SECURITIES
        AND EXCHANGE COMMISSION
 
 Washington,
        D. C. 20549
 
 FORM
        10-Q
 
 x QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
 
 SECURITIES
        EXCHANGE ACT OF 1934
 
 FOR
        THE
        QUARTERLY PERIOD ENDED JUNE 30, 2005
 
 -
        OR
        -
 
 o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
 
 SECURITIES
        EXCHANGE ACT OF 1934
 
 Commission
        File No. 333-103749
 
 MAINE
        & MARITIMES CORPORATION
 
 A
        Maine
        Corporation
 
 I.R.S.
        Employer Identification No. 30-0155348
 
 209
        STATE
        STREET, PRESQUE ISLE, MAINE 04769
 
 (207)
        760-2499
 
 Indicate
        by check mark whether the registrant (1) has filed all reports
 required
        to be filed by Section 13 or 15(d) of the Securities Exchange Act
        of
 1934
        during the preceding 12 months (or for such shorter period that the
 registrant
        was required to file such reports), and (2) has been subject to
        such
 filing
        requirements for the past 90 days. Yes x .
        No o .
 
 Indicate
        by check mark whether the registrant is an accelerated filer (as
 defined
        in Rule 12b-2 of the Securities Exchange Act of 1934). Yes o .
        No x .
 
 Indicate
        the number of shares outstanding of each of the issuer's classes
 of
        common
        stock, as of the close of the period covered by this report.
 
 Common
        Stock, $7.00 par value - 1,636,167 shares
 
 
 1
  **Glossary
        of Terms**
 
 AFUDC
              Allowances
                  for the cost of equity and borrowed funds used during
                  constructionAMEX
              American
                  Stock ExchangeAPBO
              Accumulated
                  Pension Benefit ObligationARP
              Alternative
                  Rate PlanBHE
              Bangor
                  Hydro-Electric CompanyCES
              Competitive
                  Energy SupplierCMLTD
              Current
                  Maturities Long-Term DebtCMP
              Central
                  Maine Power CompanyDETM
              Duke
                  Energy Trading and MarketingDOE
              Department
                  of EnergyEA
              Energy
                  Atlantic, LLCEastcan
              Eastcan
                  Consulting EngineersEngage
              Engage
                  Energy America, LLCEPS
              Earnings
                  Per ShareFAME
              Finance
                  Authority of MaineFAS
              Financial
                  Accounting StandardsFASB
              Financial
                  Accounting Standards BoardFERC
              Federal
                  Energy Regulatory CommissionFIN
              FASB
                  Interpretation NumberISFSI
              Independent
                  Spent Fuel Storage InstallationISO
              Independent
                  System OperatorISO-NE
              Independent
                  System Operator—New EnglandLEED
              Leadership
                  in Energy and Environmental DesignLIBOR
              London
                  InterBank Offering RateLOC
              Letter
                  of CreditMAM
              Maine
                  & Maritimes CorporationMAMES
              Maine
                  & Maritimes Energy Services Company, now The Maricor
                  GroupM&R
              Morris
                  & Richards Consulting EngineersMe&NB
              Maine
                  & New Brunswick Electrical Power Company, LtdMEPCO
              Maine
                  Electric Power Company, Inc.MPS
              Maine
                  Public Service CompanyMPUC
              Maine
                  Public Utilities CommissionMPUFB
              Maine
                  Public Utility Financing BankMW
              MegawattMWH
              Megawatt
                  hourNEPOOL
              New
                  England Power PoolNMISA
              Northern
                  Maine Independent System AdministratorNOI
              Notice
                  of InquiryNPCC
              Northeastern
                  Power Coordinating CouncilNRC
              Nuclear
                  Regulatory CommissionNUG
              Non-Utility
                  GeneratorOATT
              Open
                  Access Transmission TariffPBR’S
              Performance-Based
                  RatesPCB
              Poly
                  Chlorinated Bi-phenolPPA
              Power
                  Purchase AgreementPURPA
              Public
                  Utilities Regulatory Policy ActPWC
              PricewaterhouseCoopersQF
              Qualifying
                  FacilityRES
              RES
                  Engineering, Inc.ROCE
              Return
                  on Capital EmployedRTO
              Regional
                  Transmission OrganizationSAM
              Strategic
                  Asset ManagementSCADA
              Supervisory
                  Control and Data AcquisitionSEC
              Securities
                  and Exchange CommissionSFAS
              Statement
                  of Financial Accounting StandardsSOS
              Standard
                  Offer ServiceT&D
              Transmission
                  and DistributionTMG
              The
                  Maricor GroupVCC
              Vitale,
                  Caturano & CompanyVEBA
              Voluntary
                  Employee Benefit AssociationVERP
              Voluntary
                  Employee Retirement ProgramWPS-PDI
              WPS-Power
                  Development, Inc.WS
              Wheelabrator-Sherman
 2
  **PART
        1. FINANCIAL INFORMATION**
 
 ***Item
        1. Financial Statements***
 
 This
        item
        contains Consolidated Financial Statements for Maine & Maritimes Corporation
        ("MAM" or the "Company") and its Subsidiaries, including (1) an unaudited
        statement of consolidated operations for the quarter and six months ended
        June
        30, 2005, and for the corresponding periods of the preceding year; (2) an
        unaudited consolidated balance sheet as of June 30, 2005; (3) an audited
        consolidated balance sheet as of December 31, 2004, the end of MAM’s preceding
        fiscal year; (4) an unaudited statement of consolidated cash flows for the
        period January 1 (beginning of the fiscal year) through June 30, 2005, and
        for
        the corresponding period of the preceding year; and (5) an unaudited statement
        of consolidated common shareholders’ equity for the period January 1 (beginning
        of the fiscal year) through June 30, 2005.
 
 In
        the
        opinion of Management, the accompanying unaudited consolidated financial
        statements present fairly the financial position of the Company and its
        Subsidiaries at June 30, 2005, and December 31, 2004; the results of their
        operations for the three and six months ended June 30, 2005 and 2004; and
        their
        cash flows for the six months ended June 30, 2005, and 2004.
 
 **MAM
        is the parent holding company for the following wholly-owned subsidiaries:**
  1.
              Maine
                  Public Service Company (“MPS”) and its wholly-owned inactive Canadian
                  subsidiary Maine & New Brunswick Electrical Power Company, Ltd
                  (“Me&NB”);
  2.
              Energy
                  Atlantic, LLC (“EA”), an inactive subsidiary;
  3.
              The
                  Maricor Group (“TMG”, formerly known as Maine & Maritimes Energy
                  Services) and its wholly-owned United States subsidiary RES Engineering,
                  Inc. (“RES”) and TMG’s wholly-owned Canadian subsidiary The Maricor Group,
                  Canada Ltd (“The Maricor Group, Canada,” formerly Maricor Ltd);
  4.
              Maricor
                  Properties Ltd, (“Maricor Properties”), a Canadian subsidiary and its
                  wholly-owned Canadian subsidiary Mecel Properties Ltd (“Mecel”);
  5.
              Maricor
                  Technologies, Inc. (“MTI”), a U.S. wholly-owned subsidiary.
 
 ***Maine
        & Maritimes Corporation and Subsidiaries***
 
 
  **General
        Descriptions of the Parent Company and its Subsidiaries:**
  •
              Maine
                  & Maritimes Corporation is the ultimate parent holding company for
                  all
                  business segments. MAM maintains investments in (a) a regulated
                  electric
                  transmission and distribution utility operating within the State
                  of Maine,
                  United States of America, (b) mechanical, electrical and plumbing/fire
                  protection engineering, facility asset lifecycle management, energy
                  efficiency, and asset development companies within the United States
                  and
                  Canada, (c) real estate investment and development companies in
                  Canada,
                  and (d) a facilities asset lifecycle management and sustainability
                  software development company in the United States. MAM is headquartered
                  in
                  Presque Isle, Maine.
  3
  •
              Maine
                  Public Service Company (“MPS”) is a regulated electric transmission and
                  distribution utility serving all of Aroostook County and a portion
                  of
                  Penobscot County in northern Maine. It does not provide electric
                  supply to
                  consumers, but rather provides the transportation through its transmission
                  and distribution wires infrastructure. The utility is regulated
                  by the
                  Federal Energy Regulatory Commission (“FERC”) and the Maine Public
                  Utilities Commission (“MPUC”). MPS is headquartered in Presque Isle,
                  Maine.
  •
              Maine
                  & New Brunswick Electrical Power Company, Ltd is an inactive Canadian
                  subsidiary of MPS, which, prior to deregulation and generation
                  divestiture, owned MPS’s Canadian electric generation assets.
  •
              Energy
                  Atlantic, LLC is a licensed, but currently inactive, Competitive
                  Energy
                  Supplier (“CES”) of retail electricity and formerly competed for electric
                  supply customers within the northern and southern regions of the
                  State of
                  Maine. EA is classified as a discontinued operation.
  •
              The
                  Maricor Group is an energy asset development and mechanical, electrical
                  and plumbing/fire protection engineering consulting firm providing
                  energy
                  efficiency, facilities lifecycle asset management, facility condition
                  assessment, fee-for-service engineering design and emissions reduction
                  services focusing on sustainability and Leadership in Energy and
                  Environmental Design (“LEED”). The Maricor Group operates primarily within
                  the New England region of the United States and the eastern Canadian
                  provinces, particularly Atlantic Canada. Its energy asset development
                  activities include efforts to plan, develop, own and/or operate
                  customer-hosted energy assets (sometimes referred to as “inside the fence”
                  energy assets), such as central utility and co-generation plants.
                  It is
                  not engaged in development of merchant generation assets nor energy
                  trading. The Maricor Group is headquartered in Presque Isle, Maine
                  with
                  offices in Portland, Maine; Boston, Massachusetts; Moncton and
                  Saint John,
                  New Brunswick; and Halifax, Nova Scotia.
  •
              RES
                  Engineering, Inc. is a mechanical and electrical engineering subsidiary
                  of
                  The Maricor Group with offices in Boston and Hudson, Massachusetts,
                  offering the services of The Maricor Group within New England,
                  particularly the Commonwealth of Massachusetts and the greater
                  Boston
                  area.
  •
              The
                  Maricor Group, Canada Ltd is the Canadian subsidiary of The Maricor
                  Group
                  offering its parent company’s defined services primarily within the
                  eastern Canadian provinces, particularly Atlantic Canada. Headquartered
                  in
                  Moncton, New Brunswick, it maintains offices in Saint John, New
                  Brunswick,
                  as well as Halifax, Nova Scotia.
  •
              Maricor
                  Properties Ltd is a Canadian real estate development and investment
                  company focused on sustainable development and “smart growth” principles,
                  emphasizing in the development and revitalization of downtowns
                  and
                  existing suburbs. It seeks to develop or invest in public and private
                  facility projects involving the renewal or development of building
                  infrastructure within blighted districts promoting revitalization
                  of
                  existing areas, thus negating the need for extension of additional
                  infrastructure and promotion of sprawl. It utilizes the services
                  of The
                  Maricor Group in its development and redevelopment projects. Maricor
                  Properties Ltd was organized on May 28, 2004, in Nova Scotia, Canada.
  •
              Mecel
                  Properties Ltd is a Canadian subsidiary of Maricor Properties Ltd
                  and
                  currently owns the office building housing the Halifax, Nova Scotia
                  operating division of The Maricor Group, Canada Ltd.
  •
              Maricor
                  Technologies, Inc., formed on February 14, 2005, is a software
                  technology
                  firm that develops and maintains information-based technologies,
                  which
                  support lifecycle asset management and capital budget planning.
                  On
                  February 14, 2005, it purchased, through a three-way transaction,
                  the
                  “Strategic Asset Management” software technology assets of Delinea
                  Corporation of Dallas, Texas, which were formerly owned by
                  HCI Systems. The Maricor Group utilizes the software in the delivery
                  of its lifecycle asset management services and will market its
                  products
                  throughout North America. Maricor Technologies is headquartered
                  in Presque
                  Isle, Maine with an office in Portland, Maine.
  4
  MAINE
        & MARITIMES CORPORATION AND SUBSIDIARIES
 **Statements
        of Consolidated Income** (Unaudited)
 
 ***(In
                    thousands of dollars except shares and per share
                    amounts)***
                
                **Three
                    Months Ended**
                  **June
                    30,**
                
                **Six
                    Months Ended**
                  **June
                    30,****2005**
                
                **2004**
                
                **2005**
                
                **2004****Operating
                    Revenues**Regulated
                
                $
                7,073
                
                $
                6,882
                
                $
                17,387
                
                $
                17,090Unregulated
                
                
                1,422
                
                
                625
                
                
                2,842
                
                
                915**Total
                    Revenues**
                
                
                8,495
                
                
                7,507
                
                
                20,229
                
                
                18,005**Operating
                    Expenses**Regulated
                    Operation & Maintenance
                
                
                3,751
                
                
                3,304
                
                
                7,104
                
                
                6,691Unregulated
                    Operation & Maintenance
                
                
                2,070
                
                
                883
                
                
                4,006
                
                
                1,338Depreciation
                
                
                716
                
                
                656
                
                
                1,423
                
                
                1,290Amortization
                    of Stranded Costs
                
                
                2,469
                
                
                2,383
                
                
                5,148
                
                
                4,647Amortization
                
                
                123
                
                
                20
                
                
                230
                
                
                39Taxes
                    Other Than Income
                
                
                453
                
                
                493
                
                
                928
                
                
                860(Benefit
                    of) Provision for Income Taxes—Regulated
                
                
                (191
                )
                
                (41
                )
                
                994
                
                
                1,207Benefit
                    of Income Taxes—Unregulated
                
                
                (334
                )
                
                (149
                )
                
                (587
                )
                
                (230
                )**Total
                    Operating Expenses**
                
                
                9,057
                
                
                7,549
                
                
                19,246
                
                
                15,842**Operating
                    (Loss) Income**
                
                
                (562
                )
                
                (42
                )
                
                983
                
                
                2,163**Other
                    Income (Deductions)**Equity
                    in Income of Associated Companies
                
                
                39
                
                
                58
                
                
                88
                
                
                115Interest
                    and Dividend Income
                
                
                7
                
                
                4
                
                
                14
                
                
                20Allowance
                    for Equity Funds Used During Construction
                
                
                5
                
                
                15
                
                
                9
                
                
                15Provision
                    for Income Taxes
                
                
                (1
                )
                
                (18
                )
                
                (1
                )
                
                (9
                )Other—Net
                
                
                30
                
                
                (32
                )
                
                (1
                )
                
                (168
                )**Total**
                
                
                80
                
                
                27
                
                
                109
                
                
                (27
                )**(Loss)
                    Income Before Interest Charges**
                
                
                (482
                )
                
                (15
                )
                
                1,092
                
                
                2,136**Interest
                    Charges**Long-Term
                    Debt and Notes Payable
                
                
                665
                
                
                564
                
                
                1,312
                
                
                1,130Less
                    Stranded Costs Carrying Charge
                
                
                (349
                )
                
                (304
                )
                
                (691
                )
                
                (636
                )Less
                    Allowance for Borrowed Funds Used During Construction
                
                
                (3
                )
                
                (5
                )
                
                (3
                )
                
                (5
                )**Total**
                
                
                313
                
                
                255
                
                
                618
                
                
                489**Net
                    (Loss) Income from Continuing Operations**
                
                
                (795
                )
                
                (270
                )
                
                474
                
                
                1,647**Discontinued
                    Operations****Income
                    (Loss) from Discontinued Operations**
                
                
                (5
                )
                
                (59
                )
                
                8
                
                
                (669
                )**Income
                    Tax Benefit (Provision)**
                
                
                2
                
                
                21
                
                
                (3
                )
                
                264**(Loss)
                    Income from Discontinued Operations**
                
                
                (3
                )
                
                (38
                )
                
                5
                
                
                (405
                )**Net
                    (Loss) Income Available for Common Stockholders**
                
                $
                (798
                )
                $
                (308
                )
                $
                479
                
                $
                1,242**Average
                    Shares of Common Stock Outstanding**
                
                
                1,636,167
                
                
                1,599,001
                
                
                1,636,037
                
                
                1,589,851**Basic
                    (Loss) Earnings Per Share of Common Stock From Continuing
                    Operations**
                
                $
                (0.49
                )
                $
                (0.17
                )
                $
                0.29
                
                $
                1.03**Basic
                    Loss Per Share of Common Stock From Discontinued
                    Operations**
                
                
                —
                
                
                (0.02
                )
                
                —
                
                
                (0.25
                )**Basic
                    (Loss) Earnings Per Share of Common Stock From Net
                    Income**
                
                $
                (0.49
                )
                $
                (0.19
                )
                $
                0.29
                
                $
                0.78**Diluted
                    (Loss) Earnings Per Share of Common Stock From Continuing
                    Operations**
                
                $
                (0.49
                )
                $
                (0.17
                )
                $
                0.29
                
                $
                1.02**Diluted
                    Loss Per Share of Common Stock From Discontinued
                    Operations**
                
                
                —
                
                
                (0.02
                )
                
                —
                
                
                (0.25
                )**Diluted
                    (Loss) Earnings Per Share of Common Stock From Net
                    Income**
                
                $
                (0.49
                )
                $
                (0.19
                )
                $
                0.29
                
                $
                0.77
 
 See
        Notes
        to Consolidated Financial Statements
  5


**MAINE
      & MARITIMES CORPORATION AND SUBSIDIARIES**


**Statements
      of Consolidated Cash Flows** (Unaudited)




***(In
                thousands of dollars)***
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004****Cash
                Flow From Operating Activities**Net
                Income
            
            $
            479
            
            $
            1,242Adjustments
                to Reconcile Net Income to Net Cash Provided by
                Operations:Depreciation
            
            
            1,423
            
            
            1,290Amortization
            
            
            744
            
            
            635Deferred
                Income Taxes—Net
            
            
            21
            
            
            583Loss
                on Disposal of Fixed Assets
            
            
            —
            
            
            69Change
                in Deferred Regulatory and Debt Issuance Costs
            
            
            (2,183
            )
            
            (3,025
            )Amortization
                of W/S Upfront Payment
            
            
            760
            
            
            726Change
                in Benefit Obligations
            
            
            457
            
            
            509Change
                in Current Assets and Liabilities:Accounts
                Receivable and Unbilled Revenue
            
            
            1,667
            
            
            2,136Other
                Current Assets
            
            
            269
            
            
            123Accounts
                Payable
            
            
            (1,409
            )
            
            (166
            )Other
                Current Liabilities
            
            
            (324
            )
            
            729Other—Net
            
            
            (286
            )
            
            (139
            )**Net
                Cash Flow Provided By Operating Activities**
            
            
            1,618
            
            
            4,712**Cash
                Flow From Financing Activities**Dividend
                Payments
            
            
            (818
            )
            
            (1,212
            )Retirements
                of Long-Term Debt
            
            
            (1,090
            )
            
            (705
            )Short-Term
                Borrowings, Net
            
            
            2,387
            
            
            2,090**Net
                Cash Provided By Financing Activities**
            
            
            479
            
            
            173**Cash
                Flow From Investing Activities**Stock
                Redemption from Associated Company
            
            
            350
            
            
            200Acquisitions,
                Net of Cash Acquired
            
            
            (585
            )
            
            (3,529
            )Change
                in Restricted Investments
            
            
            531
            
            
            (535
            )Investment
                in Fixed Assets
            
            
            (2,999
            )
            
            (3,818
            )**Net
                Cash Flow Used For Investing Activities**
            
            
            (2,703
            )
            
            (7,682
            )**Decrease
                in Cash and Cash Equivalents**
            
            
            (606
            )
            
            (2,797
            )**Cash
                and Cash Equivalents at Beginning of Period**
            
            
            1,193
            
            
            4,344**Cash
                and Cash Equivalents at End of Period**
            
            $
            587
            
            $
            1,547**Supplemental
                Disclosure of Cash Flow Information:****Cash
                Paid (Received) During the Period for:**Interest
            
            $
            1,299
            
            $
            1,113Income
                Taxes
            
            $
            4
            
            $
            (74
            )**Non-Cash
                Investing Activities:**Value
                of Preferred Stock Issued for Acquisition
            
            $
            950
            
            $
            —Value
                of Common Stock Issued for Acquisition
            
            $
            —
            
            $
            1,677




See
      Notes
      to Consolidated Financial Statements


6


**MAINE
      & MARITIMES CORPORATION AND SUBSIDIARIES**


**Consolidated
      Balance Sheets** (Unaudited)




***(In
                thousands of dollars)***
            
            **June
                30,**
              **2005**
            
            **December****31,**
              **2004****ASSETS****Plant:**Electric
                Plant in Service
            
            $
            97,172
            
            $
            96,309Non-Utility
                Plant
            
            
            4,646
            
            
            3,500Less
                Accumulated Depreciation
            
            
            (40,856
            )
            
            (39,713
            )Net
                Plant in Service
            
            
            60,962
            
            
            60,096Construction
                Work-in-Progress
            
            
            2,420
            
            
            1,021Total
            
            
            63,382
            
            
            61,117**Investment
                in Associated Companies**
            
            
            2,092
            
            
            2,383**Net
                Plant and Investments in Associated Companies**
            
            
            65,474
            
            
            63,500**Current
                Assets:**Cash
                and Cash Equivalents
            
            
            587
            
            
            1,193Accounts
                Receivable (less allowance for uncollectible accounts of $493 in
                2005 and
                $237 in 2004)
            
            
            6,404
            
            
            7,746Unbilled
                Utility Revenue
            
            
            719
            
            
            1,044Inventory
            
            
            646
            
            
            604Income
                Tax Refund Receivable
            
            
            26
            
            
            863Prepayments
            
            
            426
            
            
            469Unbilled
                Contract Revenue
            
            
            967
            
            
            399Total
            
            
            9,775
            
            
            12,318**Regulatory
                Assets:**Uncollected
                Maine Yankee Decommissioning Costs
            
            
            12,655
            
            
            14,148Recoverable
                Seabrook Costs
            
            
            12,224
            
            
            12,778Regulatory
                Assets—Deferred Income Taxes
            
            
            6,660
            
            
            6,659Regulatory
                Assets—Post-Retirement Medical Benefits
            
            
            178
            
            
            243Deferred
                Fuel and Purchased Energy Costs
            
            
            27,445
            
            
            25,544Regulatory
                Asset—Power Purchase Agreement Restructuring
            
            
            2,142
            
            
            2,902Unamortized
                Premium on Early Retirement of Debt
            
            
            1,194
            
            
            1,290Other
                Deferred Regulatory Costs
            
            
            1,797
            
            
            1,306Total
            
            
            64,295
            
            
            64,870**Other
                Assets:**Intangible
                Assets (net of accumulated amortization of $232 in 2005 and $68 in
                2004)
            
            
            140
            
            
            78Goodwill
            
            
            6,113
            
            
            5,753Unamortized
                Debt Issuance Costs
            
            
            566
            
            
            609Restricted
                Investment (at cost, which approximates market)
            
            
            2,448
            
            
            2,980Miscellaneous
            
            
            1,464
            
            
            698Total
            
            
            10,731
            
            
            10,118**Total
                Assets**
            
            $
            150,275
            
            $
            150,806




See
      Notes
      to Consolidated Financial Statements


7


**MAINE
      & MARITIMES CORPORATION AND SUBSIDIARIES**


**Capitalization
      and Liabilities** (Unaudited)




***(In
                thousands of dollars)***
            
            **June
                30,**
              **2005**
            
            **December
                31,**
              **2004****Capitalization:**Shareholders’
                Equity*(see
                accompanying statements)*
            
            $
            48,060
            
            $
            48,157Long-Term
                Debt
            
            
            35,965
            
            
            37,155Total
            
            
            84,025
            
            
            85,312**Current
                Liabilities:**Long-Term
                Debt Due Within One Year
            
            
            2,325
            
            
            2,225Notes
                Payable to Banks
            
            
            6,376
            
            
            3,989Accounts
                Payable
            
            
            3,536
            
            
            4,978Accounts
                Payable—Associated Companies
            
            
            250
            
            
            258Accrued
                Employee Benefits
            
            
            1,297
            
            
            1,334Dividends
                Payable
            
            
            —
            
            
            327Customer
                Deposits
            
            
            38
            
            
            26Taxes
                Accrued
            
            
            —
            
            
            21Interest
                Accrued
            
            
            103
            
            
            75Deferred
                Contract Revenue
            
            
            131
            
            
            109Total
            
            
            14,056
            
            
            13,342**Deferred
                Credits and Other Liabilities:**Accrued
                Removal Obligations
            
            
            4,277
            
            
            4,213Carrying
                Value of Interest Rate Hedge
            
            
            2,265
            
            
            1,471Uncollected
                Maine Yankee Decommissioning Costs
            
            
            12,655
            
            
            14,148Other
                Regulatory Liabilities
            
            
            388
            
            
            318Deferred
                Income Taxes
            
            
            26,793
            
            
            26,845Accrued
                Post-retirement Benefits and Pension Costs
            
            
            4,873
            
            
            4,480Investment
                Tax Credits
            
            
            118
            
            
            131Miscellaneous
            
            
            825
            
            
            546Total
            
            
            52,194
            
            
            52,152**Commitments,
                Contingencies, and Regulatory Matters (Note 8)**
            
            
            —
            
            
            —**Total
                Capitalization and Liabilities**
            
            $
            150,275
            
            $
            150,806




See
      Notes
      to Consolidated Financial Statements


8


**MAINE
      & MARITIMES CORPORATION AND SUBSIDIARIES**


**Statement
      of Consolidated Shareholders’ Equity**  (Unaudited)





***(In
      thousands of dollars, except share information)***





**Shares
                Issued and Outstanding**
            
            **Common**
            
            **Preferred**
            
            
            
            **Accumulated**
              **Other****Common**
            
            **Preferred**
            
            **Par
                Value**
              **Issued**
              **($7/Share)**
            
            **Paid-In**
              **Capital**
            
            **Par
                Value**
              **Issued**
              **($0.01/Share)**
            
            **Paid-In**
              **Capital**
            
            **Retained**
              **Earnings**
            
            **Comprehen-**
              **sive
                Income**
              **(Loss)**
            
            **Total****Balance,
                December 31, 2004**
            
            
            1,635,654
            
            
            —
            
            $
            11,450
            
            $
            1,484
            
            $
            —
            
            $
            —
            
            $
            35,634
            
            $
            (411
            )
            $
            48,157Common
                Stock Issued
            
            
            252
            
            
            
            
            
            2
            
            
            5
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            7Preferred
                Stock Issued
            
            
            
            
            
            9,500
            
            
            
            
            
            
            
            
            —
            
            
            950
            
            
            
            
            
            
            
            
            950Net
                Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,277
            
            
            
            
            
            1,277Other
                Comprehensive Income (Loss):Changes
                in Value of Foreign Exchange Translation, Net of Tax Benefit of
                $89
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (133
            )
            
            (133
            )Interest
                Rate Hedge, Net of Tax Provision of $159
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            239
            
            
            239Total
                Other Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            106
            
            
            106Total
              Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,383Dividend
                ($.25 per share)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (409
            )
            
            
            
            
            (409
            )**Balance,
                March 31, 2005**
            
            
            1,635,906
            
            
            9,500
            
            $
            11,452
            
            $
            1,489
            
            $
            —
            
            $
            950
            
            $
            36,502
            
            $
            (305
            )
            $
            50,088Common
                Stock Issued
            
            
            261
            
            
            
            
            
            2
            
            
            (2
            )Net
                Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (798
            )
            
            
            
            
            (798
            )Other
                Comprehensive Income (Loss):Changes
                in Value of Foreign Exchange Translation, Net of Tax Benefit of
                $23
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (106
            )
            
            (106
            )Interest
                Rate Hedge, Net of Tax Benefit of $477
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (715
            )
            
            (715
            )Total
                Other Comprehensive Loss
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (821
            )
            
            (821
            )Total
              Comprehensive Income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,619
            )Dividend
                ($.25 per share)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (409
            )
            
            
            
            
            (409
            )**Balance,
                June 30, 2005**
            
            
            1,636,167
            
            
            9,500
            
            $
            11,454
            
            $
            1,487
            
            
            —
            
            $
            950
            
            $
            35,295
            
            $
            (1,126
            )
            $
            48,060






MAM
      had
      five million shares of $7 per share common stock authorized, with 1,636,167
      and
      1,635,654 shares issued and outstanding as of June 30, 2005, and December 31,
      2004, respectively. At June 30, 2005, and December 31, 2004, MAM had 500,000
      shares of $.01 per share preferred stock authorized, with 9,500 shares and
      zero
      shares issued and outstanding, respectively.





See
      Notes
      to Consolidated Financial Statements .


9


**NOTES
      TO CONSOLIDATED**




**FINANCIAL
      STATEMENTS**




**1.**
            **ACCOUNTING
                POLICIES**




**Consolidation
      and Basis of Presentation**




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




•
            Maine
                Public Service Company (“MPS”), a U.S. regulated transmission and
                distribution company, serving all of Aroostook County and a portion
                of
                Penobscot County in northern Maine, and its wholly-owned inactive
                Canadian
                subsidiary, Maine & New Brunswick Electrical Power Company, Ltd.
                (“Me&NB”);




•
            Energy
                Atlantic, LLC (“EA”), is an inactive unregulated competitive electricity
                marketing subsidiary;




•
            The
                Maricor Group (“TMG”) and its wholly-owned U.S. subsidiary, RES
                Engineering Inc. (“RES”), and The Maricor Group’s Canadian subsidiary, The
                Maricor Group, Canada Ltd provides energy asset development, energy
                efficiency, facility asset lifecycle management and mechanical, electrical
                and plumbing/fire protection engineering services with an emphasis
                on
                Leadership in Energy and Environmental Design (“LEED”) engineering
                services;




•
            Maricor
                Properties Ltd (“Maricor Properties”), a Canadian real estate development
                and investment subsidiary of MAM and Maricor Properties’ wholly-owned
                Canadian subsidiary, Mecel Properties Limited (“Mecel”) focused on
                sustainable development and “smart growth” with an emphasis on Leadership
                in Energy and Environmental Design (“LEED”) criteria;
                and





•
            Maricor
                Technologies, Inc (“MTI”), a U.S. wholly-owned, asset lifecycle management
                and capital planning software technology-based subsidiary.





MAM,
      an
      exempt utility holding company organized effective June 30, 2003, owns all
      of
      the common stock of the above subsidiaries. MAM is listed on the American Stock
      Exchange (“AMEX”) under the symbol MAM.




The
      Maricor Group (formerly known as Maine & Maritimes Energy Services) and The
      Maricor Group, Canada Ltd were organized on November 6, 2003, and November
      12,
      2003, respectively. On June 15, 2004, The Maricor Group acquired RES Engineering
      Inc., a Massachusetts corporation providing mechanical and electrical
      engineering services located in Boston, Massachusetts. In separate transactions,
      The Maricor Group, Canada Ltd 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”), a Nova Scotia, Canada corporation and its subsidiaries and
      affiliates effective June 1, 2004. Both companies are mechanical and electrical
      engineering firms with principal places of business located in New Brunswick
      and
      Nova Scotia, Canada respectively. Except for RES, the subsidiaries and
      affiliates of each acquired company were amalgamated into a single entity,
      The
      Maricor Group, Canada Ltd (formerly Maricor, Ltd) which is a wholly-owned
      subsidiary of The Maricor Group.




Maricor
      Properties Ltd was organized on June 1, 2004, in connection with the M&R
      acquisition, and was the entity that acquired, through the amalgamation of
      the
      M&R subsidiaries and affiliates, Mecel Properties Limited, a Nova Scotia,
      Canada corporation. The Mecel real estate (an office building located in
      Halifax, Nova Scotia) is currently occupied and used as the principal place
      of business of the Morris & Richard division of The Maricor Group, Canada
      Ltd. On August 13, 2004, Maricor Properties Ltd completed the acquisition of
      a
      multi-tenant mid-rise office facility at 77 Vaughan Harvey Boulevard in the
      downtown area of Moncton, New Brunswick, Canada (the “Vaughan Harvey Property”)
      from Sun Life Assurance Company of Canada (“Sun Life”). Maricor Properties Ltd
      has undertaken significant renovations of the office complex, particularly
      related to mechanical and electrical systems, as well as certain exterior and
      interior renovations. Mechanical and electrical engineering services in
      connection with the renovations were provided by The Maricor Group, Canada
      Ltd.
      The Maricor Group, Canada Ltd’s Moncton office relocated to the facility during
      the fourth quarter of 2004.





On
      February 22, 2005, the Company announced the formation of Maricor Technologies,
      Inc. (“MTI”), a wholly-owned, software technology-based subsidiary.
      Concurrently, MTI acquired lifecycle asset management and capital budget
      planning software assets that complements MAM’s U.S. and Canadian engineering
      and facilities lifecycle asset management services companies. MTI is
      headquartered in Presque Isle, Maine, with an office in Portland, Maine.




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


10


**New
      Accounting Pronouncements**





In
      March
      2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
      Asset Retirement Obligations” (“FIN 47”), effective for fiscal years ending
      after December 15, 2005. FIN 47 clarifies the term “conditional asset retirement
      obligation”, used in FASB Statement No. 143, “Accounting for Asset Retirement
      Obligations”, as referring to a “legal obligation to perform an asset retirement
      activity in which the timing and/or method of settlement are conditional on
      a
      future event that may or may not be within the control of the entity”. Based on
      this interpretation, MPS will be required to recognize an asset retirement
      obligation associated with the Poly Chlorinated Bi-Phenol Transformer phase-out
      program, described more fully in Note 8 of these Consolidated Financial
      Statements. The amount of the impact of this liability on the Company’s
      financial statements has not yet been determined.





FASB
      Statement No. 123 (Revised 2004), Share-Based Payment (SFAS 123(R)) was issued
      in December 2004. SFAS 123(R) replaces SFAS No. 123, Accounting for Stock-Based
      Compensation ** (SFAS
      123), and supersedes Accounting Principles Board (“APB”) Opinion No. 25,
      Accounting for Stock Issued to Employees. SFAS 123(R) requires companies to
      recognize the compensation cost related to share-based payment transactions
      with
      employees in the financial statements. The compensation cost is measured based
      upon the fair value of the instrument issued. Share-based compensation
      transactions with employees covered within SFAS 123(R) include stock options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee stock purchase plans. SFAS 123 included a fair-value-based method
      of
      accounting for share-based payment transactions with employees, but allowed
      companies to continue to apply the guidance in APB Opinion No. 25 provided
      that
      they disclose in the footnotes to the financial statements the pro forma net
      income if the fair-value-based method has been applied. The Company currently
      uses the fair-value-based method for recognition of compensation expense under
      SFAS 123. SFAS 123(R) requires the use of the modified prospective
      application transition method. The modified prospective application transition
      method requires the application of this standard to:




•
            All
                new awards issued after the effective date of January 1, 2006;




•
            All
                modifications, repurchased or cancellations of existing awards after
                the
                effective date; and




•
            Unvested
                awards at the effective date.




For
      unvested awards, the compensation cost related to the remaining “requisite
      serve” that has not been rendered at the effective date will be determined by
      the compensation cost calculated currently for either recognition under SFAS
      123. The Company will be adopting the modified prospective application of SFAS
      123(R). Based on the current options outstanding, the Company does not
      anticipate the adoption of this statement to result in the recognition of
      material additional compensation cost in the year of adoption.




On
      October 13, 2004, the FASB ratified Emerging Issues Task Force (“EITF”) Issue
      No. 04-1 (“EITF 04-1”), effective for business combinations consummated,
      and goodwill impairment tests performed, in reporting periods beginning after
      that date. EITF 04-1 is applicable when two parties that have a pre-existing
      contractual relationship enter into a business combination. The EITF issue
      addresses whether a business combination between two parties that have a
      pre-existing contractual relationship should be evaluated to determine if a
      settlement of a pre-existing contractual relationship exists. Such settlement
      would require accounting separate from the business combination. If it is
      determined that assets of the acquired entity that are related to a pre-existing
      contractual relationship with the acquiring entity should be recognized as
      part
      of the business combination, EITF 04-1 also considers whether the acquiring
      entity should recognize those assets as intangible assets apart from goodwill.
      Adoption of EITF 04-1 did not have a material impact on the Company’s financial
      statements at June 30, 2005.


11


**2.**
            **INCOME
                TAXES**





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





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,*****(In
                thousands of dollars)***
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Current
                (benefit of) provision for income taxesFederal
            
            $
            (208
            )
            $
            (430
            )
            $
            267
            
            $
            93State
            
            
            (132
            )
            
            (82
            )
            
            62
            
            
            100Canadian
            
            
            (106
            )
            
            71
            
            
            (151
            )
            
            73Total
                current (benefit of) provision for income taxes
            
            
            (446
            )
            
            (441
            )
            
            178
            
            
            266Deferred
                (benefit of) provision for income taxesFederal
            
            $
            (68
            )
            $
            235
            
            $
            225
            
            $
            432State
            
            
            (6
            )
            
            20
            
            
            20
            
            
            38Canadian
            
            
            —
            
            
            —
            
            
            —
            
            
            —Total
                deferred (benefit of) provision for income taxes
            
            
            (74
            )
            
            255
            
            
            245
            
            
            470Investment
                credits, net
            
            
            (6
            )
            
            (7
            )
            
            (12
            )
            
            (14
            )Total
                (benefit of) provision for income taxes
            
            $
            (526
            )
            $
            (193
            )
            $
            411
            
            $
            722Allocated
                to:Operating
                income-  Regulated
            
            $
            (191
            )
            $
            (41
            )
            $
            994
            
            $
            1,207-  Unregulated
            
            
            (334
            )
            
            (149
            )
            
            (587
            )
            
            (230
            )Subtotal
            
            
            (525
            )
            
            (190
            )
            
            407
            
            
            977Discontinued
                Operations
            
            
            (2
            )
            
            (21
            )
            
            3
            
            
            (264
            )Total
                Operating
            
            
            (527
            )
            
            (211
            )
            
            410
            
            
            713Other
                income
            
            
            1
            
            
            18
            
            
            1
            
            
            9Total
            
            $
            (526
            )
            $
            (193
            )
            $
            411
            
            $
            722




For
      the
      six months ended June 30, 2005, and 2004, the effective income tax rates were
      46.2% and 36.8%, respectively. The principal reasons for the effective tax
      rates
      differing from the US federal and state income tax rates are increased presence
      in Canada, and certain expenses under US GAAP that are not deductible for
      Canadian tax purposes.





The
      Company has not accrued U.S. income taxes on the undistributed earnings of
      ME&NB, as the withholding taxes due on the distribution of any remaining
      amount would be principally offset by foreign tax credits. No dividends were
      received from ME&NB in 2005 or 2004.





As
      required by SFAS No. 109, Management of the Company has evaluated the positive
      and negative evidence bearing upon the realizability of the Company’s deferred
      tax assets, which consist principally of pension and post-retirement benefits
      and accumulated Other Comprehensive Income (“OCI”) — interest rate hedge. For
      the quarter ended June 30, 2005, and the year ended December 31, 2004,
      Management evaluated the need for a deferred tax asset valuation allowance
      and
      determined that no adjustment was needed.


12


The
      following summarizes accumulated deferred income tax (assets) and liabilities
      established on temporary differences under SFAS 109 as of June 30, 2005, and
      December 31, 2004:




***(In
                thousands of dollars)***
            
            **June
                30,**
              **2005**
            
            **December
                31,**
              **2004**Seabrook
            
            $
            6,871
            
            $
            6,964Property
            
            
            9,304
            
            
            9,068Flexible
                pricing revenue
            
            
            963
            
            
            925Deferred
                fuel
            
            
            10,558
            
            
            9,832Wheelabrator-Sherman
                up-front payment
            
            
            868
            
            
            1,158Pension
                and post-retirement benefits
            
            
            (1,135
            )
            
            (945
            )OCI
            
            
            (570
            )
            
            (272
            )Other
            
            
            (66
            )
            
            115Net
                accumulated deferred income taxes
            
            $
            26,793
            
            $
            26,845





**3.**
            **DISCONTINUED
                OPERATIONS — ENERGY ATLANTIC**




On
      March
      1, 2004, EA suspended all active operations and has been classified as a
      discontinued operation in accordance with FASB No. 144, as discussed in more
      detail below. EA participated in the wholesale power market beginning in 1999,
      and continuing until March 1, 2000, when it began selling energy in the retail
      electricity market within the State of Maine. Maine’s retail electric market
      consists of two sectors, Standard Offer Service (“SOS”) and Competitive Energy
      Supply (“CES”). The MPUC requests bids from CES providers for SOS in each
      utility service territory.




On
      February 21, 2003, EA announced its withdrawal from the retail electricity
      markets in northern Maine, and ceased all of its energy marketing activities
      in
      MPS’s service territory, as well as the balance of the State, effective March 1,
      2004, with the intent to stay inactive until market conditions, the availability
      of supply, the mandate for stringent credit requirements and the risk
      environment improve. EA continued to serve its existing contracts in Maine
      through their expiration on February 27, 2004. CES sales, primarily in northern
      Maine, were approximately $6.1 million in 2003.




Although
      Management will continue to monitor both U.S. and Canadian deregulated markets
      to evaluate the merits of possible re-entry into the deregulated electric energy
      retail market, it is doubtful that market conditions, credit requirements and
      risks will become favorable for re-entry. EA has no employees and its operations
      have been discontinued. The Company is not aware of any contingent liabilities
      related to this discontinued operation which would materially impact financial
      results.




The
      Company recognized income (loss) from discontinued operations of $5,000 and
      $(405,000) for the six months ended June 30, 2005, and 2004, respectively,
      classified as discontinued operations in the Statement of Consolidated
      Operations. The 2005 year-to-date net income represents the final settlement
      of
      software and equipment lease obligations and miscellaneous other small
      transactions. The 2004 net loss includes additional software lease expense
      of
      $181,000, recognized on the buy-out of a software lease by EA, $172,000 for
      employee severance payments, and a loss on disposal of fixed assets of $69,000.
      The following table summarizes the statement of operations for EA:




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Revenue
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            562Expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,161
            )Other
                income, deductions and interest
            
            
            (5
            )
            
            (59
            )
            
            8
            
            
            (70
            )Pretax
                (loss) income from discontinued operations
            
            
            (5
            )
            
            (59
            )
            
            8
            
            
            (669
            )Income
                tax benefit (provision)
            
            
            2
            
            
            21
            
            
            (3
            )
            
            264(Loss)
                income from discontinued operations
            
            $
            (3
            )
            $
            (38
            )
            $
            5
            
            $
            (405
            )Loss
                per share from discontinued operations (basic and diluted)
            
            $
            —
            
            $
            (0.02
            )
            $
            —
            
            $
            (0.25
            )


13




The
      major
      classes of assets and liabilities of the discontinued operations included in
      the
      Company’s consolidated balance sheets as of June 30, 2005, are as follows:





***(In
                thousands of dollars)***
            
            **June
                30, 2005****Assets**Cash
                and cash equivalents
            
            $
            107Income
                tax benefit - parent
            
            
            260Other
                assets
            
            
            8Total
                Assets
            
            $
            375**Liabilities**Accounts
                payable
            
            $
            29Total
                Liabilities
            
            $
            29





**4.**
            **SEGMENT
                INFORMATION**




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




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




•
            Unregulated
                engineering services: The Maricor Group and all of its subsidiaries
                and
                product and service lines;




•
            Unregulated
                real estate development and investments: Maricor Properties Ltd and
                its
                subsidiary Mecel Properties Ltd and all of their real estate holdings;
                and




•
            Unregulated
                energy marketing: EA, an inactive subsidiary.




The
      “Other” column presented in the table below summarizes unallocable expenses for
      the holding company, MAM, activity for Maricor Technologies, and the
      inter-company eliminations. The segment information for 2004 has been
      reclassified to conform to the 2005 presentation.





The
      accounting policies of the segments are the same as those described in Note
      1,
“Summary of Significant Accounting Policies.” MAM provides certain
      administrative support services to MPS and its inactive subsidiary; The Maricor
      Group and its subsidiaries; Maricor Properties Ltd and its subsidiary; and
      Maricor Technologies, Inc. MAM also provides minimal administrative services
      to
      its inactive subsidiary, EA. MPS provides certain support services to MAM and
      its unregulated subsidiaries, which include The Maricor Group and its
      subsidiaries; Maricor Properties and its subsidiaries; and Maricor Technologies.
      Service costs are billed to the respective entities at cost through
      inter-company transactions based on a combination of direct charges and
      allocations.


14




***(In
                thousands of dollars)*****Three
                Months Ended June 30, 2005****Regulated**
              **Electric**
              **Utility**
            
            **Unregulated**
              **Engineering**
              **Services**
            
            **Unregulated**
              **Real
                Estate**
              **Holdings**
            
            **Unregulated**
              **Energy**
              **Marketing**
            
            **Other**
            
            **Total**Revenue
                from External CustomersRegulated
            
            $
            7,073
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            7,073Unregulated
            
            
            —
            
            
            1,366
            
            
            76
            
            
            —
            
            
            (20
            )
            
            1,422Total
                Operating Revenues
            
            
            7,073
            
            
            1,366
            
            
            76
            
            
            —
            
            
            (20
            )
            
            8,495Operating
                ExpensesRegulated
                Operation & Maintenance
            
            
            3,751
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,751Unregulated
                Operation & Maintenance
            
            
            —
            
            
            1,856
            
            
            86
            
            
            —
            
            
            128
            
            
            2,070Depreciation
            
            
            695
            
            
            5
            
            
            15
            
            
            —
            
            
            1
            
            
            716Amortization
                of Stranded Cost
            
            
            2,469
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,469Amortization
            
            
            73
            
            
            50
            
            
            —
            
            
            —
            
            
            —
            
            
            123Taxes
                Other than Income
            
            
            421
            
            
            17
            
            
            —
            
            
            —
            
            
            15
            
            
            453Income
                Taxes
            
            
            (191
            )
            
            (335
            )
            
            (25
            )
            
            —
            
            
            26
            
            
            (525
            )Total
                Operating Expenses
            
            
            7,218
            
            
            1,593
            
            
            76
            
            
            —
            
            
            170
            
            
            9,057Operating
                Loss
            
            
            (145
            )
            
            (227
            )
            
            —
            
            
            —
            
            
            (190
            )
            
            (562
            )Other
                Income (Deductions)Equity
                in Income of Associated Companies
            
            
            39
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            39Interest
                and Dividend Income
            
            
            18
            
            
            11
            
            
            —
            
            
            —
            
            
            (22
            )
            
            7Other
                Income (Deductions)
            
            
            25
            
            
            —
            
            
            —
            
            
            —
            
            
            9
            
            
            34Total
                Other Income (Deductions)
            
            
            82
            
            
            11
            
            
            —
            
            
            —
            
            
            (13
            )
            
            80Loss
                Before Interest Charges
            
            
            (63
            )
            
            (216
            )
            
            —
            
            
            —
            
            
            (203
            )
            
            (482
            )Interest
                Charges
            
            
            245
            
            
            150
            
            
            30
            
            
            —
            
            
            (112
            )
            
            313Loss
                from Continuing Operations
            
            
            (308
            )
            
            (366
            )
            
            (30
            )
            
            —
            
            
            (91
            )
            
            (795
            )Loss
                from Discontinued Operations
            
            
            —
            
            
            —
            
            
            —
            
            
            (3
            )
            
            —
            
            
            (3
            )Net
                Loss
            
            $
            (308
            )
            $
            (366
            )
            $
            (30
            )
            $
            (3
            )
            $
            (91
            )
            $
            (798
            )


15




***(In
                thousands of dollars)*****Three
                Months Ended June 30, 2004****Regulated**
              **Electric**
              **Utility**
            
            **Unregulated**
              **Engineering**
              **Services**
            
            **Unregulated**
              **Real
                Estate**
              **Holdings**
            
            **Unregulated**
              **Energy**
              **Marketing**
            
            **Other**
            
            **Total**Revenue
                from External CustomersRegulated
            
            $
            6,881
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            1
            
            $
            6,882Unregulated
            
            
            —
            
            
            625
            
            
            6
            
            
            —
            
            
            (6
            )
            
            625Total
                Operating Revenues
            
            
            6,881
            
            
            625
            
            
            6
            
            
            —
            
            
            (5
            )
            
            7,507Operating
                ExpensesRegulated
                Operation & Maintenance
            
            
            3,304
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            3,304Unregulated
                Operation & Maintenance
            
            
            —
            
            
            888
            
            
            5
            
            
            —
            
            
            (10
            )
            
            883Depreciation
            
            
            656
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            656Amortization
                of Stranded Cost
            
            
            2,383
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            2,383Amortization
            
            
            20
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            20Taxes
                Other than Income
            
            
            386
            
            
            106
            
            
            —
            
            
            —
            
            
            1
            
            
            493Income
                Taxes
            
            
            (41
            )
            
            (158
            )
            
            1
            
            
            —
            
            
            8
            
            
            (190
            )Total
                Operating Expenses
            
            
            6,708
            
            
            836
            
            
            6
            
            
            —
            
            
            (1
            )
            
            7,549Operating
                Income (Loss)
            
            
            173
            
            
            (211
            )
            
            —
            
            
            —
            
            
            (4
            )
            
            (42
            )Other
                Income (Deductions)Equity
                in Income of Associated Companies
            
            
            58
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            58Interest
                and Dividend Income
            
            
            1
            
            
            —
            
            
            —
            
            
            —
            
            
            3
            
            
            4Other
                Income (Deductions)
            
            
            (8
            )
            
            5
            
            
            —
            
            
            —
            
            
            (32
            )
            
            (35
            )Total
                Other Income (Deductions)
            
            
            51
            
            
            5
            
            
            —
            
            
            —
            
            
            (29
            )
            
            27Income
                (Loss) Before Interest Charges
            
            
            224
            
            
            (206
            )
            
            —
            
            
            —
            
            
            (33
            )
            
            (15
            )Interest
                Charges
            
            
            255
            
            
            10
            
            
            —
            
            
            —
            
            
            (10
            )
            
            255Loss
                from Continuing Operations
            
            
            (31
            )
            
            (216
            )
            
            —
            
            
            —
            
            
            (23
            )
            
            (270
            )Loss
                from Discontinued Operations
            
            
            —
            
            
            —
            
            
            —
            
            
            (38
            )
            
            —
            
            
            (38
            )Net
                Loss
            
            $
            (31
            )
            $
            (216
            )
            $
            —
            
            $
            (38
            )
            $
            (23
            )
            $
            (308
            )


16




***(In
                thousands of dollars)*****Six
                Months Ended June 30, 2005****Regulated**
              **Electric**
              **Utility**
            
            **Unregulated**
              **Engineering**
              **Services**
            
            **Unregulated**
              **Real
                Estate**
              **Holdings**
            
            **Unregulated**
              **Energy**
              **Marketing**
            
            **Other**
            
            **Total**Revenue
                from External CustomersRegulated
            
            $
            17,387
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            17,387Unregulated
            
            
            —
            
            
            2,769
            
            
            145
            
            
            —
            
            
            (72
            )
            
            2,842Total
                Operating Revenues
            
            
            17,387
            
            
            2,769
            
            
            145
            
            
            —
            
            
            (72
            )
            
            20,229Operating
                ExpensesRegulated
                Operation & Maintenance
            
            
            7,104
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            7,104Unregulated
                Operation & Maintenance
            
            
            —
            
            
            3,747
            
            
            186
            
            
            —
            
            
            73
            
            
            4,006Depreciation
            
            
            1,386
            
            
            8
            
            
            28
            
            
            —
            
            
            1
            
            
            1,423Amortization
                of Stranded Cost
            
            
            5,148
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            5,148Amortization
            
            
            147
            
            
            84
            
            
            —
            
            
            —
            
            
            (1
            )
            
            230Taxes
                Other than Income
            
            
            859
            
            
            39
            
            
            —
            
            
            —
            
            
            30
            
            
            928Income
                Taxes
            
            
            994
            
            
            (518
            )
            
            (46
            )
            
            —
            
            
            (23
            )
            
            407Total
                Operating Expenses
            
            
            15,638
            
            
            3,360
            
            
            168
            
            
            —
            
            
            80
            
            
            19,246Operating
                Income (Loss)
            
            
            1,749
            
            
            (591
            )
            
            (23
            )
            
            —
            
            
            (152
            )
            
            983Other
                Income (Deductions)Equity
                in Income of Associated Companies
            
            
            88
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            88Interest
                and Dividend Income
            
            
            22
            
            
            12
            
            
            1
            
            
            —
            
            
            (21
            )
            
            14Other
                Income (Deductions)
            
            
            15
            
            
            (2
            )
            
            (1
            )
            
            —
            
            
            (5
            )
            
            7Total
                Other Income (Deductions)
            
            
            125
            
            
            10
            
            
            —
            
            
            —
            
            
            (26
            )
            
            109Income
                (Loss) Before Interest Charges
            
            
            1,874
            
            
            (581
            )
            
            (23
            )
            
            —
            
            
            (178
            )
            
            1,092Interest
                Charges
            
            
            485
            
            
            188
            
            
            52
            
            
            —
            
            
            (107
            )
            
            618Income
                (Loss) from Continuing Operations
            
            
            1,389
            
            
            (769
            )
            
            (75
            )
            
            —
            
            
            (71
            )
            
            474Income
                from Discontinued Operations
            
            
            —
            
            
            —
            
            
            —
            
            
            5
            
            
            —
            
            
            5Net
                Income (Loss)
            
            $
            1,389
            
            $
            (769
            )
            $
            (75
            )
            $
            5
            
            $
            (71
            )
            $
            479Total
                Assets
            
            $
            136,055
            
            $
            7,286
            
            $
            2,480
            
            $
            375
            
            $
            4,079
            
            $
            150,275


17




***(In
                thousands of dollars)*****Six
                Months Ended June 30, 2004****Regulated**
              **Electric**
              **Utility**
            
            **Unregulated**
              **Engineering**
              **Services**
            
            **Unregulated**
              **Real
                Estate**
              **Holdings**
            
            **Unregulated**
              **Energy**
              **Marketing**
            
            **Other**
            
            **Total**Revenue
                from External CustomersRegulated
            
            $
            17,090
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            17,090Unregulated
            
            
            —
            
            
            915
            
            
            6
            
            
            —
            
            
            (6
            )
            
            915Total
                Operating Revenues
            
            
            17,090
            
            
            915
            
            
            6
            
            
            —
            
            
            (6
            )
            
            18,005Operating
                ExpensesRegulated
                Operation & Maintenance
            
            
            6,691
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            6,691Unregulated
                Operation & Maintenance
            
            
            —
            
            
            1,343
            
            
            5
            
            
            —
            
            
            (10
            )
            
            1,338Depreciation
            
            
            1,289
            
            
            —
            
            
            —
            
            
            —
            
            
            1
            
            
            1,290Amortization
                of Stranded Cost
            
            
            4,647
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            4,647Amortization
            
            
            39
            
            
            —
            
            
            —
            
            
            —
            
            
            —
            
            
            39Taxes
                Other than Income
            
            
            752
            
            
            107
            
            
            —
            
            
            —
            
            
            1
            
            
            860Income
                Taxes
            
            
            1,207
            
            
            (226
            )
            
            1
            
            
            —
            
            
            (5
            )
            
            977Total
                Operating Expenses
            
            
            14,625
            
            
            1,224
            
            
            6
            
            
            —
            
            
            (13
            )
            
            15,842Operating
                Income (Loss)
            
            
            2,465
            
            
            (309
            )
            
            —
            
            
            —
            
            
            7
            
            
            2,163Other
                Income (Deductions)Equity
                in Income of Associated Companies
            
            
            117
            
            
            —
            
            
            —
            
            
            —
            
            
            (2
            )
            
            115Interest
                and Dividend Income
            
            
            15
            
            
            —
            
            
            —
            
            
            —
            
            
            5
            
            
            20Other
                Income (Deductions)
            
            
            (120
            )
            
            (1
            )
            
            —
            
            
            —
            
            
            (41
            )
            
            (162
            )Total
                Other Income (Deductions)
            
            
            12
            
            
            (1
            )
            
            —
            
            
            —
            
            
            (38
            )
            
            (27
            )Income
                (Loss) Before Interest Charges
            
            
            2,477
            
            
            (310
            )
            
            —
            
            
            —
            
            
            (31
            )
            
            2,136Interest
                Charges
            
            
            493
            
            
            13
            
            
            —
            
            
            —
            
            
            (17
            )
            
            489Income
                (Loss) from Continuing Operations
            
            
            1,984
            
            
            (323
            )
            
            —
            
            
            —
            
            
            (14
            )
            
            1,647Loss
                from Discontinued Operations
            
            
            —
            
            
            —
            
            
            —
            
            
            (405
            )
            
            —
            
            
            (405
            )Net
                Income (Loss)
            
            $
            1,984
            
            $
            (323
            )
            $
            —
            
            $
            (405
            )
            $
            (14
            )
            $
            1,242Total
                Assets
            
            $
            136,183
            
            $
            7,253
            
            $
            442
            
            $
            661
            
            $
            6,267
            
            $
            150,806


18


**5.**
            **INVESTMENTS
                IN ASSOCIATED COMPANIES**





MPS
      owns
      5% of the common stock of Maine Yankee Atomic Power Company (“Maine Yankee”), a
      jointly-owned nuclear electric power company, and 7.49% of the common stock
      of
      the Maine Electric Power Company (“MEPCO,”) a jointly-owned electric
      transmission company. MPS records its investment in MEPCO and Maine Yankee
      using
      the equity method.




Dividends
      of $25,000 and $1,800 were declared by Maine Yankee and MEPCO, respectively,
      during the second quarter of 2005. No dividends were received from either
      company in the second quarter of 2005. Dividends received during the second
      quarter of 2004 from Maine Yankee were $75,000 and from MEPCO $1,800.




In
      the
      second quarter of 2005, MPS received Maine Yankee stock redemptions of $305,000.
      No stock redemptions occurred in the second quarter of 2004. Substantially
      all
      earnings of Maine Yankee and MEPCO are distributed to investor companies.




**6.**
            **STOCK
                COMPENSATION PLAN**




Upon
      approval by MPS’s shareholders in June 2002, MPS adopted the 2002 Stock Option
      Plan (the “Plan”). The Plan was subsequently adopted by the Company after its
      formation. The Plan provides designated employees of the Company and its
      Subsidiaries with stock ownership opportunities and additional incentives to
      contribute to the success of the Company, and to attract, reward and retain
      employees of outstanding ability. The Plan is administered by the members of
      the
      Performance and Compensation Committee of the Board of Directors, who are not
      employees of the Company or its subsidiaries. The Company may grant options
      to
      its employees for up to 150,000 shares of common stock, provided that the
      maximum aggregate number of shares which may be issued under the Plan pursuant
      to incentive stock options shall be 120,000 shares. The exercise price for
      shares to be issued under any incentive stock option shall not be less than
      one-hundred percent (100%) of the fair market value of such shares on the date
      the option is granted. An option’s maximum term is ten years. As of June 30,
      2005, the CEO has been the only employee to receive stock options.




The
      Company accounts for the fair value of its grants under the Plan in accordance
      with the expense provisions of Statement of Financial Accounting Standards
      No.
      123, “Accounting for Stock-Based Compensation.”




The
      fair
      value of each option grant is estimated on the date of grant using the
      Black-Scholes option-pricing model with the following weighted-average
      assumptions used for the grants: dividend yield of 4.08%; expected volatility
      of
      20%; risk-free interest rate of 3.80%; and expected lives of seven (7) years
      from the grant date. On June 1, 2005, 5,250 options became fully vested and
      exercisable under the provisions of the Plan. There are 15,750 unvested options
      outstanding at June 30, 2005.




A
      summary
      of the status of the Company’s stock option plan as of June 30, 2005, and
      changes during the six months then ended is presented below:






***(In
                thousands of dollars)***
            
            **Shares**
            
            **Exercise
                Price****Options**
            
            **2005**
            
            **2005**Outstanding
                at December 31, 2004
            
            
            15,750
            
            $
            30.85Granted
            
            
            5,250
            
            
            26.65Exercised
            
            
            0
            
            
            0Forfeited
            
            
            0
            
            
            0Outstanding
                at June 30, 2005
            
            
            21,000
            
            $
            29.80Options
                exercisable at June 30, 2005
            
            
            5,250
            
            $
            30.45Weighted-average
                fair value of options granted
            
            $
            2.64


19


The
      following table summarizes information about fixed stock options outstanding
      at
      June 30, 2005:




**Options
                Outstanding**
            
            **Options
                Exercisable****Range
                of Exercise**
              **Prices**
            
            **Number**
              **Outstanding at**
              **6/30/05**
            
            **Weighted-**
              **Average**
              **Remaining**
              **Contractual Life**
            
            **Weighted-**
              **Average**
              **Exercise Price**
            
            **Number**
              **Exercisable at**
              **6/30/05**
            
            **Weighted-**
              **Average**
              **Exercise Price**$26.65 - $32.00
            
            
            21,000
            
            
            8.42
                yrs
            
            $
            29.80
            
            
            5,250
            
            $
            30.45




Dilutive
      earnings per share impact of outstanding stock options:




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                (Loss) Income
            
            $
            (798
            )
            $
            (308
            )
            $
            479
            
            $
            1,242Shares
                used in computation:Weighted-Average
                common shares outstanding in Computation of basic earnings per
                share
            
            
            1,636,167
            
            
            1,599,001
            
            
            1,636,037
            
            
            1,589,851Dilutive
                effect of common stock options
            
            
            18,375
            
            
            13,125
            
            
            18,375
            
            
            13,125Other
                dilutive shares
            
            
            5,955
            
            
            0
            
            
            5,955
            
            
            0Shares
                used in computation of earnings per common share assuming
                dilution
            
            
            1,660,497
            
            
            1,612,126
            
            
            1,660,367
            
            
            1,602,976Net
                (loss) income per share basic
            
            $
            (0.49
            )
            $
            (0.19
            )
            $
            0.29
            
            $
            0.78Net
                (loss) income per common share diluted
            
            $
            (0.49
            )
            $
            (0.19
            )
            $
            0.29
            
            $
            0.77





**7****.**
            **BENEFIT
                PROGRAMS**




The
      Company provides certain pension, post-retirement and welfare benefit programs
      to its employees. Benefit programs are an integral part of the Company’s
      commitment to hiring and retaining top grade employees, providing market-based
      compensation that rewards individual and corporate performance. The Company
      continues to offer market-based total compensation to its employees that
      includes varying funded benefit programs, salary, bonuses, incentives, and
      commissions, depending upon an individuals’s particular job classification. The
      Company offers welfare benefit plans to all employees, consisting of healthcare,
      life insurance, long-term disability, and accidental disability insurance.
      The
      Company also offers retirement savings programs to most employees in the form
      of
      401(k) plans in the United States or Canadian Pension Plans in Canada. These
      plans allow voluntary contributions by the employee and may contain a
      contribution by the Company.




**U.
      S. Defined Benefit Pension Plan**




The
      Company has non-contributory defined benefit pension plan covering Maine Public
      Service and certain MAM employees. Most non-regulated employees are not eligible
      for this benefit plan. Benefits under the plan are based on employees’ years of
      service and compensation prior to retirement. The Company’s policy has been to
      fund pension costs accrued. In accordance with that policy, the Company intends
      to contribute approximately $625,000 to the pension plan for 2004 in 2005,
      prior
      to the filing of its 2004 corporate income tax return. In addition, the Company
      is currently making quarterly payments for the 2005 plan year, in accordance
      with IRS requirements due to the plan’s market value dropping below the fully
      funded level. These quarterly payments for 2005 are approximately $205,000
      each
      and affect the plan funding level, but not the amount of expense to be
      recognized. Expenses by quarter are summarized in the table below. Lower than
      required investment returns, combined with the increasing life expectancy of
      retirees, has and will continue to impact liabilities related to pension
      benefits. Management and the Board of Directors are evaluating options to
      control such costs and risks associated with MPS’s defined benefit pension plan
      and recognize that actions must be taken to address challenges associated with
      retiree benefits.





**Health
      Care Benefits**




The
      Company provides certain health care benefits to eligible employees. Eligible
      employees share in the cost of their medical benefits, in addition to plan
      deductibles and coinsurance payments. The plan also covers retiree medical
      coverage for employees of Maine Public Service Company, the regulated utility.
      In 2002, certain amendments were made to the plan, including the following:
      Effective with retirements after January 1, 1995, and employees hired before
      January 1, 2003, retirees will be eligible for retiree medical coverage after
      completing twenty years of service, subject to a contribution schedule.
      Employees hired after January 1, 2003, are eligible for retiree medical coverage
      after completing twenty-five years of service; however, their spouse will not
      be
      eligible for coverage. For employees hired after December 31, 1999, and prior
      to
      January 1, 2003, spousal retiree medical coverage ceases upon the spouse’s
      attainment of age 65. Retirees who were hired before January 1, 2003, contribute
      to the cost of their coverage starting at 60% for retirees with twenty years
      of
      service with the contribution declining to $69.33 per month until age 65 and
      $21.62 per month thereafter for thirty or more years of service. Retirees who
      were hired after January 1, 2003, contribute to the cost of their coverage
      starting at 70% for retirees with twenty-five years of service and declining
      to
      the above-mentioned monthly amounts for thirty or more years of service. The
      above amendments in plan provisions have been incorporated into the calculation
      of the related actuarial benefit obligation. The Company continues to evaluate
      the increasing financial liabilities associated with health care benefits and
      is
      considering options that ensure competitive employee benefits and control
      costs.


20


Based
      on
      prior MPUC accounting orders, the Company established a regulatory asset of
      approximately $1,061,000 in 1993, representing deferred post-retirement
      benefits. As an element of its four-year rate plan, the Company began recovering
      these deferred expenses over a ten-year period, along with the annual expenses
      in excess of pay-as-you-go expenses, starting in 1996. For purposes of
      determining the accrued post-retirement benefit cost as of June 30, 2005, and
      December 31, 2004, the health care cost trend rate used was 8.0% in 2005 and
      2004 and graded down to 4% in 2012, remaining at that level thereafter. These
      rates have a significant effect on the amounts reported for the health care
      plan.





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




**Pension
                Benefits**
            
            **Other
                Benefits*****(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,**
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Service
                cost
            
            $
            122
            
            $
            118
            
            $
            244
            
            $
            236
            
            $
            46
            
            $
            55
            
            $
            92
            
            $
            110Interest
                cost
            
            
            283
            
            
            289
            
            
            566
            
            
            578
            
            
            126
            
            
            146
            
            
            252
            
            
            292Expected
                return on plan assets
            
            
            (269
            )
            
            (304
            )
            
            (538
            )
            
            (608
            )
            
            (54
            )
            
            (51
            )
            
            (108
            )
            
            (102
            )Amortization
                of transition obligation
            
            
            0
            
            
            0
            
            
            0
            
            
            0
            
            
            36
            
            
            36
            
            
            72
            
            
            72Amortization
                of prior service cost
            
            
            23
            
            
            23
            
            
            46
            
            
            46
            
            
            (15
            )
            
            (15
            )
            
            (30
            )
            
            (30
            )Recognized
                net actuarial (gain)
            
            
            26
            
            
            0
            
            
            52
            
            
            0
            
            
            42
            
            
            53
            
            
            84
            
            
            106Net
                periodic benefit cost
            
            $
            185
            
            $
            126
            
            $
            370
            
            $
            252
            
            $
            181
            
            $
            224
            
            $
            362
            
            $
            448




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




**Federal
      Energy Regulatory Commission 2005 Open Access Transmission Tariff Formula Rate
      filing, FERC Docket ER05-... (formula change filing) and ER00-1053-... (calculation
      of the revenue requirement filing)**




On
      May
      31, 2005, pursuant to Section 205 of the Federal Power Act, 16 U.S.C. Section
      824d, and Title 18 CFR Sections 35.11 and 35.13 of the regulations of
      the FERC, MPS submitted for filing its proposed revisions to its FERC Open
      Access Transmission Tariff in Docket No. ER 05 (the “2005 OATT”) to modify its
      transmission rate formula. 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
      refund that may occur as a result of the proceeding and potential settlement
      negotiations. The retail transmission revenue requirement was increased by
      $288,670 on June 1, 2005, under the 2005 OATT. This represented an increase
      of
      8% to the transmission component of retail delivery rates or an overall impact
      on total retail delivery rates of 0.7%. The primary reason for the increase
      was
      the increase to costs due to mandated Sarbanes-Oxley requirements, and the
      purchase of a new Oracle-based accounting system. MPS is currently responding
      to
      data requests submitted by interveners and cannot predict the outcome of this
      proceeding at this time.





**MPUC
      Approves the Pass-Thru of Retail Transmission Rates to MPS Retail Jurisdictional
      Customers, and the Increase to DSM Mil Rate, MPUC Docket No.
      2003-516**





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


21


**MPUC
      Approves Stranded Cost Revenue Requirements Effective March 1, 2004**




In
      an
      Order dated February 27, 2004, MPS received final approval from the MPUC for
      the
      stranded cost revenue component of its electric delivery rates, effective March
      1, 2004. Under Title 35-A of the Maine Revised Statutes Annotated, Section
      3208,
      the MPUC is required to periodically investigate and adjust the stranded cost
      charges reflected in the rates of a transmission and distribution utility.
      In
      accordance 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’s
      rates must be changed effective March 1, 2004, to reflect any changes in MPS’s
      stranded costs. On February 27, 2004, the MPUC issued an order approving a
      stipulation under which MPS is allowed to recover $11.8 million per year to
      satisfy its approved stranded cost revenue requirements for the “rate effective
      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 cost rates
      approved in Docket No. 2003-85 will remain in effect during the rate effective
      period **.** The
      stipulation approved by the MPUC in Docket 2003-666 also approved and reaffirmed
      each of the elements and associated balances of MPS’s recoverable stranded
      costs.




As
      explained more fully below, during the course of Docket 2003-666 the parties
      reviewed the manner in which MPS was recovering and accounting for its carrying
      charges associated with the deferred fuel element of its stranded cost. As
      a
      result of the stipulation approved in Docket No. 2003-666, MPS will record
      deferred income tax expense associated with deferred fuel carrying charges
      during the rate effective period from March 1, 2004, through December 31, 2006,
      as compared to past treatment where such expense was deferred for future
      recovery. Because the deferred fuel carrying charge component of MPS’s stranded
      costs is not expected to fully amortize until 2012, the Company anticipates
      that
      deferred income tax expense will be incurred through 2012, subject to future
      stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240, the parties
      stipulated that MPS would accrue carrying costs on its unrecovered fuel balance
      (the “deferred fuel account”) during the respective rate effective period at its
      net-of-tax cost of capital rate. Consistent with the stipulation in Docket
      No.
      2001-240, MPS accrued a carrying charge using the net of tax rate of 7.98%
      through October 31, 2003, applied against its unrecovered 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%, based on the cost of capital approved in
      Docket No. 2003-85 (described in Docket 2003-85 Partial Stipulation filed on
      September 2, 2003).




During
      the course of the Docket 2003-666 proceeding, MPS determined that it had not
      previously recognized accumulated deferred income taxes with respect to the
      carrying charges on the deferred fuel account and that the recording of a
      deferred tax liability to its balance sheet pursuant to FAS 109 in the amount
      of
      $2.896 million 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 any adjustment
      was projected to be $18.8 million. Under the stipulation MPS was allowed to
      adjust its accumulated deferred income tax account and the deferred fuel balance
      by $2.896 million, as of March 1, 2004, resulting in a total projected deferred
      balance as of March 1, 2004, of $21.734 million. Under the approved stipulation
      the parties also agreed that the return component on the deferred fuel balance
      should be reduced in such a manner that ratepayers were 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 period ending on December 31, 2006,
      the
      overall pre-tax return component on the deferred fuel balance will be 8.28%,
      reflecting a 6.17% return on equity. The return on the deferred fuel balance
      will be reviewed in future stranded cost rate setting proceedings and will
      be
      adjusted as necessary in order that the present value of the revenue
      requirements of the deferred fuel account without the adjustments described
      above equals the present value of the revenue requirements of the deferred
      fuel
      account with the adjustments. MPS concludes that as a result of this stipulation
      and the foregoing described adjustment to the deferred fuel balance and the
      accumulated deferred income tax liability that no further adjustment is
      necessary under FAS 109 in order to reflect prior unrecorded deferred income
      taxes.




The
      decreased cost of capital rate beginning on March 1, 2004, will have an impact
      on future stranded cost earnings and cash flow, but will not impact future
      distribution or transmission earnings. In the year 2004, the Company recorded
      deferred income tax expense of approximately $412,000 associated with the
      deferred fuel carrying charges. The amount of deferred income tax expense
      recorded in future years will vary depending upon the amount of the accrued
      carrying charge in any year, and the tax rates then in effect. Earnings from
      carrying charges on the Company’s stranded costs in 2004 were approximately
      $267,000 lower than the amount that would have been recorded had the Company
      continued to use the original cost of capital on its deferred fuel balance,
      for
      a total earnings impact of $679,000 in 2004. The impact on future earnings
      resulting from the agreed upon lower cost of capital, when compared against
      the
      cost of capital used in prior stranded cost filings, will vary. Schedules filed
      by the Company as part of the stipulation in Docket No. 2003-666 reflect the
      deferred fuel balance as of March 1, 2003, certain additions relating to the
      Wheelabrator-Sherman above-market contract through December 2006 and the
      amortization of the deferred fuel balance though 2012. Applying these
      assumptions, current tax rates and the agreed upon cost of capital, the Company
      anticipates that the impact on future earnings resulting from recording deferred
      income taxes on accrued carrying charges and applying a lower cost of capital
      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 in 2012. These
      amounts may vary with changes in the deferred fuel balance and other variables
      which the Company cannot predict with certainty at this time. Management is
      analyzing means to mitigate the impact of this stipulation on future net income
      and cash flows.




In
      addition to the return allowed on its deferred fuel account as set forth above,
      under the approved stipulation MPS shall be allowed to recover the following
      pre-tax returns on the applicable stranded cost rate base components during
      the
      rate effective period: (i) the pre-tax return on unrecovered balance of the
      Wheelabrator-Sherman Contract Buydown shall be 2.79% plus its FAME issuance
      costs; (ii) the pre-tax return on the unrecovered Seabrook Investment and
      approved special rate contract costs shall be 11.74%; and, (iii) the pre-tax
      return on the Maine Yankee decommissioning related costs shall be
      8.56%.


22


**Requests
      for Issuance of Certificates of Public Convenience and Necessity in Connection
      With the Construction of a Proposed Transmission Line and Various Transmission
      Service Reservations.**




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




The
      primary purpose of the project is to ensure that the reliability and integrity
      of the MPS transmission grid are maintained under scenarios of reduced on-system
      generator availability and peak load growth. The available firm transfer
      capability of the transmission system when added to the remaining on-system
      hydro generation is not sufficient to meet peak load conditions, should existing
      on-system wood-fired generation become unavailable. The proposed line would
      address this and other reliability concerns by significantly increasing the
      load-serving capability of the northern Maine region and would serve to
      reinforce the vital transmission ties between northern Maine and the New
      Brunswick transmission grid, and thereby significantly reduce the potential
      for
      a voltage collapse under certain contingency events. Additional benefits of
      the
      proposed line include the potential for increasing the number of competitive
      retail electric suppliers and increasing the attractiveness of the region for
      development of additional generation, such as wind farms, by providing increased
      transmission export capacity.




MPS
      has
      requested that the MPUC approve the project in a timely manner so that MPS
      can
      commence construction in 2005, after obtaining all necessary approvals, and
      place the project in service not later than the Fall of 2006. The line will
      use
      approximately 125 single-pole structures with a 450 foot average span length.
      Total length of the line is approximately 10.5 miles with almost 9 miles of
      the
      line utilizing the already cleared right-of-way of the adjacent Line 6905,
      with
      an additional 50 feet of right-of-way to be obtained and cleared on the east
      side of the existing line. This line is to be constructed in conjunction with
      NB
      Power’s portion of the line, which will extend from the Canadian Border to a tap
      on Line 1140 of the NB Power transmission system near the town of Grand Falls,
      New Brunswick.




Under
      the
      Development Agreement entered into by MPS and NB Power in September of 2004,
      each party will be responsible for the construction and costs of its respective
      portion of the interconnection. The Agreement further requires MPS to reserve
      10
      MW of capacity on NB Power’s transmission system in order to provide NB Power an
      opportunity to recover its costs. The projected cost for the MPS portion of
      the
      line is $4.0 million. The Petition filed with the MPUC by MPS indicates that
      its
      costs associated with the new line will be recovered through its transmission
      rates on file with the FERC, and, further, requests approval of the 10MW
      transmission reservation with NB Power.




By
      law,
      the MPUC has six months to determine whether to issue the Certificate, provided
      that the Commission may extend that time period for cause. However, due to
      the
      complexity of the issues in this Docket, the MPUC has set a schedule that would
      resolve the case by the end of August 2005. Hearings were conducted on June
      6,
      7, and 8, 2005 followed by the filing of Briefs by all parties including MPS.
      The examiner’s report, which was issued on July 29, 2005, did not find a
      reliability issue and does not support construction of the line. The Company
      is
      currently awaiting the Commission’s Order in August 2005. MPS cannot predict the
      outcome at this time. However, MPS has determined that it will file exceptions
      to the examiners findings and will seek approval by the MPUC Commissioners.
      Should the Commissioners not approve the petition, MPS will evaluate additional
      legal options. MPS believes this case represents a significant and potentially
      landmark decision that removes from the utility its traditional rights to
      perform and implement rational integrated resources planning in a
      post-deregulation environment as it pertains to transmission security. Should
      this case ultimately not be approved, MPS believes that the risks associated
      with the lack of reliability may be borne by shareholders, while the ability
      to
      mitigate risks through the development and implementation of rational integrated
      transmission resources planning may be eliminated by a unfavorable regulatory
      decision. MPS believes that rational markets, post deregulation, must
      incorporate a balanced approach to responsibilities and authorities that ensures
      the right to mitigate risks regarding transmission system
      reliability.




In
      September 2004, MPS also entered into the Commitment Agreement with NB Power.
      Under this Agreement, which is subject to MPS obtaining all necessary regulatory
      approvals, MPS will reserve 35 MW of transmission capacity on the NB Power
      system in conjunction with the construction of a new 345 kV transmission line
      to
      be constructed from Point Lepreau near Saint John, NB to Orrington, Maine.
      NB
      Power will own and operate the portion of the line on its side of the border,
      while Bangor Hydro-Electric Company (“BHE”) will own and operate the portion of
      the line on the U.S. side of the border known as the Northeast Reliability
      Interconnect (“NRI”). BHE filed 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 the MPUC seeking approval to make the reservation required
      under the Commitment Agreement on December 13, 2004, in MPUC Docket No.
      2004-775. As noted above, MPS’s obligations under the Commitment Agreement are
      dependent upon securing regulatory approval. These dockets remain open. MPS
      cannot predict the outcome of this case at this time.


23


**Wheelabrator-Sherman**




MPS
      was
      ordered into a Power Purchase Agreement (“PPA”) with Wheelabrator-Sherman (“WS”)
      in 1986, which required the purchase of the entire output (up to 126,582 MWH
      per
      year) of a 17.6 MW biomass plant through December 31, 2006. The PPA was
      subsequently amended in 1997, with WS agreeing to price reductions of $10.0
      million through the end of the original term in exchange for an up-front payment
      of $8.7 million in May 1998. The MPUC’s December 1997 approval of the amended
      PPA included a determination that the up-front payment would be treated as
      stranded cost and, therefore, recovered in rates of the transmission and
      distribution company. Total stranded cost included as a regulatory asset under
      the caption “deferred fuel and purchased energy cost” in the accompanying
      balance sheet related to this contract is $27.4 million at June 30, 2005, and
      $25.5 million at December 31, 2004, respectively.




MPS
      and
      WS also agreed to renew the PPA for an additional six years at agreed-upon
      prices and an increase of output to 136,982 MW beginning in 2001. Energy supply
      purchases under this contract through February 29, 2000, were $2.6 million.
      Purchases from WS after March 1, 2000, are reflected as stranded costs. MPS
      estimates its remaining commitment to purchase power under this contract to
      be
      $24.1 million from January 1, 2005, through 2006.





MPS
      currently sells 100% of WS’s output to WPS-PDI. From March 1, 2002, through
      February 29, 2004, Energy Atlantic, the Company’s wholly-owned marketing
      subsidiary, took delivery of 40% of WS’s output and WPS-PDI took the remainder.





Although
      MPS’s earnings associated with stranded costs will be reduced during the period
      from 2004 through 2012, it should not impact the collection of “stranded cost
      freed-up cash flows” post 2006 that are a result of levelization of stranded
      costs and the deferring of total collections of stranded costs associated with
      its Wheelabrator-Sherman NUG Contract during the years 1999 through 2006. In
      the
      1998-99 timeframe, in order to reduce the rate impact of stranded cost recovery,
      MPS chose to collect its stranded costs on a levelized recovery basis over
      a
      longer term versus collecting stranded costs equaling annualized payouts of
      its
      NUG generation contract with Wheelabrator-Sherman. In so doing, MPS has and
      will
      pay the full contract costs of the Wheelabrator-Sherman NUG Contract until
      it
      expires in 2006. However, during this term MPS has and will only collect a
      percentage of the total costs from its consumers. From 2007 until approximately
      2012, MPS will collect the balance due from its ratepayers, but will no longer
      have the liability of the Wheelabrator-Sherman NUG Contract. Those monies that
      were deferred will be collected during the referenced period and are referred
      to
      as “stranded cost freed-up cash flows.” MPS has received and continues to
      receive varying rates of return on its stranded cost regulatory assets.




**Poly
      Chlorinated Bi-Phenol Transformers**




In
      response to a Maine environmental regulation to phase out Poly Chlorinated
      Bi-phenol (“PCB”) transformers, MPS has implemented a program to eliminate
      transformers on its system that do not meet the new State environmental
      guidelines. The program is in the process of testing almost 13,000 distribution
      transformers over a ten-year period. MPS is currently in its fifth year of
      this
      ten-year program. In addition, transformers that pass the inspection criteria
      will be refurbished and refitted with lightning arrestors and animal guards.
      The
      initial cost of the ten-year program was estimated to be $5.0 million and,
      as of
      June 30, 2005, $1.24 million has been spent on this effort.




**Off-Balance
      Sheet Arrangements**




The
      Company does not have any variable interest entities as defined by Financial
      Accounting Standards Board Interpretation No. 46, “Consolidation of Variable
      Interest Entities,” (“FIN 46”) promulgated on January 17, 2003. Except for
      operating leases used for office and field equipment, vehicles and computer
      hardware and software, accounted for in accordance with Financial Accounting
      Standards No. 13, “Accounting for Leases,” (“FAS 13”) the Company has no other
      form of off-balance sheet arrangements. The following summarizes payments for
      leases for a period in excess of one year for the six months ended June 30,
      2005, and 2004:




**June
                30,*****(dollars
                in thousands)***
            
            **2005**
            
            **2004**Office
                Equipment
            
            $
            36
            
            $
            —Building
            
            
            96
            
            
            16Vehicles
            
            
            6
            
            
            1Rights
                of Way
            
            
            1
            
            
            58Field
                Equipment
            
            
            20
            
            
            40Total
            
            $
            159
            
            $
            115


24


The
      future minimum lease payments for the items listed above for the next five
      years
      are as follows:




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





**Years**
            
            **Minimum
                Lease**
              **Payments*****(In
                thousands of dollars)***2005
            
            $2302006
            
            $2262007
            
            $2112008
            
            $2172009
            
            $206





**Maricor
      Properties’ Leases**




Maricor
      Properties and its subsidiary, Mecel Properties, lease office space to The
      Maricor Group, Canada Ltd. in Moncton, New Brunswick and Halifax, Nova Scotia,
      respectively. All other net operating leases are to outside third parties.
      The
      minimum lease revenue expected from the only existing third-party lease
      arrangement does not include its proportional usage of utilities, maintenance
      and tax expenses that will be paid by the third party under its single-net
      lease.




***5-Year
      Minimum Lease for External Party Lease (in thousands)***




2005
            
            $492006
            
            $492007
            
            $492008
            
            $492009
            
            $49




**Financial
      Information System Hosting Agreement**




In
      December 2003, the Company entered into a ten-year agreement with Delinea
      Corporation to host and provide technical and functional support for the
      integrated Oracle Financial Information System. Hosting fees are $510,000 for
      2005, and $575,000 per year for years 2006-2013.





**9.**
            **Subsequent
                Event**





On
      July
      27, 2005, MAM obtained approval for a ninety-day working capital line of credit
      from Katahdin Trust Company for $750,000. This line will be used to fund
      short-term working capital needs while the Company pursues other long-term
      financing arrangements.


25


**PART
      1. FINANCIAL INFORMATION**




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





**Forward-Looking
      Statements**





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





**Accounting
      Policies**





Critical
      accounting policies are disclosed in the Company’s 2004 Annual Report on Form
      10-K and the Company’s March 31, 2005 Form 10-Q.





**Goodwill
      Impairment Analysis**





The
      Company’s business acquisitions may result in goodwill and other intangible
      assets, which affect the amount of future period amortization expense and
      possible impairment expense that the Company will incur. The Company has adopted
      Statement of Financial Accounting Standards (“SFAS”) No. 142, *Goodwill
      and Other Intangible Assets,* which
      requires that the Company, on an annual basis, calculate fair value of the
      reporting units that contain the goodwill and compare that to the carrying
      value
      of the reporting unit to determine if impairment exists. The Company’s annual
      impairment assessment date is November 30. Impairment testing must take place
      more often if circumstances or events indicate a change in the impairment
      status. The costs of integration and overall traction in the market place did
      not keep pace with expectations; therefore, Management performed an interim
      impairment analysis of goodwill as of June 30, 2005. No impairment of goodwill
      was noted in this assessment.





In
      calculating the fair value of the reporting units, Management relies on a number
      of factors including operating results, business plans, economic projections,
      anticipated future cash flows and transactions, and market place data. There
      are
      inherent uncertainties related to these factors and Management’s judgment in
      applying them to the analysis of goodwill. If actual fair value is less than
      the
      Company’s estimates, goodwill may be overstated on the balance sheet, and an
      impairment charge would be recorded against net earnings.




***Quarterly
      Performance Summary***





A
      number
      of specific factors have negatively impacted MAM’s overall performance during
      the second quarter and year-to-date. These factors include, but are not
      necessarily limited to (a) significant increases in corporate audit-related
      and
      Sarbanes-Oxley compliance costs, (b) lower than anticipated earnings from MPS,
      due to a number of factors, including significantly increased pension costs,
      increased fuel costs for its fleet operations, and increased amortization of
      stranded costs, (c) increased insurance costs, including workers compensation,
      (d) increased tax related expenses, and (e) costs for the start-up of new
      product and service lines within MAM’s unregulated business sectors. MPS’s
      quarterly earnings have followed its usual earnings pattern, where the second
      and third quarter earnings typically lag first and fourth quarters due to the
      current rate design approved by the MPUC. While the mechanical, electrical
      and
      plumbing/fire protection design engineering operations of The Maricor Group
      and
      its subsidiaries were profitable, its new start-up product and service lines
      involving lifecycle asset management, energy efficiency services and “hosted”
energy asset development, which have longer sales cycles than design
      engineering, were not profitable. Maricor Technologies, which was acquired
      during the first quarter of 2005, is only now beginning to implement its
      strategic sales efforts. Maricor Properties must improve its lease coverage
      of
      owned properties to increase its performance and is currently taking steps
      to
      promote increased lease-up of its facilities. Further, the earnings results
      of
      the unregulated operations were significantly impacted by corporate allocations
      and direct corporate charges that would have, to a majority extent, been
      historically borne costs by MPS prior to reorganization.





Management
      is taking additional steps to control costs and decentralize operations, working
      to reduce corporate allocations. While Management is focused on cost controls,
      it does not believe that cost controls can achieve the desired earnings goals
      of
      the Company. Rather, an increased focus is being placed on sales, working to
      shorten sales cycles and increase sales closing rates. Such efforts include
      increased executive and senior management involvement in enterprise-wide sales
      efforts. Further, Management believes that increasing the overall scale of
      the
      organization through additional acquisitions is critical to address the overall
      burden of governance and corporate-related costs. In order to continue
      implementation of MAM’s growth strategy, Management is focused on capital
      formation to fully implement its portfolio growth strategy. Capital formation
      may take the form of equity offerings, cash and debt. In addition, to facilitate
      the Company’s growth and operating strategy, Management is evaluating its
      overall financial and banking relationships to ensure relations and structures
      supportive of full implementation of its growth strategy, addressing short-term
      cash flow challenges.


26


***Discussion
      and Description of the Company’s Business Model and Growth Strategy***




In
      2003,
      MPS sought approval from the Maine Public Utilities Commission and its
      shareholders to form a holding company. MPS’s decision to convert to a holding
      company structure and begin implementation of a diversification and growth
      strategy was a result of a combination of regulatory and economic factors
      including, but not limited to: (a) the negative economic impacts of deregulation
      and generation divestiture on MPS’s revenue model, (b) flat to declining
      demographic and economic conditions within MPS’s service area; (c) regulatory
      constraints or barriers to implementation of a growth strategy under MPS’s
      organizational structure; (d) a declining rate base as a result of reductions
      in
      stranded costs as regulatory assets; and (e) the strategic objective to
      implement an effective risk management structure associated with the Company’s
      overall growth strategy.




As
      a
      result of Maine’s deregulation and MPS’s generation divestiture, MPS no longer
      serves as a vertically integrated electric utility and has divested itself
      of
      its electric generation assets. With the exception of stranded cost recovery,
      MPS’s revenues come almost exclusively from regulated transmission and
      distribution services associated with transporting electric supply. MPS receives
      varying returns on its stranded regulatory assets, as well as varying returns
      on
      its regulated transmission and distribution rate bases. Generally, stranded
      cost
      represents the difference in value or contract value of generation assets in
      a
      regulated environment, as compared with market values of these same assets
      or
      contracts for purchased power. In a regulated regime, investor-owned public
      utilities are allowed to make a “fair” rate of return on their prudently
      invested capital. In practice, regulators set the price of electricity so that
      the utility receives enough income to pay its financial obligations plus a
      reasonable return on its fixed investments. In effect, historical or accounting
      costs of asset installations determine the current market value of capital.
      Regulators adjust the revenue stream up or down to allow a public utility to
      earn the approved rate of return on the book value of its capital, which is
      also
      known in a regulatory context as its “rate base.” MPS continues to earn
      regulated rates of return on its transmission and distribution assets. MPS’s
      distribution services are regulated by the MPUC and its transmission services
      are regulated by the FERC.




Based
      on
      MPS’s current amortization of stranded costs and approved stranded cost rates of
      return approved by the MPUC, and subject to a number of variables embedded
      in
      the calculation of those stranded costs, the majority of MPS’s stranded cost
      should be recovered by the end of 2012. The most significant portion of MPS’s
      stranded costs are associated with an existing non-utility generator (“NUG”)
      supply contract referred to in this document as the “Wheelabrator-Sherman NUG
      Contract.” The Wheelabrator-Sherman NUG Contract resulted from the passage by
      the U.S. Congress of the 1978 Public Utilities Regulatory Policy Act (“PURPA”)
      and is summarized more fully below. The facility itself is a small bio-mass
      (principally wood chip) electric generation facility. Over approximately the
      next seven years, MPS’s rate base will decline as these and other stranded costs
      are reduced or eliminated. Management and the Board of Directors believe that
      MPS’s rate base and total revenues will continue to decline as a result of the
      ultimate elimination of stranded costs as a regulatory asset and potentially
      due
      to: (a) the economic impact of deregulation and generation divestiture on MPS’s
      core revenue model; (b) MPS’s economically lagging service area; and (c)
      regulatory and legislative risks in connection with rate making, service
      requirements or other mandated actions. Based on Management’s and the Board of
      Directors’ assessment of MPS’s declining rate base, in 2003 a decision was made
      to create a holding company and to implement a diversified growth strategy.




After
      formation of MAM, in MPS’s 2004 stranded cost case before the MPUC, it was
      determined that MPS had not previously recognized accumulated deferred income
      taxes with respect to the carrying charges on its stranded cost deferred fuel
      account. As a result, during the period from 1999-2002, MPS over-collected
      its
      earnings on its stranded cost recovery. Consequently, the MPUC agreed that
      MPS’s
      return component on the deferred stranded cost fuel balance should be reduced
      in
      such a manner that ratepayers would not pay on a net present value basis an
      amount greater than the total owed to MPS. As a result, MPS’s net income was
      impacted in 2004 by $679,000 and will continue to be impacted through 2012.
      The
      projected and estimated impact on MPS’s annual earnings will range from
      approximately $1.0 million in 2005, increasing to $1.2 million in 2007, and
      then
      gradually decreasing to $17,000 in 2012. MAM and MPS cannot warrant that these
      estimates will be the exact impact, and cannot forecast possible impacts of
      potential future MPUC and legislative decisions or acts.





Although
      MPS’s earnings associated with stranded costs will be reduced during the period
      from 2004 through 2012, it should not impact the collection of “stranded cost
      freed-up cash flows” post 2006 that are a result of levelization of stranded
      costs and the deferring of total collections of stranded costs associated with
      its Wheelabrator-Sherman NUG Contract during the years 1999 through 2006. In
      the
      1998-99 timeframe, in order to reduce the rate impact of stranded cost recovery,
      MPS chose to collect its stranded costs on a levelized recovery basis over
      a
      longer term versus collecting stranded costs equaling annualized payouts of
      its
      NUG generation contract with Wheelabrator-Sherman. In so doing, MPS has and
      will
      pay the full contract costs of the Wheelabrator-Sherman NUG Contract until
      it
      expires in 2006. However, during this term MPS has and will only collect a
      percentage of the total costs from its consumers. From 2007 until approximately
      2012, MPS will collect the balance due from its ratepayers, but will no longer
      have the liability of the Wheelabrator-Sherman NUG Contract. Those monies that
      were deferred will be collected during the referenced period and are referred
      to
      as “stranded cost freed-up cash flows.” MPS has received and continues to
      receive varying rates of return on its stranded cost regulatory assets.


27


The
      gross
      deferred stranded cost freed-up cash flows are estimated to be approximately
      $31.0 million over the 2007 through 2012 timeframe. These deferred stranded
      cost
      freed-up cash flows will not impact net income. Current plans for the
      anticipated stranded cost freed-up cash flows include: (a) utilizing such funds
      to reduce MPS debt to maintain an optimum regulatory capital structure for
      MPS;
      (b) reinvestment in the MPS transmission and distribution system; and (c) to
      dividend a portion of the stranded cost freed-up cash flows to the parent MAM
      within MPUC restrictions, for the purpose of financing in part or in whole,
      potential acquisitions, growth, and start-up operating costs of subsidiaries
      consistent with the Company’s growth strategy. While MPS believes it will
      receive full stranded cost recovery and recovery of deferred collections, it
      cannot predict with certainty future regulatory and/or legislative actions.
      Regulatory and legislative risks may exist relative to full stranded cost
      recovery. In addition, there are a number of variables discussed in more detail
      below that may affect the timing and magnitude of MPS’s stranded cost recovery.




Management
      and the Board of Directors have adopted what they believe to be a market-based,
      realistic and conservative growth and diversification strategy. While the
      overall strategy is deemed conservative, it should be recognized that as the
      Company transitions from a “regulated” return on equity revenue model to a
“deregulated” and more market-based revenue model, earnings are subject to
      greater variability and risks. In addition, due to the Company’s limited
      investment capital, investments in new product lines, new office locations,
      increased staffing and other non-acquisition growth costs must be funded from
      ongoing earnings of the Company and such investments may impact earnings during
      implementation of the Company’s growth strategy.





As
      part
      of the Company’s growth and business strategy, MPS, as a regulated entity, is
      continuing to focus on business process improvements and technology and
      infrastructure investments to improve the overall performance, system
      reliability, economics, and efficiencies of MPS’s transmission and distribution
      systems. These strategies include, but are not necessarily limited to, the
      adoption of new productivity enhancing technologies, such as automated meter
      reading, changes in core business processes, adoption of integrated asset
      management strategies, including transmission inspection programs, and
      development and implementation of long-term transmission and distribution plans.
      These plans, subject to regulatory approvals, may also include the construction
      of additional regulated transmission assets. MPS has requested MPUC approval
      to
      construct a new 138 KV transmission line, increasing its interconnections with
      New Brunswick Power (“NB Power”). As of June 30, 2005, $661,000 have been
      expended on labor and legal efforts related to the research and approval filing
      of this project and is currently reported in construction, work-in-progress
      on
      the Consolidated Balance Sheet. The goals of these collective efforts are to
      allow for efficient long-term control of MPS’s annual capital, operating, and
      maintenance expenditures, while improving system and customer service
      performance. MAM and MPS cannot predict with certainty the outcome of its
      filing(s) with regulatory bodies, including the MPUC or FERC.




MAM’s
      unregulated growth strategy centers on a diversification approach that expands
      the Company’s business and revenue model to include, without limitation,
      mechanical and electrical engineering services, energy efficiency solutions,
      air
      emissions reductions, facility lifecycle asset management services, facility
      lifecycle asset management software technologies, facilities management, and
      asset/facility ownership. In addition, through The Maricor Group, efforts
      continue to identify and potentially execute opportunities to design, build,
      own
      and/or operate customer-hosted energy-related assets, such as central utility
      steam plants, customer-hosted non-merchant alternative fuel projects and
      customer-hosted co-generation assets. As an affiliated company of MPS, The
      Maricor Group may have certain limitations with respect to ownership of
      co-generation assets within the MPS service area and the State of Maine.





One
      of
      the challenges to MAM’s growth strategy is the need for capital formation
      to allow for meaningful growth through acquisitions. Given the limited earnings
      and cash flow characteristics of the Company, growing the company internally,
      often referred to as organic growth, is deemed to be more expensive than
      acquisitions. Cash flow challenges are exacerbated by MPS’s levelization of its
      stranded cost recovery, as well as the traditionally long accounts receivable
      trends of the mechanical, electrical and plumbing design engineering business.
      The availability of growth capital and operating cash flows are critical to
      the
      overall success of the Company’s growth and operations’ strategies. Given MAM’s
      organizational structure as a holding company, each operating subsidiary, which
      serves as a profit and loss center, must make certain contributions to the
      overall operations of the holding company. These costs, which are referred
      to as
      corporate allocations, are generally costs that existed within MPS prior to
      its
      reorganization into a holding company. Thus, to varying degrees, the Company’s
      unregulated subsidiaries offset costs that would have been borne by MPS. Such
      internal corporate allocations can and will have an impact on the unregulated
      subsidiaries until they achieve a certain critical mass in terms of operating
      and financial scale.





MAM’s
      unregulated engineering, sustainable asset management, energy efficiency and
      asset development subsidiaries will require increased scale of operations and
      revenues to offset corporate overhead and administrative costs (corporate
      allocations). Corporate governance, enterprise-wide insurances, accounting,
      human resources services and information technology services require a minimum
      scale that has the ability to serve a larger organization, thus lowering the
      per
      employee costs for such services. Management believes the near and long-term
      profitability of its unregulated subsidiaries is dependent upon continuing
      efforts to increase the scale or size of the organizations through increased
      hiring of engineers and/or acquisition of additional engineering-related firms
      in the U.S and/or Canada, increased sales of the various services, acquisition
      of additional real estate, and the development of customer-hosted energy
      assets.


28


MAM’s
      overall unregulated growth strategy is guided by a set of principles and values
      that promote sustainability and Leadership in Energy and Environmental Design.
      The Company believes that within its and its subsidiaries’ market regions,
      sustainable initiatives, investments, products, and services involving energy
      efficiency, alternative fuels, natural resources conservation, sustainable
      engineering designs, facility lifecycle asset management, and reductions of
      air
      emissions are (a) economically viable; (b) can create increased and long-term
      shareholder value; and (c) are aligned with core social and public policy
      values, particularly within New England and Atlantic Canada.




Although
      the Company, through its unregulated subsidiaries, provides fee-for-service
      mechanical, electrical and plumbing/fire protection engineering design services,
      asset development, software tools, and other services outside the realm of
      sustainability, it continues to migrate toward business processes, investments,
      initiatives, products and services that are defined as sustainable. Sustainable
      engineering and development involves the planning, design, construction,
      operation and renewal of facility assets in a manner that will assure the
      availability of resources for future generations. In order to achieve this
      goal,
      we believe it is necessary to adopt engineering practices and design goals
      that
      focus on efficiency, conservation of materials and energy, and reduction of
      environmental pollutants. Sustainable engineering is essentially the application
      of all technical disciplines and arts toward greater efficiency and conservation
      of materials and energy resources, with emphasis on eliminating the use of
      non-renewable and hazardous substances. Consequently, The Maricor Group and
      its
      subsidiaries are focused on building a leading North American team of LEED
      certified engineers that support customers’ efforts to achieve facility
      sustainability.




The
      LEED
      Green Building Rating System ® is a
      voluntary, consensus-based U.S. and Canadian standard for developing
      high-performance, sustainable buildings. Members of the U.S. and Canadian Green
      Building Council, representing all segments of the building industry, developed
      LEED and continue to contribute to its evolution. The U.S. and Canadian Green
      Building Councils are North America’s foremost coalition of leaders from across
      the building-related industry working to promote facilities that are
      environmentally responsible, profitable and healthy places to live and work.




LEED
      provides a complete framework for assessing building performance and meeting
      sustainability goals. Based on what we believe to be well-founded scientific
      standards, LEED emphasizes state-of-the-art strategies for sustainable site
      development, water savings, energy efficiency, materials selection and indoor
      environmental quality. LEED recognizes achievements and promotes expertise
      in
      green buildings through a comprehensive system offering project certification,
      professional accreditation, training and practical resources. There is a LEED
      certification exam, whose purpose is to ensure that successful candidates have
      the knowledge and skills necessary to participate in sustainable design
      processes, ensuring a high level of understanding of LEED requirements,
      resources, and processes.





As
      a part
      of the Company’s overall business diversification and growth strategy, its real
      estate development and investment subsidiaries, Maricor Properties Ltd and
      Mecel
      Properties Ltd, also focus on sustainability, LEED building criteria, “smart
      growth,” as defined below, and revitalization projects. It is the goal of the
      Company’s real estate investment and development groups to ultimately develop,
      revitalize, own and/or manage facility infrastructure that meets or approaches
      certification as a LEED-certified building and/or contributes to smart growth
      initiatives.




There
      is
      no single definition of smart growth; its meaning depends on context,
      perspective and timeframe. The common link among different views of smart growth
      is development that revitalizes central cities and older suburbs, supports
      and
      enhances mass transit, promotes walking and bicycling, and preserves open spaces
      and agricultural lands. Smart growth is not no growth; rather, it seeks to
      revitalize the already-built environment and, to the extent necessary, to foster
      efficient development at the edges of the region, in the process creating more
      livable and environmentally responsible communities. Smart growth developments
      attempt to meet the key goals of sustainable development through effective
      land
      use planning and the construction of facilities infrastructure that strive
      to
      preserve the natural environment to the extent possible, while enhancing
      communities and their overall quality of life.





Currently,
      Maricor Properties Ltd and its subsidiary Mecel Properties Ltd own two offices
      complexes within Atlantic Canada. These properties consist of a five-story
      office complex in the downtown area of Moncton, New Brunswick that had
      fallen into disrepair. Located on a major downtown thoroughfare, using the
      engineering expertise of The Maricor Group, Canada Ltd, the building is being
      revitalized into a productive, architecturally attractive, and energy efficient
      facility, reusing building materials in manners that enhance sustainability,
      while providing for a quality work space. The Moncton building is a multi-tenant
      facility which houses The Maricor Group, Canada Ltd, as well as other tenants.
      Management is currently working to lease the balance of the facilities and
      continues to evaluate additional properties for acquisition and/or development.
      Facilities management and leasing are outsourced to strategic partners within
      Atlantic Canada, Ashford Investments and Ashford Properties.


29


Mecel
      Properties Ltd owns the office facility housing The Maricor Group, Canada Ltd’s
      Halifax office. The two-story office complex is located within a downtown
      revitalization district of Halifax and is part of Maricor Properties Ltd’s goal
      to revitalize a section of downtown Halifax near the core historic city.
      Currently, the facility is a single tenant occupied facility.




Maricor
      Technologies, Inc. was formed in February 2005, as a wholly-owned subsidiary
      of
      MAM. At the time of formation, Maricor Technologies acquired strategic asset
      management (“iPlan”) and maintenance management (“Building Blocks”) software
      products through a three-way transaction involving Delinea Corporation, a
      Dallas-based information technology services firm and HCI Systems, the original
      developers of the software. The software products provide most of the necessary
      underlying product platform components for enterprise-level and packaged
      software product lines. The iPlan and Building Blocks products are currently
      being marketed through a distribution agreement with its affiliated companies,
      The Maricor Group, RES Engineering, Inc. and The Maricor Group, Canada Ltd.
      Prior to the acquisition of the software assets, The Maricor Group and its
      subsidiaries had exclusive marketing rights to the products within certain
      industry and geographic sectors. Maricor Technologies will market its software
      product and service lines on a progressively expanding basis, with its target
      market region being North America.




Maricor
      Technologies develops information and software tools to support sustainable
      lifecycle management of facilities infrastructure. Combining what Management
      believes to be leading strategic management methods with proven engineering,
      energy and economic models, Maricor Technologies’ products are designed to
      deliver required information to allow organizations to optimize capital,
      maintenance, and energy budgets, reduce emissions, and to comply with financial
      and environmental reporting requirements. Maricor Technologies supports existing
      software assets and develops additional software assets that support the
      evolving sustainability and facility asset lifecycle management industries.




MAM’s
      overall strategy includes the continuing ownership and operation of its
      regulated electric transmission and distribution utility, as well as the
      potential acquisition of additional regulated utilities or assets. However,
      it
      is impossible to predict with certainty if and when MAM may acquire additional
      regulated utilities or assets. The decision to acquire additional regulated
      utilities or assets may be impacted by a number of issues, including but not
      necessarily limited to: (a) regulatory approvals; (b) the impact on MPS’s
      two-county tax-exempt financing; (c) the ability to raise capital; and (d)
      the
      identification of acquisition opportunities that are scale relevant and
      acquirable. Potential utility-related acquisitions are intended to seek to
      leverage MPS’s and other subsidiaries’ existing operating infrastructure,
      including without limitation, call center and collections operations,
      telecommunications technologies, billing and information technology
      applications, engineering capabilities, asset management systems, regulatory
      experience, and Management expertise.




MAM’s
      growth strategy consists of targeted acquisitions and non-acquisition growth.
      Key “platform” acquisitions in the engineering, real estate and software sectors
      have been executed and additional acquisitions may be considered. Acquisitions
      may involve either the acquisition of companies or assets. As an example, MAM
      acquired Eastcan Consulting Engineers (now part of The Maricor Group, Canada
      Ltd), a small, but well respected mechanical and electrical engineering firm
      operating primarily within New Brunswick, Canada. Through this platform
      acquisition, we are growing the subsidiary by expanding its service and product
      delivery capabilities, increasing staffing, and increasing its market
      penetration.




Financing
      of the Company’s growth strategy, depending on the specific acquisition target,
      may take the form of a number of different financing structures involving cash,
      equities and/or debt. Financing may include, without limitation, the issuance
      of
      additional common or preferred stock, convertible debt, seller financing, senior
      debt, private mezzanine debt securities, tax-exempt government bonds, cash
      or
      acquisition earn-outs. In addition to its compatibility with the Company’s
      growth strategy, each acquisition target is also being evaluated based on its
      individual economic and strategic merits relative to the creation of long-term
      shareholder value.




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




*Net
      (Loss) Income and (Loss) Earnings Per Share*


**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,*****(dollars
                in thousands except per share amounts)***
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**(Loss)
                Income from Continuing OperationsRegulated
                Electric Utility
            
            $
            (308
            )
            $
            (31
            )
            $
            1,389
            
            $
            1,984Unregulated
                Engineering Services
            
            
            (366
            )
            
            (216
            )
            
            (769
            )
            
            (323
            )Unregulated
                Real Estate Holdings
            
            
            (30
            )
            
            —
            
            
            (75
            )
            
            —Other*
            
            
            (91
            )
            
            (23
            )
            
            (71
            )
            
            (14
            )(Loss)
                Income from Discontinued Operations
            
            
            (3
            )
            
            (38
            )
            
            5
            
            
            (405
            )Net
                (Loss) Income
            
            $
            (798
            )
            $
            (308
            )
            $
            479
            
            $
            1,242Basic
                (Loss) Earnings Per Share for the Quarter
            
            $
            (0.49
            )
            $
            (0.19
            )
            $
            0.29
            
            $
            0.78




***
            *The
                “Other” line includes unallocable expenses for MAM, the holding company,
                activity for Maricor Technologies, and the intercompany eliminations.*


30


Net
      income above is allocated based upon the segment allocation as presented in
      Note
      4 of the financial statements.




Consolidated
      net income decreased by $490,000 from the second quarter of 2004. As described
      more fully below, the decrease in income is the result of losses from the
      start-up operations and integration of its new TMG acquisitions, and increased
      general and administrative costs associated with Sarbanes-Oxley compliance
      costs, implementation of the Company’s Oracle-based financial system and
      increased regulatory compliance costs. We note that for quarter-to-quarter
      comparison purposes, the impact of these costs on income from the Regulated
      Electric Utility was minimized as a result of sharing of traditional fully
      allocated costs from MPS to its parent company, MAM, and other subsidiaries,
      such as The Maricor Group. As The Maricor Group, Maricor Properties and Maricor
      Technologies grow, an increasing amount of corporate allocation costs will
      shift
      from MPS to unregulated operations. For example, governance costs, historically
      fully borne by MPS are now shared costs among MAM and its
      subsidiaries.





Management
      is closely monitoring overall year-to-date earnings and cash flow results and
      is
      taking steps to address the Company’s lagging financial performance. Earnings
      have been impacted by a number of factors that are outside the control of
      Management, such as the historical treatment of certain stranded cost and
      pension issues that have significantly impacted annual earnings. During the
      balance of 2005, Management anticipates increased compliance costs associated
      with Sarbanes-Oxley compliance. Further, while an overall reorganization effort
      is underway to streamline the enterprise, including increased decentralization,
      and implementing cost controls, Management believes that earnings challenges
      can
      best be met through growth of revenues. Additionally, Management is in the
      process of evaluating and addressing rising pension and health care costs.
      With
      respect to staffing levels, the Company continues to evaluate out-sourcing
      options that could improve operational and economic results, however, no
      decision has been made at this time. In addition to these activities, Management
      is evaluating potential sales of unregulated assets to enhance near-term
      earnings. While a number of activities are underway to actively address earnings
      challenges, Management cannot provide any assurance that such efforts will
      substantially improve near-term earnings.





***Interest
      Expense***




Interest
      Expense is accrued on the Company’s long-term debt and short-term credit
      arrangements in accordance with debt agreements. Interest Expense on long-term
      debt and short-term credit arrangements were $665,000, and $564,000 for the
      quarters ending June 30, 2005, and 2004, respectively. For the six months ended
      June 30, 2005, and 2004, interest expense was $1.31 million and $1.13 million,
      respectively. TMG and Maricor Properties Ltd incurred interest on short-term
      debt during the entire second quarter of 2005, compared to only a portion of
      the
      same period in 2004, while MPS experienced higher short-term rates in 2005.




***Income
      Tax Benefit***




Income
      tax benefit for MPS was $191,000 and $41,000 for the quarters ended June 30,
      2005, and 2004, respectively. The regulated utility provision for income taxes
      for the six months ended June 30, 2005, and 2004, was $994,000 and $1.21
      million, respectively. The unregulated tax benefit for the quarter ended June
      30, 2005, was $334,000 compared to $149,000 for the same period in 2004. For
      the
      first six months of 2005 and 2004, this benefit was $587,000 and $230,000,
      respectively. The benefit is primarily from an increased loss at TMG in 2005.




***Taxes
      Other Than Income***




Taxes
      other than income were $453,000 and $493,000 for the quarters ended June 30,
      2005 and 2004, respectively, and $928,000 and $860,000 for the six months ended
      June 30, 2005 and 2004, respectively. Taxes other than income for the
      engineering subsidiaries are classified as cost of sales for taxes related
      to
      labor dollars for employees who work directly on engineering projects, and
      presented on the Statement of Consolidated Income within “Unregulated Operation
      and Maintenance.”


31


***Regulated
      Operations***




The
      following discussion includes the operations of MPS and Me&NB, the Company’s
      regulated subsidiary and inactive unregulated Canadian subsidiary:





**Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,*****(dollars
                in thousands except per share amounts)***
            
            **2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                (Loss) Income — Regulated Electric Utility
            
            $
            (308
            )
            $
            (31
            )
            $
            1,389
            
            $
            1,984(Loss)
                Earnings Per Share from Regulated Electric Utilities
            
            $
            (0.19
            )
            $
            (0.02
            )
            $
            0.85
            
            $
            1.25





***Regulated
      Operating Revenue***




Consolidated
      Revenues and Megawatt Hours (“MWH”) for the three and six months ended June 30,
      2005, and 2004, are as follows:




**Three
                  Months Ended**
              
              **Six
                  Month Ended****June
                  30, 2005**
              
              **June
                  30, 2004**
              
              **June
                  30, 2005**
              
              **June
                  30, 2004*****(In
                  thousands of dollars)***
              
              **Dollars**
              
              **MWH**
              
              **Dollars**
              
              **MWH**
              
              **Dollars**
              
              **MWH**
              
              **Dollars**
              
              **MWH**Residential
              
              $
              3,320
              
              
              41,805
              
              $
              3,278
              
              
              41,783
              
              $
              7,325
              
              
              93,121
              
              $
              7,233
              
              
              92,908Large
                  Commercial
              
              
              1,073
              
              
              43,612
              
              
              1,038
              
              
              41,099
              
              
              2,699
              
              
              87,117
              
              
              2,665
              
              
              85,234Medium
                  Commercial
              
              
              1,038
              
              
              25,832
              
              
              982
              
              
              25,337
              
              
              2,839
              
              
              52,672
              
              
              2,823
              
              
              52,901Small
                  Commercial
              
              
              1,311
              
              
              21,480
              
              
              1,257
              
              
              20,728
              
              
              3,672
              
              
              48,250
              
              
              3,494
              
              
              46,125Other
                  Retail
              
              
              331
              
              
              850
              
              
              326
              
              
              849
              
              
              852
              
              
              1,694
              
              
              875
              
              
              1,691Total
                  Regulated Retail
              
              $
              7,073
              
              
              133,579
              
              $
              6,881
              
              
              129,796
              
              $
              17,387
              
              
              282,854
              
              $
              17,090
              
              
              278,859





In
      the
      second quarter of 2005, regulated retail revenue was up 3,783 MWH or 2.9% to
      133,579 MWH, compared to 129,796 MWH in the same period of 2004. For the first
      half of 2005, regulated retail revenue totaled $17.39 million, compared to
      $17.1
      million in the first half of 2004. Sales volume during the first six months
      of
      2005 increased 3,995 MWH or 1.4% over the same period of 2004.





The
      largest increase quarter-over-quarter was in large commercial customers. Sales
      volume to this customer class is up 2,513 MWH or 6.1%. The largest increases
      in
      usage were sales to two new large customers, an increase of 764 MWH, and an
      increase in usage of 755 MWH by one of the Company’s largest customers, a
      manufacturing facility that had a temporary shutdown for renovations in the
      second quarter of 2004. The remaining 994 MWH increase resulted from smaller
      increases in usage at several of our other large customers. Volume for the
      year
      has increased 1,883 MWH from 85,234 MWH in 2004 to 87,117 MWH in 2005. The
      increases in volume year-to-date are consistent with the causes of the quarterly
      increases. The two new customers contributed an additional 895 MWH in 2005,
      and
      the renovations of the manufacturing plant included an expansion that
      contributed an additional 858 MWH in 2005.





Residential
      sales volume was flat in the second quarter of 2005 compared to 2004, increasing
      22 MWH or 0.1%. Residential customers contributed $3.32 million to revenue,
      compared to $3.28 million in the same quarter of the previous year. The change
      in volume is consistent with the year-to-date change of 213 MWH or
      0.2%.





An
      increase in volume was also experienced in the small commercial customer class.
      This increase of 752 MWH, or 3.6%, contributed $1.31 million to revenue,
      compared to $1.26 million in the second quarter of 2004. The decrease in rates
      is primarily due to the timing of termination of old rate discounts and the
      beginning of new ones. For the first six months of 2005, small commercial
      customer sales increased from 46,125 MWH to 48,250 MWH, an increase of 2,215
      MWH, or 4.6%.





Medium
      commercial service volume increased 495 MWH, or 2.0%, from the same quarter
      of
      prior year. The medium commercial customers provided $1.04 million in revenue
      in
      the second quarter of 2005, compared to $982,000 in the second quarter of 2004.
      The decrease in volume in medium commercial customer sales in the first quarter
      more than offset the second quarter increase, resulting in a year-to-date
      decrease in volume of 229 MWH or 0.4%.





Other
      retail revenue has been flat in 2005, compared to 2004, in both volume and
      revenue dollars. Other retail revenue includes charges such as area lighting,
      street lighting and miscellaneous other service revenues.


32


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





***Regulated
      Utility Expenses***




For
      the
      three and six months ended June 30, 2005, and 2004, regulated operation and
      maintenance expenses and stranded costs are as follows:




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Regulated
                Operation and MaintenanceTransmission
                and Distribution
            
            $
            1,070
            
            $
            821
            
            $
            1,641
            
            $
            1,551Customer
                Service
            
            
            232
            
            
            271
            
            
            499
            
            
            612Administrative
                and General
            
            
            2,449
            
            
            2,212
            
            
            4,964
            
            
            4,528Total
                Regulated Operation and Maintenance
            
            $
            3,751
            
            $
            3,304
            
            $
            7,104
            
            $
            6,691Stranded
                CostsWheelabrator-Sherman
            
            $
            1,654
            
            
            1,804
            
            
            3,364
            
            
            3,642Maine
                Yankee
            
            
            804
            
            
            788
            
            
            1,608
            
            
            1,548Seabrook
            
            
            277
            
            
            277
            
            
            555
            
            
            555Amortization
                of Wheelabrator-Sherman Restructuring Payment
            
            
            363
            
            
            363
            
            
            725
            
            
            726Deferred
                Fuel
            
            
            (699
            )
            
            (919
            )
            
            (1,244
            )
            
            (1,964
            )Special
                Discounts
            
            
            70
            
            
            70
            
            
            140
            
            
            140Total
                Stranded Costs
            
            $
            2,469
            
            $
            2,383
            
            $
            5,148
            
            $
            4,647




Transmission
      and distribution expenses were $1.07 million in the second quarter of 2005,
      compared to $821,000 in the same period of 2004, an increase of $249,000.
      Distribution expenses increased $271,000, from $596,000 in 2004 to $867,000
      in
      2005. There was a $215,000 increase in distribution operation overhead line
      expenses and an increase of $119,000 in distribution maintenance of overhead
      lines. The increase in distribution expenses was offset by the decrease in
      transmission expenses from $225,000 in 2004 to $203,000 in 2005. Transmission
      operation decreased $35,000 during this period, while transmission maintenance
      increased by $13,000.




For
      the
      first six months of 2005, transmission and distribution expenses have increased
      $90,000. Decreases in the first quarter of 2005, including capitalized meter
      installation expenses and decreases in transmission load dispatching and
      transmission overhead line maintenance, partly offset the increases of the
      second quarter.





Customer
      service expenses decreased $39,000 from $271,000 in the second quarter of 2004
      to $232,000 in the second quarter of 2005. There was a $26,000 decrease in
      bad
      debt expense and, a $20,000 decrease in meter reading expenses, offset by a
      $11,000 increase in customer assistance expenses. The remaining change is
      attributable to other customer service activities, including informational
      advertising, supervision and miscellaneous other customer service expenses.
      The
      year-to-date decrease in 2005, compared to 2004, is $113,000.





Administrative
      and general expenses in the second quarter of 2005 were $2.45 million, an
      increase of $237,000 from the second quarter of 2004. Year-to-date, expenses
      have increased $436,000 from $4.53 million in 2004 to $4.96 million in 2005.
      Costs allocated to MPS by MAM for services such as Sarbanes-Oxley compliance,
      legal and audit services and corporate governance totaled $787,000 in the second
      quarter of 2005, and $1.63 million for the first six months of 2005. This
      compares to $594,000 for the second quarter of 2004, and $1.02 million for
      the
      first six months of 2004, respectively. Many of these expenses would have been
      fully borne by MPS in the past; in 2004 and 2005, these expenses were also
      shared by the unregulated operating divisions. Pension expenses increased
      $24,000 from the second quarter of 2004 to the second quarter of 2005. The
      remaining change for the quarter is attributable to small increases in other
      accounts. The year-to-date increase in allocated expenses of $608,000 was partly
      offset by a decrease in regulatory commission expense of $161,000 and other
      smaller changes.





The
      increases in stranded costs from 2004 to 2005 reflect the increase in revenue
      requirements approved in MPUC Docket No. 2003-666. The revenue requirements
      stipulated in Docket 2003-666 became effective on March 1, 2004. During the
      first two months of 2004, stranded costs were still being recognized under
      the
      previous rate treatment which did not allow for the levelized recognition of
      deferred fuel costs. This change in treatment of deferred fuel accounts for
      the
      $500,000 increase in stranded costs year-over-year. The stranded costs for
      Wheelabrator-Sherman and $1.49 million of the 2004 stranded costs for Maine
      Yankee represent actual cash expenses during the year. Other costs represent
      amortization or recognition of regulatory assets and regulatory liabilities.


33


***Unregulated
      Engineering Services***




The
      following section details the operations of the unregulated engineering services
      operating segment, including The Maricor Group and its subsidiaries, RES
      Engineering Inc., and The Maricor Group, Canada Ltd, formerly Maricor Ltd.




Unregulated
      engineering services operations began in late 2003, with the creation of The
      Maricor Group and The Maricor Group, Canada Ltd in November, and the acquisition
      of Eastcan Consultants, Inc. in December. Morris & Richard Consulting
      Engineers, Ltd. and RES Engineering, Inc. were acquired on June 1, 2004, and
      June 15, 2004, respectively. Net loss and loss per share from these subsidiaries
      for the three and six months ended June 30, 2005, and 2004 are as follows.
      These
      losses include corporate allocations, as noted, that would have been
      historically borne by MPS.




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Net
                Loss - Unregulated Engineering Services
            
            $
            (366
            )
            $
            (216
            )
            $
            (769
            )
            $
            (323
            )Basic
                Loss Per Share from Unregulated Engineering Services
            
            $
            (0.22
            )
            $
            (0.14
            )
            $
            (0.47
            )
            $
            (0.20
            )





The
      growth strategy of the unregulated engineering companies centers on a
      diversification approach that expands the companies’ business and revenue models
      to include, without limitation, mechanical and electrical engineering services,
      energy efficiency solutions, air emissions reductions and facility lifecycle
      asset management services. In addition, efforts continue to identify and
      potentially execute opportunities to design, build, own and/or operate
      customer-hosted energy-related assets, such as central utility steam plants,
      customer-hosted non-merchant alternative fuel projects and customer-hosted
      co-generation assets.










For
      the
      year-to-date June 30, 2005, the mechanical and electrical engineering service
      segment of the unregulated engineering services business was profitable,
      contributing approximately 25% to the gross margin for the three engineering
      companies combined. Start-up costs for the lifecycle asset management, energy
      efficiency and asset development segments of the business, as well as sales
      and
      marketing salaries included in Cost of Sales at RES, Eastcan and M&R,
      detracted from the gross margin by approximately 15%, for an actual gross margin
      of 10%.




Management
      is undertaking steps to address the lagging performance of The Maricor Group
      and
      The Maricor Group, Canada Ltd. RES Engineering’s Hudson office is being closed,
      while its Boston office is being expanded, reflecting the reality that the
      bulk
      of the subsidiary’s market and customer base are in Boston. As a result, some
      downsizing has occurred, while also hiring individuals with improved skill
      sets.
      In addition, MAM is migrating toward increased decentralization, enabling
      subsidiaries to be more independent, operating under enterprise-wide policies,
      in an attempt to minimize corporate allocations. Such decentralization is
      designed to promote decision making closer to the actual profit and loss center.
      There is also an increased focus on sales, particularly in the lifecycle asset
      management and energy efficiency areas, while implementing more rigid cost
      controls. However, the long-term profitability of The Maricor Group and its
      subsidiaries is clearly dependent upon achieving increased revenues per employee
      through enhanced marketing and sales, diversifying sales away from a
      predominance of design engineering services into higher margin products and
      services, and increasing the overall scale of the unregulated subsidiaries
      through strategic acquisitions.


34




***Unregulated
      Engineering Services—Operating Revenue***




Unregulated
      engineering services revenues for the three and six months ended June 30, 2005,
      and 2004:




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**RES
                Engineering, Inc.
            
            $
            580
            
            $
            244
            
            $
            1,168
            
            $
            244The
                Maricor Group, Canada Ltd
            
            
            786
            
            
            381
            
            
            1,601
            
            
            671Total
                Unregulated Engineering Operating Revenue
            
            $
            1,366
            
            $
            625
            
            $
            2,769
            
            $
            915




The
      principal projects which generate revenue for the three companies are mechanical
      and electrical engineering design and design/build projects on a fee-for-service
      basis. The majority of revenue was generated by this segment of the business
      for
      the three and six months ended June 30, 2005. Increasingly, their businesses
      are
      focusing on facility lifecycle asset management, energy efficiency and emissions
      reductions, as well as development of end-user energy assets, such as central
      utility plants, all typically higher value and higher margin offerings.




***Unregulated
      Engineering Services Operating Expenses***





Unregulated
      engineering services operating & maintenance expenses for the three and six
      months ended June 30, 2005, and 2004:





***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Cost
                of Sales
            
            $
            1,276
            
            $
            463
            
            $
            2,480
            
            $
            653Other
                Operating Expenses
            
            
            580
            
            
            425
            
            
            1,267
            
            
            690Depreciation
            
            
            5
            
            
            —
            
            
            8
            
            
            —Amortization
            
            
            50
            
            
            —
            
            
            84
            
            
            —Taxes
                Other than Income
            
            
            17
            
            
            106
            
            
            39
            
            
            107Income
                Taxes
            
            
            (335
            )
            
            (158
            )
            
            (518
            )
            
            (226
            )Total
                Unregulated Operating Expenses
            
            $
            1,593
            
            $
            836
            
            $
            3,360
            
            $
            1,224





The
      cost
      of sales above consists primarily of direct labor expenses and direct contract
      costs as well as marketing, sales, and business development expenses with labor,
      overheads, and consulting services for developing business relationships and
      re-branding this business segment as The Maricor Group. The remaining operating
      expenses were used for parent company corporate overhead allocations, office
      supplies, insurance, and administrative and general expenses.





***Unregulated
      Real Estate Subsidiary Results***




This
      section details the operating results of Maricor Properties Ltd and its
      subsidiary, Mecel Properties Limited. Maricor Properties Ltd and Mecel
      Properties Ltd were created on June 1, 2004, as a result of the acquisition
      of
      Morris & Richard Consulting Engineers, a division of The Maricor Group,
      Canada Ltd. Maricor Properties Ltd acquired Mecel Properties Ltd, whose sole
      real estate holding is the building occupied by the M&R division of The
      Maricor Group, Canada Ltd. Maricor Properties also owns, as described herein,
      a
      mid-rise office building in Moncton, New Brunswick, partially occupied by the
      Eastcan division of The Maricor Group, Canada Ltd.





Year-to-date
      revenue from this subsidiary was approximately $145,000, which was offset by
      operating expenses net of tax of $140,000, depreciation of $28,000, net interest
      of $52,000, and $1,000 of other expenses. Net loss from this operating company
      for the second quarter 2005 was $30,000 or $.02 per share, and $75,000, or
      $.05
      per share, for the six months ended June 30, 2005. Efforts are underway to
      improve the leasing of Maricor Properties’ real property in Moncton, New
      Brunswick and to increase the overall scale of that company through additional
      acquisitions and developments. While increased leasing efforts are essential,
      it
      should also be recognized that the overall appraised value of the real estate
      holdings of MAM’s real estate subsidiaries have increased since
      acquisition.


35


***Unregulated
      Energy Marketing—Energy Atlantic Discontinued Operations***




On
      March
      1, 2004, EA suspended all active operations and has been classified as a
      discontinued operation in accordance with FASB No. 144, as discussed in more
      detail below.




The
      Company recognized income (loss) from discontinued operations of $5,000 and
      $(405,000) for the six months ended June 30, 2005, and 2004, respectively,
      classified as discontinued operations in the Statement of Consolidated
      Operations. The 2005 year-to-date net income represents the final settlement
      of
      software and equipment lease obligations and miscellaneous other small
      transactions. The 2004 net loss includes additional software lease expense
      of
      $181,000, recognized on the buy-out of a software lease by EA, $172,000 for
      employee severance payments, and a loss on disposal of fixed assets of $69,000.
      The following table summarizes the statement of operations for EA:




***(In
                thousands of dollars)***
            
            **Three
                Months Ended**
              **June
                30,**
            
            **Six
                Months Ended**
              **June
                30,****2005**
            
            **2004**
            
            **2005**
            
            **2004**Revenue
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            562Expenses
            
            
            —
            
            
            —
            
            
            —
            
            
            (1,161
            )Other
                income, deductions and interest
            
            
            (5
            )
            
            (59
            )
            
            —
            
            
            (70
            )Pretax
                (loss) income from discontinued operations
            
            
            (5
            )
            
            (59
            )
            
            8
            
            
            (669
            )Income
                tax (provision) benefit
            
            
            2
            
            
            21
            
            
            (3
            )
            
            264(Loss)
                income from discontinued operations
            
            $
            (3
            )
            $
            (38
            )
            $
            5
            
            $
            (405
            )Loss
                per share from discontinued operations (basic and diluted)
            
            $
            0.00
            
            $
            (0.02
            )
            $
            0.00
            
            $
            (0.25
            )




***Income
      Taxes***





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





***Off-Balance
      Sheet Arrangements and Financial Information System Hosting
      Agreement***





Please
      refer to Note 8 of the financial statements.





***Operating
      Capital and Liquidity***





Due
      to
      the confluence of several factors including, but not limited to, additional
      deferral of stranded costs, unforecasted increases in compliance expenditures
      related to Sarbanes-Oxley, unanticipated increases in benefit costs, new
      products and services as part of the Company’s growth strategy maturing more
      slowly than initially expected, and the timing for restructuring of our banking
      relationships, the Company’s short-term liquidity position is
      insufficient.  The Company is taking steps to improve this situation,
      including current negotiations to provide for our short-term working capital
      needs.  On July 27, 2005, MAM obtained approval for a ninety-day working
      capital line of credit from Katahdin Trust Company for $750,000 to be used
      to
      meet these short-term needs. Efforts are underway to evaluate the Company’s
      overall banking needs. Aligning the Company’s growth strategy with the right
      U.S. and Canadian banking relationships is essential to the Company’s near and
      long-term success. Our mid-term and long-term liquidity and cash positions
      remain solid.





The
      Company’s cash and cash equivalents as of June 30, 2005, was $587,000, $606,000
      less than the December 31, 2004, balance of $1,193,000. The “Statements of
      Consolidated Cash Flows” of the Company’s Consolidated Financial Statements as
      presented in Part 1, Item 1, of this Form 10-Q, reflects the Company’s liquidity
      and sources of operating capital.





Cash
      flow
      provided by operating activities for the first six months of 2005 was $1.62
      million while net income was $479,000. The deferral of $2.18 million of deferred
      regulatory and debt issuance costs, principally Wheelabrator-Sherman costs
      in
      accordance with MPS’s stranded cost recovery, accounted for the biggest
      reduction in operating cash flows. Cash flow provided by financing activities
      for the first six months of 2005 totaled $479,000. Uses of cash included
      $409,000 paid in dividends and long-term debt reductions of $1.09 million.
      These
      uses of cash were offset by an increase in short-term borrowings of $2.39
      million. For the first six months of 2005, cash flow used for investing activity
      totaled $2.7 million. The Company’s wholly-owned software technology subsidiary,
      Maricor Technologies, Inc. (“MTI”) acquired lifecycle asset management software
      for $1.2 million, $50,000 of which was cash, $950,000 of which was preferred
      stock, and $200,000 in the form of a put option. The Company also invested
      $3.0
      million in fixed assets.


36


Net
      cash
      flows from operating activities for the first six months of 2004 were $4,712,000
      with net income of $1,242,000. The deferral of $3.03 million of deferred
      regulatory and debt issuance costs, principally Wheelabrator-Sherman costs
      in
      accordance with MPS’s stranded cost recovery accounted for the biggest reduction
      in operating cash flows. For the six months ended June 30, 2004, the increase
      in
      cash from financing activities of $173,000 was due to $2.09 million of
      additional short-term borrowings partially offset by scheduled dividend payments
      of $1.24 million and the repayment of long-term debt of $705,000. Net cash
      outflows for investing activities were $7.68 million. During the first six
      months of 2004, MPS invested $3.82 million in electric plant. Construction
      work-in-progress, reported in the Utility Plant section of the Company’s June
      30, 2004, Consolidated Balance Sheet, increased by $1.84 million from the
      balance as of December 31, 2003, due to the timing of expenditures for the
      Automated Meter Reading project and conversion of the Caribou substation to
      a
      higher voltage. In addition, MPS received $200,000 for the partial redemption
      of
      its Maine Yankee Common Stock. The Maricor Group and Maricor Ltd spent $3.53
      million net cash to acquire RES and M&R in June 2004.





Effective
      January 1, 2005, the Board of Directors increased the quarterly dividend by
      $0.05 per share from $0.20 per share to $0.25, for an annual dividend of $1.00
      per share. As of June 30, 2004, the quarterly dividend was $ 0.38 per share,
      or
      $1.52 per share annually. The Board of Directors had decreased the October
      1,
      2004, dividend to $0.20 to conserve capital in support of the Company’s growth
      strategy, while still maintaining a competitive yield for
      shareholders.





To
      satisfy working capital requirements, MPS uses short-term borrowings from its
      revolving credit agreement of $6.0 million.  The agreement is secured by
      $6.0 million of first mortgage bonds and its due date has been extended to
      June
      8, 2006.  In addition, on October 1, 2003, MPS executed an additional $3.0
      million line of credit with the Bank of New York.  This facility was
      unsecured and originally set to expire on March 29, 2004, but MPS received
      an
      extension to December 31, 2004, when it expired. Interest rates on this facility
      were comparable to the rates on the existing revolving credit agreement. 
The additional facility provided an additional source of short-term borrowings
      in the event required borrowings exceeded the existing revolving credit
      agreement.  As of June 30, 2005, MPS had $5.4 million of short-term debt
      outstanding, with $600,000 available, compared to $3.2 million outstanding,
      with
      $2.8 million available, at the end of 2004. Interest rates on these
      short-term borrowings were below the existing prime rate.  For additional
      information on the short-term credit facility, see Note 6 of the Notes to
      Consolidated Financial Statements, “Short-Term Credit Arrangements” of the
      Company’s 2004 Form 10-K.





Due
      to
      negative cash flows from stranded cost deferrals for MPS and start-up cash
      requirements for TMG, Management is working to ensure the Company has adequate
      credit facilities for 2005 and beyond to cover sinking fund payments,
      construction activities and other financial obligations.





The
      Maricor Group has a revolving credit arrangement with Banknorth N.A. for
      borrowings up to $1.0 million. This revolving credit arrangement,
      approved on September 21, 2004, is for a term of one-year and is subject to
      extension with the consent of the bank. One provision of this revolving credit
      arrangement requires that the line be paid off for one thirty day period during
      the year. The Company has not yet met this requirement, but has incorporated
      it
      in the short-term planning referenced in the first paragraph of this section.
      As
      of June 30, 2005, $975,000 was outstanding under this facility, with $25,000
      unused. As of December 31, 2004, there was $789,500 outstanding under the
      revolving credit arrangement, with $210,500 unused.





***Capital
      Resources***




The
      Company has the ability to raise capital through the issuance of common and
      preferred stock.  The Company is authorized by its Articles of
      Incorporation to issue up to 5,000,000 shares of common stock and 500,000 shares
      of preferred stock.  MPS can also issue $2.5 million of first mortgage
      bonds and $15.8 million of second mortgage bonds without bondable property
      additions.





Management
      believes the Company’s overall growth and long-term viability is dependent upon
      the full implementation of the Company’s growth strategy. In order to implement
      the strategy, capital formation will be essential. Management is evaluating
      a
      number of equity-related offerings that may include the issuance of additional
      common and/or preferred stock. Monies from these offerings may be used to
      eliminate debt in order to enhance net income and to facilitate strategic growth
      acquisitions.


37




On
      November 22, 2004, MPS entered into a $6.0 million, unsecured, seven-year term
      loan with Fleet National Bank now Bank of America. The proceeds of the loan
      were
      used to repay and refinance a portion of the amounts outstanding under MPS’s
      revolving credit arrangement associated with the Company’s prior capital
      expenditures. The loan agreement contains certain covenants requiring the
      maintenance of a minimum tangible net worth, maximum ratio of indebtedness
      for
      borrowed money to total capital and a minimum ratio of net income to fixed
      charges. Interest is payable monthly at a variable interest rate of One-Month
      LIBOR, plus 1.5%. The loan is to be repaid in scheduled monthly principal
      payments as follows:





December
                1, 2004 through November 1, 2007
            $50,000December
                1, 2007 through November 1, 2009
            $80,000December
                1, 2009 through November 1, 2011
            $95,000





On
      August
      12, 2004, Maine & Maritimes Corporation entered into a $2,000,000,
      unsecured, two-year term loan with Katahdin Trust Company. The proceeds of
      the
      loan were used to acquire and renovate certain real estate assets in Moncton,
      New Brunswick, Canada. The loan requires interest-only payments from September
      12, 2004, through maturity at a variable interest rate of Three-Month LIBOR
      plus
      2.65%.





On
      September 21, 2004, The Maricor Group entered into a $2.2 million secured,
      10-year term loan with Banknorth N.A. The proceeds of the loan were used, in
      part, for the acquisition of the common stock of RES Engineering and Morris
      & Richard Consulting Engineers. The loan requires interest-only payments at
      a variable interest rate of One-Month LIBOR, plus 2.00% through September 1,
      2007. Quarterly, principal payments of approximately $79,000 commence October
      1,
      2007, through maturity at September 1, 2014.





The
      Maine
      Public Utility Financing Bank (“MPUFB”) has issued its tax-exempt bonds on
      behalf of MPS for the construction of qualifying distribution property. 
Originally issued for $15.0 million and reduced with generating asset sale
      proceeds, the 1996 Refunding Series had $13.6 million outstanding at June 30,
      2005, and is due in 2021.  On October 19, 2000, the 2000 Series of bonds
      was issued in the amount of $9.0 million, with these bonds due in 2025. 
The proceeds of the 2000 Series were placed in trust to be drawn down for the
      reimbursement of issuance costs and for the construction of qualifying
      distribution property. For both tax-exempt bond series, a long-term note was
      issued under a loan agreement between MPS and the MPUFB, with MPS agreeing
      to
      make payments to the MPUFB for the principal and interest on the bonds. 
Concurrently, pursuant to a letter of credit and reimbursement agreement, the
      Bank of New York has separately issued its direct pay letter of credit (“LOC”)
      for the benefit of the holders of each series of bonds.  Both LOC’s are due
      to expire in June 2006. To secure MPS’s obligations under the letter of credit
      and reimbursement agreement for the 1996 Refunding Series, MPS issued second
      mortgage bonds in the amount of $14.4 million in June 2002.  For the 2000
      series, MPS issued first and second mortgage bonds, in the amounts of $5.0
      million and $4.53 million, respectively, to secure MPS’s obligation under the
      letter of credit and reimbursement agreement for this series.  For both
      series, MPS has the option of selecting weekly, monthly, annual or term interest
      rate periods.  For both series, MPS has continued to use the weekly
      interest rate period.  Since issuance, the average of these weekly rates
      was 2.776% and 1.912% for the 1996 Refunding Series and the 2000 Series,
      respectively.  In September 2003, MPS executed an interest rate swap
      agreement with Fleet National Bank for the remaining terms of the issues with
      an
      effective fixed rate of 4.57% for the 1996 series and 4.68% for the 2000
      series.  By its rate order in Docket No. 2003-85, the MPUC approved the
      execution of the agreements and allowed recovery of the additional interest
      costs.




On
      May
      29, 1998, FAME issued $11.54 million of its Taxable Electric Rate Stabilization
      Revenue Notes, Series 1998A (MPS) (the “Notes”) on behalf of MPS.  The
      Notes were issued pursuant to, and are secured under, a Trust Indenture by
      and
      between FAME and Peoples Heritage Bank, Portland, Maine, as Trustee (“the
      Trustee”), for the purpose of:  (i) financing the up-front payment to
      Wheelabrator-Sherman of approximately $8.7 million, as required under an amended
      purchase power agreement; (ii) for the Capital Reserve Fund, as required by
      FAME
      under their Electric Rate Stabilization Program; and (iii) for issuance
      costs.  The Notes are limited obligations of FAME, payable solely out of
      the trust estate available under the Indenture, principally the Loan Note and
      Loan Agreement with MPS and the Capital Reserve Fund held by the Trustee. 
MPS issued $4.0 million of its first mortgage bonds and the MPUC also approved
      the execution of an interest rate swap agreement in September 2003 with Fleet
      National Bank, now Bank of America, for the remaining term of the issue with
      an
      effective fixed rate of 2.79%.





As
      more
      fully discussed in Part II, Item 1(c), “Legal Proceedings - Requests for
      Issuance of Certificates of Public Convenience and Necessity in Connection
      with
      the Construction of a Proposed Transmission Line and Various Transmission
      Service Renovations,” MPS is pursuing the authorization to build, and include in
      rate base, a transmission line for system security and reliability purposes.
      While MPS is under no current obligation to build its estimated $4.0 million
      share of the line to the Canadian Border near Hamlin, Maine to connect with
      a
      line built by NB Power, a letter of interest to finance the project was obtained
      from a national bank as part of MPS’s initial application. Management believes
      financing for the project will be available should required regulatory approval
      be obtained.


38


In
      accordance with rate stipulations approved by the MPUC, for ratemaking purposes,
      MPS is required to maintain a capital structure not to include more than 51%
      common equity for the determination of delivery rates.




In
      the
      order approving the reorganization of MPS and the formation of Maine &
Maritimes Corporation, the parties stipulated to the following conditions. 
The following relate to the availability of capital resources for MAM via its
      relationship with MPS:




• MPS
      will
      not make any loan to, or guarantee or assume any obligation of, MAM or any
      of
      its affiliates without prior MPUC approval.





• The
      MPUC
      will not place additional restrictions, in advance, on the dividend policy
      of
      MPS.  The Board of Directors of MPS will continue to set dividend policy
      for MPS with due regard for the financial performance, needs and health of
      MPS
      and the maintenance of a safe, efficient and reasonable capital structure. 
Commencing on July 1, 2003, if at any time MPS’s common dividend payout ratio
      (dividends per share divided by earnings per share) exceeds 1.0 (i.e. 100%)
      on a
      two-year rolling average basis, MPS will notify the MPUC in writing within
      thirty (30) days of the end of the calendar quarter (assuming a dividend is
      paid
      July 1, 2003, the initial two-year period shall be April 1, 2001, through March
      31, 2003.)  The required notification should explain the circumstances
      (extraordinary or not) of this event and the financial condition of MPS. 
Moreover, the MPUC reserved the right in the future, should financial
      circumstances warrant, to impose limitations on the dividend policy of MPS.
      As
      of June 30, 2005, this limitation has not been exceeded; therefore, such
      notification to the MPUC has not been required.





• Securities
      issuances by MPS will be done independently of MAM and subject to such MPUC
      approvals as required.  The proceeds of any securities issued by MPS will
      be used exclusively by MPS for its business.





• MAM’s
      total non-utility investment, excluding accumulated unregulated retained
      earnings, will not exceed $50.0 million and such amount will exclude retained
      earnings from EA, provided that MPS may at any time seek an enlargement of
      this
      limitation for good cause.





• Without
      prior MPUC approval, MAM will not sell, pledge or otherwise transfer any common
      stock of MPS.





• To
      protect and maintain the financial integrity of the regulated utility, MPS
      and
      MAM agreed to maintain the common equity ratio of MPS at a level of not less
      than forty eight percent (48%) of the total capital at all times, provided
      that
      the MPUC may establish, for good cause, a lower ratio in connection with its
      authorization of a future debt issuance proposed by MPS.  Total capital is
      defined as the sum of the following components:  common equity, preferred
      equity, long-term debt, current maturities long-term debt (“CMLTD”), long-term
      capital leases, current maturities long-term capital leases, and short-term
      debt.





***Regulatory
      Proceedings***




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




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




(a)
            The
                Company had material interest rate risk until MPS fixed interest
                rates on
                three variable rate debt issues on September 9, 2003, with a derivative
                interest rate swap transaction. As discussed in previous Form 8-K,
                10-K
                and 10-Q quarterly filings, MPS had partially mitigated its risk
                by
                purchasing a 6% interest rate cap on its two tax-exempt bonds, the
                1996
                Series and the 2000 Series, issued on MPS’s behalf by the Maine Public
                Utility Financing Bank. The interest rate cap on the 1996 and 2000
                Series
                expired in November 2003. MPS also purchased a 7% interest rate cap,
                which
                expires in 2008, for MPS’s Taxable Electric Rate Stabilization Revenue
                Notes issued in 1998 on its behalf by the Finance Authority of Maine
                (“FAME”). Further discussion on these debt issues and the associated
                interest rate caps is contained in Item 8 to the Consolidated Financial
                Statements, “Long-Term Debt,” and is hereby incorporated by this
                reference. Upon execution of the interest rate swaps on September
                9, 2003,
                MPS effectively fixed through maturity the rates on the 1996 Series
                due in
                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% through
                maturity. As of March 31, 2005, the 1996 and 2000 Series and the
                1998 FAME
                Notes had outstanding balances of $13.6 million, $9.0 million and
                $6.63
                million, respectively. The fixed rates are higher than the previous
                floating rates and continue to be as of the date of this filing.
                Although
                incurring no up-front cost to execute the swaps, MPS is currently
                incurring increased interest expenses. However, Management believes
                that
                the fixing of interest rates over the terms of the debt will serve
                to
                protect both shareholders and consumers from what it believes to
                be upward
                variable interest rate pressures.


39


(b)
            The
                Company’s unregulated real estate development and investment subsidiary,
                Maricor Properties Ltd, and its subsidiary, Mecel Properties Ltd,
                are
                subject to certain risks and uncertainties including, but not necessarily
                limited to interest rate risks associated with variable 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/or electrical
                systems failures; unexpected increases in property rehabilitation
                costs;
                new government regulations; and tenant credit and default risks.




(c)
            Transactions
                with Me&NB; The Maricor Group, Canada Ltd; and Maricor Properties Ltd
                are subject to an immaterial amount of foreign currency translation
                risk.
                Income and expenses are translated at average rates of exchange for
                the
                period of time the income is earned or the expenses are incurred.
                Assets
                and liabilities are translated at year-end exchange rates.





(d)
            The
                Maricor Group and its subsidiaries are subject to market risks associated
                with changes in economic conditions of their respective markets,
                the
                ability to attract and retain key talent, and engineering design
                errors
                and/or omissions. The Company does carry insurance to address errors
                and
                omissions to mitigate certain risks.





(e)
            Maricor
                Technologies is subject to risks associated with changing technologies
                and
                increasing competition. As a result, MTI monitors technology and
                competitor trends to ensure its product offerings remain market
                competitive.





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





(a)
      Evaluation of Disclosure Controls and Procedures





Based
      on
      reviews by the Company’s President and Chief Executive Officer and Senior Vice
      President and Chief Financial Officer of the Company’s disclosure controls and
      procedures, conducted within 90 days of the filing of this Form 10-Q, as
      evidenced by the certifications appearing at the end of this Form 10-Q, the
      aforementioned Officers have concluded that the controls are working
      effectively.





(b)
      Changes in Internal Control over Financial Reporting





There
      was
      no change in the Company’s internal control over financial reporting that
      occurred during the most recent fiscal quarter.





The
      Company is taking actions to comply with Section 404 of The Sarbanes-Oxley
      Act
      with respect to its internal control over financial reporting for the fiscal
      year 2006.  The Company continues to assess the internal control
      environment, control designs and operating effectiveness, to ensure no
      significant deficiencies or material weaknesses exist.


40


**PART
      II. OTHER INFORMATION**





***Item
      1. Legal Proceedings***




**Federal
      Energy Regulatory Commission 2005 Open Access Transmission Tariff Formula Rate
      filing, FERC Docket ER05-... (formula change filing) and ER00-1053-... (calculation
      of the revenue requirement filing)**




On
      May
      31, 2005, pursuant to Section 205 of the Federal Power Act, 16 U.S.C. Section
      824d, and Title 18 CFR Sections 35.11 and 35.13 of the regulations of
      the FERC, MPS submitted for filing its proposed revisions to its FERC Open
      Access Transmission Tariff in Docket No. ER 05 (the “2005 OATT”) to modify its
      transmission rate formula. 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
      refund that may occur as a result of the proceeding and potential settlement
      negotiations. The retail transmission revenue requirement was increased by
      $288,670 on June 1, 2005, under the 2005 OATT. This represented an increase
      of
      8% to the transmission component of retail delivery rates or an overall impact
      on total retail delivery rates of 0.7%. The primary reason for the increase
      was
      the increase to costs due to mandated Sarbanes-Oxley requirements, and the
      purchase of a new Oracle-based accounting system. MPS is currently responding
      to
      data requests submitted by interveners and cannot predict the outcome of this
      proceeding at this time.




**MPUC
      Approves the Pass-Thru of Retail Transmission Rates to MPS Retail Jurisdictional
      Customers, and the Increase to DSM Mil Rate, MPUC Docket No.
      2003-516**





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





**MPUC
      Approves Stranded Cost Revenue Requirements Effective March 1, 2004**




In
      an
      Order dated February 27, 2004, MPS received final approval from the MPUC for
      the
      stranded cost revenue component of its electric delivery rates, effective March
      1, 2004. Under Title 35-A of the Maine Revised Statutes Annotated, Section
      3208,
      the MPUC is required to periodically investigate and adjust the stranded cost
      charges reflected in the rates of a transmission and distribution utility.
      In
      accordance 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’s
      rates must be changed effective March 1, 2004, to reflect any changes in MPS’s
      stranded costs. On February 27, 2004, the MPUC issued an order approving a
      stipulation under which MPS is allowed to recover $11.8 million per year to
      satisfy its approved stranded cost revenue requirements for the “rate effective
      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 cost rates
      approved in Docket No. 2003-85 will remain in effect during the rate effective
      period **.** The
      stipulation approved by the MPUC in Docket 2003-666 also approved and reaffirmed
      each of the elements and associated balances of MPS’s recoverable stranded
      costs.




As
      explained more fully below, during the course of Docket 2003-666 the parties
      reviewed the manner in which MPS was recovering and accounting for its carrying
      charges associated with the deferred fuel element of its stranded cost. As
      a
      result of the stipulation approved in Docket No. 2003-666, MPS will record
      deferred income tax expense associated with deferred fuel carrying charges
      during the rate effective period from March 1, 2004, through December 31, 2006,
      as compared to past treatment where such expense was deferred for future
      recovery. Because the deferred fuel carrying charge component of MPS’s stranded
      costs is not expected to fully amortize until 2012, the Company anticipates
      that
      deferred income tax expense will be incurred through 2012, subject to future
      stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240, the parties
      stipulated that MPS would accrue carrying costs on its unrecovered fuel balance
      (the “deferred fuel account”) during the respective rate effective period at its
      net-of-tax cost of capital rate. Consistent with the stipulation in Docket
      No.
      2001-240, MPS accrued a carrying charge using the net of tax rate of 7.98%
      through October 31, 2003, applied against its unrecovered 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%, based on the cost of capital approved in
      Docket No. 2003-85 (described in Docket 2003-85 Partial Stipulation filed on
      September 2, 2003).




During
      the course of the Docket 2003-666 proceeding, MPS determined that it had not
      previously recognized accumulated deferred income taxes with respect to the
      carrying charges on the deferred fuel account and that the recording of a
      deferred tax liability to its balance sheet pursuant to FAS 109 in the amount
      of
      $2.896 million 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 any adjustment
      was projected to be $18.8 million. Under the stipulation MPS was allowed to
      adjust its accumulated deferred income tax account and the deferred fuel balance
      by $2.896 million, as of March 1, 2004, resulting in a total projected deferred
      balance as of March 1, 2004, of $21.734 million. Under the approved stipulation
      the parties also agreed that the return component on the deferred fuel balance
      should be reduced in such a manner that ratepayers were 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 period ending on December 31, 2006,
      the
      overall pre-tax return component on the deferred fuel balance will be 8.28%,
      reflecting a 6.17% return on equity. The return on the deferred fuel balance
      will be reviewed in future stranded cost rate setting proceedings and will
      be
      adjusted as necessary in order that the present value of the revenue
      requirements of the deferred fuel account without the adjustments described
      above equals the present value of the revenue requirements of the deferred
      fuel
      account with the adjustments. MPS concludes that as a result of this stipulation
      and the foregoing described adjustment to the deferred fuel balance and the
      accumulated deferred income tax liability that no further adjustment is
      necessary under FAS 109 in order to reflect prior unrecorded deferred income
      taxes.


41


The
      decreased cost of capital rate beginning on March 1, 2004, will have an impact
      on future stranded cost earnings and cash flow, but will not impact future
      distribution or transmission earnings. In the year 2004, the Company recorded
      deferred income tax expense of approximately $412,000 associated with the
      deferred fuel carrying charges. The amount of deferred income tax expense
      recorded in future years will vary depending upon the amount of the accrued
      carrying charge in any year, and the tax rates then in effect. Earnings from
      carrying charges on the Company’s stranded costs in 2004 were approximately
      $267,000 lower than the amount that would have been recorded had the Company
      continued to use the original cost of capital on its deferred fuel balance,
      for
      a total earnings impact of $679,000 in 2004. The impact on future earnings
      resulting from the agreed upon lower cost of capital, when compared against
      the
      cost of capital used in prior stranded cost filings, will vary. Schedules filed
      by the Company as part of the stipulation in Docket No. 2003-666 reflect the
      deferred fuel balance as of March 1, 2003, certain additions relating to the
      Wheelabrator-Sherman above-market contract through December 2006 and the
      amortization of the deferred fuel balance though 2012. Applying these
      assumptions, current tax rates and the agreed upon cost of capital, the Company
      anticipates that the impact on future earnings resulting from recording deferred
      income taxes on accrued carrying charges and applying a lower cost of capital
      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 in 2012. These
      amounts may vary with changes in the deferred fuel balance and other variables
      which the Company cannot predict with certainty at this time. Management is
      analyzing means to mitigate the impact of this stipulation on future net income
      and cash flows.




In
      addition to the return allowed on its deferred fuel account as set forth above,
      under the approved stipulation MPS shall be allowed to recover the following
      pre-tax returns on the applicable stranded cost rate base components during
      the
      rate effective period: (i) the pre-tax return on unrecovered balance of the
      Wheelabrator-Sherman Contract Buydown shall be 2.79% plus its FAME issuance
      costs; (ii) the pre-tax return on the unrecovered Seabrook Investment and
      approved special rate contract costs shall be 11.74%; and, (iii) the pre-tax
      return on the Maine Yankee decommissioning related costs shall be
      8.56%.




**Requests
      for Issuance of Certificates of Public Convenience and Necessity in Connection
      With the Construction of a Proposed Transmission Line and Various Transmission
      Service Reservations.**




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




The
      purpose of the project is to ensure that the reliability and integrity of the
      MPS transmission grid are maintained under scenarios of reduced on-system
      generator availability and peak load growth. The available firm transfer
      capability of the transmission system when added to the remaining on-system
      hydro generation is not sufficient to meet peak load conditions, should existing
      on-system wood-fired generation become unavailable. The proposed line would
      address this and other reliability concerns by significantly increasing the
      load-serving capability of the northern Maine region and would serve to
      reinforce the vital transmission ties between northern Maine and the New
      Brunswick transmission grid, and thereby significantly reduce the potential
      for
      a voltage collapse under certain contingency events.




MPS
      has
      requested that the MPUC approve the project in a timely manner so that MPS
      can
      commence construction in 2005, after obtaining all necessary approvals, and
      place the project in service not later than the Fall of 2006. The line will
      use
      approximately 125 single-pole structures with a 450 foot average span length.
      Total length of the line is approximately 10.5 miles with almost 9 miles of
      the
      line utilizing the already cleared right-of-way of the adjacent Line 6905,
      with
      an additional 50 feet of right-of-way to be obtained and cleared on the east
      side of the existing line. This line is to be constructed in conjunction with
      NB
      Power’s portion of the line, which will extend from the Canadian Border to a tap
      on Line 1140 of the NB Power transmission system near the town of Grand Falls,
      New Brunswick.




Under
      the
      Development Agreement entered into by MPS and NB Power in September of 2004,
      each party will be responsible for the construction and costs of its respective
      portion of the interconnection. The Agreement further requires MPS to reserve
      10
      MW of capacity on NB Power’s transmission system in order to provide NB Power an
      opportunity to recover its costs. The projected cost for the MPS portion of
      the
      line is $4.0 million. The Petition filed with the MPUC by MPS indicates that
      its
      costs associated with the new line will be recovered through its transmission
      rates on file with the FERC, and, further, requests approval of the 10MW
      transmission reservation with NB Power.


42


By
      law,
      the MPUC has six months to determine whether to issue the Certificate, provided
      that the Commission may extend that time period for cause. However, due to
      the
      complexity of the issues in this Docket, the MPUC has set a schedule that would
      resolve the case by August 2005. Hearings were conducted on June 6, 7, and
      8,
      2005 followed by the filing of Briefs by all parties including MPS. The
      examiner’s report, which was issued on July 29, 2005, did not find a reliability
      issue and does not support construction of the line. The Company is currently
      awaiting the Commission’s Order in August 2005. MPS cannot predict the outcome
      at this time.




In
      September 2004, MPS also entered into the Commitment Agreement with NB Power.
      Under this Agreement, which is subject to MPS obtaining all necessary regulatory
      approvals, MPS will reserve 35 MW of transmission capacity on the NB Power
      system in conjunction with the construction of a new 345 kV transmission line
      to
      be constructed from Point Lepreau near Saint John, NB to Orrington, Maine.
      NB
      Power will own and operate the portion of the line on its side of the border,
      while Bangor Hydro-Electric Company (“BHE”) will own and operate the portion of
      the line on the U.S. side of the border known as the Northeast Reliability
      Interconnect (“NRI”). BHE filed 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 the MPUC seeking approval to make the reservation required
      under the Commitment Agreement on December 13, 2004, in MPUC Docket No.
      2004-775. As noted above, MPS’s obligations under the Commitment Agreement are
      dependent upon securing regulatory approval. These dockets remain open. MPS
      cannot predict the outcome of this case at this time.





***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***





At
      the
      2005 Annual Meeting of the Stockholders of Maine & Maritimes Corporation
      held on May 11, 2005, three matters were voted upon.





First
      was
      the uncontested election of the following directors for terms ending in 2008,
      each of whom received the following votes:





For
            
            Withheld
              And
                Exemptions
            
            Broker
              Non-Votes
            
            Total
                Shares
              VotedD.
                James Daigle
            
            1,232,391
            
            142,216
            
            0
            
            1,374,607G.
                Melvin Hovey
            
            1,230,159
            
            144,448
            
            0
            
            1,374,607Lance
                A. Smith
            
            1,239,316
            
            135,291
            
            0
            
            1,374,607Deborah
                L. Gallant
            
            1,232,590
            
            142,017
            
            0
            
            1,374,607





The
      remaining classes of directors are as follows:





Class
      I
      Directors whose terms expire in 2006: Robert E. Anderson, Michael W. Caron,
      and
      Nathan L. Grass





Class
      II
      Directors whose terms expire in 2007: J. Nicholas Bayne, Richard G. Daigle
      and
      David N. Felch





Second,
      shareholders were asked to approve amendments to the 2002 Stock Option Plan
      (the
“Plan”) which would (1) change the name of the Plan to the “2005 Stock Plan”;
      (2) permit the Board of Directors to grant stock awards, as well as stock
      options; and (3) increase the number of shares available for issuance under
      the
      Plan to 300,000 shares. The recorded vote was:




Amendments
                to the
              2002
                Stock Option PlanFor
            
            
            477,600Against
            
            
            625,724Abstentions
            
            
            25,867Broker
                Non-Votes
            
            
            245,416Total
                Shares Voted
            
            
            1,374,607


43




Third
      was
      the ratification of the Independent Auditor, Vitale Caturano & Company. The
      following vote was recorded:





Independent
                AuditorFor
            
            
            1,340,163Against
            
            
            20,890Abstentions
            
            
            13,554Broker
                Non-Votes
            
            
            0Total
                Shares Voted
            
            
            1,374,607





***Item
      5. Other Information***





None




***Item
      6. Exhibits***




The
      following exhibits are attached:





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





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


44


SIGNATURE




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






MAINE
      & MARITIMES CORPORATION


(Registrant)





Date:
      August 12, 2005








/s/
                Michael I. WilliamsMichael
                I. WilliamsVice
                President, Controller and Chief Accounting Officer(Principal
                Accounting Officer and Duly Authorized Officer)




45