**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D. C.20549**

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**FORM 10-Q**

**xQUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

**FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2007**

**- OR -**

**o TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**

**SECURITIES EXCHANGE ACT OF 1934**

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**Commission File No.**  **333-103749**

**MAINE & MARITIMES CORPORATION**

**A Maine Corporation**

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

**209 STATE STREET, 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 suchfiling requirements for the past 90 days. Yes x.    No o.

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, or a non-accelerated filer.  See definition of “accelerated filer andlarge accelerated filer” in Rule 12b-2 of the 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 May 8, 2007

CommonStock, $7.00 par value – 1,677,187 shares

 

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| ***Glossary of Terms*** |                                                               |
|-------------------------|--------------------------------------------------------------------|
| * *                | * *                                                           |
| AMEX                    | American Stock Exchange                                            |
| CES                     | Competitive Energy  Supplier                                       |
| Cornwallis              | Cornwallis Court  Developments Ltd                                 |
| DSM                     | Demand-Side Management                                             |
| EA                      | Energy Atlantic, LLC                                               |
| Eastcan                 | Eastcan Consulting  Engineers                                      |
| EBIT                    | Earnings Before Interest  and Taxes                                |
| FAME                    | Finance Authority of  Maine                                        |
| FERC                    | Federal Energy Regulatory  Commission                              |
| FIN                     | FASB Interpretation  Number                                        |
| MAM                     | Maine & Maritimes  Corporation                                 |
| M&R                 | Morris & Richards  Consulting Engineers                        |
| MCW                     | MCW Consultants Ltd                                                |
| Me&NB               | Maine & New  Brunswick Electrical Power Company, Ltd |
| Mecel                   | Mecel Properties Ltd                                               |
| MEPCO                   | Maine Electric Power  Company, Inc.                                |
| MPS                     | Maine Public Service  Company                                      |
| MPUC                    | Maine Public  Utilities Commission                            |
| MTI                     | Maricor Technologies,  Inc.                                        |
| MW                      | Megawatt                                                           |
| MWH                     | Megawatt hour                                                      |
| 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                                           |
| RES                     | RES Engineering, Inc.                                              |
| 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                                     |
| WS                      | Wheelabrator-Sherman                                               |

 

2

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**PART 1. FINANCIAL INFORMATION**

***Item 1. Financial Statements***

Seethe following exhibits: Maine & Maritimes Corporation (“MAM” or the “Company”)and subsidiaries Consolidated Financial Statements, including (1) an unauditedstatement of consolidated operations for the quarter ended March 31, 2007, andfor the corresponding period of the preceding year; (2) an unaudited statementof consolidated cash flows for the period January 1 (beginning of the fiscalyear) through March 31, 2007, and for the corresponding period of the precedingyear; (3) an unaudited consolidated balance sheet as of March 31, 2007; (4) anaudited consolidated balance sheet as of December 31, 2006, the end of Maine& Maritimes Corporation’s preceding fiscal year; and (5) an unauditedstatement of consolidated common shareholders’ equity for the period January 1(beginning of the fiscal year) through March 31, 2007.

Inthe opinion of Management, the accompanying unaudited consolidated financialstatements present fairly the financial position of the Company and itsSubsidiaries at March 31, 2007, and December 31, 2006; the results of theiroperations for the three months ended March 31, 2007 and 2006; and their cashflows for the three months ended March 31, 2007, and 2006.

**MAM is the parentholding company for the following wholly-owned subsidiaries:**
| 1. | Maine Public  Service Company (“MPS”) and its wholly-owned inactive Canadian subsidiary  Maine & New Brunswick Electrical Power Company, Ltd (“Me&NB”); |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| 2. | Energy Atlantic,  LLC (“EA”), an inactive subsidiary; |
|----|-----------------------------------------------------------------|

 
| 3. | The Maricor  Group (“TMG”) 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”), all of which are classified as discontinued  operations; |
|----|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 
| 4. | Maricor  Technologies, Inc. (“MTI”), a wholly-owned United States subsidiary  classified as discontinued operations.   MAM divested of MTI’s assets and terminated its operations as of April  13, 2007. |
|----|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

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

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*    Indicatesinactive companies

**  Companiesclassified as Discontinued Operations in these financial statements.

3

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

·          Maine & MaritimesCorporation is a holding company incorporated in the state of Maine, and is theultimate parent company for all business segments.  MAM maintains investments in a regulatedelectric transmission and distribution utility operating within the state ofMaine, United States of America, classified for financial reporting purposes ascontinuing operations.  MAM also hasinvestments in mechanical, electrical and plumbing/fire protection engineering,facility asset lifecycle management and energy efficiency companies within theUnited States and Canada, real estate investments in Canada and a facilitiesasset lifecycle management and sustainability software development company inthe United States.  These operations werereclassified for financial reporting purposes to assets held for sale.  MAM is headquartered in Presque Isle, Maine.

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

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

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

·          The Maricor Group is afacilities engineering and solutions company providing mechanical, electricaland plumbing/fire protection engineering consulting design services, energyefficiency solutions, facilities condition assessments, lifecycle assetmanagement solutions, and emissions reduction services focusing onsustainability and Leadership in Energy and Environmental Design (“LEEDTM”).  TMG operates primarily within the New Englandregion of the United States and the eastern Canadian provinces, particularlyAtlantic Canada, through its subsidiaries The Maricor Group New England and TheMaricor Group, Canada Ltd.  TMG wasformed in November 2003, and is headquartered in Presque Isle, Maine, withoffices in Boston, Massachusetts; Moncton and Saint John, New Brunswick; andHalifax, Nova Scotia.  MAM is in theprocess of divesting its TMG operations, as part of an overall shift instrategy described more fully in Item 7, “Management’s Discussion and Analysis”of MAM’s 2006 Form 10-K.

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

·          Mecel Properties Ltd isa Canadian subsidiary of Maricor Properties Ltd and currently owns the officebuilding housing the Halifax, Nova Scotia operating division of The MaricorGroup, Canada Ltd.  It was acquired byMaricor Properties on June 1, 2004, in conjunction with the acquisition ofM&R by TMGC.  Under the terms of thesale of stock of Maricor Properties to Ashford, MAM retained 100% of theeconomic ownership of this subsidiary, with the expectation that either 50% ofMecel would be purchased by Ashford or that Mecel would be transferred to TMGCat a later date.  As of March 31, 2007,Mecel remained solely owned by MAM.  MAMis seeking to divest its ownership of Mecel Properties.

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

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

4

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Statements of Consolidated Operations**(Unaudited)
| ** **                                                                                                     | ** ** | **Three Months Ended** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| **(In thousands of dollars except shares and per share amounts)** | ** ** | **March 31,**               | ** ** |
| ** **                                                                                                     | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| **Operating  Revenues**                                                                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Regulated Revenues                                                                                             |       | $                                | 10,915     |   | $ | 10,051 |   |
| **Operating  Expenses**                                                                                        | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Regulated Operation & Maintenance                                                                          |       | 3,377                            |       | 3,744 |   |
| Unregulated Operation & Maintenance (1)                                                                    |       | 492                              |       | 437 |   |
| Depreciation                                                                                                   |       | 711                              |       | 715 |   |
| Amortization of Stranded Costs                                                                                 |       | 2,804                            |       | 2,810 |   |
| Amortization                                                                                                   |       | 55                               |       | 79 |   |
| Taxes Other Than Income                                                                                        |       | 444                              |       | 500 |   |
| Provision for Income Taxes—Regulated                                                                      |       | 1,317                            |       | 750 |   |
| Benefit of Income Taxes—Unregulated (1)                                                                   |       | (241                             | )          | (203 | ) |
| **Total Operating Expenses**                                                                                   |       | 8,959                            |       | 8,832 |   |
| **Operating  Income**                                                                                          |       | 1,956                            |       | 1,219 |   |
| **Other  Income (Deductions)**                                                                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Equity in Income of Associated Companies                                                                       |       | (72                              | )          | (72 | ) |
| Interest and Dividend Income                                                                                   |       | 7                                |       | 6 |   |
| Provision for Income Taxes                                                                                     |       | (1                               | )          | (22 | ) |
| Other—Net                                                                                                 |       | (25                              | )          | (40 | ) |
| **Total**                                                                                                      |       | (91                              | )          | (128 | ) |
| **Income  Before Interest Charges**                                                                            |       | 1,865                            |       | 1,091 |   |
| ** **                                                                                                     | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Interest  Charges**                                                                                          | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Long-Term Debt and Notes Payable                                                                               |       | 761                              |       | 708 |   |
| Less Stranded Costs Carrying Charge                                                                            |       | (456                             | )          | (401 | ) |
| **Total**                                                                                                      |       | 305                              |       | 307 |   |
| **Net  Income from Continuing Operations**                                                                     |       | 1,560                            |       | 784 |   |
| **Discontinued  Operations**                                                                                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Loss from Operations                                                                                           |       | (350                             | )          | (430 | ) |
| Income Tax Benefit                                                                                             |       | 141                              |       | 179 |   |
| **Loss  from Discontinued Operations**                                                                         |       | (209                             | )          | (251 | ) |
| **Net  Income Available for Common Stockholders**                                                              |       | $                                | 1,351      |   | $ | 533 |   |
| **Average  Shares of Common Stock Outstanding**                                                                |       | 1,646,823                        |       | 1,637,211 |   |
| **Basic  Earnings Per Share of Common Stock From Continuing Operations**                                       |       | $                                | 0.95       |   | $ | 0.48 |   |
| **Basic  Loss Per Share of Common Stock From Discontinued Operations**                                         |       | (0.13                            | )          | (0.15 | ) |
| **Basic  Earnings Per Share of Common Stock From Net Income**                                                  |       | $                                | 0.82       |   | $ | 0.33 |   |
| **Diluted  Earnings Per Share of Common Stock From Continuing Operations**                                     |       | $                                | 0.94       |   | $ | 0.47 |   |
| **Diluted  Loss Per Share of Common Stock From Discontinued Operations**                                       |       | (0.13                            | )          | (0.15 | ) |
| **Diluted Earnings Per Share of  Common Stock From Net Income**                                                |       | $                                | 0.81       |   | $ | 0.32 |   |

 

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

See Notes to Consolidated Financial Statements

5

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Statements of Consolidated Cash Flows**(Unaudited)
| ** **                                                               | ** ** | **Three Months Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                               | ** ** | **March 31,**               | ** ** |
| **(In thousands of dollars)**                             | ** ** | **2007**                         | ** ** | **2006** | ** ** |
| **Cash  Flow From Operating Activities**                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Net Income                                                               |       | $                                | 1,351      |   | $ | 533 |   |
| Adjustments to Reconcile Net Income to Net Cash  Provided by Operations: |       |                             |       |   |   |
| Depreciation                                                             |       | 711                              |       | 715 |   |
| Amortization of Intangibles                                              |       | 55                               |       | 79 |   |
| Amortization of Seabrook                                                 |       | 278                              |       | 278 |   |
| Amortization of Cancelled Transmission Plant                             |       | 64                               |       | — |   |
| Deferred Income Taxes—Net                                           |       | 1,083                            |       | 296 |   |
| Deferred Investment Tax Credits                                          |       | (21                              | )          | (6 | ) |
| Change in Deferred Regulatory and Debt Issuance  Costs                   |       | 1,222                            |       | (1,456 | ) |
| Amortization of W/S Upfront Payment                                      |       | —                           |       | 363 |   |
| Change in Benefit Obligations                                            |       | (90                              | )          | 163 |   |
| Change in Current Assets and Liabilities:                                |       |                             |       |   |   |
| Accounts Receivable and Unbilled Revenue                                 |       | 114                              |       | 205 |   |
| Other Current Assets                                                     |       | (101                             | )          | 261 |   |
| Accounts Payable                                                         |       | (2,022                           | )          | 197 |   |
| Other Current Liabilities                                                |       | 257                              |       | 768 |   |
| Other—Net                                                           |       | 1,043                            |       | (23 | ) |
| Adjustments to Operating Cash Flows from Continuing  Operations          |       | 3,944                            |       | 2,373 |   |
| Adjustments to Operating Cash Flows from  Discontinued Operations        |       | (414                             | )          | 91 |   |
| **Net  Cash Flow Provided By Operating Activities**                      |       | 3,530                            |       | 2,464 |   |
| **Cash  Flow From Financing Activities**                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Retirements of Long-Term Debt                                            |       | (157                             | )          | (150 | ) |
| Additions of Long-Term Debt                                              |       | 89                               |       | — |   |
| Short-Term Debt Repayments, Net                                          |       | (2,420                           | )          | (1,130 | ) |
|                                                                     |       |                             |       |   |   |
| **Net  Cash Flow Used For Financing Activities**                         |       | (2,488                           | )          | (1,280 | ) |
| **Cash  Flow From Investing Activities**                                 | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Cash Paid for Stock Contingencies from Acquisition  Agreements           |       | (69                              | )          | (244 | ) |
| Change in Restricted Investments                                         |       | 1                                |       | (1 | ) |
| Investment in Fixed Assets                                               |       | (1,157                           | )          | (842 | ) |
| Investing Activities of Discontinued Operations                          |       | —                           |       | (114 | ) |
| **Net  Cash Flow Used For Investing Activities**                         |       | (1,225                           | )          | (1,201 | ) |
| **Decrease  in Cash and Cash Equivalents**                               |       | (183                             | )          | (17 | ) |
| **Cash  and Cash Equivalents at Beginning of Period**                    |       | 898                              |       | 273 |   |
|                                                                     |       |                             |       |   |   |
| **Cash  and Cash Equivalents at End of Period**                          |       | $                                | 715        |   | $ | 256 |   |
| **Supplemental  Disclosure of Cash Flow Information:**                   | ** ** | ** **                       | ** ** | ** ** | ** ** |
| **Cash  Paid During the Period for:**                                    | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Interest                                                                 |       | $                                | 789        |   | $ | 732 |   |
| Income Taxes                                                             |       | $                                | 136        |   | $ | 70 |   |
| **Non-Cash  Activities:**                                                | ** ** | ** **                       | ** ** | ** ** | ** ** |
| Fair Market  Value of Stock Issued to Directors                          |       | $                                | 6          |   | $ | 6 |   |

 

See Notes to Consolidated Financial Statements

6

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Consolidated Balance Sheets**
| ** **                                                                                        | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(In Thousands of Dollars)**                                                      | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                                                        | ** ** | **(Unaudited)**    | ** ** | **(Audited)**         | ** ** |
| **ASSETS**                                                                                        | ** ** | ** **         | ** ** | ** **            | ** ** |
| **Plant**                                                                                         | ** ** | ** **         | ** ** | ** **            | ** ** |
| Electric Plant in Service                                                                         |       | $                  | 101,408    |                  | $          | 101,085 |   |
| Non-Utility Plant                                                                                 |       | 3                  |       | 3                     |       |
| Less Accumulated Depreciation                                                                     |       | (42,635            | )          | (41,948               | )          |
| Net Plant in Service                                                                              |       | 58,776             |       | 59,140                |       |
| Construction Work-in-Progress                                                                     |       | 1,088              |       | 499                   |       |
| Plant Assets of Continuing Operations                                                             |       | 59,864             |       | 59,639                |       |
| Plant Assets of Discontinued Operations, net                                                      |       | 924                |       | 935                   |       |
| **Total**                                                                                         |       | 60,788             |       | 60,574                |       |
| **Investments  in Associated Companies**                                                          |       | 1,420              |       | 1,500                 |       |
| **Net  Plant and Investments in Associated Companies**                                            |       | 62,208             |       | 62,074                |       |
| **Current  Assets:**                                                                              | ** ** | ** **         | ** ** | ** **            | ** ** |
| Cash and Cash Equivalents                                                                         |       | 715                |       | 898                   |       |
| Accounts Receivable (less allowance for  uncollectible accounts of $161 in 2007 and $155 in 2006) |       | 6,734              |       | 6,709                 |       |
| Accounts Receivable from Associated Companies                                                     |       | 327                |       | 281                   |       |
| Unbilled Revenue - Utility                                                                        |       | 965                |       | 1,150                 |       |
| Inventory                                                                                         |       | 849                |       | 646                   |       |
| Prepayments                                                                                       |       | 171                |       | 273                   |       |
| Current Assets of Discontinued Operations                                                         |       | 3,425              |       | 3,570                 |       |
| **Total**                                                                                         |       | 13,186             |       | 13,527                |       |
| **Regulatory  Assets:**                                                                           | ** ** | ** **         | ** ** | ** **            | ** ** |
| Uncollected Maine Yankee Decommissioning Costs                                                    |       | 6,991              |       | 7,743                 |       |
| Recoverable Seabrook Costs                                                                        |       | 10,281             |       | 10,559                |       |
| Regulatory Assets—Deferred Income Taxes                                                      |       | 5,816              |       | 5,923                 |       |
| Regulatory Assets—Post-Retirement Medical Benefits                                           |       | 2,199              |       | 2,205                 |       |
| Deferred Fuel and Purchased Energy Costs                                                          |       | 33,633             |       | 34,689                |       |
| Cancelled Transmission Plant                                                                      |       | 445                |       | 508                   |       |
| Unamortized Premium on Early Retirement of Debt                                                   |       | 1,048              |       | 1,100                 |       |
| Deferred Regulatory Costs                                                                         |       | 1,582              |       | 1,677                 |       |
| **Total**                                                                                         |       | 61,995             |       | 64,404                |       |
| **Other  Assets**                                                                                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Unamortized Debt Issuance Costs                                                                   |       | 456                |       | 502                   |       |
| Restricted Investments (at cost, which approximates  market)                                      |       | 2,457              |       | 2,458                 |       |
| Other Assets                                                                                      |       | 1,120              |       | 1,049                 |       |
| Other Assets of Discontinued Operations                                                           |       | 4,543              |       | 4,153                 |       |
| **Total**                                                                                         |       | 8,576              |       | 8,162                 |       |
| **Total Assets**                                                                                  |       | $                  | 145,965    |                  | $          | 148,167 |   |

 

See Notes to Consolidated Financial Statements

7

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**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

**Capitalization and Liabilities**
|                                                                   | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| **(In Thousands of Dollars)**                      | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| ** **                                                        | ** ** | **(Unaudited)**    | ** ** | **(Audited)**         | ** ** |
| **Capitalization  (see accompanying statement):**                 | ** ** | ** **         | ** ** | ** **            | ** ** |
| Shareholders’ Equity                                         |       | $                  | 42,837     |                  | $          | 41,527 |   |
| Long-Term Debt                                                    |       | 29,522             |       | 27,840                |       |
| Long-Term Debt of Discontinued Operations                         |       | 2,127              |       | 2,182                 |       |
|                                                              |       |               |       |                  |       |
| **Total**                                                         |       | 74,486             |       | 71,549                |       |
| ** **                                                        |       |               |       |                  |       |
| **Current  Liabilities:**                                         | ** ** | ** **         | ** ** | ** **            | ** ** |
| Long-Term Debt Due Within One Year                                |       | 4,485              |       | 2,685                 |       |
| Notes Payable to Banks                                            |       | 6,000              |       | 11,970                |       |
| Accounts Payable                                                  |       | 3,363              |       | 5,018                 |       |
| Accounts Payable—Associated Companies                        |       | 251                |       | 247                   |       |
| Accrued Employee Benefits                                         |       | 1,053              |       | 1,424                 |       |
| Customer Deposits                                                 |       | 143                |       | 149                   |       |
| Taxes Accrued                                                     |       | 299                |       | 7                     |       |
| Interest Accrued                                                  |       | 228                |       | 246                   |       |
| Other Current Liabilities                                         |       | 19                 |       | 30                    |       |
| Current Liabilities of Discontinued Operations                    |       | 2,795              |       | 2,937                 |       |
|                                                              |       |               |       |                  |       |
| **Total**                                                         |       | 18,636             |       | 24,713                |       |
| ** **                                                        |       |               |       |                  |       |
| **Deferred  Credits and Other Liabilities:**                      | ** ** | ** **         | ** ** | ** **            | ** ** |
| Accrued Removal Obligations                                       |       | 5,478              |       | 5,572                 |       |
| Carrying Value of Interest Rate Hedge                             |       | 1,666              |       | 1,636                 |       |
| Uncollected Maine Yankee Decommissioning Costs                    |       | 6,991              |       | 7,743                 |       |
| Other Regulatory Liabilities                                      |       | 355                |       | 382                   |       |
| Deferred Income Taxes                                             |       | 27,333             |       | 26,360                |       |
| Accrued Postretirement Benefits and Pension Costs                 |       | 8,534              |       | 8,631                 |       |
| Investment Tax Credits                                            |       | 77                 |       | 81                    |       |
| Miscellaneous                                                     |       | 2,172              |       | 1,242                 |       |
| Other Liabilities of Discontinued Operations                      |       | 237                |       | 258                   |       |
|                                                              |       |               |       |                  |       |
| **Total**                                                         |       | 52,843             |       | 51,905                |       |
| ** **                                                        |       |               |       |                  |       |
| **Commitments,  Contingencies, and Regulatory Matters (Note 12)** | ** ** | ** **         | ** ** | ** **            | ** ** |
|                                                              |       |               |       |                  |       |
| **Total Capitalization and  Liabilities**                         |       | $                  | 145,965    |                  | $          | 148,167 |   |

 

See Notes to Consolidated Financial Statements

8

----

**MAINE& MARITIMES CORPORATION AND SUBSIDIARIES**

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

 

|                                                                                   | ** ** | **Shares Issued and  Outstanding** | ** ** | **Common**    | ** ** | **Preferred**                          | ** ** | ** **           | ** ** | **Accumulated**                                 | ** ** | ** **           | ** ** |
|-----------------------------------------------------------------------------------|------------|----------------------------------------------|------------|---------------|------------|----------------------------------------|------------|----------------------|------------|-------------------------------------------------|------------|----------------------|------------|
| **(In thousands of dollars,  except share information)** | ** ** | **Common**                                   | ** ** | **Preferred** | ** ** | **Par Value  Issued  ($7/Share)** | ** ** | **Paid-In  Capital** | ** ** | **Par Value  Issued ($0.01/  Share)** | ** ** | **Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Other Compre-  hensive Income  (Loss)** | ** ** | **Total** | ** ** |
| **Balance,  December 31, 2006**                                                   |       | 1,638,379                                    |       | 9,500         |       | $                                      | 11,469     |                 | $          | 1,254                                           |       | $                    | —     |   | $ | 950 |   | $ | 28,266 |   | $ | (412 | ) | $ | 41,527 |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Common Stock   Issued                                                        |       | 392                                          |       |          |       | 3                                      |       | 3                    |       |                                            |       |                 |       |   |   |   |   | 6 |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Conversion of  Preferred Shares                                                   |       | 12,078                                       |       | (3,000        | )          | 85                                     |       | 215                  |       | —                                          |       | (300                 | )          |   |   |   |   | — |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Stock Contingency  from Acquisitions                                              |       |                                         |       |          |       |                                   |       | (69                  | )          |                                            |       |                 |       |   |   |   |   | (69 | ) |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Net Income                                                                        |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       | 1,351 |   |   |   | 1,351 |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Other  Comprehensive Income (Loss):                                               |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Changes in Value of Foreign Exchange Translation  Loss, Net of Tax Benefit of $25 |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   | 37 |   | 37 |   |
| Unrealized Gain on Investments Available for Sale,  Net of Tax Provision of $2    |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   | 3 |   | 3 |   |
| Change in Fair Value of Interest Rate Hedge, Net of  Tax Benefit of $12           |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   | (18 | ) | (18 | ) |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Total Other Comprehensive Income                                                  |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   | 22 |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| Total Comprehensive Income                                                        |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   | 1,373 |   |
|                                                                              |       |                                         |       |          |       |                                   |       |                 |       |                                            |       |                 |       |   |   |   |   |   |   |
| **Balance, March 31, 2007**                                                       |       | 1,650,849                                    |       | 6,500         |       | $                                      | 11,557     |                 | $          | 1,403                                           |       | $                    | —     |   | $ | 650 |   | $ | 29,617 |   | $ | (390 | ) | $  | 42,837 |   |

 

MAMhad five million shares of $7 per share common stock authorized, with 1,650,849and 1,638,379 shares issued and outstanding as of March 31, 2007, and December31, 2006, respectively. At March 31, 2007, and December 31, 2006, MAM had500,000 shares of $0.01 per share preferred stock authorized, with 6,500 and9,500 shares issued and outstanding, respectively.   As of April 13, 2007, the remaining 6,500preferred shares were converted to 26,000 common shares.

See Notes to Consolidated Financial Statements.

9

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**NOTESTO CONSOLIDATED**

**FINANCIAL STATEMENTS**

**1.    ACCOUNTINGPOLICIES**

**Consolidation and Basisof Presentation**

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

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

2.               TheMaricor Group and its wholly-owned United States subsidiary The Maricor GroupNew England and wholly-owned Canadian subsidiary The Maricor Group, Canada Ltd,classified as discontinued operations;

3.               MaricorTechnologies, Inc., a wholly-owned United States subsidiary, classified asdiscontinued operations; and

4.               EnergyAtlantic, LLC, an inactive subsidiary.

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

MAM, a utility holding company organized effectiveJune 30, 2003, owns all of the common stock of the above primary subsidiaries.  Primary subsidiaries, including MPS, TMG, andMaricor Properties Ltd own all the common stock of their secondarysubsidiaries.  MAM is listed on theAmerican Stock Exchange (“AMEX”) under the symbol “MAM.”

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

**Accounting Policies**

TheCompany’s accounting policies are those disclosed in its 2006 Annual Report onForm 10-K, which is hereby incorporated by this reference.

**Interestand Penalties on Income Taxes**

Intereston income taxes, if any, is presented within the provision for or benefit ofincome taxes.  Penalties associated withincome taxes, if any, are presented within Other Income (Deductions).

**Reclassifications**

The reclassification of the unregulated engineeringservices and unregulated software technology segments and the operations ofMecel from continuing operations to discontinued operations have been made tothe 2006 financial statement amounts in order to conform to the 2007 presentation.  Further, the unregulated real estate segmentreported in the 2006 financial statements, excluding Mecel, has beenreclassified to the equity method, instead of consolidated, also to conform tothe 2007 presentation.

**New AccountingPronouncements**

**The Fair Value Option for Financial Assets andFinancial Liabilities**

The FASB issued FASB Statement No. 159 (“SFAS 159”), *“The Fair Value Option for Financial Assets and Financial Liabilities –Including an Amendment of FASB Statement No. 115,”* in February 2007.  This standard permits an entity to choose tomeasure many financial instruments and certain other items at fair value.  This statement is effective for the beginningof MAM’s 2008 fiscal year.  The Companyis in the process of assessing the impact of SFAS 159 on its financialstatements, but does not anticipate a material impact from the adoption of thisstandard.

10

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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,Mecel and MTI.  The tax effect of itemsnot included in rate base or normal operating activities is allocated as “OtherIncome (Deductions).”

The foreign income taxes include only the Canadianincome taxes for Maine & New Brunswick and Mecel.  The Canadian operations of TMG areconsolidated in the MAM US tax return as a division, and are included inFederal income taxes.
|                                              | ** ** | **For the Quarters Ending March 31,** | ** ** |
|----------------------------------------------|------------|----------------------------------------------------------------|------------|
| **(In thousands of dollars)** | ** ** | **2007**                                                       | ** ** | **2006** | ** ** |
| Current income  taxes                        |       |                                                           |       |   |   |
| Federal                                      |       | $                                                              | —     |   | $ | 228 |   |
| State                                        |       | —                                                         |       | 51 |   |
| Foreign                                      |       | 4                                                              |       | (81 | ) |
| Total current  income taxes                  |       | 4                                                              |       | 198 |   |
| Deferred income  taxes                       |       |                                                           |       |   |   |
| Federal                                      |       | 647                                                            |       | 180 |   |
| State                                        |       | 290                                                            |       | 18 |   |
| Total deferred  income taxes                 |       | 937                                                            |       | 198 |   |
| Investment  credits, net                     |       | (5                                                             | )          | (6 | ) |
| Total income taxes                           |       | $                                                              | 936        |   | $ | 390 |   |
| Allocated to:                                |       |                                                           |       |   |   |
| Operating income                             |       |                                                           |       |   |   |
| -  Regulated                       |       | $                                                              | 1,317      |   | $ | 750 |   |
| -  Unregulated                     |       | (241                                                           | )          | (203 | ) |
| Subtotal                                     |       | 1,076                                                          |       | 547 |   |
| Discontinued  Operations                     |       | (141                                                           | )          | (179 | ) |
| Total Operating                              |       | 935                                                            |       | 368 |   |
| Other income                                 |       | 1                                                              |       | 22 |   |
| Total                                        |       | $                                                              | 936        |   | $ | 390 |   |

 

Forthe three months ended March 31, 2007, and 2006, the effective income tax rateswere 40.9% and 42.3%, respectively.  The principal reasons for theeffective tax rates differing from the US federal income tax rate areequity earnings in joint venture companies and investment tax creditamortization.

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

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

EffectiveJanuary 1, 2007, the Company adopted the provisions of FIN 48.  There were no adjustments required to thereported tax benefits at January 1, or March 31, 2007, from the adoption ofthis standard.  Further, the Company doesnot expect that the amounts of unrecognized tax benefits will changesignificantly in the next twelve months. As of January 1, and March 31, 2007, the Company has accrued no interestor penalties related to uncertain tax positions.

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

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

Thefollowing summarizes accumulated deferred income tax (assets) and liabilitiesestablished on temporary differences 

11

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under SFAS 109 as of March31, 2007, and December 31, 2006:
| (In thousands of dollars)                                  | ** ** | **March 31, 2007** | ** ** | **December 31, 2006** | ** ** |
|---------------------------------------------------------------------------|------------|------------------------------|------------|---------------------------------|------------|
| Seabrook                                                                  |       | $                            | 5,584      |                            | $          | 5,737 |   |
| Property                                                                  |       | 9,559                        |       | 9,526                           |       |
| Flexible pricing  revenue                                                 |       | 548                          |       | 596                             |       |
| Deferred fuel                                                             |       | 13,418                       |       | 13,839                          |       |
| Pension and  post-retirement benefits                                     |       | (2,030                       | )          | (1,992                          | )          |
| Net Operating  Loss Carryforwards of Continuing Operations                |       | —                       |       | (1,055                          | )          |
| Other  Comprehensive Income                                               |       | (613                         | )          | (602                            | )          |
| Other                                                                     |       | 867                          |       | 311                             |       |
| Net Accumulated  Deferred Income Tax Liability from Continuing Operations |       | $                            | 27,333     |                            | $          | 26,360 |   |
| Goodwill  Impairment Loss                                                 |       | (1,018                       | )          | (1,018                          | )          |
| Estimated Loss  on Sale of Discontinued Operations                        |       | (2,701                       | )          | (2,485                          | )          |
| Net Operating  Loss Carryforwards of Discontinued Operations              |       | (1,282                       | )          | (1,204                          | )          |
| Amortization of  Goodwill                                                 |       | 375                          |       | 375                             |       |
| Other  Comprehensive Income                                               |       | 307                          |       | 287                             |       |
| Other                                                                     |       | (55                          | )          | (14                             | )          |
| Net Accumulated  Deferred Income Tax Asset from Discontinued Operations   |       | $                            | (4,374     | )                               | $          | (4,059 | ) |
| Net Accumulated  Deferred Income Tax Liability                            |       | $                            | 22,959     |                            | $          | 22,301 |   |

 

**3.    DISCONTINUEDOPERATIONS**

**TheMaricor Group**

As described in the MAM 2006 Form 10-K, the Companyhas embarked on a new strategic course expected to result in the divestiture ofsubstantially all of the assets reported as the Unregulated EngineeringServices operating segment within 2007. As a result, the operations for this segment have been reclassified todiscontinued operations.

The net loss for unregulated engineering services iscomposed of the following:
|                                                   | ** ** | **Quarter Ended March 31,** | ** ** |
|---------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                        | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Loss From  Operations:                            |       |                                       |       |   |   |
| Operating Revenue                                 |       | $                                          | 1,667      |   | $ | 1,349 |   |
| Expenses                                          |       | (1,780                                     | )          | (1,567 | ) |
| Loss from Operations                              |       | (113                                       | )          | (218 | ) |
| Benefit of Income  Taxes                          |       | 65                                         |       | 110 |   |
| Net Loss —  Unregulated Engineering Services |       | $                                          | (48        | ) | $ | (108 | ) |

 

12

----

The unregulated engineering services balance sheets asof March 31, 2007, and December 31, 2006, were as follows:
|                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Assets:                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| Cash & Cash  Equivalents                     |       | $                  | 221        |                  | $          | 202 |   |
| Accounts  Receivable, Net                        |       | 1,832              |       | 1,715                 |       |
| Unbilled  Contract Revenue                       |       | 1,133              |       | 1,155                 |       |
| Other Current  Assets                            |       | 54                 |       | 72                    |       |
| Current Assets                                   |       | 3,240              |       | 3,144                 |       |
| Fixed Assets,  Net of Depreciation               |       | 213                |       | 226                   |       |
| Intangible  Assets and Goodwill                  |       | 167                |       | 162                   |       |
| Income Taxes  Receivable                         |       | 869                |       | 875                   |       |
| Deferred Tax  Assets                             |       | 2,515              |       | 2,495                 |       |
| Long-Term and  Other Assets                      |       | 3,764              |       | 3,758                 |       |
|   Total  Assets                        |       | $                  | 7,004      |                  | $          | 6,902 |   |
|                                             |       |               |       |                  |       |
| Shareholder’s Equity  and Liabilities:      |       |               |       |                  |       |
| Shareholder’s  (Deficit) Equity             |       | $                  | (4,715     | )                     | $          | (4,646 | ) |
| Notes Payable to  Banks                          |       | 1,000              |       | 1,000                 |       |
| Accounts Payable  and Accrued Employee Benefits  |       | 1,304              |       | 1,596                 |       |
| Intercompany  Accounts Payable                   |       | 1,774              |       | 1,673                 |       |
| Unearned Revenue                                 |       | 322                |       | 139                   |       |
| Other Current  Liabilities                       |       | 112                |       | 50                    |       |
| Current  Liabilities                             |       | 4,512              |       | 4,458                 |       |
| Intercompany  Notes Payable                      |       | 5,080              |       | 4,890                 |       |
| Long-Term Debt                                   |       | 2,127              |       | 2,200                 |       |
| Long-Term and  Other Liabilities                 |       | 7,207              |       | 7,090                 |       |
| Total Shareholder’s  Equity and Liabilities |       | $                  | 7,004      |                  | $          | 6,902 |   |

 

**MaricorTechnologies**

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

The operating revenue and net loss for unregulatedsoftware technology for the first quarters of 2007 and 2006 are as follows:
|                                                  | ** ** | **Quarter Ended March 31,** | ** ** |
|--------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                       | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Loss From Operations:                            |       |                                       |       |   |   |
| Operating  Revenue                               |       | $                                          | 102        |   | $ | 33 |   |
| Expenses                                         |       | (310                                       | )          | (213 | ) |
| Loss From  Operations                            |       | (208                                       | )          | (180 | ) |
| Benefit of Income Taxes                          |       | 78                                         |       | 69 |   |
| Net Loss — Unregulated  Software Technology |       | $                                          | (130       | ) | $ | (111 | ) |

 

13

----

Unregulated software technology balance sheets atMarch 31, 2007, and December 31, 2006, were as follows:
|                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Assets:                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| Accounts  Receivable, Net                        |       | $                  | 77         |                  | $          | 29 |   |
| Current Assets                                   |       | 77                 |       | 29                    |       |
| Fixed Assets,  Net of Depreciation               |       | 203                |       | 203                   |       |
| Income Taxes  Receivable                         |       | 414                |       | 329                   |       |
| Deferred Tax  Assets                             |       | 578                |       | 586                   |       |
| Long-Term and  Other Assets                      |       | 1,195              |       | 1,118                 |       |
| Total Assets                                     |       | $                  | 1,272      |                  | $          | 1,147 |   |
|                                             |       |               |       |                  |       |
| Shareholder’s Equity  and Liabilities:      |       |               |       |                  |       |
| Shareholder’s  (Deficit) Equity             |       | $                  | (447       | )                     | $          | (330 | ) |
| Accounts Payable  and Accrued Employee Benefits  |       | 63                 |       | 133                   |       |
| Intercompany  Accounts Payable                   |       | 1,437              |       | 1,120                 |       |
| Unearned Revenue                                 |       | 19                 |       | 24                    |       |
| Current  Liabilities                             |       | 1,519              |       | 1,277                 |       |
| Other  Liabilities                               |       | 200                |       | 200                   |       |
| Total Shareholder’s  Equity and Liabilities |       | $                  | 1,272      |                  | $          | 1,147 |   |

 

**MecelProperties**

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

The operating results for Mecel for the first quartersof 2007 and 2006 are as follows:
|                                 | ** ** | **Quarter Ended March 31,** | ** ** |
|---------------------------------|------------|--------------------------------------------|------------|
| ** **                      | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Income From Operations:         |       |                                       |       |   |   |
| Intercompany  Operating Revenue |       | $                                          | 34         |   | $ | 34 |   |
| Expenses                        |       | (29                                        | )          | (32 | ) |
| Income From  Operations         |       | 5                                          |       | 2 |   |
| Provision for Income  Taxes     |       | (2                                         | )          | — |   |
| Net Income — Other         |       | $                                          | 3          |   | $ | 2 |   |

 

All of Mecel’s operating revenues are derived fromtheir lease of space to The Maricor Group, Canada Ltd., and have beeneliminated in consolidation.

14

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Mecel’s balance sheets at March 31, 2007, and December31, 2006, were as follows:
|                                                  | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|--------------------------------------------------|------------|--------------------|------------|-----------------------|------------|
| ** **                                       | ** ** | **2007**           | ** ** | **2006**              | ** ** |
| Assets:                                          | ** ** | ** **         | ** ** | ** **            | ** ** |
| Cash and Cash  Equivalents                       |       | $                  | 10         |                  | $          | 8 | ** ** |
| Accounts  Receivable from Associated Companies   |       | 91                 |       | 83                    | ** ** |
| Other Current  Assets                            |       | 5                  |       | 4                     |       |
| Current Assets                                   |       | 106                |       | 95                    |       |
| Fixed Assets,  Net of Depreciation               |       | 508                |       | 507                   |       |
| Total Assets                                     |       | $                  | 614        |                  | $          | 602 |   |
|                                             |       |               |       |                  |       |
| Shareholder’s Equity  and Liabilities:      |       |               |       |                  |       |
| Shareholder’s  (Deficit) Equity             |       | $                  | 48         |                  | $          | 45 |   |
| Accounts Payable  and Accrued Employee Benefits  |       | 11                 |       | 17                    |       |
| Intercompany  Accounts Payable                   |       | 65                 |       | 54                    |       |
| Current  Liabilities                             |       | 76                 |       | 71                    |       |
| Intercompany  Notes Payable                      |       | 490                |       | 486                   |       |
| Total Shareholder’s  Equity and Liabilities |       | $                  | 614        |                  | $          | 602 |   |

 

**4.    SEGMENTINFORMATION**

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

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

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

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

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

·          Other: Corporate costsdirectly associated with the unregulated subsidiaries, common costs not allocatedto the regulated utility, and inter-company eliminations classified ascontinuing operations and the operations of Mecel Properties classified asdiscontinued operations.

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

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

15

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| ** **                                | ** ** | ** **            | ** ** | **(In thousands of dollars)**         | ** ** | ** **               | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | ** **            | ** ** | **Quarter Ended March 31, 2007** | ** ** | ** **               | ** ** |
| ** **                                | ** ** | **Regulated**         | ** ** | **Unregulated**                                      | ** ** | ** **               | ** ** |
| ** **                                | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                            | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from External  Customers          |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Regulated  Operating Revenue              |       | $                     | 10,915     |                                                 | $          | —                   |       | $ | — |   | $ | — |   | $ | — |   | $ | 10,915 |   |
| Operating Expenses                        |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Regulated  Operation & Maintenance    |       | 3,377                 |       | —                                               |       | —                   |       | — |   | — |   | 3,377 |   |
| Unregulated  Operation & Maintenance  |       | —                |       | —                                               |       | —                   |       | — |   | 492 |   | 492 |   |
| Depreciation                              |       | 711                   |       | —                                               |       | —                   |       | — |   | — |   | 711 |   |
| Amortization of  Stranded Costs           |       | 2,804                 |       | —                                               |       | —                   |       | — |   | — |   | 2,804 |   |
| Amortization                              |       | 55                    |       | —                                               |       | —                   |       | — |   | — |   | 55 |   |
| Taxes Other than  Income                  |       | 441                   |       | —                                               |       | —                   |       | — |   | 3 |   | 444 |   |
| Income Taxes                              |       | 1,317                 |       | —                                               |       | —                   |       | — |   | (241 | ) | 1,076 |   |
| Total Operating  Expenses                 |       | 8,705                 |       | —                                               |       | —                   |       | — |   | 254 |   | 8,959 |   |
| Operating Income (Loss)                   |       | 2,210                 |       | —                                               |       | —                   |       | — |   | (254 | ) | 1,956 |   |
| Other Income  (Deductions)                |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Equity in Income  of Associated Companies |       | (38                   | )          | —                                               |       | —                   |       | — |   | (34 | ) | (72 | ) |
| Interest and  Dividend Income             |       | 17                    |       | —                                               |       | —                   |       | — |   | (10 | ) | 7 |   |
| Other Income  (Deductions)                |       | (20                   | )          | —                                               |       | —                   |       | — |   | (6 | ) | (26 | ) |
| Total Other  Income (Deductions)          |       | (41                   | )          | —                                               |       | —                   |       | — |   | (50 | ) | (91 | ) |
| Income (Loss) Before  Interest Charges    |       | 2,169                 |       | —                                               |       | —                   |       | — |   | (304 | ) | 1,865 |   |
| Interest Charges                          |       | 214                   |       | —                                               |       | —                   |       | — |   | 91 |   | 305 |   |
| Income (Loss) from  Continuing Operations |       | 1,955                 |       | —                                               |       | —                   |       | — |   | (395 | ) | 1,560 |   |
| Loss from Discontinued  Operations:       |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Loss From  Operations                     |       | —                |       | (113                                                 | )          | (208                     | )          | — |   | (29 | ) | (350 | ) |
| Benefit of  (Provision for) Income Taxes  |       | —                |       | 65                                                   |       | 78                       |       | — |   | (2 | ) | 141 |   |
| Loss from  Discontinued Operations        |       | —                |       | (48                                                  | )          | (130                     | )          | — |   | (31 | ) | (209 | ) |
| Net Income (Loss)                         |       | $                     | 1,955      |                                                 | $          | (48                      | )          | $ | (130 | ) | $ | — |   | $ | (426 | ) | $ | 1,351 |   |
| Total Assets                              |       | $                     | 136,488    |                                                 | $          | 7,004                    |       | $ | 1,272 |   | $ | 334 |   | $ | 867 |   | $ | 145,965 |   |

 

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| ** **                                | ** ** | ** **            | ** ** | **(In thousands of dollars)**         | ** ** | ** **               | ** ** |
|-------------------------------------------|------------|-----------------------|------------|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                | ** ** | ** **            | ** ** | **Quarter Ended March 31, 2006** | ** ** | ** **               | ** ** |
| ** **                                | ** ** | **Regulated**         | ** ** | **Unregulated**                                      | ** ** | ** **               | ** ** |
| ** **                                | ** ** | **Electric  Utility** | ** ** | **Engineering  Services**                            | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| Revenue from External  Customers          |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Regulated  Operating Revenue              |       | $                     | 10,051     |                                                 | $          | —                   |       | $ | — |   | $ | — |   | $ | — |   | $ | 10,051 |   |
| Operating Expenses                        |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Regulated  Operation & Maintenance    |       | 3,744                 |       | —                                               |       | —                   |       | — |   | — |   | 3,744 |   |
| Unregulated  Operation & Maintenance  |       | —                |       | —                                               |       | —                   |       | — |   | 437 |   | 437 |   |
| Depreciation                              |       | 715                   |       | —                                               |       | —                   |       | — |   | — |   | 715 |   |
| Amortization of  Stranded Costs           |       | 2,810                 |       | —                                               |       | —                   |       | — |   | — |   | 2,810 |   |
| Amortization                              |       | 79                    |       | —                                               |       | —                   |       | — |   | — |   | 79 |   |
| Taxes Other than  Income                  |       | 485                   |       | —                                               |       | —                   |       | — |   | 15 |   | 500 |   |
| Income Taxes                              |       | 750                   |       | —                                               |       | —                   |       | — |   | (203 | ) | 547 |   |
| Total Operating  Expenses                 |       | 8,583                 |       | —                                               |       | —                   |       | — |   | 249 |   | 8,832 |   |
| Operating Income (Loss)                   |       | 1,468                 |       | —                                               |       | —                   |       | — |   | (249 | ) | 1,219 |   |
| Other Income  (Deductions)                |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Equity in Income  of Associated Companies |       | 47                    |       | —                                               |       | —                   |       | — |   | (119 | ) | (72 | ) |
| Interest and  Dividend Income             |       | 5                     |       | —                                               |       | —                   |       | — |   | 1 |   | 6 |   |
| Other Income  (Deductions)                |       | (60                   | )          | —                                               |       | —                   |       | — |   | (2 | ) | (62 | ) |
| Total Other  Income (Deductions)          |       | (8                    | )          | —                                               |       | —                   |       | — |   | (120 | ) | (128 | ) |
| Income (Loss) Before  Interest Charges    |       | 1,460                 |       | —                                               |       | —                   |       | — |   | (369 | ) | 1,091 |   |
| Interest Charges                          |       | 256                   |       | —                                               |       | —                   |       | — |   | 51 |   | 307 |   |
| Income (Loss) from  Continuing Operations |       | 1,204                 |       | —                                               |       | —                   |       | — |   | (420 | ) | 784 |   |
| Loss from Discontinued  Operations:       |       |                  |       |                                                 |       |                     |       |   |   |   |   |   |   |
| Loss From  Operations                     |       | —                |       | (218                                                 | )          | (180                     | )          | — |   | (32 | ) | (430 | ) |
| Benefit of  Income Taxes                  |       | —                |       | 110                                                  |       | 69                       |       | — |   | — |   | 179 |   |
| Loss from  Discontinued Operations        |       | —                |       | (108                                                 | )          | (111                     | )          | — |   | (32 | ) | (251 | ) |
| Net Income (Loss)                         |       | $                     | 1,204      |                                                 | $          | (108                     | )          | $ | (111 | ) | $ | — |   | $ | (452 | ) | $ | 533 |   |
| Total Assets                              |       | $                     | 131,370    |                                                 | $          | 11,373                   |       | $ | 1,870 |   | $ | 229 |   | $ | 459 |   | $ | 145,301 |   |

 

**5.    INVESTMENTS IN ASSOCIATEDCOMPANIES**

**Maricor Properties Ltd**

On June 30, 2006, Maricor Properties sold one share ofstock representing a 50% ownership interest to Ashford Investments Inc.  This sale specifically excluded Mecel, withMAM retaining 100% of the economic ownership of Mecel.  Management reviewed the characteristics ofMaricor Properties subsequent to this transaction in accordance with FinancialAccounting 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.   MAM’s investmentin Maricor Properties is reported within “Investments in Associated Companies,”and receivables from Maricor Properties and its subsidiaries payable to MAM andits wholly-owned subsidiaries are presented within the line “AccountsReceivable from Associated Companies.”

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Condensed financial information, as of March 31, 2007,for the components of Maricor Properties not consolidated in these financialstatements is as follows:
| Total Assets                     |   | $      | 7,684  |   |
|----------------------------------|--------|--------|--------|--------|
| Less:                            |   |   |   |
| Long-term Debt                   |   | 5,569  |   |
| Short-term Debt                  |   | 1,732  |   |
| Other Liabilities                |   | 179    |   |
| Net Assets                       |   | $      | 204    |   |
|                             |   |   |   |
| MAM’s Equity in Net  Assets |   | $      | 102    |   |

 

MAM recorded equity in the loss of Maricor Properties,excluding Mecel, of $7,000 in the first quarter of 2007.

**Maricor Ashford Ltd**

As of March 21, 2007, MAM became an equal partner inMaricor Ashford Ltd, an inactive real estate development and redevelopmentjoint venture with Ashford Investments Inc., an unaffiliated real estatemanagement company.  Prior to this date,Maricor Properties was an equal partner in this joint venture with AshfordInvestments Inc.  Maricor Ashford Ltd isbased in Moncton, New Brunswick, Canada. Management reviewed the characteristics of this joint venture inaccordance with Financial Accounting Standards Board Interpretation No. 46(R), “Consolidationof Variable Interest Entities, an Interpretation of ARB 51” (“FIN 46(R)”), anddetermined that MAM 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.  MAM’s investment in the joint venture totaled$58,000 at March 31, 2007, with no impact on earnings.

**MaineYankee and MEPCO**

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

Dividends received fromMaine Yankee during the first quarter of 2006 were approximately $41,000.  No dividend was paid by Maine Yankee in thefirst quarter of 2007.  MPS receiveddividends of $2,000 and $169,000 from MEPCO in the first quarters of 2007 and2006, respectively.

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

**6.    STOCKCOMPENSATION PLAN**

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

As of March 31, 2007, the former CEO has been the onlyemployee to receive stock options, with 3,932 options outstanding for theremainder of the original ten-year term of these options.

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

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

 

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

 

The following table summarizes information about fixedstock options outstanding at March 31, 2007:
|                                         | ** ** | **Options Outstanding**             | ** ** | **Options Exercisable**                             | ** ** |
|-----------------------------------------|------------|------------------------------------------|------------|----------------------------------------------------------|------------|
| **Range of Exercise  Prices** | ** ** | **Number  Outstanding at  3/31/07** | ** ** | **Weighted-  Average  Remaining  Contractual Life** | ** ** | **Weighted-  Average  Exercise Price** | ** ** | **Number  Exercisable at  3/31/07** | ** ** | **Weighted-  Average  Exercise Price** | ** ** |
|                                    |       |                                     |       |                                                     |       |   |   |   |   |   |   |
| $30.10 - $30.45               |       | 3,932                                    |       | 5.67 yrs                                                 |       | $ | 30.28 |   | 3,932 |   | $ | 30.28 |   |
|                                         |            |                                          |            |                                                          |            |  |  |  |  |  |  |  |  |

 

Dilutive earnings per share impact of outstandingstock options:
|                                                                                        | ** ** | **Quarter Ended March 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                             | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Net Income (in  thousands)                                                             |       | $                                          | 1,375      |   | $ | 533 |   |
| Shares Used in  Computation of Earnings                                                |       |                                       |       |   |   |
| Weighted-Average Common Shares Outstanding in  Computation of Basic Earnings per Share |       | 1,646,823                                  |       | 1,637,211 |   |
| Dilutive Effect of Common Stock Options                                                |       | 3,932                                      |       | 21,000 |   |
| Dilutive Effect of Preferred Shares                                                    |       | 8,211                                      |       | 9,500 |   |
| Shares Used in Computation of Earnings per Common  Share Assuming Dilution             |       | 1,658,966                                  |       | 1,667,711 |   |
|                                                                                   |       |                                       |       |   |   |
| Net Income per  Share (Basic)                                                          |       | $                                          | 0.83       |   | $ | 0.33 |   |
| Net Income per Share  (Diluted)                                                        |       | $                                          | 0.82       |   | $ | 0.32 |   |

 

**7.    BENEFITPROGRAMS**

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

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**U. S. Defined BenefitPension Plan**

The Company has a non-contributory defined benefitpension plan covering Maine Public Service and certain former MAMemployees.  No employees of otherunregulated businesses are eligible for this benefit plan. Benefits under theplan are based on employees’ years of service and compensation prior toretirement.  On December 31, 2006, futuresalary and service accruals for current participants in the plan ceased, andany new employees hired on or after January 1, 2006, are not eligible for thepension plan.  In conjunction with thispension freeze, MPS recorded a one-time curtailment expense of approximately$98,000 in the fourth quarter of 2006. The Company agreed to additional employer contributions to theRetirement Savings Plan to compensate employees in part or in full, dependingon their number of years of service, for this lost benefit.  This additional contribution ranges from 5%to 25% of each eligible employee’s gross base pay, and is immediately fullyvested.

TheCompany’s policy has been to fund pension costs accrued. In accordance withthat policy, the Company plans to contribute approximately $843,000 to thepension plan for 2006 in 2007, prior to the filing of its 2006 corporate incometax return.   The Company also expects tocontribute approximately $250,000 per quarter during 2007 for 2007 estimatedpayments.

Thefollowing table sets forth the plans’ net periodic benefit cost:
|                                              | ** ** | **Pension Benefits**               | ** ** |
|----------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                   | ** ** | **Quarters Ended March  31,** | ** ** |
| **(In thousands of dollars)** | ** ** | **2007**                                | ** ** | **2006** | ** ** |
| Service cost                                 |       | $                                       | —     |   | $ | 122 |   |
| Interest cost                                |       | 301                                     |       | 283 |   |
| Expected return on plan  assets              |       | (271                                    | )          | (270 | ) |
| Amortization of prior  service cost          |       | —                                  |       | 23 |   |
| Recognized net  actuarial (gain)             |       | —                                  |       | 26 |   |
| Net periodic benefit cost                    |       | $                                       | 30         |   | $ | 184 |   |

 

**Health Care Benefits**

The Company providescertain health care benefits to eligible employees.  Eligible employees share in the cost of theirmedical benefits, in addition to plan deductibles and coinsurancepayments.  The plan also covers retireemedical coverage for employees of Maine Public Service Company, the regulatedutility.  In 2005, certain amendmentswere made to the plan, including the following: employees hired on or afterOctober 1, 2005, are not eligible for post-retirement medical coverage.Effective January 1, 2006, certain retiree co-pays were increased, and spousalcontributions commenced.

Thefollowing table sets forth the plans’ net periodic benefit cost:
|                                       | ** ** | **Health Care Benefits**       | ** ** |
|---------------------------------------|------------|--------------------------------|------------|
| ** **                            | ** ** | **Quarters Ended March   31,** | ** ** |
| **(In thousands of dollars)**         | ** ** | **2007**                       | ** ** | **2006** | ** ** |
| Service cost                          |       | $                              | 45         |   | $ | 46 |   |
| Interest cost                         |       | 124                            |       | 126 |   |
| Expected return on plan assets        |       | (53                            | )          | (54 | ) |
| Amortization of transition obligation |       | 18                             |       | 36 |   |
| Amortization of prior service cost    |       | (15                            | )          | (15 | ) |
| Recognized net actuarial (gain)       |       | 45                             |       | 43 |   |
| Net periodic benefit cost             |       | $                              | 164        |   | $ | 182 |   |

 

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

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

InNovember of 2006, the MPUC issued an Order in the Docket opened for the purposeof selecting a new standard offer provider for the Company’s service territoryfor the period beginning January 1, 2007. The then-existing standard offer arrangement was due to expire onDecember 31, 2006.  The MPUC’s November16, 2006, Order stated that it had received two bids from a singlesupplier.  Based on this, the MPUCconcluded that northern Maine lacked a competitive power market and directedthe Company to furnish default standard offer service for the fourteen-monthperiod beginning January 1, 2007.  OnDecember 18, 2006, the MPUC granted reconsideration of its November 16 Orderand awarded the standard offer contract to 

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WPS Energy, Inc. (now knownas Integrys Energy Services, Inc.), the incumbent supplier.

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

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

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

TheCompany in early 2007 announced that it has joined with Central Maine PowerCompany in an effort to determine the feasibility of such a line.

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPSfiled a notice with the MPUC under Docket No. 2006-24 that it intended to seeka 4% increase in overall electric rates.  Subsequently, on March 13, 2006,the Company filed for an increase in distribution revenue of $3.24 million, a9.9% increase in average electric delivery rates. The Company participated indiscovery on its request and updated its filing on June 15, 2006. Thesupplemental filing revised the Company’s request to increase distributionrevenue by $2.68 million, an 8.64% increase in average electric delivery rates.

During June 2006, theCompany entered into settlement discussions with the parties to Docket No.2006-24. The discussions led to a Stipulation that was filed with theCommission on June 23, 2006. The Stipulation proposed an increase to theCompany’s distribution revenue of $1.75 million, effective on July 15, 2006.Additionally, the Company agreed to defer its increase in the Demand-SideManagement (“DSM”) mil rate and its decrease in the transmission component ofits delivery rate until July 15, 2006, as described below.  The net effect of the three retail ratechanges 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.

**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 theMaine Public Utilities Commission, the new transmission rates for retailcustomers were put into retail rates on July 15, 2006, to coincide with MPS’sdistribution rate increase.  These rateswere approved by the MPUC on July 5, 2006. Per this filing, the DSM mil ratewas increased by 20%, or approximately $111,000, and the retail transmissionrate was decreased by 13.43%, or approximately $534,000.

**Maine Public Utilities Commission2006 Stranded Cost Rate Case**

TheCompany filed its 2006 Stranded Cost case on August 31, 2006, in MPUC DocketNo. 2006-506.  The filing is an update ofthe Stipulation in the prior Stranded Cost case, MPUC Docket No. 2003-666.  MPS proposed that stranded cost rates remainthe same as those agreed to in the prior filing.  The initial case conference was held onSeptember 26, 2006, and the Stipulation was approved by the Commission onNovember 30, 2006, with no impact on rates for the period beginning January 1,2007, and ending December 31, 2009.  TheStipulation also included an annual reconciliation provision to reconcileactual sales volume to the projections made by MPS.

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

On May 31, 2006, pursuantto Section 205 of the Federal Power Act, 16 U.S.C. Section 824d, andTitle 18 CFR Sections 35.11 and 35.13 of the regulations of the FERC,MPS submitted for filing its proposed revisions to its FERC Open AccessTransmission Tariff in Docket No. ER 05 (the “2006 OATT”) to modify itstransmission rate formula.  MPS filed itsupdated rates under the 2006 OATT formula on June 15, 2006, pursuant to DocketER00-1053, with an effective date of June 1, 2006, for both wholesale andretail customers, subject to a customer refund that may occur as a result ofthe proceeding and potential 

21

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settlement negotiations.  The retail transmission revenue requirementwas decreased by approximately $534,000 on July 15, 2006, under the 2006OATT.  This represented a decrease of13.43% to the transmission component of retail delivery rates. The primaryreasons for the decrease were a shift in costs between transmission anddistribution and the settlement of the 2005 Open Access Transmission Tariffthrough rates, as described more fully below.

Asettlement between the parties to the 2006 OATT was provided to the FERC onDecember 22, 2006.  The significantelements of the settlement included a return on equity of 10.5% on transmissionassets, recovery of 90% of the expenditures associated with Line 3875 intransmission rate base to be amortized over three years, the inclusion of newdepreciation rates beginning January 1, 2007, and Oracle allocation consistentwith the distribution rate case.  Thissettlement was approved on February 8, 2007.

**Wheelabrator-Sherman**

MPSwas ordered into a Power Purchase Agreement (“PPA”) with Wheelabrator-Sherman (“WS”)in 1986, which required the purchase of the entire output (up to 126,582 MWHper year) of a 17.6 MW biomass plant through December 31, 2006.  Total stranded costs included as regulatoryassets under the caption “Deferred Fuel and Purchased Energy Costs” in theaccompanying balance sheet related to this contract are $33.63 million and$34.69 million at March 31, 2007, and December 31, 2006, respectively.

**Poly ChlorinatedBi-Phenol Transformers**

In response to a Maineenvironmental regulation to phase out Poly Chlorinated Bi-phenol (“PCB”)transformers, MPS has implemented a program to eliminate transformers on itssystem that do not meet the State environmental guidelines. The Company is inthe process of inspecting almost 13,000 distribution transformers over aten-year period. MPS is currently in its sixth year of this ten-year program.Approximately 35% of the transformers inpsected require “in service” PCB oilsampling.  In addition, transformers that pass the inspection criteriawill be refitted with new lightning arrestors and animal guards, wherenecessary. The current total estimated cost of the project is $2.6 million; asof March 31, 2007, $1.9 million of this total has been spent on thiseffort.  The remaining cost of the project has been accrued on the BalanceSheet as “Accrued Removal Obligations.”

**Off-Balance SheetArrangements**

The Maricor Ashford Ltdjoint venture and Maricor Properties, excluding Mecel, are a variable interestentities, as defined by Financial Accounting Standards Board Interpretation No.46, “Consolidation of Variable Interest Entities,” (“FIN 46”) promulgated onJanuary 17, 2003.  Management hasdetermined that Maricor Ashford and Maricor Properties should not beconsolidated with these financial statements, as MAM is not the primarybeneficiary of these companies.

The Company has severaloperating leases for office and field equipment, vehicles and office space,accounted for in accordance with Statement of Financial Accounting StandardsNo. 13, “Accounting for Leases,” (“SFAS 13”). The following summarizes payments for leases for a period in excess ofone year for the quarters ended March 31, 2007, and 2006:

| (In thousands of dollars) | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Equipment                                |       | $        | 6          |     | $          | 4 |   |
| Building                                 |       | 77       |       | 50       |       |
| Vehicles                                 |       | 9        |       | 2        |       |
| Rights of Way                            |       | 26       |       | —   |       |
| Total                                    |       | $        | 118        |     | $          | 56 |   |

 

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

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**Future Minimum Lease Payments By Year For All Items**
| Years | ** ** | **Minimum Lease   Payments** | ** ** |
|-------|------------|----------------------------------------|------------|
| 2007  |       | $                                      | 110        |   |
| 2008  |       | $                                      | 231        |   |
| 2009  |       | $                                      | 185        |   |
| 2010  |       | $                                      | 107        |   |
| 2011  |       | $                                      | 37         |   |

 

**Financial InformationSystem Hosting Agreement**

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.  The base hosting fees were $450,000 for 2004,$510,000 for 2005, and $575,000 per year for years 2006 through 2013.  This contract was re-negotiated effectiveJanuary 1, 2007.  The annual fee wasreduced to $537,500 per year from 2007 through 2013, plus reimbursement fortravel costs.  Further, based on certainservice quality targets, contingent payments of $8,000 per quarter could alsobe earned.

**9.    CAPITAL LEASES**

MPS financed certain of its2006 and 2007 vehicle and computer equipment purchases through capital leases,totaling $436,000.  The remainingliability as of March 31, 2007, for these capital lease arrangements isapproximately $385,000, and is recorded within Miscellaneous Liabilities on theConsolidated Balance Sheet.  Futureminimum lease payments are:
| Years | ** ** | **Minimum Lease Payments** | ** ** |
|-------|------------|--------------------------------------|------------|
| 2007  |       | $                                    | 68         |   |
| 2008  |       | $                                    | 112        |   |
| 2009  |       | $                                    | 99         |   |
| 2010  |       | $                                    | 81         |   |
| 2011  |       | $                                    | 25         |   |

 

**10.     SUBSEQUENT EVENTS**

**Divestiture of MaricorTechnologies Assets and Termination of Segment Operations**

In conjunction with theCompany’s return to a utility and utility-related strategy, described morefully in the MAM 2006 Form 10-K, the majority of the operations of MTI wereterminated on March 23, 2007.

On April 13, 2007, Maine& Maritimes Corporation sold substantially all of the assets of MaricorTechnologies to HCI Systems Asset Management, LLC.  MAM originally acquired these assets from HCIon February 15, 2005, in exchange for a combination of cash, preferred stock,and certain options, including a put option for the preferred stock worth $200,000.  Under the terms of the sale, HCI will releaseall of its rights under the Option Agreement, including this put option.  MAM agreed to allow the conversion of itsSeries A-2 Preferred Stock into 26,000 shares of MAM common stock on April 13,2007.  Further, HCI will be eligible toreceive additional shares of MAM common stock on March 31, 2008, if the tradingprice of MAM’s stock is less than $25 per share on that date.

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**PART 1. FINANCIALINFORMATION**

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

**Forward-LookingStatements**

This filing containscertain “forward-looking statements” as defined in the Private SecuritiesLitigation Reform Act of 1995, related to the expected future performance ofour plans and objectives, such as forecasts and projections of expected futureperformance or statements of Management’s plans and objectives.  These forward-looking statements may be containedin filings with the SEC and in press releases and oral statements.  We use words such as “anticipate,” “estimate,”“expect,” “project,” “intend,” “plan,” “believe,” and other words and terms ofsimilar meaning in connection with any discussion of future operating orfinancial performance.  These statementsare based on the current expectations, estimates or projections of Managementand are not guarantees of future performance. Some or all of these forward-looking statements may not turn out to bewhat the Company expected.  Actualresults will differ, and some of the differences may be material.

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

**Accounting Policies**

Criticalaccounting policies are disclosed in the Company’s 2006 Annual Report on Form10-K.

***Executive Overview***

As more fully described in our Annual Report filed inMarch, the Company is transitioning away from unrelated business segments infavor of focusing on our core competencies in and related to the regulatedutility.  To that end, we have classifiedour utility business and the holding company as “Continuing Operations” and thesegments we are divesting as “Discontinued Operations.”

Net income from Continuing Operations was strong inthe first quarter, showing profit of $1.56 million, double the prior yearquarterly net income of $784,000. Several factors contributed to this improvement including, but notlimited to:

·                  Rateincrease effective on July 15, 2006;

·                  Increasein transmission wheeling revenues from additional generation capacity in ourservice territory;

·                  Increasedbillings for construction work and mutual aid;

·                  Reducedlabor costs associated with the reduction in force in the third quarter of 2006and a reduction in overtime due to fewer storm-related outages; and

·                  Reduction ofcommon overhead costs.

In addition to the enhanced performance of theContinuing Operations, the results for our Discontinued Operations also werebetter than the prior year.  Althoughstill incurring losses, we have increased sales and controlled costs whilepursuing the divestiture of these businesses, reducing the operating lossincurred from $251,000 in the first quarter of 2006 to $209,000 in the firstquarter of 2007.

We have made significant progress in the divestitureof our Discontinued Operations with the announcement in April of the sales ofthe assets of MTI.  We continue toanticipate the remaining unregulated operations will be divested during2007.  The Company is expeditiouslydivesting while taking precautions to do so in a prudent manner to minimize anypotential costs or liabilities.

While divesting our engineering, software, and realestate operations, we are keenly focused on our core utility business.  Brent Boyles becomes CEO at MAM effective May8, 2007.  Brent continues to provideproven leadership as he has done within the utility operation, MPS, for thepast several years.  Brent’s experiencein utility operations, regulation, and management is an important part of ourrevised strategy.

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***Overall Results ofOperations—Consolidated***

*NetIncome and Earnings Per Share*
|                                                                                   | ** ** | **Quarters Ended March 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|---------------------------------------------|------------|
| **(Dollars in Thousands Except per Share Amounts)** | ** ** | **2007**                                    | ** ** | **2006** | ** ** |
| Income (Loss)  from Continuing Operations                                         |       |                                        |       |   |   |
| Regulated Electric Utility                                                        |       | $                                           | 1,955      |   | $ | 1,204 |   |
| Other*                                                                            |       | (395                                        | )          | (420 | ) |
| Income from Continuing Operations                                                 |       | 1,560                                       |       | 784 |   |
| Loss from  Discontinued Operations                                                |       |                                        |       |   |   |
| Unregulated Engineering Services                                                  |       | (48                                         | )          | (108 | ) |
| Unregulated Software Technology                                                   |       | (130                                        | )          | (111 | ) |
| Other*                                                                            |       | (31                                         | )          | (32 | ) |
| Loss from Discontinued Operations                                                 |       | (209                                        | )          | (251 | ) |
| Net Income                                                                        |       | $                                           | 1,351      |   | $ | 533 |   |
| Basic Income Per Share                                                            |       | $                                           | 0.82       |   | $ | 0.33 |   |

 

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

Net income above isallocated based upon the segments as presented in Note 4, “Segment Information,”of the Consolidated Financial Statements. The results by segment are explained more fully in the followingsections.

The financial performanceof both the continuing and discontinued operations have improved from the firstquarter of 2006 to the first quarter of 2007. Cost control measures in the unregulated operations, as well asincreased revenue from both the regulated electric utility and unregulatedengineering services have led to an increase in basic net income per share of$0.49, from $0.33 for the first quarter of 2006 to $0.82 in the first quarterof 2007.

***Interest Expense***

Interest charges forcontinuing operations remained flat from the first quarter of 2006 to the firstquarter of 2007, decreasing from $307,000 to $305,000.  Interest charges for MAM increased from$51,000 in 2006 to $91,000 in 2007, due primarily to the increase in MAM’soutstanding debt balance from $2.27 million at March 31, 2006, to $3.55 millionat March 31, 2007.  However, thisincrease was offset by the $42,000 decrease in interest expense of theregulated utility, due to the increase in stranded cost carrying charges as aresult of the higher deferred fuel balance.

***Income Tax Expense / Benefit***

The regulated provisionfor income taxes increased $567,000, from $750,000 in 2006 to $1.32 million in2007, as a result of the increase in earnings. The benefit from income taxes from continuing unregulated operationsincreased from $203,000 for the first quarter of 2006 to $241,000 for the firstquarter of 2007.

***Taxes Other Than Income***

Taxesother than income are primarily payroll and property taxes.  These taxes decreased from $500,000 for thefirst three months of 2006 to $444,000 for the first three months of 2007.  The majority of this decrease is due to lowerpayroll taxes from the resignation of the CEO and the reduction in force inSeptember 2006.

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***Regulated Operations***

Thefollowing discussion includes the operations of MPS and Me&NB, the Company’sregulated subsidiary and inactive unregulated Canadian subsidiary:
|                                                              | ** ** | **Quarter Ended** | ** ** |
|--------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                   | ** ** | **March 31,**     | ** ** |
| ** **                                                   | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Net Income —  Regulated Electric Utility (In thousands) |       | $                      | 1,955      |   | $ | 1,204 |   |
| Earnings Per Share from  Regulated Electric Utilities        |       | $                      | 1.19       |   | $ | 0.74 |   |

 

***Regulated Operating Revenue***

Consolidatedrevenues and Megawatt Hours (“MWH”) for the quarters ended March 31, 2007, and2006, are as follows:
|                                    | ** ** | **2007**    | ** ** | **2006** | ** ** |
|------------------------------------|------------|-------------|------------|----------|------------|
| ** **                         | ** ** | **Dollars** | ** ** | **MWH**  | ** ** | **Dollars** | ** ** | **MWH** | ** ** |
| Residential                        |       | $           | 4,337      |     | 51,997     |   | $ | 3,935 |   | 50,306 |   |
| Large Commercial                   |       | 1,483       |       | 42,733   |       | 1,605 |   | 43,974 |   |
| Medium  Commercial                 |       | 1,948       |       | 27,834   |       | 1,815 |   | 26,528 |   |
| Small Commercial                   |       | 2,516       |       | 26,555   |       | 2,285 |   | 25,495 |   |
| Other Retail                       |       | 228         |       | 847      |       | 208 |   | 853 |   |
| Total Regulated  Retail            |       | 10,512      |       | 149,966  |       | 9,848 |   | 147,156 |   |
| Other Regulated  Operating Revenue |       | 403         |       |     |       | 203 |   |   |   |
| Total Regulated Revenue            |       | $           | 10,915     |     |       |   | $ | 10,051 |   |   |   |

 

Totalregulated revenue increased $864,000 or 8.6% from the first quarter of 2006 tothe first quarter of 2007.  Residentialcustomer revenue accounted for approximately $402,000 of this increase, acombination of the 3.4% or 1,691 MWH increase in volume and the impact of therate increase effective July 15, 2006. Medium and small commercial customer revenue also increased $364,000 or8.8%, for the same reasons.  Sales volumefor these classes increased 2,366 MWH or 4.5%.

Thedecrease in large commercial customer revenue of $122,000 partially offsetthese increases.  This decrease waspartly volume driven, with total sales down 1,241 MWH or 2.8% from the prioryear, due primarily to lower usage by one large commercial customer.

Otherregulated operating revenue of $403,000 exceeded prior year by $200,000, due toincreased transmission wheeling revenue.

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

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***Regulated Utility Expenses***

Forthe quarters ended March 31, 2007, and 2006, regulated operation andmaintenance expenses and stranded costs are as follows:
| (In thousands of dollars)                    | ** ** | **2007** | ** ** | **2006** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|
| Regulated  Operation and Maintenance                        |       |     |       |     |       |
| Labor                                                       |       | $        | 1,119      |     | $          | 1,287 |   |
| Benefits                                                    |       | 446      |       | 551      |       |
| Outside Services                                            |       | 199      |       | 211      |       |
| Holding Company Management Costs                            |       | 436      |       | 601      |       |
| Insurance                                                   |       | 395      |       | 333      |       |
| Transportation                                              |       | 315      |       | 204      |       |
| Other                                                       |       | 467      |       | 557      |       |
| Total Regulated Operation and Maintenance                   |       | $        | 3,377      |     | $          | 3,744 |   |
|                                                        |       |     |       |     |       |
| Stranded Costs                                              |       |     |       |     |       |
| Wheelabrator-Sherman                                        |       | $        | —     |     | $          | 2,118 |   |
| Maine Yankee                                                |       | 720      |       | 774      |       |
| Seabrook                                                    |       | 384      |       | 384      |       |
| Amortization of Wheelabrator-Sherman Restructuring  Payment |       | —   |       | 363      |       |
| Deferred Fuel                                               |       | 1,504    |       | (899     | )          |
| Cost Incentive Refund                                       |       | 63       |       | —   |       |
| Cancelled Transmission Plant                                |       | 63       |       | —   |       |
| Special Discounts                                           |       | 70       |       | 70       |       |
| Total Stranded  Costs                                       |       | $        | 2,804      |     | $          | 2,810 |   |

 

Overall regulatedoperation and maintenance expense decreased $367,000 or 9.8% from the firstquarter of 2006 to the first quarter of 2007. The decreases were composed of the following:

·        Labor expenses decreased $168,000, with $45,000due to the decrease in overtime labor as a result of fewer storm-relatedoutages.  The remaining decrease is dueto reduced non-productive labor expenses, and a $20,000 reduction in expensefrom an increase in labor for capital and billable construction work.

·        Benefits expense decreased $105,000 from 2006to 2007, due to a $53,000 reduction in workers compensation expense, and an$87,000 decrease in health insurance expense, largely attributable to thesubsidy the Company receives under Medicare Part D.  These decreases were partly offset by smallerincreases in other benefit expenses.

·        Holding company management costs were reducedby $165,000, due to the combination of a decrease in total costs, primarilylabor, of $77,000 and the reduction of the percentage of these costs allocatedto MPS.

These decreases werepartly offset by an increase in transportation expense of approximately$111,000, due to additional maintenance work performed on the vehicle fleetduring the first quarter of 2007.

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

The Wheelabrator-Shermanexpenses reported in 2006 were the payments for purchased power, offset by thereceipts from the sale of that energy.  With the expiration of this contract December31, 2006, no additional energy has been purchased.  Also, in 2006, the $899,000 offset to expensefrom deferred fuel was the deferral of the net expense of the purchased powercontract beyond the total expense allowed for recovery in Docket No.2003-666.  MPS is now recovering itsdeferred fuel costs.  For 2007, the $1.5million of deferred fuel represents the amortization of the deferred fuelstranded costs, a non-cash expense.

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

In September 2006, MPSbegan amortization of its cancelled transmission plant, in accordance with thesettlement of the 2006 OATT.  This amortizationtotaled $63,000 in the first quarter of 2007.

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***Other Continuing Operations***
|                                                             | ** ** | **Quarter Ended** | ** ** |
|-------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                  | ** ** | **March 31,**     | ** ** |
| ** **                                                  | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Net Loss — Other  Continuing Operations (in thousands) |       | $                      | (395       | ) | $ | (420 | ) |
| Loss Per Share from  Other Continuing Operations            |       | $                      | (0.24      | ) | $ | (0.26 | ) |

 

Othercontinuing operations represents the common costs of MAM that cannot beallocated to MPS, the corporate costs of MAM directly associated with theunregulated businesses and intercompany eliminations.  The plan to divest the unregulated operationsmay reduce the costs included in this segment; however, some of these costs areexpected to continue subsequent to the divestiture of the unregulatedoperations without other cost reduction or recovery efforts.

Theoperating expenses of this segment increased from $437,000 in the first quarterof 2006 to $492,000 in the first quarter of 2007.  The majority of this increase is a result ofthe reduction in the percentage of common costs allocated to MPS and the allocationof one-third of the Oracle financial system hosting fees to MAM.  This increase was offset by the decrease inthe loss from equity in earnings of Maricor Properties.  During the first quarter of 2006, the MaricorProperties buildings were not fully leased, and were incurring higher lossesthan in the first quarter of 2007.

***Unregulated Engineering Services***
|                                                             | ** ** | **Quarter Ended March 31,** | ** ** |
|-------------------------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands of dollars)**                | ** ** | **2007**                                   | ** ** | **2006** | ** ** |
| Net Loss —  Unregulated Engineering Services           |       | $                                          | (48        | ) | $ | (108 | ) |
| Basic Loss Per Share  from Unregulated Engineering Services |       | $                                          | (0.03      | ) | $ | (0.07 | ) |

 

The net loss of theunregulated engineering services segment has been reduced from $108,000 in thefirst quarter of 2006 to $48,000 in the first quarter of 2007, as a result ofthe combination of higher revenue and the reduction of certain expenses.

Unregulatedengineering services revenues for the quarters ended March 31, 2007, and 2006:
| (In thousands of dollars)         | ** ** | **2007** | ** ** | **2006** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| The Maricor  Group New England                   |       | $        | 377        |     | $          | 471 |   |
| The Maricor  Group, Canada Ltd                   |       | 1,290    |       | 878      |       |
| Total Unregulated  Engineering Operating Revenue |       | $        | 1,667      |     | $          | 1,349 |   |

 

Totalrevenue for the segment continued the trend experienced in 2006, increasingapproximately $318,000 or 23.6% in total over prior year.  The increase is attributable to the Canadianoperations, which generated $412,000 more revenue in the first quarter of 2007than 2006.  This increase is due to thecombination of the expansion of the electrical engineering division with theacquisition of Pace in May 2006 and the award of several large projects during2006.  This increase in revenue waspartly offset by a decrease in revenue in the US operations of approximately$94,000.

Unregulatedengineering services expenses for the quarters ended March 31, 2007, and 2006:
| (In thousands of dollars) | ** ** | **2007** | ** ** | **2006** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Unregulated  Operation & Maintenance |       | $        | 1,678      |     | $          | 1,456 |   |
| Depreciation and  Amortization           |       | 4        |       | 26       |       |
| Taxes Other than  Income                 |       | 9        |       | 20       |       |
| Interest                                 |       | 78       |       | 58       |       |
| Other                                    |       | 11       |       | 7        |       |
| Total Unregulated  Engineering Expenses  |       | $        | 1,780      |     | $          | 1,567 |   |

 

Unregulatedengineering services expenses increased $213,000 from the first quarter of 2006to the first quarter of 2007, an increase of 13.6%.  Operation and maintenance expense increased$222,000 or 15.2%, and supported the increase in revenue described above.

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***Unregulated Software Technology***

Thefollowing section details the operations of the unregulated software technologysegment:
|                                                                 | ** ** | **Quarter Ended** | ** ** |
|-----------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                      | ** ** | **March 31,**     | ** ** |
| ** **                                                      | ** ** | **2007**               | ** ** | **2006** | ** ** |
| Net Loss —  Unregulated Software Technology (In thousands) |       | $                      | (130       | ) | $ | (111 | ) |
| Loss Per Share from  Unregulated Software Technology            |       | $                      | (0.08      | ) | $ | (0.07 | ) |

 

Unregulated softwaretechnology revenue from third parties increased from $33,000 in the firstquarter of 2006 to $102,000 in the first quarter of 2007, as the result of onesignificant implementation project completed in 2007.  This increase in revenue was offset by theincrease in operating expenses of $97,000.  During the first quarter of 2006, through the release of new iPlanTMsolutions in April 2006, software development costs were deferred.  The expenses for the first quarter of 2007included no such deferrals.

***Income Taxes***

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

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

Pleaserefer to Note 8 of the financial statements.

***Liquidity and Capital Resources***

MAM’scurrent liabilities of $18.64 million as of March 31, 2007, exceed its currentassets of $13.19 million by $5.45 million, exposing MAM to liquidity concernsand the risk of being unable to fulfill its obligations in 2007.   Of these current liabilities, $6.0 millionrepresents short-term borrowings, representing the MPS line of credit with Bankof America.  MAM has taken steps tomitigate this short-term risk, including identification of options to reduce ordefer costs.  Based on these steps andcurrent financial projections, MAM has sufficient cash flow for the foreseeablefuture.

Inthe long term, Management expects MAM’s cash flow to improve, with MPS’srecovery of deferred fuel costs currently deferred by MPS.  Until 2007, the cash expenditures fordeferred fuel exceeded the recovery of stranded costs.  With the expiration of theWheelabrator-Sherman contract in December 2006, this position has reversed, andrecovery of stranded costs is exceeding the cash outflows.  These stranded cost free cash flows can beused, in part, to help fulfill these obligations.

TheCompany’s cash and cash equivalents as of March 31, 2007, were $715,000, downfrom $898,000 at December 31, 2006.  The “Statementsof Consolidated Cash Flows” of the Company’s Consolidated Financial Statementsas presented in Part I, Item 1. of this Form 10-Q, reflects the Company’ssources and uses of capital.

Cash flow provided by operating activitiesfor the first quarter of 2007 was $3.53 million, compared to $2.46 million inthe first quarter of 2006.  The increasein net income of $818,000 from the first quarter of 2006 to the first quarterof 2007 and the change in deferred regulatory and debt issuance costs from ause of cash of $1.46 million in 2006 to a source of cash of $1.22 million in2007 were the largest factors in the increase in operating cash flowperiod-over-period.  Net cash flowprovided by operating activities was reduced the first quarter of 2007 by $2.02million due to the change in accounts payable, primarily a result of thepayment for the final energy purchases under the Wheelabrator-Sherman contract.

Cash flow used for financing included the repayment ofshort- and long-term debt totaling $2.49 million in the first quarter of2007.  Cash flow used for financing activities for the first three months of2006 totaled $1.28 million, as long- and short-term debt were reduced by$150,000 and $1.13 million respectively.

Cash flow used forinvesting activities for thefirst quarter of 2007 decreased cash by approximately $1.23 million.  The largest use of cash for investing in thefirst quarter 2007 were fixed asset investments of $1.16 million, with another$69,000 used for settlement of the stock contingencies associated with anacquisition in 2004.  For the first threemonths of 2006, cash flow used for investing activity totaled $1.20 million, ofwhich $842,000 was invested in fixed assets for continuing operations and$114,000 was invested in the activities of the discontinued operations.  Approximately $244,000 was used in the firstquarter of 2006 for settlement of the stock contingencies associated withacquisitions in 2003 and 2004.

The Maricor Group and its subsidiaries incurred equity price riskwhen it bought the stock of certain of its subsidiaries.  Part of the consideration was MAM stock.  In the event that the price of MAM commonstock was below a specified price when the seller wished to dispose of it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference.  There were 24,290

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shares outstanding pursuant to this kind of agreementat March 31, 2007.  At a market price of$19.00 per share at March 31, 2007, the total exposure is approximately$448,000.  A $1 increase in MAM’s shareprice would decrease this exposure by approximately $24,000.  A $1 decrease in MAM’s share price wouldincrease this exposure by $24,000.

In accordance with ratestipulations approved by the MPUC, for ratemaking purposes, MPS is required tomaintain a capital structure not to include more than 51% common equity for thedetermination of delivery rates.   Also,in the order approving the reorganization of MPS and the formation of Maine& Maritimes Corporation, the parties stipulated to several restrictions onthe capital structure of MPS and MPS’s ability to make dividend payments toMAM.  As of March 31, 2007, MPS is incompliance with these conditions.

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

MAM did not meet the interest coverage ratio requiredunder the MAM Credit Agreement with Bank of America or the TMG facility withKatahdin Trust Company for the third quarter of 2006 and the fourth quarter of2006.  Bank of America and Katahdin TrustCompany granted waivers from compliance with the interest coverage ratiorequirements for both the third and fourth quarters.  The waivers included three provisions.  First, waiver fees totaling $56,000 wereassessed.  Second, a modification wasmade to the interest coverage ratio requirements for 2007 for the Bank ofAmerica $1.7 million term note, the Bank of America $4.0 million line of creditand the Katahdin Trust Company $1.0 million line of credit.  For the three, six and twelve months endedMarch 31, June 30 and December 31, 2007, MAM must meet a 1.75:1 interestcoverage ratio, calculated as earnings before interest and income taxes dividedby interest expense.  For the nine monthsended September 30, 2007, 1.25:1 is the minimum ratio required.  The third provision is the conversion of theBank of America $4.0 million line of credit from a revolving credit agreementto a term note, effective March 13, 2007. With this conversion, the principal balances must be repaid at a rate of$140,000 per month, beginning January 31, 2008. MAM is in compliance with these revised covenants as of March 31, 2007.

***Regulatory Proceedings***

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

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

The following represents Maine & MaritimesCorporation’s more significant risks. While every effort is made to describe the character of the organization’srisks, it cannot warrant that this list is all inclusive.  The Company, where possible, does take stepsin each of the following areas to attempt to mitigate such risks.

(a)          MAM and its subsidiariesare faced with interest rate risk on the MAM $4.0 million Bank of America lineof credit, the TMG $2.0 million term note and $1.0 million line of credit withKatahdin Trust Company, and the MPS $10 million line of credit.

MPSfixed interest rates on three variable rate debt issues on September 9, 2003,with a derivative interest rate swap transaction. These interest rate swapseffectively fixed through maturity the rates on the 1996 Series due in 2021 andthe 2000 Series due in 2025 at 4.42% and 4.53%, respectively. The rate on the1998 Notes due in 2008 was also fixed at 2.79% through maturity. As of December31, 2006, the 1996 and 2000 Series and the 1998 FAME Notes had outstandingbalances of $13.6 million, $9.0 million and $3.18 million, respectively. Thefixed rates are higher than the previous floating rates and continue to be asof the date of this filing. Although incurring no up-front cost to execute theswaps, MPS is currently incurring increased interest expenses. However,Management believes that the fixing of interest rates over the terms of the debtwill serve to protect both shareholders and consumers from what it believes tobe upward variable interest rate pressures.

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

(b)         Transactions withMe&NB; The Maricor Group, Canada Ltd; and MAM’s investment in MaricorProperties Ltd are subject to foreign currency translation risk. Income andexpenses are translated at average rates of exchange for the period of time theincome is earned or the expenses are incurred. Assets and liabilities aretranslated at year-end exchange rates.

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(c)          The Maricor Group andits subsidiaries incurred equity price risk when it bought the stock of certainof its subsidiaries.  Part of theconsideration was MAM stock.  In theevent that the price of MAM common stock was below a specified price when theseller wished to dispose of it, The Maricor Group (or the applicablesubsidiary) agreed to pay the difference. There were 24,290 shares outstanding pursuant to this kind of agreementat March 31, 2007.  At a market price of$19.00 per share at March 31, 2007, the total exposure is approximately$448,000.  A $1 increase in MAM’s shareprice would decrease this exposure by approximately $24,000.  A $1 decrease in MAM’s share price wouldincrease this exposure by $24,000.

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 MAMcommon stock on February 9, 2009, 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. This agreement was superseded by the terms of the sale of the MTIassets to HCI on April 13, 2007.  Underthis agreement, HCI converted its remaining 6,500 preferred shares to 26,000common shares on that date.  If MAM’sstock price is less than $25 on March 31, 2008, HCI is entitled to additionalshares of common stock.

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

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

1.                        Evaluationof disclosure controls and procedures.

The Company’s Management,including the Company’s Interim Chief Executive Officer, and Chief FinancialOfficer, are responsible for establishing and maintaining disclosure controlsand procedures for the Company and its subsidiaries.  Management has designed such controls andprocedures to (a) give reasonable assurance that the information required to bedisclosed by the Company in reports that it files under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the SEC, and (b) ensure that such information is accumulatedand communicated to Management to allow timely decisions regarding requireddisclosure.  Management evaluated theCompany’s disclosure controls and procedures as of the end of the periodcovered by this quarterly report.  Basedon the evaluation, the aforementioned officers concluded that the Company’sdisclosure controls and procedures are working effectively.

2.                        Changesin Internal Controls over Financial Reporting

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

**As a non-accelerated filer, the Company isevaluating actions necessary to comply with Section 404 of The Sarbanes-OxleyAct with respect to its internal control over financial reporting.**

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

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**PART II. OTHER INFORMATION**

***Item 1. Legal Proceedings***

 

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

InNovember of 2006, the MPUC issued an Order in the Docket opened for the purposeof selecting a new standard offer provider for the Company’s service territoryfor the period beginning January 1, 2007. The then-existing standard offer arrangement was due to expire onDecember 31, 2006.  The MPUC’s November16, 2006, Order stated that it had received two bids from a singlesupplier.  Based on this, the MPUCconcluded that northern Maine lacked a competitive power market and directedthe Company to furnish default standard offer service for the fourteen-monthperiod beginning January 1, 2007.  OnDecember 18, 2006, the MPUC granted reconsideration of its November 16 Orderand awarded the standard offer contract to WPS Energy, Inc. (now known asIntegrys Energy Services, Inc.), the incumbent supplier.

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

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

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

TheCompany in early 2007 announced that it has joined with Central Maine PowerCompany in an effort to determine the feasibility of such a line.

**Maine Public Utilities Commission2006 Distribution Rate Case**

On January 11, 2006, MPSfiled a notice with the MPUC under Docket No. 2006-24 that it intended to seeka 4% increase in overall electric rates.  Subsequently, on March 13, 2006,the Company filed for an increase in distribution revenue of $3.24 million, a9.9% increase in average electric delivery rates. The Company participated indiscovery on its request and updated its filing on June 15, 2006. The supplemental filing revised the Company’srequest to increase distribution revenue by $2.68 million, an 8.64% increase inaverage electric delivery rates.

During June 2006, theCompany entered into settlement discussions with the parties to Docket No.2006-24. The discussions led to a Stipulation that was filed with theCommission on June 23, 2006. The Stipulation proposed an increase to theCompany’s distribution revenue of $1.75 million, effective on July 15, 2006.Additionally, the Company agreed to defer its increase in the Demand-SideManagement (“DSM”) mil rate and its decrease in the transmission component ofits delivery rate until July 15, 2006, as described below.  The net effect of the three retail ratechanges was an increase to annual retail delivery revenue of approximately $1.33million 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.

**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 theMaine Public Utilities Commission, the new transmission rates for retailcustomers were put into retail rates on July 15, 2006, to coincide with MPS’sdistribution rate increase.  These rateswere approved by the MPUC on July 5, 2006. Per this filing, the DSM mil ratewas increased by 20%, or approximately $111,000, and the retail transmissionrate was decreased by 13.43%, or approximately $534,000.

**Maine Public Utilities Commission2006 Stranded Cost Rate Case**

TheCompany filed its 2006 Stranded Cost case on August 31, 2006, in MPUC DocketNo. 2006-506.  The filing is an update ofthe Stipulation in the prior Stranded Cost case, MPUC Docket No. 2003-666.  MPS proposed that stranded cost rates remainthe same as those agreed to in the prior filing.  The initial case conference was held onSeptember 26, 2006, and the Stipulation

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was approved by theCommission on November 30, 2006, with no impact on rates for the periodbeginning January 1, 2007, and ending December 31, 2009.  The Stipulation also included an annualreconciliation provision to reconcile actual sales volume to the projectionsmade by MPS.

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

On May 31, 2006, pursuantto Section 205 of the Federal Power Act, 16 U.S.C. Section 824d, andTitle 18 CFR Sections 35.11 and 35.13 of the regulations of the FERC,MPS submitted for filing its proposed revisions to its FERC Open AccessTransmission Tariff in Docket No. ER 05 (the “2006 OATT”) to modify itstransmission rate formula.  MPS filed itsupdated rates under the 2006 OATT formula on June 15, 2006, pursuant to DocketER00-1053, with an effective date of June 1, 2006, for both wholesale andretail customers, subject to a customer refund that may occur as a result ofthe proceeding and potential settlement negotiations.  The retail transmission revenue requirementwas decreased by approximately $534,000 on July 15, 2006, under the 2006OATT.  This represented a decrease of13.43% to the transmission component of retail delivery rates. The primaryreasons for the decrease were a shift in costs between transmission anddistribution and the settlement of the 2005 Open Access Transmission Tariffthrough rates, as described more fully below.

Asettlement between the parties to the 2006 OATT was provided to the FERC onDecember 22, 2006.  The significantelements of the settlement included a return on equity of 10.5% on transmissionassets, recovery of 90% of the expenditures associated with Line 3875 intransmission rate base to be amortized over three years, the inclusion of newdepreciation rates beginning January 1, 2007, and Oracle allocation consistentwith the distribution rate case.  Thissettlement was approved on February 8, 2007.

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

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

***Liquidity and Capital Formation Risk***

MAM’scurrent liabilities of $18.64 million as of March 31, 2007, exceed its currentassets of $13.19 million by $5.45 million, exposing MAM to liquidity concernsand the risk of being unable to fulfill its obligations in 2007.   Of these current liabilities, $6.0 millionrepresents short-term borrowings, representing the MPS line of credit with Bankof America.  MAM has taken steps tomitigate this short-term risk before and after year-end, includingidentification of options to reduce or defer costs.  Based on these steps and current financialprojections, MAM has sufficient cash flow for the foreseeable future.

Inthe long term, Management expects MAM’s cash flow to improve, with MPS’srecovery of deferred fuel costs currently deferred by MPS.  Until 2007, the cash expenditures fordeferred fuel exceeded the recovery of stranded costs.  With the expiration of theWheelabrator-Sherman contract in December 2006, this position has reversed, andrecovery of stranded costs is exceeding the cash outflows.  These stranded cost free cash flows can beused, in part, to help fulfill these obligations.

***Equity Price Risk***

The Maricor Group and its subsidiaries incurred equityprice risk when it bought the stock of certain of its subsidiaries.  Part of the consideration was MAM stock.  In the event that the price of MAM commonstock was below a specified price when the seller wished to dispose of it, TheMaricor Group (or the applicable subsidiary) agreed to pay the difference.  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 were 24,290 sharesoutstanding pursuant to this kind of agreement at March 31, 2007.  At a market price of $19.00 per share atMarch 31, 2007, the total exposure is approximately $448,000.  A $1 increase in MAM’s share price woulddecrease this exposure by approximately $24,000.  A $1 decrease in MAM’s share price wouldincrease this exposure by $24,000.

***Divestiture of MaricorTechnologies***

With the divestiture of substantially all of theassets of MTI, the franchise and competition risks associated with unregulatedsoftware technology disclosed in MAM’s 2006 Form 10-K are eliminated.  MAM’s risk from technological obsolescence isalso significantly reduced as a result of this divestiture.

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

None.

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

None

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

None

***Item 5. Other Information***

None

***Item 6. Exhibits***

Thefollowing exhibits are attached:

·                  Exhibit3(a) Articles of Incorporation

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

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

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SIGNATURE

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

MAINE & MARITIMESCORPORATION

(Registrant)

Date:  May 8,2007
| /s/ Randi J. Arthurs             |   |
|----------------------------------|--------|
| Randi J. Arthurs                 |
| Vice President  & Controller |

 

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