**UNITED STATESSECURITIES 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, 2006**

**- 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 check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90days. 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 the close of the period covered by this report.

CommonStock, $7.00 par value – 1,637,643 shares

 

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**Glossaryof Terms**
| AMEX       |   | American Stock Exchange                                  |
|------------|--------|----------------------------------------------------------|
| APB        |   | Accounting Principles Board                              |
| Ashford    |   | Ashford Investments, Ltd                                 |
| AWE        |   | Aroostook Wind Energy Company, LLC                       |
| CES        |   | Competitive Energy Supplier                              |
| CMMS       |   | Computerized Maintenance Management System               |
| Cornwallis |   | Cornwallis Court Developments, Inc.                      |
| CPCN       |   | Certificate of Public Convenience and Necessity          |
| DSM        |   | Demand-Side Management                                   |
| EA         |   | Energy Atlantic, LLC                                     |
| Eastcan    |   | Eastcan Consulting Engineers                             |
| EBIT       |   | Earnings Before Interest and Taxes                       |
| FAME       |   | Finance Authority of Maine                               |
| FASB       |   | Financial Accounting Standards Board                     |
| FERC       |   | Federal Energy Regulatory Commission                     |
| FIN        |   | FASB Interpretation Number                               |
| Kwh        |   | Kilowatt hours                                           |
| LEEDTM |   | Leadership in Energy and Environmental Design            |
| LIBOR      |   | London InterBank Offered Rate                            |
| MAM        |   | Maine & Maritimes Corporation                        |
| M&R    |   | Morris & Richards Consulting Engineers               |
| 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                                            |
| NMISA      |   | Northern Maine Independent System Administrator          |
| OATT       |   | Open Access Transmission Tariff                          |
| OCI        |   | Other Comprehensive Income                               |
| Pace       |   | Pace Engineering Limited                                 |
| PCB        |   | Poly Chlorinated Bi-phenol                               |
| PPA        |   | Power Purchase Agreement                                 |
| PUHCA      |   | Public Utilities Holding Company Act                     |
| RES        |   | RES Engineering, Inc.                                    |
| SAB        |   | Staff Accounting Bulletin                                |
| Sarbox     |   | Sarbanes-Oxley Act of 2002                               |
| SEC        |   | Securities and Exchange Commission                       |
| SFAS       |   | Statement of Financial Accounting Standards              |
| SOS        |   | Standard Offer Service                                   |
| TMG        |   | The Maricor Group                                        |
| TMGC       |   | The Maricor Group, Canada Ltd                            |
| TMGNE      |   | The Maricor Group New England                            |
| WPS-PDI    |   | WPS-Power Development, Inc.                              |
| WS         |   | Wheelabrator-Sherman                                     |

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**PART 1.FINANCIAL INFORMATION**

***Item 1. FinancialStatements***

Thisitem contains Consolidated Financial Statements for Maine & MaritimesCorporation (“MAM” or the “Company”) and its Subsidiaries, including (1) anunaudited statement of consolidated operations for the quarter and six monthsended June 30, 2006, and for the corresponding periods of the preceding year;(2) an unaudited consolidated balance sheet as of June 30, 2006; (3) a consolidatedbalance sheet as of December 31, 2005, the end of MAM’s preceding fiscal year,as adjusted for the change in reporting entity described in Note 9; (4) anunaudited statement of consolidated cash flows for the period January 1(beginning of the fiscal year) through June 30, 2006, and for the correspondingperiod of the preceding year; and (5) an unaudited statement of consolidatedshareholders’ equity for the period January 1 (beginning of the fiscal year)through June 30, 2006.

In theopinion of Management, the accompanying unaudited consolidated financialstatements present fairly the financial position of the Company and itsSubsidiaries at June 30, 2006, and December 31, 2005; the results of theiroperations for the three and six months ended June 30, 2006 and 2005; and theircash flows for the six months ended June 30, 2006, and 2005.

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

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

2.                           EnergyAtlantic, LLC (“EA”), an inactive subsidiary;

3.                           TheMaricor Group (“TMG”) and its wholly-owned United States subsidiary The MaricorGroup New England (“TMGNE”) and TMG’s wholly-owned Canadian subsidiary TheMaricor Group, Canada Ltd (“TMGC”);

4.                           MaricorTechnologies, Inc. (“MTI”), a U.S. wholly-owned subsidiary.

MAM isalso a 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”).

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

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

·          Maine& Maritimes Corporation is a holding company incorporated in the state ofMaine, and is the ultimate parent company for all business segments.  MAM maintains investments in (a) a regulatedelectric transmission and distribution utility operating within the state ofMaine, United States, (b) facility engineering and solutions companiesproviding mechanical, electrical and plumbing/fire protection engineering,asset lifecycle management, energy efficiency, and asset development serviceswithin the United States and Canada, (c) a facilities asset governance,performance management, lifecycle management and sustainability 

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softwaredevelopment company in the United States, and (d) partial ownership (50%) ofCanadian real estate development and investment companies.  MAM is headquartered in Presque Isle, Maine.

·          TheMaricor Group is a facilities engineering and solutions company providingmechanical, electrical and plumbing/fire protection engineering consultingdesign services, energy efficiency solutions, energy asset development,facilities condition assessments and capital planning solutions, lifecycleasset management solutions, and emissions reduction services focusing onsustainability and Leadership in Energy and Environmental Design (“LEED”TM).  The Maricor Group operates primarily withinthe New England region of the United States and the eastern Canadian provinces,particularly Atlantic Canada.  During thelast year TMG has begun to expand its area of service to include all ofCanada.  TMG was formed in November 2003,and is headquartered in Presque Isle, Maine, with offices in Hudson and Boston,Massachusetts; Moncton and Saint John, New Brunswick; and Halifax, Nova Scotia.

·          TheMaricor Group New England is the New England subsidiary of The Maricor Groupoffering its parent company’s defined services primarily within New England,particularly the Commonwealth of Massachusetts with offices in Hudson andBoston, Massachusetts.  TMGNE, formerlyRES Engineering, Inc., was acquired by TMG on June 15, 2004.

·          TheMaricor Group, Canada Ltd is the Canadian subsidiary of The Maricor Groupoffering its parent company’s defined services primarily within the easternCanadian provinces, particularly Atlantic Canada. Headquartered in Moncton, NewBrunswick, it maintains offices in Saint John, New Brunswick, as well asHalifax, Nova Scotia.  TMGC acquired itsfirst mechanical and electrical engineering services company, EastcanConsultants, Inc., (“Eastcan”) on December 1, 2003.  On June 1, 2004, TMGC acquired Morris &Richards Consulting Engineers (“M&R”). On May 12, 2006, TMGC acquired Pace Engineering Limited (“Pace”), anelectrical engineering firm.  All ofthese companies are now operating divisions of TMGC.

·          MaricorProperties Ltd, partially owned by MAM, is a Canadian real estate development,redevelopment and investment company focused on sustainable development and “smartgrowth” principles within second and third tier Canadian markets emphasizingthe development and revitalization of downtowns and existing suburbs.  It seeks to develop or invest in public andprivate facility projects involving the renewal or development of buildinginfrastructure within revitalization districts promoting renewal of existing areas,thus negating the need for extension of additional infrastructure and promotionof sprawl. It utilizes the services of The Maricor Group in its development andredevelopment projects. Maricor Properties Ltd was organized on May 28, 2004,in Nova Scotia, Canada.  On June 30,2006, 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 and provides managementservices to Maricor Properties and its subsidiaries.

·          MecelProperties Ltd is a Canadian subsidiary of Maricor Properties Ltd and currentlyowns the office building housing the Halifax, Nova Scotia operating division ofThe Maricor Group, Canada Ltd.  It wasacquired by Maricor Properties on June 1, 2004, in conjunction with theacquisition of M&R by TMGC.  Theterms of the sale of stock of Maricor Properties to Ashford included certainprovisions related to Mecel.  A 120- dayperiod beginning at the time of the closing of this transaction has been setaside to either gain necessary approvals to sell one-half interest in Mecel toAshford for additional compensation or to transfer ownership of Mecel to Maine& Maritimes Corporation or another one of its entities.  As part of the shareholders agreement, MAMhas indemnified Ashford against a guarantee by Mecel Properties for a Maine& Maritimes Corporation term loan of $1.7 million with Bank of America,described in Note 5.  Ashford Properties,a subsidiary of Ashford Investments Inc., provides property management servicesfor all properties owned by Maricor Properties and its subsidiaries, includingMecel.

·          CornwallisCourt Developments Ltd is a wholly-owned Canadian subsidiary of MaricorProperties, acquired on October 7, 2005. Cornwallis currently owns and operates the J. Angus MacDonald Buildinglocated in Halifax, Nova Scotia, Canada.

·          MaricorTechnologies, Inc., formed on February 14, 2005, develops informationtechnology and software products for sustainable governance of facilities,infrastructure and buildings.  OnFebruary 14, 2005, it purchased, through a three-way transaction, the “StrategicAsset Management” software technology assets of Delinea Corporation of Dallas,Texas, which were formerly owned by HCI Systems Assets Management, LLC.The Maricor Group, which owns a channel market license for certain AtlanticCanadian and New England markets and vertical sectors, utilizes the software inthe delivery of its sustainable asset management services.  MTI markets its products throughout NorthAmerica and is headquartered in Presque Isle, Maine, with an office inPortland, Maine.

MaricorTechnologies’ software products currently include “iPlanTM” and “BuildingBlocksTM.”  iPlanTM is a web-based softwaretool serving the facility capital planning, facility performance management andfacility stakeholder reporting needs of organizations in need of enhancingtheir asset management capabilities.  Itintegrates with enterprise systems to support technically driven capitalplanning, project management and budgeting processes enabling or supporting (a)lifecycle capital planning and forecasting, (b) capital funds management, (c)capital performance management, (d) stakeholder reporting, (e) energyefficiency and emissions analysis, (f) energy assessments and related capitalplanning, (g) security assessments and 

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relatedcapital planning, and (h) facility condition assessment and related capitalplanning.  Building BlocksTM is aproactive computerized maintenance management system (“CMMS”) software solutionfor managing both the total lifecycle of assets and the daily operation offacilities.

•            MainePublic Service Company is a regulated electric transmission and distributionutility serving all of Aroostook County and a portion of Penobscot County innorthern Maine. Since March 1, 2000, the date retail electric competition inMaine commenced, customers in MPS’s service territory have been purchasingenergy from suppliers other than MPS. This energy comes from CompetitiveElectricity Suppliers (“CES”) or, if customers are unable or do not wish tochoose a competitive supplier, the Standard Offer Service (“SOS”) provider. SOSproviders are determined through a bid process conducted by the Maine PublicUtilities Commission (“MPUC”).  MPSprovides the transportation through its transmission and distribution wiresinfrastructure.  Its service area coversapproximately 3,600 square miles, with a population of 72,000.  The utility is regulated by the FederalEnergy Regulatory Commission (“FERC”) and the MPUC. MPS is headquartered inPresque Isle, Maine.

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

•            Maine& New Brunswick Electrical Power Company, Ltd is an inactive Canadiansubsidiary of MPS, which, prior to deregulation and generation divestiture,owned MPS’s Canadian electric generation assets. Me&NB was incorporated in1903 under the laws of the Province of New Brunswick, Canada.

•            EnergyAtlantic, LLC is a licensed, but currently inactive, CES of retail electricity,and is classified as a discontinued operation in the consolidated financialstatements.

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MAINE & MARITIMES CORPORATION AND SUBSIDIARIES

**Statementsof Consolidated Operations** (Unaudited)
| ** **                                                                                                     | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                                                     | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars except shares and per share amounts)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Operating Revenues**                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Regulated                                                                                                      |       | $                                | 7,414      |                           | $          | 7,073 |   | $ | 17,465 |   | $ | 17,387 |   |
| Unregulated                                                                                                    |       | 1,842                            |       | 1,422                          |       | 3,505 |   | 2,842 |   |
| **Total  Revenues**                                                                                            |       | 9,256                            |       | 8,495                          |       | 20,970 |   | 20,229 |   |
| **Operating Expenses**                                                                                         |       |                             |       |                           |       |   |   |   |   |
| Regulated  Operation & Maintenance                                                                         |       | 3,497                            |       | 3,751                          |       | 7,228 |   | 7,104 |   |
| Unregulated  Operation & Maintenance                                                                       |       | 2,237                            |       | 2,070                          |       | 4,527 |   | 4,006 |   |
| Depreciation                                                                                                   |       | 793                              |       | 716                            |       | 1,563 |   | 1,423 |   |
| Amortization of  Stranded Costs                                                                                |       | 2,568                            |       | 2,576                          |       | 5,378 |   | 5,362 |   |
| Amortization                                                                                                   |       | 44                               |       | 123                            |       | 236 |   | 230 |   |
| Taxes Other Than  Income                                                                                       |       | 461                              |       | 453                            |       | 994 |   | 928 |   |
| Provision for  (Benefit of) Income Taxes—Regulated                                                        |       | 43                               |       | (298                           | )          | 793 |   | 780 |   |
| Benefit of  Income Taxes—Unregulated                                                                      |       | (335                             | )          | (334                           | )          | (795 | ) | (587 | ) |
| **Total  Operating Expenses**                                                                                  |       | 9,308                            |       | 9,057                          |       | 19,924 |   | 19,246 |   |
| **Operating (Loss) Income**                                                                                    |       | (52                              | )          | (562                           | )          | 1,046 |   | 983 |   |
| **Other Income (Deductions)**                                                                                  |       |                             |       |                           |       |   |   |   |   |
| Equity in (Loss)  Income of Associated Companies                                                               |       | (7                               | )          | 39                             |       | (15 | ) | 88 |   |
| Realized Gain on  Sale of Stock of Maricor Properties Ltd                                                      |       | 429                              |       | —                         |       | 429 |   | — |   |
| Interest and  Dividend Income                                                                                  |       | 4                                |       | 7                              |       | 10 |   | 14 |   |
| Allowance for  Equity Funds Used During Construction                                                           |       | 2                                |       | 5                              |       | 3 |   | 9 |   |
| Provision for  Income Taxes                                                                                    |       | (172                             | )          | (1                             | )          | (194 | ) | (1 | ) |
| Other—Net                                                                                                 |       | (17                              | )          | 30                             |       | (79 | ) | (1 | ) |
| **Total**                                                                                                      |       | 239                              |       | 80                             |       | 154 |   | 109 |   |
| **Income (Loss) Before Interest  Charges**                                                                     |       | 187                              |       | (482                           | )          | 1,200 |   | 1,092 |   |
| **Interest Charges**                                                                                           |       |                             |       |                           |       |   |   |   |   |
| Long-Term Debt  and Notes Payable                                                                              |       | 914                              |       | 665                            |       | 1,795 |   | 1,312 |   |
| Less Stranded  Costs Carrying Charge                                                                           |       | (414                             | )          | (349                           | )          | (815 | ) | (691 | ) |
| Less Allowance  for Borrowed Funds Used During Construction                                                    |       | (1                               | )          | (3                             | )          | (1 | ) | (3 | ) |
| **Total**                                                                                                      |       | 499                              |       | 313                            |       | 979 |   | 618 |   |
| **Net (Loss) Income from  Continuing Operations**                                                              |       | (312                             | )          | (795                           | )          | 221 |   | 474 |   |
| **Discontinued Operations**                                                                                    |       |                             |       |                           |       |   |   |   |   |
| **Income  (Loss) from Discontinued Operations**                                                                |       | 2                                |       | (5                             | )          | 2 |   | 8 |   |
| **Income  Tax Benefit (Provision)**                                                                            |       | —                           |       | 2                              |       | — |   | (3 | ) |
| **Income (Loss) from Discontinued  Operations**                                                                |       | 2                                |       | (3                             | )          | 2 |   | 5 |   |
|                                                                                                           |       |                             |       |                           |       |   |   |   |   |
| **Net (Loss) Income Available for  Common Stockholders**                                                       |       | $                                | (310       | )                              | $          | (798 | ) | $ | 223 |   | $ | 479 |   |
|                                                                                                           |       |                             |       |                           |       |   |   |   |   |
| **Average Shares of Common Stock  Outstanding**                                                                |       | 1,637,643                        |       | 1,636,167                      |       | 1,637,427 |   | 1,636,037 |   |
|                                                                                                           |       |                             |       |                           |       |   |   |   |   |
| **Basic (Loss) Earnings Per Share  of Common Stock From Continuing Operations**                                |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.14 |   | $ | 0.29 |   |
| **Basic Earnings (Loss) Per Share  of Common Stock From Discontinued Operations**                              |       | —                           |       | —                         |       | — |   | — |   |
| **Basic (Loss) Earnings Per Share  of Common Stock From Net Income**                                           |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.14 |   | $ | 0.29 |   |
| **Diluted (Loss) Earnings Per  Share of Common Stock From Continuing Operations**                              |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.13 |   | $ | 0.29 |   |
| **Diluted Earnings (Loss) Per  Share of Common Stock From Discontinued Operations**                            |       | —                           |       | —                         |       | — |   | — |   |
| **Diluted (Loss) Earnings Per Share of Common  Stock From Net Income**                                         |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.13 |   | $ | 0.29 |   |

 

See Notes to ConsolidatedFinancial Statements

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIES**

**Statementsof Consolidated Cash Flows** (Unaudited)
| ** **                                                               | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                               | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**                             | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| **Cash Flow From Operating  Activities**                                 |       |                           |       |   |   |
| Net Income                                                               |       | $                              | 223        |   | $ | 479 |   |
| Adjustments to  Reconcile Net Income to Net Cash Provided by Operations: |       |                           |       |   |   |
| Gain from Sale  of Stock of Subsidiary                                   |       | (429                           | )          | — |   |
| Depreciation                                                             |       | 1,563                          |       | 1,423 |   |
| Amortization                                                             |       | 194                            |       | 744 |   |
| Deferred Income  Taxes—Net                                          |       | 639                            |       | 21 |   |
| Change in  Deferred Regulatory and Debt Issuance Costs                   |       | (2,430                         | )          | (2,183 | ) |
| Amortization of  W/S Upfront Payment                                     |       | 725                            |       | 760 |   |
| Change in  Benefit Obligations                                           |       | 291                            |       | 457 |   |
| Change in  Current Assets and Liabilities:                               |       |                           |       |   |   |
| Accounts  Receivable and Unbilled Revenue                                |       | 1,672                          |       | 1,667 |   |
| Other Current  Assets                                                    |       | (293                           | )          | 269 |   |
| Accounts Payable                                                         |       | (106                           | )          | (1,409 | ) |
| Other Current  Liabilities                                               |       | 110                            |       | (324 | ) |
| Other—Net                                                           |       | (73                            | )          | (286 | ) |
| **Net Cash Flow Provided By  Operating Activities**                      |       | 2,086                          |       | 1,618 |   |
| **Cash Flow From Financing  Activities**                                 |       |                           |       |   |   |
| Dividend  Payments                                                       |       | —                         |       | (818 | ) |
| Retirements of  Long-Term Debt                                           |       | (1,282                         | )          | (1,090 | ) |
| Short-Term  Borrowings, Net                                              |       | 943                            |       | 2,387 |   |
| **Net Cash Flow (Used For)  Provided By Financing Activities**           |       | (339                           | )          | 479 |   |
| **Cash Flow From Investing  Activities**                                 |       |                           |       |   |   |
| Gain from Sale  of Stock of Subsidiary                                   |       | 429                            |       | — |   |
| Stock Redemption  from Associated Company                                |       | 200                            |       | 350 |   |
| Cash Paid for  Stock Contingencies from Acquisition Agreements           |       | (244                           | )          | — |   |
| Acquisitions,  Net of Cash Acquired                                      |       | (123                           | )          | (585 | ) |
| Change in  Restricted Investments                                        |       | (3                             | )          | 531 |   |
| Investment in  Fixed Assets                                              |       | (2,416                         | )          | (2,999 | ) |
| **Net Cash Flow Used For  Investing Activities**                         |       | (2,157                         | )          | (2,703 | ) |
| **Decrease in Cash and Cash  Equivalents**                               |       | (410                           | )          | (606 | ) |
| **Cash and Cash Equivalents at  Beginning of Period**                    |       | 781                            |       | 1,193 |   |
| **Cash and Cash Equivalents at  End of Period**                          |       | $                              | 371        |   | $ | 587 |   |
| **Supplemental Disclosure of Cash  Flow Information:**                   |       |                           |       |   |   |
| **Cash Paid During the Period  for:**                                    |       |                           |       |   |   |
| Interest                                                                 |       | $                              | 1,706      |   | $ | 1,299 |   |
| Income Taxes                                                             |       | $                              | 52         |   | $ | 4 |   |
| **Non-Cash Investing Activities:**                                       |       |                           |       |   |   |
| Value of  Preferred Stock Issued for Acquisition                         |       | $                              | —     |   | $ | 950 |   |

 

See Notes to ConsolidatedFinancial Statements

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIES**

**ConsolidatedBalance Sheets** (Unaudited)
| ** **                                                                                         | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands of dollars)**                                                       | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **ASSETS**                                                                                         |       |              |       |                  |       |
| **Plant:**                                                                                         |       |              |       |                  |       |
| Electric Plant  in Service                                                                         |       | 99,481            |       | $                     | 98,998     |   |
| Non-Utility  Plant                                                                                 |       | 2,893             |       | 2,664                 |       |
| Less Accumulated  Depreciation                                                                     |       | (41,830           | )          | (40,683               | )          |
| Net Plant in  Service                                                                              |       | 60,544            |       | 60,979                |       |
| Construction  Work-in-Progress                                                                     |       | 1,998             |       | 1,883                 |       |
| Total                                                                                              |       | 62,542            |       | 62,862                |       |
|                                                                                               |       |              |       |                  |       |
| **Investment in Associated  Companies**                                                            |       | 1,907             |       | 1,956                 |       |
| **Net Plant and Investments in  Associated Companies**                                             |       | 64,449            |       | 64,818                |       |
|                                                                                               |       |              |       |                  |       |
| **Current Assets:**                                                                                |       |              |       |                  |       |
| Cash and Cash  Equivalents                                                                         |       | 371               |       | 587                   |       |
|                                                                                               |       |              |       |                  |       |
| Accounts  Receivable (less allowance for uncollectible accounts of $366 in 2006 and  $372 in 2005) |       | 6,377             |       | 7,950                 |       |
| Accounts  Receivable from Associated Companies                                                     |       | 1,210             |       | 604                   |       |
| Unbilled Utility  Revenue                                                                          |       | 663               |       | 1,071                 |       |
| Inventory                                                                                          |       | 680               |       | 600                   |       |
| Income Tax  Refund Receivable                                                                      |       | 287               |       | 765                   |       |
| Prepayments                                                                                        |       | 301               |       | 431                   |       |
| Unbilled  Contract Revenue                                                                         |       | 1,155             |       | 816                   |       |
| Total                                                                                              |       | 11,044            |       | 12,824                |       |
| **Regulatory Assets:**                                                                             |       |              |       |                  |       |
| Uncollected  Maine Yankee Decommissioning Costs                                                    |       | 9,267             |       | 10,795                |       |
| Recoverable  Seabrook Costs                                                                        |       | 11,114            |       | 11,669                |       |
| Regulatory  Assets—Deferred Income Taxes                                                      |       | 5,727             |       | 5,794                 |       |
| Regulatory  Assets—Post-Retirement Medical Benefits                                           |       | 103               |       | 115                   |       |
| Deferred Fuel  and Purchased Energy Costs                                                          |       | 32,209            |       | 29,906                |       |
| Regulatory  Asset—Power Purchase Agreement Restructuring                                      |       | 725               |       | 1,451                 |       |
| Unamortized  Premium on Early Retirement of Debt                                                   |       | 1,204             |       | 1,308                 |       |
| Other Deferred  Regulatory Costs                                                                   |       | 1,743             |       | 1,334                 |       |
| Total                                                                                              |       | 62,092            |       | 62,372                |       |
| **Other Assets:**                                                                                  |       |              |       |                  |       |
| Intangible  Assets (net of accumulated amortization of $343 in 2006 and $284 in 2005)              |       | 134               |       | 103                   |       |
| Goodwill                                                                                           |       | 6,899             |       | 6,374                 |       |
| Unamortized Debt  Issuance Costs                                                                   |       | 632               |       | 410                   |       |
| Restricted  Investment (at cost, which approximates market)                                        |       | 2,455             |       | 2,453                 |       |
| Miscellaneous                                                                                      |       | 1,465             |       | 1,119                 |       |
| Total                                                                                              |       | 11,585            |       | 10,459                |       |
| **Total Assets**                                                                                   |       | $                 | 149,170    |                  | $          | 150,473 |   |
|                                                                                                    |            |                   |            |                       |            |  |  |

 

See Notes to ConsolidatedFinancial Statements

8

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**MAINE & MARITIMES CORPORATION ANDSUBSIDIARIES**

**Capitalizationand Liabilities** (Unaudited)
| ** **                                                       | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands of dollars)**                     | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| **Capitalization:**                                              |       |              |       |                  |       |
| Shareholders’  Equity *(see accompanying statements)*       |       | $                 | 48,475     |                  | $          | 47,786 |   |
| Long-Term Debt                                                   |       | 31,425            |       | 32,725                |       |
| Total                                                            |       | 79,900            |       | 80,511                |       |
| **Current Liabilities:**                                         |       |              |       |                  |       |
| Long-Term Debt  Due Within One Year                              |       | 2,540             |       | 2,430                 |       |
| Notes Payable to  Banks                                          |       | 11,145            |       | 10,400                |       |
| Accounts Payable                                                 |       | 3,885             |       | 4,016                 |       |
| Accounts  Payable—Associated Companies                      |       | 250               |       | 250                   |       |
| Accrued Employee  Benefits                                       |       | 1,469             |       | 1,433                 |       |
| Customer Deposits                                                |       | 58                |       | 36                    |       |
| Interest Accrued                                                 |       | 235               |       | 125                   |       |
| Deferred  Contract Revenue                                       |       | 115               |       | 132                   |       |
| Total                                                            |       | 19,697            |       | 18,822                |       |
| **Deferred Credits and Other  Liabilities:**                     |       |              |       |                  |       |
| Accrued Removal  Obligations                                     |       | 5,408             |       | 5,683                 |       |
| Carrying Value  of Interest Rate Hedge                           |       | 413               |       | 1,387                 |       |
| Uncollected  Maine Yankee Decommissioning Costs                  |       | 9,267             |       | 10,795                |       |
| Other Regulatory  Liabilities                                    |       | 383               |       | 458                   |       |
| Deferred Income  Taxes                                           |       | 28,102            |       | 27,270                |       |
| Accrued  Post-retirement Benefits and Pension Costs              |       | 4,935             |       | 4,655                 |       |
| Investment Tax  Credits                                          |       | 94                |       | 106                   |       |
| Miscellaneous                                                    |       | 971               |       | 786                   |       |
| Total                                                            |       | 49,573            |       | 51,140                |       |
| **Commitments, Contingencies, and  Regulatory Matters (Note 8)** |       |              |       |                  |       |
| **Total Capitalization and  Liabilities**                        |       | $                 | 149,170    |                  | $          | 150,473 |   |

 

See Notes to ConsolidatedFinancial Statements

9

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES****Statement of Consolidated Shareholders’Equity** (Unaudited)

***(In thousands of dollars, except share information)***
| ** **                                                                         | ** ** | **Shares Issued and** | ** ** | ** **    | ** ** | ** **         | ** ** | ** **  | ** ** | ** **         | ** ** | ** **  | ** ** | ** **   | ** ** | ** **                   | ** ** |
|------------------------------------------------------------------------------------|------------|---------------------------------|------------|---------------|------------|--------------------|------------|-------------|------------|--------------------|------------|-------------|------------|--------------|------------|------------------------------|------------|
| ** **                                                                         | ** ** | **Outstanding**                 | ** ** | **Common**    | ** ** | **Preferred**      | ** ** | ** **  | ** ** | **Accumulated**    | ** ** | ** **  | ** ** |
| ** **                                                                         | ** ** | ** **                      | ** ** | ** **    | ** ** | **Par Value** | ** ** | ** **  | ** ** | **Par Value** | ** ** | ** **  | ** ** | ** **   | ** ** | **Other Comprehensive** | ** ** | ** ** | ** ** |
| ** **                                                                         | ** ** | ** **                      | ** ** | ** **    | ** ** | **Issued**         | ** ** | **Paid-In** | ** ** | **Issued**         | ** ** | **Paid-In** | ** ** | **Retained** | ** ** | **Income**                   | ** ** | ** ** | ** ** |
| ** **                                                                         | ** ** | **Common**                      | ** ** | **Preferred** | ** ** | **($7/Share)**     | ** ** | **Capital** | ** ** | **($0.01/Share)**  | ** ** | **Capital** | ** ** | **Earnings** | ** ** | **(Loss)**                   | ** ** | **Total** | ** ** |
| **Balance, December 31, 2005**                                                     |       | 1,636,779                       |       | 9,500         |       | $                  | 11,458     |        | $          | 1,387              |       | $           | —     |         | $          | 950                          |       | $ | 34,187 |   | $ | (196 | ) | $ | 47,786 |   |
| Common Stock Issued                                                                |       | 864                             |       |          |       | 6                  |       | 7           |       |               |       |        |       |         |       |                         |       | 13 |   |
| Stock Contingency from Acquisitions                                                |       |                            |       |          |       |               |       | (244        | )          |               |       |        |       |         |       |                         |       | (244 | ) |
| Net Income                                                                         |       |                            |       |          |       |               |       |        |       |               |       |        |       | 223          |       |                         |       | 223 |   |
| Other Comprehensive Income  (Loss):                                                |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       |                         |       |   |   |
| Changes  in Value of Foreign Exchange Translation Gain Net of Tax Provision of $74 |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       | 111                          |       | 111 |   |
| Unrealized  Gain on Investments Available for Sale, Net of Tax Provision of $1     |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       | 2                            |       | 2 |   |
| Interest  Rate Hedge, Net of Tax Provision of $390                                 |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       | 584                          |       | 584 |   |
| Total  Other Comprehensive Income                                                  |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       |                         |       | 697 |   |
| Total Comprehensive  Income                                                        |       |                            |       |          |       |               |       |        |       |               |       |        |       |         |       |                         |       | 920 |   |
| **Balance, June 30, 2006**                                                         |       | 1,637,643                       |       | 9,500         |       | $                  | 11,464     |        | $          | 1,150              |       | $           | —     |         | $          | 950                          |       | $ | 34,410 |   | $ | 501 |   | $ | 48,475 |   |

 

MAM had five million shares of $7 par value commonstock authorized, with 1,637,643 and 1,636,779 shares issued and outstanding asof June 30, 2006, and December 31, 2005, respectively. At June 30, 2006, andDecember 31, 2005, MAM had 500,000 shares of $0.01 par value preferred stockauthorized, with 9,500 shares issued and outstanding.

See Notes to ConsolidatedFinancial Statements

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**NOTES TOCONSOLIDATED**

**FINANCIALSTATEMENTS**

**1.     ACCOUNTING POLICIES**

**Consolidation and Basisof Presentation**

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

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

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

3.               MaricorTechnologies, Inc. (“MTI”), a U.S. wholly-owned subsidiary; and

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

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

MAM is also a 50% ownerof Maricor Properties Ltd (“Maricor Properties”), a Canadian company formerlywholly-owned by MAM, and its wholly-owned Canadian subsidiaries, CornwallisCourt Developments Ltd (“Cornwallis”) and Mecel Properties Ltd (“Mecel”).  Maricor Properties is a 50% owner of MaricorAshford Ltd, a joint venture with Ashford Investments Ltd.

Allintercompany transactions between MAM and its direct and indirect subsidiarieshave been eliminated in consolidation.

**Accounting Policies**

Acomplete listing of accounting policies is available in MAM’s 2005 Form 10-K.

**Sales ofStock by a Subsidiary**

On June 30, 2006, Maricor Properties sold one share ofstock representing a 50% ownership interest to Ashford Investments Inc., makingAshford and MAM equal owners of the company. In accordance with SEC Staff Accounting Bulletin (“SAB”) 51, “*Accounting for Sales of Stock by a Subsidiary*,” the cashconsideration received in excess of MAM’s carrying value has been reflected asa gain in the consolidated financial statements, in the amount of $429,000, asnon-operating income.  This gain waspartially offset by the deferred income tax impact of $172,000.   Under the terms of SAB 51, future sales ofstock by a subsidiary would be required to be reported as a gain or loss,instead of as equity transactions, should any such transactions occur.

**Goodwill Impairment Analysis**

The Company’s business acquisitions may result ingoodwill and other intangible assets, which affect the amount of future periodamortization expense and possible impairment expense that the Company willincur. The Company has adopted Statement of Financial Accounting Standards (“SFAS”)No. 142, “*Goodwill and Other IntangibleAssets,”* which requires that the Company, on an annual basis,calculate fair value of the reporting units that contain the goodwill andcompare that to the carrying value of the reporting units to determine ifimpairment exists. The Company’s annual impairment assessment date is November30. Impairment testing must take place more often if circumstances or eventsindicate a change in the impairment status.

Within The Maricor Group, earnings lagged expectationsduring the quarter for a number of transitional and market reasons including,but not necessarily limited to: (a) expenses associated with long lead timesales cycles, (b) expenses associated with transitioning to additional andhigher value product and service lines, and (c) speed in attracting and hiringadditional engineering and engineering technician talent.  Therefore, Management performed an interimimpairment analysis of goodwill of The Maricor Group as of May 31, 2006.  No impairment of goodwill was noted in thisassessment.

The reporting units were defined as the mechanical andelectrical engineering operations acquired as RES, M&R and Eastcan, andadditional service lines added since acquisition were excluded from theanalysis.  In calculating the fair valueof the reporting units, management relies on a number of factors includingoperating results, business plans, economic projections, anticipated future cashflows and transactions, and marketplace data. There are inherent uncertaintiesrelated to these factors and 

11

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management’s judgment in applying them to the analysisof goodwill.  In analyzing potentialimpairment, Management has evaluated marketplace data and trends as it relatesto businesses operating within the same competitive space and geographies.  Management believes its assumptionsassociated with its discounted cash flow analysis, as well as comparables, arereflective of the marketplace.  If actualfair value is less than the Company’s estimates, goodwill may be overstated onthe balance sheet, and an impairment charge would be recorded against netearnings.

**Deferred Acquisition Costs**

External costsassociated with due diligence procedures on acquisition targets are deferred onthe Company’s balance sheet within Miscellaneous Assets.  These costs are deferred until theacquisition is completed and the costs are capitalized as part of the purchaseprice, or acquisition efforts are terminated and the costs are expensed.  These costs totaled $59,000 at June 30, 2006,and $2,000 at December 31, 2005.

**New Accounting Pronouncements**

InJune 2006, the Financial Accounting Standards Board (“FASB”) issued FASBInterpretation No. 48 (“FIN 48”), *“Accounting forUncertainty in Income Taxes,”*effective on a “catch-up” basis forfiscal years beginning after December 15, 2006. This guidance interprets Statement of Financial Accounting Standards (“SFAS”)109, *“Accounting for Income Taxes,”*andclarifies the existing guidance regarding recognition of uncertain taxpositions.  Under FIN 48, a tax benefitfrom an uncertain tax position can only be recognized if it is more likely thannot that the position is sustainable based on its technical merits and relevantadministrative practices.  The amount ofthe tax benefit allowed to be recognized is limited to the greatest amount ofbenefit that is cumulatively greater than 50% likely of being realized.  The guidance also notes that these taxbenefits can become recognized or “derecognized” as new information becomesavailable.  The Company is currentlyassessing the impact FIN 48 will have on its financial statements.

InMarch 2006, the FASB issued a Proposed Statement of Financial AccountingStandards (“SFAS”), “*Employers’ Accounting forDefined Benefit Pension and Other Postretirement Plans.” *This proposed statement wouldamend SFAS 87, *“Employers’ Accounting for Pensions;”*SFAS 88, *“Employers’ Accounting for Settlements andCurtailments of Defined Benefits Plans and for Termination Benefits;”*SFAS106, *“Employers’ Accounting for Postretirement BenefitsOther than Pensions;”*and SFAS 132(R), *“Employers’Disclosures about Pensions and OPB — An Amendment of FASB Statements No. 87, 88and 106*.”  This statementwould require companies to record pension assets and liabilities, based onprojected benefit obligations, and transition assets and obligations on theirbalance sheets.  Also, it would requirecompanies to record actuarial gains and losses and prior service costs and creditsin their statements of operations.  Theeffective date currently included in this proposed statement is for fiscalyears ending on or after December 15, 2006. The Company is currently assessing the impact this proposed statementwould have on its financial statements.

InFebruary 2006, the FASB issued SFAS 155, *“Accounting for CertainHybrid Financial Instruments — An Amendment of FASB Statements No. 133 and 140.” *This statement allows financialinstruments that have embedded derivatives to be accounted for as whole if theholder elects to account for the whole instrument on a fair value basis, andwould eliminate the need to bifurcate the derivative from its host.  The FASB believes this guidance provides forthe following:

·        Clarifies which interest-onlystrips and principal-only strips are not subject to the requirements of SFAS133, *“Accounting for Derivative Instruments and HedgingActivities”*;

·        Establishes a requirementsto evaluate interests in securitized financial assets to identify intereststhat are free-standing derivatives or that are hybrid financial instrumentsthat contain an embedded derivative requiring bifurcation;

·        Clarifies thatconcentrations of credit risk in the form of subordination are not embeddedderivatives; and

·        Amends SFAS 140, *“Accountingfor Transfers and Servicing of Financial Assets and Extinguishments ofLiabilities”* to eliminate the prohibition on a qualifyingspecial-purpose entity from holding a derivative financial instrument thatpertains to a beneficial interest other than another derivative financialinstrument.

SFAS155 is effective for all financial instruments acquired or issued after thebeginning of the entity’s first fiscal year beginning after September 15, 2006.

12

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**2.**     **INCOMETAXES**

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,Maricor Properties and MTI. The tax effect of non-operating activities andthose not included in rate base is allocated as “Other Income (Deductions).”

|                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current (benefit  of) provision for income taxes        |       |                             |       |                           |       |   |   |   |   |
| Federal                                                 |       | $                                | (273       | )                              | $          | (121 | ) | $ | (45 | ) | $ | 414 |   |
| State                                                   |       | (94                              | )          | (124                           | )          | (43 | ) | 76 |   |
| Canadian                                                |       | 82                               |       | (201                           | )          | (77 | ) | (312 | ) |
| Total current  (benefit of) provision for income taxes  |       | (285                             | )          | (446                           | )          | (165 | ) | 178 |   |
| Deferred  (benefit of) provision for income taxes       |       |                             |       |                           |       |   |   |   |   |
| Federal                                                 |       | 72                               |       | (165                           | )          | 252 |   | 30 |   |
| State                                                   |       | 7                                |       | (16                            | )          | 25 |   | 1 |   |
| Canadian                                                |       | 92                               |       | —                         |       | 92 |   | — |   |
| Total deferred  (benefit of) provision for income taxes |       | 171                              |       | (181                           | )          | 369 |   | 31 |   |
| Investment  credits, net                                |       | (6                               | )          | (6                             | )          | (12 | ) | (12 | ) |
| Total (benefit of) provision for income taxes           |       | $                                | (120       | )                              | $          | (633 | ) | $ | 192 |   | $ | 197 |   |
| Allocated to:                                           |       |                             |       |                           |       |   |   |   |   |
| Operating income                                        |       |                             |       |                           |       |   |   |   |   |
| - Regulated                                             |       | $                                | 43         |                           | $          | (298 | ) | $ | 793 |   | $ | 780 |   |
| - Unregulated                                           |       | (335                             | )          | (334                           | )          | (795 | ) | (587 | ) |
| Subtotal                                                |       | (292                             | )          | (632                           | )          | (2 | ) | 193 |   |
| Discontinued  Operations                                |       | —                           |       | (2                             | )          | — |   | 3 |   |
| Total Operating                                         |       | (292                             | )          | (634                           | )          | (2 | ) | 196 |   |
| Gain on Sale of  Stock                                  |       | 172                              |       | —                         |       | 172 |   | — |   |
| Other income                                            |       | —                           |       | 1                              |       | 22 |   | 1 |   |
| Total                                                   |       | $                                | (120       | )                              | $          | (633 | ) | $ | 192 |   | $ | 197 |   |

 

For both the six months ended June 30, 2006, and 2005,the effective income tax rate was 46.2%. The principal reason for the effectivetax rates differing from the US federal and state income tax rates is certaincontingent payments that are expenses under US GAAP, but are deferred aspurchase price in Canada and are therefore not deductible for Canadian taxpurposes.

The Company has not accrued U.S. income taxes on theundistributed earnings of ME&NB, as the withholding taxes due on thedistribution of any remaining amount would be principally offset by foreign taxcredits. No dividends were received from ME&NB in 2006 or 2005.

As required by SFAS No. 109, Management of the Companyhas evaluated the positive and negative evidence bearing upon the realizabilityof the Company’s deferred tax assets, which consist principally of Canadian netoperating losses, pension and post-retirement benefits and accumulated OtherComprehensive Income (“OCI”) — interest rate hedge.  For the quarter ended June 30, 2006, and theyear ended December 31, 2005, Management evaluated the need for a deferred taxasset valuation allowance and determined that no adjustment was needed.

13

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The following summarizes accumulated deferred incometax (assets) and liabilities established on temporary differences under SFAS109 as of June 30, 2006, and December 31, 2005:

|                                                | ** ** | **June 30,** | ** ** | **December 31,** | ** ** |
|------------------------------------------------|------------|-------------------|------------|-----------------------|------------|
| **(In thousands of dollars)**   | ** ** | **2006**          | ** ** | **2005**              | ** ** |
| Seabrook                                       |       | $                 | 6,044      |                  | $          | 6,350 |   |
| Property                                       |       | 8,928             |       | 8,899                 |       |
| Flexible pricing  revenue                      |       | 591               |       | 584                   |       |
| Deferred fuel                                  |       | 12,850            |       | 11,931                |       |
| Wheelabrator-Sherman  up-front payment         |       | 289               |       | 579                   |       |
| Pension and  post-retirement benefits          |       | (833              | )          | (938                  | )          |
| Other                                          |       | 233               |       | (135                  | )          |
| Net Accumulated  Deferred Income Tax Liability |       | $                 | 28,102     |                  | $          | 27,270 |   |

 

**3.     SEGMENT INFORMATION**

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

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

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

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

·                  Unregulatedsoftware technology: Maricor Technologies, Inc.;

·                  Unregulatedenergy marketing: EA, an inactive subsidiary; and

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

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

The accounting policies of the segments are the sameas those described in Note 1, “Summary of Significant Accounting Policies.”  MAM provides certain administrative supportservices to MPS, TMG, Maricor Properties, 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 service provided to theother unregulated entities remains at the holding company, and is not allocatedor charged to the various subsidiaries. MPS also provides services to MAM and other affiliates.  These services are billed to MAM at costthrough inter-company transactions.

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| ** **                                               | ** ** | **(In thousands of dollars)**                  | ** ** |
|----------------------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                                               | ** ** | **Three Months Ended June 30, 2006** | ** ** |
| ** **                                               | ** ** | **Regulated**                                                 | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Electric**                                                  | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Utility**                                                   | ** ** | **Services** | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers                         |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated                                                |       | $                                                             | 7,414      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 7,414 |   |
| Unregulated                                              |       | —                                                        |       | 1,425 |   | 409 |   | 81 |   | — |   | (73 | ) | 1,842 |   |
| Total Operating Revenues                                 |       | 7,414                                                         |       | 1,425 |   | 409 |   | 81 |   | — |   | (73 | ) | 9,256 |   |
|                                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  Expenses                                      |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance                    |       | 3,497                                                         |       | — |   | — |   | — |   | — |   | — |   | 3,497 |   |
| Unregulated Operation & Maintenance                  |       | —                                                        |       | 1,629 |   | 185 |   | 316 |   | — |   | 107 |   | 2,237 |   |
| Depreciation                                             |       | 729                                                           |       | 3 |   | 60 |   | — |   | — |   | 1 |   | 793 |   |
| Amortization of Stranded Cost                            |       | 2,568                                                         |       | — |   | — |   | — |   | — |   | — |   | 2,568 |   |
| Amortization                                             |       | (49                                                           | )          | 31 |   | 45 |   | 17 |   | — |   | — |   | 44 |   |
| Taxes Other than Income                                  |       | 431                                                           |       | 15 |   | — |   | 9 |   | — |   | 6 |   | 461 |   |
| Income Taxes                                             |       | 43                                                            |       | (129 | ) | 11 |   | (104 | ) | — |   | (113 | ) | (292 | ) |
| Total Operating Expenses                                 |       | 7,219                                                         |       | 1,549 |   | 301 |   | 238 |   | — |   | 1 |   | 9,308 |   |
|                                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                                 |       | 195                                                           |       | (124 | ) | 108 |   | (157 | ) | — |   | (74 | ) | (52 | ) |
|                                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                               |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies                 |       | 50                                                            |       | — |   | (56 | ) | — |   | — |   | (1 | ) | (7 | ) |
| Interest and Dividend Income                             |       | 15                                                            |       | 10 |   | 1 |   | — |   | — |   | (22 | ) | 4 |   |
| Gain on Sale of Stock of Maricor Properties, Net of  Tax |       | —                                                        |       | — |   | 257 |   | — |   | — |   | — |   | 257 |   |
| Other Income (Deductions)                                |       | (9                                                            | )          | (8 | ) | — |   | — |   | — |   | 2 |   | (15 | ) |
| Total Other Income (Deductions)                          |       | 56                                                            |       | 2 |   | 202 |   | — |   | — |   | (21 | ) | 239 |   |
| Income (Loss)  Before Interest Charges                   |       | 251                                                           |       | (122 | ) | 310 |   | (157 | ) | — |   | (95 | ) | 187 |   |
| Interest Charges                                         |       | 238                                                           |       | 64 |   | 123 |   | — |   | — |   | 74 |   | 499 |   |
| (Loss) Income  from Continuing Operations                |       | 13                                                            |       | (186 | ) | 187 |   | (157 | ) | — |   | (169 | ) | (312 | ) |
| Income from  Discontinued Operations                     |       | —                                                        |       | — |   | — |   | — |   | 2 |   | — |   | 2 |   |
| Net (Loss)  Income                                       |       | $                                                             | 13         |   | $ | (186 | ) | $ | 187 |   | $ | (157 | ) | $ | 2 |   | $ | (169 | ) | $ | (310 | ) |

15

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| ** **                               | ** ** | **(In thousands of dollars)**                  | ** ** |
|------------------------------------------|------------|---------------------------------------------------------------|------------|
| ** **                               | ** ** | **Three Months Ended June 30, 2005** | ** ** |
| ** **                               | ** ** | **Regulated**                                                 | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Electric**                                                  | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                               | ** ** | **Utility**                                                   | ** ** | **Services** | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers         |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated                                |       | $                                                             | 7,073      |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 7,073 |   |
| Unregulated                              |       | —                                                        |       | 1,366 |   | 76 |   | 35 |   | — |   | (55 | ) | 1,422 |   |
| Total Operating Revenues                 |       | 7,073                                                         |       | 1,366 |   | 76 |   | 35 |   | — |   | (55 | ) | 8,495 |   |
|                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  Expenses                      |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance    |       | 3,751                                                         |       | — |   | — |   | — |   | — |   | — |   | 3,751 |   |
| Unregulated Operation & Maintenance  |       | —                                                        |       | 1,300 |   | 73 |   | 157 |   | — |   | 540 |   | 2,070 |   |
| Depreciation                             |       | 695                                                           |       | 5 |   | 15 |   | — |   | — |   | 1 |   | 716 |   |
| Amortization of Stranded Cost            |       | 2,576                                                         |       | — |   | — |   | — |   | — |   | — |   | 2,576 |   |
| Amortization                             |       | 73                                                            |       | 50 |   | — |   | — |   | — |   | — |   | 123 |   |
| Taxes Other than Income                  |       | 421                                                           |       | 17 |   | — |   | 6 |   | — |   | 9 |   | 453 |   |
| Income Taxes                             |       | (298                                                          | )          | (113 | ) | (19 | ) | (51 | ) | — |   | (151 | ) | (632 | ) |
| Total Operating Expenses                 |       | 7,218                                                         |       | 1,259 |   | 69 |   | 112 |   | — |   | 399 |   | 9,057 |   |
|                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating (Loss)  Income                 |       | (145                                                          | )          | 107 |   | 7 |   | (77 | ) | — |   | (454 | ) | (562 | ) |
|                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)               |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies |       | 39                                                            |       | — |   | — |   | — |   | — |   | — |   | 39 |   |
| Interest and Dividend Income             |       | 18                                                            |       | 11 |   | — |   | — |   | — |   | (22 | ) | 7 |   |
| Other Income (Deductions)                |       | 25                                                            |       | — |   | — |   | — |   | — |   | 9 |   | 34 |   |
| Total Other Income (Deductions)          |       | 82                                                            |       | 11 |   | — |   | — |   | — |   | (13 | ) | 80 |   |
| (Loss) Income  Before Interest Charges   |       | (63                                                           | )          | 118 |   | 7 |   | (77 | ) | — |   | (467 | ) | (482 | ) |
|                                     |       |                                                          |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Charges                         |       | 245                                                           |       | 150 |   | 30 |   | 1 |   | — |   | (113 | ) | 313 |   |
| Loss from  Continuing Operations         |       | (308                                                          | )          | (32 | ) | (23 | ) | (78 | ) | — |   | (354 | ) | (795 | ) |
| Loss from  Discontinued Operations       |       | —                                                        |       | — |   | — |   | — |   | (3 | ) | — |   | (3 | ) |
| Net Loss                                 |       | $                                                             | (308       | ) | $ | (32 | ) | $ | (23 | ) | $ | (78 | ) | $ | (3 | ) | $ | (354 | ) | $ | (798 | ) |

16

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| ** **                                               | ** ** | **(In thousands of dollars)**                | ** ** |
|----------------------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                               | ** ** | **Six Months Ended June 30, 2006** | ** ** |
| ** **                                               | ** ** | **Regulated**                                               | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Electric**                                                | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                               | ** ** | **Utility**                                                 | ** ** | **Services** | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers                         |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated                                                |       | $                                                           | 17,465     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 17,465 |   |
| Unregulated                                              |       | —                                                      |       | 2,773 |   | 754 |   | 120 |   | — |   | (142 | ) | 3,505 |   |
| Total Operating Revenues                                 |       | 17,465                                                      |       | 2,773 |   | 754 |   | 120 |   | — |   | (142 | ) | 20,970 |   |
|                                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  Expenses                                      |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance                    |       | 7,228                                                       |       | — |   | — |   | — |   | — |   | — |   | 7,228 |   |
| Unregulated Operation & Maintenance                  |       | —                                                      |       | 3,154 |   | 384 |   | 515 |   | — |   | 474 |   | 4,527 |   |
| Depreciation                                             |       | 1,445                                                       |       | 8 |   | 110 |   | — |   | — |   | — |   | 1,563 |   |
| Amortization of Stranded Cost                            |       | 5,378                                                       |       | — |   | — |   | — |   | — |   | — |   | 5,378 |   |
| Amortization                                             |       | 29                                                          |       | 53 |   | 137 |   | 17 |   | — |   | — |   | 236 |   |
| Taxes Other than Income                                  |       | 916                                                         |       | 35 |   | — |   | 23 |   | — |   | 20 |   | 994 |   |
| Income Taxes                                             |       | 793                                                         |       | (239 | ) | (67 | ) | (173 | ) | — |   | (316 | ) | (2 | ) |
| Total Operating Expenses                                 |       | 15,789                                                      |       | 3,011 |   | 564 |   | 382 |   | — |   | 178 |   | 19,924 |   |
|                                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                                 |       | 1,676                                                       |       | (238 | ) | 190 |   | (262 | ) | — |   | (320 | ) | 1,046 |   |
|                                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                               |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies                 |       | 96                                                          |       | — |   | (111 | ) | — |   | — |   | — |   | (15 | ) |
| Interest and Dividend Income                             |       | 20                                                          |       | 19 |   | 2 |   | — |   | — |   | (31 | ) | 10 |   |
| Gain on Sale of Stock of Maricor Properties, Net of  Tax |       | —                                                      |       | — |   | 257 |   | — |   | — |   | — |   | 257 |   |
| Other Income (Deductions)                                |       | (83                                                         | )          | (15 | ) | — |   | — |   | — |   | — |   | (98 | ) |
| Total Other Income (Deductions)                          |       | 33                                                          |       | 4 |   | 148 |   | — |   | — |   | (31 | ) | 154 |   |
| Income (Loss)  Before Interest Charges                   |       | 1,709                                                       |       | (234 | ) | 338 |   | (262 | ) | — |   | (351 | ) | 1,200 |   |
|                                                     |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Charges                                         |       | 493                                                         |       | 121 |   | 238 |   | — |   | — |   | 127 |   | 979 |   |
| Income (Loss)  from Continuing Operations                |       | 1,216                                                       |       | (355 | ) | 100 |   | (262 | ) | — |   | (478 | ) | 221 |   |
| Income from  Discontinued Operations                     |       | —                                                      |       | — |   | — |   | — |   | 2 |   | — |   | 2 |   |
| Net Income  (Loss)                                       |       | $                                                           | 1,216      |   | $ | (355 | ) | $ | 100 |   | $ | (262 | ) | $ | 2 |   | $ | (478 | ) | $ | 223 |   |
| Total Assets                                             |       | $                                                           | 135,231    |   | $ | 12,103 |   | $ | 506 |   | $ | 1,935 |   | $ | 231 |   | $ | (836 | ) | $ | 149,170 |   |

17

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| ** **                                | ** ** | **(In thousands of dollars)**                | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------------|------------|
| ** **                                | ** ** | **Six Months Ended June 30, 2005** | ** ** |
| ** **                                | ** ** | **Regulated**                                               | ** ** | **Unregulated** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Electric**                                                | ** ** | **Engineering** | ** ** | **Real Estate** | ** ** | **Software** | ** ** | **Energy** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                                | ** ** | **Utility**                                                 | ** ** | **Services** | ** ** | **Holdings** | ** ** | **Technology** | ** ** | **Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from  External Customers          |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated                                 |       | $                                                           | 17,387     |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | — |   | $ | 17,387 |   |
| Unregulated                               |       | —                                                      |       | 2,769 |   | 145 |   | 38 |   | — |   | (110 | ) | 2,842 |   |
| Total Operating Revenues                  |       | 17,387                                                      |       | 2,769 |   | 145 |   | 38 |   | — |   | (110 | ) | 20,229 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating  Expenses                       |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance     |       | 7,104                                                       |       | — |   | — |   | — |   | — |   | — |   | 7,104 |   |
| Unregulated Operation & Maintenance   |       | —                                                      |       | 2,772 |   | 144 |   | 181 |   | — |   | 909 |   | 4,006 |   |
| Depreciation                              |       | 1,386                                                       |       | 8 |   | 28 |   | — |   | — |   | 1 |   | 1,423 |   |
| Amortization of Stranded Cost             |       | 5,362                                                       |       | — |   | — |   | — |   | — |   | — |   | 5,362 |   |
| Amortization                              |       | 147                                                         |       | 84 |   | — |   | — |   | — |   | (1 | ) | 230 |   |
| Taxes Other than Income                   |       | 859                                                         |       | 39 |   | — |   | 8 |   | — |   | 22 |   | 928 |   |
| Income Taxes                              |       | 780                                                         |       | (128 | ) | (26 | ) | (61 | ) | — |   | (372 | ) | 193 |   |
| Total Operating Expenses                  |       | 15,638                                                      |       | 2,775 |   | 146 |   | 128 |   | — |   | 559 |   | 19,246 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                  |       | 1,749                                                       |       | (6 | ) | (1 | ) | (90 | ) | — |   | (669 | ) | 983 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies  |       | 88                                                          |       | — |   | — |   | — |   | — |   | — |   | 88 |   |
| Interest and Dividend Income              |       | 22                                                          |       | 12 |   | 1 |   | — |   | — |   | (21 | ) | 14 |   |
| Other Income (Deductions)                 |       | 15                                                          |       | (2 | ) | (1 | ) | — |   | — |   | (5 | ) | 7 |   |
| Total Other Income (Deductions)           |       | 125                                                         |       | 10 |   | — |   | — |   | — |   | (26 | ) | 109 |   |
| Income (Loss)  Before Interest Charges    |       | 1,874                                                       |       | 4 |   | (1 | ) | (90 | ) | — |   | (695 | ) | 1,092 |   |
|                                      |       |                                                        |       |   |   |   |   |   |   |   |   |   |   |   |   |
| Interest Charges                          |       | 485                                                         |       | 188 |   | 52 |   | 1 |   | — |   | (108 | ) | 618 |   |
| Income (Loss)  from Continuing Operations |       | 1,389                                                       |       | (184 | ) | (53 | ) | (91 | ) | — |   | (587 | ) | 474 |   |
| Income from  Discontinued Operations      |       | —                                                      |       | — |   | — |   | — |   | 5 |   | — |   | 5 |   |
| Net Income  (Loss)                        |       | $                                                           | 1,389      |   | $ | (184 | ) | $ | (53 | ) | $ | (91 | ) | $ | 5 |   | $ | (587 | ) | $ | 479 |   |
| Total Assets                              |       | $                                                           | 136,055    |   | $ | 7,286 |   | $ | 2,480 |   | $ | 1,687 |   | $ | 375 |   | $ | 2,392 |   | $ | 150,275 |   |

18

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**4.**     **INVESTMENTSIN ASSOCIATED COMPANIES**

 

**Maricor Properties Ltd**

On June 30, 2006, Maricor Properties sold one share ofstock representing a 50% ownership interest to Ashford Investments Inc.  See Note 9 for further disclosure of thistransaction.  Management reviewed thecharacteristics of Maricor Properties subsequent to this transaction in accordancewith Financial Accounting Standards Board Interpretation No. (“FIN”) 46(R), “*Consolidation of Variable Interest Entities, an Interpretation of ARB51*,” and determined that MAM remained the primary beneficiary ofMecel, but is not the primary beneficiary of Maricor Properties, including theVaughan Harvey building and Cornwallis, as of the date of thistransaction.  Therefore, the assets andliabilities of Mecel remain consolidated in these financial statements, whilethe assets and liabilities of the other components of Maricor Properties are nolonger consolidated as of June 30, 2006.  All activity of Maricor Properties through the transaction date of June30, 2006, has been included in the consolidated statement of operations.  Future operating results for the componentsthat are not consolidated will be reported under the equity method ofaccounting.  MAM’s investment in MaricorProperties is reported within “Investments in Associated Companies,” andreceivables from and payable to MAM and its wholly-owned subsidiaries fromMaricor Properties and its subsidiaries are presented within the lines “AccountsReceivable from Associated Companies,” and “Accounts Payable to AssociatedCompanies.”

Condensed financial information (unaudited) for thecomponents of Maricor Properties not consolidated in these financial statementsis as follows:

| Total Assets                     |   | $      | 9,196  |   |
|----------------------------------|--------|--------|--------|--------|
| Less:                            |   |   |   |
| Long-term Debt                   |   | 3,106  |   |
| Short-term Debt                  |   | 3,853  |   |
| Other Liabilities                |   | 2,001  |   |
| Net Assets                       |   | $      | 236    |   |
|                             |   |   |   |
| MAM’s Equity in Net  Assets |   | $      | 118    |   |

 

**Maricor Ashford Ltd**

Maricor Properties Ltd is a partner in Maricor AshfordLtd, a joint venture with Ashford Investments Inc., an unaffiliated real estatemanagement, investment, and development company.  Maricor Ashford Ltd is a real estate developmentand redevelopment company based in Moncton, New Brunswick, Canada.  Management reviewed the characteristics ofthis joint venture in accordance with FIN 46(R), and determined that MaricorProperties Ltd is not the primary beneficiary of this joint venture.  Accordingly, the activity of Maricor AshfordLtd has been recorded in these financial statements under the equity method,and Maricor Ashford Ltd is not consolidated with these financial statements.

**Maine Yankee 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 the Maine Electric Power Company (“MEPCO,”) ajointly-owned electric transmission company. MPS records its investment inMEPCO and Maine Yankee using the equity method.

Substantially all earnings of Maine Yankee and MEPCOare distributed to investor companies. During the second quarter of 2006, a dividend of $1,800 was declared byMEPCO, and a dividend declared during the first quarter of 2006 of $1,800 wasreceived in cash.  No dividends weredeclared or paid by Maine Yankee during the second quarter of 2006. Dividendsof $25,000 and $1,800 were declared by Maine Yankee and MEPCO, respectively,during the second quarter of 2005. No dividends were received in cash fromeither company in the second quarter of 2005.

In the second quarters of 2006 and 2005, MPS receivedMaine Yankee stock redemptions of $200,000 and $305,000, respectively.

**5.     SHORT-TERM CREDIT ARRANGEMENTS**

 

The following Note describes changes to the Company’sshort-term credit arrangements during the second quarter of 2006, and should beread in conjunction with MAM’s 2005 Form 10-K and MAM’s March 31, 2006, Form10-Q.

19

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On May 5, 2006, MAM borrowed $400,000 fromKatahdin Trust Company through a 5-month unsecured note. The loan was at avariable rate of the 3-month London InterBank Offered Rate (“LIBOR”) plus3.50%. The interest rate as of the date of borrowing was 8.63%. Monthlypayments of interest only were due throughout the term of the loan, with a fullrepayment of principal due at the end of the term.  This note was repaid on June 13, 2006, aspart of a loan agreement with Bank of America.

On June 13, 2006, MAM entered into an agreement toborrow up to $1.7 million from Bank of America. This loan has interest payable on the last day of each month beginningat June 30, 2006, until full payment of any outstanding principal at a rate ofthe Bank’s prime rate plus 1%.  The rateat June 30, 2006, was 9.25%.  This termloan is available to the Company until December 31, 2006, or earlier if theloan principal is paid down.  Minimumprincipal payments are due in the amount of $140,000 at the end of each monthbeginning on January 31, 2007, and ending the earlier of December 31, 2007, oruntil the loan is fully repaid.  Underthis agreement, the short-term loan with Katahdin Trust Company for $400,000was immediately repaid.

**6.     STOCK COMPENSATION PLAN**

 

Upon approval by MPS’sshareholders in June 2002, MPS adopted the 2002 Stock Option Plan (the “Plan”).The Plan was subsequently adopted by the Company after its formation. The Planprovides designated employees of the Company and its Subsidiaries with stockownership opportunities and additional incentives to contribute to the successof the Company, and to attract, reward and retain employees of outstandingability. The Plan is administered by the members of the Performance andCompensation Committee of the Board of Directors, who are not employees of theCompany or its subsidiaries. The Company may grant options to its employees forup to 150,000 shares of common stock, provided that the maximum aggregatenumber of shares which may be issued under the Plan pursuant to incentive stockoptions shall be 120,000 shares. The exercise price for shares to be issuedunder any incentive stock option shall not be less than one-hundred percent(100%) of the fair market value of such shares at the most recent closing priceto the date the option is granted. An option’s maximum term is ten years. As ofJune 30, 2006, the CEO has been the only employee to receive stock options.

The Company accounts forthe fair value of its grants under the Plan in accordance with the provisionsof Statement of Financial Accounting Standards No. 123(R), “*Share-Based Payment*.”

| Year of Issuance                          | ** ** | **2006** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Number of Options  Granted                |       | 5,250    |       | 5,250    |       | 5,250    |       | 5,250    |       | 5,250    |       |
| Vesting Period                            |       | 3 years  |       | 3 years  |       | 3 years  |       | 3 years  |       | 3 years  |       |
| Number of Options  Vested and Exercisable |       | —   |       | —   |       | —   |       | 5,250    |       | 5,250    |       |
| Dividend Yield                            |       | 0.00     | %          | 4.08     | %          | 4.75     | %          | 4.60     | %          | 4.70     | %          |
| Volatility                                |       | 21.6     | %          | 20.0     | %          | 20.0     | %          | 20.0     | %          | 20.0     | %          |
| Risk-Free Interest Rate                   |       | 5.05     | %          | 3.80     | %          | 4.33     | %          | 3.00     | %          | 4.60     | %          |
| Expected Life                             |       | 7 years  |       | 7 years  |       | 7 years  |       | 7 years  |       | 7 years  |       |

 

The stock options arevalued using the Black-Scholes valuation model. The total value of all options granted as of June 30, 2006, isapproximately $70,000, and is recorded within Miscellaneous Liabilities on theConsolidated Balance Sheets. Compensation expense of $1,000 was recognized during the second quarterof 2006, and $9,000 year-to-date through June 30, 2006.  None of this compensation expense wascapitalized.

A summary of the activityin the Stock Option Plan from December 31, 2005, through June 30, 2006, ispresented below:

| Options                                         | ** ** | **Shares  2006** | ** ** | **Average Exercise Price  2006** | ** ** |
|-------------------------------------------------|------------|------------------|------------|--------------------------------------------|------------|
| ** **                                      | ** ** | ** **       |       |                                       | ** ** |
| Outstanding at  December 31, 2005               |       | 21,000           |       | $                                          | 29.80      |   |
| Granted                                         |       | 5,250            |       | 15.45                                      |       |
| Exercised                                       |       | —           |       | —                                     |       |
| Expired                                         |       | —           |       | —                                     |       |
| Forfeited                                       |       | —           |       | —                                     |       |
| Outstanding at  June 30, 2006                   |       | 26,250           |       | $                                          | 26.93      |   |
| Options  exercisable at June 30, 2006           |       | 10,500           |       | $                                          | 30.28      |   |
| Weighted-average fair  value of options granted |       | $                | 4.89       |                                       |       |   |
|                                                 |            |                  |            |                                            |            |  |  |

 

20

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Dilutive earnings pershare impact of outstanding stock options:
| ** **                                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                             | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**                                           | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net (Loss) Income                                                                      |       | $                                | (310       | )                              | $          | (798 | ) | $ | 223 |   | $ | 479 |   |
| Shares used in computation:                                                            |       |                             |       |                           |       |   |   |   |   |
| Weighted-Average  common shares outstanding in Computation of basic earnings per share |       | 1,637,643                        |       | 1,636,167                      |       | 1,637,427 |   | 1,636,037 |   |
| Dilutive effect  of common stock options                                               |       | 23,625                           |       | 18,375                         |       | 23,625 |   | 18,375 |   |
| Other dilutive  shares                                                                 |       | 9,500                            |       | 5,955                          |       | 9,500 |   | 5,955 |   |
| Shares used in  computation of earnings per common share assuming dilution             |       | 1,670,768                        |       | 1,660,497                      |       | 1,670,552 |   | 1,660,367 |   |
| Net (loss) income per  share basic                                                     |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.14 |   | $ | 0.29 |   |
| Net (loss) income per common share diluted                                             |       | $                                | (0.19      | )                              | $          | (0.49 | ) | $ | 0.13 |   | $ | 0.29 |   |

 

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

The Company provides certain pension, post-retirementand welfare benefit programs to its employees. Benefit programs are an integralpart of the Company’s commitment to hiring and retaining top grade employees,providing market-based compensation that rewards individual and corporateperformance. The Company continues to offer market-based total compensation toits employees that include varying funded benefit programs, salary, bonuses,incentives, and commissions, depending upon an individual’s particular jobclassification. The Company offers welfare benefit plans to all employees,consisting of healthcare, life insurance, long-term disability, and accidentaldisability insurance. The Company also offers retirement savings programs tomost employees in the form of 401(k) plans in the United States or RetirementSavings Plans in Canada. These plans allow voluntary contributions by theemployee and may include a contribution by the Company.

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

The Company has a non-contributory defined benefitpension plan covering Maine Public Service and certain MAM employees. Mostemployees of the Company’s unregulated operations are not eligible for thisbenefit plan. Benefits under the plan are based on employees’ years of serviceand compensation prior to retirement. The Company’s policy has been to fundpension costs accrued. In accordance with that policy, the Company contributedapproximately $162,000 to the pension plan for 2005 in 2006. In addition, theCompany is currently making quarterly payments for the 2006 plan year, inaccordance with IRS requirements due to the plan’s market value dropping belowthe fully funded level. Each quarterly payment for 2006 is approximately $214,000and affects the plan funding level, but not the amount of expense to berecognized. Expenses by quarter are summarized in the table below.

**Health Care Benefits**

The Company provides certain health care benefits toeligible employees. Eligible employees share in the cost of their medicalbenefits, in addition to plan deductibles and coinsurance payments. The planalso covers retiree medical coverage for employees of Maine Public ServiceCompany, the regulated utility. Amendments in plan provisions have beenincorporated into the calculation of the related actuarial benefit obligation.The Company continues to evaluate the increasing financial liabilitiesassociated with health care benefits and is considering options that ensurecompetitive employee benefits and control costs.

For purposes of determining the accruedpost-retirement benefit cost as of June 30, 2006, and December 31, 2005, thehealth care cost trend rate used was an increase of 8.0% in 2006 and 2005 andgraded down to 4% in 2012, remaining at that level thereafter. These rates havea significant effect on the amounts reported for the health care plan.

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The following table sets forth the plans’ net periodicbenefit cost:
| ** **                                   | ** ** | **Pension Benefits**        | ** ** | **Other Benefits**        | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
| ** **                                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** | **June 30,** | ** ** | **June 30,** | ** ** |
| **(In thousands of dollars)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Service cost                                 |       | $                                | 140        |                           | $          | 122 |   | $ | 281 |   | $ | 244 |   | $ | 46 |   | $ | 46 |   | $ | 92 |   | $ | 92 |   |
| Interest cost                                |       | 290                              |       | 283                            |       | 580 |   | 566 |   | 126 |   | 126 |   | 252 |   | 252 |   |
| Expected return  on plan assets              |       | (272                             | )          | (269                           | )          | (544 | ) | (538 | ) | (54 | ) | (54 | ) | (108 | ) | (108 | ) |
| Amortization of  transition obligation       |       | —                           |       | —                         |       | — |   | — |   | 36 |   | 36 |   | 72 |   | 72 |   |
| Amortization of  prior service cost          |       | 23                               |       | 23                             |       | 46 |   | 46 |   | (15 | ) | (15 | ) | (30 | ) | (30 | ) |
| Recognized net  actuarial (gain)             |       | 44                               |       | 26                             |       | 87 |   | 52 |   | 43 |   | 42 |   | 86 |   | 84 |   |
| Net periodic benefit  cost                   |       | $                                | 225        |                           | $          | 185 |   | $ | 450 |   | $ | 370 |   | $ | 182 |   | $ | 181 |   | $ | 364 |   | $ | 362 |   |

 

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

 

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPS filed a notice with the MPUCunder Docket No. 2006-24 that it intended to seek a 4% increase in overallelectric rates.  Subsequently, on March 13, 2006, the Company filed for anincrease in distribution revenue of $3.24 million, a 9.9% increase in averageelectric delivery rates. The Company participated in discovery on its requestand subsequently updated its filing on June 15, 2006. The supplemental filingrevised the Company’s request to increase distribution revenue by $2.68million, an 8.64% increase in average electric delivery rates.

During June 2006, the Company entered into settlementdiscussions with the parties to Docket No. 2006-24. The discussions led to aStipulation that was filed with the Commission on June 23, 2006. TheStipulation proposed an increase to the Company’s distribution revenue of $1.75million to become effective on July 15, 2006. Additionally, the Company agreedto defer its increase in the Demand-Side Management (“DSM”) mil rate and itsdecrease in the transmission component of its delivery rate until July 15,2006, as described below.  The net effectof the three retail rate changes was an increase to annual retail deliveryrevenue of approximately $1.33 million or an average increase to the Company’selectric delivery rate of 3.84%. The Stipulation was approved by the Commissionon July 5, 2006, and new distribution rates implementing the net retail revenuechange became effective as of July 15, 2006.

The stipulation required adjustment of theamortization of the Oracle system from a seven-year amortization period to aten-year amortization period, retroactive to the capitalization of the systemin 2004.  The impact of this adjustmentof approximately $128,000 has been recognized in the second quarter of2006.  MPS also agreed to certain servicequality index standards as part of this stipulation.

**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 15, 2006, to coincide with MPS’s distribution rateincrease.  These rates were approved bythe MPUC on July 5, 2006. Per this filing, the DSM mil rate was increased by20%, or an increase of approximately $111,000, and the retail transmission ratewas decreased by 13.43%, or approximately $534,000.

**Federal Energy Regulatory Commission2006 Open Access Transmission Tariff Formula Rate Filing**

On May 31, 2006, pursuant to Section 205 of theFederal Power Act, 16 U.S.C. Section 824d, and Title 18 CFR Sections35.11 and 35.13 of the regulations of the FERC, MPS submitted for filing itsproposed revisions to its FERC Open Access Transmission Tariff in Docket No. ER05 (the “2006 OATT”) to modify its transmission rate formula.  MPS filed its updated rates under the 2006OATT formula on June 15, 2006, pursuant to Docket ER00-1053, with an effectivedate of June 1, 2006, for both wholesale and retail customers, subject to acustomer refund that may occur as a result of the proceeding and potentialsettlement negotiations.  The retailtransmission revenue requirement was decreased by approximately $534,000 onJuly 15, 2006, under the 2006 OATT.  Thisrepresented a decrease of 13.43% to the transmission component of retaildelivery rates. The primary reasons for the decrease were a shift in costsbetween transmission and distribution and the settlement of the 2005 OpenAccess Transmission Tariff through rates, as described more fully below.

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The Company is currently participating in discussionswith its customers concerning the 2006 OATT.

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

On May 31, 2005, pursuant to Section 205 of theFederal Power Act, 16 U.S.C. Section 824d, and Title 18 CFR Sections35.11 and 35.13 of the regulations of the FERC, MPS submitted for filing itsproposed revisions to its FERC Open Access Transmission Tariff in Docket No. ER05 (the “2005 OATT”) to modify its transmission rate formula.  MPS filed its updated rates under the 2005OATT formula on June 15, 2005, pursuant to Docket ER00-1053 with an effectivedate of June 1, 2005, for both wholesale and retail customers, subject to acustomer refund that may occur as a result of the proceeding and potentialsettlement negotiations.  The retailtransmission revenue requirement was increased by approximately $289,000 onJune 1, 2005, under the 2005 OATT.  Thisrepresented an increase of 8% to the transmission component of retail deliveryrates or an overall impact on total retail delivery rates of 0.7%.  The primary reasons for the increase were theincrease to costs due to mandated Sarbanes-Oxley requirements, and the purchaseof a new Oracle-based accounting system.

As part of the settlement data request process, theCompany identified several adjustments to its FERC Form 1 filing for 2004,which flow through the Company’s transmission rate formula.  The approximate net impact of thesecorrections, once implemented, will be to reduce the overall increase to theprojected retail transmission revenue and result in a revised projected netincrease to the retail transmission revenue requirement of approximately$171,000 instead of the previously projected increase of approximately$288,000.  The final Settlement Agreement for the 2005 OATT was filed with theFERC on April 14, 2006, and final approval was received from the FERC on June21, 2006.  This adjustment flowedthrough the MPS OATT effective June 1, 2006, and will be passed through retailrates beginning on July 15, 2006.

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

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

The project was proposed in order to ensure thereliability and integrity of the MPS transmission grid under scenarios ofreduced on-system generator availability and peak load growth.  MPS submitted that the available firmtransfer capability of the transmission system when added to the remainingon-system hydro generation was not sufficient to meet peak load conditions, shouldexisting on-system wood-fired generation become unavailable.  The proposed line would address this bysignificantly increasing the load-serving capability of the northern Maineregion and would serve to reinforce the vital transmission ties between northernMaine and the New Brunswick transmission grid. Additional benefits of the proposed line include the potential forincreasing the number of competitive retail electric suppliers and increasingthe attractiveness of the region for development of additional generation, suchas wind farms, by providing increased transmission export capacity.

The MPUC Commissioners deliberated the Docket onAugust 29, 2005, and denied the petition, determining that there was noimmediate reliability risk in northern Maine. The Commission concluded that the risk of losing on-system wood-firedgeneration was not sufficient to warrant the new transmission line.  The Commission’s Order denying thecertificate, which was issued on October 21, 2005, described actions to betaken by MPS and the Northern Maine Independent System Administrator (“NMISA”)to reduce certain reliability risks identified by MPS.  The Company filed for reconsideration of theOrder on November 8, 2005, based on the possibility that Aroostook Wind EnergyCompany, LLC (“AWE”) might elect to utilize the CPCN requested by MPS in thisDocket in order to have MPS construct transmission facilities necessary toconnect their proposed generation project to the MPS electrical system.  On March 30, 2006, the Company filed a statusreport with the Commission with regard to the proposed transmissionfacilities.  MPS expects the MPUC torespond to the status report in the near future.  Additionally, on November 23, 2005, theCommission granted an MPS request for suspension of certain of the specificrequirements of the October 21, 2005, Order pending Commission consideration ofcertain proposed market rule changes which NMISA presented to the Commission onMarch 1, 2006.  Through June 30, 2006,approximately $844,000 was spent on this transmission project.  MPS is seeking recovery of these costs in itstransmission rates.  MPS believes it isprobable the amounts deferred can be recovered, either through future ratecases or through sale of the assets to a third party.

**Wheelabrator-Sherman**

MPS was ordered into aPower Purchase Agreement (“PPA”) with Wheelabrator-Sherman (“WS”) in 1986,which required the purchase of the entire output (up to 126,582 MWH per year)of a 17.6 MW biomass plant through December 31, 2006. The PPA was subsequentlyamended in 1997, with WS agreeing to price reductions of $10.0 million throughthe end of the original term in exchange for an up-front payment of $8.7million in May 1998. The MPUC’s December 1997 approval of the amended PPAincluded a determination that the up-front payment would be treated as strandedcost and, therefore, recovered in MPS’s rates. Total stranded costs included asregulatory assets under the caption “Deferred Fuel and Purchased Energy Costs”in the accompanying balance sheet 

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related to this contractare $32.2 million at June 30, 2006, and $29.9 million at December 31, 2005,respectively.

MPSand WS also agreed to renew the PPA for an additional six years at agreed-uponprices and an increase of output to 136,982 MW beginning in 2001. Energy supplypurchases under this contract through February 29, 2000, were $2.6 million.Purchases from WS after March 1, 2000, are reflected as stranded costs.

MPSestimates its remaining commitment to purchase power under this contract to be$5.8 million from July 1, 2006, through December 31, 2006. Since March 1, 2004,WPS-PDI has purchased 100% of WS’s output.

**Poly ChlorinatedBi-Phenol Transformers**

Inresponse to a Maine environmental regulation to phase out Poly ChlorinatedBi-phenol (“PCB”) transformers, MPS has implemented a program to eliminatetransformers on its system that do not meet the new State environmentalguidelines. The program is in the process of testing almost 13,000 distributiontransformers over a ten-year period. MPS is currently in its fifth year of thisten-year program. In addition, transformers that pass the inspection criteriawill be refurbished and refitted with lightning arrestors and animal guards.The current total estimated cost of the project is $2.6 million; as of June 30,2006, $1.79 million of this total has been spent on this effort.  The remaining cost of the project has beenaccrued on the Balance Sheet as “Accrued Removal Obligations.”

**Off-Balance Sheet Arrangements**

**Variable Interest Entities**

Maricor Properties andthe Maricor Ashford Ltd joint venture are variable interest entities, asdefined by FIN 46(R).  However,Management has determined that these entities should not be consolidated withthese financial statements, as MAM is not the primary beneficiary of thesecompanies.

**Leases**

The Company has severaloperating leases for office and field equipment, vehicles and office space,accounted for in accordance with SFAS 13, “*Accounting for Leases*”.  The following summarizes payments for leasesfor a period in excess of one year:

|                                              | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)** | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| Office Equipment                             |       | $                              | 10         |   | $ | 36 |   |
| Building                                     |       | 110                            |       | 96 |   |
| Vehicles                                     |       | 11                             |       | 6 |   |
| Rights of Way                                |       | 1                              |       | 1 |   |
| Field Equipment                              |       | 21                             |       | 20 |   |
| Total                                        |       | $                              | 153        |   | $ | 159 |   |

 

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

**FutureMinimum Lease Payments by Year For All Items**

|            | ** **   | **Minimum Lease**                       | ** **   |
|------------|--------------|----------------------------------------------|--------------|
| **Years**  | ** **   | **Payments**                                 | ** **   |
| ** ** | *** *** | **(In thousands of dollars)** | *** *** |
| 2006       |         | $                                            | 274          |   |
| 2007       |         | $                                            | 229          |   |
| 2008       |         | $                                            | 231          |   |
| 2009       |         | $                                            | 185          |   |
| 2010       |         | $                                            | 71           |   |

 

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**Financial Information System HostingAgreement**

In December 2003, the Company entered into a ten-yearagreement with Delinea Corporation to host and provide technical and functionalsupport for the integrated Oracle Financial Information System. Hosting feesare $575,000 per year for years 2006-2013, plus an indexed inflation factor.

**9.**               **ISSUANCE OF MARICOR PROPERTIES STOCK ACQUIRED BYASHFORD INVESTMENTS INC.**

 

Maricor Properties Ltd isa Canadian real estate development, redevelopment and investment companyfocused on sustainable development and “smart growth” principles within secondand third tier Canadian markets emphasizing the development and revitalizationof downtowns and existing suburbs.  Itseeks to develop or invest in public and private facility projects involvingthe renewal or development of building infrastructure within revitalizationdistricts, promoting renewal of existing areas, thus negating the need forextension of additional infrastructure and promotion of sprawl.  Maricor Properties was a wholly-ownedsubsidiary of MAM until June 30, 2006.

On that date, MaricorProperties issued one share of its stock acquired by Ashford Investments Inc. (“Ashford”),an unaffiliated real estate management, development, and investment company,for approximately $586,000.  As 50% ownerof Maricor Properties, Ashford assumed 50% of the outstanding debt of MaricorProperties Ltd and its subsidiaries, and it agreed to guarantee Maine &Maritimes Corporation’s debt with Merrill Lynch Mortgage Lending related tofinancing on the Vaughan Harvey Building owned by Maricor Properties inMoncton, New Brunswick and the MacDonald Building owned by Cornwallis CourtDevelopments in Halifax, Nova Scotia.

In accordance with SECStaff Accounting Bulletin (“SAB”) 51, “*Accounting for Sales ofStock by a Subsidiary,”* the Company recognized a gain in the amountof $429,000 as non-operating income. This gain was partially offset by the deferred income tax impact of$172,000.

Under the terms of thisagreement, Maine & Maritimes Corporation and Ashford Investments Inc. arenow equal shareholders of Maricor Properties and its wholly-owned subsidiary,Cornwallis Court Developments Ltd.  WhileAshford, as co-owner of Maricor Properties Ltd, owns 50% of Mecel PropertiesLtd, it does not experience economic benefit or risks associated with thisentity and Mecel’s owned real estate as a result of a shareholders agreementwith MAM.  A 120-day period beginning atthe time of the closing of the transaction has been set aside to either gainnecessary approvals to sell one-half interest in Mecel to Ashford foradditional compensation or to transfer ownership of Mecel to Maine &Maritimes Corporation or another one of its entities.  As part of the shareholders agreement, MAMhas indemnified Ashford against a guarantee by Mecel Properties for a MAM termloan of $1.7 million with Bank of America, described in Note 5.  Ashford Properties, a subsidiary of AshfordInvestments Inc., provides property management services for all propertiesowned by Maricor Properties and its subsidiaries, including Mecel.

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The removal of MaricorProperties and its subsidiaries other than Mecel from these consolidatedfinancial statements constitutes a change in reporting entity under SFAS 154, “*Accounting Changes and Error Corrections – A Replacement of APB OpinionNo. 20 and FASB Statement No. 3.”* Under this guidance, the Company is required to present the prior periodfinancial statements on the same basis as the current period for comparisonpurposes.

 

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Because the sale was completed on June 30, 2006, theConsolidated Statements of Operations for the three- and six-months ended June30, 2006 and 2005 include all activity for Maricor Properties for theseperiods, and are comparable statements. However, this change in reportingentity will impact future Consolidated Statements of Operations.  The Consolidated Balance Sheet for December31, 2005, has been presented as if Maricor Properties and Cornwallis were treatedas equity investments at that time, rather than consolidated, so that theinformation contained in that Balance Sheet is comparable to the June 30, 2006,presentation.

**10.**        **PACE ACQUISITION**

 

On May 12, 2006, TheMaricor Group, Canada Ltd purchased certain assets of Pace Engineering Limited (“Pace”),a New Brunswick company specializing in electrical engineering designservices.  TMGC did not acquire anyreceivables arising from invoices dated before May 15, 2006, or any real estatefrom Pace.  The present value of thepurchase price is approximately $413,000, including three future payments thatare contingent on achieving certain levels of revenue within TMGC’s electricalengineering division.  These paymentshave been accrued.  Management believesthis transaction will improve TMGC’s market position with respect to facilitieselectrical engineering and positions TMGC as the largest electrical designengineering firm in Atlantic Canada.

**11.**        **SUBSEQUENT EVENTS**

 

On July 5, 2006, MaricorProperties borrowed $2.45 million CDN from Merrill Lynch Mortgage Lending torefinance temporary debt at the Royal Bank of Canada.  The new debt is a 10-year mortgage loan, withmonthly payments of principal and interest based on a 25-year amortizationschedule throughout the term of the loan, and the remaining loan balancepayable at the end of the term.  Theinterest rate is variable, calculated as the greater of (a) 135 basis pointsover the yield on the Government of Canada mortgage benchmark bond most closelyapproximating the term of the loan or (b) a floor of 5.20%.  As of the date of borrowing, the interestrate was 6.011%.  This loan is secured bythe Vaughan Harvey Blvd. property in Moncton, New Brunswick, and is guaranteedby Ashford Investments Inc., which is a 50% equity owner of Maricor Properties.

Under the terms of thecredit agreement with Katahdin Trust Company, the $1 million TMG line of creditmust be repaid in full for at least one 30-day period during each year.  On July 19, 2006, Katahdin Trust Company waivedthis requirement for 2006.

On August 4, 2006, MaricorProperties also borrowed $4.05 million CDN from Merrill Lynch Mortgage Lendingto refinance the J. Angus MacDonald Building. The proceeds were used to repay the Standard Life mortgage.  The debt is a 10-year mortgage 

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loan, with monthly paymentsof principal and interest based on a 25-year amortization schedule throughoutthe term of the loan, and the remaining loan balance payable at the end of theterm.  The interest rate is variable,calculated as the greater of (a) 135 basis points over the yield of theGovernment of Canada mortgage benchmark bond most closely approximating theterm of the loan or (b) a floor of 5.20%. As of the date of borrowing, the interest rate was 5.695%.  This loan is secured by the J. AngusMacDonald building, and is guaranteed by Ashford Investments Inc., which is a50% equity owner of Maricor Properties.

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**PART 1.FINANCIAL INFORMATION**

***Item 2. Management’sDiscussion and Analysis of Financial Condition and Results of Operations***

**Forward-Looking Statements**

This filing contains certain “forward-lookingstatements” as defined in the Private Securities Litigation Reform Act of 1995,related to the expected future performance of our plans and objectives, such asforecasts and projections of expected future performance or statements ofManagement’s plans and objectives.  Theseforward-looking statements may be contained in filings with the SEC and inpress releases and oral statements.  Weuse words such as “anticipate,” “estimate,” “expect,” “project,” “intend,” “plan,”“believe,” and other words and terms of similar meaning in connection with anydiscussion of future operating or financial performance.  These statements are based on the currentexpectations, estimates or projections of Management and are not guarantees offuture performance.  Some or all of theseforward-looking statements may not turn out to be what the Companyexpected.  Actual results will differ,and some of the differences may be material. Factors that could cause actual results to differ materially from ourprojections include, among other matters, liquidity and capital formation risk;lack of profitable operations from unregulated businesses; acquisition andintegration risks; legislation and regulation; foreign operations; generaleconomic conditions, including economy of the region, interest rate risk, valueof real estate and inflation risk; the degree of exclusivity of franchises;competition, environmental risks; aging infrastructure and reliability risks;collections risk; attraction and retention of qualified employees; equity pricerisk; professional liability risks; technological obsolescence; weather;vandalism, terrorism and other illegal acts; information technology risks; andalternative generation options. Therefore, no assurances can be given that the outcomes stated in suchforward-looking statements and estimates will be achieved.

**Executive Summary**

Although incurring a lossof $310,000, MAM’s overall financial performance improved on aquarter-to-quarter comparison basis to prior year, largely attributable to thesale of stock of Maricor Properties Ltd. MAM incurred a loss of $798,000 during the same quarter of 2005.  Total operating revenues for regulated andunregulated operations contributed to the improvement with consolidatedoperating expenses only moderately increasing. Other income improved on a quarterly comparison basis as well, whileinterest charges were up as a result of increased interest expenses and lowerstranded cost carrying charges.  Althoughrecognizable improvements for the quarter were experienced, on a consolidatedbasis MAM experienced a loss of $0.19 per share compared to $0.49 during thesecond quarter of 2005.  The current yearloss per share is net of the $0.16 per share benefit from the gain on the saleof one share of Maricor Properties, representing a 50% ownership.  Historically, MAM’s second and third quartersare typically impacted by lower earnings from its regulated utility due to itsrate design approved by the MPUC that results in lower per KWH costs during thesecond and third quarters, as opposed to first and fourth quarters.

Management believes MAM’s ability to improve itsfinancial performance, both in the short and long-term, will be greatlydependent upon its ability to ensure a fair return on its regulated assets, aswell as significantly increasing TMG’s growth through acquisitions and improvedorganic growth, while more aggressively implementing Maricor Properties Ltd’sreal estate development and investment strategies.  During the quarter, MAM’s regulated utilitysuccessfully achieved what MAM believes is a fair rate increase stipulationbalancing the economic expectations of shareholders with regulators’ concernsto ensure consumers receive an equitable and competitive price for electricdelivery services.  Based on currentstrategic activities, Management believes meaningful steps are being taken toincrease the performance of MAM’s unregulated operations.  Should MAM not succeed in achieving increasedand timely growth of unregulated operations through acquisitions, increasedorganic growth, and improved access to growth capital, Management will presentto its Board of Directors alternative strategies to create shareholder valuethat could include, but are not necessarily limited to the sale of unregulatedoperations, strategic mergers, and changes in strategic focus.  As noted, the sale of Maricor Properties Ltdstock contributed to earnings, while also furthering its strategy to expand itsreal estate focus and ability to raise capital for larger and more significantinvestment projects.  Although Managementcannot warrant with certainty additional sales of Maricor Properties Ltd stock,efforts continue to potentially expand the investment base in the company andits real estate projects, including the potential sale of additional shares ofstock in Maricor Properties, as well as creating new real estate investmentjoint ventures.

On a consolidated basis, MAM’s revenues increasedquarter-to-quarter by approximately $761,000. Second quarter 2006 revenues were $9.26 million, as compared to $8.5million during the same quarter in 2005, reflecting revenue gains in itsregulated and unregulated segments. Consolidated expenditures on a quarter-on-quarter basis wereapproximately $251,000 higher than in the same quarter during 2005.  Actual expenditures in the second quarter of2005 of $9.06 million rose to $9.31 million during the same quarter of2006.  This increase reflects a declinein regulated expenditures of $254,000 and an increase in unregulated expensesof $167,000, an increase in depreciation expense of $77,000, and an increase inthe provision for income taxes within MAM’s regulated segment of approximately$341,000.  A decrease in costs on aquarter-to-quarter basis related to a decline in amortization of approximately$79,000.  This decline was attributableto a one-time retroactive adjustment in the amortization period for the Oraclesystem, in accordance with the terms of the above-mentioned rate stipulation,as well as the backlogs from the RES and M&R 

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acquisitions becoming fully amortized.  Another significant transaction impactingincome was the $429,000 gain from the sale of Maricor Properties Ltd stock,offset by the corresponding increase in the consolidated provision of incometaxes of $172,000.

Results among MAM’s subsidiaries varied due to anumber of specific factors.  MPS’scontribution to MAM’s earnings improved by $321,000 comparing the same quartersfor 2006 and 2005.  The net income forMPS was $13,000 as compared to a 2005 second quarter net loss of $308,000.  Although MPS’s total revenues were up by$341,000 on a quarter-to-quarter comparison basis, actual megawatt hour (“MWH”)consumption was down by 2,326 MWH (1.7% decline in volume) due to milder thannormal weather and a lack of economic growth within its service area.  Further, its revenues were positivelyimpacted by an increase in other or miscellaneous revenues of approximately$494,000 on a quarter-to-quarter comparison basis.  This increase was in large part due tosubcontracting services for construction of transmission facilities to serve anew wind generation project, Evergreen Windfarm, LLC, under construction withinMPS’s service area.  Overall expenditureswere down for the quarter by $254,000 as a result of a number of contributingfactors, including but not limited to decreased labor costs as a result ofsubcontracting and a decrease in administrative and general expenses.

Management is alsomonitoring the impact of MPS’s pension plan on overall operating results andcash flows.  Management and the Board ofDirectors are actively evaluating options to control such costs and risksassociated with MPS’s defined benefit pension plan and recognize that actionsmust be taken to address challenges associated with retiree benefits.  While Management cannot predict withcertainty which solution will be implemented or when, it does recognize thatdefinitive actions must be taken due to the increasing costs and risks associatedwith its defined benefit pension plan.

The Maricor Group and its subsidiaries, The MaricorGroup, Canada Ltd and The Maricor Group New England, experienced a modestconsolidated increase of $59,000 in revenues as compared to the same period in2005.  Operating expenses increased by $329,000reflecting increased payroll costs and an increase in bad debt expense of$102,000 due to a reduction in the estimated reserve in prior years offset bybad debt expense in the current year. TMG’s consolidated net income declined by $154,000 on a quarter-to-quartercomparison basis as a result of a number of factors including, but not limited,to costs associated with acquisitions, slower than anticipated sales within itsNew England market, continued investment in additional employees, and increasedinvolvement in longer sales cycle offerings. TMG’s net loss for the quarter was $186,000, as compared to a loss of$32,000 in the same quarter of 2005.

The Maricor Group, Canada’s revenues increased by 27%for the quarter, as compared to the prior year’s same quarter, partially due tothe acquisition of Pace Engineering Ltd and increased organic growth withinCanada.  Sales pipeline activity withinTMGC’s market has increased, particularly within its Nova Scotia marketreflecting awards for larger scale projects, such as a new hospital engineeringdesign project in Nova Scotia.  TMGC hasmade more meaningful progress in advancing the firm’s full line of serviceofferings than TMGNE, particularly in the area of energy services.  As a result of TMGNE’s lagging performance,Management has employed new management for the TMGNE business unit, employed anew human resources executive for TMG, and is actively seeking to expand itsemployment base within the New England and Atlantic Canadian regions, includingthe addition of full-time professional business development associates.  Further, TMGNE is in the process ofattempting to expand its energy services offerings, shifting executionresources on a full-time or part-time basis from Canada to New England.

TMG’s continued progress is highly dependent upon itsability to adequately capitalize the company, including the formation of growthcapital, and invest in expansionary activities, such as the hiring of full-timebusiness developers capable of selling across all product and service lines, aswell as more rapid and increased scale relevant acquisitions.  While cost control is important, TMG’semphasis must concentrate on increasing its revenues, particularly throughimproved marketing and sales of higher value and margin offerings in the energyservices area, while ensuring all senior members of the TMG organizationcontribute to revenue generation, as well as execution efforts.  Management is taking steps to achieve thesegoals, but cannot warrant that it will be successful in raising the necessarygrowth and operating capital to facilitate the required expansion.

During the second quarter of 2006, Maricor PropertiesLtd issued one share of its stock to Ashford Investments Inc., an AtlanticCanadian real estate development and investment company for approximately$586,000, resulting in a gain of $429,000 partially offset by the deferredincome tax impact of $172,000. Accordingly, MAM and Ashford now own equal shares of Maricor Propertiesand its subsidiaries.  However, Ashforddoes not receive economic benefit from and is indemnified from liabilitiesassociated with Mecel Properties Ltd. Over a one hundred and twenty day period after the sale of the share,MAM will execute a strategy to sell half of Mecel’s economic interest foradditional compensation to Ashford, or transfer Mecel’s ownership to MAM orsome other subsidiary.  While Managementcannot warrant success in selling additional shares in Maricor Properties, itis continuing to seek investors to facilitate the expansion and continuedinvestment in real estate.  Including thesale of the share to Ashford, Maricor Properties experienced net income of$187,000 as compared to a loss of $23,000 in the second quarter of 2005.  Excluding this transaction, Maricor Propertieslost approximately $70,000 during the second quarter, primarily due toincreased lease amortization expenses associated with the acquisition ofCornwallis Court Developments.

As a result of the sale of this share, MAM performedan analysis in accordance with FIN 46(R), “*Consolidation of Variable*

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*Interest Entities – an Interpretation of ARB No. 51”*to determine the primary beneficiary of Maricor Properties.  Management determined that, under the termsof the shareholder agreement with Ashford, MAM remained the primary beneficiaryof Mecel, but not of the other components of Maricor Properties, including theVaughan Harvey building and Cornwallis. Based on this determination, Mecel remained consolidated in thesefinancials, while the other subsidiaries are accounted for under the equitymethod in accordance with Accounting Principles Board (“APB”) 18, “*The Equity Method of Accounting for Investments in Common Stock.” *As a result, certain lines of thebalance sheet were significantly reduced, including fixed assets, whichdecreased by $7.24 million; intangible assets, which decreased by $600,000;long-term debt, a decrease of $3.11 million; and notes payable, a decrease of$3.85 million.

The continued growth and success of Maricor Propertiesis dependent upon its ability to identify new real estate development andinvestment opportunities within Atlantic Canada, as well as to raise additionalcapital to facilitate such investments. Management continues to explore with its new investor, Ashford, additionalinvestor opportunities, as well as additional means to raise capital to enableadditional investments in both real estate development and acquisitionopportunities.  Additional projects havebeen identified.  However, leveragingthese opportunities will be dependent upon Maricor Properties’ and itsinvestors’ abilities to raise capital or create new joint ventures thatfacilitate further investments and growth.

Maricor Technologies experienced a net loss of$157,000 during the second quarter, as opposed to a loss of $78,000 during thesecond quarter of 2005.  During thesecond quarter MTI released an expanded and revised version of its iPlanTMsoftware solution, shifting its focus more toward facility asset performancemanagement and governance in the areas of energy, security, and environmentalmanagement and reporting.  MTI continuesto focus primarily on selling to larger channel market partners versus the masscustomer market and has a number of existing possible channel marketsales.  However, Management cannotwarrant that these sales opportunities will occur.

The Company’s cash and cash equivalents as of June 30,2006, were $371,000, down from $781,000 at December 31, 2005.  The “Statements of Consolidated Cash Flows”of the Company’s Consolidated Financial Statements as presented in Part I, Item1. of this Form 10-Q, reflects the Company’s sources and uses of capital.  Due to negative cash flows from stranded costdeferrals for MPS and start-up cash requirements for TMG and its otherunregulated subsidiaries, Management is working to ensure the Company hasadequate credit capacity for 2006 to cover sinking fund payments, constructionactivities and other financial obligations. To ensure adequate cash flows,Management is structuring additional short-term borrowings, evaluating certainrefinancing opportunities, and may consider selling certain assets.

Management continues to develop and execute strategiesto address their short-term cash flow challenges during 2006.  Management executed a short-term loan withBank of America for $1.7 million to bridge itself to improved cash flows thatshould occur as a result of collections of deferred stranded costs during theapproximate coming five years.  Whileliquidity has improved due to the short-term loan and sale of a share inMaricor Properties, MAM has a continuing need to raise capital, through debt orequity instruments, to further its growth strategy and improve overalloperations.  While MAM’s unregulateddiversification and growth strategy remain in their infancy, further successesare tied greatly to the availability of capital, both investment andoperating.  Improved economic performanceof existing unregulated subsidiary operations is important and steps, such asrecruitment of new experienced management and increased focus on humanresources management, have been implemented. Management continues to believe that adequate capitalization, increasedpace and scale of acquisitions, and enhanced business development are criticalkeys to MAM’s unregulated organizations’ collective financial performance, bothin the near and long-terms.  Further,Management believes that consolidation of subsidiaries may be required to allowfor increased focus and reduction of costs. Management continues to seek both organic (increased marketing and salescapabilities) and inorganic growth (mergers and acquisitions) opportunities, aswell as means to raise growth capital, which may take a number of differentdebt or equity forms.

Management recognizes a number of economic andoperating challenges; however, it believes its long-term outlook isencouraging.  Management remainsconfident that its unregulated value propositions are closely aligned withincreasing market demands and trends. Management does not believe a status quo or “stay as you are” strategicoption exists to create long-term shareholder value for MAM.  Further, given the impact of electricderegulation, generation divestiture, and disaggregation of the electricutility industry within Maine, combined with the lagging economy of MPS’sservice area, Management does not believe reverting solely to its coreregulated wires business can generate adequate long-term shareholdervalue.  However, Management does believethat its regulated and unregulated operations’ performance must be enhanced ina timely manner.

Management is focused on increasing earnings acrossall business lines or eliminating less productive opportunities.  However, should the Company not achieve alevel of unregulated growth consistent with the need to create long-termshareholder value within a reasonable timeframe, Management and the Board ofDirectors will need to assess strategic alternatives to its current growthstrategy.  Resulting actions could involvethe sale or partial sale of certain or all unregulated assets or otheralternatives, recognizing the need to act prudently in protecting and enhancinglong-term shareholder value.  Managementdoes believe that the timely and efficient implementation of the Company’sgrowth strategy, cost control within its utility operations, and streamliningof 

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operations can result in achieving desired long-termshareholder value.  Management isactively seeking acquisition opportunities and is actively seeking to raisecapital to facilitate a more rapid growth trajectory and improved economicperformance.

Given MAM’s need to invest in its future and expandits scale to improve its overall financial performance, particularly itsunregulated operations, Management cannot warrant that it will resume payingdividends at historic levels or on a continuing basis until its cash flows andearning performance improve.  Further,and as noted, Management believes that it must address the under capitalizationissues facing the Company before considering a dividend for its commonshareholders.  However, it is Management’sgoal to expeditiously enhance the performance of the Company and to continue asa yield and growth-at-a-reasonable price stock. Management believes its strategy is sound and that meaningful progressis being made in the firm’s overall structural and economic transition.

MAM recognizes that it faces a number of majorchallenges including, but not limited to, (a) capital formation, (b) its paceof acquisitions, (c) ability to recruit and retain key staff, (d) the speed ofexecution of its overall strategy, (e) improved sales traction, and (f)evolving trends within the regulated electric utility sector.  Given MAM’s need for growth capital,Management will be required to evaluate and potentially implement an array ofcapital formation strategies that could prove to be dilutive, at least in theshort term.  Further, given the limitednumber of potential acquisition candidates, Management cannot assure withcertainty that each acquisition will prove to be accretive.  Given current merger and acquisition trendswithin the electric utility industry to attain scale and create increasedshareholder value, Management anticipates that its regulated utility operationswill be impacted over the coming years by scale-related pressures resultingfrom mega-mergers within the electric utility competitive space.

In addition to market and operating challenges, MAMdoes expect increased costs associated with compliance of the Sarbanes-OxleyAct (“Sarbox”).  Given the scale of MAM’sorganization, remaining publicly traded will create increased compliance coststhat may be a larger percentage of revenues as compared to largerpublicly-traded corporations.  While MAMand its Management are committed to full compliance with Sarbox, we recognizethe significant costs both monetarily and in terms of management bandwidth.

***Overview of Company Strategy***

MAM’s overall strategy was developed in response to anumber of converging macro-economic trends that Management believes continue todrive increasing market opportunities, both near and long-term.  The continuing turbulence within the energyindustry, exacerbated by geo-political conflicts and growing third-world demandfor energy, is having significant energy price, supply, and security impacts onbusinesses and organizations within North America.  While an increasing emphasis is being placedon supply-side issues by north American governments, we see expandinggovernmental mandates and a renewed customer-driven need to improve energyefficiency (demand side management) and control energy-related costs.  As energy-related issues remain at theforefront of public policy issues, and an increasing cost and reliabilityconcern for businesses and organizations, MAM believes there will be anincreasing demand for energy efficiency-related services and solutions withinNorth America, including an expanded marketplace interest in “on-site” andalternative energy or distributed electric generation.

While energy is at the forefront of driving macro-economictrends, Management believes there is an increasing north American awareness ofglobal warming or climate change correlated with an increasing call to actionto address carbon emissions reductions. We believe that energy efficiency ordemand-side management, alternative or distributed “on-site” generation usingcleaner fuels, sustainable asset management techniques and sustainable or “green”engineering designs are essential to reducing emissions from the builtenvironment.  We continue to see growingprivate and public sector mandates to address climate change, both in theUnited States and Canada.  As more andmore businesses and governments adopt a sustainable approach to their actions,we believe opportunities will evolve related to the market demand forsustainable facility and infrastructure performance management andenergy-related solutions.

While energy costs and environmental issues, such ascarbon emissions reductions, remain a concern, businesses and governments arefacing a significant financial challenge as they realize the economic threatscreated by escalating deferred maintenance liabilities of infrastructureessential to our economy.  As businessesand organizations continually underfund their capital renewal and assetmaintenance programs, many are now faced with staggering and growing deferredmaintenance liabilities.  In many cases,the deferred maintenance on facility and energy-related infrastructure assetsthreatens the continued viability of such assets.  Increasingly, MAM believes businesses andgovernments are requiring more sophisticated capital expenditure planning,working to ensure that every capital dollar spent is the most optimalinvestment they can make.  To addressburgeoning deferred maintenance liabilities and increasing variable operatingcosts, organizations are looking to advanced business processes that can helpextend the functional and economic lifecycle of physical assets throughimproved analytics and better facility performance management reporting systems.  MAM believes that by enhancing energyefficiency (demand-side management) and controlling organizations’energy-related expenditures, an entity can “free-up” capital to address theirdeferred maintenance liabilities. Further, by designing and building new energy-related and energyefficient facilities-related infrastructure, operating costs can be reducedand/or risks reduced while built environment assets are renewed.

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As evidenced by the passage of the Sarbanes-Oxley Actand other regulatory actions, there are increasing interests in and growingmandates to improve the transparency of asset governance reporting.  Businesses and organizations are beingpressed to provide increasing details concerning the performance of ownedassets, both from an economic and environmental perspective. Consequently, wealso see an emergence of market interests in improved asset governancereporting, a critical part of MTI’s sustainability-centric solutions that alsoaddress organization’s energy, emissions reductions, and deferred maintenanceneeds.

We believe the convergence of these issues is creatinga substantial marketplace demand, with current solutions and services beingminimal.  Addressing these issues andadvancing businesses’ and organizations’ achievement of a stakeholder-centric “triplebottom line” requires the integration of physical, intellectual, andtechnology-based assets that when combined results in integrated value chainsolutions to pressing and on-going challenges regarding our aginginfrastructure, global warming or climate change, energy pricing and security,and our ability to support the sustainable needs of society. Through theamalgamation of diverse, but relevant skills and technologies in the buildingsciences, engineering, information technology, and energy consulting fields,MAM is positioning itself to be a leading professional services, product andasset-based solutions company.

MAM’s unregulated operations are increasingly focusedon sustainable and “green” solutions, progressively building professionalservices competencies to provide products, services, and solutions, such as,but not limited to (a) sustainable university and college campus planningwith a strong focus on campus energy infrastructure, (b) energy efficiency(demand-side management) evaluations and solutions focused on the governments,hospitals, universities, schools, institutional and office commercial markets,(c) sustainable asset management ranging from facility infrastructurecondition assessments to capital planning to facility renewal, (d) on-siteenergy asset development including co-generation, alternative fuel anddistributed generation solutions, (e) energy supply management, (f) sustainablereal estate development and renewal, including public and private partnershipssuch as the construction and ownership of university dormitories,(g) sustainable and transparent asset governance and reporting, and(h) LEEDTM engineering design services.

MAM’s execution strategy involves a combination oforganic and inorganic strategies. However, key to amassing the requisite talent and core competencies is aproposed aggressive acquisitions program. Simply hiring one individual talent at a time will not enable thenecessary ramping-up of the business to achieve the required scale and desiredlevel of profitability.  Recognizing thatthere are limited acquisition opportunities across North America, MAM’sefficiency in identifying potential targets, undertaking due diligence, formingcapital and closing transactions in a timely manner is critical.  Given that few, if any, potential acquisitioncandidates exist today that provide the full array of proposed integrated sustainableservices, products, and assets, MAM recognizes its need to acquire companiesthat bring discrete portions of the value proposition and amalgamate integratedservices offerings across acquired companies through the organic development ofa high level business development and transaction structuring organization.Such a high level, organically-grown business development staff will requireexperienced individuals with a high degree of relative domain knowledge.  Through these senior staff members, solutionsto clients’ needs can be crafted using multiple discreet offerings orcapabilities, integrated into a seamless solution.  Each individual offering will continue to besold on a “one-off” basis, such as selling engineering design services. However,the more complex and higher value integrated offerings will need to be sold andmanaged by a higher level business development organization currently beingorganized and staffed.

While Management believes MAM’s strategy iswell-aligned with existing and projected macro-economic trends, it believes itssuccess will depend on the Company’s ability to expeditiously (a) recruit,train and execute a high level business development organization, (b) hirehighly qualified professional engineers, technicians, financial engineers,architects, environmental scientists and other professional services supportingthe built or facility infrastructure environment, (c) identify, undertakedue diligence, acquire and integrate multiple companies providing required corecompetencies and (d) to form adequate working and growth capital tosupport the Company’s organic and inorganic growth strategies.  Management further believes, given itsholding company structure, that the Company’s unregulated operations mustachieve increased scale, allowing for necessary critical mass to supportcorporate-related costs and ensure meaningful contribution to earnings pershare.

MAM’s strategy includes the continuing operation ofits regulated utility, Maine Public Service Company. However, given theprojected decline in its regulatory rate base over time, as stranded costrecovery occurs, Management believes earnings will slowly decline over the nextsix or more years and then become more static. MPS will continue to be challenged by cost pressures, and while along-term meaningful contributor to earnings per share today, Management doesnot believe it can create growing long-term shareholder value unlessunregulated operations are grown in a more expeditious manner.  Management recognizes that in the post-PublicUtilities Holding Company Act (“PUHCA”) repeal era, approved as part of theU.S. 2005 Energy Policy Act, there is an increasing probability of utilitymergers.  We believe these mergers willresult in extremely large regulated utilities serving multiple jurisdictionsand with a scale allowing for potentially decreasing per unit cost services inthe transmission and distribution areas. Over time, Management expects that scale will play an important role inthe success formula for all regulated utilities.  Consequently, we recognize that strategiesmust be developed and implemented to address this potential trend that couldimpact the earnings and future of MPS.

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Management emphasizes that its success in growing thecompany and executing on its strategy is highly dependent upon capitalformation.  While Management isevaluating and pursuing a number of different options to form operating andgrowth capital, it cannot assure its success in gaining the necessary capitalto grow in a timely and progressive manner. Further, Management believes that it must streamline its portfolio ofoperations to ensure a greater focus on The Maricor Group’s operations, whichmay, but is not necessarily limited to, consolidating companies and divisions,as well as exiting certain less core operations.  The sale of one share of Maricor Propertieswas part of Management’s overall strategy to strategically align with otherpartners, while allowing for increased focus on MAM’s primary growth strategy.

***Critical Accounting Policies***

The Company’s critical accounting policies aredisclosed in MAM’s 2005 Form 10-K.

**Sales of Stock by a Subsidiary**

On June 30, 2006, Maricor Properties sold one share ofstock to Ashford Investments Inc., making Ashford and MAM equal owners of thecompany.  In accordance with SEC StaffAccounting Bulletin (“SAB”) 51, “*Accounting for Sales ofStock by a Subsidiary*,” the cash consideration received in excess ofMAM’s carrying value has been reflected as a gain in the consolidated financialstatements, in the amount of $429,000, as non-operating income.  This gain was partially offset by thedeferred income tax impact of $172,000. Under the terms of SAB 51, future sales of stock by a subsidiary wouldbe required to be reported as a gain or loss, instead of as equitytransactions, should any such transactions occur.

**Goodwill Impairment Analysis**

The Company’s business acquisitions may result ingoodwill and other intangible assets, which affect the amount of future periodamortization expense and possible impairment expense that the Company willincur. The Company has adopted Statement of Financial Accounting Standards (“SFAS”)No. 142, “*Goodwill and Other IntangibleAssets,”* which requires that the Company, on an annual basis,calculate fair value of the reporting units that contain the goodwill andcompare that to the carrying value of the reporting unit to determine ifimpairment exists. The Company’s annual impairment assessment date is November30. Impairment testing must take place more often if circumstances or eventsindicate a change in the impairment status.

Within The Maricor Group, earnings lagged expectationsduring the quarter for a number of transitional and market reasons including,but not necessarily limited to: (a) expenses associated with long lead timesales cycles, (b) expenses associated with transitioning to additional andhigher value product and service lines, and (c) speed in attracting and hiringadditional engineering and engineering technician talent.  Therefore, Management performed an interimimpairment analysis of goodwill of The Maricor Group as of May 31, 2006, inaccordance with SFAS 142.  No impairmentof goodwill was noted in this assessment.

In calculating the fair value of the reporting units,Management relies on a number of factors including operating results, businessplans, economic projections, anticipated future cash flows and transactions,and marketplace data. There are inherent uncertainties related to these factorsand Management’s judgment in applying them to the analysis of goodwill.  In analyzing potential impairment, managementhas evaluated marketplace data and trends as it relates to businesses operatingwithin the same competitive space and geographies.  Management believes its assumptionsassociated with its discounted cash flow analysis, as well as comparables, arereflective of the marketplace.  If actualfair value is less than the Company’s estimates, goodwill may be overstated onthe balance sheet, and an impairment charge would be recorded against netearnings.

The reporting units were defined as the mechanical andelectrical engineering operations acquired as RES, M&R and Eastcan, andadditional service lines added since acquisition were excluded from theanalysis.  As TMG amalgamates operationsand expands services and markets, Management believes that over time thereporting unit will be consolidated to reflect the operating interactions andorganizational structure of a consolidated TMG (including TMGNE and TMGC) asone reporting unit versus TMG and its individual subsidiaries each asindividual reporting units.  This isincreasingly likely as contracts are won in an expanding geographic market andas enterprise teams of individuals from differing reporting units andgeographies execute such contracts, reflecting a more traditional structure fora professional services consulting firm.

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***Overall Results ofOperations—Consolidated***

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

|                                                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                        | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(dollars in thousands except per share amounts)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Income from  Continuing Operations                                                |       |                             |       |                           |       |   |   |   |   |
| Regulated Electric Utility                                                        |       | $                                | 13         |                           | $          | (308) |   | $ | 1,216 |   | $ | 1,389 |   |
| Unregulated Engineering Services                                                  |       | (186                             | )          | (32                            | )          | (355 | ) | (184 | ) |
| Unregulated Real Estate Holdings                                                  |       | 187                              |       | (23                            | )          | 100 |   | (53 | ) |
| Unregulated Software Technology                                                   |       | (157                             | )          | (78                            | )          | (262 | ) | (91 | ) |
| Other*                                                                            |       | (169                             | )          | (354                           | )          | (478 | ) | (587 | ) |
| Income from  Discontinued Operations                                              |       | 2                                |       | (3                             | )          | 2 |   | 5 |   |
| Net (Loss)  Income                                                                |       | $                                | (310       | )                              | $          | (798) |   | $ | 223 |   | $ | 479 |   |
| Basic (Loss) Earnings  Per Share                                                  |       | $                                | (0.19      | )                              | $          | (0.49) |   | $ | 0.14 |   | $ | 0.29 |   |

 

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**The “Other” line includes corporatecosts directly associated with the unregulated subsidiaries, common costs notallocated to the regulated utility and inter-company eliminations.*

Explanation of the operating results by segment ispresented below.

***Interest Expense***

Interest Expense is accrued on the Company’s long-termdebt and short-term credit arrangements in accordance with debt agreements.Interest Expense on long-term debt and short-term credit arrangements were$914,000 and $665,000 for the quarters ending June 30, 2006 and 2005,respectively. For the six months ended June 30, 2006, and 2005, interestexpense was $1.8 million and $1.31 million, respectively.

A portion of the increase in interest expense is theaddition of the MAM line of credit with Bank of America, on which MAM incurred$50,000 of interest expense in the second quarter of 2006 and $94,000year-to-date.  MAM did not have a line ofcredit in the first two quarters of 2005. Increasing debt levels at MPS also led to $69,000 more in interestexpense, while increasing rates on MPS’s variable rate short-term debtincreased interest expense by $70,000. The remaining increase is primarily due to increased debt levels atMaricor Properties, as a result of the acquisition of Cornwallis in the fourthquarter of 2005.

***Income TaxProvision (Benefit)***

The income tax provision for MPS was $43,000 for thesecond quarter of 2006, compared to an income tax benefit of $298,000 for thequarter ended June 30, 2005, due to the improved performance of the utilityyear-over-year. The regulated utility provision for income taxes for the sixmonths ended June 30, 2006, and 2005, was $793,000 and $780,000, respectively.The unregulated tax benefit for the quarter ended June 30, 2006, was $335,000compared to $334,000 for the same period in 2005. For the first six months of2006 and 2005, this benefit was $795,000 and $587,000, respectively, due to agreater loss from continuing operations during 2006. The effective tax ratesfor 2006 and 2005 were consistent at 46.2%.

***Taxes Other ThanIncome***

Taxes other than income were $461,000 and $453,000 forthe quarters ended June 30, 2006, and 2005, respectively, and $994,000 and $928,000for the six months ended June 30, 2006, and 2005, respectively. Taxes otherthan income include payroll taxes and property taxes.

Taxes other than income for the engineeringsubsidiaries are classified as cost of sales for taxes related to labor dollarsfor employees who work directly on engineering projects, and presented on theStatement of Consolidated Income within “Unregulated Operation and Maintenance.”

***RegulatedOperations***

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

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|                                                                                   | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                                        | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(dollars in thousands except per share amounts)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net (Loss) Income  — Regulated Electric Utility                              |       | $                                | 13         |                           | $          | (308 | ) | $ | 1,216 |   | $ | 1,389 |   |
| (Loss) Earnings Per  Share from Regulated Electric Utilities                      |       | $                                | 0.01       |                           | $          | (0.19 | ) | $ | 0.74 |   | $ | 0.85 |   |

 

MPS core T&D earned income of $13,000 for thesecond quarter of 2006 compared to a net loss of $308,000 incurred in thesecond quarter of 2005.  For the firsthalf of 2006, earnings were $1.22 million, compared to $1.39 million in thefirst half of 2005.  The changes inoperating revenue and expense are explained below.

***Regulated OperatingRevenue***

Consolidated Revenues and Megawatt Hours (“MWH”) forthe three and six months ended June 30, 2006 and 2005, are as follows:

|                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **June 30, 2006**      | ** ** | **June 30, 2005**    | ** ** | **June 30, 2006** | ** ** | **June 30, 2005** | ** ** |
| **(In thousands of dollars)** | ** ** | **Dollars**                      | ** ** | **MWH**                        | ** ** | **Dollars** | ** ** | **MWH** | ** ** | **Dollars** | ** ** | **MWH** | ** ** | **Dollars** | ** ** | **MWH** | ** ** |
| Residential                                  |       | $                                | 3,263      |                           | 41,537     |   | $ | 3,320 |   | 41,805 |   | $ | 7,198 |   | 91,843 |   | $ | 7,325 |   | 93,121 |   |
| Large Commercial                             |       | 1,019                            |       | 42,746                         |       | 1,073 |   | 43,612 |   | 2,624 |   | 86,720 |   | 2,699 |   | 87,117 |   |
| Medium Commercial                            |       | 1,005                            |       | 24,687                         |       | 1,038 |   | 25,832 |   | 2,820 |   | 51,215 |   | 2,839 |   | 52,672 |   |
| Small Commercial                             |       | 1,305                            |       | 21,444                         |       | 1,311 |   | 21,480 |   | 3,590 |   | 46,939 |   | 3,672 |   | 48,250 |   |
| Other Retail                                 |       | 205                              |       | 839                            |       | 208 |   | 850 |   | 413 |   | 1,692 |   | 415 |   | 1,694 |   |
| Total Regulated  Retail Revenue              |       | 6,797                            |       | 131,253                        |       | 6,950 |   | 133,579 |   | 16,645 |   | 278,409 |   | 16,950 |   | 282,854 |   |
| Other Revenue                                |       | 617                              |       |                           |       | 123 |   |   |   | 820 |   |   |   | 437 |   |   |   |
| Total Regulated Revenue                      |       | $                                | 7,414      |                           |       |   | $ | 7,073 |   |   |   | $ | 17,465 |   |   |   | $ | 17,387 |   |   |   |

 

Total revenue increased $341,000 or 4.8% from thesecond quarter of 2005 to the same period in 2006, with other revenueincreasing $494,000.  The increase inother revenue is driven by a $460,000 increase in miscellaneous service revenuedue to the Company’s contract work performed on the Evergreen Windfarm projectsin Mars Hill, Maine, as well as several other billable jobs.

Partially offsetting the increase to other revenue wasa decrease of $153,000, or 2.2% in sales revenues from the second quarter of2005, to the second quarter of 2006. Total sales volume decreased by 2,326 MWH or 1.7%, with the medium andlarge commercial classes decreasing quarter-over-quarter by 1,145 MWH and 866MWH, respectively.  The medium commercialclass decrease resulted from cooler than normal temperatures and the resultingdelay in usage of air conditioning in businesses, early crop movement ofseveral large potato growers and reduced activity at the National Guard vehiclerehabilitation facility during the second quarter of 2006.  A large wood products customer temporarilyshut down a chipping facility for the second quarter of 2006, accounting formost of the large commercial class decrease. The residential, small commercial and other retail classes wererelatively flat.

Total regulated revenue for the first six months of2006 increased $78,000 or 0.4% over the same period in 2005.  Other revenue is up by $383,000, due anincrease in billable jobs in 2006, offset by decreases in sales revenues of$305,000 or 1.8%.  Sales volumes for thefirst six months of 2006 decreased 4,445 MWH or 1.6% compared to the sameperiod in 2005.

On January 11, 2006, MPS filed a notice with the MPUCunder Docket No. 2006-24 that it intended to seek a 4% increase in overallelectric rates.  Subsequently, on March 13, 2006, the Company filed for anincrease in distribution revenue of $3.24 million, a 9.9% increase in averageelectric delivery rates. The Company participated in discovery on its requestand subsequently updated its filing on June 15, 2006. The supplemental filingrevised the Company’s request to increase distribution revenue by $2.68million, an 8.64% increase in average electric delivery rates.

During June 2006, the Company entered into settlementdiscussions with the parties to Docket No. 2006-24. The discussions led to aStipulation that was filed with the Commission on June 23, 2006. TheStipulation proposed an increase to the Company’s distribution revenue of $1.75million to become effective on July 15, 2006. Additionally, the Company agreedto defer its increase in the Demand-Side Management (“DSM”) mil rate and itsdecrease in the transmission component of its delivery rate until July 15,2006.  The net effect of the three retailrate changes was an increase to annual retail delivery revenue of approximately$1.33 million or an average increase to the Company’s electric delivery rate of3.84%. The Stipulation was approved by the Commission on July 5, 2006, and newdistribution rates implementing the net retail revenue change became effectiveas of July 15, 2006.

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

***Regulated UtilityExpenses***

For the three and six months ended June 30, 2006 and2005, regulated operation and maintenance expenses and stranded costs are asfollows:

|                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Regulated  Operation and Maintenance                        |       |                             |       |                           |       |   |   |   |   |
| Transmission and Distribution                               |       | $                                | 911        |                           | $          | 1,070 |   | $ | 1,951 |   | $ | 1,641 |   |
| Customer Service                                            |       | 289                              |       | 232                            |       | 597 |   | 499 |   |
| Administrative and General                                  |       | 2,297                            |       | 2,449                          |       | 4,680 |   | 4,964 |   |
| Total Regulated Operation and Maintenance                   |       | $                                | 3,497      |                           | $          | 3,751 |   | $ | 7,228 |   | $ | 7,104 |   |
|                                                        |       |                             |       |                           |       |   |   |   |   |
| Stranded Costs                                              |       |                             |       |                           |       |   |   |   |   |
| Wheelabrator-Sherman                                        |       | $                                | 1,709      |                           | $          | 1,654 |   | $ | 3,867 |   | $ | 3,364 |   |
| Maine Yankee                                                |       | 674                              |       | 804                            |       | 1,407 |   | 1,608 |   |
| Seabrook                                                    |       | 384                              |       | 384                            |       | 769 |   | 769 |   |
| Amortization of Wheelabrator-Sherman Restructuring  Payment |       | 363                              |       | 363                            |       | 725 |   | 725 |   |
| Deferred Fuel                                               |       | (632                             | )          | (699                           | )          | (1,530 | ) | (1,244 | ) |
| Special Discounts                                           |       | 70                               |       | 70                             |       | 140 |   | 140 |   |
| Total Stranded  Costs                                       |       | $                                | 2,568      |                           | $          | 2,576 |   | $ | 5,378 |   | $ | 5,362 |   |

 

The transmissionand distribution expenses of $911,000 in the second quarter of 2006 are$159,000 lower than the second quarter of 2005, due primarily to highermaterial expense in 2005 related to distribution transformer purchases.  For the first six months of 2006,transmission and distribution expenses have increased $310,000, compared to thesame period in 2005 because of completion of the 2006 phase of the Company’sprogram to replace any transformers contaminated with Poly-ChlorinatedBi-Phenol in the first quarter, incurring $169,000 of additional expense over2005.  Additionally, work on transmissionand distribution overhead lines increased by $58,000 over 2005.

Customer serviceexpenses increased by $57,000, to $289,000 in the second quarter of 2006,compared to $232,000 in 2005, due to increased postage and increased labor formeter reading and customer records. Year-to-date, customer service expenses have increased $98,000 comparedto the first six months of 2005.

Administrative andgeneral expenses in the second quarter of 2006 have decreased approximately$152,000 compared to 2005.  Consultantfees have decreased by $288,000 principally due to a decrease in Sarbanes-Oxleycompliance costs.  This decrease waspartially offset by the impact of a one-time adjustment for transportationclearing expense credit of $44,000 in June 2005 versus an additionaltransportation charge of $68,000 during the second quarter of 2006.  The year-to-date decrease in 2006, comparedto 2005, is $284,000, due to reduced consultant costs of $583,000, primarilyrelated to Sarbanes-Oxley compliance, partially offset by increased workerscompensation insurance premiums until the contract with a new carrier wasnegotiated during the second quarter of 2006.

***UnregulatedEngineering Services***

|                                                             | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                                  | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**                | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Loss —  Unregulated Engineering Services           |       | $                                | (186       | )                              | $          | (32 | ) | $ | (355 | ) | $ | (184 | ) |
| Basic Loss Per Share  from Unregulated Engineering Services |       | $                                | (0.11      | )                              | $          | (0.02 | ) | $ | (0.22 | ) | $ | (0.11 | ) |

 

***UnregulatedEngineering Services—Operating Revenue***

Unregulated engineering services revenues for thethree and six months ended June 30, 2006, and 2005:

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|                                                  | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                       | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**     | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| The Maricor  Group New England                   |       | $                                | 425        |                           | $          | 580 |   | $ | 895 |   | $ | 1,168 |   |
| The Maricor  Group, Canada Ltd                   |       | 1,000                            |       | 786                            |       | 1,878 |   | 1,601 |   |
| Total Unregulated  Engineering Operating Revenue |       | $                                | 1,425      |                           | $          | 1,366 |   | $ | 2,773 |   | $ | 2,769 |   |

 

The Maricor Group, Canada is continuing to grow withinits Atlantic Canada market, increasing revenue by 27% for the quarter comparedto prior year, and 17% for the six months ended June 30, 2006.  TMGC acquired certain of the assets of PaceEngineering Limited, an electrical engineering company based in Moncton, NewBrunswick, Canada, during the second quarter of 2006.  This acquisition is part of TMG’s continuingefforts to expand its service offerings and engineering solutions acrosseastern Canada and New England, and made TMGC the largest consulting electricalfacilities engineering design firm within Atlantic Canada.

The Maricor Group New England revenue is continuing tolag behind the revenue levels of the prior year, due to a relatively weak salespipeline compared to 2005.  TMGNE’s lackof traction in higher value product and service offerings is attributed to theneed for increased investment in dedicated and professional businessdevelopment staff, as well as a need to expand execution capabilities withenhanced domain knowledge in the areas of energy services andcommissioning.  Further, TMGNE’s lack offull-time business development staff and the inefficiencies of a “seller-doer”model have limited sales of mechanical, electrical and plumbing facility designengineering services.  Management hastaken steps during the second and third quarter of 2006 to mitigate thisdecrease in revenue through increased investment in business development andhuman resources.  These steps include thehiring of a new, full time human resources executive to address employeerecruitment, performance and retention issues, as well as the hiring of a newexperienced executive to manage TMGNE’s operations.  Efforts continue to recruit additionalfull-time professional business developers. However, these steps typically take several quarters to yield thedesired expectations.

***UnregulatedEngineering Services Operating Expenses***

Unregulated engineering services operating andmaintenance expenses for the three and six months ended June 30, 2006, and2005:
|                                              | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)** | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Cost of Sales                                |       | $                                | 1,339      |                           | $          | 1,276 |   | $ | 2,641 |   | $ | 2,480 |   |
| Other Operating  Expenses                    |       | 290                              |       | 24                             |       | 513 |   | 292 |   |
| Depreciation                                 |       | 3                                |       | 5                              |       | 8 |   | 8 |   |
| Amortization                                 |       | 31                               |       | 50                             |       | 53 |   | 84 |   |
| Taxes Other than  Income                     |       | 15                               |       | 17                             |       | 35 |   | 39 |   |
| Income Taxes                                 |       | (129                             | )          | (113                           | )          | (239 | ) | (128 | ) |
| Total Unregulated  Operating Expenses        |       | $                                | 1,549      |                           | $          | 1,259 |   | $ | 3,011 |   | $ | 2,775 |   |

 

Cost of sales increased approximately $63,000 or 4.9%,in line with the overall increase in revenue of $59,000 or 4.3%.  Other operating expenses for the secondquarter of 2006 have increased significantly from the expenses in the prioryear, up approximately $266,000.  Theincrease is primarily a result of increases in payroll costs and an increase inbad debt expense of $102,000 due to a reduction in the estimated reserve inprior year offset by bad debt expense in the current year.  However, the increased expenses are also aresult of longer sales cycles for higher value projects where revenues tend tosignificantly lag behind business development expenses.

Amortization expense in 2006 has decreased from 2005,due to the backlogs from the acquisitions of RES and M&R becoming fullyamortized.

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***Unregulated RealEstate Subsidiary Results***
|                                                         | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|---------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                              | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**            | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Income  (Loss) — Unregulated Real Estate       |       | $                                | 187        |                           | $          | (23 | ) | $ | 100 |   | $ | (53 | ) |
| Earnings (Loss) Per  Share from Unregulated Real Estate |       | $                                | 0.11       |                           | $          | (0.01 | ) | $ | 0.06 |   | $ | (0.03 | ) |

 

On June 30, 2006, MaricorProperties sold one share of stock, representing a 50% ownership interest, toAshford Investments Inc. (“Ashford”), an unaffiliated real estate managementcompany, for approximately $586,000.  Inaccordance with SEC Staff Accounting Bulletin (“SAB”) 51, “*Accountingfor Sales of Stock by a Subsidiary,”* the Company recognized a gainin the amount of $429,000 as non-operating income.  This gain was partially offset by thedeferred income tax impact of $172,000.** Under the terms of this agreement, Maine &Maritimes Corporation and Ashford Investments Inc. are now equal shareholdersof Maricor Properties.

Excluding this gain,Maricor Properties lost approximately $70,000 for the second quarter, comparedto its $23,000 loss in 2005.  This netloss incorporates the additional lease amortization from the acquisition ofCornwallis, partly offset by additional rental income from the Vaughan Harveybuilding.

***UnregulatedSoftware Technology***
|                                                      | ** ** | **Three Months Ended** | ** ** | **Six Months Ended** | ** ** |
|------------------------------------------------------|------------|----------------------------------|------------|--------------------------------|------------|
| ** **                                           | ** ** | **June 30,**                | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)**         | ** ** | **2006**                         | ** ** | **2005**                       | ** ** | **2006** | ** ** | **2005** | ** ** |
| Net Loss —  Unregulated Software Technology     |       | $                                | (157       | )                              | $          | (78 | ) | $ | (262 | ) | $ | (91 | ) |
| Loss Per Share from  Unregulated Software Technology |       | $                                | (0.10      | )                              | $          | (0.05 | ) | $ | (0.16 | ) | $ | (0.06 | ) |

 

Maricor Technologiesincurred a net loss of $157,000 for the second quarter of 2006.  During the quarter, MTI released iPlanTM, itssustainable facilities governance technology solution, to the marketplace.  From the time MTI was acquired in February2005 through the release of this software, certain software development costswere capitalized in accordance with SFAS 86, “*Accountingfor the Costs of Computer Software to be Sold, Leased or Otherwise Marketed*.”  With the release of iPlan, the focus of MTIhas shifted to improvements of their software that are not being capitalized,resulting in higher operating expenses, and the costs previously capitalizedhave begun to be amortized, further reducing net income.

 

***Off-Balance SheetArrangements***

**Variable Interest Entities**

Maricor Properties andthe Maricor Ashford Ltd joint venture are variable interest entities, asdefined by FIN 46(R).  However,Management has determined that these entities should not be consolidated withthese financial statements, as MAM is not the primary beneficiary of thesecompanies.

**Leases**

The Company has severaloperating leases for office and field equipment, vehicles and office space,accounted for in accordance with SFAS 13, “*Accounting for Leases”*.  The following summarizes payments for leasesfor a period in excess of one year:

|                                              | ** ** | **Six Months Ended** | ** ** |
|----------------------------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **June 30,**              | ** ** |
| **(In thousands of dollars)** | ** ** | **2006**                       | ** ** | **2005** | ** ** |
| Office Equipment                             |       | $                              | 10         |   | $ | 36 |   |
| Building                                     |       | 110                            |       | 96 |   |
| Vehicles                                     |       | 11                             |       | 6 |   |
| Rights of Way                                |       | 1                              |       | 1 |   |
| Field Equipment                              |       | 21                             |       | 20 |   |
| Total                                        |       | $                              | 153        |   | $ | 159 |   |

 

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

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**FutureMinimum Lease Payments by Year For All Items**

|            | ** ** | **Minimum Lease**                       | ** ** |
|------------|------------|----------------------------------------------|------------|
| **Years**  | ** ** | **Payments**                                 | ** ** |
| ** ** | ** ** | **(In thousands of dollars)** | ** ** |
| 2006       |       | $                                            | 274        |   |
| 2007       |       | $                                            | 229        |   |
| 2008       |       | $                                            | 231        |   |
| 2009       |       | $                                            | 185        |   |
| 2010       |       | $                                            | 71         |   |

 

**Financial Information System HostingAgreement**

In December 2003, the Company entered into a ten-yearagreement with Delinea Corporation to host and provide technical and functionalsupport for the integrated Oracle Financial Information System. Hosting feesare $575,000 per year for years 2006-2013, plus an indexed inflation factor.

***Liquidity and Capital Resources***

As a result of the sale of the share of MaricorProperties to Ashford Investments Inc., MAM performed an analysis in accordancewith FIN 46(R), “*Consolidation of Variable Interest Entities —an Interpretation of ARB No. 51”* to determine the primary beneficiary of Maricor Properties.  Management determined that, under the termsof the shareholder agreement with Ashford, MAM remained the primary beneficiaryof Mecel, but not of the other components of Maricor Properties, including theVaughan Harvey building and Cornwallis. As a result, Mecel remained consolidated in these financials, while theother subsidiaries are accounted for under the equity method in accordance withAccounting Principles Board (“APB”) 18, “*The Equity Method ofAccounting for Investments in Common Stock.” *As a result, certain lines of the balance sheet weresignificantly reduced, including fixed assets, which decreased by $7.24million; intangible assets, which decreased by $600,000; long-term debt, adecrease of $3.11 million; and notes payable, a decrease of $3.85 million.  Other lines were also impacted, to a lesserextent.  These were non-cash decreases,the net of which is offset by an increase in Investment in AssociatedCompanies.

The Company’s cash and cash equivalents as of June 30,2006, were $371,000, down from $781,000 at December 31, 2005.  The “Statements of Consolidated Cash Flows”of the Company’s Consolidated Financial Statements as presented in Part I, Item1. of this Form 10-Q, reflects the Company’s sources and uses of capital.

Cash flow from operating activities for the first sixmonths of 2006 was $2.09 million, compared to $1.62 million in the first sixmonths of 2005.  The deferral ofregulated and debt issuance costs was the largest decrease in operating cashflow, reducing the $223,000 of net income by $2.43 million in the 2006 statement.  The deferral for 2005 reduced operating cashflow by approximately $2.18 million.

Cash flow used for financing included the repayment ofshort and long-term debt totaling $339,000 in the first six months of2006.  Cash flow provided by financing activities for the first six months of2005 totaled $479,000, due to $2.39 million in additional short-termborrowings, partly offset by $818,000 paid in dividends and $1.09 million inrepayments of long-term debt.

Cash flow used forinvesting activities decreased cash by approximately $2.16 million in the firstsix months of 2006.  The largest use ofcash for investing in 2006 were fixed asset acquisitions of $2.42 million, withanother $244,000 used for settlement of the stock contingencies associated withacquisitions of engineering firms in 2003 and 2004.  The largest source of cash from investingactivities was the sale of stock by Maricor Properties.  For the first six months of 2005, cash flowused for investing activity totaled $2.7 million.  The Company’swholly-owned software technology subsidiary, Maricor Technologies, Inc.acquired lifecycle asset management software for $1.2 million, $50,000 of whichwas cash.  The Company also invested $1.84 million in other fixedassets.

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

As part of the refinancing of short-term borrowingsduring 2005, MAM and certain of its subsidiaries agreed to certain financialand other covenants, such as debt service coverage and earnings before interestand taxes (“EBIT”) ratios. In the event of a default, the various lenders couldrequire immediate repayment of the debt. A default could also trigger increasesin interest rates, difficulty 

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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. As of March 31, 2006, MAM did not meet the interest coverage ratiorequired under the MAM Credit Agreement with Bank of America or the TMGfacility with Katahdin Trust Company. However, as of June 30, 2006, MAM hasnegotiated covenant amendments with both lenders and is in full compliance withthe revised financial covenants.

On May 5, 2006, MAM borrowed $400,000 fromKatahdin Trust Company through a 5-month unsecured note. The loan was at avariable rate of the 3-month London InterBank Offered Rate (“LIBOR”) plus3.50%. The interest rate as of the date of borrowing was 8.63%. Monthlypayments of interest only were due throughout the term of the loan, with a fullrepayment of principal due at the end of the term.  This note was repaid on June 13, 2006, aspart of a loan agreement with Bank of America.

On June 13, 2006, MAM entered into an agreement toborrow up to $1.7 million from Bank of America. This loan has interest payable on the last day of each month beginningat June 30, 2006, until full payment of any outstanding principal at a rate ofthe Bank’s prime rate plus 1%.  The rateat June 30, 2006, was 9.25%.  This termloan is available to the Company until December 31, 2006, or earlier if theloan principal is paid down.  Minimumprincipal payments are due in the amount of $140,000 at the end of each monthbeginning on January 31, 2007, and ending the earlier of December 31, 2007, oruntil the loan is fully repaid.  Underthis agreement, the short-term loan with Katahdin Trust Company for $400,000was immediately repaid.

On July 5, 2006, MaricorProperties borrowed $2.45 million CDN from Merrill Lynch Mortgage Lending torefinance short-term debt at the Royal Bank of Canada.  The new debt is a 10-year mortgage loan, withmonthly payments of principal and interest based on a 25-year amortizationschedule throughout the term of the loan, and the remaining loan balancepayable at the end of the term.  Theinterest rate is variable, calculated as the greater of: (a) 135 basis pointsover the yield on the Government of Canada mortgage benchmark bond most closelyapproximating the term of the loan, or (b) a floor of 5.20%.  As of the date of borrowing, the interestrate was 6.011%.  This loan is secured bythe Vaughan Harvey Blvd property in Moncton, New Brunswick, and is guaranteedby Ashford Investments Inc.

Under the terms of thecredit agreement with Katahdin Trust Company, the $1 million TMG line of creditmust be repaid in full for at least one 30-day period during each year.  On July 19, 2006, Katahdin Trust Companywaived this requirement for 2006.

On August 4, 2006, MaricorProperties also borrowed $4.05 million CDN from Merrill Lynch Mortgage Lendingto refinance the J. Angus MacDonald Building. The proceeds were used to repay the Standard Life mortgage.  The debt is a 10-year mortgage loan, withmonthly payments of principal and interest based on a 25-year amortizationschedule throughout the term of the loan, and the remaining loan balancepayable at the end of the term.  Theinterest rate is variable, calculated as the greater of (a) 135 basis pointsover the yield of the Government of Canada mortgage benchmark bond most closelyapproximating the term of the loan or (b) a floor of 5.20%.  As of the date of borrowing, the interestrate was 5.695%.  This loan is secured bythe J. Angus MacDonald building, and is guaranteed by Ashford Investments Inc.,which is a 50% equity owner of Maricor Properties.

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

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 relinquish it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference.  There are currently 27,723 shares outstandingpursuant to this kind of agreement.  At amarket price of $15.60 per share at June 30, 2006, the total exposure isapproximately $578,000.

In accordance with rate stipulations approved by theMPUC, for ratemaking purposes, MPS is required to maintain a capital structurenot to include more than 51% common equity for the determination of deliveryrates.

In the order approving the reorganization of MPS andthe formation of Maine & Maritimes Corporation, the parties stipulatedto several restrictions on the capital structure of MPS and MPS’s ability tomake dividend payments to MAM.  As of June 30, 2006, MPS is in compliancewith all of these conditions.

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***New AccountingPronouncements***

Fornew accounting pronouncements, see Part I, Note 1, of the Company’sconsolidated financial statements, incorporated in this section by thisreference.

***RegulatoryProceedings***

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

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

Thefollowing list 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)            TheCompany had material interest rate risk until MPS fixed interest rates on threevariable rate debt issues on September 9, 2003, with a derivative interest rateswap transaction. Upon execution of the interest rate swaps on September 9,2003, MPS effectively fixed through maturity the rates on the 1996 Series duein 2021 and the 2000 Series due in 2025 at 4.57% and 4.68%, respectively. Therate on the 1998 Notes due in 2008 was also fixed at 2.79% through maturity. Asof June 30, 2006, the 1996 and 2000 Series and the 1998 FAME Notes hadoutstanding balances of $13.6 million, $9.0 million and $4.12 million,respectively. The fixed rates on the 1996 and 2000 Series debt issues arehigher than the previous floating rates and continue to be as of the date ofthis filing. The fixed rate on the 1998 Notes is less than the previousfloating rate.  The estimated netcarrying value of these cash flow hedges is $(413,000) and is recorded on theBalance Sheet as “Carrying Value of Interest Rate Hedge.”

Althoughincurring no up-front cost to execute the swaps, MPS is currently incurringincreased interest expenses. For the second quarter of 2006, the fixed interestrates resulted in interest payments of $28,000 more than the payments thatwould have been required under the variable rates, and $87,000 more for thefirst six months of 2006.  However,Management believes that the fixing of interest rates over the terms of thedebt will serve to protect both shareholders and consumers from what itbelieves to be upward variable interest rate pressures.

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

(c)            Transactionswith Me&NB; The Maricor Group, Canada Ltd; and Maricor Properties Ltd aresubject to foreign currency translation risk. Income and expenses aretranslated at average rates of exchange for the period of time the income isearned or the expenses are incurred. Assets and liabilities are translated atperiod-end exchange rates.  Historically,the exchange rates between the Canadian dollar and US dollar have beenrelatively stable.  The general trendthroughout 2005 and year-to-date in 2006 has the Canadian dollar strengtheningagainst the US dollar.  This has resultedin increased carrying value of the assets and liabilities of the Company’sCanadian subsidiaries.  The Company doesnot currently have hedging arrangements to protect from changes in theseexchange rates.

(d)           TheMaricor Group and its subsidiaries incurred equity price risk when it boughtthe stock of certain of its subsidiaries. Part of the consideration was MAM stock. In the event that the price of MAM common stock was below a specifiedprice when the seller wished to relinquish it, The Maricor Group (or theapplicable subsidiary) agreed to pay the difference.  Settlement of these obligations does notimpact net income or the original purchase price.  The settlement is recorded as a reduction ofthe additional paid-in capital, effectively reducing the recorded value of thestock issued during the transaction.

Thereare currently 27,723 shares outstanding pursuant to this kind ofagreement.  At a market price of $15.60per share at June 30, 2006, the total exposure is approximately $578,000.  A $1 change in the share price up to thespecified prices in the purchase and sale agreements will increase or decreasethis estimated obligation by approximately $28,000.  These obligations are expected to be settledin 2007.

Market price protection of a different sort was givenby Maricor Technologies when it acquired the HCI assets.  Part of the consideration there was MAMpreferred stock which is convertible into 26,000 shares of MAM common stock onFebruary 15, 2008, subject to some other conditions.  To the extent that the market price of MAMcommon stock is then below $25 per share, the number of shares issuable onconversion is ratably increased, which could result in further dilution of MAM’scommon stock.

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(e)            Developmentrisks can occur regarding energy-related asset development projects pursued byTMG.  Projects, such as co-generation andcentral utility plant facilities may require considerable upfront investment inthe development and sales process which are recovered once the sale isconsummated.  Should no sale occur, thesecosts may be incurred as expenses versus capitalized.

***Item 4. Controlsand Procedures***

a)              Evaluation of Disclosure Controls andProcedures

The Company’sManagement, including the Company’s President and Chief Executive Officer, andSenior Vice President 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.

b)             Changes in Internal Control over FinancialReporting

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

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**PART II.OTHER INFORMATION**

***Item 1. LegalProceedings***

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPS filed a notice with the MPUCunder Docket No. 2006-24 that it intended to seek a 4% increase in overallelectric rates.  Subsequently, on March 13, 2006, the Company filed for anincrease in distribution revenue of $3.24 million, a 9.9% increase in averageelectric delivery rates. The Company participated in discovery on its requestand subsequently updated its filing on June 15, 2006. The supplemental filingrevised the Company’s request to increase distribution revenue by $2.68million, an 8.64% increase in average electric delivery rates.

During June 2006, the Company entered into settlementdiscussions with the parties to Docket No. 2006-24. The discussions led to aStipulation that was filed with the Commission on June 23, 2006. TheStipulation proposed an increase to the Company’s distribution revenue of $1.75million to become effective on July 15, 2006. Additionally, the Company agreedto defer its increase in the Demand-Side Management (“DSM”) mil rate and itsdecrease in the transmission component of its delivery rate until July 15,2006, as described below.  The net effectof the three retail rate changes was an increase to annual retail deliveryrevenue of approximately $1.33 million or an average increase to the Company’selectric delivery rate of 3.84%. The Stipulation was approved by the Commissionon July 5, 2006, and new distribution rates implementing the net retail revenuechange became effective as of July 15, 2006.

The stipulation required adjustment of theamortization of the Oracle system from a seven-year amortization period to aten-year amortization period, retroactive to the capitalization of the systemin 2004.  The impact of this adjustmentof approximately $128,000 has been recognized in the second quarter of 2006.  MPS also agreed to certain service qualityindex standards as part of this stipulation.

**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 15, 2006, to coincide with MPS’s distribution rateincrease.  These rates were approved bythe MPUC on July 5, 2006. Per this filing, the DSM mil rate was increased by20%, or an increase of approximately $111,000, and the retail transmission ratewas decreased by 13.43%, or approximately $534,000.

**Federal Energy Regulatory Commission2006 Open Access Transmission Tariff Formula Rate Filing**

On May 31, 2006, pursuant to Section 205 of theFederal Power Act, 16 U.S.C. Section 824d, and Title 18 CFR Sections35.11 and 35.13 of the regulations of the FERC, MPS submitted for filing itsproposed revisions to its FERC Open Access Transmission Tariff in Docket No. ER05 (the “2006 OATT”) to modify its transmission rate formula.  MPS filed its updated rates under the 2006OATT formula on June 15, 2006, pursuant to Docket ER00-1053, with an effectivedate of June 1, 2006, for both wholesale and retail customers, subject to acustomer refund that may occur as a result of the proceeding and potentialsettlement negotiations.  The retailtransmission revenue requirement was decreased by approximately $534,000 onJuly 15, 2006, under the 2006 OATT.  Thisrepresented a decrease of 13.43% to the transmission component of retaildelivery rates. The primary reasons for the decrease were a shift in costsbetween transmission and distribution and the settlement of the 2005 OpenAccess Transmission Tariff through rates, as described more fully below.

The Company is currently participating in discussionswith its customers concerning the 2006 OATT.

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

On May 31, 2005, pursuant to Section 205 of theFederal Power Act, 16 U.S.C. Section 824d, and Title 18 CFR Sections35.11 and 35.13 of the regulations of the FERC, MPS submitted for filing itsproposed revisions to its FERC Open Access Transmission Tariff in Docket No. ER05 (the “2005 OATT”) to modify its transmission rate formula.  MPS filed its updated rates under the 2005OATT formula on June 15, 2005, pursuant to Docket ER00-1053 with an effectivedate of June 1, 2005, for both wholesale and retail customers, subject to acustomer refund that may occur as a result of the proceeding and potentialsettlement negotiations.  The retailtransmission revenue requirement was increased by approximately $289,000 onJune 1, 2005, under the 2005 OATT.  Thisrepresented an increase of 8% to the transmission component of retail deliveryrates or an overall impact on total retail delivery rates of 0.7%.  The primary reasons for the increase were theincrease to costs due to mandated Sarbanes-Oxley requirements, and the purchaseof a new Oracle-based accounting system.

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As part of the settlement data request process, theCompany identified several adjustments to its FERC Form 1 filing for 2004,which flow through the Company’s transmission rate formula.  The approximate net impact of thesecorrections, once implemented, will be to reduce the overall increase to theprojected retail transmission revenue and result in a revised projected netincrease to the retail transmission revenue requirement of approximately$171,000 instead of the previously projected increase of approximately$288,000.  The final Settlement Agreement for the 2005 OATT was filed with theFERC on April 14, 2006, and final approval was received from the FERC on June21, 2006.  This adjustment flowedthrough the MPS OATT effective June 1, 2006, and will be passed through retailrates beginning on July 15, 2006.

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

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

The project was proposed in order to ensure thereliability and integrity of the MPS transmission grid under scenarios ofreduced on-system generator availability and peak load growth.  MPS submitted that the available firmtransfer capability of the transmission system when added to the remainingon-system hydro generation was not sufficient to meet peak load conditions,should existing on-system wood-fired generation become unavailable.  The proposed line would address this bysignificantly increasing the load-serving capability of the northern Maineregion and would serve to reinforce the vital transmission ties betweennorthern Maine and the New Brunswick transmission grid.  Additional benefits of the proposed lineinclude the potential for increasing the number of competitive retail electricsuppliers and increasing the attractiveness of the region for development ofadditional generation, such as wind farms, by providing increased transmissionexport capacity.

The MPUC Commissioners deliberated the Docket onAugust 29, 2005, and denied the petition, determining that there was noimmediate reliability risk in northern Maine. The Commission concluded that the risk of losing on-system wood-firedgeneration was not sufficient to warrant the new transmission line.  The Commission’s Order denying thecertificate, which was issued on October 21, 2005, described actions to betaken by MPS and the Northern Maine Independent System Administrator (“NMISA”)to reduce certain reliability risks identified by MPS.  The Company filed for reconsideration of theOrder on November 8, 2005, based on the possibility that Aroostook Wind EnergyCompany, LLC (“AWE”) might elect to utilize the CPCN requested by MPS in thisDocket in order to have MPS construct transmission facilities necessary toconnect their proposed generation project to the MPS electrical system.  On March 30, 2006, the Company filed a statusreport with the Commission with regard to the proposed transmissionfacilities.  MPS expects the MPUC torespond to the status report in the near future.  Additionally, on November 23, 2005, theCommission granted an MPS request for suspension of certain of the specificrequirements of the October 21, 2005, Order pending Commission consideration ofcertain proposed market rule changes which NMISA presented to the Commission onMarch 1, 2006.  Through June 30, 2006,approximately $844,000 was spent on this transmission project.  MPS is seeking recovery of these costs in itstransmission rates.  MPS believes it isprobable the amounts deferred can be recovered, either through future ratecases or through sale of the assets to a third party.

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

The Risk Factors identifiedin Item 1A. of MAM’s 2005 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’s current liabilities of $19.65 million as ofJune 30, 2006, exceed its current assets of $11.44 million by$8.21 million, exposing MAM to the risk of being unable to fulfill itsobligations in 2006 and 2007. However, of these current liabilities, $11.15 millionis short-term borrowings, including the lines of credit. MAM has taken steps tomitigate this short-term risk before and after year-end, includingidentification of additional sources of financing and options to reduce ordefer costs.

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

***Lack of Profitable Operations fromUnregulated Business***

Theunregulated engineering services and software technology segments, which havebeen added since 2003, have not been profitable to date.  Please read the in-depth analysis in theManagement’s Discussion and Analysis of Financial Condition and Results ofOperations in this Form 10-Q and in MAM’s 2005 Form 10-K.  As noted there, Management believes that thesuccess of these 

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venturesis crucial to the future growth of the Company, but can give no assurances asto the success of these ventures. Further, failure to become profitable may result in impairment of thegoodwill associated with these acquisitions.

***Acquisition andIntegration Risks***

The Maricor Group and Maricor Properties have eachacquired several companies over the past three years, in conjunction with MAM’sgrowth strategy.  The companies faceseveral risks associated with this process, including lack of suitableavailable targets, insufficient funds for acquisitions to achieve the growthstrategy, lack of synergies and the cost of integration.  MAM and its subsidiaries mitigate these risksthrough a due diligence process intended to identify and mitigate these risksthroughout and after the acquisition process.

***Concentrationof Customers***

Maricor Technologies, MAM’s software technologycompany, is continuing to develop its customer base.  Currently, MTI obtains most of its revenuefrom twelve customers.  The loss of oneor more of these customers would significantly impact the operations of thissegment of the Company.

***EquityPrice 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 relinquish it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference.  Settlement of these obligations does notimpact net income or the original purchase price.  The settlement is recorded as a reduction ofthe additional paid-in capital, effectively reducing the recorded value of thestock issued during the transaction.

There are currently 27,723 shares outstanding pursuantto this kind of agreement.  At a marketprice of $15.60 per share at June 30, 2006, the total exposure is approximately$578,000.  A $1 change in the share priceup to the specified prices in the purchase and sale agreements will increase ordecrease this estimated obligation by approximately $28,000.  These obligations are expected to be settledin 2007.

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

None

***Item 3. Defaultsupon Senior Securities***

None

***Item 4. Submissionof Matters to a Vote of Security Holders***

At the 2006 Annual Meeting of the Stockholders ofMaine & Maritimes Corporation held on May 9, 2006, two matters were votedupon.

First was the uncontested election of the followingdirectors for terms ending in 2009, each of whom received the following votes:

|                     | ** ** | ** ** | ** ** | ** **   | ** ** | **Total Shares** | ** ** |
|---------------------|------------|------------|------------|--------------|------------|-----------------------|------------|
| ** **          | ** ** | **For**    | ** ** | **Withheld** | ** ** | **Voted**             | ** ** |
| Robert E.  Anderson |       | 1,300,860  |       | 76,731       |       | 1,377,591             |       |
| Michael W. Caron    |       | 1,317,050  |       | 60,541       |       | 1,377,591             |       |
| Nathan L. Grass     |       | 1,299,560  |       | 78,031       |       | 1,377,591             |       |

 

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Second, shareholders were asked to approve theratification of the appointment of Vitale, Caturano & Company as theCompany’s independent auditors for the fiscal year ending December 31, 2006, asappointment by the Board of Directors.

|                    | ** ** | **Ratification of**                          | ** ** |
|--------------------|------------|---------------------------------------------------|------------|
| ** **         | ** ** | **Vitale, Caturano & Company** | ** ** |
| For                |       | 1,335,899                                         |       |
| Against            |       | 11,368                                            |       |
| Abstentions        |       | 30,324                                            |       |
| Total Shares Voted |       | 1,377,591                                         |       |

 

***Item 5. OtherInformation***

None

***Item 6. Exhibits***

Certain of the following exhibits, identified by anasterisk (*) are filed with this Form 10-Q. Certain other of the following exhibits have previously been filed withthe Securities and Exchange Commission, and are incorporated herein byreference.

3(a)         Articlesof Incorporation (Exhibit 3(a) to 2004 MAM Form 10-K).

3(b)         By-lawsof the Company (Exhibit 3(b) to 2004 MAM Form 10-K).

*10(a)     CreditAgreement between Maine & Maritimes Corporation and Bank of America, datedJune 13, 2006.

*10(b)          First Amendment to Credit Agreement betweenMaine & Maritimes Corporation and Bank of America, dated June 13, 2006.

*10(c)           Order of the Maine Public UtilitiesCommission, dated July 6, 2006, (as revised July 11, 2006) and Stipulation fromDocket No. 2006-24.

*10(d)              Form of EmployeeRetention Agreement between Maine & Maritimes Corporation and the personslisted at the end of such Agreement.

*10(e)               Form of StockOption Agreement between Maine & Maritimes Corporation and the personlisted at the end of such Agreement.

*31                             Rule13a-14(a)/15d-14(a) Certifications

*32                             Certificationof Financial Reports 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 11,2006
| /s/  Randi J. Arthurs       |   |
|----------------------------------|--------|
| Randi J. Arthurs                 |
| Vice President  & Controller |

 

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