquarter of 2006, compared to a loss of $13,000 in the first quarter of 2005,due to an increase in software amortization expense of $89,000 year-over-year.

***Income Taxes***

Please refer to the Note 2 of the financial statementsfor a discussion of the effects of income taxes.

***Off-Balance Sheet Arrangementsand Financial Information System Hosting Agreement***

Please refer to Note 8 of the financial statements.

***Liquidity and Capital Resources***

The Company’s cash and cash equivalents as of March 31,2006, were $308,000, down from $781,000 at December 31, 2005. The “Statementsof Consolidated Cash Flows” of the Company’s Consolidated Financial Statementsas presented in Part I, Item 1. of this Form 10-Q, reflects theCompany’s sources and uses of capital.

Cash flow from operating activities for the firstquarter of 2006 was $2.26 million, compared to $2.56 million in the firstquarter of 2005. The deferral of regulatory costs and debt issuance costs wasthe largest decrease in operating cash flow, reducing the $539,000 of netincome by $1.44 million in the 2006 statement. The deferral for 2005 reducedoperating cash flow by approximately $675,000.

Cash flow used for financing included the repayment ofshort- and long-term debt totaling $1.24 million in the first quarter of 

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2006. Cash flow used for financing activities forthe first three months of 2005 totaled $633,000, as $409,000 was paid individends and long- and short-term debt were reduced by $150,000 and $74,000,respectively.

Cash flow used for investing activities decreased cashby approximately $1.49 million. The largest use of cash for investing in 2006were fixed asset acquisitions of $1.25 million, with another $244,000 used forsettlement of the stock contingencies associated with acquisitions in 2003 and2004. For the first three months of 2005, cash flow used for investing activitytotaled $1.89 million. The Company’s wholly-owned software technologysubsidiary, Maricor Technologies, Inc. acquired lifecycle asset managementsoftware for $1.2 million, $50,000 of which was cash. The Company also invested$1.84 million in fixed assets.

Due to negative cash flows from stranded costdeferrals for MPS and start-up cash requirements for TMG and its otherunregulated subsidiaries, Management is working to ensure the Company hasadequate credit capacity for 2006 to cover sinking fund payments, constructionactivities and other financial obligations. To ensure adequate cash flows,Management is structuring additional short-term borrowings, evaluating certainrefinancing opportunities, and may consider selling certain assets.

As part of the refinancing of short-term borrowingsduring 2005, MAM and certain of its subsidiaries agreed to certain financialand other covenants, such as debt service coverage and earnings before interestand taxes (“EBIT”) ratios. In the event of a default, the various lenders couldrequire immediate repayment of the debt. A default could also trigger increasesin interest rates, difficulty obtaining other sources of financings and cross-defaultprovisions within the debt agreements. A default on the MPS line of credit withBank of America is a cross-default on the MAM line of credit with Bank ofAmerica. In addition, MAM has guaranteed a TMG facility with Katahdin TrustCompany, and a Maricor Properties term loan with Royal Bank of Canada. As of March 31,2006, MAM did not meet the interest coverage ratio required under the MAMCredit Agreement with Bank of America or the TMG facility with Katahdin TrustCompany. However, MAM has reached agreement with both banks to adjust theinterest coverage ratio covenant, and expects to amend the existing agreementsbefore the end of May.

On May 5, 2006, MAM borrowed $400,000 fromKatahdin Trust Company through a 5-month unsecured note. The loan is at avariable rate of the 3-month London InterBank Offered Rate (“LIBOR”) plus3.50%. The interest rate as of the date of borrowing was 8.63%. Monthlypayments of interest only are due throughout the term of the loan, with a fullrepayment of principal due at the end of the term.

The Company has the ability to raise capital throughthe issuance of common and preferred stock. The Company is authorized by itsArticles of Incorporation to issue up to 5,000,000 shares of common stock and500,000 shares of preferred stock. MPS can also issue $2.5 million of firstmortgage bonds and $15.8 million of second mortgage bonds without bondableproperty additions.

The Maricor Group and its subsidiaries incurred equityprice risk when it bought the stock of certain of its subsidiaries. Part ofthe consideration was MAM stock. In the event that the price of MAM commonstock was below a specified price when the seller wished to dispose of it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference. Thereare currently 27,723 shares outstanding pursuant to this kind of agreement. Ata market price of $15.36 per share at March 31, 2006, the total exposureis approximately $585,000.

In the order approving the reorganization of MPS andthe formation of Maine & Maritimes Corporation, the parties stipulatedto several restrictions on the capital structure of MPS and MPS’s ability tomake dividend payments to MAM.  As of March 31,2006, MPS is in compliance with all of these conditions.

***Off-Balance Sheet Arrangements***

The Maricor Ashford Ltd joint venture is a variableinterest entity, as defined by Financial Accounting Standards BoardInterpretation No. 46, “Consolidation of Variable Interest Entities,” (“FIN46”) promulgated on January 17, 2003. However, Management has determinedthat Maricor Ashford should not be consolidated with these financialstatements, as Maricor Properties is not the primary beneficiary of the jointventure.

The Company has several operating leases for officeand field equipment, vehicles and office space, accounted for in accordancewith Statement of Financial Accounting Standards No. 13, “Accounting forLeases,” (“SFAS 13”), referenced in the footnotes to the financial statementsas part of Footnote 8.

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Thefuture minimum lease payments for the items listed above for the next fiveyears are as follows:

**Future Minimum Lease Payments By Year For All Items**

| Years | ** ** | **Minimum Lease Payments** | ** ** |
|-------|------------|--------------------------------------|------------|
| 2006  |       | $                                    | 249        |   |
| 2007  |       | $                                    | 214        |   |
| 2008  |       | $                                    | 203        |   |
| 2009  |       | $                                    | 185        |   |
| 2010  |       | $                                    | 71         |   |

 

**Maricor Properties’ Leases**

MaricorProperties’ leases office space to The Maricor Group, Canada Ltd for theirMoncton, New Brunswick and Halifax, Nova Scotia operations. All other netoperating leases are to outside third parties. The minimum lease revenueexpected from the third-party lease arrangements does not include theirproportion of utilities, management fees, property taxes, and maintenanceexpenses that will be paid by the third parties.

**5-Year Minimum Lease Payments for ExternalParties Leases**

| Years | ** ** | **Minimum Lease Revenue** | ** ** |
|-------|------------|-------------------------------------|------------|
| 2006  |       | $                                   | 632        |   |
| 2007  |       | $                                   | 650        |   |
| 2008  |       | $                                   | 660        |   |
| 2009  |       | $                                   | 644        |   |
| 2010  |       | $                                   | 582        |   |

 

**Financial InformationSystem Hosting Agreement**

InDecember 2003, the Company entered into a ten-year agreement with DelineaCorporation to host and provide technical and functional support for theintegrated Oracle Financial Information System. Hosting fees are $575,000 peryear for years 2006-2013.

***Regulatory Proceedings***

Forregulatory proceedings, see Part II, Item 1, “Legal Proceedings,” which isincorporated in this section by this reference.

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

The following list represents Maine &Maritimes Corporation’s more significant market risks. While every effort ismade to describe the character of the organization’s risks, it cannot warrantthat this list is all inclusive. The Company, where possible, does take stepsin each of the following areas to attempt to mitigate such risks.

(a)            TheCompany had material interest rate risk until MPS fixed interest rates on threevariable rate debt issues on September 9, 2003, with a derivative interestrate swap transaction. Upon execution of the interest rate swaps on September 9,2003, MPS effectively fixed through maturity the rates on the 1996 Series duein 2021 and the 2000 Series due in 2025 at 4.57% and 4.68%, respectively.The rate on the 1998 Notes due in 2008 was also fixed at 2.79% throughmaturity. As of March 31, 2006, the 1996 and 2000 Series and the 1998FAME Notes had outstanding balances of $13.6 million, $9.0 million and $5.01million, respectively. The fixed rates on the 1996 and 2000 Series debtissues are higher than the previous floating rates and continue to be as of thedate of this filing. The fixed rate on the 1998 Notes is less than the previousfloating rate. The estimated net carrying value of these cash flow hedges is$(780,000) and is recorded on the Balance Sheet as “Carrying Value of InterestRate Hedge.”

Althoughincurring no up-front cost to execute the swaps, MPS is currently incurringincreased interest expenses. For the first quarter of 2006, the fixed interestrates resulted in interest payments of $59,000 more than the payments thatwould have been required under the variable rates. However, Management believesthat the fixing of interest rates over the terms of the debt will serve toprotect both shareholders and consumers from what it believes to be upwardvariable interest rate pressures.

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(b)           TheCompany’s unregulated real estate development and investment subsidiary,Maricor Properties Ltd, and its subsidiaries, Cornwallis Court Developments Ltdand Mecel Properties Ltd, are subject to certain risks and uncertaintiesincluding, but not necessarily limited to interest rate risks associated withvariable interest rates, shifts in local real estate market conditions;market-based competition; the inability to fully lease rental properties;facility performance related to unforeseen or unknown structural, mechanical and/orelectrical systems failures; unexpected increases in property rehabilitationcosts; new government regulations; and tenant credit and default risks.

(c)            Transactionswith Me&NB; The Maricor Group, Canada Ltd; and Maricor Properties Ltd aresubject to foreign currency translation risk. Income and expenses aretranslated at average rates of exchange for the period of time the income isearned or the expenses are incurred. Assets and liabilities are translated atyear-end exchange rates. Historically, the exchange rates between the Canadiandollar and US dollar have been relatively stable. The general trend throughout2005 and year-to-date in 2006 has been the Canadian dollar strengtheningagainst the US dollar. This has resulted in increased carrying value of theassets and liabilities of the Company’s Canadian subsidiaries. The Company doesnot currently have hedging arrangements to protect from changes in theseexchange rates.

(d)           TheMaricor Group and its subsidiaries incurred equity price risk when it boughtthe stock of certain of its subsidiaries. Part of the consideration wasMAM stock. In the event that the price of MAM common stock was below aspecified price when the seller wished to dispose of it, The Maricor Group (orthe applicable subsidiary) agreed to pay the difference. Settlement of theseobligations does not impact net income or the original purchase price. Thesettlement is recorded as a reduction of the additional paid-in capital,effectively reducing the recorded value of the stock issued during thetransaction.

Thereare currently 27,723 shares outstanding pursuant to this kind of agreement. Ata market price of $15.36 per share at March 31, 2006, the total exposureis approximately $585,000. A $1 change in the share price up to the specifiedprices in the purchase and sale agreements will increase or decrease thisestimated obligation by approximately $28,000. These obligations are expectedto be settled by January 1, 2007.

Market price protection of a different sort was givenby Maricor Technologies when it acquired the HCI assets. Part of theconsideration there was MAM preferred stock which is convertible into 26,000shares of MAM common stock on February 15, 2008, subject to some otherconditions. To the extent that the market price of MAM common stock is thenbelow $25 per share, the number of shares issuable on conversion is ratablyincreased, which could result in further dilution of MAM’s common stock.

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

a)              Evaluation of Disclosure Controls andProcedures

The Company’smanagement, including the Company’s President and Chief Executive Officer and SeniorVice President and Chief Financial Officer, are responsible for establishingand maintaining disclosure controls and procedures for the Company and its subsidiaries.Management has designed such controls and procedures to (a) givereasonable assurance that the information required to be disclosed by theCompany in reports that it files under the Exchange Act is recorded, processed,summarized and reported within the time periods specified in the rules andforms of the SEC, and (b) ensure that such information is accumulated andcommunicated to Management to allow timely decisions regarding requireddisclosure. Management evaluated the Company’s disclosure controls andprocedures as of the end of the period covered by this annual report. Based onthe evaluation, the aforementioned officers concluded that the Company’sdisclosure controls and procedures are working effectively.

b)             Changes in Internal Control over FinancialReporting

There was no change in the Company’s internalcontrol over financial reporting that occurred during the most recent fiscalquarter.

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**PART II. OTHER INFORMATION**

***Item 1. LegalProceedings***

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPS filed notice with theMPUC under Docket No. 2006-24 that it intended to seek a 4% increasein overall electric rates. Subsequently, on March 13, 2006 the Companyfiled for an increase in distribution revenue of $3.24 million, a 9.9% increasein average electric delivery rates. The Company is currently participating indiscovery on its request and expects to implement new distribution rates notlater than December 1, 2006.

**Federal Energy Regulatory Commission2005 Open Access Transmission Tariff Formula Rate Filing**

On May 31, 2005, pursuant to Section 205 ofthe Federal Power Act, 16 U.S.C. Section 824d, and Title 18 CFRSections 35.11 and 35.13 of the regulations of the FERC, MPS submitted forfiling its proposed revisions to its FERC Open Access Transmission Tariff inDocket No. ER 05 (the “2005 OATT”) to modify its transmission rateformula. MPS filed its updated rates under the 2005 OATT formula on June 15,2005, pursuant to Docket ER00-1053 with an effective date of June 1,2005, for both wholesale and retail customers, subject to a customer refundthat may occur as a result of the proceeding and potential settlementnegotiations. The retail transmission revenue requirement was increased by$288,670 on June 1, 2005, under the 2005 OATT. This represented anincrease of 8% to the transmission component of retail delivery rates or anoverall impact on total retail delivery rates of 0.7%. The primary reasons forthe increase were the increase to costs due to mandated Sarbanes-Oxleyrequirements, and the purchase of a new Oracle-based accounting system.

As part of the settlement data request process, theCompany identified several adjustments to its FERC Form 1 filing for 2004,which flow through the Company’s transmission rate formula. The approximate netimpact of these corrections, once implemented, will be to reduce the overallincrease to the projected retail transmission revenue and result in a revisedprojected net increase to the retail transmission revenue requirement of$238,422 instead of the previously projected increase of $388,923. Thisadjustment will flow through Schedule 1.1.2 of the MPS OATT to be effective June 1,2006, and will be passed through retail rates on July 1, 2006, when theretail rates are next adjusted. The Company has reported to FERC as scheduledthat the parties are proceeding with the settlement process and will continueto provide progress reports as required. Thefinal Settlement Agreement for the 2005 OATT was filed with the FERC on April 14,2006; the agreement changed the amount of this increase to retail customersfrom $388,923 to $272,263. The Company is currently awaiting final approval tothe 2005 OATT Settlement Agreement from the FERC, which is expected by June 1,2006.

**Request for Issuance of Certificatesof Public Convenience and Necessity in Connection With the Construction of aProposed Transmission Line**

On October 4, 2004, MPS filed a Petition with theMPUC requesting the issuance of Certificate of Public Convenience and Necessity(“CPCN”) pursuant to 35-A M.R.S.A. Section 3132 to construct a 138kV transmission line originating at an existing substation in Limestone, Maineand extending to the Canadian Border near Hamlin, Maine.

The project was proposed in order to ensure the reliabilityand integrity of the MPS transmission grid under scenarios of reduced on-systemgenerator availability and peak load growth. MPS submitted that the availablefirm transfer capability of the transmission system when added to the remainingon-system hydro generation was not sufficient to meet peak load conditions,should existing on-system wood-fired generation become unavailable. Theproposed line would address this by significantly increasing the load-servingcapability of the northern Maine region and would serve to reinforce the vitaltransmission ties between northern Maine and the New Brunswick transmissiongrid. Additional benefits of the proposed line include the potential forincreasing the number of competitive retail electric suppliers and increasingthe attractiveness of the region for development of additional generation, suchas wind farms, by providing increased transmission export capacity.

The MPUC Commissioners deliberated the Docket on August 29,2005, and denied the petition, determining that there was no immediatereliability risk in northern Maine. The Commission concluded that the risk oflosing on-system wood-fired generation was not sufficient to warrant the newtransmission line. The Commission issued the Order on October 21, 2005,that described actions to be taken by MPS and the Northern Maine IndependentSystem Administrator (“NMISA”) to reduce certain risks identified by MPS. TheCompany filed for reconsideration of the Order on November 8, 2005 basedon the likelihood that Linekin Bay Energy Company, LLC may elect to utilize theCPCN filed in this Docket in order to construct transmission facilitiesnecessary to connect their proposed generation project to the MPS electricalsystem. On March 30, 2006, the Company filed a status report with theCommission with regard to the proposed transmission facilities. MPS expects theMPUC to respond to the status report in the near future.  Additionally, on November 23, 2005, theCommission granted an MPS request for waiver of the specific requirements ofthe October 21, 2005 Order until the NMISA finalizes currently proposedmarket rule changes that are currently scheduled to be presented to theCommission on March 1, 2006. Through December 31, 2005, approximately$844,000 was spent on this transmission project. MPS expects to seek recoveryof these costs in its transmission rates and is currently pursuing otherrecovery options. MPS believes it is probable the amounts deferred can berecovered, either through future rate cases or through sale of the assets to athird party.

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In September 2004, MPS entered into a CommitmentAgreement with NB Power. Under this Agreement, which is subject to MPSobtaining all necessary regulatory approvals, MPS will reserve 35 MW oftransmission capacity on the NB Power system in conjunction with theconstruction of a new 345 kV transmission line to be constructed from PointLepreau near Saint John, NB to Orrington, Maine. NB Power will own and operatethe portion of the line on its side of the border, while Bangor Hydro-ElectricCompany (“BHE”) will own and operate the portion of the line on the U.S. sideof the border known as the Northeast Reliability Interconnect (“NRI”). BHEfiled for a Certificate of Public Convenience and Necessity for this line on November 5,2004, in MPUC Docket No. 2004-771. MPS filed a petition with theMPUC seeking approval to make the reservation required under the CommitmentAgreement on December 13, 2004, in MPUC Docket No. 2004-775which was subsequently changed to MPUC Docket No. 2004-538 Phase II.On October 7, 2005 MPS proposed several changes to the CommitmentAgreement, to include a reduction in the reservation quantity from 35 MW to 20MW. Hearings on Phase II were conducted on December 6 and 7, 2005. On March 10,2006 the Commission issued an Order in Phase II denying the certificate ofpublic convenience and necessity that would allow MPS to enter into theCommitment Agreement with NB Power Transmission Corporation. Subsequently, MPSnotified NB Power that the Commitment Agreement was terminated on March 13,2006.

**MPUC Approves the Pass-Through of RetailTransmission Rates to MPS Retail Jurisdictional Customers, and the Increase toDSM Mil Rate, MPUC Docket No. 2003-516**

Per agreement with the Maine Public Utilities Commission,the new transmission rates for retail customers (above) were put into retailrates on July 1, 2005, to coincide with MPS’s related State jurisdictionalcompliance filing in MPUC Docket No. 2003-516 to increase the DSMMil Rate. These rates were approved by the MPUC on June 20, 2005. Per thisfiling, total retail delivery rates increased by 1.1%.

**MPUC Approves StrandedCost Revenue Requirements Effective March 1, 2004**

In an Order dated February 27,2004, MPS received final approval from the MPUC for the stranded cost revenuecomponent of its electric delivery rates, effective March 1, 2004. UnderTitle 35-A of the Maine Revised Statutes Annotated, Section 3208,the MPUC is required to periodically investigate and adjust the stranded costcharges reflected in the rates of a transmission and distribution utility. Inaccordance with this provision, on September 16, 2003, in Docket No. 2003-666,the MPUC issued a notice of investigation in order to determine whether MPS’srates must be changed effective March 1, 2004, to reflect any changes inMPS’s stranded costs. On February 27, 2004, the MPUC issued an orderapproving a stipulation under which MPS is allowed to recover $11.8 million peryear to satisfy its approved stranded cost revenue requirements for the “rateeffective period” beginning March 1, 2004, and ending on December 31,2006. The approved revenue requirement for the rate effective period ended February 29,2004 was $11.54 million. Under the approved stipulation MPS’s stranded costrates approved in Docket No. 2003-85 will remain in effect duringthe rate effective period. The stipulation approved by the MPUC in Docket 2003-666also approved and reaffirmed each of the elements and associated balances ofMPS’s recoverable stranded costs.

As explained more fullybelow, during the course of Docket 2003-666 the parties reviewed themanner in which MPS was recovering and accounting for its carrying chargesassociated with the deferred fuel element of its stranded cost. As a result ofthe stipulation approved in Docket No. 2003-666, MPS will recorddeferred income tax expense associated with deferred fuel carrying chargesduring the rate effective period from March 1, 2004, through December 31,2006, as compared to past treatment where such expense was deferred for futurerecovery. Because the deferred fuel carrying charge component of MPS’s strandedcosts is not expected to fully amortize until 2012, the Company anticipatesthat deferred income tax expense will be incurred through 2012, subject tofuture stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240,the parties stipulated that MPS would accrue carrying costs on its unrecoveredfuel balance (the “deferred fuel account”) during the respective rate effectiveperiod at its net-of-tax cost of capital rate. Consistent with the stipulationin Docket No. 2001-240, MPS accrued a carrying charge using the netof tax rate of 7.98% through October 31, 2003, applied against itsunrecovered deferred fuel balance. From November 1, 2003, to December 31,2003, MPS accrued its carrying charge using a net of tax rate of 7.06%, basedon the cost of capital approved in Docket No. 2003-85 (described inDocket 2003-85 Partial Stipulation filed on September 2, 2003).

During the course of theDocket 2003-666 proceeding, MPS determined that it had not previouslyrecognized accumulated deferred income taxes with respect to the carryingcharges on the deferred fuel account and that the recording of a deferred taxliability to its balance sheet pursuant to FAS 109 in the amount of $2.896million was required, of this, $2.739 million was recorded as of December 31,2003. The deferred fuel balance as of March 1, 2004, prior to anyadjustment was projected to be $18.8 million. Under the stipulation MPS wasallowed to adjust its accumulated deferred income tax account and the deferredfuel balance by $2.896 million, as of March 1, 2004, resulting in a totalprojected deferred balance as of March 1, 2004 of $21.734 million. Underthe approved stipulation the parties also agreed that the return component onthe deferred fuel balance should be reduced in such a manner that ratepayerswere held harmless on a net present value basis as a result of the March 1,2004 adjustment to the deferred fuel balance. During the rate effective periodending on December 31, 2006, the overall pre-tax return component on thedeferred fuel balance will be 8.28%, reflecting a 6.17% return on equity. Thereturn on the deferred fuel balance will be reviewed in future stranded costrate setting proceedings and will be adjusted as necessary in order that thepresent value of the revenue requirements of the deferred fuel account withoutthe adjustments described above equals the present value of the revenuerequirements of the deferred fuel account 

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with the adjustments. MPSconcludes that as a result of this stipulation and the foregoing describedadjustment to the deferred fuel balance and the accumulated deferred income taxliability that no further adjustment is necessary under FAS 109 in order toreflect prior unrecorded deferred income taxes.

The decreased cost ofcapital rate beginning on March 1, 2004, will have an impact on futurestranded cost earnings and cash flow, but will not impact future distributionor transmission earnings. In the year 2004, the Company recorded deferredincome tax expense of approximately $412,000 associated with the deferred fuelcarrying charges. The amount of deferred income tax expense recorded in futureyears will vary depending upon the amount of the accrued carrying charge in anyyear, and the tax rates then in effect. Earnings from carrying charges on theCompany’s stranded costs in 2004 were approximately $267,000 lower than theamount that would have been recorded had the Company continued to use theoriginal cost of capital on its deferred fuel balance, for a total earningsimpact of $679,000 in 2004. The impact on future earnings resulting from theagreed upon lower cost of capital, when compared against the cost of capitalused in prior stranded cost filings, will vary. Schedules filed by the Companyas part of the stipulation in Docket No. 2003-666 reflect thedeferred fuel balance as of March 1, 2003, certain additions relating tothe Wheelabrator-Sherman above-market contract through December 2006 andthe amortization of the deferred fuel balance though 2012. Applying theseassumptions, current tax rates and the agreed upon cost of capital, the Companyanticipates that the impact on future earnings resulting from recordingdeferred income taxes on accrued carrying charges and applying a lower cost ofcapital to the deferred fuel balance could range from $1.0 million in 2005,increasing to $1.2 million in 2007, then gradually decreasing to $17,000 in2012. These amounts may vary with changes in the deferred fuel balance andother variables which the Company cannot predict with certainty at this time.Management is analyzing means to mitigate the impact of this stipulation onfuture net income and cash flows.

In addition to the returnallowed on its deferred fuel account as set forth above, under the approvedstipulation MPS shall be allowed to recover the following pre-tax returns onthe applicable stranded cost rate base components during the rate effectiveperiod: (i) the pre-tax return on unrecovered balance of theWheelabrator-Sherman Contract Buy down shall be 2.79% plus its FAME issuancecosts; (ii) the pre-tax return on the unrecovered Seabrook Investment andapproved special rate contract costs shall be 11.74%; and, (iii) thepre-tax return on the Maine Yankee decommissioning related costs shall be8.56%.

***Item 1A. RiskFactors***

The Risk Factors identifiedin Item 1A. of MAM”s 2005 Form 10-K are incorporated herein byreference. The following risk factors include new risk factors identifiedduring the quarter, as well as risk factors that have changed materially sinceyear-end.

***Regulatory and Legislative Risks***

Maine Public Service Company is subject to regulatoryand other governmental risks. Legislation and other government regulations mayhave impacts on its revenues and earnings. MPS cannot predict with certaintywhat, if any, new laws, rules and regulations may be imposed. Further, itcannot predict with certainty the outcome of transmission and distribution rateincrease filings before federal or state regulatory bodies. As evidenced by thepassage of electric deregulation within the State of Maine and disaggregationof formerly vertically integrated electric utilities, history has shown thatsuch government mandates can impact the earnings and or revenue model of MPS.

***Liquidity and Capital Formation Risks***

MAM’s current liabilities of $22.45 million as ofMarch 31, 2006, exceed its current assets of $11.43 million by$11.02 million, exposing MAM to the risk of being unable to fulfill itsobligations in 2006. However, of these current liabilities, $12.95 millionis short-term borrowings, including the lines of credit and one-year notespayable through Royal Bank of Canada. MAM has taken steps to mitigate thisshort-term risk before and after year-end, including identification ofadditional sources of financing and options to reduce or defer costs.

In the long term, Management expects MAM’s cash flowto improve, with MPS’s recovery of deferred fuel and other stranded costscurrently deferred by MPS. The current cash expenditures for deferred fuel andMaine Yankee exceed the recovery of stranded costs. With the expiration of theWheelabrator-Sherman contract in December 2006, this position willreverse, and recovery of stranded costs will exceed the cash outflows.

***EquityPrice Risks***

The Maricor Group and its subsidiaries incurred equityprice risk when it bought the stock of certain of its subsidiaries. Part ofthe consideration was MAM stock. In the event that the price of MAM commonstock was below a specified price when the seller wished to dispose of it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference. Settlementof these obligations does not impact net income or the original purchase price.The settlement is recorded as a reduction of the additional paid-in capital,effectively reducing the recorded value of the stock issued during thetransaction.

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There are currently 27,723 shares outstanding pursuantto this kind of agreement. At a market price of $15.36 per share at March 31,2006, the total exposure is approximately $585,000. A $1 change in the shareprice up to the specified prices in the purchase and sale agreements willincrease or decrease this estimated obligation by approximately $28,000. Theseobligations are expected to be settled by January 1, 2007.

***Value of Real Estate***

The net book value of Maricor Properties’ real estatetotaled $7.39 million at December 31, 2005. MAM is exposed to riskassociated with the local real estate markets in Moncton, New Brunswick and Halifax,Nova Scotia, and its impact on the value of these properties. The most recentappraisals obtained during 2005 and 2006 indicate that the appraised value ofthe properties currently exceeds the book value; however, this position couldreverse with changes in the real estate markets.

***Pension and VEBA Trust MarketRisk***

The Company maintains pension assets in a pensiontrust account. The estimated pension expense and ultimate settlement of pensionobligations is partly contingent on the earnings on these assets. The actualreturn on these assets may differ from the projected return, either increasingor decreasing future pension costs.

The Company also maintains a VEBA trust fund forpayment of union retiree medical expenses. This fund is also exposed to marketrisk. The actual return on these assets will impact the amount of cash requiredto fund those costs.

***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. OtherInformation***

None

***Item 6.Exhibits***

Thefollowing exhibits are attached:

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

·                  Exhibit 32 Certification of FinancialReports Pursuant to 18 USC Section 1350

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SIGNATURE

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.
| MAINE &  MARITIMES CORPORATION  (Registrant) |   |
|-------------------------------------------------------|--------|
|                                                  |   |
| Date: May 11,  2006                         |   |
|                                                  |   |
| /s/ MICHAEL I. WILLIAMS                               |   |
| Michael I. Williams                                   |   |
| Senior Vice President,  Chief Financial Officer,      |   |
| Treasurer and Assistant Secretary                     |   |

 

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