**UNITEDSTATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C. 20549**

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**FORM 10-Q**

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

**FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2007**

**OR**

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

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**Commission File No. 333-103749**

**MAINE & MARITIMES CORPORATION**

**A Maine Corporation**

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

**209 STATE STREET, PRESQUE ISLE, MAINE 04769**

**(207) 760-2499**

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Indicate by checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days. Yes x.    No o.

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

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

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of theAct). Yes o.    No x.

Indicate the number of shares outstanding of each of the issuer’sclasses of common stock, as of August 10, 2007

Common Stock, $7.00 par value – 1,677,430 shares

 

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| Glossary of Terms | ** ** | ** **                                                         |
|-------------------|------------|--------------------------------------------------------------------|
| * *          | * *   | * *                                                           |
| AMEX              |       | American Stock Exchange                                            |
| Ashford           |       | Ashford Investments Inc.                                           |
| CES               |       | Competitive Energy Supplier                                        |
| Cornwallis        |       | Cornwallis Court Developments Ltd                                  |
| DSM               |       | Demand-Side Management                                             |
| EA                |       | Energy Atlantic, LLC                                               |
| EBIT              |       | Earnings Before Interest and Taxes                                 |
| FAME              |       | Finance Authority of Maine                                         |
| FERC              |       | Federal Energy Regulatory Commission                               |
| FIN               |       | FASB Interpretation Number                                         |
| HCI               |       | HCI Systems Asset Management, LLC                                  |
| MAM               |       | Maine & Maritimes Corporation                                  |
| MCW               |       | MCW Consultants Ltd                                                |
| Me&NB         |       | Maine & New Brunswick Electrical Power  Company, Ltd |
| Mecel             |       | Mecel Properties Ltd                                               |
| MEPCO             |       | Maine Electric Power Company, Inc.                                 |
| MPS               |       | Maine Public Service Company                                       |
| MPUC              |       | Maine Public Utilities Commission                             |
| MTI               |       | Maricor Technologies, Inc.                                         |
| MW                |       | Megawatt                                                           |
| MWH               |       | Megawatt hour                                                      |
| NOI               |       | Notice of Inquiry                                                  |
| OATT              |       | Open Access Transmission Tariff                                    |
| OCI               |       | Other Comprehensive Income                                         |
| PCB               |       | Poly Chlorinated Bi-phenol                                         |
| PPA               |       | Power Purchase Agreement                                           |
| RES               |       | RES Engineering, Inc.                                              |
| SFAS              |       | Statement of Financial Accounting Standards                        |
| SOS               |       | Standard Offer Service                                             |
| T&D           |       | Transmission and distribution                                      |
| TMG               |       | The Maricor Group                                                  |
| TMGC              |       | The Maricor Group, Canada Ltd                                      |
| TMGNE             |       | The Maricor Group New England                                      |
| WS                |       | Wheelabrator-Sherman                                               |

 

2

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**PART 1. FINANCIAL INFORMATION**

***Item 1. Financial Statements***

Seethe following exhibits: Maine & Maritimes Corporation (“MAM” or the “Company”)and subsidiaries Consolidated Financial Statements, including (1) an unauditedstatement of consolidated operations for the quarter and six months ended June30, 2007, and for the corresponding period of the preceding year; (2) anunaudited statement of consolidated cash flows for the period January 1(beginning of the fiscal year) through June 30, 2007, and for the correspondingperiod of the preceding year; (3) an unaudited consolidated balance sheet as ofJune 30, 2007; (4) an audited consolidated balance sheet as of December 31,2006, the end of Maine & Maritimes Corporation’s preceding fiscal year; and(5) an unaudited statement of consolidated common shareholders’ equity for theperiod January 1 (beginning of the fiscal year) through June 30, 2007.

Inthe opinion of Management, the accompanying unaudited consolidated financialstatements present fairly the financial position of the Company and itsSubsidiaries at June 30, 2007, and December 31, 2006; the results of theiroperations for the three and six months ended June 30, 2007 and 2006; and theircash flows for the six months ended June 30, 2007, and 2006.

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

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

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

3.               The Maricor Group(“TMG”) and its wholly-owned United States subsidiary The Maricor Group NewEngland (“TMGNE”) and TMG’s wholly-owned Canadian subsidiary The Maricor Group,Canada Ltd (“TMGC”), all of which are classified as discontinued operations. Asdescribed later in this document, substantially all of the assets of TMGC weresold in June, 2007. 

4.               MaricorTechnologies, Inc. (“MTI”), a wholly-owned United States subsidiary classifiedas discontinued operations. MAM divested of MTI’s assets and terminated its operationsas of April 13, 2007. The corporation was dissolved on June 28, 2007.

In addition to these wholly-owned subsidiaries, MAM isa 50% owner of Maricor Properties Ltd, (“Maricor Properties”), a Canadiancompany formerly wholly-owned by MAM, and its wholly-owned Canadiansubsidiaries Cornwallis Court Developments, Ltd (“Cornwallis”) and MecelProperties Ltd (“Mecel”).  MAM retained100% of the economic rights and obligations of Mecel when it sold 50% ofMaricor Properties. Mecel is presented in these financial statements asdiscontinued operations, while the other components are reported under theequity method.  As of March 21, 2007, MAMalso became a 50% owner of Maricor Ashford, an inactive joint venture with AshfordInvestments Inc., previously jointly owned by Maricor Properties and AshfordInvestments Inc.

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

3

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*    Indicatesinactive companies

** Companies classified as Discontinued Operations inthese financial statements.

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

·          Maine & MaritimesCorporation is a holding company incorporated in the State of Maine, and is theultimate parent company for all business segments.  MAM maintains investments in a regulatedelectric transmission and distribution utility operating within the State ofMaine, United States of America, classified for financial reporting purposes ascontinuing operations.  MAM also hasinvestments in a mechanical, electrical and plumbing/fire protectionengineering company in Boston, and real estate investments in Canada at June30, 2007. These operations were reclassified for financial reporting purposesto assets held for sale.  MAM isheadquartered in Presque Isle, Maine.

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

                Electric sales in the Company’sterritory are seasonal, and the Company’s results of operations reflect thisseasonal nature. The highest usage occurs during the five heating seasonmonths, from November through March, due to heating-related requirements andshorter daylight hours.  The rate year isdivided into two periods, with higher rates in place in the winter months toencourage conservation.  Also, due to theclimate in the northern Maine area, the majority of MPS’s construction programis completed during the spring, summer and fall months.

·          Maine & NewBrunswick Electrical Power Company, Ltd is an inactive Canadian subsidiary ofMPS, which, prior to deregulation and generation divestiture, owned MPS’sCanadian electric generation assets. Me&NB was incorporated in 1903 underthe laws of the Province of New Brunswick, Canada.

·          The Maricor Group is afacilities engineering and solutions company providing mechanical, electricaland plumbing/fire protection engineering consulting design services. TMGoperates primarily within the New England region of the United States throughits subsidiary The Maricor Group New England (“TMGNE”).  TMG was formed in November 2003, and isheadquartered in Presque Isle, Maine, with an office in Boston,Massachusetts.  MAM has partiallydivested its TMG operations through sales of substantially all operating assetsof its Canadian operations, as part of an overall shift in strategy describedmore fully in Item 7, “Management’s Discussion and Analysis” of MAM’s 2006 Form10-K and updated in the first and second quarter 10-Q filings for 2007.  As part of this strategy, MAM intends to sellor wind down the operations of TMGNE.

·          Maricor Properties Ltd,50% owned by MAM, is a Canadian real estate development, redevelopment andinvestment company.  Maricor PropertiesLtd was organized on May 28, 2004, in Nova Scotia, Canada, and acquired MecelProperties on June 1, 2004.  MaricorProperties purchased a building in Moncton, New Brunswick, Canada, in August2004, and Cornwallis Court Developments Ltd, a wholly-owned Canadiansubsidiary, on October 7, 2005.  On June30, 2006, Maricor Properties issued stock to Ashford Investments Inc. (“Ashford”),resulting in 50% ownership for both MAM and Ashford.  Prior to this stock issuance, MaricorProperties was a wholly-owned subsidiary of MAM.  Ashford Investments is an Atlantic Canadianreal estate development, investment and management firm which providesmanagement services to Maricor Properties and its subsidiaries.  As part of the corporate strategy, MAM willseek to divest its 50% share of Maricor Properties.

·          Mecel Properties Ltd isa Canadian subsidiary of Maricor Properties Ltd and currently owns an officebuilding in Halifax, Nova Scotia.  It wasacquired by Maricor Properties on June 1, 2004, in conjunction with theacquisition by TMGC of its Halifax practice group.  Under the terms of the sale of stock ofMaricor Properties to Ashford, MAM retained 100% of the economic ownership ofthis subsidiary, with the expectation that either 50% of Mecel would bepurchased by Ashford or that Mecel would be transferred to TMGC at a later date.  As of June 30, 2007, the economic ownershipof Mecel remained solely owned by MAM. MAM is seeking to divest its ownership of Mecel Properties.

·          Maricor Technologies,Inc., formed on February 14, 2005, developed information technology andsoftware products for sustainable governance of facilities, infrastructure andbuildings.  MAM divested its MTI assetsand terminated operations as of April 13, 2007.

·          Energy Atlantic, LLC isa licensed, but currently inactive, CES of retail electricity, and is classifiedas discontinued operations.

4

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Statements of Consolidated Operations**(Unaudited)
| ** **                                                                                                     | ** ** | **Three Months Ended   June 30,** | ** ** | **Six Months Ended   June 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(In thousands of dollars except shares and per share amounts)** | ** ** | **2007**                                              | ** ** | **2006**                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Operating Revenues**                                                                                         | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Regulated  Revenues                                                                                            |       | $                                                     | 7,951      |                                                | $          | 7,414 |   | $ | 18,866 |   | $ | 17,465 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating Expenses**                                                                                         | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Regulated  Operation & Maintenance                                                                         |       | 3,168                                                 |       | 3,497                                               |       | 6,545 |   | 7,241 |   |
| Unregulated  Operation & Maintenance (1)                                                                   |       | 355                                                   |       | 179                                                 |       | 847 |   | 616 |   |
| Depreciation                                                                                                   |       | 697                                                   |       | 730                                                 |       | 1,408 |   | 1,445 |   |
| Amortization of  Stranded Costs                                                                                |       | 2,647                                                 |       | 2,568                                               |       | 5,451 |   | 5,378 |   |
| Amortization                                                                                                   |       | 61                                                    |       | (50                                                 | )          | 116 |   | 29 |   |
| Taxes Other Than  Income                                                                                       |       | 441                                                   |       | 437                                                 |       | 885 |   | 937 |   |
| Provision for  Income Taxes—Regulated                                                                     |       | 320                                                   |       | 43                                                  |       | 1,637 |   | 793 |   |
| Benefit of  Income Taxes—Unregulated (1)                                                                  |       | (181                                                  | )          | (113                                                | )          | (422 | ) | (316 | ) |
|                                                                                                           |       |                                                  |       |                                                |       |   |   |   |   |
| **Total  Operating Expenses**                                                                                  |       | 7,508                                                 |       | 7,291                                               |       | 16,467 |   | 16,123 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Operating Income**                                                                                           |       | 443                                                   |       | 123                                                 |       | 2,399 |   | 1,342 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other Income (Deductions)**                                                                                  | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Equity in Income  of Associated Companies                                                                      |       | 39                                                    |       | 199                                                 |       | (33 | ) | 127 |   |
| Interest and  Dividend Income                                                                                  |       | 6                                                     |       | 2                                                   |       | 13 |   | 8 |   |
| Provision for  Income Taxes                                                                                    |       | (4                                                    | )          | —                                              |       | (5 | ) | (22 | ) |
| Other—Net                                                                                                 |       | (18                                                   | )          | (8                                                  | )          | (43 | ) | (48 | ) |
|                                                                                                           |       |                                                  |       |                                                |       |   |   |   |   |
| **Total**                                                                                                      |       | 23                                                    |       | 193                                                 |       | (68 | ) | 65 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Income Before Interest Charges**                                                                             |       | 466                                                   |       | 316                                                 |       | 2,331 |   | 1,407 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Interest Charges**                                                                                           | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Long-Term Debt  and Notes Payable                                                                              |       | 722                                                   |       | 727                                                 |       | 1,483 |   | 1,435 |   |
| Less Stranded  Costs Carrying Charge                                                                           |       | (442                                                  | )          | (414                                                | )          | (898 | ) | (815 | ) |
|                                                                                                           |       |                                                  |       |                                                |       |   |   |   |   |
| **Total**                                                                                                      |       | 280                                                   |       | 313                                                 |       | 585 |   | 620 |   |
|                                                                                                           |       |                                                  |       |                                                |       |   |   |   |   |
| **Net Income from Continuing  Operations**                                                                     |       | 186                                                   |       | 3                                                   |       | 1,746 |   | 787 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Discontinued Operations**                                                                                    | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| Estimated Loss  on Sales of Discontinued Operations                                                            |       | (362                                                  | )          | —                                              |       | (362 | ) | — |   |
| Loss from  Operations                                                                                          |       | (573                                                  | )          | (541                                                | )          | (923 | ) | (971 | ) |
| Income Tax  Benefit                                                                                            |       | 372                                                   |       | 228                                                 |       | 513 |   | 407 |   |
|                                                                                                           |       |                                                  |       |                                                |       |   |   |   |   |
| **Loss from Discontinued  Operations**                                                                         |       | (563                                                  | )          | (313                                                | )          | (772 | ) | (564 | ) |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Net (Loss) Income Available for  Common Stockholders**                                                       |       | $                                                     | (377       | )                                                   | $          | (310 | ) | $ | 974 |   | $ | 223 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Average Shares of Common Stock  Outstanding**                                                                |       | 1,677,187                                             |       | 1,637,643                                           |       | 1,662,005 |   | 1,637,427 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic Earnings Per Share of  Common Stock From Continuing Operations**                                       |       | $                                                     | 0.11       |                                                | $          | — |   | $ | 1.05 |   | $ | 0.48 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic Loss Per Share of Common  Stock From Discontinued Operations**                                         |       | (0.33                                                 | )          | (0.19                                               | )          | (0.46 | ) | (0.34 | ) |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Basic (Loss) Earnings Per Share  of Common Stock From Net (Loss) Income**                                    |       | $                                                     | (0.22      | )                                                   | $          | (0.19 | ) | $ | 0.59 |   | $ | 0.14 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted Earnings Per Share of  Common Stock From Continuing Operations**                                     |       | $                                                     | 0.11       |                                                | $          | — |   | $ | 1.04 |   | $ | 0.47 |   |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted Loss Per Share of Common  Stock From Discontinued Operations**                                       |       | (0.33                                                 | )          | (0.19                                               | )          | (0.46 | ) | (0.34 | ) |
| ** **                                                                                                     | ** ** | ** **                                            | ** ** | ** **                                          | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Diluted (Loss) Earnings Per Share of Common  Stock From Net (Loss) Income**                                  |       | $                                                     | (0.22      | )                                                   | $          | (0.19 | ) | $ | 0.58 |   | $ | 0.13 |   |

 

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(1) Unregulatedoperation and maintenance expense and income tax benefit included in continuingoperations is the activity of the holding company, including corporate costsdirectly associated with unregulated operations and common costs not allocatedto the regulated utility.

See Notes to Consolidated Financial Statements

5

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Statements of Consolidated Cash Flows**(Unaudited)
| *** ***                                                             | ** ** | **Six Months Ended   June 30,** | ** ** |
|--------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|
| **(In thousands of dollars)**                             | ** ** | **2007**                                            | ** ** | **2006** | ** ** |
| **Cash Flow From Operating  Activities**                                 | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Net Income                                                               |       | $                                                   | 974        |   | $ | 223 |   |
| Adjustments to  Reconcile Net Income to Net Cash Provided by Operations: |       |                                                |       |   |   |
| Depreciation                                                             |       | 1,408                                               |       | 1,445 |   |
| Amortization of  Intangibles                                             |       | 116                                                 |       | 29 |   |
| Amortization of  Seabrook                                                |       | 555                                                 |       | 555 |   |
| Amortization of  Cancelled Transmission Plant                            |       | 127                                                 |       | — |   |
| Deferred Income  Taxes—Net                                          |       | 791                                                 |       | 656 |   |
| Deferred  Investment Tax Credits                                         |       | (10                                                 | )          | (12 | ) |
| Change in  Deferred Regulatory and Debt Issuance Costs                   |       | 2,229                                               |       | (2,918 | ) |
| Amortization of  W/S Upfront Payment                                     |       | —                                              |       | 725 |   |
| Change in  Benefit Obligations                                           |       | (294                                                | )          | 280 |   |
| Gain from Sale  of Stock in Subsidiary                                   |       | —                                              |       | (429 | ) |
| Change in  Current Assets and Liabilities:                               |       |                                                |       |   |   |
| Accounts  Receivable and Unbilled Revenue                                |       | 592                                                 |       | 1,467 |   |
| Other Current  Assets                                                    |       | (359                                                | )          | 29 |   |
| Accounts Payable                                                         |       | (1,852                                              | )          | (223 | ) |
| Other Current  Liabilities                                               |       | 512                                                 |       | 797 |   |
| Other—Net                                                           |       | 1,612                                               |       | 390 |   |
| Adjustments to  Operating Cash Flows from Continuing Operations          |       | 6,401                                               |       | 3,014 |   |
| Operating Cash  Flows from Discontinued Operations                       |       | (894                                                | )          | (1,215 | ) |
|                                                                     |       |                                                |       |   |   |
| **Net Cash Flow Provided By  Operating Activities**                      |       | 5,507                                               |       | 1,799 |   |
|                                                                     |       |                                                |       |   |   |
| **Cash Flow From Financing  Activities**                                 | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Retirements of  Long-Term Debt                                           |       | (1,595                                              | )          | (1,190 | ) |
| Additions of  Long-Term Debt                                             |       | 3,499                                               |       | — |   |
| Short-Term Debt  (Repayments) Borrowings, Net                            |       | (4,970                                              | )          | 745 |   |
| Short-Term Debt  Repayments of Discontinued Operations                   |       | (1,000                                              | )          | — |   |
|                                                                     |       |                                                |       |   |   |
| **Net Cash Flow Used For Financing  Activities**                         |       | (4,066                                              | )          | (445 | ) |
|                                                                     |       |                                                |       |   |   |
| **Cash Flow From Investing  Activities**                                 | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Cash Paid for  Stock Contingencies from Acquisition Agreements           |       | (187                                                | )          | (244 | ) |
| Gain from Sale  of Stock of Subsidiary                                   |       | —                                              |       | 429 |   |
| Cash Received  from Sale of Discontinued Operations                      |       | 1,821                                               |       | — |   |
| Change in  Restricted Investments                                        |       | (2                                                  | )          | (3 | ) |
| Investment in  Fixed Assets                                              |       | (2,557                                              | )          | (1,554 | ) |
| Stock Redemption  from Associated Company                                |       | —                                              |       | 200 |   |
| Investing  Activities of Discontinued Operations                         |       | —                                              |       | (248 | ) |
|                                                                     |       |                                                |       |   |   |
| **Net Cash Flow Used For Investing  Activities**                         |       | (925                                                | )          | (1,420 | ) |
|                                                                     |       |                                                |       |   |   |
| **Increase (Decrease) in Cash and  Cash Equivalents**                    |       | 516                                                 |       | (66 | ) |
| **Cash and Cash Equivalents at  Beginning of Period**                    |       | 898                                                 |       | 273 |   |
|                                                                     |       |                                                |       |   |   |
| **Cash and Cash Equivalents at  End of Period**                          |       | $                                                   | 1,414      |   | $ | 207 |   |
|                                                                     |       |                                                |       |   |   |
| **Supplemental Disclosure of Cash  Flow Information:**                   | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| **Cash Paid During the Period  for:**                                    | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Interest                                                                 |       | $                                                   | 1,499      |   | $ | 1,497 |   |
| Income Taxes                                                             |       | $                                                   | 153        |   | $ | 52 |   |
| **Non-Cash Activities:**                                                 | ** ** | ** **                                          | ** ** | ** ** | ** ** |
| Fair Market Value of  Stock Issued to Directors                          |       | $                                                   | 12         |   | $ | 12 |   |

 

See Notes to Consolidated Financial Statements

6

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**
| ** **                                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands of dollars)**                                                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                                                         | ** ** | **(Unaudited)**   | ** ** | **(Audited)**         | ** ** |
| **ASSETS**                                                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Plant**                                                                                          | ** ** | ** **        | ** ** | ** **            | ** ** |
| Electric Plant  in Service                                                                         |       | $                 | 101,910    |                  | $          | 101,085 |   |
| Non-Utility  Plant                                                                                 |       | 3                 |       | 3                     |       |
| Less Accumulated  Depreciation                                                                     |       | (43,129           | )          | (41,948               | )          |
|                                                                                               |       |              |       |                  |       |
| Net Plant in  Service                                                                              |       | 58,784            |       | 59,140                |       |
| Construction  Work-in-Progress                                                                     |       | 1,661             |       | 499                   |       |
| **Total**                                                                                          |       | 60,445            |       | 59,639                |       |
|                                                                                               |       |              |       |                  |       |
| **Investments in Associated  Companies**                                                           |       | 1,207             |       | 1,500                 |       |
| ** **                                                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Net Plant and Investments in  Associated Companies**                                             |       | 61,652            |       | 61,139                |       |
|                                                                                               |       |              |       |                  |       |
| **Current Assets:**                                                                                | ** ** | ** **        | ** ** | ** **            | ** ** |
| Cash and Cash  Equivalents                                                                         |       | 1,414             |       | 898                   |       |
| Accounts  Receivable (less allowance for uncollectible accounts of $116 in 2007 and $114  in 2006) |       | 6,459             |       | 6,709                 |       |
| Accounts  Receivable from Associated Companies                                                     |       | 327               |       | 281                   |       |
| Unbilled Revenue  - Utility                                                                        |       | 761               |       | 1,150                 |       |
| Inventory                                                                                          |       | 1,116             |       | 646                   |       |
| Prepayments                                                                                        |       | 161               |       | 273                   |       |
| Current Assets  of Discontinued Operations                                                         |       | 4,921             |       | 8,658                 |       |
|                                                                                               |       |              |       |                  |       |
| **Total**                                                                                          |       | 15,159            |       | 18,615                |       |
|                                                                                               |       |              |       |                  |       |
| **Regulatory Assets:**                                                                             | ** ** | ** **        | ** ** | ** **            | ** ** |
| Uncollected  Maine Yankee Decommissioning Costs                                                    |       | 6,241             |       | 7,743                 |       |
| Recoverable  Seabrook Costs                                                                        |       | 10,004            |       | 10,559                |       |
| Regulatory  Assets—Deferred Income Taxes                                                      |       | 5,709             |       | 5,923                 |       |
| Regulatory  Assets—Post-Retirement Medical Benefits                                           |       | 2,193             |       | 2,205                 |       |
| Deferred Fuel  and Purchased Energy Costs                                                          |       | 32,720            |       | 34,689                |       |
| Cancelled  Transmission Plant                                                                      |       | 381               |       | 508                   |       |
| Unamortized  Premium on Early Retirement of Debt                                                   |       | 997               |       | 1,100                 |       |
| Deferred  Regulatory Costs                                                                         |       | 1,561             |       | 1,677                 |       |
| ** **                                                                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| **Total**                                                                                          |       | 59,806            |       | 64,404                |       |
|                                                                                               |       |              |       |                  |       |
| **Other Assets**                                                                                   | ** ** | ** **        | ** ** | ** **            | ** ** |
| Unamortized Debt  Issuance Costs                                                                   |       | 408               |       | 502                   |       |
| Restricted  Investments (at cost, which approximates market)                                       |       | 2,460             |       | 2,458                 |       |
| Other Assets                                                                                       |       | 1,274             |       | 1,049                 |       |
|                                                                                               |       |              |       |                  |       |
| **Total**                                                                                          |       | 4,142             |       | 4,009                 |       |
|                                                                                               |       |              |       |                  |       |
| **Total Assets**                                                                                   |       | $                 | 140,759    |                  | $          | 148,167 |   |

 

SeeNotes to Consolidated Financial Statements

7

----

**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**
| *** ***                                                     | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands of dollars)**                     | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| ** **                                                       |       | **(Unaudited)**   |       | **(Audited)**         |       |
| **Capitalization (see  accompanying statement):**                |       |              |       |                  |       |
| Shareholders’  Equity                                       |       | $                 | 42,970     |                  | $          | 41,527 |   |
| Long-Term Debt                                                   |       | 27,733            |       | 27,840                |       |
| Long-Term Debt  of Discontinued Operations                       |       | 2,072             |       | 2,182                 |       |
|                                                             |       |              |       |                  |       |
| **Total**                                                        |       | 72,775            |       | 71,549                |       |
|                                                             |       |              |       |                  |       |
| **Current Liabilities:**                                         | ** ** | ** **        | ** ** | ** **            | ** ** |
| Long-Term Debt  Due Within One Year                              |       | 4,696             |       | 2,685                 |       |
| Notes Payable to  Banks                                          |       | 6,000             |       | 11,970                |       |
| Accounts Payable                                                 |       | 3,584             |       | 5,018                 |       |
| Accounts  Payable—Associated Companies                      |       | 250               |       | 247                   |       |
| Accrued Employee  Benefits                                       |       | 1,003             |       | 1,424                 |       |
| Customer  Deposits                                               |       | 144               |       | 149                   |       |
| Taxes Accrued                                                    |       | 563               |       | 7                     |       |
| Interest Accrued                                                 |       | 229               |       | 246                   |       |
| Other Current  Liabilities                                       |       | 7                 |       | 30                    |       |
| Current  Liabilities of Discontinued Operations                  |       | 1,014             |       | 3,195                 |       |
|                                                             |       |              |       |                  |       |
| **Total**                                                        |       | 17,490            |       | 24,971                |       |
|                                                             |       |              |       |                  |       |
| **Deferred Credits and Other  Liabilities:**                     | ** ** | ** **        | ** ** | ** **            | ** ** |
| Accrued Removal  Obligations                                     |       | 5,497             |       | 5,572                 |       |
| Carrying Value  of Interest Rate Hedge                           |       | 956               |       | 1,636                 |       |
| Uncollected  Maine Yankee Decommissioning Costs                  |       | 6,241             |       | 7,743                 |       |
| Other Regulatory  Liabilities                                    |       | 329               |       | 382                   |       |
| Deferred Income  Taxes                                           |       | 26,438            |       | 26,360                |       |
| Accrued  Postretirement Benefits and Pension Costs               |       | 8,325             |       | 8,631                 |       |
| Investment Tax  Credits                                          |       | 72                |       | 81                    |       |
| Miscellaneous                                                    |       | 2,636             |       | 1,242                 |       |
|                                                             |       |              |       |                  |       |
| **Total**                                                        |       | 50,494            |       | 51,647                |       |
|                                                             |       |              |       |                  |       |
| **Commitments, Contingencies, and  Regulatory Matters (Note 8)** | ** ** | ** **        | ** ** | ** **            | ** ** |
|                                                             |       |              |       |                  |       |
| **Total Capitalization and Liabilities**                         |       | $                 | 140,759    |                  | $          | 148,167 |   |

 

See Notes to Consolidated Financial Statements

8

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

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

*(In thousands of dollars, except share information)*
| ** **                                                                         |   | ** **                            | ** ** | ** **               |       | **Common**     | ** ** | **Preferred**           | ** ** | ** **  |       | **Accumulated** |       | ** **              |   |
|------------------------------------------------------------------------------------|--------|---------------------------------------|------------|--------------------------|------------|----------------|------------|-------------------------|------------|-------------|------------|-----------------|------------|-------------------------|--------|
| ** **                                                                         |   | **Shares Issued and ** |       | **Par Value ** | ** ** | ** **     | ** ** | **Par Value**      | ** ** | ** **  | ** ** | ** **      |       | **Other Comprehensive** |   | ** ** |   |
| ** **                                                                         |   | **Outstanding**                       |       | **Issued **         | ** ** | **Paid-In**    | ** ** | **Issued ($0.01/** | ** ** | **Paid-In** | ** ** | **Retained**    |       | **Income**              |   | ** ** |   |
| ** **                                                                         |   | **Common**                            | ** ** | **Preferred**            |       | **($7/Share)** | ** ** | **Capital**             | ** ** | **Share)**  | ** ** | **Capital**     | ** ** | **Earnings**            |   | **(Loss)** |   | **Total** |   |
| **Balance, December 31, 2006**                                                     |   | 1,638,379                             |       | 9,500                    |       | $              | 11,469     |                    | $          | 1,254       |       | $               | —     |                    | $      | 950 |   | $ | 28,266 |   | $ | (412 | ) | $ | 41,527 |   |
|                                                                               |   |                                  |       |                     |       | ** **     | ** ** | ** **              | ** ** | ** **  | ** ** | ** **      | ** ** | ** **              |   |   |   |   |   |
| Common Stock   Issued                                                         |   | 730                                   |       |                     |       | 5              |       | 7                       |       |        |       |            |       |                    |   |   |   | 12 |   |
|                                                                               |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   |   |   |
| Conversion of Preferred  Shares                                                    |   | 38,078                                |       | (9,500                   | )          | 267            |       | 683                     |       |        |       | (950            | )          |                    |   |   |   | — |   |
|                                                                               |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   |   |   |
| Stock Contingency from  Acquisitions                                               |   |                                  |       |                     |       |           |       | (187                    | )          |        |       |            |       |                    |   |   |   | (187 | ) |
|                                                                               |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   |   |   |
| Net Income                                                                         |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       | 974                     |   |   |   | 974 |   |
|                                                                               |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   |   |   |
| Other Comprehensive  Income (Loss):                                                |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   |   |   |
| Changes  in Value of Foreign Exchange Translation Loss, Net of Tax Benefit of $160 |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   | 239 |   | 239 |   |
| Unrealized  Loss on Investments Available for Sale, Net of Tax Benefit of $2       |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   | (3 | ) | (3 | ) |
| Change  in Fair Value of Interest Rate Hedge, Net of Tax Provision of $272         |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   | 408 |   | 408 |   |
| Total Other  Comprehensive Income                                                  |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   | 644 |   |
| Total Comprehensive  Income                                                        |   |                                  |       |                     |       |           |       |                    |       |        |       |            |       |                    |   |   |   | 1,618 |   |
| **Balance, June 30, 2007**                                                         |   | 1,677,187                             |       | —                   |       | $              | 11,741     |                    | $          | 1,757       |       | $               | —     |                    | $      | — |   | $ | 29,240 |   | $ | 232 |   | $ | 42,970 |   |

 

MAMhad five million shares of $7 per share common stock authorized, with 1,677,187and 1,638,379 shares issued and outstanding as of June 30, 2007, and December31, 2006, respectively. At December 31, 2006, MAM had 500,000 shares of $0.01per share preferred stock authorized, with 9,500 shares issued andoutstanding.   There were no preferredshares issued or outstanding at June 30, 2007 as these shares were converted tocommon.

See Notes to Consolidated Financial Statements.

9

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**NOTESTO CONSOLIDATED**

**FINANCIAL STATEMENTS**

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

**Consolidation and Basisof Presentation**

The accompanying consolidated financial statementsinclude the accounts of Maine & Maritimes Corporation and the followingwholly-owned subsidiaries and affiliates:

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

2.               TheMaricor Group and its wholly-owned United States subsidiary The Maricor GroupNew England and wholly-owned Canadian subsidiary The Maricor Group, Canada Ltd,classified as discontinued operations. As described later in this document, substantially all of the assets ofTMGC were sold in June, 2007.

3.               MaricorTechnologies, Inc., a wholly-owned United States subsidiary, classified asdiscontinued operations.  MAM divested ofMTI’s assets and terminated its operations as of April 13, 2007; and

4.               EnergyAtlantic, LLC, an inactive subsidiary.

MAM is also a 50% owner of Maricor Properties Ltd, aCanadian company formerly wholly-owned by MAM, and its wholly-owned Canadiansubsidiaries, Cornwallis Court Developments Ltd and Mecel Properties Ltd.  MAM retained 100% “economic ownership” ofMecel with the sale of 50% of the rest of Maricor Properties in June 2006.  MAM is a 50% owner of Maricor Ashford Ltd, ajoint venture with Ashford Investments Inc. MAM is not the primary beneficiary of Maricor Properties under FIN46(R), and, therefore, its investment in Maricor Properties, excluding Mecel,is accounted for under the equity method in these financial statements.  Because MAM remained primary beneficiary ofMecel, this entity is consolidated in these financial statements.

MAM, a utility holding company organized effectiveJune 30, 2003, owns all of the common stock of the above primarysubsidiaries.  Primary subsidiaries,including MPS, TMG, and Maricor Properties Ltd own all the common stock oftheir secondary subsidiaries.  MAM islisted on the American Stock Exchange (“AMEX”) under the symbol “MAM.”

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

**Accounting Policies**

TheCompany’s accounting policies are those disclosed in its 2006 Annual Report onForm 10-K and its March 31, 2007 Form 10-Q, which are hereby incorporated bythis reference.

**Reclassifications**

The reclassification of the unregulated engineeringservices segment and the operations of Mecel from continuing operations todiscontinued operations have been made to the 2006 financial statement amountsin order to conform to the 2007 presentation. Further, the unregulated real estate segment reported in the 2006financial statements, excluding Mecel, has been reclassified to the equitymethod, instead of consolidated, also to conform to the 2007 presentation.

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

A summary of Federal, Canadian and State income taxescharged (credited) to income is presented below. For accounting and ratemakingpurposes, income tax provisions (benefits) included in “Operating Expenses”reflect taxes applicable to revenues and expenses allowable for ratemakingpurposes on MPS regulated activities and unregulated activities for MAM, TMG,Mecel and MTI.  The tax effect of itemsnot included in rate base or normal operating activities is allocated as “OtherIncome (Deductions).”

The foreign income taxes include only the Canadianincome taxes for the Canadian operations of TMG, Maine & New Brunswick andMecel.

10

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| ** **                    | ** ** | **For the Quarter Ended June 30,** | ** ** | **For the Six Months Ended June 30,** | ** ** |
|-------------------------------|------------|-------------------------------------------------------------|------------|---------------------------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                                    | ** ** | **2006**                                                            | ** ** | **2007** | ** ** | **2006** | ** ** |
| Current income  taxes         |       |                                                        |       |                                                                |       |   |   |   |   |
| Federal                       |       | $                                                           | —     |                                                                | $          | (273 | ) | $ | — |   | $ | (45 | ) |
| State                         |       | —                                                      |       | (95                                                                 | )          | — |   | (44 | ) |
| Foreign                       |       | 4                                                           |       | 123                                                                 |       | 8 |   | 42 |   |
| Total current  income taxes   |       | 4                                                           |       | (245                                                                | )          | 8 |   | (47 | ) |
|                          |       |                                                        |       |                                                                |       |   |   |   |   |
| Deferred income  taxes        |       |                                                        |       |                                                                |       |   |   |   |   |
| Federal                       |       | (281                                                        | )          | (54                                                                 | )          | 366 |   | 126 |   |
| State                         |       | 53                                                          |       | 7                                                                   |       | 343 |   | 25 |   |
| Total deferred  income taxes  |       | (228                                                        | )          | (47                                                                 | )          | 709 |   | 151 |   |
| Investment  credits, net      |       | (5                                                          | )          | (6                                                                  | )          | (10 | ) | (12 | ) |
| Total income taxes            |       | $                                                           | (229       | )                                                                   | $          | (298 | ) | $ | 707 |   | $ | 92 |   |
|                          |       |                                                        |       |                                                                |       |   |   |   |   |
| Allocated to:                 |       |                                                        |       |                                                                |       |   |   |   |   |
| Operating income              |       |                                                        |       |                                                                |       |   |   |   |   |
| -  Regulated        |       | $                                                           | 320        |                                                                | $          | 43 |   | $ | 1,637 |   | $ | 793 |   |
| -  Unregulated      |       | (181                                                        | )          | (113                                                                | )          | (422 | ) | (316 | ) |
| Subtotal                      |       | 139                                                         |       | (70                                                                 | )          | 1,215 |   | 477 |   |
| Discontinued  Operations      |       | (372                                                        | )          | (228                                                                | )          | (513 | ) | (407 | ) |
| Total Operating               |       | (233                                                        | )          | (298                                                                | )          | 702 |   | 70 |   |
| Other income                  |       | 4                                                           |       | —                                                              |       | 5 |   | 22 |   |
| Total                         |       | $                                                           | (229       | )                                                                   | $          | (298 | ) | $ | 707 |   | $ | 92 |   |

 

Forthe six months ended June 30, 2007, and 2006, the effective income tax rateswere 42.1% and 29.1%, respectively.  The principal reasons for theeffective tax rates differing from the US federal income tax rate areequity earnings in joint venture companies and investment tax creditamortization.

TheCompany has not accrued U.S. income taxes on the undistributed earnings ofME&NB, as the withholding taxes due on the distribution of any remainingamount would be principally offset by foreign tax credits. No dividends werereceived from ME&NB in the first six months of 2007 or 2006.

InJune 2006, the FASB issued FIN 48, “*Accountingfor Uncertainty in Income Taxes, an Interpretation of FASB Statement 109.” *This statement clarifies thecriteria that an individual tax position must satisfy for some or all of thebenefits of that position to be recognized in a company’s financialstatements.  FIN 48 requires a taxposition to be more likely than not in order for the position to be recognizedin the financial statements.

EffectiveJanuary 1, 2007, the Company adopted the provisions of FIN 48.  There were no adjustments required to thereported tax benefits at January 1, or June 30, 2007, from the adoption of thisstandard.  Further, the Company does notexpect that the amounts of unrecognized tax benefits will change significantlyin the next twelve months.  As of January1, and June 30, 2007, the Company has accrued no interest or penalties relatedto uncertain tax positions.

TheCompany is currently subject to audit by the Internal Revenue Service, CanadianRevenue Authority and certain State income tax authorities for the calendaryears 2003, 2004, 2005 and 2006.

Asrequired by SFAS No. 109 and FIN 48, Management of the Company has evaluatedthe positive and negative evidence bearing upon the realizability of theCompany’s deferred tax assets, which consist principally of the estimatedlosses on the divestiture of unregulated operations, pension andpost-retirement benefits and accumulated Other Comprehensive Income (“OCI”) —interest rate hedge. For the quarter ended June 30, 2007, and the year endedDecember 31, 2006, Management evaluated the deferred tax asset valuationallowance and determined that no adjustment was needed.

Thefollowing summarizes accumulated deferred income tax (assets) and liabilitiesestablished on temporary differences under SFAS 109 as of June 30, 2007, andDecember 31, 2006:

11

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| **(In  thousands of dollars)**                                            | ** ** | **June 30, 2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------|------------|---------------------------------|------------|
| Seabrook                                                                  |       | $                           | 5,430      |                            | $          | 5,737 |   |
| Property                                                                  |       | 9,597                       |       | 9,526                           |       |
| Flexible pricing  revenue                                                 |       | 500                         |       | 596                             |       |
| Deferred fuel                                                             |       | 13,054                      |       | 13,839                          |       |
| Pension and  post-retirement benefits                                     |       | (1,935                      | )          | (1,992                          | )          |
| Net Operating  Loss Carryforwards of Continuing Operations                |       | —                      |       | (1,055                          | )          |
| Other  Comprehensive Income                                               |       | (327                        | )          | (602                            | )          |
| Other                                                                     |       | 119                         |       | 311                             |       |
|                                                                      |       |                        |       |                            |       |
| Net Accumulated  Deferred Income Tax Liability from Continuing Operations |       | $                           | 26,438     |                            | $          | 26,360 |   |
|                                                                      |       |                        |       |                            |       |
| Goodwill  Impairment Loss                                                 |       | (1,018                      | )          | (1,018                          | )          |
| Estimated Loss  on Sale of Discontinued Operations                        |       | (2,085                      | )          | (2,485                          | )          |
| Net Operating  Loss Carryforwards of Discontinued Operations              |       | (1,356                      | )          | (1,204                          | )          |
| Amortization of  Goodwill                                                 |       | 375                         |       | 375                             |       |
| Other  Comprehensive Income                                               |       | 436                         |       | 287                             |       |
| Other                                                                     |       | (17                         | )          | (14                             | )          |
|                                                                      |       |                        |       |                            |       |
| Net Accumulated  Deferred Income Tax Asset from Discontinued Operations   |       | $                           | (3,665     | )                               | $          | (4,059 | ) |
| Net Accumulated  Deferred Income Tax Liability                            |       | $                           | 22,773     |                            | $          | 22,301 |   |

 

**3.****              DISCONTINUED OPERATIONS**

**TheMaricor Group**

As described in the MAM 2006 Form 10-K, the Companyhas embarked on a new strategic course expected to result in the divestiture ofsubstantially all of the assets reported as the Unregulated EngineeringServices operating segment within 2007. As a result, the operations for this segment have been reclassified todiscontinued operations.  During thesecond quarter of 2007, MAM divested substantially all of the assets andliabilities of The Maricor Group, Canada Ltd. Refer to Note 10 for more information regarding this sale.

The net loss for unregulated engineering services iscomposed of the following:
|                                                   | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)**      | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Loss From  Operations:                            |       |                                      |       |                                              |       |   |   |   |   |
| Operating Revenue                                 |       | $                                         | 625        |                                              | $          | 1,425 |   | $ | 2,292 |   | $ | 2,773 |   |
| Third Party Expenses                              |       | (937                                      | )          | (1,643                                            | )          | (2,684 | ) | (3,175 | ) |
| Intercompany Expenses                             |       | (29                                       | )          | (34                                               | )          | (62 | ) | (68 | ) |
| Loss from Operations                              |       | (341                                      | )          | (252                                              | )          | (454 | ) | (470 | ) |
| Additional Loss from Sale of Assets               |       | (362                                      | )          | —                                            |       | (362 | ) | — |   |
| Benefit of  Income Taxes                          |       | 287                                       |       | 129                                               |       | 352 |   | 239 |   |
| Net Loss —  Unregulated Engineering Services |       | $                                         | (416       | )                                                 | $          | (123 | ) | $ | (464 | ) | $ | (231 | ) |

 

12

----

The unregulated engineering services balance sheets asof June 30, 2007, and December 31, 2006, were as follows:
|                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In  thousands of dollars)**                   | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Assets:                                          |       |              |       |                  |       |
| Cash & Cash Equivalents                      |       | $                 | —     |                  | $          | 202 |   |
| Accounts Receivable, Net                         |       | 401               |       | 1,715                 |       |
| Unbilled Contract Revenue                        |       | 96                |       | 1,155                 |       |
| Other Current Assets                             |       | 10                |       | 72                    |       |
| Current Assets                                   |       | 507               |       | 3,144                 |       |
| Fixed Assets, Net of Depreciation                |       | 49                |       | 226                   |       |
| Intangible Assets and Goodwill                   |       | —            |       | 162                   |       |
| Income Taxes Receivable                          |       | 1,359             |       | 875                   |       |
| Deferred Tax Assets                              |       | 2,312             |       | 2,495                 |       |
|  Long-Term and  Other Assets                |       | 3,720             |       | 3,758                 |       |
| Total Assets                                     |       | $                 | 4,227      |                  | $          | 6,902 |   |
|                                             |       |              |       |                  |       |
| Shareholder’s  Equity and Liabilities:      |       |              |       |                  |       |
| Shareholder’s (Deficit) Equity              |       | $                 | (4,952     | )                     | $          | (4,646 | ) |
| Notes Payable to Banks                           |       | —            |       | 1,000                 |       |
| Accounts Payable and Accrued Employee Benefits   |       | 768               |       | 1,596                 |       |
| Intercompany Accounts Payable                    |       | 3,008             |       | 1,673                 |       |
| Unearned Revenue                                 |       | 20                |       | 139                   |       |
| Other Current Liabilities                        |       | 86                |       | 50                    |       |
| Current Liabilities                              |       | 3,882             |       | 4,458                 |       |
| Intercompany Notes Payable                       |       | 3,097             |       | 4,890                 |       |
| Long-Term Debt                                   |       | 2,200             |       | 2,200                 |       |
| Long-Term and Other Liabilities                  |       | 5,297             |       | 7,090                 |       |
| Total  Shareholder’s Equity and Liabilities |       | $                 | 4,227      |                  | $          | 6,902 |   |

 

On July 9, 2007, $750,000 was paid to Katahdin TrustCompany on the $2.2 million TMG term note from the majority of the proceeds ofthe sale of the Moncton Division of The Maricor Group, Canada Ltd.

**MaricorTechnologies, Inc.**

As described more fully in Note 10, as of April 13,2007, MAM has divested substantially all of the assets reported as UnregulatedSoftware Technology.  Consistent with theclassification at December 31, 2006, the operations for this segment have beenreclassified to discontinued operations.

The operating revenue and net loss for unregulatedsoftware technology for the second quarters and year-to-date 2007 and 2006 areas follows:
|                                                  | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)**     | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Loss From  Operations:                           |       |                                      |       |                                              |       |   |   |   |   |
| Operating Revenue                                |       | $                                         | 21         |                                              | $          | 82 |   | $ | 135 |   | $ | 120 |   |
| Expenses                                         |       | (224                                      | )          | (348                                              | )          | (546 | ) | (566 | ) |
| Loss from Operations                             |       | (203                                      | )          | (266                                              | )          | (411 | ) | (446 | ) |
| Benefit of  Income Taxes                         |       | 86                                        |       | 104                                               |       | 164 |   | 173 |   |
| Net Loss —  Unregulated Software Technology |       | $                                         | (117       | )                                                 | $          | (162 | ) | $ | (247 | ) | $ | (273 | ) |

 

13

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**MecelProperties**

Consistent with its other unregulated operations, MAMhas committed to a plan to divest Mecel Properties, and the results for Mecelhave been reported as discontinued operations within “Other” for segmentpresentations.

The operating results for Mecel for the secondquarters and year-to-date 2007 and 2006 are as follows:
|                                              | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Income From  Operations:                     |       |                                      |       |                                              |       |   |   |   |   |
| Intercompany Operating Revenue               |       | $                                         | 29         |                                              | $          | 34 |   | $ | 62 |   | $ | 68 |   |
| Third Party Operating Revenue                |       | 3                                         |       | —                                            |       | 3 |   | — |   |
| Expenses                                     |       | (29                                       | )          | (24                                               | )          | (58 | ) | (56 | ) |
| Income From Operations                       |       | 3                                         |       | 10                                                |       | 7 |   | 12 |   |
| Provision for  Income Taxes                  |       | (1                                        | )          | (5                                                | )          | (3 | ) | (6 | ) |
| Net Income —  Other                     |       | $                                         | 2          |                                              | $          | 5 |   | $ | 4 |   | $ | 6 |   |

 

Mecel’s operating revenues through June 12, 2007, werederived from its lease of space to The Maricor Group, Canada Ltd, and have beeneliminated in consolidation.  TMGCassigned the lease to M&R Engineering following the sale of assets on June12, 2007.

Mecel’s balance sheets at June 30, 2007 and December31, 2006, were as follows:
|                                                  | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**          | ** ** | **2006**              | ** ** |
| Assets:                                          |       |              |       |                  |       |
| Cash and Cash Equivalents                        |       | $                 | 42         |                  | $          | 8 |   |
| Accounts Receivable from Associated Companies    |       | 101               |       | 83                    |       |
| Other Current Assets                             |       | 5                 |       | 4                     |       |
| Current Assets                                   |       | 148               |       | 95                    |       |
| Fixed Assets, Net of Depreciation                |       | 547               |       | 507                   |       |
| Total Assets                                     |       | $                 | 695        |                  | $          | 602 |   |
|                                             |       |              |       |                  |       |
| Shareholder’s  Equity and Liabilities:      |       |              |       |                  |       |
| Shareholder’s (Deficit) Equity              |       | $                 | 52         |                  | $          | 45 |   |
| Accounts Payable and Accrued Employee Benefits   |       | 10                |       | 17                    |       |
| Other Current Liabilities                        |       | 3                 |       | —                |       |
| Intercompany Accounts Payable                    |       | 99                |       | 54                    |       |
| Current Liabilities                              |       | 112               |       | 71                    |       |
| Intercompany Notes Payable                       |       | 531               |       | 486                   |       |
| Total  Shareholder’s Equity and Liabilities |       | $                 | 695        |                  | $          | 602 |   |

 

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

The Company is organized based on products andservices. Management monitors the operations of the Company in the followingoperating segments:

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

·          Unregulated engineeringservices: The Maricor Group and all of its subsidiaries and product and servicelines, classified as discontinued operations;

·          Unregulated softwaretechnology: Maricor Technologies, Inc., classified as discontinued operations;

·          Unregulated energymarketing: EA, an inactive subsidiary classified as discontinued operations;and

14

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·          Other: Corporate costsdirectly associated with the unregulated subsidiaries, common costs notallocated to the regulated utility, and inter-company eliminations classifiedas continuing operations and the operations of Mecel Properties classified asdiscontinued operations.

The segment information for 2006 has been reclassifiedto conform to the 2007 presentation.

The accounting policies of the segments are the same asthose described in Note 1, “Summary of Significant Accounting Policies.”  MAM provides certain administrative supportservices to MPS, TMG, and MTI and their subsidiaries.  The cost of services provided to MPS isbilled to MPS based on a combination of direct charges and allocations.  The cost of corporate services provided tothe other unregulated entities remains at the holding company, and is notallocated or charged to the various subsidiaries.  MPS also provides services to MAM and otheraffiliates.  These services are billed toMAM and its affiliates at cost through inter-company transactions.

|                                                    | ** ** | ** **            | ** ** | **(In thousands of dollars)**        | ** ** | ** **               | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-----------------------------------------------------|------------|--------------------------|------------|
| ** **                                         | ** ** | ** **            | ** ** | **Quarter Ended June 30, 2007** | ** ** | ** **               | ** ** |
| ** **                                         | ** ** | **Regulated**         | ** ** | **Unregulated**                                     | ** ** | ** **               | ** ** |
| ** **                                         | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                           | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers                   |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Regulated Operating Revenue                        |       | $                     | 7,951      |                                                | $          | —                   |       | $ | — |   | $ | — |   | $ | — |   | $ | 7,951 |   |
|                                               |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Operating  Expenses                                |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Regulated Operation & Maintenance              |       | 3,168                 |       | —                                              |       | —                   |       | — |   | — |   | 3,168 |   |
| Unregulated Operation & Maintenance            |       | —                |       | —                                              |       | —                   |       | — |   | 355 |   | 355 |   |
| Depreciation                                       |       | 697                   |       | —                                              |       | —                   |       | — |   | — |   | 697 |   |
| Amortization of Stranded Costs                     |       | 2,647                 |       | —                                              |       | —                   |       | — |   | — |   | 2,647 |   |
| Amortization                                       |       | 61                    |       | —                                              |       | —                   |       | — |   | — |   | 61 |   |
| Taxes Other than Income                            |       | 440                   |       | —                                              |       | —                   |       | — |   | 1 |   | 441 |   |
| Income Taxes                                       |       | 320                   |       | —                                              |       | —                   |       | — |   | (181 | ) | 139 |   |
| Total Operating Expenses                           |       | 7,333                 |       | —                                              |       | —                   |       | — |   | 175 |   | 7,508 |   |
| Operating Income  (Loss)                           |       | 618                   |       | —                                              |       | —                   |       | — |   | (175 | ) | 443 |   |
| Other Income  (Deductions)                         |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Equity in Income of Associated Companies           |       | 40                    |       | —                                              |       | —                   |       | — |   | (1 | ) | 39 |   |
| Interest and Dividend Income                       |       | 17                    |       | —                                              |       | —                   |       | — |   | (11 | ) | 6 |   |
| Other Income (Deductions)                          |       | (22                   | )          | —                                              |       | —                   |       | — |   | — |   | (22 | ) |
| Total Other Income (Deductions)                    |       | 35                    |       | —                                              |       | —                   |       | — |   | (12 | ) | 23 |   |
| Income (Loss)  Before Interest Charges             |       | 653                   |       | —                                              |       | —                   |       | — |   | (187 | ) | 466 |   |
|                                               |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Interest Charges                                   |       | 197                   |       | —                                              |       | —                   |       | — |   | 83 |   | 280 |   |
| Income (Loss)  from Continuing Operations          |       | 456                   |       | —                                              |       | —                   |       | — |   | (270 | ) | 186 |   |
|                                               |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Loss from  Discontinued Operations:                |       |                  |       |                                                |       |                     |       |   |   |   |   |   |   |
| Estimated Loss on Sales of Discontinued Operations |       | —                |       | (362                                                | )          | —                   |       | — |   | — |   | (362 | ) |
| Loss From Operations                               |       | —                |       | (341                                                | )          | (203                     | )          | — |   | (29 | ) | (573 | ) |
| Benefit of (Provision for) Income Taxes            |       | —                |       | 287                                                 |       | 86                       |       | — |   | (1 | ) | 372 |   |
| Loss from Discontinued Operations                  |       | —                |       | (416                                                | )          | (117                     | )          | — |   | (30 | ) | (563 | ) |
| Net Income (Loss)                                  |       | $                     | 456        |                                                | $          | (416                     | )          | $ | (117 | ) | $ | — |   | $ | (300 | ) | $ | (377 | ) |

 

15

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| ** **                                  | ** ** | ** **            | ** ** | **(In thousands of dollars)**        | ** ** | ** **                     | ** ** |
|---------------------------------------------|------------|-----------------------|------------|-----------------------------------------------------|------------|--------------------------------|------------|
| ** **                                  | ** ** | ** **            | ** ** | **Quarter Ended June 30, 2006** | ** ** | ** **                     | ** ** |
| ** **                                  | ** ** | **Regulated**         | ** ** | **Unregulated**                                     | ** ** | ** **                     | ** ** |
| ** **                                  | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                           | ** ** | **Software   Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from External  Customers            |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| Regulated Operating  Revenue                |       | $                     | 7,414      |                                                | $          | —                         |       | $ | — |   | $ | — |   | $ | — |   | $ | 7,414 |   |
|                                        |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| Operating Expenses                          |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| Regulated  Operation & Maintenance      |       | 3,497                 |       | —                                              |       | —                         |       | — |   | — |   | 3,497 |   |
| Unregulated  Operation & Maintenance    |       | —                |       | —                                              |       | —                         |       | — |   | 179 |   | 179 |   |
| Depreciation                                |       | 730                   |       | —                                              |       | —                         |       | — |   | — |   | 730 |   |
| Amortization of  Stranded Costs             |       | 2,568                 |       | —                                              |       | —                         |       | — |   | — |   | 2,568 |   |
| Amortization                                |       | (50                   | )          | —                                              |       | —                         |       | — |   | — |   | (50 | ) |
| Taxes Other than  Income                    |       | 431                   |       | —                                              |       | —                         |       | — |   | 6 |   | 437 |   |
| Income Taxes                                |       | 43                    |       | —                                              |       | —                         |       | — |   | (113 | ) | (70 | ) |
| Total Operating  Expenses                   |       | 7,219                 |       | —                                              |       | —                         |       | — |   | 72 |   | 7,291 |   |
| Operating Income (Loss)                     |       | 195                   |       | —                                              |       | —                         |       | — |   | (72 | ) | 123 |   |
| Other Income  (Deductions)                  |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| Equity in Income  of Associated Companies   |       | 49                    |       | —                                              |       | —                         |       | — |   | 150 |   | 199 |   |
| Interest and  Dividend Income               |       | 18                    |       | —                                              |       | —                         |       | — |   | (16 | ) | 2 |   |
| Other Income  (Deductions)                  |       | (12                   | )          | —                                              |       | —                         |       | — |   | 4 |   | (8 | ) |
| Total Other  Income (Deductions)            |       | 55                    |       | —                                              |       | —                         |       | — |   | 138 |   | 193 |   |
| Income Before Interest  Charges             |       | 250                   |       | —                                              |       | —                         |       | — |   | 66 |   | 316 |   |
| Interest Charges                            |       | 237                   |       | —                                              |       | —                         |       | — |   | 76 |   | 313 |   |
| Income (Loss) from  Continuing Operations   |       | 13                    |       | —                                              |       | —                         |       | — |   | (10 | ) | 3 |   |
|                                        |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| Loss from Discontinued  Operations:         |       |                  |       |                                                |       |                           |       |   |   |   |   |   |   |
| (Loss) Income  From Operations              |       | —                |       | (252                                                | )          | (266                           | )          | 2 |   | (25 | ) | (541 | ) |
| Benefit of  (Provision for) Income Taxes    |       | —                |       | 129                                                 |       | 104                            |       | — |   | (5 | ) | 228 |   |
| (Loss) Income  from Discontinued Operations |       | —                |       | (123                                                | )          | (162                           | )          | 2 |   | (30 | ) | (313 | ) |
| Net Income (Loss)                           |       | $                     | 13         |                                                | $          | (123                           | )          | $ | (162 | ) | $ | 2 |   | $ | (40 | ) | $ | (310 | ) |

 

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| ** **                                         | ** ** | ** **            | ** ** | **(In thousands of dollars)**                | ** ** | ** **                     | ** ** |
|----------------------------------------------------|------------|-----------------------|------------|-------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                         | ** ** | ** **            | ** ** | **Six Months Ended June 30, 2007** | ** ** | ** **                     | ** ** |
| ** **                                         | ** ** | **Regulated**         | ** ** | **Unregulated**                                             | ** ** | ** **                     | ** ** |
| ** **                                         | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                                   | ** ** | **Software   Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers                   |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Regulated Operating Revenue                        |       | $                     | 18,866     |                                                        | $          | —                         |       | $ | — |   | $ | — |   | $ | — |   | $ | 18,866 |   |
|                                               |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Operating  Expenses                                |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Regulated Operation & Maintenance              |       | 6,545                 |       | —                                                      |       | —                         |       | — |   | — |   | 6,545 |   |
| Unregulated Operation & Maintenance            |       | —                |       | —                                                      |       | —                         |       | — |   | 847 |   | 847 |   |
| Depreciation                                       |       | 1,408                 |       | —                                                      |       | —                         |       | — |   | — |   | 1,408 |   |
| Amortization of Stranded Costs                     |       | 5,451                 |       | —                                                      |       | —                         |       | — |   | — |   | 5,451 |   |
| Amortization                                       |       | 116                   |       | —                                                      |       | —                         |       | — |   | — |   | 116 |   |
| Taxes Other than Income                            |       | 881                   |       | —                                                      |       | —                         |       | — |   | 4 |   | 885 |   |
| Income Taxes                                       |       | 1,637                 |       | —                                                      |       | —                         |       | — |   | (422 | ) | 1,215 |   |
| Total Operating Expenses                           |       | 16,038                |       | —                                                      |       | —                         |       | — |   | 429 |   | 16,467 |   |
| Operating Income  (Loss)                           |       | 2,828                 |       | —                                                      |       | —                         |       | — |   | (429 | ) | 2,399 |   |
| Other Income  (Deductions)                         |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Equity in Income of Associated Companies           |       | 2                     |       | —                                                      |       | —                         |       | — |   | (35 | ) | (33 | ) |
| Interest and Dividend Income                       |       | 34                    |       | —                                                      |       | —                         |       | — |   | (21 | ) | 13 |   |
| Other Income (Deductions)                          |       | (42                   | )          | —                                                      |       | —                         |       | — |   | (6 | ) | (48 | ) |
| Total Other Income (Deductions)                    |       | (6                    | )          | —                                                      |       | —                         |       | — |   | (62 | ) | (68 | ) |
| Income (Loss)  Before Interest Charges             |       | 2,822                 |       | —                                                      |       | —                         |       | — |   | (491 | ) | 2,331 |   |
| Interest Charges                                   |       | 411                   |       | —                                                      |       | —                         |       | — |   | 174 |   | 585 |   |
|                                               |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Income (Loss)  from Continuing Operations          |       | 2,411                 |       | —                                                      |       | —                         |       | — |   | (665 | ) | 1,746 |   |
|                                               |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Loss from  Discontinued Operations:                |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Estimated Loss on Sales of Discontinued Operations |       | —                |       | (362                                                        | )          | —                         |       | — |   | — |   | (362 | ) |
| Loss From Operations                               |       | —                |       | (454                                                        | )          | (411                           | )          | — |   | (58 | ) | (923 | ) |
| Benefit of (Provision for) Income Taxes            |       | —                |       | 352                                                         |       | 164                            |       | — |   | (3 | ) | 513 |   |
| Loss from Discontinued Operations                  |       | —                |       | (464                                                        | )          | (247                           | )          | — |   | (61 | ) | (772 | ) |
| Net Income  (Loss)                                 |       | $                     | 2,411      |                                                        | $          | (464                           | )          | $ | (247 | ) | $ | — |   | $ | (726 | ) | $ | 974 |   |
| Total Assets                                       |       | $                     | 134,509    |                                                        | $          | 4,229                          |       | $ | — |   | $ | 334 |   | $ | 1,687 |   | $ | 140,759 |   |

 

17

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| ** **                                | ** ** | ** **            | ** ** | **(In thousands of dollars)**                | ** ** | ** **                     | ** ** |
|-------------------------------------------|------------|-----------------------|------------|-------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                | ** ** | ** **            | ** ** | **Six Months Ended June 30, 2006** | ** ** | ** **                     | ** ** |
| ** **                                | ** ** | **Regulated**         | ** ** | **Unregulated**                                             | ** ** | ** **                     | ** ** |
| ** **                                | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                                   | ** ** | **Software   Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers          |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Regulated Operating Revenue               |       | $                     | 17,465     |                                                        | $          | —                         |       | $ | — |   | $ | — |   | $ | — |   | $ | 17,465 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Operating  Expenses                       |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Regulated Operation & Maintenance     |       | 7,241                 |       | —                                                      |       | —                         |       | — |   | — |   | 7,241 |   |
| Unregulated Operation & Maintenance   |       | —                |       | —                                                      |       | —                         |       | — |   | 616 |   | 616 |   |
| Depreciation                              |       | 1,445                 |       | —                                                      |       | —                         |       | — |   | — |   | 1,445 |   |
| Amortization of Stranded Costs            |       | 5,378                 |       | —                                                      |       | —                         |       | — |   | — |   | 5,378 |   |
| Amortization                              |       | 29                    |       | —                                                      |       | —                         |       | — |   | — |   | 29 |   |
| Taxes Other than Income                   |       | 916                   |       | —                                                      |       | —                         |       | — |   | 21 |   | 937 |   |
| Income Taxes                              |       | 793                   |       | —                                                      |       | —                         |       | — |   | (316 | ) | 477 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Total Operating Expenses                  |       | 15,802                |       | —                                                      |       | —                         |       | — |   | 321 |   | 16,123 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Operating Income  (Loss)                  |       | 1,663                 |       | —                                                      |       | —                         |       | — |   | (321 | ) | 1,342 |   |
| Other Income  (Deductions)                |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Equity in Income of Associated Companies  |       | 96                    |       | —                                                      |       | —                         |       | — |   | 31 |   | 127 |   |
| Interest and Dividend Income              |       | 23                    |       | —                                                      |       | —                         |       | — |   | (15 | ) | 8 |   |
| Other Income (Deductions)                 |       | (72                   | )          | —                                                      |       | —                         |       | — |   | 2 |   | (70 | ) |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Total Other Income (Deductions)           |       | 47                    |       | —                                                      |       | —                         |       | — |   | 18 |   | 65 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges    |       | 1,710                 |       | —                                                      |       | —                         |       | — |   | (303 | ) | 1,407 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Interest Charges                          |       | 493                   |       | —                                                      |       | —                         |       | — |   | 127 |   | 620 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Income (Loss)  from Continuing Operations |       | 1,217                 |       | —                                                      |       | —                         |       | — |   | (430 | ) | 787 |   |
|                                      |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| Loss from  Discontinued Operations:       |       |                  |       |                                                        |       |                           |       |   |   |   |   |   |   |
| (Loss) Income From Operations             |       | —                |       | (470                                                        | )          | (446                           | )          | 2 |   | (57 | ) | (971 | ) |
| Benefit of (Provision for) Income Taxes   |       | —                |       | 239                                                         |       | 173                            |       | — |   | (5 | ) | 407 |   |
| Loss from Discontinued Operations         |       | —                |       | (231                                                        | )          | (273                           | )          | 2 |   | (62 | ) | (564 | ) |
| Net Income  (Loss)                        |       | $                     | 1,217      |                                                        | $          | (231                           | )          | $ | (273 | ) | $ | 2 |   | $ | (492 | ) | $ | 223 |   |
| Total Assets                              |       | $                     | 130,558    |                                                        | $          | 12,103                         |       | $ | 1,935 |   | $ | 232 |   | $ | 398 |   | $ | 145,226 |   |

 

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

**Maricor Properties Ltd**

On June 30, 2006, Maricor Properties sold one share ofstock representing a 50% ownership interest to Ashford Investments Inc.  This sale specifically excluded the economicownership of Mecel, with MAM retaining 100% of the economic ownership ofMecel.  Management reviewed thecharacteristics of Maricor Properties subsequent to this transaction inaccordance with Financial Accounting Standards Board Interpretation No. (“FIN”)46(R), “*Consolidation of Variable Interest Entities, anInterpretation of ARB 51*,” and determined that MAM remained theprimary beneficiary of Mecel, but is not the primary beneficiary of MaricorProperties, including the Vaughan Harvey building and Cornwallis, as of thedate of this transaction.  Therefore, theassets and liabilities of Mecel remain consolidated in these financialstatements, while the assets and liabilities of the other components of MaricorProperties are no longer consolidated.  MAM’sinvestment in Maricor Properties is reported within “Investments in AssociatedCompanies,” and receivables from Maricor Properties and its subsidiariespayable to MAM and its wholly-owned subsidiaries are presented within the line “AccountsReceivable from Associated Companies.”

Condensed financial information, as of June 30, 2007,for the components of Maricor Properties not consolidated in these financialstatements is as follows (in thousands of dollars):
| Total Assets                     |   | $      | 8,074  |   |
|----------------------------------|--------|--------|--------|--------|
| Less:                            |   |   |   |
| Long-term Debt                   |   | 6,022  |   |
| Short-term Debt                  |   | 1,732  |   |
| Other Liabilities                |   | 120    |   |
| Net Assets                       |   | $      | 200    |   |
|                             |   |   |   |
| MAM’s Equity in Net  Assets |   | $      | 100    |   |

 

MAM recorded equity in the income of MaricorProperties, excluding Mecel, of $9,000 in the second quarter of 2007 and $2,000year-to-date.

**Maricor Ashford Ltd**

As of March 21, 2007, MAM became an equal partner inMaricor Ashford Ltd, an inactive real estate development and redevelopmentjoint venture with Ashford Investments Inc., an unaffiliated real estate managementcompany.  Prior to this date, MaricorProperties was an equal partner in this joint venture with Ashford InvestmentsInc.  Maricor Ashford Ltd is based inMoncton, New Brunswick, Canada. Management reviewed the characteristics of this joint venture inaccordance with Financial Accounting Standards Board Interpretation No. (“FIN”)46(R), *“Consolidation of Variable Interest Entities, anInterpretation of ARB 51”*, and determined that MAM is not theprimary beneficiary of this joint venture. Accordingly, the activity of Maricor Ashford Ltd has been recorded inthese financial statements under the equity method, and Maricor Ashford Ltd isnot consolidated with these financial statements.  MAM’s investment in the joint venture totaled$58,000 at June 30, 2007, with no impact on earnings during 2007.

**MaineYankee and MEPCO**

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

Substantially allearnings of Maine Yankee and MEPCO are distributed to investor companies.  MPS’s portion of dividends declared,dividends received in cash, and stock redemptions declared and received in cashare presented in the following table:

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|                                              | ** ** | **Quarter Ending June 30,** | ** ** | **Six Months Ending June 30,** | ** ** |
|----------------------------------------------|------------|--------------------------------------------|------------|----------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                   | ** ** | **2006**                                           | ** ** | **2007** | ** ** | **2006** | ** ** |
| **Maine  Yankee**                            | ** ** | ** **                                 | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividends Declared                           |       | —                                     |       | —                                             |       | 20 |   | — |   |
| Dividends Received in Cash                   |       | 20                                         |       | —                                             |       | 20 |   | 41 |   |
| Stock Redemptions Declared                   |       | 250                                        |       | 400                                                |       | 250 |   | 600 |   |
| Stock Redemptions Received in Cash           |       | —                                     |       | 200                                                |       | 250 |   | 200 |   |
|                                         |       |                                       |       |                                               |       |   |   |   |   |
| **MEPCO**                                    | ** ** | ** **                                 | ** ** | ** **                                         | ** ** | ** ** | ** ** | ** ** | ** ** |
| Dividends Declared                           |       | 2                                          |       | 2                                                  |       | 4 |   | 4 |   |
| Dividends  Received in Cash                  |       | 2                                          |       | 2                                                  |       | 4 |   | 171 |   |

 

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

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

As of June 30, 2007, the former CEO has been the onlyemployee to receive stock options, with 3,932 options outstanding for theremainder of the original ten-year term of these options.

The Company accounts for the fair value of its grantsunder the Plan in accordance with the expense provisions of Statement ofFinancial Accounting Standards No. 123(R), *“Accounting for Stock-BasedCompensation.”*

The fair value of each option grant is estimated onthe date of the grant using the Black-Scholes option-pricing model with thefollowing weighted-average assumptions used for the grants:
| Year of Issuance                | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| Number of  Options Granted                |       | 1,966    |       | 1,966    |       |
| Vesting Period                            |       | 3 years  |       | 3 years  |       |
| Number of  Options Vested and Exercisable |       | 1,966    |       | 1,966    |       |
| Dividend Yield                            |       | 4.60     | %          | 4.70     | %          |
| Volatility                                |       | 20.00    | %          | 20.00    | %          |
| Risk-Free  Interest Rate                  |       | 3.00     | %          | 4.60     | %          |
| Expected Life                             |       | 7 years  |       | 7 years  |       |

 

A summary of the status of the Company’s stock optionplan as of June 30, 2007, and changes during the year then ended is presentedbelow: 
|                                                 | ** ** | **Shares** | ** ** | **Average Exercise Price** | ** ** |
|-------------------------------------------------|------------|------------|------------|--------------------------------------|------------|
| **Options**                                     | ** ** | **2007**   | ** ** | **2007**                             | ** ** |
|                                            |       |       |       |                                 |       |
| Outstanding at  December 31, 2006               |       | 3,932      |       | $                                    | 30.28      |   |
| Granted                                         |       | —     |       | —                               |       |
| Exercised                                       |       | —     |       | —                               |       |
| Expired                                         |       | —     |       | —                               |       |
| Forfeited                                       |       | —     |       | —                               |       |
|                                            |       |       |       |                                 |       |
| Outstanding at  June 30, 2007                   |       | 3,932      |       | $                                    | 30.28      |   |
|                                            |       |       |       |                                 |       |
| Options  exercisable at June 30, 2007           |       | 3,932      |       | $                                    | 30.28      |   |
| Weighted-average fair  value of options granted |       | $          | 4.17       |                                 |       |   |
|                                                 |            |            |            |                                      |            |  |  |

 

The following table summarizes information about fixedstock options outstanding at June 30, 2007:

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| ** **                              | ** ** | **Options Outstanding**             | ** ** | **Options Exercisable**                             | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------------|------------|
| **Range of Exercise  Prices** | ** ** | **Number  Outstanding at  6/30/07** | ** ** | **Weighted-  Average  Remaining  Contractual Life** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Number  Exercisable at  6/30/07** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
| $30.10 - $30.45               |       | 3,932                                    |       | 5.42 yrs                                                 |       | $ | 30.28 |   | 3,932 |   | $ | 30.28 |   |
|                                         |            |                                          |            |                                                          |            |  |  |  |  |  |  |  |  |

 

Dilutive earnings per share impact of outstandingstock options: 
| ** **                                                                             | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                                                                             | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net (Loss) Income (in  thousands)                                                      |       | $                                         | (377       | )                                                 | $          | (310 | ) | $ | 974 |   | $ | 223 |   |
| Shares Used in  Computation of Earnings                                                |       |                                      |       |                                              |       |   |   |   |   |
| Weighted-Average  Common Shares Outstanding in Computation of Basic Earnings per Share |       | 1,677,187                                 |       | 1,637,643                                         |       | 1,662,005 |   | 1,637,427 |   |
| Dilutive Effect  of Common Stock Options                                               |       | —                                    |       | —                                            |       | 3,932 |   | 23,625 |   |
| Dilutive Effect  of Preferred Shares                                                   |       | —                                    |       | —                                            |       | 17,039 |   | 9,500 |   |
| Shares Used in  Computation of Earnings per Common Share Assuming Dilution             |       | 1,677,187                                 |       | 1,637,643                                         |       | 1,682,976 |   | 1,670,552 |   |
|                                                                                   |       |                                      |       |                                              |       |   |   |   |   |
| Net (Loss) Income per  Share (Basic)                                                   |       | $                                         | (0.22      | )                                                 | $          | (0.19 | ) | $ | 0.59 |   | $ | 0.14 |   |
| Net (Loss) Income per Share (Diluted)                                                  |       | $                                         | (0.22      | )                                                 | $          | (0.19 | ) | $ | 0.58 |   | $ | 0.13 |   |

 

The common stock options and preferred shares wereanti-dilutive during the quarters ended June 30, 2007, and 2006, and aretherefore omitted from the calculation of Diluted Earnings per Share. Theweighted-average number of potentially dilutive shares outstanding during thoseperiods were:
|                              | ** ** | **Quarter Ended June 30,** | ** ** |
|------------------------------|------------|-------------------------------------------|------------|
| ** **                   | ** ** | **2007**                                  | ** ** | **2006** | ** ** |
| Common Stock  Options        |       | 3,932                                     |       | 23,625 |   |
| Preferred Shares             |       | 17,039                                    |       | 9,500 |   |
| Potentially  Dilutive Shares |       | 20,971                                    |       | 33,125 |   |

 

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

TheCompany provides certain pension, post-retirement and welfare benefit programsto its employees. Benefit programs are an integral part of the Company’scommitment to hiring and retaining employees, providing market-basedcompensation that rewards individual and corporate performance. The Companyoffers welfare benefit plans to all employees, consisting of healthcare, lifeinsurance, long-term disability, and accidental disability insurance. TheCompany also offers a retirement savings program to employees in the form of a401(k) plan.  This plan allows voluntarycontributions by the employee and a contribution by the Company.

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

The Company has anon-contributory defined benefit pension plan covering Maine Public Service andcertain former MAM employees.  Noemployees of other unregulated businesses are eligible for this benefitplan.  Benefits under the plan are basedon employees’ years of service and compensation prior to retirement.  New employees hired on or after January 1,2006, are not eligible for the pension plan.

On December 31,2006, future salary and service accruals for current participants in the planceased.  In conjunction with this pensionfreeze, MPS recorded a one-time curtailment expense of approximately $98,000 inthe fourth quarter of 2006.  The Companyagreed to additional employer contributions to the Retirement Savings Plan tocompensate employees in part or in full, depending on their number of years ofservice, for this lost benefit.  Thisadditional contribution ranges from 5% to 25% of each eligible employee’s grossbase pay, and is immediately fully vested.

TheCompany’s policy has been to fund pension costs accrued. In accordance withthat policy, the Company plans to contribute approximately $824,000 to thepension plan for 2006 in 2007, prior to the filing of its 2006 corporate incometax return.   The Company also expects tocontribute approximately $250,000 per quarter during 2007 for 2007 estimatedpayments.

Thefollowing table sets forth the plan’s net periodic benefit cost: 

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|                                              | ** ** | **Pension Benefits**                 | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| ** **                                   | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                 |       | $                                         | —     |   | $ | 140 |   | $ | — |   | $ | 281 |   |
| Interest cost                                |       | 265                                       |       | 290 |   | 530 |   | 580 |   |
| Expected return  on plan assets              |       | (290                                      | )          | (272 | ) | (580 | ) | (544 | ) |
| Amortization of  prior service cost          |       | —                                    |       | 23 |   | — |   | 46 |   |
| Recognized net  actuarial (gain)             |       | 16                                        |       | 44 |   | 32 |   | 87 |   |
| Net periodic benefit  cost                   |       | $                                         | (9         | ) | $ | 225 |   | $ | (18 | ) | $ | 450 |   |

 

**HealthCare Benefits**

The Company providescertain health care benefits to eligible employees.  Eligible employees share in the cost of theirmedical benefits, in addition to plan deductibles and coinsurance payments.  The plan also covers retiree medical coveragefor employees of Maine Public Service Company, the regulated utility.  In 2005, certain amendments were made to theplan, including the following: employees hired on or after October 1, 2005, arenot eligible for post-retirement medical coverage. Effective January 1, 2006,certain retiree co-pays were increased, and spousal contributions commenced.

Thefollowing table sets forth the plan’s net periodic benefit cost: 
|                                              | ** ** | **Health Care Benefits**        | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                   | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
| **(In thousands of dollars)** | ** ** | **2007**                                  | ** ** | **2006** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Service cost                                 |       | $                                         | 45         |   | $ | 46 |   | $ | 90 |   | $ | 92 |   |
| Interest cost                                |       | 124                                       |       | 126 |   | 248 |   | 252 |   |
| Expected return  on plan assets              |       | (53                                       | )          | (54 | ) | (106 | ) | (108 | ) |
| Amortization of  transition obligation       |       | 18                                        |       | 36 |   | 36 |   | 72 |   |
| Amortization of  prior service cost          |       | (15                                       | )          | (15 | ) | (30 | ) | (30 | ) |
| Recognized net  actuarial (gain)             |       | 45                                        |       | 43 |   | 90 |   | 86 |   |
| Net periodic benefit  cost                   |       | $                                         | 164        |   | $ | 182 |   | $ | 328 |   | $ | 364 |   |

 

**8.****              COMMITMENTS, CONTINGENCIES AND REGULATORYMATTERS**

**LegalProceedings**

**Surplec, Inc.**

On April 30, 2007, Surplec, Inc., (“Surplec”), the supplier of atransformer for a substation constructed by MPS in connection with a 42 MW windproject owned by Evergreen Wind Power, LLC, brought suit against MPS, UPC Wind Management LLC, and Evergreen WindPower, LLC, (collectively “Defendants”) in the United States District CourtDistrict of Maine, (located in Bangor, Maine) seeking collection of  approximately $227,795 it claims is stillowed for the transformer, plus interest, attorney fees and punitive damages ina stated amount.  MPS had contracted withSurplec to purchase a 30/40/50 MVA Transformer (“the Transformer”).  Surplec alleged that MPS breached thecontract and comitted fraud by failing to pay Surplec the third and finalinstallment and shipping charges for the Transformer and Defendants’ use of theTransformer constitutes conversion.  MPShas denied these allegations.

On June 21, 2007, MPS filed a Counterclaim against Surplec seeking anaward of $199,000 (the amount MPS has already paid for the Transformer) as wellas consequential and incidental damages. MPS alleged that Surplec failed to deliver the Transformer by the dateindicated in the Contract and that the Transformer delivered was defective andnonconforming.

MPS has previously collected from Evergreen approximately $200,000 thatwould have been paid to Surplec had Surplec complied with its contractualobligations.  MPS will continue to holdthis amount pending the outcome of this litigation.  MPS has recorded this amount under “MiscellaneousLiabilities” pending the outcome of this litigation. MPS believes that theclaims for attorney fees and punitive damages are without merit under Mainelaw, and in any event such damages are not susceptible to estimation.  MPS will vigorously defend against the claimsmade by Surplec and will continue to pursue its counter claims against 

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thesupplier.  MPS cannot predict the outcomeof this litigation but is reasonably confident that it will prevail.  To this end, MPS anticipates seekingdismissal of Surplec’s claims for attorney fees and punitive damages.

**RegulatoryMatters**

**Notice ofInquiry Regarding Allowance of Electric Utilities in Maine to Reenter EnergySupply Business**

On July 25, 2007, the Maine Public Utilities Commission issued a Noticeof Inquiry (“NOI”) regarding the reentry of electric utilities into the energysupply business. The NOI was issued based on a State of Maine LegislativeResolve that directs the MPUC to undertake a review of the issues involved withtransmission and distribution (“T&D”) utilities entering the energy supplybusiness.  The Resolve specifies that for purposes of the review, “energysupply business” includes owning, operating or having an interest in electricgeneration facilities, load management activities or demand-side managementactivities.  The Resolve requires that the MPUC submit a report containingits findings and recommendations for further action and legislation toimplement its recommendations to the Joint Standing Committee on Utilities andEnergy no later than January 15, 2008.  The MPUC initiated this Inquiry toobtain information, viewpoints and recommendations from interested persons onthe issues raised in the Resolve. MPS will actively participate in the NOIprocess.

**MPUC Approves the Pass-Through ofRetail Transmission Rates to MPS Retail Jurisdictional Customers, and theIncrease to DSM Mil Rate, MPUC Docket No. 2003-516**

Per agreement with theMaine Public Utilities Commission, the new transmission rates for retailcustomers were put into retail rates on July 1, 2007.  These rates were approved by the MPUC on June27, 2007. Per this filing, the DSM mil rate was increased by 16.7%, orapproximately $110,000, and the retail transmission rate was increased by10.2%, or approximately $345,000.

**Federal Energy Regulatory Commission2007 Open Access Transmission Tariff Formula Rate Filing**

On May 21, 2007, MPSfiled its updated rates under the 2007 Open Access Transmission Tariff (“OATT”)formula pursuant to Docket ER00-1053 for both wholesale and retail customers.The revenue increases were approximately $54,000 and $345,000, respectively.These new transmission rates are subject to a customer refund that may occur asa result of the proceeding and potential settlement negotiations.

**Stakeholder Initiative Regarding theCompetitiveness and Reliability of the Northern Maine Power Grid**

InNovember 2006, the MPUC issued an Order in the Docket opened for the purpose ofselecting a new standard offer provider for the Company’s service territory forthe period beginning January 1, 2007. The then-existing Standard Offer arrangement was due to expire onDecember 31, 2006.  The MPUC’s November16, 2006, Order stated that it had received two bids from a single supplier.  Based on this, the MPUC concluded thatnorthern Maine lacked a competitive power market and directed the Company tofurnish default Standard Offer Service for the fourteen-month period beginningJanuary 1, 2007.  On December 18, 2006,the MPUC granted reconsideration of its November 16, 2006, Order and awardedthe Standard Offer contract to WPS Energy, Inc. (now known as Integrys EnergyServices, Inc.), the incumbent supplier.

Asa result of the MPUC’s determination regarding the absence of a competitivepower market, and also in an effort to deal with the system reliability issuesraised by the Company’s unsuccessful bid to secure a certificate for theconstruction of a new transmission line, the MPUC held a three-day stakeholdersconference in mid-December 2006, in an attempt to resolve, on a collaborativebasis, the issues raised in these cases. As a result of this effort, two parallel initiatives have been launched:

(a)  thestakeholders were asked to develop a protocol allowing for the possibility ofgeneration suppliers obtaining long-term power delivery commitments through theStandard Offer process and not through the Company.  This could encourage the construction of newgeneration in the Company’s service territory, and/or secure the availabilityof existing on-system generating sources on a long-term (multi-year)basis.  The Company cannot at this timepredict whether all of the stakeholders will reach agreement on any suchprotocol initiative, or whether it will be finalized and accepted by the MPUC;

(b)  thestakeholders were asked to address the feasibility of one or more proposals fortransmission projects interconnecting the northern Maine grid with the ISO NewEngland grid, possibly by means of a tap into the MEPCO 345 kV transmissionline that connects the high voltage systems of Maine and New Brunswick, Canada.

TheCompany, in early 2007, announced that it has joined with Central Maine PowerCompany in an effort to determine the 

23

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feasibilityof such a line.

**Wheelabrator-Sherman**

MPSwas 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 MWHper year) of a 17.6 MW biomass plant through December 31, 2006.  Total stranded costs included as regulatoryassets under the caption “Deferred Fuel and Purchased Energy Costs” in theaccompanying balance sheet related to this contract are $32.72 million and$34.69 million at June 30, 2007, and December 31, 2006, respectively.

**Poly ChlorinatedBi-Phenol Transformers**

In response to a Maineenvironmental regulation to phase out Poly Chlorinated Bi-phenol (“PCB”)transformers, MPS has implemented a program to eliminate transformers on itssystem that do not meet the State environmental guidelines. The Company is inthe process of inspecting almost 13,000 distribution transformers over aten-year period. MPS is currently in its sixth year of this ten-year program.Approximately 35% of the transformers inspected require “in service” PCB oilsampling.  In addition, transformers that pass the inspection criteriawill be refitted with new lightning arrestors and animal guards, wherenecessary. The current total estimated cost of the project is $2.6 million; asof June 30, 2007, $2.0 million of this total has been spent on thiseffort.  The remaining cost of the project has been accrued on the BalanceSheet as “Accrued Removal Obligations.”

**Off-Balance SheetArrangements**

The Maricor Ashford Ltdjoint venture and Maricor Properties, excluding Mecel, are variable interestentities, as defined by Financial Accounting Standards Board Interpretation No.46, “*Consolidation of Variable Interest Entities,”*(“FIN 46”) promulgated on January 17, 2003. Management has determined that Maricor Ashford and Maricor Propertiesshould not be consolidated with these financial statements, as Ashford, notMAM, is the primary beneficiary of these companies.

The Company has severaloperating leases for office and field equipment, vehicles and office space,accounted for in accordance with Statement of Financial Accounting StandardsNo. 13, “Accounting for Leases,” (“SFAS 13”). The following summarizes payments for leases for a period in excess ofone year:
|                                              | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                          | ** ** | **2006** | ** ** |
| Equipment                                    |       | $                                                 | 9          |   | $ | 10 |   |
| Building                                     |       | 120                                               |       | 110 |   |
| Vehicles                                     |       | 14                                                |       | 11 |   |
| Rights of Way                                |       | 38                                                |       | 1 |   |
| Field Equipment                              |       | 5                                                 |       | 21 |   |
| Total                                        |       | $                                                 | 186        |   | $ | 153 |   |

 

Thefuture minimum lease payments for the items listed above for the next fiveyears are as follows (in thousands of dollars):

**Future Minimum Lease Payments by Year for All Items**
| Years | ** ** | **Minimum Lease  Payments** | ** ** |
|-------|------------|----------------------------------|------------|
| 2007  |       | 28                               |       |
| 2008  |       | 221                              |       |
| 2009  |       | 185                              |       |
| 2010  |       | 107                              |       |
| 2011  |       | 37                               |       |

 

**Financial InformationSystem Hosting Agreement**

In December 2003, the Company entered into a ten-yearagreement with Delinea Corporation (now OneNeck IT Services) to host andprovide technical and functional support for the integrated Oracle FinancialInformation System.  The base hosting feeswere $450,000 for 2004, $510,000 for 2005, and $575,000 per year for years 2006through 2013.  This contract was 

24

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re-negotiatedeffective January 1, 2007.  The annualfee was reduced to $537,500 per year from 2007 through 2013, plus reimbursementfor travel costs.  Further, based oncertain service quality targets, contingent payments of $8,000 per quartercould also be earned by OneNeck.

**9.****              CAPITAL LEASES**

MPS financed certain of its2006 and 2007 vehicle and computer equipment purchases through capital leasestotaling $544,000.  The remainingliability as of June 30, 2007, for these capital lease arrangements isapproximately $464,000, and is recorded within Miscellaneous Liabilities on theConsolidated Balance Sheet.  Futureminimum lease payments in thousands of dollars are:
| Years      | ** ** | **Minimum Lease Payments** | ** ** |
|------------|------------|--------------------------------------|------------|
| 2007  |       | $                                    | 63         |   |
| 2008       |       | $                                    | 133        |   |
| 2009       |       | $                                    | 121        |   |
| 2010       |       | $                                    | 100        |   |
| 2011       |       | $                                    | 47         |   |

 

**10.****       DIVESTITURE OF UNREGULATED OPERATIONS**

**Divestiture of MaricorTechnologies, Inc. Assets and Termination of Segment Operations**

In conjunction with theCompany’s return to a utility and utility-related strategy, described morefully in the MAM 2006 Form 10-K, the majority of the operations of MTI wereterminated on March 23, 2007.  On April13, 2007, Maine & Maritimes Corporation sold substantially all of theassets of Maricor Technologies, Inc. to HCI Systems Asset Management, LLC.  MAM originally acquired these assets from HCIon February 15, 2005, in exchange for a combination of cash, preferred stock,and certain options, including a put option for the preferred stock worth$200,000.  Under the terms of the sale,HCI released all of its rights under an Option Agreement with MAM datedFebruary 15, 2005, including this put option. HCI converted its Series A-2 Preferred Stock into 26,000 shares of MAM commonstock on April 13, 2007.  The Series A-1Preferred Stock was converted to 12,078 shares of common stock in the firstquarter of 2007.  Further, HCI will beeligible to receive additional shares of MAM common stock on March 31, 2008, ifthe trading price of MAM’s stock is less than $25 per share on that date.  See Note 3, Discontinued Operations, for thenet loss and earnings per share impact of MTI.

**Divestiture of Engineering Divisions in Canada**

On June 19, 2007, Maine & Maritimes Corporation sold substantiallyall of the operating assets and liabilities of the Moncton & St. Johndivisions of TMGC to MCW Consultants Ltd. headquartered in Toronto,Canada.  Similarly, on June 12, 2007,substantially all of the operating assets and liabilities of the Halifaxdivision of TMGC were sold to M&R Engineering Ltd., which is owned andoperated by the former president of that division.  The sales of these assets yieldedapproximately $2 million.  The proceedsfrom the sales of these engineering segment divisions were used to repay loansborrowed by The Maricor Group parent company in connection with the originalacquisitions of the engineering businesses. There will be some on-going costs related to the shut-down of thesedivisions, including insurance and legal costs. The total estimated loss recorded on these sales and the anticipateddivestiture of TMGNE was $5.08 million.

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**PART1. FINANCIAL INFORMATION**

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

**Forward-LookingStatements**

This filing containscertain “forward-looking statements” as defined in the Private SecuritiesLitigation Reform Act of 1995, related to the expected future performance ofour plans and objectives, such as forecasts and projections of expected futureperformance or statements of Management’s plans and objectives.  These forward-looking statements may becontained in filings with the SEC and in press releases and oralstatements.  We use words such as “anticipate,”“estimate,” “expect,” “project,” “intend,” “plan,” “believe,” and other wordsand terms of similar meaning in connection with any discussion of futureoperating or financial performance. These statements are based on the current expectations, estimates orprojections of Management and are not guarantees of future performance.  Some or all of these forward-lookingstatements may not turn out to be what the Company expected.  Actual results will differ, and some of thedifferences may be material.

Factors that could causeactual results to differ materially from our projections include, among othermatters, strategic risk, liquidity and capital formation risk, interest rateand debt covenant risk, attraction and retention of qualified employees, equityprice risk, legislation and regulation, divestiture of unregulated segments,general economic conditions, collections risk, information technology risks,economy of the region, environmental risks, aging infrastructure andreliability, weather, vandalism, terrorism and other illegal acts, alternativegeneration options, foreign operations, franchises and competition,professional liability and technological obsolescence.  Therefore, no assurances can be given thatthe outcomes stated in such forward-looking statements and estimates will be achieved.

**AccountingPolicies**

Criticalaccounting policies are disclosed in the Company’s 2006 Annual Report on Form10-K and its first quarter 2007 Form 10-Q.

***Executive Overview***

As more fullydescribed in our Annual Report filed in March 2007, and the first quarter 10-Qfiled in May 2007, the Company is transitioning away from unrelated businesssegments in favor of focusing on our core competencies in and related to theregulated utility.  To that end, we haveclassified our utility business and the holding company as “ContinuingOperations” and the segments we are divesting as “Discontinued Operations.”

Net income fromContinuing Operations was strong again in the second quarter, providing netincome of $186,000, compared to the prior year quarter’s net income of$3,000.  Year-to-date net income fromContinuing Operations was $1.75 million in 2007, more than doubling the amountof $787,000 in 2006.  Maine PublicService, the regulated electric utility continues to outpace prior year’searnings as a result of strong kilowatt hour sales volumes year-to-date, thedistribution rate increase effective July 15, 2006, reduced operations andmaintenance expenditures and higher-than-projected revenues from transmissionwheeling.

Net losses fromDiscontinued Operations negatively impacted the quarter by $563,000 comparedwith the prior year quarterly net loss of $313,000.  Year-to-date net losses were $772,000compared with prior year losses of $564,000. The chief causes of these results were (a) additional losses onoperations before the sales of two of our divisions, and (b) a revision to theloss from these sales, previously shown in the Company’s financial statements,in the amount of $362,000. We have made considerable progress in thedivestiture of our Discontinued Operations in the second quarter with theclosing of three transactions.

On June 19, 2007, Maine & Maritimes Corporation sold substantiallyall of the assets of The Maricor Group, Canada Ltd Moncton & St. Johndivisions to MCW Consultants Ltd. headquartered in Toronto, Canada.  Similarly, on June 12, 2007, substantiallyall of the assets of The Maricor Group, Canada Halifax division were sold toM&R Engineering Ltd., which is owned and operated by the former presidentof that division.  The sales of theseassets yielded approximately $2 million. The proceeds from the sales of these engineering segment divisions wereused to repay loans borrowed by The Maricor Group parent company in connectionwith the original acquisitions of the engineering businesses.

On April 13, 2007, Maine & Maritimes Corporation sold substantiallyall of the assets of Maricor Technologies, Inc. to HCI Systems AssetManagement, LLC.  Under the terms of thesale, HCI released all of its rights under an Option Agreement dated February 15,2005, including a put option worth $200,000. In connection with the sale, HCI converted its Series A-2 PreferredStock into 26,000 shares of MAM common stock on April 13, 2007.  HCI will be eligible to receive additionalshares of MAM common stock on March 31, 2008, if the trading price of MAM’sstock is less than $25 per share on that date.

26

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Following these sales, The Maricor Group New England, Inc., in Boston,Massachusetts, is the only remaining division of the engineering segment.  Management is in the process of winding downthis operation by completing or transferring existing contracts, andsimultaneously pursuing a sale of the company. In addition, we plan to sell the remainder of our investments incommercial real estate in Atlantic Canada. We expect that the divestiture of our remaining unregulatedoperations will be completed during 2007.

In addition to the salesof our unregulated businesses, we are making steady progress in our efforts togrow our regulated utility operations. We continue to meet with stakeholders regarding the interconnection ofMaine Public Service Company with the ISO New England transmission system.  We are also facilitating the development ofadditional generation in our service territory, including a plan to develop upto 800 MW of wind generation in Aroostook County.  These two initiatives could ultimately serveto connect a resource-rich region (northern Maine) with a resource-deficientregion (southern New England) which has a growing demand for renewable energy.  As we previously announced on March 1, 2007,MPS is actively working with Central Maine Power to explore the development ofa transmission line connecting our two systems, as well as long-term contractswith existing and new generators who will use the line.  Management believes these types of projectswill allow us to continue to provide safe, reliable, and cost effectivetransmission and distribution services to our customers, as well as increaseshareholder value in the long-term.

***Overall Results ofOperations—Consolidated***

*NetIncome and Earnings Per Share*
|                                                                                   | ** ** | **Quarters Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|---------------------------------------------------|------------|
| **(Dollars in Thousands Except per Share Amounts)** | ** ** | **2007**                                   | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Income from  Continuing Operations                                                |       |                                       |       |                                              |       |   |   |   |   |
| Regulated Electric Utility                                                        |       | $                                          | 456        |                                              | $          | 13 |   | $ | 2,411 |   | $ | 1,217 |   |
| Other*                                                                            |       | (270                                       | )          | (10                                               | )          | (665 | ) | (430 | ) |
| Income from Continuing Operations                                                 |       | 186                                        |       | 3                                                 |       | 1,746 |   | 787 |   |
| Loss from  Discontinued Operations                                                |       |                                       |       |                                              |       |   |   |   |   |
| Unregulated Engineering Services                                                  |       | (416                                       | )          | (123                                              | )          | (464 | ) | (231 | ) |
| Unregulated Software Technology                                                   |       | (117                                       | )          | (162                                              | )          | (247 | ) | (273 | ) |
| Other*                                                                            |       | (30                                        | )          | (28                                               | )          | (61 | ) | (60 | ) |
| Loss from Discontinued Operations                                                 |       | (563                                       | )          | (313                                              | )          | (772 | ) | (564 | ) |
| Net Income  (Loss)                                                                |       | $                                          | (377       | )                                                 | $          | (310 | ) | $ | 974 |   | $ | 223 |   |
| Basic Income (Loss) Per  Share                                                    |       | $                                          | (0.22      | )                                                 | $          | (0.19 | ) | $ | 0.59 |   | $ | 0.14 |   |

 

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**The “Other” line in continuingoperations includes corporate costs directly associated with the unregulatedsubsidiaries, common costs not allocated to the regulated utility andinter-company eliminations. In discontinued operations, the “Other” linerepresents the net loss of Mecel Properties, less inter-company eliminations.*

Net income above isderived from the segments as presented in Note 4, “Segment Information,” of theConsolidated Financial Statements.  Theresults by segment are explained more fully in the following sections.

The financial results ofthe continuing operations have improved in the second quarter of 2007 from thesecond quarter of 2006.  However,increased earnings from the regulated electric utility were more than offset bythe increased losses of the unregulated engineering services discontinuedoperation.  This has led to an overallincrease in basic net loss of $0.03 per share of common stock, from $(0.19) forthe second quarter of 2006 to $(0.22) in the second quarter of 2007.  For the year-to-date, there has been anincrease in basic net income per share of $0.45, with the net income per sharefor the period ended June 30, 2007, of $0.59 per share compared to $0.14 pershare for the same period in 2006.

***Interest Expense***

Net interest charges forcontinuing operations in the second quarter of 2007 were lower than the secondquarter of 2006, decreasing from $313,000 to $280,000, mostly due to theincrease in offsetting stranded cost carrying charges as a result of the higherdeferred fuel balance.  Similarly,year-to-date net interest charges were reduced from $620,000 in 2006 to$585,000 in 2007.

***Income Tax Expense / Benefit***

The regulated provisionfor income taxes increased from the regulated business to $320,000, from$43,000 in the second quarter of 2007, as compared with 2006, as a result ofthe increase in earnings.  The benefitfrom income taxes from continuing unregulated operations increased from $113,000for the second quarter of 2006 to $181,000 for the second quarter of 2007.

27

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Similarly, year-to-date, the provision for regulatedincome taxes has increased from $793,000 in 2006 to $1,637,000 in 2007.  The benefit from income taxes from continuingunregulated operations increased from $316,000 year-to-date in 2006 to $422,000year-to-date in 2007.

***Taxes Other Than Income***

Taxesother than income are primarily payroll and property taxes.  These taxes increased slightly from $437,000for the second quarter of 2006 to $441,000 for the same period in 2007.  Year-to-date, these expenses are lower in2007 than for the same period in 2006, the amounts being $885,000 and $937,000,respectively.  The primary reasons forthe year-to-date decrease are the reduction of payroll taxes, due to reductionsin work force that commenced in late 2006.

***Regulated Operations***

Thefollowing tables and discussion include the operations of MPS and Me&NB,the Company’s regulated subsidiary and inactive unregulated Canadiansubsidiary:
|                                                              | ** ** | **Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                                   | ** ** | **June 30,**      | ** ** | **June 30,**              | ** ** |
| ** **                                                   | ** ** | **2007**               | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Income —  Regulated Electric Utility (In thousands) |       | $                      | 456        |                           | $          | 13 |   | $ | 2,411 |   | $ | 1,217 |   |
| Earnings Per Share from  Regulated Electric Utilities        |       | $                      | 0.27       |                           | $          | 0.01 |   | $ | 1.45 |   | $ | 0.74 |   |

 

***Regulated Operating Revenue***

Consolidatedrevenues and Megawatt Hours (“MWH”) for the quarters ended June 30, 2007 and2006 and for year-to-date, are as follows:
|                                 | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|---------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                      | ** ** | **Dollars**                               | ** ** | **MWH**                                           | ** ** | **Dollars** | ** ** | **MWH** | ** ** | **Dollars** | ** ** | **MWH** | ** ** | **Dollars** | ** ** | **MWH** | ** ** |
| Residential                     |       | $                                         | 3,582      |                                              | 42,126     |   | $ | 3,263 |   | 41,537 |   | $ | 7,919 |   | 94,123 |   | $ | 7,198 |   | 91,843 |   |
| Large Commercial                |       | 1,034                                     |       | 43,682                                            |       | 1,019 |   | 42,746 |   | 2,517 |   | 86,415 |   | 2,624 |   | 86,720 |   |
| Medium  Commercial              |       | 1,047                                     |       | 25,456                                            |       | 1,005 |   | 24,687 |   | 2,995 |   | 53,290 |   | 2,820 |   | 51,215 |   |
| Small Commercial                |       | 1,413                                     |       | 21,742                                            |       | 1,305 |   | 21,444 |   | 3,929 |   | 48,297 |   | 3,590 |   | 46,939 |   |
| Other Retail                    |       | 228                                       |       | 847                                               |       | 205 |   | 839 |   | 456 |   | 1,694 |   | 413 |   | 1,693 |   |
| Total Regulated  Retail Revenue |       | 7,304                                     |       | 133,853                                           |       | 6,797 |   | 131,253 |   | 17,816 |   | 283,819 |   | 16,645 |   | 278,410 |   |
| Other Revenue                   |       | 647                                       |       |                                              |       | 617 |   |   |   | 1,050 |   |   |   | 820 |   |   |   |
| Total Regulated Revenue         |       | $                                         | 7,951      |                                              |       |   | $ | 7,414 |   |   |   | $ | 18,866 |   |   |   | $ | 17,465 |   |   |   |

 

Totalregulated revenue increased $537,000 or 7.2% in the second quarter of 2007 fromthe second quarter of 2006.  Residentialcustomer revenue accounted for approximately $319,000 of this increase, acombination of the 1.4% or 589 MWH increase in volume and the impact of therate increase effective July 15, 2006. Medium and small commercial customer revenue also increased $150,000 or 6.5%,for the same reasons.  Sales volume forthese classes increased 1,067 MWH or 2.3%. The volume increase accounted for $49,000 of the $150,000 increase, andincreased rates accounted for $101,000 of the increase.

Largecommercial customer revenue increased $15,000 or 1.5% in the second quarter of2007 from the second quarter of 2006. This increase was partly volume driven, with total sales up 936 MWH or2.2% from the prior year.  The increasein volume accounted for the most of the $15,000 increase in revenue.

Otherregulated operating revenue of $647,000 exceeded that of the prior year by$30,000, due to increased transmission wheeling revenue.  MPS’s transmission rates are based on therevenue requirement (transmission expenses plus the allowed return on assets)less the wheeling revenue earned.  Therates go into effect on July 1 each year, and are calculated from the financialresults of the previous calendar year.  The additional wheeling revenue earned during 2007 will offset therevenue requirement in the establishment of the rates that will go into effecton July 1, 2008.

Total regulated revenue for the first six months of2007 increased $1.4 million or 8% over the same period in 2006.  Otherrevenue is up by $230,000, also due to increased transmission wheeling revenue. Sales volumes for the first six months of 2007 

28

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increased 5,409MWH or 1.9%, compared to the same period in 2006.  The increase in volume accounted for $388,000of the $1.4 million increase in revenue, with the rate increase accounting for$783,000.

Formore information on regulatory orders approving the most recent rate increases,see Part II, Item 1, “Legal Proceedings” of this Form 10-Q, and Item 3, “LegalProceedings” of the Company’s 2006 Form 10-K.

***Regulated Utility Expenses***

Forthe quarters ended June 30, 2007, and 2006 and for year-to-date, regulatedoperation and maintenance expenses and stranded costs are as follows:
| ** **                                               | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)**             | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Regulated Operation and  Maintenance                     |       |                                      |       |                                              |       |   |   |   |   |
| Labor                                                    |       | $                                         | 1,132      |                                              | $          | 1,207 |   | $ | 2,251 |   | $ | 2,494 |   |
| Benefits                                                 |       | 267                                       |       | 516                                               |       | 713 |   | 1,067 |   |
| Outside Services                                         |       | 242                                       |       | 160                                               |       | 441 |   | 371 |   |
| Holding Company  Management Costs                        |       | 526                                       |       | 540                                               |       | 962 |   | 1,141 |   |
| Insurance                                                |       | 131                                       |       | 135                                               |       | 273 |   | 259 |   |
| Regulatory and  Licensing                                |       | 247                                       |       | 214                                               |       | 500 |   | 423 |   |
| Transportation                                           |       | 174                                       |       | 244                                               |       | 489 |   | 448 |   |
| Other                                                    |       | 449                                       |       | 481                                               |       | 916 |   | 1,038 |   |
| Total Regulated  Operation and Maintenance               |       | $                                         | 3,168      |                                              | $          | 3,497 |   | $ | 6,545 |   | $ | 7,241 |   |
|                                                     |       |                                      |       |                                              |       |   |   |   |   |
| Stranded Costs                                           |       |                                      |       |                                              |       |   |   |   |   |
| Wheelabrator-Sherman                                     |       | $                                         | —     |                                              | $          | 1,749 |   | $ | — |   | $ | 3,867 |   |
| Maine Yankee                                             |       | 721                                       |       | 633                                               |       | 1,441 |   | 1,407 |   |
| Seabrook                                                 |       | 384                                       |       | 385                                               |       | 768 |   | 769 |   |
| Amortization of  Wheelabrator-Sherman Restructuring Pmt. |       | —                                    |       | 362                                               |       | — |   | 725 |   |
| Deferred Fuel                                            |       | 1,345                                     |       | (631                                              | )          | 2,849 |   | (1,530 | ) |
| Cost Incentive  Refund                                   |       | 62                                        |       | —                                            |       | 125 |   | — |   |
| Cancelled  Transmission Plant                            |       | 65                                        |       | —                                            |       | 128 |   | — |   |
| Special  Discounts                                       |       | 70                                        |       | 70                                                |       | 140 |   | 140 |   |
| Total Stranded Costs                                     |       | $                                         | 2,647      |                                              | $          | 2,568 |   | $ | 5,451 |   | $ | 5,378 |   |

 

Overall regulatedoperation and maintenance expense decreased $329,000 or 9.4% in the secondquarter of 2007 from the second quarter of 2006.  The decreases were as follows:

·        Labor expenses decreased $75,000, with a$44,000 reduction in expense due to a shift in labor from maintenance tocapital and billable construction work. The remaining decrease is due to reduced non-productive labor expenses,offset by an increase in overtime labor.

·        Benefits expense decreased $249,000 in 2007from 2006, due to a $24,000 reduction in workers compensation expense, and a$261,000 decrease in pension expense as a results of the freeze of futureservice accruals under the MPS pension plan. These decreases were partly offset by a $72,000 increase in otherbenefit expenses, mainly the Company’s contributions to the employees’ 401(k)plan.

·        Holding company management costs were reducedby $14,000, due to the combination of a decrease in total costs, and thereduction of the percentage of these costs allocated to MPS.

These decreases werepartly offset by an increase in regulatory and licensing expenses ofapproximately $33,000, and an increase in outside legal and consulting servicesexpenses of $82,000.

Overall regulatedoperation and maintenance expense decreased $696,000 or 9.6% in the first sixmonths of 2007 from the same period in 2006. The decreases were as follows:

·        Labor expenses decreased $243,000, with a$65,000 reduction in expense due to a shift in labor from maintenance tocapital and billable construction work. The remaining decrease is due to reduced non-productive labor expenses,offset by an $8,000 increase in overtime labor.

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·        Benefits expense decreased $354,000 in 2007from 2006, due to a $77,000 reduction in workers compensation expense, and a$431,000 decrease in pension expense. These decreases were partly offset by a $154,000 increase in otherbenefit expenses, mainly the Company’s contributions to the employees’ 401(k)plan.

·        Holding company management costs were reducedby $179,000, due to the combination of a decrease in total costs, and thereduction of the percentage of these costs allocated to MPS.

These decreases werepartly offset by an increase in insurance and regulatory expenses ofapproximately $91,000, and an increase in outside legal and consulting servicesexpenses of $70,000.

Stranded cost expenses in2007 reflect the impact of the stranded cost rate case, MPUC Docket No.2006-506, and the expiration of MPS’s purchase power agreement withWheelabrator-Sherman.  The expensesreported for 2006 are based on the stranded costs rates established in MPUCDocket No. 2003-666.

The Wheelabrator-Shermanexpenses reported in 2006 were the payments for purchased power, offset by thereceipts from the sale of that energy. With the expiration of this contract December 31, 2006, no additionalenergy has been purchased.  The offsetsto expense of $631,000 in the second quarter, and $1,530,000 year-to-date, arethe deferral of the net expense of the purchased power contract beyond thetotal expense allowed for recovery in Docket No. 2003-666.  MPS is now recovering its deferred fuelcosts.  The amortization of the deferredfuel stranded costs, a non-cash expense, was $1.3 million in the second quarterof 2007, and $2.8 million year-to-date.

Under Docket No.2003-666, MPS was also allowed recovery of a new stranded cost, the costincentive refund, amortization of which began January 2007.

In September 2006, MPSbegan amortization of its cancelled transmission plant, in accordance with thesettlement of the 2006 OATT.  Thisamortization totaled $65,000 in the second quarter of 2007.

***Other Continuing Operations***
|                                                             | ** ** | **Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **June 30,**      | ** ** | **June 30,**              | ** ** |
| ** **                                                  | ** ** | **2007**               | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Loss — Other  Continuing Operations (in thousands) |       | $                      | (270       | )                              | $          | (10 | ) | $ | (665 | ) | $ | (430 | ) |
| Loss Per Share from  Other Continuing Operations            |       | $                      | (0.16      | )                              | $          | (0.01 | ) | $ | (0.40 | ) | $ | (0.26 | ) |

 

Othercontinuing operations represent the common costs of MAM that cannot beallocated to MPS, the corporate costs of MAM directly associated with theunregulated businesses and inter-company eliminations.  The divestitures to date and additional plansto divest the unregulated operations may reduce the costs included in thissegment; however, some of these costs are expected to continue subsequent tothe divestiture of the unregulated operations without other cost reduction orrecovery efforts.

Theoperating expenses, net of tax, of this segment increased from $179,000 in thesecond quarter of 2006 to $355,000 in the second quarter of 2007.  Similarly, operating expenses year-to-dateincreased from $616,000 in 2006 to $847,000 in 2007.  The majority of this increase is a result ofthe reduction in the percentage of common costs allocated to MPS and theallocation of one-third of the Oracle financial system hosting fees to MAM.

***Unregulated Engineering Services– Discontinued Operations***

|                                                             | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)**                | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Loss —  Unregulated Engineering Services           |       | $                                         | (416       | )                                                 | $          | (123 | ) | $ | (464 | ) | $ | (231 | ) |
| Basic Loss Per Share  from Unregulated Engineering Services |       | $                                         | (0.25      | )                                                 | $          | (0.08 | ) | $ | (0.28 | ) | $ | (0.14 | ) |

 

The net loss of theunregulated engineering services segment has increased from $123,000 in thesecond quarter of 2006 to $416,000 in the second quarter of 2007.  The first quarter of 2007 had been betterthan the first quarter of 2006 as a result of the combination of higher revenueand the reduction of certain expenses. In the second quarter of 2007, a true-up of estimated losses from thesales of the Canadian engineering divisions in the amount of $362,000 wasrecorded in the second quarter of 2007. Included in this loss is a write-off of the remaining goodwill of$283,000, before taxes.

Unregulatedengineering services revenues for the quarters and six months ended June 30,2007, and 2006:

30

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|                                                  | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|--------------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)**     | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| The Maricor  Group New England                   |       | $                                         | 172        |                                              | $          | 425 |   | $ | 549 |   | $ | 895 |   |
| The Maricor  Group, Canada Ltd                   |       | 453                                       |       | 1,000                                             |       | 1,743 |   | 1,878 |   |
| Total Unregulated  Engineering Operating Revenue |       | $                                         | 625        |                                              | $          | 1,425 |   | $ | 2,292 |   | $ | 2,773 |   |

 

Totalrevenue for the segment decreased approximately $481,000 or 17.3% in total overprior year.  The major decrease was inthe U.S. operations, with a $346,000 decrease from 2006, as these operationsare winding down.

Unregulatedengineering services expenses for the quarters and six months ended June 30,2007, and 2006 were as follows:
|                                              | ** ** | **Quarter Ended June 30,** | ** ** | **Six Months Ended June 30,** | ** ** |
|----------------------------------------------|------------|-------------------------------------------|------------|---------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                  | ** ** | **2006**                                          | ** ** | **2007** | ** ** | **2006** | ** ** |
| Unregulated  Operation & Maintenance     |       | $                                         | 889        |                                              | $          | 1,563 |   | $ | 2,578 |   | $ | 3,026 |   |
| Depreciation and  Amortization               |       | 2                                         |       | 35                                                |       | 6 |   | 61 |   |
| Taxes Other than  Income                     |       | 1                                         |       | 15                                                |       | 10 |   | 35 |   |
| Interest                                     |       | 74                                        |       | 64                                                |       | 152 |   | 121 |   |
| Loss on Sale of  Engineering Divisions       |       | 362                                       |       | —                                            |       | 362 |   | — |   |
| Total Unregulated  Engineering Expenses      |       | $                                         | 1,328      |                                              | $          | 1,677 |   | $ | 3,108 |   | $ | 3,243 |   |

 

Unregulatedengineering services expenses decreased as a result of the sales of The MaricorGroup, Canada Ltd divisions, despite additional write-offs of goodwill of283,000 in the second quarter and a true-up of the estimated loss on sales ofthese divisions in the amount of $79,000.

***Unregulated Software Technology-Discontinued Operations***

Thefollowing section details the operations of the unregulated software technologysegment:
|                                                                 | ** ** | **Quarter Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                                      | ** ** | **June 30,**      | ** ** | **June 30,**              | ** ** |
| ** **                                                      | ** ** | **2007**               | ** ** | **2006**                       | ** ** | **2007** | ** ** | **2006** | ** ** |
| Net Loss —  Unregulated Software Technology (In thousands) |       | $                      | (117       | )                              | $          | (162 | ) | $ | (247 | ) | $ | (273 | ) |
| Loss Per Share from Unregulated  Software Technology            |       | $                      | (0.07      | )                              | $          | (0.10 | ) | $ | (0.15 | ) | $ | (0.16 | ) |

 

The assets of MaricorTechnologies, Inc. were sold on April 13, 2007. The net loss above represents revenues from the completion of softwareand consulting sales less expenses to complete these projects, and otherwiseclose operations.

***Income Taxes***

Pleaserefer to the Note 2 of the financial statements for a discussion of the effectsof income taxes.

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

Pleaserefer to Note 8 of the financial statements.

***Liquidity andCapital Resources***

MAM’s current liabilities of $17.5 million as of June30, 2007, exceed its current assets of $15.2 million by $2.3 million, exposingMAM to liquidity concerns and the risk of being unable to fulfill itsobligations in 2007.  Of these current liabilities, $6.0 millionrepresents short-term borrowings, including the MPS line of credit with Bank ofAmerica.  MAM has taken steps to mitigate this short-term risk, includingidentification of options to reduce or defer costs.  Based on these stepsand current financial projections, MAM has sufficient cash flow for theforeseeable future.

In the long term, Management expects MAM’s cash flowto improve, with MPS’s recovery of deferred fuel costs.  Until 2007, thecash expenditures for deferred fuel exceeded the recovery of strandedcosts.  With the expiration of the Wheelabrator-Sherman contract inDecember 2006, this position has reversed, and recovery of stranded costs isexceeding the cash outflows.  These stranded cost free cash flows arebeing used, in part, to retire debt and pay for capital expenditures.

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The Company’s cash and cash equivalents as of June 30,2007, were $1.4 million, up from $715,000 at March 31, 2007.  The “Statementsof Consolidated Cash Flows” of the Company’s Consolidated Financial Statementsas presented in Part I, Item 1. of this Form 10-Q, reflects the Company’ssources and uses of capital.

Netcash flow from operating activities for the first six months of 2007 was $5.51million, compared to $1.80 million in the first six months of 2006.  Thechange in deferred regulatory and debt issuance costs was the largest increasein operating cash flow, as a result of the expiration of theWheelabrator-Sherman contract in December 2006.

Cash flow used for investing activities decreased cashby approximately $925,000 in the first six months of 2007.  The largestuse of cash for investing in 2007 were fixed asset investments of $2.56million, with another $187,000 used for settlement of the stock contingenciesassociated with acquisitions of engineering firms in 2003 and 2004.   For the first six months of 2006, cash flow used for investing activitytotaled $1.42 million, of which $1.55 million was invested in fixed assets forcontinuing operations and $248,000 was invested in the activities of thediscontinued operations.  Approximately $244,000 was used in the firstquarter of 2006 for settlement of the stock contingencies associated withacquisitions in 2003 and 2004, offset by $429,000 from the sale of stock ofMaricor Properties.

Cash flow used for financing included the repayment ofshort- and long-term debt totaling $4.07 million the first six months of2007.  On June 15, 2007, Maine & Maritimes Corporation paid off the $1million TMG Line of Credit with Katahdin Trust Company with the proceeds of thesale of the Halifax Division of The Maricor Group, Canada Ltd.  On July 9, 2007, $750,000 was paid down onthe TMG $2.2 million term note with Katahdin Trust Company with a substantialportion of the proceeds from the sale of the Moncton Division of The MaricorGroup, Canada Ltd.   The terms of theremaining $1.45 million note were amended at that time, whereby the repaymentschedule was adjusted to include five months of interest only beginning July29, 2007, with 36 payments of principal and interest in the amount of $37,500each with the first payment beginning December 31, 2007, and one final paymentof all unpaid principal, accrued interest and any unpaid late charges due onDecember 29, 2010.  Cash flow used forfinancing activities for the first six months of 2006 totaled $445,000, aslong-term debt was reduced by $1.19 million and short-term debt was increasedby $745,000.

The Maricor Group and its subsidiaries incurred equityprice risk when it bought the stock of certain of its subsidiaries.  Partof the consideration was MAM stock.  In the event that the price of MAMcommon stock was below a specified price when the seller wished to dispose ofit, The Maricor Group (or the applicable subsidiary) agreed to pay thedifference.  There were 12,603 shares outstanding pursuant to this kind ofagreement at June 30, 2007.  At a market price of $26.85 per share at June30, 2007, the total exposure is approximately $180,000.  A $1 increase inMAM’s share price would decrease this exposure by approximately $13,000. A $1 decrease in MAM’s share price would increase this exposure by $13,000.

Inaccordance with rate stipulations approved by the MPUC, for ratemakingpurposes, MPS is required to maintain a capital structure not to include morethan 51% common equity for the determination of delivery rates.  Also, in the order approving the reorganization of MPS and the formation ofMaine & Maritimes Corporation, the parties stipulated to severalrestrictions on the capital structure of MPS and MPS’s ability to make dividendpayments to MAM.  As of June 30, 2007, MPS is in compliance with theseconditions.

As part of the refinancing of short-term borrowingsduring 2005, MAM and certain of its subsidiaries agreed to certain financialand other covenants, such as debt service coverage and earnings before interestand taxes (“EBIT”) ratios. In the event of a default, the various lenders couldrequire immediate repayment of the debt. A default could also trigger increasesin interest rates, difficulty obtaining other sources of financings andcross-default provisions within the debt agreements. A default on the MPS lineof credit with Bank of America is a cross-default on the MAM line of creditwith Bank of America. In addition, MAM has guaranteed a TMG facility withKatahdin Trust Company, and a Maricor Properties term loan with Royal Bank ofCanada.  MAM is in compliance with thesecovenants as of June 30, 2007.

***Regulatory Proceedings***

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

***Item 3. Quantitative andQualitative Disclosures about Market Risk***

Thefollowing represents Maine & Maritimes Corporation’s more significantmarket risks.  While every effort is madeto describe the character of the organization’s risks, it cannot warrant thatthis list is all inclusive.  The Company,where possible, does take steps in each of the following areas to attempt tomitigate such risks.

(a)          MAM and its subsidiariesare faced with interest rate risk on the MAM $4.0 million Bank of America lineof credit, the TMG $1.45 million term note with Katahdin Trust Company, and theMPS $10 million line of credit and unsecured $6 million, seven-year term loan.

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MPSfixed interest rates on three variable rate debt issues on September 9, 2003,with a derivative interest rate swap transaction. These interest rate swapseffectively fixed through maturity the rates on the 1996 Series due in 2021 andthe 2000 Series due in 2025 at 4.42% and 4.53%, respectively. The rate on the1998 Notes due in 2008 was also fixed at 2.79% through maturity. As of June 30,2007, the 1996 and 2000 Series and the 1998 FAME Notes had outstanding balancesof $13.6 million, $9.0 million and $2.175 million, respectively. The fixedrates are higher than the previous floating rates and continue to be as of thedate of this filing. Although incurring no up-front cost to execute the swaps,MPS is currently incurring increased interest expenses. However, Managementbelieves that the fixing of interest rates over the terms of the debt willserve to protect both shareholders and consumers from what it believes to beupward variable interest rate pressures.

MPSalso purchased a 7% interest rate cap, which expires in 2008, for MPS’s TaxableElectric Rate Stabilization Revenue Notes issued in 1998 on its behalf by theFinance Authority of Maine (“FAME”). Further discussion on these debt issuesand the associated interest rate caps is contained in Item 8 to theConsolidated Financial Statements, “Long-Term Debt” of MAM’s 2006 Form 10-K,and is hereby incorporated by this reference.

(b)         Transactions withMe&NB, and MAM’s investment in Maricor Properties Ltd are subject toforeign currency translation risk. Income and expenses are translated ataverage rates of exchange for the period of time the income is earned or theexpenses are incurred. Assets and liabilities are translated at period-endexchange rates.

(c)          The Maricor Group and itssubsidiaries incurred equity price risk when it bought the stock of certain ofits subsidiaries.  Part of theconsideration was MAM stock.  In theevent that the price of MAM common stock was below a specified price when theseller wished to dispose of it, The Maricor Group (or the applicablesubsidiary) agreed to pay the difference. There were 12,603 shares outstanding pursuant to this kind of agreementat June 30, 2007.  At a market price of$26.85 per share at June 30, 2007, the total exposure is approximately$180,000.  A $1 increase in MAM’s shareprice would decrease this exposure by approximately $13,000.  A $1 decrease in MAM’s share price wouldincrease this exposure by $13,000.

Market price protection of a different sort was givenby Maricor Technologies, Inc. under the terms of the sale of the MTI assets toHCI on April 13, 2007.  Under thisagreement, HCI converted its remaining 6,500 preferred shares to 26,000 commonshares on that date.  If MAM’s stockprice is less than $25 on March 31, 2008, HCI is entitled to additional sharesof common stock.

(d)         The Company’s unregulatedreal estate development and investment subsidiary, Maricor Properties Ltd, andits subsidiaries, Cornwallis Court Developments Ltd and Mecel Properties Ltd,are subject to certain risks and uncertainties including, but not necessarilylimited to interest rate risks associated with variable interest rates, shiftsin local real estate market conditions; market-based competition; the inabilityto fully lease rental properties; facility performance related to unforeseen orunknown structural, mechanical and/or electrical systems failures; unexpectedincreases in property rehabilitation costs; new government regulations; andtenant credit and default risks.

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

1.                        Evaluationof disclosure controls and procedures.

The Company’s Management, including the Company’sChief Executive Officer, and Chief Financial Officer, are responsible forestablishing and maintaining disclosure controls and procedures for the Companyand its subsidiaries.  Management hasdesigned such controls and procedures to (a) give reasonable assurance that theinformation required to be disclosed by the Company in reports that it filesunder the Exchange Act is recorded, processed, summarized and reported withinthe time periods specified in the rules and forms of the SEC, and (b) ensurethat such information is accumulated and communicated to Management to allowtimely decisions regarding required disclosure. Management evaluated the Company’s disclosure controls and procedures asof the end of the period covered by this quarterly report.  Based on the evaluation, the aforementionedofficers concluded that the Company’s disclosure controls and procedures areworking effectively.

2.                     Changesin Internal Controls over Financial Reporting

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

As anon-accelerated filer, the Company is evaluating actions necessary to complywith Section 404 of The Sarbanes-Oxley Act with respect to its internal controlover financial reporting.

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**The Company continues to assess the internalcontrol environment, control designs and operating effectiveness, to ensure nosignificant deficiencies or material weaknesses exist.   The Company also continues to monitor thepotential changes to the requirements of the Act for non-accelerated filers.**

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**PART II. OTHER INFORMATION**

***Item 1. LegalProceedings***

**LegalProceedings**

**Surplec, Inc.**

On April 30, 2007, Surplec, Inc., (“Surplec”), the supplier of atransformer for a substation constructed by MPS in connection with a 42 MW windproject owned by Evergreen Wind Power, LLC, brought suit against MPS, UPC Wind Management LLC, and Evergreen Wind Power,LLC, (collectively “Defendants”) in the United States District Court Districtof Maine, (located in Bangor, Maine) seeking collection of  approximately $227,795 it claims is stillowed for the transformer, plus interest, attorney fees and punitive damages ina stated amount.  MPS had contracted withSurplec to purchase a 30/40/50 MVA Transformer (“the Transformer”).  Surplec alleged that MPS breached thecontract and comitted fraud by failing to pay Surplec the third and finalinstallment and shipping charges for the Transformer and Defendants’ use of theTransformer constitutes conversion.  MPShas denied these allegations.

On June 21, 2007, MPS filed a Counterclaim against Surplec seeking anaward of $199,000 (the amount MPS has already paid for the Transformer) as wellas consequential and incidental damages. MPS alleged that Surplec failed to deliver the Transformer by the dateindicated in the Contract and that the Transformer delivered was defective andnonconforming.

MPS has previously collected from Evergreen approximately $200,000 thatwould have been paid to Surplec had Surplec complied with its contractualobligations.  MPS will continue to holdthis amount pending the outcome of this litigation.  MPS has recorded this amount under “MiscellaneousLiabilities” pending the outcome of this litigation. MPS believes that theclaims for attorney fees and punitive damages are without merit under Mainelaw, and in any event such damages are not susceptible to estimation.  MPS will vigorously defend against the claimsmade by Surplec and will continue to pursue its counter claims against thesupplier.  MPS cannot predict the outcomeof this litigation but is reasonably confident that it will prevail.  To this end, MPS anticipates seekingdismissal of Surplec’s claims for attorney fees and punitive damages.

**RegulatoryMatters**

**Notice ofInquiry Regarding Allowance of Electric Utilities in Maine to Reenter EnergySupply Business**

On July 25, 2007, the Maine Public Utilities Commission issued a Noticeof Inquiry (“NOI”) regarding the reentry of electric utilities into the energysupply business. The NOI was issued based on a State of Maine LegislativeResolve that directs the MPUC to undertake a review of the issues involved withtransmission and distribution (“T&D”) utilities entering the energy supplybusiness.  The Resolve specifies that for purposes of the review, “energysupply business” includes owning, operating or having an interest in electricgeneration facilities, load management activities or demand-side managementactivities.  The Resolve requires that the MPUC submit a report containingits findings and recommendations for further action and legislation toimplement its recommendations to the Joint Standing Committee on Utilities andEnergy no later than January 15, 2008.  The MPUC initiated this Inquiry toobtain information, viewpoints and recommendations from interested persons onthe issues raised in the Resolve. MPS will actively participate in the NOIprocess.

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

Per agreement with the Maine Public UtilitiesCommission, the new transmission rates for retail customers were put intoretail rates on July 1, 2007.  Theserates were approved by the MPUC on June 27, 2007. Per this filing, the DSM milrate was increased by 16.7%, or approximately $110,000, and the retailtransmission rate was increased by 10.2%, or approximately $345,000.

**Federal Energy Regulatory Commission2007 Open Access Transmission Tariff Formula Rate Filing**

On May 21, 2007, MPS filed its updated rates under the2007 Open Access Transmission Tariff (“OATT”) formula pursuant to DocketER00-1053 for both wholesale and retail customers. The revenue increases wereapproximately $54,000 and $345,000, respectively. These new transmission ratesare subject to a customer refund that may occur as a result of the proceedingand potential settlement negotiations.

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**Stakeholder Initiative Regarding theCompetitiveness and Reliability of the Northern Maine Power Grid**

In November 2006, the MPUCissued an Order in the Docket opened for the purpose of selecting a newstandard offer provider for the Company’s service territory for the periodbeginning January 1, 2007.  Thethen-existing Standard Offer arrangement was due to expire on December 31,2006.  The MPUC’s November 16, 2006,Order stated that it had received two bids from a single supplier.  Based on this, the MPUC concluded thatnorthern Maine lacked a competitive power market and directed the Company tofurnish default Standard Offer Service for the fourteen-month period beginningJanuary 1, 2007.  On December 18, 2006,the MPUC granted reconsideration of its November 16, 2006, Order and awardedthe Standard Offer contract to WPS Energy, Inc. (now known as Integrys EnergyServices, Inc.), the incumbent supplier.

As a result of the MPUC’sdetermination regarding the absence of a competitive power market, and also inan effort to deal with the system reliability issues raised by the Company’sunsuccessful bid to secure a certificate for the construction of a newtransmission line, the MPUC held a three-day stakeholders conference inmid-December 2006, in an attempt to resolve, on a collaborative basis, theissues raised in these cases.  As aresult of this effort, two parallel initiatives have been launched:

(a)  the stakeholders were asked todevelop a protocol allowing for the possibility of generation suppliersobtaining long-term power delivery commitments through the Standard Offerprocess and not through the Company. This could encourage the construction of new generation in the Company’sservice territory, and/or secure the availability of existing on-systemgenerating sources on a long-term (multi-year) basis.  The Company cannot at this time predictwhether all of the stakeholders will reach agreement on any such protocolinitiative, or whether it will be finalized and accepted by the MPUC;

(b)  the stakeholders were asked toaddress the feasibility of one or more proposals for transmission projectsinterconnecting the northern Maine grid with the ISO New England grid, possiblyby means of a tap into the MEPCO 345 kV transmission line that connects thehigh voltage systems of Maine and New Brunswick, Canada.

The Company, in early 2007,announced that it has joined with Central Maine Power Company in an effort todetermine the feasibility of such a line.

***Item 1A.  Risk Factors***

The Risk Factors identifiedin Item 1A. of MAM’s 2006 Form 10-K are incorporated herein by reference.  The following risk factors include new riskfactors identified during the quarter, as well as risk factors that havechanged materially since year-end.

***Liquidity and Capital Formation Risk***

MAM’scurrent liabilities of $17.5 million as of June 30, 2007, exceed its currentassets of $15.2 million by $2.3 million, exposing MAM to liquidity concerns inthe upcoming year.   Of these currentliabilities, $6.0 million represents short-term borrowings, including the MPSline of credit with Bank of America.  MAMhas taken steps to mitigate this short-term risk before and after year-end,including identification of options to reduce or defer costs.  Based on these steps and current financialprojections, MAM has sufficient cash flow to meet its obligations for theforeseeable future.

Inthe mid-to-long-term, Management expects MAM’s cash flow to significantlyimprove, with MPS’s recovery of deferred fuel costs currently deferred byMPS.  Until 2007, the cash expendituresfor deferred fuel exceeded the recovery of stranded costs.  With the expiration of theWheelabrator-Sherman contract in December 2006, this position has reversed, andrecovery of stranded costs is exceeding the cash outflows.  These stranded cost free cash flows are beingused, in part, to retire debt and pay for capital expenditures.

***Equity Price Risk***

The Maricor Group and its subsidiaries incurred equityprice risk when it bought the stock of certain of its subsidiaries.  Part of the consideration was MAM stock.  In the event that the price of MAM commonstock was below a specified price when the seller wished to dispose of it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference.  There were 12,603 shares outstanding pursuantto this kind of agreement at June 30, 2007. At a market price of $26.85 per share at June 30, 2007, the totalexposure is approximately $180,000.  A $1increase in MAM’s share price would decrease this exposure by approximately$13,000.  A $1 decrease in MAM’s share pricewould increase this exposure by $13,000.

***Divestiture of The Maricor GroupNew England, Inc.***

The Maricor Group New England, Inc., a wholly ownedsubsidiary of The Maricor Group, is currently being held for sale as well astransitioning longer term contracts to other providers.  During this process, transitions of somecontracts may 

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require additionalpayments to accommodate their transition. In addition, costs associated with terminating obligations ortransitioning contracts in progress may require additional loss accruals.  MAM is taking every precaution to facilitatesmooth contract transitions for customers, while minimizing our legalliabilities.

***Divestiture of MaricorTechnologies, Inc.***

Withthe divestiture of substantially all of the assets of MTI, the franchise andcompetition risks associated with unregulated software technology disclosed inMAM’s 2006 Form 10-K are eliminated.  Therisks associated with technological obsolescence are also significantly reducedas a result of this divestiture.

***Item 2. Unregistered Sales ofEquity Securities and Use of Proceeds***

None.

***Item 3. Defaults upon SeniorSecurities***

None

***Item 4. Submission of Matters toa Vote of Security Holders***

At the2007 Annual Meeting of the Stockholders of Maine & Maritimes Corporationheld on May 8, 2007, two matters were voted upon.

Firstwas the uncontested election of the following directors for terms ending in2010, with the following result:
|                    | ** ** | ** ** | ** ** | ** **   | ** ** | **Total Shares** | ** ** |
|--------------------|------------|------------|------------|--------------|------------|-----------------------|------------|
| ** **         | ** ** | **For**    | ** ** | **Withheld** | ** ** | **Voted**             | ** ** |
| Richard G.  Daigle |       | 1,332,205  |       | 75,170       |       | 1,407,375             |       |
| David N. Felch     |       | 1,339,111  |       | 68,264       |       | 1,407,375             |       |
| Brian N. Hamel     |       | 1,339,180  |       | 68,195       |       | 1,407,375             |       |

 

Second,shareholders were asked to approve the ratification of the appointment ofVitale, Caturano & Company as the Company’s independent auditors for thefiscal year ending December 31, 2007, as appointed by the Board of Directors.
|                    | ** ** | **Ratification of**                          | ** ** |
|--------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **Vitale, Caturano & Company** | ** ** |
| For                |       | 1,343,148                                         |       |
| Against            |       | 23,900                                            |       |
| Abstentions        |       | 40,327                                            |       |
| Total Shares Voted |       | 1,407,375                                         |       |

 

***Item 5. Other Information***

None

***Item 6. Exhibits***

The following exhibits areattached:

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

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

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SIGNATURE

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

MAINE & MARITIMES CORPORATION

(Registrant)

Date:  August 10,2007
| /s/  Randi J. Arthurs         |   |
|-------------------------------|--------|
| Randi J. Arthurs              |
| Vice President and Controller |

 

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