**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

**FORM 10-K/A**

**(AmendmentNo. 1)**

**to**

**ANNUAL REPORT PURSUANT TO SEC. 13 OR 15(d) OFTHE SECURITIESEXCHANGE ACT OF 1934**

**For the fiscal year ended** December 31,2005

**Commission File No.** 333-103749

**Maine & Maritimes Corporation**

(Exact name of registrantas specified in its charter)

**Maine**(State or other jurisdiction of incorporationor organization)

**30-0155348**(I.R.S. Employer Identification No.)
| **209 State Street,  Presque Isle, Maine** | **04769**  |
|--------------------------------------------|------------|
| (Address of principal executive offices)   | (Zip Code) |

 

**Registrant’s telephone number,including area code: **207-760-2499

**Securities registered pursuant toSection 12(b) of the Act:**

**Title of each class: **CommonStock, $7.00 par value

**Name of each exchange on whichregistered: **American Stock Exchange

**Securities registered pursuant toSection 12(g) of the Act:**None

**Title of Class**

Indicate by check mark if a well-known seasonedissuer, as defined in Rule 405 of the Securities Act. Yes o  No x

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act. Yes o  No x

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months (orfor such shorter period that the registrant was required to file such reports),and (2) has been subject to such filing requirements for the past90 days. Yes x  No o

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitiveproxy or information statements incorporated by reference in Part III ofthis Form 10-K or any amendment to this Form 10-K. o

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, or anon-accelerated filer. See definition of “accelerated filer and largeaccelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large acceleratedfiler o   Acceleratedfiler o   Non-accelerated filer x

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

Aggregate market value of the voting stock held bynon-affiliates at June 30, 2005: $40,086,092.

The number of shares outstanding of each of the issuer’sclasses of common stock as of March 24, 2006.

Common Stock, $7.00 par value—1,637,211 shares

**DOCUMENTSINCORPORATED BY REFERENCE**

Portionsof the Company’s definitive Proxy Statement to be filed pursuant toRegulation 14A no later than 120 days after December 31, 2005,which is the end of the fiscal year covered by this report, are incorporated byreference into Part III.

 

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**MAINE &MARITIMES CORPORATIONFORM 10-KFor the Fiscal Year Ended December 31, 2005** ***For Glossary of Terms, see Page iii*** **TABLEOF CONTENTS**
|          | ** ** | **PART I**                                                                                                            |   |   |
|----------|------------|-----------------------------------------------------------------------------------------------------------------------|--------|--------|
| Item 1.  |       | Business                                                                                                              |   | 1      |
|     |       | General Description of Parent Company and Subsidiaries                                                                |   | 2      |
|     |       | Employees                                                                                                             |   | 4      |
|     |       | Affiliates and Associated Companies                                                                                   |   | 5      |
|     |       | Financial Information about Geographic Areas                                                                          |   | 5      |
|     |       | Financial Information about Segments                                                                                  |   | 5      |
|     |       | Competitive Conditions                                                                                                |   | 5      |
|     |       | Company Financial Information                                                                                         |   | 5      |
| Item 1a. |       | Risk Factors                                                                                                          |   | 6      |
| Item 2.  |       | Properties                                                                                                            |   | 10     |
| Item  3. |       | Legal  Proceedings                                                                                                    |   | 12     |
| Item 4.  |       | Submission of Matters to a Vote of Security Holders                                                                   |   | 13     |
|     | ** ** | ** **                                                                                                            |   |   |
|     | ** ** | **PART II**                                                                                                           |   |   |
| Item 5.  |       | Market for Registrant’s Common Equity, Related  Shareholder Matters, and Issuer   Purchases of Equity Securities |   | 14     |
| Item 6.  |       | Selected Financial Data                                                                                               |   | 16     |
| Item 7.  |       | Management’s Discussion and Analysis of Financial  Condition and Results of  Operations                          |   | 17     |
|     |       | Annual  Performance Summary                                                                                           |   | 17     |
|     |       | Overview  of Company Strategy                                                                                         |   | 18     |
|     |       | 2005 Operating Results for the Consolidated Entity                                                                    |   | 21     |
|     |       | Financial Condition & Management Challenges                                                                       |   | 23     |
|     |       | Detailed Analysis of Changes in Financial Condition by  Operating Segment                                             |   | 25     |
|     |       | Critical  Accounting Policies                                                                                         |   | 33     |
|     |       | Off-Balance Sheet Arrangements                                                                                        |   | 36     |
|     |       | Liquidity and Capital Resources                                                                                       |   | 38     |
| Item 7a. |       | Quantitative and Qualitative Disclosures about Market  Risk                                                           |   | 41     |
| Item 8.  |       | Financial Statements and Supplementary Data                                                                           |   | 43     |
|     |       | Reports of Independent Registered Public Accounting  Firms                                                            |   | 43     |
|     |       | Statements of Consolidated Operations                                                                                 |   | 45     |
|     |       | Statements of Consolidated Cash Flows                                                                                 |   | 46     |
|     |       | Consolidated  Balance Sheets—Assets                                                                              |   | 47     |
|     |       | Consolidated Balance Sheets—Capitalization and  Liabilities                                                      |   | 48     |
|     |       | Statements of Consolidated Shareholders’ Equity                                                                  |   | 49     |
|     |       | Statements  of Long-Term Debt                                                                                         |   | 50     |
|     |       |                                                                                                                  |   |   |
|     |       | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                                            |   |   |
|     |       | 1. Accounting Policies                                                                                                |   | 51     |
|     |       | 2. Income Taxes                                                                                                       |   | 61     |
|     |       | 3. Discontinued Operations—Energy Atlantic                                                                       |   | 64     |
|     |       | 4. Segment Information                                                                                                |   | 65     |
|     |       | 5. Investments in Associated Companies                                                                                |   | 70     |
|     |       | 6. Short-Term Credit Arrangements                                                                                     |   | 72     |

 

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|            |       | 7. Accumulated Other Comprehensive Income (Loss)                                      |       | 74         |
|------------|------------|---------------------------------------------------------------------------------------|------------|------------|
|       |       | 8. Long-Term Debt                                                                     |       | 75         |
|       |       | 9.  Stock Compensation Plan                                                           |       | 76         |
|       |       | 10. Benefit Programs                                                                  |       | 78         |
|       |       | 11. Fair Value of Financial Instruments                                               |       | 83         |
|       |       | 12. Commitments, Contingencies and Regulatory Matters                                 |       | 83         |
|       |       | 13.  Guarantor Arrangements                                                           |       | 92         |
|       |       | 14. Acquisitions                                                                      |       | 92         |
|       |       | 15. Quarterly Information (Unaudited)                                                 |       | 98         |
| Item 9.    |       | Changes In and Disagreements With Accountants on  Accounting and Financial Disclosure |       | 99         |
| Item 9A.   |       | Controls and Procedures                                                               |       | 99         |
| Item  9B.  |       | Other  Information                                                                    |       | 99         |
|       | ** ** | ** **                                                                            |       |       |
|       | ** ** | **PART III**                                                                          |       |       |
| Item 10.   |       | Directors and Executive Officers of the Registrant                                    |       | 100        |
| Item 11.   |       | Executive Compensation                                                                |       | 101        |
| Item 12.   |       | Security Ownership of Certain Beneficial Owners and  Management                       |       | 101        |
| Item 13.   |       | Certain Relationships and Related Transactions                                        |       | 101        |
| Item 14.   |       | Principal Accountant Services and Fees                                                |       | 102        |
|       | ** ** | ** **                                                                            |       |       |
|       | ** ** | **PART IV**                                                                           |       |       |
| ** ** | ** ** | ** **                                                                            | ** ** | ** ** |
| Item 15.   |       | Exhibits, Financial Statement Schedules                                               |       | 102        |
|       |       | SIGNATURES                                                                            |       | 103        |
|       |       | SCHEDULE II                                                                           |       | 108        |
|       |       | INDEX TO EXHIBITS AND CEO/CFO CERTIFICATIONS                                          |       | 109        |

 

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**Glossary of Terms**
| AFUDC      |   | Allowances for the cost of equity and borrowed funds  used during construction |
|------------|--------|--------------------------------------------------------------------------------|
| AMEX       |   | American Stock Exchange                                                        |
| APP        |   | Aroostook Partnership for Progress                                             |
| BHE        |   | Bangor Hydro-Electric Company                                                  |
| CES        |   | Competitive Energy Supplier                                                    |
| CMMS       |   | Computerized Maintenance Management System                                     |
| CMP        |   | Central Maine Power Company                                                    |
| Cornwallis |   | Cornwallis Court Developments Ltd                                              |
| CPCN       |   | Certificate of Public Convenience and Necessity                                |
| DOE        |   | Department of Energy                                                           |
| EA         |   | Energy Atlantic, LLC                                                           |
| Eastcan    |   | Eastcan Consulting Engineers                                                   |
| EMF        |   | Electro-magnetic Fields                                                        |
| Engage     |   | Engage Energy America, LLC                                                     |
| EPS        |   | Earnings per Share                                                             |
| FAME       |   | Finance Authority of Maine                                                     |
| FASB       |   | Financial Accounting Standards Board                                           |
| FERC       |   | Federal Energy Regulatory Commission                                           |
| FIN        |   | FASB Interpretation Number                                                     |
| Gould      |   | Gould Electric Company                                                         |
| IBEW       |   | International Brotherhood of Electrical Workers                                |
| ISFSI      |   | Independent Spent Fuel Storage Installation                                    |
| kV         |   | Kilovolt                                                                       |
| LEED       |   | Leadership in Energy and Environmental Design                                  |
| LIBOR      |   | London InterBank Offering Rate                                                 |
| LOC        |   | Letter of Credit                                                               |
| MAM        |   | Maine & Maritimes Corporation                                              |
| M&R    |   | Morris & Richards Consulting Engineers                                     |
| Me&NB  |   | Maine & New Brunswick Electrical Power Company,  Ltd                       |
| Mecel      |   | Mecel Properties Ltd                                                           |
| MEPCO      |   | Maine Electric Power Company, Inc.                                             |
| MPS        |   | Maine Public Service Company                                                   |
| MPUC       |   | Maine Public Utilities Commission                                              |
| MPUFB      |   | Maine Public Utility Financing Bank                                            |
| MTI        |   | Maricor Technologies, Inc.                                                     |
| MW         |   | Megawatt                                                                       |
| MWH        |   | Megawatt hour                                                                  |
| MY         |   | Maine Yankee                                                                   |
| NB Power   |   | New Brunswick Power                                                            |
| NEPOOL     |   | New England Power Pool                                                         |
| NMISA      |   | Northern Maine Independent System Administrator                                |
| NOI        |   | Notice of Inquiry                                                              |
| NPCC       |   | Northeastern Power Coordinating Council                                        |
| NRC        |   | Nuclear Regulatory Commission                                                  |
| NRI        |   | Northeast Reliability Interconnect                                             |
| OATT       |   | Open Access Transmission Tariff                                                |
| PCB        |   | Poly Chlorinated Bi-phenol                                                     |
| PPA        |   | Power Purchase Agreement                                                       |
| PUHCA      |   | Public Utility Holding Company Act                                             |
|       |   |                                                                           |

 

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| REIT    |   | Real Estate Investment Trust                              |
|---------|--------|-----------------------------------------------------------|
| RES     |   | RES Engineering, Inc., now The Maricor Group New  England |
| SEC     |   | Securities and Exchange Commission                        |
| SFAS    |   | Statement of Financial Accounting Standards               |
| SOS     |   | Standard Offer Service                                    |
| TMG     |   | The Maricor Group                                         |
| TMGC    |   | The Maricor Group, Canada Ltd                             |
| TMGNE   |   | The Maricor Group New England                             |
| VCC     |   | Vitale, Caturano & Company, Ltd                       |
| VEBA    |   | Voluntary Employee Benefit Association                    |
| VERP    |   | Voluntary Employee Retirement Program                     |
| WPS     |   | WPS Resources Corporation                                 |
| WPS-PDI |   | WPS-Power Development, Inc.                               |
| WS      |   | Wheelabrator-Sherman                                      |

 

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**PART I**

**Item 1.   Business**

***General***

        Maine &Maritimes Corporation (“MAM” or the “Company”), a Maine corporation, became aholding company effective June 30, 2003, when all shares of Maine PublicService Company (“MPS”) common stock were converted into an equal number ofshares of MAM common stock, which are listed on the American Stock Exchange (“AMEX”)under the symbol “MAM.” MAM is the parent holding company for the followingwholly-owned subsidiaries:

1.                 TheMaricor Group (“TMG,” formerly known as Maine & Maritimes EnergyServices) and its wholly-owned United States subsidiary The Maricor Group NewEngland (“TMGNE,” formerly known as RES Engineering, Inc.) and TMG’swholly-owned Canadian subsidiary The Maricor Group, Canada Ltd (“TMGC,”formerly Maricor Ltd);

2.                 MaricorProperties Ltd (“Maricor Properties”), a Canadian subsidiary and itswholly-owned Canadian subsidiaries, Cornwallis Court Developments Ltd (“Cornwallis”)and Mecel Properties Ltd (“Mecel”), as well as a 50% owner of MaricorAshford Ltd;

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

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

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

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

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

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***GeneralDescriptions of the Parent Company and its Subsidiaries:***

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

·                    The MaricorGroup is an energy asset development and mechanical, electrical andplumbing/fire protection engineering consulting firm providing energyefficiency, facilities lifecycle asset management, facility conditionassessment, fee-for-service engineering design and emissions reduction servicesfocusing on sustainability and Leadership in Energy and Environmental Design (“LEEDTM”).The Maricor Group operates primarily within the New England region of theUnited States and the eastern Canadian provinces, particularly Atlantic Canada.TMG was formed in November 2003, and is headquartered in Presque Isle,Maine, with offices in Boston, Massachusetts; Moncton and Saint John, NewBrunswick; and Halifax, Nova Scotia.

·                    The MaricorGroup New England is a mechanical and electrical engineering subsidiary of TheMaricor Group with an office in Boston, Massachusetts, offering the services ofThe Maricor Group within New England, particularly the greater Boston area andother regions of the Commonwealth of Massachusetts. TMGNE was acquired by TMGon June 15, 2004.

·                    The MaricorGroup, Canada Ltd is the Canadian subsidiary of The Maricor Group offeringits parent company’s defined services primarily within the eastern Canadianprovinces, particularly Atlantic Canada. Headquartered in Moncton, NewBrunswick, it maintains offices in Saint John, New Brunswick, as well asHalifax, Nova Scotia. TMGC acquired its first mechanical and electricalengineering services company, Eastcan Consultants, Inc. (“Eastcan”) onDecember 1, 2003. On June 1, 2004, TMGC acquired Morris &Richards Consulting Engineers (“M&R”). Both companies are now operatingdivisions of TMGC.

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

·                    MecelProperties Ltd is a Canadian subsidiary of Maricor Properties Ltd andcurrently owns the office building housing the Halifax, Nova Scotia operatingdivision of The Maricor Group, Canada Ltd. It was acquired on June 1,2004, in conjunction with the acquisition of M&R by TMGC.

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

·                    MaricorTechnologies, Inc., formed on February 14, 2005, is a softwaretechnology firm that develops and maintains information-based technologies,which support lifecycle asset management and capital budget planning with anincreasing emphasis on capital performance

 

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management andasset governance. On February 14, 2005, it purchased, through a three-waytransaction, the “Strategic Asset Management” software technology assets ofDelinea Corporation of Dallas, Texas, which were formerly owned by HCI SystemsAsset Management, LLC. The Maricor Group utilizes the software in the deliveryof its lifecycle asset management services and markets its products throughoutNorth America. Maricor Technologies is headquartered in Presque Isle, Maine, withan office in Portland, Maine.

Maricor Technologies’ software products currentlyinclude “iPlanTM,” a web-based strategic planning tool used to quantify andprioritize capital investments required to maintain and preserve facilities andinfrastructure assets. iPlanTM automates the process of defining an organization’scapital needs, and assists in the identification of capital projects,quantifying replacement and renovation costs, and assigning priorities based onvarious lifecycle, safety, and return-on-investment measures. “Building BlocksTM”is a proactive computerized maintenance management system (“CMMS”) softwaresolution for managing both the total lifecycle of assets and the dailyoperation of facilities.

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

MPS was originallyincorporated in the United States as the Gould Electric Company (“Gould”) in April 1917,by a special act of the Maine legislature in connection with the purchase andlease of all of the assets of the Maine & New Brunswick ElectricalPower Company, Ltd, a Canadian company. Following the sale of its assetsto Gould, Me&NB remained a subsidiary of Gould, and subsequently MPS.Me&NB was primarily a hydro-electric generating company. It owned andoperated the Tinker hydro-electric station in New Brunswick, Canada, untilJune 8, 1999, when these assets were sold by MPS to WPS Power Development, Inc.(“WPS-PDI”), a subsidiary of WPS Resources Corporation (“WPS”).

Following itsincorporation in the United States, Gould changed its name to Maine PublicService Company in August 1929. MPS was a privately held subsidiary of theConsolidated Electric & Gas Company until 1947, when its capital stockwas sold as a result of Consolidated Electric & Gas Company’s forceddivestiture. From 1947 until its corporate reorganization in 2003, MPS was thecorporate parent and traded under the stock symbol “MAP” on the AMEX. Until itsgenerating assets were sold on June 8, 1999, MPS produced electric energyfor retail and wholesale customers. From that date through March 1, 2000,MPS continued to purchase electric energy for sale to these customers. MPScontinues to provide transmission services to former wholesale energy customersand transmission and distribution services to retail customers in the serviceterritory; however, it does not provide electric energy supply.

MPS’s research andanalyses indicate that its service area’s economy, once heavily influenced by asignificant military presence, continues to be dependent upon agricultural andthe forest products industries. Potato farming and processing and themanufacturing of forest products, principally lumber, plywood, and orientedstrand board, continue to be dominant economic forces within MPS’s servicearea. The growing of broccoli has added diversity to the region’s

 

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agriculturaleconomic base. Tourism, particularly related to snowmobiling and skiing,appears to be playing an increasingly significant role in the area’s economy.The medical industry represents a significant positive and growing economicforce within the region, serving as a leading employer and job creation sector.However, data appears to suggest that the northern Maine economy continues tolag behind national economic trends and is experiencing population losses basedon the most recent census data and projections, particularly among the servicearea’s youth and young adults. Attracting new businesses and jobs to northernMaine in an effort to reverse out-migration trends appears to be a continuingchallenge to the area’s leaders and businesses, including MPS. As a result ofits service area’s economic challenges, MPS has taken a lead role in forming apublic/private partnership for economic progress in cooperation with theNorthern Maine Development Commission. Managed by a private-sector investors’council, MPS and its staff are serving as private sector leaders in helping toexecute a rational and results-oriented economic development program. TheAroostook Partnership for Progress’s (“APP’s”) efforts are intended to increasethe area’s emphasis on economic development through improved focus and fundingfor economic development.

Electric sales in the Company’s territory areseasonal, and the Company’s results of operations reflect this seasonal nature.The highest usage occurs during the five heating season months, from Novemberthrough March due to heating-related requirements and shorter daylight hours.The rate year is divided into two periods, with higher rates in place in thewinter months to encourage conservation. Also, due to the climate in thenorthern Maine area, the majority of MPS’s construction program is completedduring the spring, summer and fall months.

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

·                    EnergyAtlantic, LLC is a licensed, but currently inactive, CES of retail electricity,and is classified as discontinued operations. EA formerly competed for electricsupply customers within the northern and southern regions of the State of Maineas a CES from March 1, 2000, through February 28, 2004, and alsoprovided the Standard Offer supply for Central Maine Power Company’s (“CMP’s”)territory from March 1, 2000, through February 28, 2002, and 20% ofthe medium non-residential SOS in MPS’s territory from March 1, 2000,through February 28, 2001.

***Employees***

        Atthe end of 2005, the Company and its subsidiaries had the following employees:

|                                    | ** ** | **Employees** | ** ** |
|------------------------------------|------------|---------------|------------|
| ** **                         | ** ** | **2005**      | ** ** | **2004** | ** ** |
| Maine &  Maritimes Corporation |       | 5             |       | 5 |   |
| Maine Public  Service Company      |       | 140           |       | 134 |   |
| The Maricor  Group                 |       | 68            |       | 68 |   |
| Maricor  Technologies, Inc.        |       | 6             |       | — |   |
|                               |       |          |       |   |   |
| **Total**                          | ** ** | **219**       | ** ** | **207** | ** ** |

 

        TheCompany’s consolidated payroll costs were $12.1 million for 2005 and$9.5 million for 2004. The increase was due primarily to new employeesadded through TMG’s acquisitions during 2004. Approximately 37% of MPS’s laborforce are members of the Local 1837 of the International Brotherhood ofElectrical Workers (“IBEW”) and are covered under a collective bargainingagreement. On September 22, 2005, the IBEW 1837 Union approved a four-yearcollective bargaining agreement

 

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for the term ofOctober 1, 2005, through September 30, 2009. No employees of theCompany are covered under collective bargaining agreements that will expirewithin one year.

***Affiliates andAssociated Companies***

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

        MPSowns 5% of the common stock of Maine Yankee, which operated an 860 MW nuclearpower plant (the “Plant”) in Wiscasset, Maine. On August 6, 1997, theBoard of Directors of Maine Yankee voted to permanently cease power operationsand to begin decommissioning the Plant. The Plant experienced a number ofoperational and regulatory problems and did not operate after December 6,1996. The decision to close the Plant permanently was based on an economicanalysis of the costs, risks and uncertainties associated with operating thePlant compared to those associated with closing and decommissioning it. ThePlant’s operating license from the Nuclear Regulatory Commission (“NRC”) wasdue to expire on October 21, 2008.

        MPSalso owns 7.49% of the common stock of Maine Electric Power Company, Inc.(“MEPCO”). MEPCO owns and operates a 345-KV (kilovolt) transmission line about180 miles long, which connects the New Brunswick Power (“NB Power”) system withthe New England Power Pool (“NEPOOL”).

***FinancialInformation about Geographic Areas***

        SeeNote 4 to the attached financial statements.

***FinancialInformation about Segments***

        SeeNote 4 to the attached financial statements

***CompetitiveConditions***

        SeeItem 1a. below.

***Company FinancialInformation***

        Thepublic may read and copy any materials the Company files with the SEC at the SEC’sPublic Reference Room at 100 F Street, N.E. Washington, D.C. 20549. Thepublic may obtain information on the operation of the Public Reference Room bycalling the SEC at 1-800-SEC-0330.

        TheCompany is an electronic filer and the SEC maintains an Internet site thatcontains reports, proxy and information statements, and other informationregarding issuers that file electronically with the SEC at http://www.sec.gov.The Company also maintains an Internet site containing such reports at www.maineandmaritimes.com.All such reports, including annual reports on Form 10-K, quarterly reportson Form 10-Q, and current reports on Form 8-K, may be downloaded fromsuch site without charge. Also listed at the Company’s site under InvestorRelations, Corporate Governance, is the Code of Ethics for Senior FinancialOfficers and all other Principal Executive Officers and Managers, as well asthe Company’s policy regarding Insider Trading and Dissemination of InsideInformation.

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**Item 1a.   Risk Factors**

        Aswith all companies, MAM is exposed to certain risk factors as a result of theiroperations. MAM has identified the following key risk factors for the companyas a whole and also specific to the various industries in which MAM and itssubsidiaries operate.

***Liquidity andCapital Formation Risk***

        MAM’scurrent liabilities of $23.17 million as of December 31, 2005, exceedits current assets of $12.68 million by $10.49 million, exposing MAMto the risk of being unable to fulfill its obligations in 2006. However, ofthese current liabilities, $14.1 million is short-term borrowings,including the lines of credit and one-year notes payable through Royal Bank ofCanada. MAM has taken steps to mitigate this short-term risk before and afteryear-end, including identification of additional sources of financing andoptions to reduce or defer costs.

        Inthe long term, Management expects MAM’s cash flow to improve, with MPS’srecovery of deferred fuel and other stranded costs currently deferred by MPS.The current cash expenditures for deferred fuel and Maine Yankee exceed therecovery of stranded costs. With the expiration of the Wheelabrator-Shermancontract in December 2006, this position will reverse, and recovery ofstranded costs will exceed the cash outflows.

***Lack of ProfitableOperations from Unregulated Business***

        Theunregulated business segments which have been added since 2003 have not beenprofitable to date. Please read the in-depth analysis in the Management’sDiscussion and Analysis of Financial Condition and Results of Operations. Asnoted there, Management believes that the success of these ventures is crucialto the future growth of the Company, but can give no assurances as to thesuccess of these ventures.

***Acquisition andIntegration Risks***

        TheMaricor Group and Maricor Properties have each acquired several companies overthe past three years, in conjunction with MAM’s growth strategy. The companiesface several risks associated with this process, including lack of suitableavailable targets, insufficient funds for acquisitions to achieve the growthstrategy, lack of synergies and the cost of integration. MAM and itssubsidiaries mitigate these risks through a due diligence process intended toidentify and mitigate these risks throughout and after the acquisition process.

***Legislation andRegulation***

        Changesin legislation and regulation could impact MAM’s earnings and operationspositively or negatively. Such changes could include changes in tax rates,changes in environmental or workplace laws or changes in regulation ofcross-border transactions. For The Maricor Group, public policies related toenergy, energy efficiency, asset lifecycle management, and air emissions mayimpact the overall market, particularly the governmental sectors.

        MPSis a regulated utility, operating its distribution activity under thejurisdiction of the Maine Public Utilities Commission and transmission activityunder the jurisdiction of the Federal Energy Regulatory Commission. MPUC andFERC regulate the rates MPS is allowed to charge its customers. MPS filednotice with the MPUC on January 10, 2006, under Docket No. 2006-24,that it intended to seek a 4% increase in distribution rates, a procedureexpected to last through most of 2006. Further, the transmission formula underwhich MPS transmission rates have been determined for the past three years isup for review and negotiation for the rates that will go into effect onJune 1, 2006. Finally, the rates for recovery of stranded costs are set toexpire in December 2006. The outcome of these rate

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cases could have apositive or negative impact on earnings and cash flow; their ultimate impact isunknown at this time.

***Foreign Operations***

        MAMsubsidiaries Maricor Properties, including its subsidiaries MecelProperties Ltd and Cornwallis Court Developments Ltd and its jointventure Maricor Ashford Ltd, and The Maricor Group, Canada operate inCanada. Me&NB, an inactive subsidiary of MPS, is also based in Canada.There are a number of risks associated with operations outside of the UnitedStates, including differences in laws, policies and measures; regulatoryrequirements affecting trade and investment; differences in social, political,labor, and economic conditions, including foreign exchange rates; difficultiesin staffing and managing foreign operations; and potential adverse foreign taxconsequences.

***General EconomicConditions***

        MAM,like all other entities, is exposed to a certain amount of risk as a result ofthe general economic conditions under which it operates. Such risks include theoverall economy of the geographic region in which the entity operates, interestrate risk, risk of loss of value of real estate assets and risk of inflation.

***Economy of theRegion***

        MPSoperations are restricted to a territory in Aroostook County and northernPenobscot County, Maine. Limited population growth and economic expansion inthe region could negatively impact the utility’s ability to maintain thiscustomer base. MPS has been actively involved with the Aroostook Partnershipfor Progress, an organization with the mission of enhancing the economy inAroostook County.

        TheMaricor Group and its subsidiaries generally operate within Atlantic Canada andNew England. The nature of work available may differ depending on variouseconomic and political conditions, including cost of energy, interest rates,and other factors.

***Interest Rate Risk***

        MAM,TMG, Maricor Properties and MPS each have interest rate risk due to variableinterest rates on financing arrangements. The Company has mitigated a portionof this risk by fixing interest rates on three MPS variable rate debt issueswith a derivative interest rate swap transaction on September 9, 2003. SeeItem 8 of this Form 10-K, Note 7 to the Consolidated FinancialStatements, “Accumulated Other Comprehensive Income (Loss),” which is herebyincorporated by this reference, for a discussion on the impact on MPS’sfinancial statements and further description of the interest rate swaps.

        TheCompany has observed that increasing interest rates generally tend tonegatively impact the market for fee-for-service mechanical and electricalengineering services. However, increasing interest rates also appear to increasethe demand for energy efficiency and asset lifecycle management services. TheCompany cannot warrant or predict these economic effects and makes nopredictive statement as to future market or competitive trends.

***Value of RealEstate***

        Thenet book value of Maricor Properties’ real estate totaled $7.82 million atDecember 31, 2005. MAM is exposed to risk associated with the local realestate markets in Moncton, New Brunswick and Halifax, Nova Scotia, and itsimpact on the value of these properties. The most recent appraisals

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obtained during2005 and 2006 indicate that the appraised value of the properties currentlyexceeds the book value; however, this position could reverse with changes inthe real estate markets.

***Inflation Risk***

        MAMis exposed to inflation risk in both the United States and Canada.

***Franchises andCompetition***

        Exceptfor consumers served by municipal electric utilities within MPS’s service area,MPS has a nearly exclusive franchise to deliver electric energy in its serviceterritory, and has little exposure to risk from competition.

        TheMaricor Group, Canada Ltd and The Maricor Group New England operate incompetitive markets and do not have exclusive franchises. Competition forcontracts comes from local, regional and mechanical and electrical engineeringfirms, as well as local, regional or national energy services, energy assetdevelopment and energy controls companies. TMGC also faces risks associatedwith their relationships with the local architectural firms. The majority of itscurrent business is obtained through local architects, and a deterioration ofthis relationship could negatively impact financial performance.

        MaricorProperties Ltd, Cornwallis Court Developments Ltd and MecelProperties Ltd compete in the open market for tenants for facilities ownedand operated by these subsidiaries. Competition is driven by per square footlease costs, operating costs, quality of the work environment, availability ofparking, management services and other factors that could influence a tenant tolease office space. These companies have greatly mitigated this risk with theirexisting long-term leases for tenants.

        Inaddition to competition for tenants, the subsidiaries compete in the marketwith other real estate and development companies regarding the potentialacquisition of additional real estate. Market conditions driven by supply anddemand issues, as well as interest rates typically drive the subsidiaries’markets to acquire, lease or sell real estate holdings. Maricor Properties andMecel Properties compete with individual real estate developers, regional realestate developers, real estate investment trusts (“REITs”), national realestate developers, insurance companies and others that invest in commercialreal estate.

        MaricorTechnologies, Inc. competes in the open market and does not have anexclusive franchise. Factors affecting its market include the economic needs offacilities owners, the age of facilities infrastructure, the availability orlack thereof of capital, public policies and other issues. It competes withexisting and potential additional providers and/or developers of similarsoftware solutions. Maintaining the market viability of their software assetsthrough product enhancements and new versions is a critical part of ensuringits market competitiveness. Additionally, its competitiveness may be impactedby its ability to expand its product offerings to address a more comprehensivearray of facility infrastructure information management and planning needs.

***Environmental Risks***

        MAM,particularly MPS, bear environmental risks associated with former ownership ofnuclear, diesel and oil fired generation, as well as the ownership oftransformers containing Poly Chlorinated Bi-phenols (“PCB’s”). Further, MPS haspotential risks concerning claims related to electro-magnetic fields (“EMF’s”).While the Company takes significant steps to ensure prudent environmentalpractices, it cannot assure that risks do not exist from past or futureenvironmental practices. Additionally, while the Company does not believe EMF’srepresent a danger, particularly due to its lack of ownership of bulktransmission, it cannot warrant that claims could not be filed.

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***AgingInfrastructure and Reliability***

        MPShas risks associated with aging infrastructure assets that may in someinstances be beyond the useful life of the asset. The failure of such assetscould result in the loss of power that could result in harm to property orperson. MPS works diligently through on-site inspection and testing programs toensure the integrity of its infrastructure, but cannot warrant that outageswill not occur due to the age of some infrastructure. MPS does maintainsubstantial back-up equipment and the capability to repair or rebuild suchassets in a timely manner, including the maintenance of mobile transformers.

***Debt Covenants***

        MAMand certain of its subsidiaries have obtained financing with financial andother covenants, such as debt service coverage ratios. In a default, the lendercan require immediate repayment of the debt. This could also trigger increasesin interest rates, difficulty obtaining other sources of financing andcross-default provisions within the debt agreements.

***Collections Risk***

        MAM’ssubsidiaries sometimes extend credit to their customers. This may be regulated,as in the case of MPS, or under the terms of contracts or leases. In thesesituations, MAM bears the risk that it may not collect these funds. MAM partlymitigates this risk through the use of credit checks and monitoring of theaccounts receivable aging. MAM also maintains an allowance for uncollectibleaccounts for accounts receivable that are unlikely to be collected.

***Attraction andRetention of Qualified Employees***

        MAMprimarily operates in service sectors, and is heavily dependent on theattraction and retention of qualified employees, including engineers andelectricians. MAM maintains competitive wage and benefits packages for itsemployees to aid in attracting and retaining staff.

***Equity Price Risk***

        TheMaricor Group and its subsidiaries incurred equity price risk when it boughtthe stock of certain of its subsidiaries. Part of the consideration was MAMstock. In the event that the price of MAM common stock is below a specifiedprice when the seller wishes to dispose of it, The Maricor Group (or theapplicable subsidiary) has agreed to pay the difference. There were 41,151shares outstanding pursuant to this kind of agreement as of December 31,2005. At a market price of $15.49 per share on that date, the total exposurewas approximately $814,000. A $1.00 change in the market price would impactthis exposure by approximately $41,000.

        Marketprice protection of a different sort was given by Maricor Technologies when itacquired the HCI assets. Part of the consideration for that acquisition was MAMpreferred stock which is convertible into 26,000 shares of MAM common stock onFebruary 15, 2008, subject to some other conditions. To the extent thatthe market price of MAM common stock is then below $25 per share, the number ofshares issuable on conversion is ratably increased, which could result infurther dilution of MAM’s common stock.

***ProfessionalLiability***

        TheMaricor Group and its subsidiaries are subject to risks associated withengineering design errors and/or omissions. The Company carries insurance toaddress errors and omissions to mitigate certain risks.

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***Technological Obsolescence***

        Dueto the nature of their business, Maricor Technologies is subject to risksassociated with changing technologies and obsolescence of their products. As aresult, MTI monitors technology and competitor trends to ensure its productofferings remain market competitive.

***Weather***

        MPSand its electric wires infrastructure are at risk to natural phenomena,especially those caused by the weather. Storms, such as ice storms and majorwinter snow storms may have an impact on the integrity of MPS infrastructureassets in the field.

***Vandalism, Terrorism and Other Illegal Acts***

        MAMand its asset-owning subsidiaries are subject to the risks of damage to others’properties or human harm due to the failure of infrastructure. While MAM andits subsidiaries exercise diligent asset management and asset inspections, itcannot warrant that such risks can be fully eliminated. MPS and its electricwires and information technology infrastructure are particularly at risk tovandalism and acts of terrorism. While the Company takes steps to protectagainst such illegal acts through various risk insurance policies and otherprotective measures, including restricting access to assets, it cannot warrantthat they cannot happen.

***Information Technology***

        MAMis subject to systemic risks associated with information technology systemsthat could impact the calculative outcome of billing determinations or theunintended release of confidential consumer information. MAM goes tosignificant lengths to stress test its systems and protect against such events;however, the Company cannot warrant that such risks do not exist.

***Alternative Generation Options***

        MPSdoes face technology and product substitution risks associated with theevolution of distributed generation, non-utility generation, and otheralternative fuel forms. The primary risk in this area is non-utilitygeneration, which the utility successfully competed with to date. However, aselectric commodity prices increase, the viability of alternative fuel fromnon-utility generation may become more practical. Such projects could result inreduced usage of MPS’s delivery system.

**Item 2.   Properties**

        Asof December 31, 2005, MPS owned approximately 380 circuit miles oftransmission lines and approximately 1,767 miles of distribution lines, all inAroostook County and a portion of Penobscot County in northern Maine. Inaddition, MPS owns eight buildings that consist of office, warehouse and/oroperating facilities within its service area, as well as various tracts ofvacant land. Substantially all of the properties owned by MPS are subject tothe liens of its First and Second Mortgage Indentures and Deeds of Trust.

        Inresponse to a Maine environmental regulation to phase out PCB transformers, MPShas implemented a program to eliminate transformers on its system that do notmeet the new State environmental guidelines. The program is in the process oftesting almost 7,400 distribution transformers over a ten-year period. MPS iscurrently in its fifth year of this ten-year program. In addition, transformersthat pass the inspection criteria will be refurbished and refitted with lightningarrestors and animal guards. The current estimated cost of the ten-year programis $2.7 million and, as of December 31, 2005, $1.40 million hasbeen spent to remediate approximately 45% of the transformers in this effort.

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        InMarch 2005, the FASB issued FASB Interpretation No. 47, “Accountingfor Conditional Asset Retirement Obligations” (“FIN 47”), effective for fiscalyears ending after December 15, 2005. FIN 47 clarifies the term “conditionalasset retirement obligation”, used in FASB Statement No. 143, “Accountingfor Asset Retirement Obligations”, as referring to a “legal obligation toperform an asset retirement activity in which the timing and/or method ofsettlement are conditional on a future event that may or may not be within thecontrol of the entity.” Based on this interpretation, MPS recognized anassociated asset retirement obligation of $1.30 million with the PCBTransformer phase-out program, described more fully in Note 1 of theseConsolidated Financial Statements.

        Additionalassets of the Company include three office buildings owned by MaricorProperties Ltd and its subsidiaries Cornwallis Court Developments Ltdand Mecel Properties Ltd. These office buildings are located in Moncton,New Brunswick and Halifax, Nova Scotia. The Moncton, New Brunswick multi-tenantoffice building consists of approximately 40,000 square feet and is locatedalong a downtown thoroughfare. The facility houses The Maricor Group,Canada Ltd’s Moncton operations, in addition to third party tenants. TheJ. Angus MacDonald Building, located in downtown Halifax, is a 60,000 squarefoot facility, and is fully leased to third parties, primarily Canadiangovernment entities. The other Halifax office is approximately 10,000 squarefeet and is located in a revitalization district near the historic downtownCitadel. The facility houses The Maricor Group, Canada Ltd’s Halifaxoperations.

***MPS System Security and Reliability***

        MPShas implemented a transmission inspection program, part of its asset lifecyclemanagement efforts, and has begun implementation of a distribution inspectionprogram. Such inspection programs include regular testing of transformerslocated within substations. Management believes that full implementation ofasset lifecycle management programs can reduce future demands for capitalexpenditures related to MPS’s renewal and replacement needs. However, beforereducing annual capital expenditures, baseline improvements are beingundertaken. While future plans will attempt to reduce capital expenditures to alevel approximately equal to its rate of depreciation, interim steps mayinclude potential consolidation of facilities to help ensure increased systemreliability and reduce long-term costs. Such expenditure levels do not include thepossible construction of additional transmission plant as later described.

        Asa result of uncertainty concerning merchant and non-merchant generationfacilities within the Maritimes and northern Maine regions, MPS evaluatessystem security on an ongoing basis, particularly from an on-peak generationresource perspective. Through load-flow analysis and utilization of specificcontingency or transmission outage scenarios, it has been determined that undera single contingency or outage condition and during peak load situations, asystem-wide outage is possible if approximately 50 MW’s of on-system generationare not operating. Additionally, under certain conditions, the analyses notedthat a second contingency or transmission line outage could not be survivedwithin a thirty-minute time frame when similar conditions existed after asingle contingency. Although Maine Public Service Company does not have a bulkdelivery transmission system as defined by the Northeastern Power CoordinatingCouncil (“NPCC”), MPS is using NPCC’s standards for planning criteria. Itshould be noted that potential contingencies that were studied focused onsituations that could impact MPS’s transmission and distribution systems, eventhough certain transmission assets are located in Canada and are owned by othercompanies or organizations. MPS has load reduction contingency plans tomitigate such conditions or events in the case that a major transmission outageor system outage occurred.

        Inorder to address system security and reliability needs, MPS filed a requestwith the MPUC requesting authorization to construct, subject to all requiredpermitting, a new 138 kV transmission line that would interconnect with NBPower. This filing is more fully described in Item 3 below and is incorporatedby reference herein. MPS believes that the construction of the proposedtransmission line,

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an approximate$4 million regulated investment, would significantly improve systemreliability and allow the MPS system to meet NPCC standards for single and dualtransmission contingencies. MPS continues to evaluate projects and actions thatcould increase available and total transmission capacities.

**Item 3.   Legal Proceedings**

**FederalEnergy Regulatory Commission 2005 Open Access Transmission Tariff Formula RateFiling**

        OnMay 31, 2005, pursuant to Section 205 of the Federal Power Act, 16U.S.C. Section 824d, and Title 18 CFR Sections 35.11 and 35.13 of theregulations of the FERC, MPS submitted for filing its proposed revisions to itsFERC Open Access Transmission Tariff in Docket No. ER 05 (the “2005 OATT”) tomodify its transmission rate formula. MPS filed its updated rates under the2005 OATT formula on June 15, 2005, pursuant to Docket ER00-1053 with aneffective date of June 1, 2005, for both wholesale and retail customers,subject to a customer refund that may occur as a result of the proceeding andpotential settlement negotiations. The retail transmission revenue requirementwas increased by $288,670 on June 1, 2005, under the 2005 OATT. Thisrepresented an increase of 8% to the transmission component of retail deliveryrates or an overall impact on total retail delivery rates of 0.7%. The primaryreasons for the increase were the increase to costs due to mandatedSarbanes-Oxley requirements, and the purchase of a new Oracle-based accountingsystem.

        Aspart of the settlement data request process, the Company identified adjustmentsto its FERC Form 1 filing for 2004, which flow through the Company’stransmission rate formula. The approximate net impact of these corrections,once implemented, will be to reduce the overall increase to the projectedretail transmission revenue and result in a revised projected net increase tothe retail transmission revenue requirement of $238,422 instead of thepreviously projected increase of $388,923. This adjustment will flow throughSchedule 1.1.2 of the MPS OATT to be effective June 1, 2006, and willbe passed through retail rates on July 1, 2006, when the retail rates arenext adjusted. The Company has reported to FERC as scheduled that the partiesare proceeding with the settlement process and will continue to provideprogress reports as required. Because the Company is currently in the midst ofa settlement process, it cannot predict the exact dollar outcome of thisproceeding at this time.

**MPUCApproves the Pass-Thru of Retail Transmission Rates to MPS RetailJurisdictional Customers, and the Increase to DSM Mil Rate, MPUC DocketNo. 2003-516**

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

**Requestsfor Issuance of Certificates of Public Convenience and Necessity in ConnectionWith the Construction of a Proposed Transmission Line and Various TransmissionService Reservations**

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

        Theproject was proposed in order to ensure the reliability and integrity of theMPS transmission grid under scenarios of reduced on-system generatoravailability and peak load growth. MPS submitted that the available firmtransfer capability of the transmission system when added to the remainingon-system hydro generation was not sufficient to meet peak load conditions, shouldexisting on-system

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wood-firedgeneration become unavailable. The proposed line would address this bysignificantly increasing the load-serving capability of the northern Maineregion and would serve to reinforce the vital transmission ties between northernMaine and the New Brunswick transmission grid. Additional benefits of theproposed line include the potential for increasing the number of competitiveretail electric suppliers and increasing the attractiveness of the region fordevelopment of additional generation, such as wind farms, by providingincreased transmission export capacity.

        TheMPUC Commissioners deliberated the Docket on August 29, 2005, and deniedthe petition, determining that there was no immediate reliability risk innorthern Maine. The Commission concluded that the risk of losing on-systemwood-fired generation was not sufficient to warrant the new transmission line.The Commission issued the Order on October 21, 2005, that describedactions to be taken by MPS and the Northern Maine Independent SystemAdministrator (“NMISA”) to reduce certain risks identified by MPS. The Companyfiled for reconsideration of the Order on November 8, 2005 based on thelikelihood that Linekin Bay Energy Company, LLC may elect to utilize the CPCNfiled in this Docket in order to construct transmission facilities necessary toconnect their proposed generation project to the MPS electrical system. TheCommission approved the request for reconsideration and will revisit the issueon or before March 31, 2006. Additionally, on November 23, 2005, theCommission granted an MPS request for waiver of the specific requirements ofthe October 21, 2005 Order until the NMISA finalizes currently proposedmarket rule changes that are currently scheduled to be presented to theCommission on March 1, 2006. Through December 31, 2005, approximately$844,000 was spent on this transmission project. MPS expects to seek recoveryof these costs in its transmission rates and is currently pursuing otherrecovery options. MPS believes it is probable the amounts deferred can berecovered, either through future rate cases or through sale of the assets to athird party.

        InSeptember 2004, MPS entered into a Commitment Agreement with NB Power.Under this Agreement, which is subject to MPS obtaining all necessaryregulatory approvals, MPS will reserve 35 MW of transmission capacity on the NBPower system in conjunction with the construction of a new 345 kV transmissionline to be constructed from Point Lepreau near Saint John, NB to Orrington,Maine. NB Power will own and operate the portion of the line on its side of theborder, while Bangor Hydro-Electric Company (“BHE”) will own and operate theportion of the line on the U.S. side of the border known as the NortheastReliability Interconnect (“NRI”). BHE filed for a Certificate of PublicConvenience and Necessity for this line on November 5, 2004, in MPUCDocket No. 2004-771. MPS filed a petition with the MPUC seeking approvalto make the reservation required under the Commitment Agreement onDecember 13, 2004, in MPUC Docket No. 2004-775 which was subsequentlychanged to MPUC Docket No. 2004-538 Phase II. On October 7, 2005 MPSproposed several changes to the Commitment Agreement, to include a reduction inthe reservation quantity from 35 MW to 20 MW. Hearings on Phase II wereconducted on December 6 and 7, 2005. A Commission Order is expected duringMarch 2006. As noted above, MPS’s obligations under the CommitmentAgreement are dependent upon securing regulatory approval. MPS cannot predictthe outcome of Phase II of this case at this time.

**Item 4.   Submission of Mattersto a Vote of Security Holders**

        None.

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**PART II**

**Item 5.   Market for Registrant’sCommon Equity, Related Stockholder Matters and Issuer Purchases of EquitySecurities**

        Maine &Maritimes Corporation became a holding company effective June 30, 2003.All 1,574,582 shares of MPS common stock were converted on that date into anequal number of shares of MAM common stock, which are listed and traded on theAmerican Stock Exchange under the symbol “MAM”. As of March 1, 2006, therewere 753 holders of record of the Company’s common stock.

        Dividenddata and market price related to the common stock are tabulated as follows for2005, 2004 and 2003:
| ** **      | ** ** | **Market Price** | ** ** | **Dividends** | ** ** |
|-----------------|------------|-----------------------|------------|---------------|------------|
| ** **      | ** ** | **High**              | ** ** | **Low**       | ** ** | **Paid Per Share** | ** ** | **Declared Per Share** | ** ** |
| **2005**        |       |                  |       |          |       |   |   |   |   |
| First Quarter   |       | $                     | 27.79      |          | $          | 24.87 |   | $ | 0.20 |   | $ | 0.25 |   |
| Second Quarter  |       | $                     | 27.25      |          | $          | 24.04 |   | 0.25 |   | 0.25 |   |
| Third Quarter   |       | $                     | 24.85      |          | $          | 19.70 |   | 0.25 |   | 0.25 |   |
| Fourth Quarter  |       | $                     | 19.55      |          | $          | 15.25 |   | 0.25 |   | 0.00 |   |
|            |       |                  |       |          |       |   |   |   |   |
| Total Dividends |       |                  |       |          |       | $ | 0.95 |   | $ | 0.75 |   |
|            |       |                  |       |          |       |   |   |   |   |
| **2004**        |       |                  |       |          |       |   |   |   |   |
| First Quarter   |       | $                     | 34.75      |          | $          | 31.98 |   | $ | 0.38 |   | $ | 0.38 |   |
| Second Quarter  |       | $                     | 34.42      |          | $          | 30.20 |   | 0.38 |   | 0.38 |   |
| Third Quarter   |       | $                     | 31.75      |          | $          | 29.00 |   | 0.38 |   | 0.38 |   |
| Fourth Quarter  |       | $                     | 29.50      |          | $          | 25.40 |   | 0.38 |   | 0.20 |   |
|            |       |                  |       |          |       |   |   |   |   |
| Total Dividends |       |                  |       |          |       | $ | 1.52 |   | $ | 1.34 |   |
|            |       |                  |       |          |       |   |   |   |   |
| **2003**        |       |                  |       |          |       |   |   |   |   |
| First Quarter   |       | $                     | 32.26      |          | $          | 24.99 |   | $ | 0.37 |   | $ | 0.37 |   |
| Second Quarter  |       | $                     | 32.95      |          | $          | 26.36 |   | 0.37 |   | 0.37 |   |
| Third Quarter   |       | $                     | 36.90      |          | $          | 31.60 |   | 0.37 |   | 0.37 |   |
| Fourth Quarter  |       | $                     | 35.95      |          | $          | 34.37 |   | 0.37 |   | 0.38 |   |
|            |       |                  |       |          |       |   |   |   |   |
| Total Dividends |       |                  |       |          |       | $ | 1.48 |   | $ | 1.49 |   |

 

        Dividendsdeclared within the quarter are paid on the first day of the next quarter.

        Todate, the Company’s payment of dividends has been based on dividends from MPS,which are limited by restrictions imposed by the MPUC. MPS dividends to MAM aresubject to a common dividend payout ratio (dividends per share divided byearnings per share), which cannot exceed 1.0 (i.e. 100%) on a two-yearrolling average.

        Themost recent and current financial and cash flow performance of the Companyresulted in no shareholder dividend during the fourth quarter of 2005. Untilsuch performance improves, the Company cannot warrant that it will continue topay dividends on a quarter-on-quarter basis. The Company’s Board of Directorshas adopted a dividend policy which provides for a dividend based on 55% to 80%of the net income contribution from MPS, provided that the Company is projectedto generate net earnings per share and requisite free cash flows from itsregulated and unregulated operations.

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        TheCompany has determined that the common stock dividends paid in 2005 are fullytaxable for federal income tax purposes. These determinations are subject toreview by the Internal Revenue Service, and shareholders will be notified ofany significant changes.

*Securities Authorized for IssuanceUnder Equity Compensation Plans.*
| **Plan Category**                                     | ** ** | **Number of securities to be  issued upon exercise of  outstanding options,  warrants and rights** | ** ** | **Weighted-average exercise  price of outstanding options,  warrants and rights** | ** ** | **Number of securities remaining  available for future issuance  under equity compensation plans  (excluding securities reflected in  column (a))** | ** ** |
|------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                 | ** ** | **(a)**                                                                                                                                              | ** ** | **(b)**                                                                                                         | ** ** | **(c)**                                                                                                                                                                                                              | ** ** |
| Equity compensation plan approved by security  holders     |       | 21,000                                                                                                                                               |       | $                                                                                                               | 29.80      |                                                                                                                                                                                                                 | 136,046    |   |
| Equity compensation plan not approved by security  holders |       | —                                                                                                                                               |       | n/a                                                                                                             |       | —                                                                                                                                                                                                               |       |
|                                                       |       |                                                                                                                                                 |       |                                                                                                            |       |                                                                                                                                                                                                                 |       |
| Total                                                      |       | 21,000                                                                                                                                               |       |                                                                                                            |       | 136,046                                                                                                                                                                                                              |       |
|                                                            |            |                                                                                                                                                      |            |                                                                                                                 |            |                                                                                                                                                                                                                      |            |  |

 

        TheCompany maintains two equity compensation plans. The 2002 Stock Option Planincluded 150,000 shares available for issuance. Of this total, 21,000 optionshave been issued for executive compensation. See Note 9, “StockCompensation Plan,” in Item 8. An additional 20,000 shares were originallyavailable for issuance to the Company’s Board of Directors pursuant to theStock Plan for Outside Directors. There are 7,046 of these shares remainingavailable for future issuance.

*Saleof Unregistered Securities*

        InFebruary 2005, MAM issued 9,500 shares of preferred stock in conjunctionwith the acquisition of software now owned by MTI. The entity to which thesesecurities were issued was HCI Systems Asset Management, LLC. No underwriterwas used in this transaction. The securities were issued under the exemptionprovided by Section 4(2) of the Securities Act of 1933 as a transaction byan issuer not involving a public offering.

        Asmentioned previously, the Company established a stock repurchase program inJanuary 2005 as part of the Dividend Policy announced when theJanuary 3, 2005, dividend was declared. Execution of the share repurchaseprogram will be based on market conditions and is subject to the MAM cashposition and investment opportunities. There were no stock repurchases by theCompany during 2005.

        InJune 2004, the Company issued 54,332 shares of its common stock inconnection with two acquisitions. On June 1, 2004, the Company, throughits Canadian subsidiary, Maricor Ltd, now doing business as The MaricorGroup, Canada Ltd, acquired all of the outstanding common shares ofMorris & Richard Consulting Engineers Limited, a Canadian-basedengineering firm. The persons who acquired the securities were the formerprincipals of M&R. On June 17, 2004, the Company completed a secondacquisition by its subsidiary Maine & Maritimes Energy ServicesCompany, now doing business as The Maricor Group, of RES Engineering, Inc.,now The Maricor Group New England, of Boston and Hudson, Massachusetts. Theperson acquiring the shares was the former principal of RES. No underwriter wasused in either transaction. Refer to Note 14 to the Consolidated FinancialStatements, “Acquisitions.” The securities were issued under the exemptionprovided by Section 4(2) of the Securities Act of 1933 as a transaction byan issuer not involving a public offering.

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**Item 6.   Selected Financial Data**

        Afive-year summary of selected financial data (2001-2005) is as follows:

**Five-YearSummary of Selected Financial Data(1)** ***(In thousands of dollars except per share amounts)***
| ** **                                                                      | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** |
|---------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|----------|------------|
| Income Statement  Data:                                                         |       |     |       |     |       |     |       |     |       |     |       |
| Revenues                                                                        |       | $        | 39,974     |     | $          | 37,138   |       | $        | 31,797     |     | $          | 31,401 |   | $ | 31,780 |   |
| Net (Loss)  Income From Continuing Operations                                   |       | (224     | )          | 1,726    |       | 2,949    |       | 3,090    |       | 4,340    |       |
| Income (Loss)  From Discontinued Operations                                     |       | 4        |       | (408     | )          | (143     | )          | 3,453    |       | 897      |       |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Net (Loss)  Income Available for Common Stock                                   |       | $        | (220       | )        | $          | 1,318    |       | $        | 2,806      |     | $          | 6,543 |   | $ | 5,237 |   |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Basic (Loss)  Earnings Per Share of Common Stock From Continuing Operations     |       | $        | (0.13      | )        | $          | 1.07     |       | $        | 1.87       |     | $          | 1.97 |   | $ | 2.76 |   |
| Basic (Loss)  Earnings Per Share of Common Stock From Discontinued Operations   |       | 0.00     |       | (0.25    | )          | (0.09    | )          | 2.19     |       | 0.57     |       |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Basic (Loss)  Earnings Per Share of Common Stock From Net Income                |       | $        | (0.13      | )        | $          | 0.82     |       | $        | 1.78       |     | $          | 4.16 |   | $ | 3.33 |   |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Diluted (Loss)  Earnings Per Share of Common Stock From Continuing Operations   |       | $        | (0.13      | )        | $          | 1.06     |       | $        | 1.86       |     | $          | 1.96 |   | $ | 2.76 |   |
| Diluted (Loss)  Earnings Per Share of Common Stock From Discontinued Operations |       | 0.00     |       | (0.25    | )          | (0.09    | )          | 2.19     |       | 0.57     |       |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Diluted (Loss)  Earnings Per Share of Common Stock From Net Income              |       | $        | (0.13      | )        | $          | 0.81     |       | $        | 1.77       |     | $          | 4.15 |   | $ | 3.33 |   |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Dividends Paid  per Common Share                                                |       | $        | 0.95       |     | $          | 1.52     |       | $        | 1.48       |     | $          | 1.42 |   | $ | 1.31 |   |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Balance Sheet  Data:                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Total  Assets(2)(3)                                                             |       | $        | 157,775    |     | $          | 150,806  |       | $        | 141,269    |     | $          | 141,986 |   | $ | 143,335 |   |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Capitalization:                                                                 |       |     |       |     |       |     |       |     |       |     |       |
| Long-Term Debt  Outstanding                                                     |       | $        | 38,226     |     | $          | 39,380   |       | $        | 30,680     |     | $          | 33,765 |   | $ | 34,940 |   |
| Less amount due  within one year                                                |       | 2,612    |       | 2,225    |       | 1,450    |       | 3,085    |       | 1,175    |       |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Long-Term Debt                                                                  |       | 35,614   |       | 37,155   |       | 29,230   |       | 30,680   |       | 33,765   |       |
| Common  Shareholders’ Equity(4)                                            |       | 47,786   |       | 48,157   |       | 46,988   |       | 47,029   |       | 42,731   |       |
|                                                                            |       |     |       |     |       |     |       |     |       |     |       |
| Total  Capitalization                                                           |       | $        | 83,400     |     | $          | 85,312   |       | $        | 76,218     |     | $          | 77,709 |   | $ | 76,496 |   |

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(1)             Datafrom periods ending prior to June 30, 2003, is from MPS.

(2)             For2005, 2004, 2003 and 2002, total assets reflect the reclassification of accruedremoval obligations as a liability from accumulated depreciation. For 2005, theestimated accrued removal obligation includes the PCB Mitigation Project asrequired under FIN 47.

See Item 1a. “Risk Factors” and Item 7a, “Quantitativeand Qualitative Disclosures about Market Risk,” incorporated in this section bythis reference, concerning material risks and uncertainties which could causethe data reflected herein not to be indicative of the Company’s futurefinancial condition or results of operations.

(3)             Totalassets reflect assets from Discontinued Operations of $235 for 2005, $467 for2004, $2,024 for 2003, $6,324 for 2002, and $5,632 for 2001.

(4)             CommonShareholders’ Equity reflects equity from Discontinued Operations of $229 for2005, $451 for 2004, $1,559 for 2003, $5,674 for 2002, and $3,206 for 2001.

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**Item 7.   Management’s Discussionand Analysis of Financial Condition and Results of Operations**

***Forward-Looking Information***

        ThisManagement’s Discussion and Analysis contains certain forward-lookingstatements, as defined by the SEC, such as forecasts and projections ofexpected future performance or statements of Management’s plans and objectives.These forward-looking statements may be contained in filings with the SEC andin press releases and oral statements. The reader can identify these statementsby the fact that they do not relate strictly to historical or current facts.They use words such as “anticipate,” “estimate,” “expect,” “project,” “intend,”“plan,” “believe” and other words and terms of similar meaning in connectionwith any discussion of future operating or financial performance. Thesestatements are based on the current expectations, estimates or projections ofManagement and are not guarantees of future performance. Some or all of theseforward-looking statements may not turn out to be what the Company expected.Actual results could potentially differ materially from these statements.Therefore, no assurance can be given that the outcomes stated in suchforward-looking statements and estimates will be achieved.

        Factorsthat could cause actual results to differ materially from our projectionsinclude, among other matters, electric utility restructuring; future economicand demographic conditions within MPS’s service area and unregulated markets;changes in tax rates; interest rates or rates of inflation; ability to raisecapital; pace and success of merger and acquisition efforts; terrorism; changesin the construction industry; changes in Canadian currency rates; length ofsales cycles; developments in state, provincial and national legislative andregulatory environments in the United States and Canada; ability to recruitindividuals with necessary skill sets; increased competition by existing or newcompetitors in the Company’s unregulated markets; changes in technology; newinnovations; changes in NAFTA; increased environmental regulations and otherregulatory or market-based conditions.

***Annual PerformanceSummary***

        Financialresults were diminished for the year 2005 compared to 2004 and 2003 due to amyriad of cost factors. During the year MPS’s performance was lower thanhistorically expected with cost of service rising such that its return on itsdistribution rate base was inadequate. TMG did not achieve its targets as aresult of a lack of adequate capitalization, costs associated withtransitioning acquisitions from small privately held firms to publicly tradedcompany standards, lagging business development, and the slowed pace ofaccretive acquisitions. MTI’s performance was impacted by its lack of businessdevelopment and need to upgrade its software solutions. Maricor Properties wasin a start-up phase during 2005 as real estate assets were leased-up and/oracquired. While MAM’s overall financial performance in 2005 was less thananticipated, it made meaningful progress in advancing its growth strategy thatremains in its infancy. Management is taking steps to improve futureperformance and believes it must increase its speed and focus on growing itsunregulated operations.

        Collectively,MAM’s unregulated diversification and growth strategy remains in its infancystages. It continues to experience cash flow challenges. Management is takingsteps to bridge necessary cash flows until 2007 when MAM’s cash flow situationshould improve. Improved economic performance of existing unregulatedsubsidiary operations is important and steps are being taken to improve suchperformance. However, Management believes that adequate capitalization,increased pace of acquisitions, and enhanced business development are criticalkeys to MAM’s unregulated organizations’ collective financial performance, bothin the near and long-terms.

        Managementdoes recognize a number of short-term financial and operating challenges;however, we believe our long-term outlook is encouraging. To improve long-termshareholder value and earnings, Management believes that the Company mustincrease its pace of organic and inorganic unregulated growth, while formingcapital in an equally timely manner supportive of such growth. As previouslynoted, Management does not believe a status quo or “stay as you are” strategicoption exists to create

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long-termshareholder value for MAM. Further, given the impact of electric deregulation,generation divestiture, and disaggregation of the electric utility industrywithin Maine, combined with the lagging economy of MPS’s service area,Management does not believe reverting solely to its core regulated wiresbusiness can generate adequate long-term shareholder value. However, Managementalso believes that its regulated operation’s performance must be continuallyenhanced. As a result of increasing costs of service, MPS filed inMarch 2006 a request for a distribution rate increase. The outcome of thisdocket will not be known, in all probability, until the third quarter of 2006.Although a request for an increase in distribution rates has been made, MPScannot predict the outcome or the rate of increase that may be allowed.Further, given recent interest in MPS’s service area by several windgenerators, there are over 500 MW’s of proposed wind generation planned for theutility’s service area. Should these projects move forward, they hold potentialfor contract work associated with the construction of additional transmissionand substation facilities, as well as the potential rebuilding of part or allof MPS’s transmission system funded by the developers. While MPS cannot predictwith certainty that these projects will be constructed, Management does believethey are potentially positive projects for its service area.

        Throughmore timely execution of MAM’s inorganic unregulated growth strategy, includingformation of growth capital, as well as improved organic growth, and MPS’sproposed distribution rate increase, Management is focused on increasingearnings across all business lines. Should the Company not achieve a level ofunregulated growth consistent with the need to create long-term shareholdervalue within a reasonable timeframe, Management and the Board of Directors willneed to assess strategic alternatives to its current growth strategy. Resultingactions could involve the sale or partial sale of certain or all unregulated assetsor other alternatives, recognizing the need to act prudently in protecting andenhancing long-term shareholder value. Further, if the Company does not receivean adequate distribution rate increase to cover its utility costs and allowingfor a fair return on rate base, Management will need to assess its strategicoptions to preserve and grow shareholder value. However, Management doesbelieve that the timely and efficient implementation of the Company’s growthstrategy, cost control within its utility operations, and implementation ofprudent rate increase requests when warranted can result in achieving desiredlong-term shareholder value.

        GivenMAM’s need to reinvest in its future and expand its scale to improve itsoverall financial performance, particularly its unregulated operations,Management cannot warrant that it will continue to pay dividends at historiclevels or on a continuing basis until its cash flows and earning performancesimprove. Further, Management believes that it must address the undercapitalization issues facing the Company before considering a dividend for itscommon shareholders. However, it is the goal of Management to expeditiouslyenhance the performance of the Company and to continue as a yield andgrowth-at-a-reasonable price stock. Management believes its strategy is soundand that meaningful progress is being made in the firm’s overall structural andeconomic transition.

***Overview of CompanyStrategy***

        MAM’soverall strategy was developed in response to a number of convergingmacro-economic trends that Management believes will drive market opportunitiesboth in the near and long-term. The year 2005 underscored the reality thatturbulence within the energy industry, exacerbated by geo-political conflictsand growing third-world demand for energy, are predicted to have significantprice, supply, and security impacts on businesses and organizations withinNorth America. While an increasing emphasis is being placed on supply-sideissues by North American governments, we see expanding governmental mandatesand a renewed customer-driven need to improve energy efficiency and controlenergy-related costs. As energy-related issues remain at the forefront ofpublic policy issues, and an increasing cost and reliability concern forbusinesses and organizations, MAM believes there will be an increasing demandfor energy efficiency-related services and solutions, including an expandedmarket-place interest in “on-site” and alternative energy electric generation.

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        Whileenergy costs and reliability remain a concern, businesses and organizations arefacing a significant financial challenge as they realize the economic threatscreated by escalating deferred maintenance liabilities. As businesses andorganizations underfunded their capital renewal and asset maintenance programsyear after year, many are now faced with staggering deferred maintenanceliabilities. In many cases the deferred maintenance on facility andenergy-related assets threatens the continued viability of such assets.Increasingly, MAM believes businesses and organizations are requiring moreintensive capital expenditure planning, working to ensure that every capitaldollar spent is the most optimal investment they can make. Further, to addressburgeoning deferred maintenance liabilities, organizations are looking toadvanced business processes that can help extend the functional and economiclifecycle of physical assets. MAM believes that by enhancing the energyefficiency and controlling organizations energy-related expenditures that anentity can “free-up” capital to address their deferred maintenance liabilities.Further, by designing and building new energy-related and energy efficientfacilities-related infrastructure, operating costs can be reduced while builtenvironment assets are renewed.

        Whileenergy and deferred maintenance liabilities are of growing concern within themarketplace, Management believes there is an increasing North Americanawareness of climate change and the need to address emissions reductions. Webelieve that energy efficiency, alternative “on-site” generation, andsustainable asset management techniques are key to reducing emissions from thebuilt environment. We continue to see growing business interests and governmentmandates to address climate change, particularly within the northeast UnitedStates and Canada. As more and more businesses and governments adopt asustainable approach to their actions, we believe opportunities will evolverelated to the market demand for sustainable asset management andenergy-related solutions.

        Asevidenced by the passage of the Sarbanes-Oxley Act and other regulatoryactions, there are increasing interests in and growing mandates to improve thetransparency of asset governance reporting. Businesses and organizations arebeing pressed to provide increasing details concerning the performance of ownedassets, both from an economic and environmental perspective. Consequently, wealso see an emergence of market interests in improved asset governancereporting, a critical part of MTI’s sustainability-centric solutions that alsoaddress organization’s energy, emissions reductions, and deferred maintenanceneeds.

        Webelieve the convergence of these issues will create a substantial marketplacedemand, with current solutions and services being minimal. Addressing theseissues and advancing businesses’ and organizations’ achievement of astakeholder-centric “triple bottom line” requires the integration of physical,intellectual, and technology-based assets that when combined result in dynamicsolutions to growing challenges regarding the aging infrastructure, climatechange, energy pricing and security, and our ability to support the changingneeds of society. Through the amalgamation of diverse, but relevant skills andtechnologies in the building sciences, engineering, information technology, andenergy consulting fields, MAM is positioning itself to be a leadingprofessional services, product and asset-based solutions company.

        MAM’sunregulated operations are increasingly focused on sustainable solutions,progressively building professional services competencies to provide products,services, and solutions, such as, but not limited to (a) sustainableuniversity and college campus planning with a strong focus on on-campus energyinfrastructure, (b) energy efficiency evaluations and solutions focused onthe governments, hospitals, universities, schools, institutional and officecommercial markets, (c) sustainable asset management ranging from facilityinfrastructure condition assessments to capital planning to facility renewal,(d) on-site energy asset development including co-generation, alternativefuel and distributed generation solutions, (e) energy supply management, (f) sustainablereal estate development and renewal, including public and private partnershipssuch as the construction and ownership of university dormitories,(g) sustainable and transparent asset governance and reporting, and(h) LEEDTM engineering design services.

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        MAM’sexecution strategy involves a combination of organic and inorganic strategies.However, key to amassing the requisite talent and core competencies is aproposed aggressive acquisitions program. Simply hiring one individual talentat a time will not enable the necessary ramping-up of the business to achievethe required scale and desired level of profitability. Recognizing that thereare limited acquisition opportunities across North America, MAM’s efficiency inidentifying potential targets, undertaking due diligence, forming capital andclosing transactions in a timely manner is critical. Given that few, if any,potential acquisition candidates exist today that provide the array of proposedintegrated sustainable services, products, and assets, MAM recognizes its needto acquire companies that bring discreet portions of the value proposition andamalgamate integrated services offerings across acquired companies through theorganic development of a high level business development and transactionstructuring organization. Such a high level, organically grown businessdevelopment staff will require experienced individuals with a high degree ofrelative domain knowledge, as well as experience in structuring financialtransactions, often referred to as financial engineers. Through these seniorstaff members, solutions to clients’ needs are crafted using multiple discreetofferings or capabilities, integrated into a seamless solution. Each individualoffering will continue to be sold on a “one-off” basis, such as sellingengineering design services. However, the more complex and higher valueintegrated offerings will be sold and managed by a higher level businessdevelopment organization currently being organized and staffed.

        WhileManagement believes MAM’s strategy is well-aligned with existing and projectedmacro-economic trends, it believes its success will depend on the Company’sability to expeditiously (a) recruit, train and execute a high levelbusiness development organization, (b) to identify, undertake duediligence, acquire and integrate multiple companies providing required corecompetencies and (c) to form adequate working and growth capital tosupport the Company’s organic and inorganic growth strategies. Managementfurther believes, given its holding company structure, that the Company’sunregulated operations must achieve increased scale, allowing for necessarycritical mass to support corporate-related costs and ensure meaningfulcontribution to earnings per share.

        MAM’sstrategy includes the continuing operation of its regulated utility, MainePublic Service Company. However, given the projected decline in its regulatoryrate base, Management believes earnings may decline somewhat and then becomemore stable. MPS will continue to be challenged by cost pressures and, while along-term meaningful contributor to earnings per share, Management does notbelieve it can create growing long-term shareholder value unless unregulatedoperations are grown in a more expeditious manner.

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***2005 OperatingResults for the Consolidated Entity***

*NetIncome and Earnings per Share*
| ** **                                  | ** ** | **2005**                                                                      | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|---------------------------------------------|------------|-------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| ** **                                  | ** ** | **(Dollars in Thousands Except  per Share Amounts)** | ** ** |
| ** **                                  | ** ** | ** **                                                                    | ** ** | ** ** | ** ** | ** ** | ** ** |
| Income (Loss)  from Continuing Operations   |       |                                                                          |       |       |       |       |       |
| Regulated Electric Utility                  |       | $                                                                             | 2,264      |       | $          | 3,042      |       | $ | 3,131 |   |
| Unregulated Engineering Services            |       | (689                                                                          | )          | (488       | )          | 11         |       |
| Unregulated Real Estate Holdings            |       | (115                                                                          | )          | (22        | )          | —     |       |
| Unregulated Software Technology             |       | (318                                                                          | )          | —     |       | —     |       |
| Other*                                      |       | (1,366                                                                        | )          | (806       | )          | (193       | )          |
|                                        |       |                                                                          |       |       |       |       |       |
| Income (Loss)  from Continuing Operations   |       | (224                                                                          | )          | 1,726      |       | 2,949      |       |
| Income (Loss)  from Discontinued Operations |       | 4                                                                             |       | (408       | )          | (143       | )          |
|                                        |       |                                                                          |       |       |       |       |       |
| Net (Loss)  Income                          |       | $                                                                             | (220       | )          | $          | 1,318      |       | $ | 2,806 |   |
|                                        |       |                                                                          |       |       |       |       |       |
| Basic Earnings  (Loss) Per Share            |       | $                                                                             | (0.13      | )          | $          | 0.82       |       | $ | 1.78 |   |

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

        Netincome above is allocated based upon the segment allocation as presented inItem 8, Note 4 of the Notes to Consolidated Financial Statements, “SegmentInformation.”

        In2005, Maine & Maritimes continued implementation of its growth anddiversification strategy by acquiring real estate, forming a real estate jointventure, and actively seeking further mergers and acquisitions. In addition,Maricor Technologies, an early stage information and software productsdevelopment venture, was formed in the first quarter of 2005 to serve thesustainable lifecycle management and facilities and infrastructure governancetarget markets.

        Totalrevenues increased $2.84 million or 7.6% compared with 2004. Earningsresults during 2005 reflect the challenges and evolution of our growth strategywhich began in late 2003 and is still in its formative years. During 2005, theCompany sustained a consolidated net loss of $220,000 compared with a netprofit of $1.32 million in 2004. In 2005, MAM’s utility operationscontributed $2.26 million in net income, which was offset by TMG’s lossesof $689,000, MTI’s start-up losses of $318,000, Maricor Properties start-uplosses of $115,000, and $1.36 million in other corporate costs directlyassociated with the unregulated subsidiaries, common costs not allocated to theregulated utility and inter-company eliminations. Greater detail is providedfor each segment later in this section.

        Thereare a number of factors influencing the downward change in earnings from theprior year. Most notably are the following categories and approximate pre-taxexpense impact:

·     Acontinuing reduction in MPS’s allowed rate of return on its stranded costs ofapproximately $522,000,

·     Highercosts of compliance and governance mostly due to Sarbanes-Oxley of $658,000,

·     Coststo retain key employees in all business segments of $95,000,

·     Increasein workers compensation insurance expenses at MPS of $205,000,

·     Increasedamortization costs of software at MTI of $298,000,

·     Onetime write-off of external costs associated with a terminated acquisition of$123,000,

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·     Increasedtransportation expenses at MPS of $244,000, due to increases in fuel costs,repair and labor costs,

·     Increasedexpenses related to software research and development for MTI of $102,000, and

·     Increasedrental expenses of $18,000.

        Othercategories of cost increases include, but are not limited to, continuedintegration costs, increased investments in business development, addedsoftware maintenance costs, additional interest expense, and salesadministration costs on new products and services for our unregulatedbusinesses.

        Consolidatednet income in 2004 decreased by $1.49 million from 2003. As described morefully below, the decrease in income is the result of losses from the Company’sdiscontinued EA operations, losses associated with start up operations andintegration of The Maricor Group acquisitions, and increased general andadministrative costs associated with Sarbanes-Oxley compliance costs,implementation of the Company’s Oracle-based financial system and increasedregulatory compliance costs.

***Consolidated Interest Expense***

        InterestExpense is accrued on the Company’s long-term debt and short-term creditarrangements in accordance with debt agreements and was $3.0 million,$2.4 million, and $1.6 million for the years ending December 31,2005, 2004, and 2003, respectively. Increases in interest expense were a resultof increased debt for acquisitions, as well as increased borrowings to fundoperations resulting from the deferring of MPS’s stranded cost recovery and continuedinvestments in unregulated subsidiaries start-up related operating costs inexcess of their revenues. Interest expense has also been impacted by increasesin interest rates on variable rate borrowings.

***Income Tax Expense/Benefit***

        Incometax expense for MPS was $1.5 million, $1.2 million and$1.4 million in 2005, 2004 and 2003, respectively. The income tax benefitfor the unregulated subsidiary was $1.7 million, $797,000 and $98,000 in2005, 2004 and 2003, respectively.

***Taxes Other Than Income***

        Taxesother than income, which are mostly property taxes for MPS and payroll taxesfor all companies, were $1.8 million in 2005, $1.7 million in 2004,and $1.5 million in 2003.

***Consolidated Capital & Construction Program***

        Expenditureson capital improvements, additions, replacements and equipment for the yearsended December 31, 2005, 2004, and 2003, along with estimated expendituresfor 2006 are as follows:

|                             | ** ** | **2006**                   | ** ** | **2005**   | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------------------|------------|----------------------------|------------|------------|------------|------------|------------|------------|------------|
| ** **                  | ** ** | **(Unaudited  Estimates)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Maine Public  Service       |       | $                          | 3,394      |       | $          | 4,822      |       | $          | 6,276      |   | $ | 4,609 |   |
| The Maricor  Group          |       | —                     |       | 238        |       | 258        |       | 46         |       |
| Maricor  Properties Ltd     |       | 686                        |       | 409        |       | 1,974      |       | —     |       |
| Maricor  Technologies, Inc. |       | 490                        |       | 446        |       | —     |       | —     |       |
| Other  Subsidiaries         |       | —                     |       | —     |       | 3          |       | 221        |       |
|                        |       |                       |       |       |       |       |       |       |       |
| Total                       |       | $                          | 4,570      |       | $          | 5,915      |       | $          | 8,511      |   | $ | 4,876 |   |

 

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***FinancialCondition & Management Challenges***

        Maine &Maritimes has made significant progress in implementing its overall growthstrategy. However, it continues to be faced with challenges post-deregulationand generation divestiture associated with transitioning from a verticallyintegrated regulated electric utility to a diversified portfolio of bothregulated and unregulated businesses. Our short-term challenges include(a) cash flow limitations anticipated during 2006, but significantlyimproving beginning in 2007 as a result of recovery of deferred stranded costcollections, (b) lagging earnings, (c) the lack of speed ofimplementation of MAM’s overall growth strategy, (d) the need to improvemarket traction of unregulated operations’ business development efforts andexpand into higher value product and service lines, (e) the ability toraise adequate capital without significant dilution to shareholders, and(f) increasing and continuing costs from being a micro-cap publicly tradedcompany associated with acquisition integration costs (those costs associatedwith transitioning the acquisition of smaller private companies to publiclytraded company standards), compliance and regulatory reporting. These issuesindividually and collectively reflect the reality that MAM’s current scale ofunregulated operations cannot adequately carry the burden of corporateallocations and direct costs. These relatively fixed corporate costs include,but are not necessarily limited to governance, holding company administration,risk management, regulatory compliance and reporting costs. While the scale ofunregulated operations does not fully support its allocation of corporatecosts, their contribution to these relatively fixed costs limit the cost burdenon regulated operations.

        Themost recent and current financial and cash flow performances of the Companyresulted in no shareholder dividend during the fourth quarter of 2005. Untilsuch performance improves, the Company cannot warrant that it will resumepaying dividends on a quarter-on-quarter basis. In the near-term, the Companymay be required to reinvest in the Company and in investments that have thepotential for increasing long-term shareholder value. Such a transition may beviewed as a delayed response to the financial and business model impact ofderegulation and resulting generation divestiture.

        Managementbelieves it is essential that we continue to expand our unregulated revenueopportunities through both organic and inorganic growth to provide the scalenecessary to cover corporate costs and generate positive cash flows andearnings to help ensure long-term shareholder value. Although MAM has a longhistory within its regulated market, changes associated with deregulation andits new unregulated operations outside our utility’s traditional regulatedservice area reflect in many ways the characteristics of a start-up to earlystage growth company, requiring establishment of brand recognition andcreditability in the marketplace. In order to succeed in our growth strategy,Management believes that MAM must increase its focus on and leveraging ofgrowth capital, while increasing the pace of acquisitions. Management does notbelieve a status quo “stay as you are” or return to our utility core strategyis economically viable in the long-run.

        Managementbelieves that the passage of the 2005 US Energy Policy Act and resultingchanges to the Public Utility Holding Company Act (“PUHCA”) may have asignificant impact on the regulated electric utility or network utilityindustries. Specifically, we anticipate a potentially robust electric utilityor network utility consolidation market during the foreseeable future. Suchconsolidation may result in the electric utility wires industry becoming adecreasing per unit cost industry with continued unbundling of products andservices analogous to the evolution of the telecommunications industry.Management believes that through consolidation and the increasing of scale ofoperations, large utilities may achieve a number of leverageable synergies thatresult in decreased per unit costs, such as billing, metering, customerservice, information technology, regulatory, governance and administrative.While Management cannot be assured of this potential trend, most recentactivity appears to reflect this trend. Consequently, monitoring the impact andimplications of the repeal of PUCHA will be an important aspect of determiningMAM’s long-term strategy.

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        During2006, MAM will experience working capital challenges. This challenge isdirectly attributable to primarily two factors. These include, but are notnecessarily limited to, the historical decision to defer full recovery of MPS’sstranded costs associated with its Wheelabrator-Sherman non-utility generatorcontract until the 2007 through 2012 timeframe and the lagging pace of revenuesand earnings of unregulated operations through both organic and inorganicactivities. While 2006 presents a cash flow challenge related to the deferringand levelizing stranded cost recovery, free cash flows are projected to improvesignificantly from 2007 through 2012. This is due to the expiration of theWheelabrator-Sherman contract in December 2006 and the collection ofassociated deferred stranded cost revenues during the next approximate sixyears. Management and the Board are taking actions to address our short-termoperational cash flow short fall during 2006, such as leveraging equitypositions associated with unregulated real estate assets, improving overallperformance of all business segments, controlling capital expenditures, andinstituting more rigid cost controls. It is likely that the Company and itssubsidiaries may require increased short-term borrowings to bridge the deferralof the stranded costs cash collections and until increased market traction andscale of unregulated operations can be attained.

        Asnoted, Management believes the scale of unregulated operations must beincreased to address the burden of corporate-related costs. During 2005, MAMcontinued its acquisition efforts, acquiring certain software assets throughMaricor Technologies, Inc., and purchasing Cornwallis CourtDevelopments Ltd, the owner of a 60,000 square foot fully leased officefacility in Halifax, Nova Scotia. However, significant time and effort duringthe year were spent evaluating a potential acquisition, Steven WinterAssociates, Inc., a leading building sciences and energy efficiencyprofessional services firm. Based on a number of factors, the decision was madenot to acquire the firm. Consequently, anticipated revenues and earnings didnot evolve from the proposed acquisition. MAM, particularly as it relates tothe continued growth of TMG and TMGC, must intensify its efforts to target,evaluate, and acquire leading and accretive firms within the sustainablebuilding sciences, energy efficiency, asset development and management, andprofessional consulting engineering space. However, Management cannot predictwith certainty its ability to identify and successfully acquire such firms on atimely basis.

        Relatedto MAM’s ability to acquire accretive firms on a timely basis is its ability toraise capital to fund such acquisitions. Management believes the financing offuture actions will involve differing forms of debt and equity, including, butnot necessarily limited to, private placement of common stock, preferred stockissuance, convertible debt, conventional debt and venture capital. The actualcost of capital of such strategies depends on the exact structure andtransaction, as well as the actual share price at the time of a transaction. Inaddition, depending on the structure and transaction, as well as the success ofan acquisition or financing, share dilution may occur. In contrast, Managementalso believes that shareholder value can be created through the targeted andtimely acquisition of key companies within TMG’s competitive space that addvalue to the firm’s value proposition.

        Inaddition to acquisitions, MAM and more particularly TMG and MTI, must increasetheir market traction through improved business development efforts andincreased sales of higher value products and services. TMG and TMGC havehistorically utilized a “seller-doer” professional services model. Given the “start-up”costs of a full-time professional business development and transactionstructuring staff, adequate funding and staffing have not been available todate to enhance organic sales growth. TMGC has started the process of staffinga professional business development staff with the required domain knowledge tostructure higher value customer-centric solutions. However, given cash flow andearnings challenges, organic growth tends to be more challenging in thenear-term than acquisitions. Nonetheless, Management is pursuing a strategy toincrease TMG’s focus on expanding professional business development.

        Priorto late 2005, MTI’s marketing was done through a channel market agreement withits sister company, TMG. In order to enhance market traction and improve sales,MTI has employed its own full-time sales staff and is pursuing a broader rangeof channel marketing partners. While MTI is

 

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challengedfinancially to adequately staff its business development and transactionstructuring staff, progress is being made. Nonetheless, improving marketpenetration is a key challenge and opportunity for MTI.

        Managementhas and continues to evaluate means to control corporate-related costs todecrease holding company cost allocations to its subsidiaries. While actionshave been put in place to control and/or limit costs, most are deemed essentialcosts, particularly due to MAM’s publicly traded status. Costs associated withcorporate services tend to have a minimum threshold of cost that can serviceincreasingly larger subsidiary operations without requiring a correlatedincrease in corporate-related costs. Consequently, Management does not believesignificant reductions in corporate-related costs can be achieved and thatincreasing the scale of unregulated operations is the most viable means tooffset such costs.

        WhileManagement believes cash flows will improve beginning in 2007 and is encouragedby the progress of unregulated operations, it also recognizes that a successfulregulatory ruling concerning MPS’s distribution rate case is important. MPScontinues to monitor its costs, however, there is a minimum scale of operationsrequired to ensure reliable customer service and effective asset management.Given the low customer density and highly forested characteristics of MPS’sservice area, the utility faces the need to manage and maintain adisproportionate number of miles of line per customer served, recognizing therural nature of its service area. Further, natural increases in costsassociated with insurances, workers compensation, increasing diesel fuel costs,increasing costs of direct material inputs and inflation, to name a few, areoutpacing the rate of increases in MPS’s allowed rates. Given the limitedyear-on-year load growth of MPS’s service area, natural increases in costscontinue to outpace growth.

        Managementdoes recognize a number of short-term financial and operating challenges.However, we believe our long-term outlook is encouraging. To improve long-term shareholdervalue and earnings, Management believes that the Company must increase its paceof organic and inorganic growth, while forming capital in an equally timelymanner supportive of such growth. As previously noted, Management does notbelieve a status quo or “stay as you are” strategy will create long-termshareholder value for MAM. Further, given the impact of electric deregulation,generation divestiture, and disaggregation of the electric utility industrywithin Maine, combined with the lagging economy of MPS’s service area,Management does not believe reverting to its core regulated wires business cangenerate adequate long-term shareholder value. Through more timely execution ofMAM’s inorganic growth strategy, including formation of growth capital, as wellas improved organic growth, Management is focused on increasing earnings acrossall business lines. Should the Company not achieve a level of unregulatedgrowth consistent with the need to create long-term shareholder value within areasonable timeframe, Management and the Board of Directors will need to assessstrategic alternatives to its current growth strategy. Resulting actions couldinvolve the sale or partial sale of certain or all unregulated assets or otheralternatives, recognizing the need to act prudently in protecting and enhancinglong-term shareholder value. Management does believe that the timely andefficient implementation of the Company’s growth strategy can result inlong-term shareholder value.

***Detailed Analysisof Changes in Financial Condition by Operating Segment***

***Unregulated Engineering Services***

        Thebuilding sciences, energy efficiency, asset management and development, andengineering services segment’s growth strategy expands MAM’s business andrevenue models to a professional services model allowing for revenue generationthrough a combination of pricing options including, but not necessarily limitedto fee-for-service hourly rates, flat fees, percentage-of-constructionprojects, shared savings, and performance contracting. Through the delivery ofcustomer-centric technical consulting, engineering design and sustainablesolutions regarding the asset management, development,

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renewal, andexpansion of facilities and on-site energy utilities infrastructure serving suchfacilities, we ultimately seek to purchase, design, construct, own, leaseand/or operate on-site energy infrastructure and facilities. Revenues from suchpotential asset-based projects range from fee-for-service design fees tolong-term leases to long-term contracts for output. This operating segmentincludes The Maricor Group parent company and its subsidiaries, The MaricorGroup New England and The Maricor Group, Canada Ltd. Its primarygeographic markets are New England and Atlantic Canada with an expanding focusacross the country of Canada. Its vertical market focus includes local, state,provincial and national governments, schools, universities, hospitals,institutional and non-retail commercial.

        Unregulatedengineering services operations began in November 2003 with the creationof The Maricor Group and The Maricor Group, Canada Ltd followed by theacquisition of Eastcan Consultants, Inc. in Moncton, New Brunswick, Canadain December of that year. Morris & Richard ConsultingEngineers, Ltd., located in Halifax, Nova Scotia, Canada and RESEngineering, Inc. located in Hudson and Boston, Massachusetts wereacquired on June 1, 2004, and June 15, 2004, respectively.

|                                                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net (Loss)  Income—Unregulated Engineering Services (in thousands) |       | (689     | )          | (488     | )          | 11       |       |
| (Loss) Earnings Per  Share from Unregulated Engineering Services        |       | $        | (0.42      | )        | $          | (0.30    | )          | $ | 0.01 |   |
|                                                                         |            |          |            |          |            |          |            |  |  |  |

        Theresults by division are as follows:

|                                                          | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| The Maricor Group  Parent Company                        |       | $        | (386       | )        | $          | (423     | )          | $ | — |   |
| The Maricor  Group New England                           |       | (243     | )          | 55       |       | —   |       |
| The Maricor  Group, Canada Ltd.                          |       | (60      | )          | (120     | )          | 11       |       |
|                                                     |       |     |       |     |       |     |       |
| Net (Loss)  Income—Unregulated Engineering Services |       | $        | (689       | )        | $          | (488     | )          | $ | 11 |   |

 

        TMG’s(the parent company) loss of approximately $386,000, or ($0.24) per share in2005, compares to a loss of $423,000 or ($0.26) per share in 2004. The 2005loss consisted of $117,000 of interest expense, $45,000 of corporate D&Oand medical insurance, $144,000 of legal and consulting costs, and othersmaller expenses. The 2004 loss was largely attributable to sales, marketingand integration costs during the start-up and acquisition periods for thissegment.

        TheMaricor Group New England division lost $243,000 or ($0.15) per share in 2005,and had net income of $55,000 or $0.03 per share in 2004. This division wasacquired in June 2004. The 2004 results represent only six months ofactivity, compared to twelve months in 2005. TMGNE’s loss was attributable to,but not necessarily limited to, costs associated with consolidating operationsfrom Hudson to Boston, Massachusetts, employee transitioning costs associatedwith the geographic consolidation and purchase of RES, and lagging markettraction due to insufficient business development efforts.

        TheMaricor Group, Canada Ltd division lost $60,000, or ($0.04) per share in2005 and $120,000 or ($0.07) per share in 2004. The 2004 loss at TMGC was alsolargely attributable to sales, marketing and integration costs during thestart-up and acquisition periods. The 2004 results for TMGC include only sixmonths of activity for the M&R division, which was acquired inJune 2004, and a full year of activity for the Eastcan division, which wasacquired in December 2003.

        Managementhas and is undertaking steps to address the lagging performance of TMG and itssubsidiaries. Business operations related to TMGNE’s Hudson office have ceased,as operations are consolidated in its expanded Boston office, reflecting thereality that most of the subsidiary’s market and customer base is in theGreater Boston area. While overall staffing experienced some downsizing due tothe consolidation of the two offices, additional hires have been and are beingmade, seeking to

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upgrade skillssets in the process. In addition, as MAM migrates toward greaterdecentralization, subsidiaries are encouraged to be more independent andentrepreneurial, operating under enterprise-wide policies, in an attempt tominimize corporate allocations and unnecessary bureaucracy. Suchdecentralization is designed to promote decision-making closer to the customerand actual profit and loss center. Further, as mentioned, there is an increasedfocus on sales, expanding from the “seller-doer” model only to a full-timeprofessional business development staff capable of selling and structuringhigher value offerings in the sustainable lifecycle asset management and energyefficiency areas, while implementing continuing cost controls. However, thelong-term profitability of TMG and its subsidiaries is clearly dependent uponachieving increased revenues resulting from increased investments in marketingand sales personnel and processes, diversifying sales away from a predominanceof design engineering services and the “seller-doer” model to high levelbusiness development, structuring staff capable of selling higher marginproducts and services, and increasing the overall scale of the unregulatedsubsidiaries through timely strategic acquisitions.

*UnregulatedEngineering Services—Operating Revenue*

        TMGand its subsidiaries’ revenues for the years ended December 31, 2005, 2004and 2003 *(in thousands of dollars)*:

|                                                  | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| The Maricor  Group New England                   |       | $        | 2,064      |     | $          | 1,282    |       | $ | — |   |
| The Maricor  Group, Canada Ltd                   |       | 3,227    |       | 2,130    |       | 57       |       |
|                                             |       |     |       |     |       |     |       |
| Total  Unregulated Engineering Operating Revenue |       | $        | 5,291      |     | $          | 3,412    |       | $ | 57 |   |

 

        Totalrevenue is up 55% from 2004 to 2005, primarily due to the acquisitions ofM&R and RES in June 2004. These subsidiaries contributed$2.19 million more revenue in 2005 than 2004. Revenue at the Monctondivision, which operated for a full year in both 2004 and 2005, was$1.33 million in 2005, compared to $1.11 million in 2004, up 20%year-over-year.

        Theprincipal types of projects producing revenue for the three companies were theoriginal acquisitions’ primary historical business line, mechanical andelectrical engineering design and design/build projects on a fee-for-servicebasis with an increasing emphasis on energy efficiency, particularly withinCanada. Increasingly, TMG is focusing on sustainable facility lifecycle assetmanagement, energy efficiency and emissions reductions offerings, as well asdevelopment of end-user energy assets, such as central utility plants, alltypically higher value and higher margin offerings.

*Unregulated Engineering ServicesOperating Expenses*

|                                          | ** ** | **2005**                       | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|------------------------------------------|------------|--------------------------------|------------|------------|------------|------------|------------|
| ** **                               | ** ** | **(In thousands of  dollars)** | ** ** |
| ** **                               | ** ** | ** **                     | ** ** | ** ** | ** ** | ** ** | ** ** |
| Unregulated  Operation & Maintenance |       | $                              | 5,928      |       | $          | 3,963      |       | $ | 40 |   |
| Depreciation                             |       | 21                             |       | 7          |       | —     |       |
| Amortization                             |       | 126                            |       | 30         |       | —     |       |
| Taxes Other than  Income                 |       | 73                             |       | 52         |       | —     |       |
| Income Taxes                             |       | (510                           | )          | (254       | )          | 6          |       |
|                                     |       |                           |       |       |       |       |       |
| Total Operating  Expenses                |       | $                              | 5,638      |       | $          | 3,798      |       | $ | 46 |   |

 

        TheOperation and Maintenance expenses above consist primarily of$5.15 million of direct labor expenses, direct contract costs, marketing,sales, and business development expenses, labor, overheads, and consultingservices for developing business relationships and re-branding this businesssegment as The Maricor Group of companies. The remaining expenses ofapproximately $778,000 consist of legal,

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consulting,insurance, travel, occupancy, office supplies and other administrative andgeneral expenses. These costs increased $1.97 million or 49% over 2004. Themajority of this increase, approximately $1.79 million, was from includingthe full year of activity for TMGNE and TMGC in 2005, compared to only thepartial year in 2004 from the time of acquisition of M&R and RES throughDecember 31.

***Unregulated Real Estate Subsidiary Results***

        Thefollowing section details the operations of the unregulated real estateoperating segment, including Maricor Properties Ltd and its subsidiaries,Mecel Properties Ltd, and Cornwallis Court Developments Ltd.

        Unregulatedreal estate operations began in June 2004 with the formation of MaricorProperties and the acquisition of Mecel Holdings from the original owners ofMorris & Richard Consulting Engineers, which was purchased by TMG.Mecel Holdings, later eliminated and changed to Mecel Properties, Ltd,owns an approximate 10,000 square foot facility leased to TMGC’s Halifax, NovaScotia division. These lease revenues are eliminated in consolidation. InAugust 2004, Maricor Properties purchased an approximate 40,000 squarefoot office building located at 77 Vaughan Harvey Boulevard in the downtownarea of Moncton, New Brunswick. The vacant facility was in need ofrevitalization, which was undertaken using the expertise of TMGC to upgrade thefacilities mechanical and electrical systems, with additional architectural,aesthetic and landscaping improvements. The facility was partially leased(approximately 40%) during 2005 to a third party tenant and TMGC’s Monctondivision. Lease revenues from TMGC’s Moncton division are also eliminated inconsolidation. In late 2005, Management was successful in leasing-up thefacility with leases with third parties being signed during early 2006 andtenant improvements under construction in early 2006 as well. The leasing ofthe facility will have a positive impact on Maricor Properties in 2006.

        InOctober 2005, Maricor Properties acquired Cornwallis CourtDevelopments Ltd, the owner of an approximate 60,000 square foot officefacility fully leased near the Citadel in downtown Halifax, Nova Scotia. Thefacility is predominately leased to the Nova Scotia provincial government andthe Canadian federal government under long-term leases. In addition, during theyear Maricor Properties entered into a new 50/50 joint venture, Maricor Ashford Ltd,with Ashford Investments Ltd, an Atlantic Canadian real estatedevelopment, investment and management company. The joint venture was createdto expand both organizations’ investment goals, as well as to implement a moreaggressive development program and expand third party facilities managementactivities. In approximately one and a half years, Maricor Properties, withlittle capital investment by its parent company, has amassed real estate withappraised values of over $10.2 million CDN, as compared to an approximatepurchase price of $9.1 million CDN, including approximately$1.5 million in renovations and tenant up-lifts in the Vaughan HarveyBuilding. Maricor Properties current properties are nearly completely leased,not including several thousand square feet reserved for the expansion of TMGCin Moncton.

|                                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|-------------------------------------------------------|------------|----------|------------|----------|------------|
| Net  Loss—Unregulated Real Estate (in thousands) |       | (115     | )          | (22      | )          |
| Loss Per Share from  Unregulated Real Estate          |       | $        | (0.07      | )        | $          | (0.01 | ) |
|                                                       |            |          |            |          |            |  |  |

        MaricorProperties’ net loss in 2005 was $93,000 more than the net loss for 2004. Itshould be noted that 2004 represented approximately half a year of performancedue to its creation mid-year 2004. Of this loss in 2005, $80,000 wasattributable to depreciation expense on the buildings. As noted, throughout2005, Maricor Properties primarily leased space to the TMGC division of TheMaricor Group, with only one third-party tenant. However, beginning with theacquisition of Cornwallis Court Developments Ltd, and the signing ofadditional leases in 2006 at the Vaughan Harvey Boulevard building, MaricorProperties has expanded its third-party tenant base, cash flows and expectedearnings. Maricor Properties does expect additional expenses in 2006 associatedwith Maricor Ashford Ltd and its planning and implementation of potentialreal estate development projects proposed within Atlantic

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Canada. Inaddition, Maricor Ashford Ltd continues to evaluate and consideradditional investments in existing real properties within Atlantic Canada.

        Priorto the creation of Maricor Ashford Ltd, facility management was performedunder contract by Ashford Properties, a subsidiary of Ashford Investments.Subsequent to the development of the joint venture, Maricor Ashford has assumedresponsibility for Maricor Properties’ and its subsidiaries’ real estate andcurrently utilizes a services agreement that effectively seconds members ofAshford Properties’ facility management staff until an adequate critical massof owned and third party property management contracts can be secured tojustify the expansion of its facility management staff.

***Unregulated Software Technology Results***

        MaricorTechnologies, Inc., was created in February 2005, followed by theacquisition of certain lifecycle asset management and capital budget planningsoftware assets from Delinea Strategic Asset Management. MTI incurred a loss of$318,000 during 2005. Of this amount, $298,000 is attributable to theamortization of software costs, partly offset by an income tax benefit ofapproximately $119,000. Throughout 2005, the focus of MTI was on expansion ofits asset management and capital planning software solutions supporting itsexisting customers, while increasing its market competitiveness. Additional2005 focus was directed toward customer retention post-acquisition of theiPlanTM and Building BlocksTM software solutions. MTI was highly successful in2005 in retaining its existing customer base and has begun its marketing andsales expansion targeting new customers and expanded channel marketingpartners.

        Recognizingincreasing market demand for facilities-related software solutions that supportsustainability and energy management, MTI entered into technology agreementswith the Battelle Memorial Institute and GridLogix to support a streamlinedenergy capital planning process for facilities and demand-side managementprograms. These new products are projected for release during the first half of2006.

***Regulated Utility Operations***

        Thefollowing discussion includes the operations of MPS and Me&NB:

|                                                            | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Net  Income—Regulated Electric Utility (in thousands) |       | $        | 2,264      |     | $          | 3,042    |       | $ | 3,131 |   |
| Earnings Per Share from  Regulated Electric Utilities      |       | $        | 1.38       |     | $          | 1.89     |       | $ | 1.99 |   |

        MPS’score T&D earnings were $2.26 million for 2005, compared to$3.04 million and $3.13 million in 2004 and 2003, respectively. Asexplained more fully below, the operating expenses of the utility increasedapproximately $1.47 million in 2005, compared to 2004.Operation & maintenance expense increased $287,000, or 2%, whileamortization of stranded costs increased $522,000. These decreases in netincome were partly offset by an increase in regulated utility revenue of$580,000, or approximately 2%, and the expiration of a special discount forwhich MPS did not have recovery from ratepayers, which reduced 2004non-operating income by $153,000.

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*RegulatedUtility Operating Revenue*

        Consolidatedrevenues and Megawatt Hours (“MWH”) for the years ended December 31, 2005,2004 and 2003, are as follows *(in thousandsof dollars)* :
| ** **                         | ** ** | **2005**    | ** ** | **2004** | ** ** | **2003**    | ** ** |
|------------------------------------|------------|-------------|------------|----------|------------|-------------|------------|
| ** **                         | ** ** | **Dollars** | ** ** | **MWH**  | ** ** | **Dollars** | ** ** | **MWH** | ** ** | **Dollars** | ** ** | **MWH** | ** ** |
| Residential                        |       | $           | 14,220     |     | 180,108    |        | $          | 13,830 |   | 176,407 |   | $ | 13,264 |   | 175,435 |   |
| Large Commercial                   |       | 5,227       |       | 170,906  |       | 5,059       |       | 171,263 |   | 4,791 |   | 165,467 |   |
| Medium  Commercial                 |       | 5,521       |       | 106,525  |       | 5,488       |       | 107,607 |   | 5,292 |   | 106,073 |   |
| Small Commercial                   |       | 6,890       |       | 92,960   |       | 6,651       |       | 90,032 |   | 6,400 |   | 89,882 |   |
| Other Retail                       |       | 829         |       | 3,394    |       | 823         |       | 3,376 |   | 788 |   | 3,357 |   |
|                               |       |        |       |     |       |        |       |   |   |   |   |   |   |
| Total Regulated  Retail            |       | 32,687      |       | 553,893  |       | 31,851      |       | 548,685 |   | 30,535 |   | 540,214 |   |
|                               |       |        |       |     |       |        |       |   |   |   |   |   |   |
| Other Regulated  Operating Revenue |       | 1,627       |       |     |       | 1,883       |       |   |   | 1,213 |   |   |   |
|                               |       |        |       |     |       |        |       |   |   |   |   |   |   |
| Total Regulated  Revenue           |       | $           | 34,314     |     |       |        | $          | 33,734 |   |   |   | $ | 31,748 |   |   |   |

        Revenuein all regulated retail customer classes increased in 2005, compared to 2004.Sales to residential customers in 2005 increased $390,000 or 2.8% over 2004.This increase was driven primarily by the 3,701 MWH or 2.1% increase in volume,partly due to an increase in the number of customers, and partly due to anincrease in the volume of usage by customers.

        Whilelarge commercial customer sales volume decreased slightly over 2004, revenueincreased from $5.06 million in 2004 to $5.23 million in 2005, anincrease of $168,000 or 3.3%. The largest increase was $183,000 from one largecustomer which was in business for all of 2005, but only three months of 2004.

        Thevolume of sales to medium service customers decreased approximately 1%, or1,082 MWH, due to a 1% decrease in the number of customers. Revenue dollarsincreased slightly, up $33,000. Small commercial sales had the largest increasein volume, up 2,928 MWH or 3.3% in 2005, compared to 2004. The increase involume is primarily among the local potato growers and their higher costs forstorage of the 2004 crops in 2005. This additional volume resulted in anincrease in revenue of $239,000 or 3.6%.

        Otheroperating revenue decreased by $256,000 from 2004 to 2005. The largestdecreases were in miscellaneous and other electric revenues, associated withcontracted utility work.

        For2004, the regulated retail sales volume was 548,685 MWH, an increase of 1.6%over 2003 sales of 540,214 MWH. Sales to residential customers in 2004 wereconsistent with sales in 2003, increasing by 972 MWH or 0.6%. The increase inrevenue from residential customers was primarily attributable to theNovember 1, 2003 rate increase. The volume of sales to large commercialcustomers increased 5,796 MWH or 3.5% from 2003 to 2004. Several of the Company’slarge commercial customers have undergone renovations or expanded productionduring 2004, leading to the increase in volume.

        Salesto medium commercial customers increased 1.4% or 1,534 MWH from 2003 to 2004.There was a 2.3% increase in the number of medium service customers, year overyear. Small commercial customer sales volume of 90,032 MWH in 2004 wasconsistent with the sales of 89,882 MWH in 2003.

        Otherregulated retail revenue increased slightly from 3,357 MWH in 2003 to 3,376 MWHin 2004.

        Otheroperating revenue increased $670,000 from 2003 to 2004. The largest increasewas transmission revenue, which is up approximately $290,000 due to increasesin the FERC transmission rates. Special discounts also increased $234,000.

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        Formore information on regulatory orders including the most recent rate increases,see Part I, Item 3, “Legal Proceedings.”

*RegulatedUtility Expenses*

        Forthe years ended December 31, 2005, 2004 and 2003, regulated operation andmaintenance expenses and stranded costs are as follows *(in thousands of dollars)* :

 

|                                                             | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Regulated  Operation and Maintenance                        |       |     |       |     |       |     |       |
| Transmission and  Distribution                              |       | $        | 3,985      |     | $          | 3,142    |       | $ | 3,114 |   |
| Customer Service                                            |       | 1,004    |       | 1,346    |       | 1,452    |       |
| Administrative  and General                                 |       | 9,363    |       | 9,577    |       | 8,242    |       |
|                                                        |       |     |       |     |       |     |       |
| Total Regulated  Operation and Maintenance                  |       | $        | 14,352     |     | $          | 14,065   |       | $ | 12,808 |   |
|                                                        |       |     |       |     |       |     |       |
| Stranded Costs                                              |       |     |       |     |       |     |       |
| Wheelabrator-Sherman                                        |       | $        | 7,045      |     | $          | 7,025    |       | $ | 7,260 |   |
| Maine Yankee                                                |       | 3,215    |       | 3,274    |       | 2,661    |       |
| Seabrook                                                    |       | 1,538    |       | 1,538    |       | 1,538    |       |
| Amortization of  Wheelabrator-Sherman Restructuring Payment |       | 1,451    |       | 1,451    |       | 1,451    |       |
| Deferred Fuel                                               |       | (2,996   | )          | (3,557   | )          | (3,558   | )          |
| Amortization of  Gain from Asset Sale                       |       | —   |       | —   |       | (443     | )          |
| Special  Discounts                                          |       | 280      |       | 280      |       | 280      |       |
|                                                        |       |     |       |     |       |     |       |
| Total Stranded  Costs                                       |       | $        | 10,533     |     | $          | 10,011   |       | $ | 9,189 |   |

        Transmissionand distribution expenses increased by $843,000 or 26.8% in 2005 compared to2004. The largest increase in 2005 was transportation expenses allocated totransmission & distribution activities, which increased approximately$469,000 over 2004. This was a result of both an increase in the cost pool of$244,000, which includes fuel costs, repair costs and labor costs for employeesworking in the garage, and an increase in the rates at which the dollars areapplied. Also, in past years under the PCB mitigation program, the transformerswere removed from the field and brought on-site for testing. In 2005, MPSchanged their testing program to now do sampling in the field, and only removethe transformer if it is contaminated, a more efficient process that costs lessoverall, but shifted additional dollars to expense, rather than capital costs.This has increased the expense portion of this program by approximately$95,000. Other significant costs during 2005 include additional labor overheadsof $44,000, and an increase of $57,000 in external tree-trimming costs. Theremaining change is due to other, smaller changes year-over-year.

        Transmissionand distribution expenses were $3.14 million in 2004, an increase of$28,000 or 0.9% from $3.11 million in 2003. Transmission expensesdecreased approximately $8,000 during this period, offset by an increase indistribution expenses of $36,000.

        Customerservice expenses have decreased $342,000 or 25.4% from 2004. Historically, MPShas reserved for under- and over-collections on SOS accounts receivable,assuming the risk for these receivables. However, MPS has the right to increaseor decrease the withholding rate in the next SOS contract to collect thehistorical under-withholding, as well as the current estimate of uncollectibleamounts. Therefore, MPS does not have risk for these receivables, and hasremoved the reserve from this balance. This resulted in a $310,000 decrease inbad debt expense.

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        Customerservice expenses decreased $106,000, from $1.45 million in 2003 to$1.35 million in 2004. The largest decrease was in meter reading expenses,which were reduced by $70,000 in 2004, because automatic meter reading was inplace for one-third of our customers for a portion of 2003 and during 2004.

        Administrativeand general expenses were down slightly from $9.58 million in 2004 to$9.36 million in 2005. Legal expenses for regulatory issues decreased$132,000 year-over-year, primarily due to reduced legal costs associatedwith the transmission rate filings. The net health insurance cost to thecompany also decreased by $103,000 from 2004 to 2005. Finally, generaladvertising expenses decreased from $185,000 in 2004 to $80,000 in 2005. Thesedecreases were partly offset by an increase in administrative and generalsalaries of approximately $177,000. The remaining change in administrative andgeneral costs is due to other smaller changes in activity from 2004 to 2005.

        Administrativeand general expenses in 2004 were $9.58 million, an increase of$1.34 million from 2003. Costs allocated to MPS by MAM for services suchas Sarbanes-Oxley compliance, legal and audit services and corporate governancetotaled $2.28 million in 2004, compared to $876,000 for the last sixmonths of 2003. As a result of an MPUC order in its rate case in the thirdquarter of 2003, MPS was allowed to recognize a regulatory asset and reduceoperating expenses by $402,000 for certain voluntary early retirement costsexpensed in the fourth quarter of 2002. Amortization of these costs in 2004totaled $57,000. Other employee benefits, excluding the impact of the voluntaryearly retirement plan (“VERP”), increased approximately $315,000, primarily dueto increases in employee medical expenses and pension expenses. Hosting feesfor the Company’s Oracle-based financial system increased expenses by $338,000for 2004, compared to 2003. The Company has also expanded its regional economicdevelopment program, incurring an additional $97,000 of costs during 2004.Legal expenses incurred directly by MPS increased $136,000 from 2003 to 2004.Total expenditures for legal services by MPS decreased during that same period;however, more of the 2003 costs were related to regulatory proceedings,including the alternative rate plan, and therefore were deferred, than in 2004.

        Theincreases in stranded costs from 2003 to 2004 and 2004 to 2005 reflect theincrease in revenue requirements approved in MPUC Docket No. 2003-666. Therates per this docket were implemented March 1, 2004.

        Thestranded costs for Wheelabrator-Sherman as well as $3.0 million and$3.1 million of the stranded costs for Maine Yankee for 2005 and 2004,respectively, represent actual cash expenses during the year. Other costsrepresent actual amortization or recognition of regulatory assets andregulatory liabilities.

***Unregulated Energy Marketing—Energy Atlantic DiscontinuedOperations***

        OnMarch 1, 2004, EA suspended all active operations and was classified as adiscontinued operation in accordance with FASB No. 144, as discussed inmore detail below. EA participated in the wholesale power market from 1999until March 1, 2000, when it began selling energy in the retail electricitymarket within the State of Maine. The retail market consists of two sectors,Standard Offer Service (“SOS”) and Competitive Energy Supply (“CES”). The MPUCperiodically requests bids from CES providers for SOS in each utility serviceterritory.

        Inconnection with its February 21, 2003, announced withdrawal from theretail electricity markets in northern Maine, EA ceased all of its energymarketing activities in MPS’s service territory, as well as the balance of theState, effective March 1, 2004, with the intent to stay inactive untilmarket conditions, the availability of supply, the mandate for stringent creditrequirements and the risk environment improved. EA continued to serve itsexisting contracts in Maine through their expiration on February 27, 2004.CES sales, primarily in northern Maine, were approximately $6.1 million in2003.

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        AlthoughManagement will continue to monitor both U.S. and Canadian deregulated marketsto evaluate the merits of possible re-entry into the deregulated electricenergy retail market, it is doubtful that market conditions, creditrequirements and risks will become favorable for re-entry. Management does notforesee re-entry into the CES market in the near future and cannot predict ifor when it may re-activate EA. EA has no employees and its operations have beendiscontinued.

        TheCompany recognized income (loss) from discontinued operations of $4,000,$(408,000), and $(143,000) for the years ended December 31, 2005, 2004 and2003, respectively, classified as discontinued operations in the Statement ofConsolidated Operations. The 2005 net income from discontinued operationsrepresents the continued activity to finalize the shutdown of EA’s operations.This activity is expected to be complete in April 2006. The 2004 net lossrepresents additional software lease expense of $181,000, recognized on thebuy-out of a software lease by EA, $172,000 for employee severance payments,and a loss on disposal of fixed assets of $69,000.

        Thefollowing table summarizes the statement of operations for EA and the corporateservices provided to EA for each of the past three years:

|                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                                          |       | $                                          | —     |   | $ | 572 |   | $ | 6,064 |   |
| Expenses                                                         |       | —                                     |       | (1,164 | ) | (6,343 | ) |
| Other Deductions,  Income and Interest                           |       | 2                                          |       | (86 | ) | 26 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Pretax Income (Loss)  from Discontinued Operations               |       | 2                                          |       | (678 | ) | (253 | ) |
| Income Taxes                                                     |       | 2                                          |       | 270 |   | 110 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Income (Loss) from  Discontinued Operations                      |       | $                                          | 4          |   | $ | (408 | ) | $ | (143 | ) |
|                                                             |       |                                       |       |   |   |   |   |
| Loss per Share from  Discontinued Operations (Basic and Diluted) |       | $                                          | —     |   | $ | (0.25 | ) | $ | (0.09 | ) |

        Themajor classes of assets and liabilities of the discontinued operations includedin the Company’s consolidated balance sheets as of December 31, 2005, 2004and 2003, are as follows *(in thousands ofdollars)* :

|                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Assets**                         |       |     |       |     |       |     |       |
| Cash and Cash  Equivalents         |       | $        | —     |     | $          | 183      |       | $ | 1,161 |   |
| Income Tax Benefit  (Intercompany) |       | 235      |       | 263      |       | 68       |       |
| Accounts Receivable                |       | —   |       | —   |       | 711      |       |
| Other Assets                       |       | —   |       | 21       |       | 84       |       |
|                               |       |     |       |     |       |     |       |
| Total Assets                       |       | $        | 235        |     | $          | 467      |       | $ | 2,024 |   |
|                               |       |     |       |     |       |     |       |
| **Liabilities**                    |       |     |       |     |       |     |       |
| Accounts Payable                   |       | $        | 6          |     | $          | 67       |       | $ | 263 |   |
| Other Liabilities                  |       | —   |       | —   |       | 488      |       |
|                               |       |     |       |     |       |     |       |
| Total Liabilities                  |       | $        | 6          |     | $          | 67       |       | $ | 751 |   |

 

***Critical AccountingPolicies***

        Inpreparing the financial statements in accordance with generally acceptedaccounting principles, Management must often make estimates and assumptionsthat affect the reported amounts of assets, liabilities, revenues, expenses andrelated disclosures at the date of the financial statements and during thereporting period. Some of those judgments can be subjective and complex, andactual results could

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differ from thoseestimates. The Company’s most critical accounting policies include regulatoryassets and liabilities, revenue recognition, goodwill and intangible assets andsoftware amortization, and which are described in detail below.

***Regulatory Assets and Liabilities***

        Pursuantto Statement of Financial Accounting Standards No. 71 (“SFAS 71”), “Accountingfor the Effects of Certain Types of Regulation”, the Company capitalizes, asregulatory assets, incurred and accrued costs that are probably recoverable infuture electric rates. It also records, as regulatory liabilities, obligationsto refund previously collected revenue or to spend revenue collected fromcustomers on future costs.

        Unfundedfuture income taxes and deferred income taxes are amortized as the relatedtemporary differences reverse. Unamortized loss on debt retirements isamortized over the lives of the related debt issues. Nuclear plant obligations,deferred fuel costs, other regulatory assets and other regulatory liabilitiesare amortized over various periods in accordance with MPS’s current rate plans.MPS earns a return on substantially all regulatory assets for which funds havebeen spent.

        TheCompany believes that MPS’s electric transmission and distribution operationscontinue to meet the requirements of SFAS 71, and that regulatory assetsassociated with those operations, as well as any generation-related costs thatthe MPUC has determined to be recoverable from ratepayers, also meet thecriteria. At December 31, 2005, $62.37 million of regulatory assetsremained on MPS’s books. These assets will be amortized over various periods inaccordance with MPUC approved rate orders.

***Revenue Recognition***

        MPSrecords an estimate for revenue for electricity delivered, but not yet billedto customers. This estimate requires MPS to make certain assumptions. A changein those assumptions could cause the amounts reported as revenues to change.

        InJuly 2000, MPS began recording the difference between the approved tariffrate for two large industrial customers and their current special discountrates, under contracts approved by the MPUC, as accrued revenue. The resultingdeferred asset will be subsequently collected in rates as approved by the MPUC.During 2005 and 2004, $280,000 was recognized as stranded costs associated withthese two contracts. The MPUC approved a third special discount during 2004 inDocket No. 2004-88, under which MPS has deferred $495,000 and $248,000 asof December 31, 2005 and 2004, respectively. Recovery of this specialdiscount has not yet begun.

        MaricorTechnologies, Inc. is engaged as a seller and licensor of software.Generally, revenue will be recognized in accordance with Statement of PositionNo. 97-2 (“SOP 97-2”), “Software Revenue Recognition”, as amended, andStatement of Position No. 98-9 (“SOP 98-9”), “Modification of SOP 97-2,Software Revenue Recognition, with Respect to Certain Transactions.” Formultiple element license arrangements, the license fee is allocated to thevarious elements based on evidence of fair value. When a multiple elementarrangement includes rights to post-contract customer support, the portion ofthe license fee allocated to support is recognized ratably over the term of thearrangement.

        EA’ssales for the years presented were CES sales to individual retail customerswithin the State of Maine, all of which expired by February 27, 2004. EAnegotiated the price directly with the customer, maintained customer serviceresponsibility and had collection risk. CES activity is recorded on a grossbasis to include the related revenues and purchased power expenses.Additionally, EA’s activity has been accounted for as non-trading sinceManagement has determined it does not meet the definition of a trader asdefined in EITF Issue 98-10, “Accounting for Energy Trading and Risk ManagementActivities”, which was amended by EITF Issue 02-03, “Accounting for ContractsInvolved in Energy

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Trading and RiskManagement Activities.” Refer to Note 3 to the Consolidated FinancialStatements, “Discontinued Operations—Energy Atlantic” for further discussion.

***Percentage-of-Completion Accounting for TMG Contracts***

        Revenuesand profits from The Maricor Group’s engineering contracts are recognized on apercentage-of-completion basis for the period. Costs incurred to date aredivided by total estimated costs to obtain the percentage completed. Thispercentage multiplied by the total estimated profit is the gross profit earnedto date on the contract. Gross profit earned to date on the contract plus costsincurred to date on the contract equals revenues recognized to date. Revenuerecognized to date compared to billings to date results in either under- orover-billings. Losses on contracts are recognized in full if there is evidencethat an overall loss will be sustained. The provision is computed on the basisof the total estimated cost to complete the contract and reflects all elementsof costs included in contract costs. Costs incurred on approved change ordersare treated as job costs for that particular job. Costs incurred on unapprovedchange orders are treated as costs in the period in which they are incurred ifit is not probable that the costs will be recovered through a change in thecontract price. If it is probable that the cost will be recovered through achange in the contract price, the costs are deferred until there is an agreedupon change in the contract price.

        Inaccordance with normal practice in the construction industry, The Maricor Groupincludes in current assets and current liabilities amounts related toconstruction contracts realizable and payable over a period in excess of oneyear. Deferred contract revenue represents the excess of billings to date overthe amount of contract costs and profits (or contract revenue) recognized todate on the percentage of completion accounting method on certain contracts.Deferred contract revenues related to The Maricor Group’s contracts were$132,000 and $109,000 at December 31, 2005 and 2004, respectively.Unbilled contract revenue represents the excess of contract costs and profits(or contract revenue) recognized to date on the percentage of completionaccounting method over billings to date on the remaining contracts. Unbilledcontract revenue results when the appropriate contract revenue amount has beenrecognized in accordance with the percentage-of-completion accounting method,but a portion of the revenue recorded cannot be billed currently due to the billingterms defined in the contract and/or costs, recorded at estimated realizablevalue, related to unapproved change orders or claims incurred. Unbilledcontract revenue related to The Maricor Group’s contracts was $816,000 and$399,000 at December 31, 2005 and 2004, respectively.

***Goodwill and Acquired Intangibles***

        TheCompany’s business acquisitions may result in goodwill and other intangibleassets, which affect the amount of future period amortization expense andpossible impairment expense that the Company will incur. The Company hasadopted Statement of Financial Accounting Standards No. 142 (“SFAS 142”),“Goodwill and Other Intangible Assets”, which requires that the Company, on anannual basis, calculate the fair value of the reporting units that contain thegoodwill and compare that to the carrying value of the reporting unit todetermine if impairment exists. Impairment testing must take place more oftenif circumstances or events indicate a change in the impairment status. Incalculating the fair value of the reporting units, Management relies on anumber of factors including operating results, business plans, economicprojections, anticipated future cash flows, and transactions and market placedata. There are inherent uncertainties related to these factors and Management’sjudgment in applying them to the analysis of goodwill impairment. If actualfair value is less than the Company’s estimates, goodwill and other intangibleassets may be overstated on the balance sheet and a charge would need to betaken against net earnings.

        MAMselected November 30 as the date for their annual impairment test.Management has concluded that no impairment exists as of the test date ofNovember 30, 2005, or at December 31, 2005.

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***Amortizable Intangible Assets***

        TheCompany has identifiable intangible assets from the acquisition of unregulatedmechanical and electrical engineering companies. These intangible assets areidentified as the expected profit from the backlog of projects in progress as ofthe date of acquisition and from the value derived from the client lists fromthese service firms. These assets are amortized over their estimated usefullives, which are approximately one year for the backlog and three years for theclient lists.

***Pension and Other Post-Retirement Benefit Plans***

        MPShas pension and other post-retirement benefit plans, principally healthcarebenefits, covering substantially all of its employees and retirees. Inaccordance with Statement of Financial Accounting Standards No. 87 (“SFAS87”), “Employer’s Accounting for Pensions,” and Statement of FinancialAccounting Standards No. 106 (“SFAS 106”), “Employer’s Accounting forPost-retirement Benefits Other Than Pensions,” the valuation of benefitobligations and the performance of plan assets are subject to variousassumptions. The primary assumptions include the discount rate, expected returnon plan assets, rate of compensation increase, health care cost inflationrates, expected years of future service under the pension benefit plans and themethodology used to amortize gains or losses. Changes in those assumptionscould also have a significant effect on the Company’s non-cash pension incomeor expense or the Company’s post-retirement benefit costs. For additional informationon the Company’s benefit plans, see Note 10 to the Consolidated FinancialStatements, “Benefit Programs,” which is incorporated in this section by thisreference.

***Capitalized Software Costs***

        MaricorTechnologies allocated $1.56 million to software costs related to theacquisition of their lifecycle asset management software in February 2005.Since that point, Maricor Technologies has capitalized an additional $101,000of software development costs for software held for sale, in accordance withStatement of Financial Accounting Standards No. 86 (“SFAS 86”), “Accountingfor the Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.”The estimated useful life is determined by product, and ranges from three tofive years. Management has made a determination that no impairment exists atDecember 31, 2005.

        MaricorTechnologies expensed approximately $113,000 of research and development costsduring 2005.

***Income Taxes***

        Statementof Financial Accounting Standards No. 109 (“SFAS 109”), “Accountingfor Income Taxes,” requires an asset and liability approach to accounting andreporting income taxes. SFAS 109 prohibits net-of-tax accounting andrequires the establishment of deferred taxes on all differences between the taxbasis of assets or liabilities and their basis for financial reporting. For theyears ended December 31, 2005, and 2004, management evaluated the deferredtax asset valuation and determined that no valuation allowance was needed.

        MPShas deferred investment tax credits and amortizes the credits over theremaining estimated useful life of the related utility plant. MPS recordsregulatory assets or liabilities related to certain deferred tax liabilities orassets, representing its expectation that, consistent with current and expectedratemaking, these taxes will be recovered from or returned to customers throughfuture rates.

***Off-Balance SheetArrangements***

        Exceptfor operating leases used for office and field equipment, vehicles and computerhardware and software, accounted for in accordance with Financial AccountingStandards No. 13 (“FAS 13”),

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“Accounting forLeases” and noted in Note 12 to these financial statements, the Companyhas no other off-balance sheet arrangements. See Item 8 of this Form 10-K,Note 12 to Consolidated Financial Statements, “Commitments, Contingenciesand Regulatory Matters,” under “Off-Balance Sheet Arrangements” for asummarization of payments for leases for a period in excess of one year for theyears ended December 31, 2005 and 2004.

        MaricorProperties Ltd is an equal partner in Maricor Ashford Ltd, a jointventure with Ashford Investments, Ltd., an unaffiliated real estatemanagement company. Maricor Ashford Ltd is a real estate development andredevelopment company based in Moncton, New Brunswick, Canada. Managementreviewed the characteristics of this joint venture in accordance with FinancialAccounting Standards Board Interpretation No. 46(R), “Consolidation ofVariable Interest Entities, an Interpretation of ARB 51” (“FIN 46(R)”), anddetermined that Maricor Properties Ltd is not the primary beneficiary ofthis joint venture. Accordingly, the activity of Maricor Ashford Ltd hasbeen recorded in these financial statements under the equity method, and MaricorAshford Ltd is not consolidated with these financial statements. MaricorProperties’ investment in the joint venture totaled $46,000 atDecember 31, 2005. Also, Maricor Properties recognized $52,000 or 50% ofthe loss of Maricor Ashford as equity earnings in 2005.

***Table of Contractual Obligations***

        Thefollowing table summarizes our contractual obligations as of December 31,2005 ( *in thousands of dollars* ):

|                                    | ** ** | **Payments Due By Period** | ** ** |
|------------------------------------|------------|-------------------------------------------|------------|
| **Contractual Obligations**   | ** ** | **Total**                                 | ** ** | **Less than  1 year** | ** ** | **1–3 years** | ** ** | **3–5 years** | ** ** | **More than  5 years** | ** ** |
| Long-Term Debt  Obligations        |       | $                                         | 38,226     |   | $ | 2,612 |   | $ | 5,403 |   | $ | 4,531 |   | $ | 25,680 |   |
| Operating Lease  Obligations*      |       | 940                                       |       | 249 |   | 435 |   | 256 |   | — |   |
| Financial System  Hosting Contract |       | 4,600                                     |       | 575 |   | 1,150 |   | 1,150 |   | 1,725 |   |
| Employment Agreements              |       | 440                                       |       | 195 |   | 230 |   | 15 |   | — |   |
|                               |       |                                      |       |   |   |   |   |   |   |   |   |
| **Total**                          |       | $                                         | 44,206     |   | $ | 3,631 |   | $ | 7,218 |   | $ | 5,952 |   | $ | 27,405 |   |

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*                    MPShas one lease for a right-of-way with an undefined term. Because the amount ofthe liability cannot be determined, this lease has been excluded from the “Morethan 5 years” column. This lease payment is approximately $30,000 peryear.

***Maricor Properties Leases***

        MaricorProperties leases office space to the Moncton and Halifax operating divisionsof The Maricor Group, Canada Ltd. Maricor Properties also has leases foroffice space to outside third parties. All of these leases are operating leasesand any intercompany profit from rental revenue has been eliminated inconsolidation. The minimum lease revenue expected from the third party leasearrangements does not include utilities and maintenance expenses that will bepaid by the third parties.

***5-Year Minimum Lease Payments for External Party Leases***

| 2006 |   | $ | 474,000 |   |
|------|--------|---|---------|--------|
| 2007 |   | $ | 467,000 |   |
| 2008 |   | $ | 467,000 |   |
| 2009 |   | $ | 440,000 |   |
| 2010 |   | $ | 377,000 |   |

 

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***Liquidity andCapital Resources***

        TheCompany’s cash and cash equivalents decreased from $1.19 million atDecember 31, 2004, to $781,000 at December 31, 2005. Net Cash FlowProvided by Operating Activity decreased by approximately $2.27 million,largely the result of decreased net income in unregulated operations, increasedaccounts receivable, decreased accounts payable, and increased benefitobligations.

        TheCompany’s “Statements of Consolidated Cash Flows,” of the Company’sConsolidated Financial Statements as presented in Item 8 of thisForm 10-K, reflects the Company’s liquidity and sources of operatingcapital. Cash flow provided by operating activities in 2005 was$2.49 million, while net loss for the year was $220,000. The change indeferred regulatory and debt issuance costs was $4.08 million, principallythe deferral of additional WS stranded cost, which was partially offset by anincrease in deferred income taxes of $1.67 million. Net cash flow providedby financing activities totaled $4.62 million. During 2005, the Companyhad debt retirements of $6.46 million, including re-financings at MAM andTMG, as well as MPS bond repayments, and other note repayments,$2.2 million in long-term debt for refinancing acquisition debt, as wellas MPS’s refinancing of its short-term borrowings (see Notes 6 and 8 to theConsolidated Financial Statements). In 2005, the Company also paid$1.23 million in dividends and increased short-term borrowings by$10.11 million. In 2005, $7.53 million of net cash flow was used forinvesting activities. The Company invested $5.92 million in fixed assets,and $1.96 million in the acquisition of Cornwallis CourtDevelopments Ltd. During 2005, $350,000 was received for the partialredemption of Maine Yankee common stock.

        Cashflow provided by operating activities in 2004 was $4.76 million, while netincome for the year was $1.32 million. The change in deferred regulatoryand debt issuance costs of $4.42 million, principally the deferral ofadditional WS stranded cost, which was partially offset by an increase indeferred income taxes of $808,000, were both less than 2003. Net cash flowprovided by financing activities totaled $4.53 million. During 2004, theCompany borrowed $10.2 million in long-term debt to fund $4.2 millionfor two engineering companies and a real estate acquisition, as well as MPS’srefinancing of its short-term borrowings. In 2004, the Company paid$1.83 million in dividends, used $1.5 million for sinking fund paymentsto retire long-term debt and reduced short-term borrowings by$2.34 million. In 2004, $12.44 million of net cash flow was used forinvesting activities. The Company invested $8.51 million in Fixed Assets;$6.28 million at MPS, $258,000 at TMG and $1.97 million at MaricorProperties Ltd, principally its purchase of the Vaughan Harvey Property inMoncton, New Brunswick, Canada. In addition, the Company invested$3.5 million in TMG, principally its purchase of Morris & RichardConsulting Engineers, Ltd. and RES Engineering, Inc. Finally,$601,000 was deposited in a restricted investment, primarily related to theabove acquisitions. During 2004, $200,000 was received for the partialredemption of Maine Yankee common stock.

        Aspart of the refinancing of short-term borrowing during 2005, MAM and certain ofits subsidiaries agreed to certain financial and other covenants, such as debtservice coverage 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 financing andcross-default provisions within the debt agreements.

        Dueto negative cash flows from stranded cost deferrals for MPS and cashrequirements for TMG, Maricor Properties and MTI, Management is working toensure the Company has adequate credit facilities for 2006 to cover sinkingfund payments, construction activities and other financial and working capitalobligations.

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

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        TheCompany’s common stock was used to finance the acquisition of The Maricor Group’ssubsidiaries. In the event that the price of MAM common stock is below aspecified price when the current shareholders wish to sell it, The MaricorGroup has agreed to pay the difference. There were 41,151 shares outstandingpursuant to this kind of agreement as of December 31, 2005. At a marketprice of $15.49 per share on that date, the total exposure was approximately$814,000.

        Inaccordance with rate stipulations approved by the MPUC, for ratemakingpurposes, MPS is required to maintain a capital structure not to include morethan 51% common equity for the determination of delivery rates.

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

·                    MPS will notmake any loan to, or guarantee or assume any obligation of, MAM or any of itsaffiliates without prior MPUC approval.

·                    The MPUC willnot place additional restrictions, in advance, on the dividend policy of MPS.The Board of Directors of MPS will continue to set dividend policy for MPS withdue regard for the financial performance, needs and health of MPS and themaintenance of a safe, efficient and reasonable capital structure. Commencingon July 1, 2003, if at any time MPS’s common dividend payout ratio(dividends per share divided by earnings per share) exceeds 1.0 (i.e. 100%) ona two-year rolling average basis, MPS will notify the MPUC in writing withinthirty (30) days of the end of the calendar quarter (the initial two yearperiod was April 1, 2001 through March 31, 2003.) The requirednotification should explain the circumstances (extraordinary or not) of thisevent and the financial condition of MPS. Moreover, the MPUC reserved the rightin the future, should financial circumstances warrant, to impose limitations onthe dividend policy of MPS. As of December 31, 2005, this limitation hasnot been exceeded; therefore, such notification to the MPUC has not beenrequired.

·                    Securitiesissuances by MPS will be done independently of MAM and subject to such MPUCapprovals as required. The proceeds of any securities issued by MPS will beused exclusively by MPS for its business.

·                    MAM’s totalnon-utility investment, excluding accumulated unregulated retained earnings,will not exceed fifty million dollars (US$50,000,000) and such amount willexclude retained earnings from EA, provided that MPS may at any time seek anenlargement of this limitation for good cause shown.

·                    Without priorMPUC approval, MAM will not sell, pledge or otherwise transfer any common stockof MPS.

·                    To protect andmaintain the financial integrity of the regulated utility, MPS and MAM agreedto maintain the common equity ratio of MPS at a level of not less than fortyeight percent (48%) of the total capital at all times, provided that the MPUCmay establish, for good cause shown, a lower ratio in connection with itsauthorization of a future debt issuance proposed by MPS. Total capital isdefined as the sum of the following components: common equity, preferredequity, long-term debt, current maturities long-term debt, long-term capitalleases, current maturities long-term capital leases, and short-term debt.

***Reorganization Into Holding Company***

        OnOctober 4, 2002, MPS’s Board of Directors authorized MPS to reorganizeinto a holding company structure. As a result, on June 30, 2003, MPSbecame a wholly-owned subsidiary of MAM, the new holding company, followingshareholder and several regulatory bodies. Me&NB remained a

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subsidiary of MPS,and will remain so until all obligations have terminated, at which time it isproposed the subsidiary may be dissolved. The ownership of EA was alsotransferred to the holding company, MAM. To achieve this corporate structure,stock in MPS was exchanged for stock in the new holding company through a “reversetriangular merger.” MPS undertook the reorganization in order to maintain itsfocus on its core regulated business, while at the same time positioning MAMfor more diversified growth.

        Followingthe July 1, 2003, completion of the reorganization, shares of MPS commonstock were converted on the books (with no exchange of certificates) into thesame number of shares of common stock of MAM. The MAM common stock shares arecurrently traded on the AMEX under the ticker symbol “MAM.”

***Maine Yankee***

        MPSowns 5% of the common stock of Maine Yankee Atomic Power Company (“MY”), whichoperated an 860 MW nuclear power plant in Wiscasset, Maine, that has ceasedpower operations and is now in the final stages of decommissioning.

        Basedon the decommissioning of the Yankee Atomic nuclear plant, MPS believes it isentitled to recover substantially all of its share of such costs from itscustomers and, as of December 31, 2005, is carrying on its consolidatedbalance sheet a regulatory asset and a corresponding liability in the amount of$10.8 million, which reflects MPS’s 5% share of Maine Yankee’s most recentestimate of the remaining decommissioning costs, less actual decommissioning paymentsmade since then, and discounted by a risk-free interest rate.

        Inaccordance with its 1999 FERC rate case settlement, on October 20, 2003,MY filed a revised formula rate schedule with the FERC, proposing an effectivedate of January 1, 2004, when major decommissioning activities wereexpected to be nearing completion. The filing contained a reviseddecommissioning cost estimate and collection schedule to assure that adequatefunds are available to safely and promptly decommission the Plant and operateand manage the independent spent fuel storage installation (“ISFSI”). In thefiling, MY also requested a change in its billing formula and an increase inthe level of collection for certain post-retirement benefits. To meet theseneeds, MY proposed to collect an additional $3.77 million per year throughOctober 2008, over current decommissioning collection levels, exclusive ofany income-tax liability, for the decommissioning and spent-fuel managementexpense, and to collect the amounts needed to replenish its Spent Fuel Trustfor funds previously used for ISFSI construction from November 2008through October 2010. On September 16, 2004, the FERC approved thenew rates pursuant to a settlement reached by the active parties which reflectedsubstantially similar terms to those proposed by MY in its October 2003filing. MPS’s share of this increase, approximately $189,000, will be recoveredas stranded costs.

        Federallegislation enacted in 1987 directed the Department of Energy (“DOE”) to proceedwith the studies necessary to develop and operate a permanent high-level wasterepository at Yucca Mountain in Nevada. The project has encountered significantdelays, and the DOE indicated that the permanent disposal site was not expectedto open before 2012, although originally scheduled to open in 1998. MaineYankee cannot predict when or whether the Yucca Mountain project or any otherproject that would provide interim storage will be completed.

        Asan interim measure, until the DOE meets its contractual obligation to disposeof its spent fuel, MY constructed an ISFSI, utilizing dry-cask storage, on thePlant site and completed the transfer of the spent fuel and a comparativelysmall amount of greater-than-Class C waste to the ISFSI in February 2004.MY’s current cost estimate is based on an assumption of long-term on-sitestorage. In accordance with a plan approved by the Securities and ExchangeCommission, Maine Yankee has started the redemption of its common stockperiodically through 2008.

 

40

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***Regulatory Proceedings***

        Forregulatory proceedings, see Part I, Item 3, “Legal Proceedings,” which isincorporated in this section by this reference.

**Item 7a.   Quantitative andQualitative Disclosures about Market Risk—**

        Thefollowing represents Maine & Maritimes Corporation’s more significantrisks. While every effort is made to describe the character of the organization’srisks, it cannot warrant that this list is all inclusive. The Company, wherepossible, does take steps in each of the following areas to attempt to mitigatesuch risks.

(a)            TheCompany had material interest rate risk until MPS fixed interest rates on threevariable rate debt issues on September 9, 2003, with a derivative interestrate swap transaction. Upon execution of the interest rate swaps onSeptember 9, 2003, MPS effectively fixed through maturity the rates on the1996 Series due in 2021 and the 2000 Series due in 2025 at 4.57% and 4.68%,respectively. The rate on the 1998 Notes due in 2008 was also fixed at 2.79%through maturity. As of December 31, 2005, the 1996 and 2000 Series andthe 1998 FAME Notes had outstanding balances of $13.6 million,$9.0 million and $5.01 million, respectively. The fixed rates arehigher than the previous floating rates and continue to be as of the date ofthis filing. Although incurring no up-front cost to execute the swaps, MPS iscurrently incurring increased interest expenses. However, Management believesthat the fixing of interest rates over the terms of the debt will serve to protectboth shareholders and consumers from what it believes to be upward variableinterest rate pressures. See Item 8 of this Form 10-K, Note 7 to theConsolidated Financial Statements, “Accumulated Other Comprehensive Income(Loss),” which is hereby incorporated by this reference, for a discussion onthe impact on MPS’s financial statements and further description of theinterest rate swaps.

As discussed in previous Form 8-K, 10-K and 10-Qquarterly filings, MPS had partially mitigated its risk by purchasing a 6%interest rate cap on its two tax-exempt bonds, the 1996 Series and the 2000Series, issued on MPS’s behalf by the Maine Public Utility Financing Bank. Theinterest rate cap on the 1996 and 2000 Series expired in November 2003.MPS also purchased a 7% interest rate cap, which expires in 2008, for MPS’sTaxable Electric Rate Stabilization Revenue Notes issued in 1998 on its behalfby the Finance Authority of Maine (“FAME”). Further discussion on these debtissues and the associated interest rate caps is contained in Item 8 to theConsolidated Financial Statements, “Long-Term Debt,” and is hereby incorporatedby this reference.

(b)           TheCompany’s unregulated real estate development and investment subsidiary,Maricor Properties Ltd, and its subsidiaries, Cornwallis CourtDevelopments Ltd and Mecel Properties Ltd, are subject to certainrisks and uncertainties including, but not necessarily limited to interest raterisks associated with variable interest rates, shifts in local real estatemarket conditions; market-based competition; the inability to fully leaserental properties; facility performance related to unforeseen or unknownstructural, mechanical and/or electrical systems failures; unexpected increasesin property rehabilitation costs; new government regulations; and tenant creditand default risks.

(c)            Transactionswith Me&NB; The Maricor Group, Canada Ltd; and MaricorProperties Ltd are subject to foreign currency translation risk. Incomeand expenses are translated at average rates of exchange for the period of timethe income is earned or the expenses are incurred. Assets and liabilities aretranslated at year-end exchange rates.

 

41

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(d)           TheMaricor Group and its subsidiaries incurred equity price risk when it boughtthe stock of certain of its subsidiaries. Part of the consideration was MAMstock. In the event that the price of MAM common stock was below a specifiedprice when the seller wished to dispose of it, The Maricor Group (or theapplicable subsidiary) agreed to pay the difference. There are currently 41,151shares outstanding pursuant to this kind of agreement. At a market price of$15.49 per share at December 31, 2005, the total exposure is approximately$814,000. A $1.00 change in the market price would impact this exposure byapproximately $41,000.

Market priceprotection of a different sort was given by Maricor Technologies when itacquired the HCI assets. Part of the consideration there was MAM preferredstock which is convertible into 26,000 shares of MAM common stock onFebruary 15, 2008, subject to some other conditions. To the extent thatthe market price of MAM common stock is then below $25 per share, the number ofshares issuable on conversion is ratably increased, which could result infurther dilution of MAM’s common stock.

 

42

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**Item 8.   Financial Statementsand Supplementary Data**

**REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**

To the Board ofDirectors and Shareholders ofMaine & Maritimes Corporation:

        Wehave audited the accompanying consolidated balance sheets and consolidatedstatements of long-term debt of Maine & Maritimes Corporation (the “Company”)as of December 31, 2005 and 2004, and the related consolidated statementsof operations, shareholder’s equity and cash flows for the years then ended.Our audits also included the financial statement schedules for the years endedDecember 31, 2005 and 2004, listed in the Index at Item 15(a)(2). Thesefinancial statements and financial statement schedules are the responsibilityof the Company’s management. Our responsibility is to express an opinion onthese financial statements and financial statement schedules based on ouraudits.

        Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internalcontrol over financial reporting. Our audit included consideration of internalcontrol over financial reporting as a basis for designing audit procedures thatare appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financialreporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audits provide areasonable basis for our opinion.

        Inour opinion, the consolidated financial statements referred to above presentfairly, in all material respects, the financial position of the Company as ofDecember 31, 2005 and 2004, and the results of its operations and its cashflows for the years then ended, in conformity with accounting principlesgenerally accepted in the United States of America.

        Ouraudits were performed for the purpose of forming an opinion on the consolidatedfinancial statements taken as a whole. The schedules listed in the index atItem 15(a)(2) are presented for purposes of complying with the Securities andExchange Commission’s rules and are not part of the basic financial statements.In our opinion, the schedules referred to above presents fairly, in allmaterial respects, the financial data required to be set forth therein inrelation to the basic financial statements taken as a whole for the years endedDecember 31, 2005 and 2004.

**Vitale,Caturano & Co., Ltd.**Boston, MAMarch 24, 2006

43

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**Report of Independent RegisteredPublic Accounting Firm**

To the Directorsand Shareholders ofMaine & Maritimes Corporation:

        Inour opinion, the consolidated financial statements listed in the indexappearing under Item 15(a)(1) on Page 102 present fairly, in all materialrespects, the results of the operations of Maine & MaritimesCorporation and its subsidiaries and their cash flows for the year endedDecember 31, 2003, in conformity with accounting principles generallyaccepted in the United States of America. In addition, in our opinion, thefinancial statement schedule listed in the index appearing under Item 16(a)(2)on Page 105, presents fairly, in all material respects, the informationset forth therein when read in conjunction with the related consolidatedfinancial statements. These financial statements and financial statementschedule are the responsibility of the Company’s management; our responsibilityis to express an opinion on these financial statements and financial statementschedule based on our audit. We conducted our audit of these statements inaccordance with auditing standards generally accepted in the United States ofAmerica, which require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements, assessing theaccounting principles used and significant estimates made by management, andevaluating the overall financial statement presentation. We believe that ouraudit provides a reasonable basis for our opinion.

**PricewaterhouseCoopersLLP**Boston, MAFebruary 23, 2004

44

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**MAINE &MARITIMES CORPORATION AND SUBSIDIARIES**

**Statementsof Consolidated Operations**

**(Inthousands of dollars, except share information)**
| ** **                                                                        | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                        | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Operating Revenues**                                                            |       |                                       |       |   |   |   |   |
| Regulated                                                                         |       | $                                          | 34,299     |   | $ | 33,733 |   | $ | 31,739 |   |
| Unregulated                                                                       |       | 5,383                                      |       | 3,399 |   | 58 |   |
| Rental Income                                                                     |       | 292                                        |       | 6 |   | — |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Total Operating Revenues**                                                      | ** ** | 39,974                                     |       | 37,138 |   | 31,797 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Operating Expenses**                                                            |       |                                       |       |   |   |   |   |
| Regulated Operation  & Maintenance                                            |       | 14,352                                     |       | 14,065 |   | 12,808 |   |
| Unregulated Operation  & Maintenance                                          |       | 8,798                                      |       | 5,243 |   | 892 |   |
| Depreciation                                                                      |       | 2,957                                      |       | 2,648 |   | 2,647 |   |
| Amortization of  Stranded Costs                                                   |       | 10,533                                     |       | 10,011 |   | 9,189 |   |
| Amortization of  Intangibles                                                      |       | 491                                        |       | 224 |   | 206 |   |
| Taxes Other Than Income                                                           |       | 1,801                                      |       | 1,655 |   | 1,460 |   |
| Provision for Income  Taxes—Regulated                                        |       | 1,505                                      |       | 1,234 |   | 1,364 |   |
| Benefit of Income  Taxes—Unregulated                                         |       | (1,700                                     | )          | (797 | ) | (98 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Total Operating Expenses**                                                      | ** ** | 38,737                                     |       | 34,283 |   | 28,468 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Operating Income**                                                              |       | 1,237                                      |       | 2,855 |   | 3,329 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Other Income (Deductions)**                                                     |       |                                       |       |   |   |   |   |
| Equity in Income of  Associated Companies                                         |       | 129                                        |       | 204 |   | 272 |   |
| Interest and Dividend  Income                                                     |       | 24                                         |       | 2 |   | (19 | ) |
| Allowance for Equity  Funds Used During Construction                              |       | 23                                         |       | 42 |   | 46 |   |
| Provision for Income  Taxes                                                       |       | (2                                         | )          | (7 | ) | (43 | ) |
| Other—Net                                                                    |       | (114                                       | )          | (314 | ) | (339 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Total**                                                                         | ** ** | 60                                         |       | (73 | ) | (83 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Income Before Interest Charges**                                                |       | 1,297                                      |       | 2,782 |   | 3,246 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Interest Charges**                                                              |       |                                       |       |   |   |   |   |
| Long-Term Debt and  Notes Payable                                                 |       | 2,956                                      |       | 2,360 |   | 1,633 |   |
| Less Stranded Costs  Carrying Charge                                              |       | (1,427                                     | )          | (1,289 | ) | (1,323 | ) |
| Less Allowance for  Borrowed Funds Used During Construction                       |       | (8                                         | )          | (15 | ) | (13 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Total**                                                                         | ** ** | 1,521                                      |       | 1,056 |   | 297 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Net (Loss) Income from  Continuing Operations**                                 |       | (224                                       | )          | 1,726 |   | 2,949 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Discontinued Operations**                                                       |       |                                       |       |   |   |   |   |
| Income (Loss) from  Discontinued Operations                                       |       | 2                                          |       | (678 | ) | (253 | ) |
| Income Tax Benefit                                                                |       | 2                                          |       | 270 |   | 110 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Income (Loss) from Discontinued  Operations, Net of Tax**                       |       | 4                                          |       | (408 | ) | (143 | ) |
| **Net (Loss) Income Available for  Common Stockholders**                          |       | $                                          | (220       | ) | $ | 1,318 |   | $ | 2,806 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Average Shares  Outstanding—Basic**                                        |       | 1,636,322                                  |       | 1,612,696 |   | 1,575,066 |   |
| **Average Shares  Outstanding—Diluted**                                      |       | 1,636,322                                  |       | 1,625,821 |   | 1,582,941 |   |
| ** **                                                                        |       |                                       |       |   |   |   |   |
| **Basic (Loss) Earnings Per Share  of Common Stock From Continuing Operations**   |       | $                                          | (0.13      | ) | $ | 1.07 |   | $ | 1.87 |   |
| **Basic Loss Per Share of Common  Stock From Discontinued Operations**            |       | 0.00                                       |       | (0.25 | ) | (0.09 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Basic (Loss) Earnings Per Share  of Common Stock From Net (Loss) Income**       |       | $                                          | (0.13      | ) | $ | 0.82 |   | $ | 1.78 |   |
|                                                                              |       |                                       |       |   |   |   |   |
| **Diluted (Loss) Earnings Per  Share of Common Stock From Continuing Operations** |       | $                                          | (0.13      | ) | $ | 1.06 |   | $ | 1.86 |   |
| **Diluted Loss Per Share of  Common Stock From Discontinued Operations**          |       | 0.00                                       |       | (0.25 | ) | (0.09 | ) |
|                                                                              |       |                                       |       |   |   |   |   |
| **Diluted (Loss) Earnings Per  Share of Common Stock From Net (Loss) Income**     |       | $                                          | (0.13      | ) | $ | 0.81 |   | $ | 1.77 |   |

See Notes to Consolidated Financial Statements

 

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 **MAINE & MARITIMES CORPORATION AND SUBSIDIARIES**

**Statementsof Consolidated Cash Flows**

**(Inthousands of dollars)**
| ** **                                                                      | ** ** | **Year Ended December 31,** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                      | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Cash  Flow From Operating Activities**                                        |       |                                       |       |   |   |   |   |
| Net (Loss)  Income                                                              |       | $                                          | (220       | ) | $ | 1,318 |   | $ | 2,806 |   |
| Adjustments to  Reconcile Net (Loss) Income to Net Cash Provided by Operations: |       |                                       |       |   |   |   |   |
| Depreciation                                                                    |       | 2,958                                      |       | 2,642 |   | 2,655 |   |
| Amortization of  Intangibles                                                    |       | 450                                        |       | 256 |   | 206 |   |
| Amortization of  Seabrook Costs                                                 |       | 1,538                                      |       | 1,538 |   | 1,538 |   |
| Amortization of  Deferred Gain from Asset Sale                                  |       | —                                     |       | — |   | (443 | ) |
| Bad Debt Expense                                                                |       | (90                                        | )          | 466 |   | 297 |   |
| Deferred Income  Taxes—Net                                                 |       | 1,666                                      |       | 808 |   | 3,206 |   |
| Deferred  Investment Tax Credits and Excess Deferred Income Taxes               |       | (25                                        | )          | (28 | ) | (30 | ) |
| Loss on Disposal  of Fixed Assets                                               |       | —                                     |       | 69 |   | — |   |
| Allowance for  Funds Used During Construction                                   |       | (31                                        | )          | (57 | ) | (59 | ) |
| Income on  Tax-Exempt Bonds-Restricted Funds                                    |       | —                                     |       | — |   | (8 | ) |
| Change in  Deferred Regulatory and Debt Issuance Costs                          |       | (4,083                                     | )          | (4,420 | ) | (6,829 | ) |
| Amortization of  W/S Upfront Payment                                            |       | 1,451                                      |       | 1,451 |   | 1,451 |   |
| Change in  Benefit Obligations                                                  |       | 303                                        |       | 1,158 |   | 464 |   |
| Change in  Current Assets and Liabilities:                                      |       |                                       |       |   |   |   |   |
| Accounts  Receivable and Unbilled Revenue                                       |       | (570                                       | )          | (221 | ) | (574 | ) |
| Other Current  Assets                                                           |       | (63                                        | )          | (559 | ) | (190 | ) |
| Accounts Payable                                                                |       | (506                                       | )          | 440 |   | (145 | ) |
| Other Current  Liabilities                                                      |       | (341                                       | )          | (59 | ) | (242 | ) |
| Other—Net                                                                  |       | 52                                         |       | (39 | ) | (234 | ) |
|                                                                            |       |                                       |       |   |   |   |   |
| **Net  Cash Flow Provided By Operating Activities**                             |       | $                                          | 2,489      |   | $ | 4,763 |   | $ | 3,869 |   |
|                                                                            |       |                                       |       |   |   |   |   |
| **Cash  Flow From Financing Activities**                                        |       |                                       |       |   |   |   |   |
| Dividend  Payments                                                              |       | (1,227                                     | )          | (1,834 | ) | (2,931 | ) |
| Retirements of  Long-Term Debt                                                  |       | (6,458                                     | )          | (1,500 | ) | (3,085 | ) |
| Additions of  Long-Term-Debt                                                    |       | 2,200                                      |       | 10,200 |   | — |   |
| Short-Term  Borrowings (Repayments), Net                                        |       | 10,109                                     |       | (2,339 | ) | 3,349 |   |
|                                                                            |       |                                       |       |   |   |   |   |
| **Net  Cash Flow Provided By (Used For) Financing Activities**                  |       | $                                          | 4,624      |   | $ | 4,527 |   | $ | (2,667 | ) |
|                                                                            |       |                                       |       |   |   |   |   |
| **Cash  Flow From Investing Activities**                                        |       |                                       |       |   |   |   |   |
| Drawdown of  Tax-Exempt Bond Proceeds                                           |       | —                                     |       | — |   | 2,064 |   |
| Stock Redemption  from Associated Company                                       |       | 350                                        |       | 200 |   | 525 |   |
| Acquisitions,  Net of Cash Acquired                                             |       | (1,956                                     | )          | (3,529 | ) | (527 | ) |
| Change in  Restricted Investments                                               |       | (4                                         | )          | (601 | ) | — |   |
| Investment in  Fixed Assets                                                     |       | (5,915                                     | )          | (8,511 | ) | (4,876 | ) |
|                                                                            |       |                                       |       |   |   |   |   |
| **Net  Cash Flow Used For Investing Activities**                                |       | $                                          | (7,525     | ) | $ | (12,441 | ) | $ | (2,814 | ) |
|                                                                            |       |                                       |       |   |   |   |   |
| **Decrease  in Cash and Cash Equivalents**                                      |       | (412                                       | )          | (3,151 | ) | (1,612 | ) |
| **Cash  and Cash Equivalents at Beginning of Period**                           |       | 1,193                                      |       | 4,344 |   | 5,956 |   |
|                                                                            |       |                                       |       |   |   |   |   |
| **Cash  and Cash Equivalents at End of Period**                                 |       | $                                          | 781        |   | $ | 1,193 |   | $ | 4,344 |   |
|                                                                            |       |                                       |       |   |   |   |   |
| **Supplemental  Disclosure of Cash Flow Information:**                          |       |                                       |       |   |   |   |   |
| **Cash  Paid During the Period for:**                                           |       |                                       |       |   |   |   |   |
| Interest                                                                        |       | $                                          | 2,884      |   | $ | 2,064 |   | $ | 1,253 |   |
| Income Taxes                                                                    |       | $                                          | 4          |   | $ | 303 |   | $ | 785 |   |
| **Non-Cash  Investing Activities:**                                             |       |                                       |       |   |   |   |   |
| Value of Common  Stock Issued for Acquisition                                   |       | $                                          | —     |   | $ | 1,677 |   | $ | 194 |   |
| Value of Preferred  Stock Issued for Acquisition                                |       | $                                          | 950        |   | $ | — |   | $ | — |   |

See Notes to Consolidated Financial Statements

 

46

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**MAINE & MARITIMESCORPORATION AND SUBSIDIARIES**

**ConsolidatedBalance Sheets**

**(In thousands of dollars)**
| ** **                                                                                              | ** ** | **December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                              | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **ASSETS**                                                                                              |       |                  |       |   |   |
| **Plant**                                                                                               |       |                  |       |   |   |
| Electric Plant  in Service                                                                              |       | $                     | 98,998     |   | $ | 96,309 |   |
| Non-Utility  Plant                                                                                      |       | 10,217                |       | 3,500 |   |
| Less Accumulated  Depreciation                                                                          |       | (40,845               | )          | (39,713 | ) |
|                                                                                                    |       |                  |       |   |   |
| Net Plant in  Service                                                                                   |       | 68,370                |       | 60,096 |   |
| Construction  Work-in-Progress                                                                          |       | 1,883                 |       | 1,021 |   |
|                                                                                                    |       |                  |       |   |   |
| **Total**                                                                                               | ** ** | 70,253                |       | 61,117 |   |
| **Investment  in Associated Companies**                                                                 |       | 1,994                 |       | 2,383 |   |
|                                                                                                    |       |                  |       |   |   |
| **Net  Plant and Investments in Associated Companies**                                                  |       | 72,247                |       | 63,500 |   |
|                                                                                                    |       |                  |       |   |   |
| **Current  Assets:**                                                                                    |       |                  |       |   |   |
| Cash and Cash  Equivalents                                                                              |       | 781                   |       | 1,193 |   |
| Accounts  Receivable (less allowance for uncollectible accounts of $372 in 2005 and  $690 in 2004) |       | 7,963                 |       | 7,746 |   |
| Unbilled Revenue                                                                                        |       | 1,071                 |       | 1,044 |   |
| Inventory                                                                                               |       | 600                   |       | 604 |   |
| Income Tax  Refund Receivable                                                                           |       | 973                   |       | 863 |   |
| Prepayments                                                                                             |       | 479                   |       | 469 |   |
| Unbilled  Contract Revenue                                                                              |       | 816                   |       | 399 |   |
|                                                                                                    |       |                  |       |   |   |
| **Total**                                                                                               | ** ** | 12,683                |       | 12,318 |   |
|                                                                                                    |       |                  |       |   |   |
| **Regulatory  Assets:**                                                                                 |       |                  |       |   |   |
| Uncollected  Maine Yankee Decommissioning Costs                                                         |       | 10,795                |       | 14,148 |   |
| Recoverable Seabrook  Costs                                                                             |       | 11,669                |       | 12,778 |   |
| Regulatory  Assets—Deferred Income Taxes                                                           |       | 5,794                 |       | 6,659 |   |
| Regulatory  Assets—Post-Retirement Medical Benefits                                                |       | 115                   |       | 243 |   |
| Deferred Fuel  and Purchased Energy Costs                                                               |       | 29,906                |       | 25,544 |   |
| Regulatory  Asset—Power Purchase Agreement Restructuring                                           |       | 1,451                 |       | 2,902 |   |
| Unamortized  Premium on Early Retirement of Debt                                                        |       | 1,308                 |       | 1,290 |   |
| Deferred  Regulatory Costs                                                                              |       | 1,334                 |       | 1,306 |   |
|                                                                                                    |       |                  |       |   |   |
| **Total**                                                                                               | ** ** | 62,372                |       | 64,870 |   |
|                                                                                                    |       |                  |       |   |   |
| **Other  Assets**                                                                                       |       |                  |       |   |   |
| Intangible  Assets (net of accumulated amortization of $284 in 2005 and $60 in 2004)                    |       | 103                   |       | 78 |   |
| Goodwill                                                                                                |       | 6,374                 |       | 5,753 |   |
| Unamortized Debt  Issuance Costs                                                                        |       | 424                   |       | 609 |   |
| Restricted  Investment (at cost, which approximates market)                                             |       | 2,453                 |       | 2,980 |   |
| Miscellaneous                                                                                           |       | 1,119                 |       | 698 |   |
|                                                                                                    |       |                  |       |   |   |
| **Total**                                                                                               | ** ** | 10,473                |       | 10,118 |   |
|                                                                                                    |       |                  |       |   |   |
| **Total Assets**                                                                                        |       | $                     | 157,775    |   | $ | 150,806 |   |

See Notes to Consolidated Financial Statements

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 **MAINE & MARITIMES CORPORATION ANDSUBSIDIARIES**

**Capitalizationand Liabilities**

**(In thousands of dollars)**
| ** **                                                             | ** ** | **December 31,** | ** ** |
|------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                             | ** ** | **2005**              | ** ** | **2004** | ** ** |
| **Capitalization  (see accompanying statements):**                     |       |                  |       |   |   |
| Shareholders’  Equity                                             |       | $                     | 47,786     |   | $ | 48,157 |   |
| Long-Term Debt                                                         |       | 35,614                |       | 37,155 |   |
|                                                                   |       |                  |       |   |   |
| **Total**                                                              | ** ** | 83,400                |       | 85,312 |   |
|                                                                   |       |                  |       |   |   |
| **Current  Liabilities:**                                              |       |                  |       |   |   |
| Long-Term Debt  Due Within One Year                                    |       | 2,612                 |       | 2,225 |   |
| Notes Payable to  Banks                                                |       | 14,098                |       | 3,989 |   |
| Accounts Payable                                                       |       | 4,465                 |       | 4,978 |   |
| Accounts  Payable—Associated Companies                            |       | 250                   |       | 258 |   |
| Accrued Employee  Benefits                                             |       | 1,433                 |       | 1,355 |   |
| Dividends  Payable                                                     |       | —                |       | 327 |   |
| Customer  Deposits                                                     |       | 36                    |       | 26 |   |
| Interest Accrued                                                       |       | 146                   |       | 75 |   |
| Deferred  Contract Revenue                                             |       | 132                   |       | 109 |   |
|                                                                   |       |                  |       |   |   |
| **Total**                                                              | ** ** | 23,172                |       | 13,342 |   |
|                                                                   |       |                  |       |   |   |
| **Deferred  Credits and Other Liabilities:**                           |       |                  |       |   |   |
| Accrued Removal  Obligations                                           |       | 5,683                 |       | 4,213 |   |
| Carrying Value  of Interest Rate Hedge                                 |       | 1,387                 |       | 1,471 |   |
| Uncollected  Maine Yankee Decommissioning Costs                        |       | 10,795                |       | 14,148 |   |
| Other Regulatory  Liabilities                                          |       | 458                   |       | 318 |   |
| Deferred Income  Taxes                                                 |       | 27,333                |       | 26,845 |   |
| Accrued  Postretirement Benefits and Pension Costs                     |       | 4,655                 |       | 4,480 |   |
| Investment Tax  Credits                                                |       | 106                   |       | 131 |   |
| Miscellaneous                                                          |       | 786                   |       | 546 |   |
|                                                                   |       |                  |       |   |   |
| **Total**                                                              | ** ** | 51,203                |       | 52,152 |   |
|                                                                   |       |                  |       |   |   |
| **Commitments,  Contingencies, and Regulatory Matters (Note 12)** |       |                  |       |   |   |
| **Total Capitalization and  Liabilities**                              |       | $                     | 157,775    |   | $ | 150,806 |   |

 

See Notes to ConsolidatedFinancial Statements

48

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**MAINE & MARITIMESCORPORATION AND SUBSIDIARIES**

**Statementsof Consolidated Shareholders’ Equity(In thousands of dollars, except share information)**
| ** **                                                                           | ** ** | **Number of Shares**   | ** ** | ** **    | ** ** | ** **                       | ** ** | ** **                              | ** ** | ** **           | ** ** | **Accumulated**                            | ** ** | ** **           | ** ** |
|--------------------------------------------------------------------------------------|------------|----------------------------------|------------|---------------|------------|----------------------------------|------------|-----------------------------------------|------------|----------------------|------------|--------------------------------------------|------------|----------------------|------------|
| ** **                                                                           | ** ** | **Common**                       | ** ** | **Preferred** | ** ** | **Common**                       | ** ** | **Preferred**                           | ** ** | ** **           | ** ** | ** **                                 | ** ** | **Other**            | ** ** | ** ** | ** ** |
| ** **                                                                           | ** ** | **Issued and  Outstanding** | ** ** | **Treasury**  | ** ** | **Issued and  Outstanding** | ** ** | **Par Value*  Issued  ($7/Share)** | ** ** | **Paid-In  Capital** | ** ** | **Par Value*  Issued  ($0.01/Share)** | ** ** | **Paid-In  Capital** | ** ** | **Retained  Earnings** | ** ** | **Treasury  Stock** | ** ** | **Comprehensive  Income  (Loss)** | ** ** | **Total** | ** ** |
| **Balance, December 31, 2002**                                                       |       | 1,867,250                        |       | (293,135      | )          | —                           |       | $                                       | 13,071     |                 | $          | 51                                         |       | $                    | —     |   | $ | — |   | $ | 40,503 |   | $ | (6,596 | ) | $ | — |   | $ | 47,029 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Formation  of MAM June 30, 2003                                                 |       | (292,668                         | )          | 292,668       |       |                             |       | (2,049                                  | )          | (53                  | )          |                                       |       |                 |       | (4,484 | ) | 6,586 |   |   |   | — |   |
| Stock Issued                                                                         |       | 5,930                            |       | 467           |       |                             |       | 42                                      |       | 167                  |       |                                       |       |                 |       |   |   | 10 |   |   |   | 219 |   |
| Net Income                                                                           |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | 2,806 |   |   |   |   |   | 2,806 |   |
| Other  Comprehensive Loss:                                                           |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Changes in Value of Foreign Exchange Translation  Loss, Net of Tax Benefit of $4     |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | (5 | ) | (5 | ) |
| Interest Rate Hedge, Net of Tax Benefit of $473                                      |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | (712 | ) | (712 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Other Comprehensive Loss                                                      |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | (717 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Comprehensive Income                                                          |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | 2,089 |   |
| Dividend  ($1.49 per share)                                                          |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | (2,349 | ) |   |   |   |   | (2,349 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2003**                                                       |       | 1,580,512                        |       | —        |       | —                           |       | 11,064                                  |       | 165                  |       | —                                     |       | —               |       | 36,476 |   | — |   | (717 | ) | 46,988 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| New  Stock Issued                                                                    |       | 55,142                           |       |          |       |                             |       | 386                                     |       | 1,319                |       |                                       |       |                 |       |   |   |   |   |   |   | 1,705 |   |
| Net Income                                                                           |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | 1,318 |   |   |   |   |   | 1,318 |   |
| Other  Comprehensive Income (Loss):                                                  |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Changes in Value of Foreign Exchange Translation  Loss, Net of Tax Provision of $319 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | 478 |   | 478 |   |
| Interest Rate Hedge, Net of Tax Benefit of $114                                      |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | (172 | ) | (172 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Other Comprehensive Income                                                    |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | 306 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Comprehensive Income                                                          |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | 1,624 |   |
| Dividend  ($1.34 per share)                                                          |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | (2,160 | ) |   |   |   |   | (2,160 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2004**                                                  |       | 1,635,654                        |       | —        |       | —                           |       | 11,450                                  |       | 1,484                |       | —                                     |       | —               |       | 35,634 |   | — |   | (411 | ) | 48,157 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| New  Stock Issued                                                                    |       | 1,125                            |       |          |       | 9,500                            |       | 8                                       |       | 25                   |       | —                                     |       | 950                  |       |   |   |   |   |   |   | 983 |   |
| Stock  Contingency from Acquisitions (see Note 14)                              |       |                             |       |          |       |                             |       |                                    |       | (122                 | )          |                                       |       |                 |       |   |   |   |   |   |   | (122 | ) |
| Net Loss                                                                             |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | (220 | ) |   |   |   |   | (220 | ) |
| Other  Comprehensive Income:                                                         |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Changes in Value of Foreign Exchange Translation  Gain, Net of Tax Provision of $98  |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | 153 |   | 153 |   |
| Unrealized Gain on Investments Available for Sale,  Net of Tax Provision of $4  |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | 11 |   | 11 |   |
| Interest  Rate Hedge, Net of Tax Provision of $33                                    |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   | 51 |   | 51 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Other Comprehensive Income                                                    |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | 215 |   |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| Total  Comprehensive Loss                                                            |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   | (5 | ) |
| Dividend  ($0.75 per share)                                                          |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       | (1,227 | ) |   |   |   |   | (1,227 | ) |
|                                                                                 |       |                             |       |          |       |                             |       |                                    |       |                 |       |                                       |       |                 |       |   |   |   |   |   |   |   |   |
| **Balance, December 31, 2005**                                                       |       | 1,636,779                        |       | —        |       | 9,500                            |       | $                                       | 11,458     |                 | $          | 1,387                                      |       | $                    | —     |   | $ | 950 |   | $ | 34,187 |   | $ | — |   | $ | (196 | ) | $ | 47,786 |   |

----

*                    MAMhad five million shares of $7 per share common stock authorized as ofDecember 31, 2005, and 2004. At December 31, 2005, 2004 and 2003, MAMhad 500,000 shares of $.01 per share preferred stock authorized.

See Notes to Consolidated Financial Statements.

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**MAINE & MARITIMESCORPORATION AND SUBSIDIARIES**

**Statementsof Long-Term Debt**
|                                                                                                                                                | ** ** | **2005**                      | ** ** | **2004** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------------------|------------|----------|------------|
| ** **                                                                                                                                     | ** ** | **(In thousands of dollars)** | ** ** |
| **Maine Public Service Company**                                                                                                               |       |                          |       |     |       |
| Maine Public  Utility Financing Bank, Public Utility Revenue Bonds:                                                                            |       |                          |       |     |       |
| Refunding Series 1996: Due  2021—Variable Interest Payable Monthly (3.65% as of December 31, 2005)                                   |       | $                             | 13,600     |     | $          | 13,600 |   |
| Series 2000: Due  2025—Variable Interest Payable Monthly (3.65% as of December 31, 2005)                                             |       | 9,000                         |       | 9,000    |       |
| Finance Authority of Maine:                                                                                                                    |       |                          |       |     |       |
| 1998 Taxable  Electric Rate Stabilization Revenue Notes: Due 2008—Variable Interest Payable  Monthly (4.35% as of December 31, 2005) |       | 5,005                         |       | 6,630    |       |
| Bank of America, N.A.  (Formerly Fleet National Bank)                                                                                          |       |                          |       |     |       |
| $6,000,000, 7  Year Term Loan Due November 1, 2011—Variable Interest Payable Monthly                                                 |       |                          |       |     |       |
| (5.79% as of  December 31, 2005)                                                                                                          |       | 5,350                         |       | 5,950    |       |
| **The Maricor Group**                                                                                                                          |       |                          |       |     |       |
| Banknorth N.A.:                                                                                                                                |       |                          |       |     |       |
| $2,200,000, 10 Year Term  Loan Due September 1, 2014—Variable Interest Rate, Payable Monthly,                                        |       |                          |       |     |       |
| Interest Only Through  September 1, 2007 (4.28% as of December 31, 2004)                                                             |       | —                        |       | 2,200    |       |
| Katahdin Trust  Company:                                                                                                                       |       |                          |       |     |       |
| $2,200,000, 5 Year Term Loan  Due December 29, 2010—Variable Interest Rate, Payable Monthly,                                         |       |                          |       |     |       |
| Interest Only Through  November 29, 2007 (7.17% as of December 31, 2005)                                                             |       | 2,200                         |       | —   |       |
| **Maricor  Properties**                                                                                                                        |       |                          |       |     |       |
| The Standard Life Assurance  Company:                                                                                                          |       |                          |       |     |       |
| $4,400,000 CDN,  7 Year Mortgage on J. Angus MacDonald Building, Principal and Interest  Payable                                          |       |                          |       |     |       |
| Monthly at an  Interest Rate of 6.44% Per Annum                                                                                                |       | 3,071                         |       | —   |       |
| **Maine & Maritimes**                                                                                                                      |       |                          |       |     |       |
| Katahdin Trust  Company:                                                                                                                       |       |                          |       |     |       |
| $2,000,000, 2 Year Term Loan  Due September 12, 2006, Variable Interest Rate Payable                                                      |       |                          |       |     |       |
| Monthly, Interest Only  Through September 12, 2006 (4.83% as of December 31, 2004)                                                   |       | —                        |       | 2,000    |       |
|                                                                                                                                           |       |                          |       |     |       |
| Total Outstanding                                                                                                                              |       | 38,226                        |       | 39,380   |       |
| Less—Amount Due  Within One Year                                                                                                          |       | 2,612                         |       | 2,225    |       |
|                                                                                                                                           |       |                          |       |     |       |
| **Total**                                                                                                                                      | ** ** | $                             | 35,614     |     | $          | 37,155 |   |

 

Current maturities and redemption requirements for thesucceeding five years and thereafter are as follows *(in thousands of dollars)* :

| Long-Term Debt: |   |   |   |
|-----------------|--------|--------|--------|
| 2006            |   | $      | 2,612  |   |
| 2007            |   | 2,897  |   |
| 2008            |   | 2,506  |   |
| 2009            |   | 1,415  |   |
| 2010            |   | 3,116  |   |
| Thereafter      |   | 25,680 |   |
|                 |        |        |        |  |

See Notes to Consolidated Financial Statements.

50

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** **

**NOTESTO CONSOLIDATED**

**FINANCIALSTATEMENTS**

**1.    ACCOUNTINGPOLICIES**

**Consolidation and Basis ofPresentation**

        Theaccompanying consolidated financial statements include the accounts ofMaine & Maritimes Corporation (the “Company” or “MAM”) and the followingwholly-owned subsidiaries and affiliates:

1.                 TheMaricor Group (“TMG”, formerly known as Maine & Maritimes EnergyServices) and its wholly-owned United States subsidiary The Maricor Group NewEngland (“TMGNE”, formerly known as RES Engineering, Inc.) and TMG’swholly-owned Canadian subsidiary The Maricor Group, Canada Ltd (“TMGC,”formerly Maricor Ltd);

2.                 MaricorProperties Ltd (“Maricor Properties”), a Canadian subsidiary and itswholly-owned Canadian subsidiaries, Cornwallis Court Developments Ltd (“Cornwallis”)and Mecel Properties Ltd (“Mecel”), as well as a 50% owner of MaricorAshford Ltd;

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

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

5.                 EnergyAtlantic, LLC (“EA”), a wholly-owned inactive subsidiary.

        MAM, autility holding company organized effective June 30, 2003, owns all of thecommon stock of the above primary subsidiaries. Primary subsidiaries, includingMPS, TMG, and Maricor Properties Ltd own all the common stock of theirsecondary subsidiaries. MAM is listed on the American Stock Exchange (“AMEX”)under the symbol MAM.

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

        TheMaricor Group and The Maricor Group, Canada Ltd were organized onNovember 6, 2003, and November 12, 2003, respectively. OnJune 15, 2004, The Maricor Group acquired RES Engineering Inc. (nowThe Maricor Group New England), a Massachusetts corporation providingmechanical and electrical engineering services located in Boston,Massachusetts. In separate transactions, The Maricor Group, Canada Ltdacquired Eastcan Consultants, Inc. (“Eastcan”), a New Brunswick, Canadacorporation and its subsidiaries and affiliates effective December 1,2003; and Morris & Richard Consulting Engineers, Ltd. (“M&R”),a Nova Scotia, Canada corporation and its subsidiaries and affiliates effectiveJune 1, 2004. Both companies are mechanical and electrical engineeringfirms with principal places of business located in New Brunswick and NovaScotia, Canada respectively. Except for TMGNE, the subsidiaries and affiliatesof each acquired company were

51

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amalgamated into a single entity, The Maricor Group,Canada Ltd (formerly Maricor, Ltd) which is a wholly-owned subsidiaryof The Maricor Group.

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

        OnAugust 12, 2005, Maricor Properties Ltd entered into an agreementwith Ashford Investments, Inc. to form a joint venture named MaricorAshford Ltd. Maricor Ashford Ltd will become the development andredevelopment arm of Maricor Properties, also with plans to migrate to the offeringof facility management services, leveraging the current capabilities of AshfordInvestments, Inc., Maricor Technologies, and The Maricor Group,Canada Ltd.

        OnOctober 7, 2005 Maricor Properties Ltd acquired Cornwallis CourtDevelopments Ltd, the owner of the J. Angus MacDonald Buildinglocated in Halifax, Nova Scotia, Canada, a 60,000 square foot office facilityconstructed in or about 1992 and currently leased primarily to various Canadiangovernmental agencies.

        OnFebruary 22, 2005, the Company announced the formation of MaricorTechnologies, Inc., a wholly-owned, software technology-based subsidiary.Concurrently, MTI acquired lifecycle asset management and capital budgetplanning software assets that complements MAM’s U.S. and Canadian engineeringand facilities lifecycle asset management services companies. MTI is expandingits technology platform to address capital performance management and assetgovernance software needs. MTI is headquartered in Presque Isle, Maine, with anoffice in Portland, Maine.

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

**Labor Agreements**

        Approximately37% of the MPS labor force are members of the Local 1837 Unit 11 of theInternational Brotherhood of Electrical Workers (“IBEW”) and are covered undera collective bargaining agreement. On September 22, 2005, the IBEW 1837Unit 11 Union approved a four-year collective bargaining agreement for the termof October 1, 2005, through September 30, 2009. The key provisions ofthis contract include wage increases of 4.0% for the first year and 3.25% foreach year thereafter, increases in contributions to health insurance premiums,deductibles, medical and prescription co-payments to be paid by the employees,and ineligibility for pension and post-retirement benefits for new unionemployees hired on or after January 1, 2006, and October 1, 2005,respectively. MPS also reserved the right to resume negotiations on otherpotential changes to these plans during the contract period. To compensate newemployees covered under the collective bargaining agreement for theirineligibility for the pension plan, they receive a 4.0% match under the Company’s401(k) plan.

52

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**Regulations**

        MPS issubject to the regulatory authority of the Maine Public Utilities Commission (“MPUC”)and the Federal Energy Regulatory Commission (“FERC”). As a result of theratemaking process, the applications of accounting principles by the Companydiffer in certain respects from applications by non-regulated businesses.

**Use of Estimates**

        Thepreparation of financial statements in conformity with generally acceptedaccounting principles in the United States of America requires Management tomake estimates and assumptions that affect the reported amounts of assets andliabilities and disclosure of contingent assets and liabilities at the date ofthe financial statements and the reported amounts of revenues and expensesduring the reporting period. Actual results could differ from those estimates.

**Deferred Fuel and Purchased EnergyCosts**

        CertainWheelabrator-Sherman (“WS”) fuel costs and the sharing provisions for MaineYankee replacement power costs were deferred for future recovery as defined inMPS’s rate plan until March 1, 2000. All other fuel and purchased powercosts were expensed as incurred. These costs are currently being recovered inrates and the related deferred asset is being amortized, accordingly. BeginningMarch 1, 2002, and until the WS contract terminates in December 2006, theexcess of the cost over the sales price of WS fuel is being deferred. Theresulting deferred asset is expected to be collected in future rates asapproved by the MPUC. With the expiration of their stranded cost rates onDecember 31, 2006, MPS will be before the MPUC for a stranded cost ratecase during 2006.

**Regulatory Assets and Liabilities**

        Pursuantto Statement of Financial Accounting Standards No. 71 (“SFAS 71”), “Accountingfor the Effects of Certain Types of Regulation”, the Company capitalizes, asregulatory assets, incurred and accrued costs that are probable of recovery infuture electric rates. It also records, as regulatory liabilities, obligationsto refund previously collected revenue or to spend revenue collected fromcustomers on future costs.

        Unfundedfuture income taxes and deferred income taxes are amortized as the relatedtemporary differences reverse. Unamortized loss on debt retirements isamortized over the lives of the related debt issues. Nuclear plant obligations,deferred fuel costs, other regulatory assets and other regulatory liabilitiesare amortized over various periods in accordance with MPS’s current rate plans.MPS earns a return on substantially all regulatory assets for which funds havebeen spent.

        TheCompany believes that MPS’s electric transmission and distribution operationscontinue to meet the requirements of SFAS 71, and that regulatory assetsassociated with those operations, as well as any generation-related costs that theMPUC has determined to be recoverable from ratepayers, also meet the criteria.At December 31, 2005, $62.37 million of regulatory assets remained onMPS’s books. These assets will be amortized over various periods in accordancewith MPUC approved rate orders.

**Revenue Recognition**

        MPSrecords an estimate for revenue for electricity delivered, but not yet billedto customers. This estimate requires MPS to make certain assumptions. A changein those assumptions could cause the amounts reported as revenues to change.

        InJuly 2000, MPS began recording the difference between the approved tariff ratefor two large industrial customers and their current special discount rates,under contracts approved by the MPUC, as accrued revenue. The resultingdeferred asset will be subsequently collected in rates as approved by

53

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the MPUC. During 2005 and 2004, $280,000 wasrecognized as stranded costs associated with these two contracts. The MPUCapproved a third special discount during 2004 in Docket No. 2004-88, underwhich MPS has deferred $495,000 and $248,000 as of December 31, 2005 and2004, respectively. Recovery of this special discount has not yet begun.

        MaricorTechnologies, Inc. is engaged as a seller and licensor of software.Revenue will be recognized in accordance with Statement of PositionNo. 97-2 (“SOP 97-2”), “Software Revenue Recognition”, as amended,and Statement of Position No. 98-9 (“SOP 98-9”), “Modification ofSOP 97-2, Software Revenue Recognition, with Respect to Certain Transactions.”For multiple element license arrangements, the license fee is allocated to thevarious elements based on evidence of fair value. When a multiple elementarrangement includes rights to post-contract customer support, the portion ofthe license fee allocated to support is recognized ratably over the term of thearrangement.

        EA’ssales for the years presented were CES sales to individual retail customerswithin the State of Maine, all of which expired by February 27, 2004. EAnegotiated the price directly with the customer, maintained customer serviceresponsibility and had collection risk. CES activity is recorded on a grossbasis to include the related revenues and purchased power expenses.Additionally, EA’s activity has been accounted for as non-trading sinceManagement has determined it does not meet the definition of a trader asdefined in EITF Issue 98-10, “Accounting for Energy Trading and RiskManagement Activities”, which was amended by EITF Issue 02-03, “Accountingfor Contracts Involved in Energy Trading and Risk Management Activities.” Referto Note 3 to the Consolidated Financial Statements, “DiscontinuedOperations—Energy Atlantic” for further discussion.

**Percentage-of-Completion Accountingfor TMG Contracts**

        Revenuesand profits from The Maricor Group’s engineering contracts are recognized on apercentage-of-completion basis for the period. Costs incurred to date aredivided by total estimated costs to obtain the percentage completed. Thispercentage multiplied by the total estimated profit is the gross profit earnedto date on the contract. Gross profit earned to date on the contract plus costsincurred to date on the contract equals revenues recognized to date. Revenuerecognized to date compared to billings to date results in either under- orover-billings. Losses on contracts are recognized in full if there is evidencethat an overall loss will be sustained. The provision is computed on the basisof the total estimated cost to complete the contract and reflects all elementsof costs included in contract costs. Costs incurred on approved change ordersare treated as job costs for that particular job. Costs incurred on unapprovedchange orders are treated as costs in the period in which they are incurred ifit is not probable that the costs will be recovered through a change in thecontract price. If it is probable that the cost will be recovered through achange in the contract price, the costs are deferred until there is an agreedupon change in the contract price.

        Inaccordance with normal practice in the construction industry, The Maricor Groupincludes in current assets and current liabilities amounts related toconstruction contracts realizable and payable over a period in excess of oneyear. Deferred contract revenue represents the excess of billings to date overthe amount of contract costs and profits (or contract revenue) recognized todate on the percentage of completion accounting method on certain contracts.Deferred contract revenues related to The Maricor Group’s contracts were$132,000 and $109,000 at December 31, 2005 and 2004, respectively.Unbilled contract revenue represents the excess of contract costs and profits(or contract revenue) recognized to date on the percentage of completionaccounting method over billings to date on the remaining contracts. Unbilledcontract revenue results when the appropriate contract revenue amount has beenrecognized in accordance with the percentage-of-completion accounting method,but a portion of the revenue recorded cannot be billed currently due to thebilling terms defined in the contract and/or costs, recorded at estimatedrealizable value, related to unapproved change orders or claims incurred.Unbilled contract revenue related to The Maricor Group’s contracts was $816,000and $399,000 at December 31, 2005 and 2004, respectively.

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**Goodwill and Acquired Intangibles**

        TheCompany’s business acquisitions result in goodwill and other intangible assets,which affect the amount of future period amortization expense and possibleimpairment expense that the Company will incur. The Company has adoptedStatement of Financial Accounting Standards No. 142 (“SFAS 142”), “Goodwilland Other Intangible Assets,” which requires that the Company, on an annualbasis, calculate the fair value of the reporting units that contain goodwilland compare that to the carrying value of the reporting unit to determine ifimpairment exists. Impairment testing must take place more often ifcircumstances or events indicate a change in the impairment status. Incalculating the fair value of the reporting units, Management relies on anumber of factors including operating results, business plans, economicprojections, anticipated future cash flows, and transactions and market placedata. There are inherent uncertainties related to these factors and Management’sjudgment in applying them to the analysis of goodwill impairment. If actualfair value is less than the Company’s estimates, goodwill and other intangibleassets may be overstated on the balance sheet and a charge would need to betaken against net earnings.

        MAMselected November 30 as the date for their annual impairment test.Management has concluded that no impairment exists as of November 30,2005.

**Amortizable Intangible Assets**

        TheCompany has identifiable intangible assets from the acquisition of unregulatedmechanical and electrical engineering companies. These intangible assets areidentified as the expected profit from the backlog of projects in progress asof the date of acquisition and from the value derived from the client listsfrom these service firms. These assets are amortized over their estimateduseful lives, which are approximately one year for the backlog and three yearsfor the client lists.

**Pension and Other Post-RetirementBenefit Plans**

        TheCompany has pension and other post-retirement benefit plans, principallyhealthcare benefits, covering substantially all of its employees and retirees.In accordance with Statement of Financial Accounting Standards No. 87, “Employer’sAccounting for Pensions,” and Statement of Financial Accounting StandardsNo. 106, “Employer’s Accounting for Post-retirement Benefits Other ThanPensions,” the valuation of benefit obligations and the performance of planassets are subject to various assumptions. The primary assumptions include thediscount rate, expected return on plan assets, rate of compensation increase,health care cost inflation rates, expected years of future service under thepension benefit plans and the methodology used to amortize gains or losses.Changes in those assumptions could also have a significant effect on theCompany’s non-cash pension income or expense or the Company’s post-retirementbenefit costs. For additional information on the Company’s benefit plans, seeNote 10 to the Consolidated Financial Statements, “Benefit Programs,”which is incorporated in this section by this reference.

**Capitalized Software Costs**

        MaricorTechnologies capitalized $1.56 million of software costs with the acquisitionof their lifecycle asset management software in February 2005. Since thatpoint, Maricor Technologies has capitalized an additional $101,000 of softwaredevelopment costs for software held for sale, in accordance with Statement ofFinancial Accounting Standards No. 86 (“SFAS 86”), “Accounting forthe Costs of Computer Software to Be Sold, Leased, or Otherwise Marketed.” Theestimated useful life is determined by product, and ranges from three to fiveyears. Management has made a determination that no impairment exists asDecember 31, 2005.

        MaricorTechnologies expensed approximately $113,000 of research and development costsduring 2005.

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**Asset Retirement Obligations**

        InJune 2001, the FASB issued Statement of Financial Accounting StandardsNo. 143 (“SFAS 143”), “Accounting for Asset Retirement Obligations.”SFAS 143 requires an entity to record the fair value of a liability for anasset retirement obligation in the period in which it is incurred and tocapitalize the cost by increasing the carrying amount of the related long-livedasset. The liability is adjusted to its present value periodically over time,and the capitalized cost is depreciated over the useful life of the relatedasset. Upon settlement, the entity either settles the obligation at itsrecorded amount or incurs a gain or a loss. For rate-regulated entities, anytiming differences between rate recovery and book expense would be deferred aseither a regulatory asset or a regulatory liability. The Company’s adoption ofSFAS 143 as of January 1, 2003, did not have a material effect on itsfinancial position or results of operations. There was no effect on net income.SFAS 143 provides that if the requirements of SFAS 71 are met, aregulatory liability should be recognized for the difference between removalcosts collected in rates and actual costs incurred. As of December 31,2005, 2004, and 2003, accrued removal obligations totaling approximately$4.4 million, $4.2 million and $4.0 million, respectively, whichhad previously been embedded within accumulated depreciation, were reclassifiedas a regulatory liability.

        InMarch 2005, the FASB issued FASB Interpretation No. 47, “Accounting forConditional Asset Retirement Obligations” (“FIN 47”), effective for fiscalyears ending after December 15, 2005. FIN 47 clarifies the term “conditionalasset retirement obligation”, used in FASB Statement No. 143, “Accountingfor Asset Retirement Obligations”, as referring to “legal obligation to performan asset retirement activity in which the timing and/or method of settlementare conditional on a future event that may or may not be within the control ofthe entity.” Based on this interpretation, during 2005 MPS recognized anassociated asset retirement obligation of $1.30 million with the PolyChlorinated Bi-Phenol Transformer phase-out program, by reducing accumulateddepreciation and increasing the accrued removal obligation. This adjustment didnot impact net income.

**Financial Instruments**

        MPShas certain financial instruments, interest rate caps and swaps, on threevariable-rate long-term debt issues that qualify as derivatives. Interest ratecaps involve the exchange of cash for a cap on the interest rate MPS can becharged. Interest rate swaps involve the exchange of cash and the exchange of avariable-rate payment for a fixed-rate payment. On January 1, 2001, theCompany adopted Statement of Financial Accounting Standards No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“SFAS 133”), asamended by SFAS 137, 138 and 149, which establishes accounting andreporting standards for derivative instruments and for hedging activities.SFAS 133 requires that an entity recognize derivatives as either assets orliabilities on the balance sheet and measure those instruments at fair value.The accounting for changes in the fair value of the derivative depends on theintended use of the derivative and the resulting designation. See Note 7, “AccumulatedOther Comprehensive Income (Loss)” for additional disclosure regarding thetreatment of these interest rate instruments.

**Foreign Exchange**

        MAMaccounts for the operations of its Canadian subsidiaries in accordance withStatement of Financial Accounting Standards No. 52 (“SFAS 52”), “ForeignCurrency Translation”. Income statement activity is translated at the averagerate for the period. The balance sheet is translated at the exchange rate as ofthe end of the period. During 2005 and 2004, this impact increased othercomprehensive income by $153,000 and $478,000, respectively, net of income tax.

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**Income Taxes**

        Statementof Financial Accounting Standards No. 109 (“SFAS 109”), “Accountingfor Income Taxes,” requires an asset and liability approach to accounting andreporting income taxes. SFAS 109 prohibits net-of-tax accounting andrequires the establishment of deferred taxes on all differences between the taxbasis of assets or liabilities and their basis for financial reporting. For theyears ended December 31, 2005, and 2004, management evaluated the deferredtax asset valuation and determined that no valuation allowance was needed.

        MPShas deferred investment tax credits and amortizes the credits over theremaining estimated useful life of the related utility plant. MPS recordsregulatory assets or liabilities related to certain deferred tax liabilities orassets, representing its expectation that, consistent with current and expectedratemaking, these taxes will be recovered from or returned to customers throughfuture rates.

**Accounts Receivable &Reserve**

        TheCompany maintains allowances for doubtful accounts for estimated lossesresulting from the inability of the Company’s customers to make requiredpayments. The Company estimates its anticipated losses from doubtful accountsbased on historical collection history as well as by specifically reserving forknown doubtful accounts. Estimating losses from doubtful accounts is inherentlyuncertain because the amount of such losses depends substantially on thefinancial condition of the Company’s customers, and the Company typically haslimited visibility as to the specific financial state of its customers. If thefinancial condition of the Company’s customers were to deteriorate beyondestimates, resulting in an impairment of their ability to make payments, theCompany would be required to write off additional accounts receivable balances,which would adversely impact the Company’s net earnings, cash flows and balancesheet.

**Utility Plant**

        Utilityplant for MPS is stated at original cost of contracted services, direct laborand materials, as well as related indirect construction costs including generalengineering, supervision, and similar overhead items and allowances for thecost of equity and borrowed funds used during construction (“AFUDC”). The costof utility plant which is retired and the related cost of removal, lesssalvage, are charged to accumulated depreciation, consistent with utilityindustry practice. The cost of maintenance and repairs, including replacementof minor items of property, are charged to maintenance expense as incurred. MPS’sproperty, with minor exceptions, is subject to first and second mortgage liens.

        Costswhich are disallowed or are expected to be disallowed for recovery throughrates are charged to expense at the time such disallowance is probable.

**Long-Lived Assets**

        TheCompany reviews its long-lived assets for impairment whenever events or changesin circumstances indicate the carrying amount of an asset may not berecoverable. Recoverability of assets to be held and used is measured by acomparison of the carrying amount of the assets to the future net cash flowsexpected to be generated by the assets. If such assets are considered to beimpaired, the impairment to be recognized is measured by the amount by whichthe carrying amount of the assets exceeds their fair value. Judgments made bythe Company relate to the expected useful lives of long-lived assets and itsability to realize any undiscounted cash flows in excess of the carrying amountsof such assets and are affected by factors such as the ongoing maintenance andimprovements of the assets, changes in the expected use of the assets, changesin economic conditions, changes in operating performance and anticipated futurecash flows. Since judgment is involved in determining the fair value oflong-lived assets, there is risk that the carrying value of the Company’slong-lived assets may require

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adjustment in future periods. If actual fair value isless than the Company’s estimates, long-lived assets may be overstated on thebalance sheet and a charge would need to be taken against net earnings.

**Depreciation and Amortization**

        Utilityplant depreciation is provided on a composite basis using the straight-linemethod, based on rates approved by the MPUC and the FERC. The compositedepreciation rate, expressed as a percentage of average depreciable plant inservice, was approximately 3.22%, 3.21%, and 3.20% for 2005, 2004, and 2003,respectively.

        Bondissuance costs and premiums paid upon early retirements are amortized over theterms of the related debt. Recoverable Seabrook costs and deferred regulatoryexpenses are amortized over the period allowed by regulatory authorities in therelated rate orders. Recoverable Seabrook costs are being amortized principallyover thirty years (See Note 12, “Commitments, Contingencies and RegulatoryMatters—Seabrook Nuclear Power Project”).

        Depreciationof fixed assets at TMG is straight-line based on the remaining useful life of theasset. New computer hardware and software are depreciated over three years;leasehold improvements are depreciated over the life of the lease; and officeequipment is depreciated over three years.

        Depreciationof Fixed Assets at TMGC and Maricor Properties is on a basis equivalent toCanadian tax law provisions, as follows: buildings are depreciated at 4% peryear; computer hardware is depreciated at 30% per year; computer software isdepreciated at 100% per year; automobiles are depreciated at 30% per year; andoffice equipment is depreciated at 20% per year.

        Theclient list intangible asset acquired by The Maricor Group in the purchase ofEastcan, M&R and RES is amortized on a three-year straight-line basis. Theamortization of backlog intangible assets acquired by those purchases is basedon the actual profit in the backlog recognized during the period.

**Investments in Associated Companies**

        TheCompany records its investments in Associated Companies (See Note 5, “Investmentsin Associated Companies”) using the equity method.

**Pledged Assets**

        Thecommon stock of Me&NB is pledged as additional collateral for the first andsecond mortgage and collateral trust bonds of MPS. Substantially all of theassets of MAM, excluding those of MPS, are pledged as collateral for the Bankof America financing.

        Thereal estate acquired by Maricor Properties Ltd at 77 Vaughan HarveyBoulevard, Moncton, New Brunswick, Canada is the subject of a $2.3 millionCDN loan from Royal Bank of Canada, and is also secured by a $1.73 millionUSD guarantee by Bank of America.

        TheStandard Life Assurance Company mortgage, assumed as part of the acquisition ofCornwallis Court Developments Ltd, is secured by a first mortgage on theJ. Angus MacDonald building, with a balance of $3.07 million USD atDecember 31, 2005.

**Inventory**

        Inventoryis stated at average cost.

**Cash and Cash Equivalents**

        Forpurposes of the Statements of Consolidated Cash Flows, the Company considersall highly liquid securities with a maturity, when purchased, of three monthsor less to be cash equivalents.

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        TheCompany maintains deposits with reputable national banks in excess of the$100,000 FDIC insurance limit, but Management believes the risk that access tothese deposits could be restricted is remote.

**RestrictedInvestments**

        AtDecember 31, 2005, the Company had $2.45 million of restrictedinvestments. MPS was required to establish a Capital Reserve Fund held by theTrustee of MPS’s 1998 Taxable Electric Stabilization Revenue Notes, whichaccounted for $2.38 million of the restricted investments. Approximately$65,000 of insurance proceeds on an MPS substation incident is also held by theTrustee of MPS’s first and second mortgage bonds. At December 31, 2004,the Company’s restricted investments balance of $2.98 million representedthe $2.38 million Capital Reserve Fund, the $65,000 of insurance proceedsand $535,000 held in escrow as a working capital holdback of TMG in conjunctionwith the June 2004 acquisition of TMGNE.

**StockOption Plan**

        AtDecember 31, 2005, the Company had a stock-based employee compensationplan, which is described more fully in Note 9, “Stock Compensation Plan.”The Company accounts for this plan in accordance with the expense provisions ofStatement of Financial Accounting Standards No. 123 (“SFAS 123”), “Accountingfor Stock Based Compensation.”

**Reclassifications**

        Certainreclassifications have been made to the 2004 and 2003 financial statementamounts in order to conform to the 2005 presentation.

**Earningsper Share**

        Basicearnings per share (“EPS”) is determined by dividing net income by theweighted-average number of shares of common stock outstanding during theperiod. The weighted-average common shares outstanding for diluted EPS includethe incremental effect of stock options and preferred shares issued. SeeNote 9, “Stock Compensation Plan” for calculation of basic and dilutedearnings per share.

**NewAccounting Pronouncements**

        OnOctober 13, 2004, the FASB ratified Emerging Issues Task Force (“EITF”)Issue No. 04-1 (“EITF 04-1”), effective for business combinationsconsummated, and goodwill impairment tests performed, in reporting periodsbeginning after that date. EITF 04-1 is applicable when two parties thathave a pre-existing contractual relationship enter into a business combination.The business combination could also include settlement of this pre-existingcontractual relationship. Such settlement would require accounting separatefrom the business combination. If it is determined that assets of the acquiredentity that are related to a pre-existing contractual relationship with theacquiring entity should be recognized as part of the business combination, EITF04-1 also considers whether the acquiring entity should recognize those assetsas intangible assets apart from goodwill. Adoption of EITF 04-1 did not have amaterial impact on the Company’s financial statements at December 31,2005.

        InDecember 2003, the FASB issued FASB Interpretation No. 46R, “Consolidationof Variable Interest Entities, an interpretation of ARB 51” (“FIN 46R”). FIN46R provides guidance on the identification of entities for which control isachieved through means other than through voting rights (“variable interestentities”) and on the determination of when such entities are required to beincluded in the consolidated financial statements of the business enterprisethat holds an interest in the variable interest entity. This new model forconsolidation applies to an entity in which either (1) the

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equity investorsdo not have a controlling financial interest or (2) the equity investmentat risk is insufficient to finance that entity’s activities without receivingadditional subordinated financial support from other parties. In addition, FIN46R requires additional related disclosures. Certain disclosure provisions ofFIN 46R apply to all financial statements issued after January 31, 2003;the consolidation provisions apply to variable interest entities created afterJanuary 31, 2003; and to variable interest entities in which an enterpriseobtains an interest after that date; and the remaining provisions, with theexception of interest in special purpose entities, apply at the end of thefirst fiscal year or interim period ending after March 15, 2004, tovariable interest entities in which an enterprise holds a variable interestthat it acquired before February 1, 2003. Application for interest inspecial purpose entities is required for periods after December 15, 2003.The adoption of the required provisions of FIN 46R as of December 31, 2003did not have a material impact on the consolidated financial statements. Theadoption of the remaining provisions of FIN 46R as of March 31, 2004, didnot have a material impact on the consolidated financial statements.

        InDecember 2003, the FASB also issued the revision of Financial AccountingStandards No. 132, “Employer’s Disclosures about Pension and OtherPost-retirement Benefits—An Amendment of FASB Statements No. 87, 88 and106” (“FAS 132-(R)”). FAS 132-(R) revises employer’s disclosurerequirements for pension plans and other post-retirement plans by requiringadditional disclosures about the assets, obligations, cash flows and netperiodic benefit cost of defined benefit pension plans and other definedbenefit post-retirement plans. There are additional disclosure requirements forboth annual and interim reporting periods. FAS 132-(R), is effective forfiscal years ending after December 15, 2003, and for interim reportingperiods starting after December 15, 2003. FAS 132-(R) did not impactthe Company’s financial position or statement of operations.

        OnApril 30, 2003, the FASB issued Financial Accounting StandardsNo. 149, “Amendment of Statement 133 on Derivative Instruments and HedgingActivities” (“FAS 149”). FAS 149 amends and clarifies the accountingguidance on (1) derivative instruments (including certain derivativeinstruments embedded in other contracts) and (2) hedging activities thatfall within the scope of Financial Accounting Standards No. 133, “Accountingfor Derivative Instruments and Hedging Activities” (“FAS 133”).FAS 149 amends FAS 133 to reflect decisions that were made: as partof the process undertaken by the Derivatives Implementation Group (“DIG”),which necessitated amending FAS 133; in connection with other projects dealingwith financial instruments; and regarding implementation issues related to theapplication of the definition of a derivative. FAS 149 also amends certainother existing pronouncements, which will result in more consistent reportingof contracts that are derivatives in their entirety or that contain embeddedderivatives that warrant separate accounting. FAS 149 is effective(1) for contracts entered into or modified after September 30, 2003,with certain exceptions, and (2) for hedging relationships designatedafter June 30, 2003. The guidance is to be applied prospectively. Theadoption of this statement did not have a material impact on the Company’sfinancial position or results of operations.

        OnMay 15, 2003, the FASB issued Financial Accounting Standards No. 150,“Accounting for Certain Financial Instruments with Characteristics of BothLiabilities and Equity” (“FAS 150”). FAS 150 changes the accountingfor certain financial instruments that, under previous guidance, could beclassified as equity or “mezzanine” equity, by now requiring those instrumentsto be classified as liabilities (or assets in some circumstances) in thestatement of financial position. FAS 150 requires disclosure regarding theterms of those instruments and settlement alternatives. FAS 150 affects anentity’s classification of the following freestanding instruments: mandatorilyredeemable instruments; financial instruments to repurchase an entity’s ownequity instruments; financial instruments embodying obligations that the issuermust or could choose to settle by issuing a variable number of its shares orother equity instruments based solely on (a) a fixed monetary amount knownat inception or (b) something other than changes in its own equityinstruments. FAS 150 does not apply to features embedded in a financialinstrument that is not a derivative in its entirety. The guidance inFAS 150 is

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generallyeffective for all financial instruments entered into or modified afterMay 31, 2003, and is otherwise effective at the beginning of the firstinterim period beginning after June 15, 2003. The adoption of thisstatement did not have a material impact on the Company.

        FASBStatement No. 123 (Revised 2004), *Share-BasedPayment* (“SFAS 123(R)”) was issued in December 2004.SFAS 123(R) replaces SFAS No. 123, *Accountingfor Stock-Based Compensation* (“SFAS 123”), and supersedes APBOpinion No. 25, *Accounting for StockIssued to Employees* . SFAS 123(R) requires companies torecognize the compensation cost related to share-based payment transactionswith employees in the financial statements. The compensation cost is measuredbased upon the fair value of the instrument issued. Share-based compensationtransactions with employees covered within SFAS 123(R) include stock options,restricted share plans, performance-based awards, share appreciation rights,and employee stock purchase plans. SFAS 123 included a fair-value-basedmethod of accounting for share-based payment transactions with employees, butallowed companies to continue to apply the guidance in APB 25 provided thatthey disclose in the footnotes to the financial statements the pro forma netincome if the fair-value-based method been applied. The Company currently usesthe fair-value-based method for recognition of compensation expense underSFAS 123. SFAS 123(R) requires the use of the modified prospectiveapplication transition method. The modified prospective application transitionmethod requires the application of this standard to:

·     All newawards issued after the effective date;

·     Allmodifications, repurchases or cancellations of existing awards after theeffective date; and

·     Unvestedawards at the effective date.

        Forunvested awards, the compensation cost related to the remaining “requisiteserve’ that has not been rendered at the effective date will be determined bythe compensation cost calculated currently for either recognition underSFAS 123. The Company will be adopting the modified prospectiveapplication of SFAS 123(R) in the first quarter of 2006. Based on thecurrent options outstanding, the Company does not anticipate the adoption ofthis statement to result in the recognition of material additional compensationcost in the year of adoption.

**2.     INCOMETAXES**

        Asummary of Federal, Canadian and State income taxes charged (credited) toincome is presented below. For accounting and ratemaking purposes, income taxprovisions (benefits) included in “Operating Expenses” reflect taxes applicableto revenues and expenses allowable for ratemaking purposes on MPS regulatedactivities and unregulated activities for MAM, TMG, Me&NB, TMGC,

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Maricor Properties, Mecel Properties Ltd, andMTI. The tax effect of items not included in rate base or normal operatingactivities is allocated to “Other Income (Deductions).”

|                              | ** ** | **2005**                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------|------------|----------------------------------------------|------------|----------|------------|----------|------------|
| ** **                   | ** ** | **(In thousands of dollars)** | ** ** |
| Current income taxes         |       |                                         |       |     |       |     |       |
| Federal                      |       | $                                            | (392       | )        | $          | (401     | )          | $ | 492 |   |
| State                        |       | (86                                          | )          | 121      |       | 327      |       |
| Foreign                      |       | (587                                         | )          | (202     | )          | (58      | )          |
|                         |       |                                         |       |     |       |     |       |
| Total current  income taxes  |       | (1,065                                       | )          | (482     | )          | 761      |       |
|                         |       |                                         |       |     |       |     |       |
| Deferred income taxes        |       |                                         |       |     |       |     |       |
| Federal                      |       | $                                            | 813        |     | $          | 585      |       | $ | 388 |   |
| State                        |       | 79                                           |       | 99       |       | 80       |       |
| Foreign                      |       | 3                                            |       | —   |       | —   |       |
|                         |       |                                         |       |     |       |     |       |
| Total deferred  income taxes |       | 895                                          |       | 684      |       | 468      |       |
|                         |       |                                         |       |     |       |     |       |
| Investment  credits, net     |       | (25                                          | )          | (28      | )          | (30      | )          |
|                         |       |                                         |       |     |       |     |       |
| Total income taxes           |       | $                                            | (195       | )        | $          | 174      |       | $ | 1,199 |   |
|                         |       |                                         |       |     |       |     |       |
| Allocated to:                |       |                                         |       |     |       |     |       |
| Operating income             |       |                                         |       |     |       |     |       |
| —Regulated              |       | $                                            | 1,505      |     | $          | 1,234    |       | $ | 1,364 |   |
| —Unregulated            |       | (1,700                                       | )          | (797     | )          | (98      | )          |
|                         |       |                                         |       |     |       |     |       |
| Subtotal                     |       | (195                                         | )          | 437      |       | 1,266    |       |
| Discontinued  Operations     |       | (2                                           | )          | (270     | )          | (110     | )          |
|                         |       |                                         |       |     |       |     |       |
| Total Operating              |       | (197                                         | )          | 167      |       | 1,156    |       |
| Other income                 |       | 2                                            |       | 7        |       | 43       |       |
|                         |       |                                         |       |     |       |     |       |
| Total                        |       | $                                            | (195       | )        | $          | 174      |       | $ | 1,199 |   |

        Theeffective income tax rates differ from the U.S. statutory rate as follows:

|                                                                | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Statutory Rate                                                 |       | 34.0     | %          | 34.0     | %          | 34.0     | %          |
| Holding Company  Formation                                     |       | 1.4      |       | (0.4     | )          | 2.5      |       |
| State Income  Taxes                                            |       | 5.0      |       | 5.1      |       | 4.4      |       |
| Carrying  Charge(1)                                            |       | 0.0      |       | (5.3     | )          | (11.2    | )          |
| Book to Accrual  Adjustments(2)                                |       | 2.9      |       | (12.7    | )          | 0.0      |       |
| Excess Canadian  Tax                                           |       | 5.7      |       | 1.8      |       | (1.9     | )          |
| Equity Earnings  in Joint Venture Companies, Less Dividends(3) |       | 4.2      |       | (1.7     | )          | (1.2     | )          |
| Depreciation  Flow-through on Property(4)                      |       | (14.3    | )          | (3.8     | )          | 1.8      |       |
| Investment Tax  Credit Amortization                            |       | 6.0      |       | (1.9     | )          | (0.7     | )          |
| Other                                                          |       | 2.2      |       | (3.4     | )          | 2.3      |       |
|                                                           |       |     |       |     |       |     |       |
| Effective Rate                                                 |       | 47.1     | %          | 11.7     | %          | 30.0     | %          |

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(1)             Asexplained more fully in Note 12, “Commitments, Contingencies andRegulatory Matters”, during the course of Docket No. 2003-666, the MPUCreviewed the manner in which MPS was recovering and accounting for its carryingcharges associated with the deferred fuel element of its stranded cost. Underthe stipulation approved in that Docket, MPS will record deferred income tax

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expense associated with deferred fuel carrying chargesduring the rate effective period from March 1, 2004, throughDecember 31, 2006, as compared to past treatment where such expense wasdeferred for future recovery.

(2)             Thebook to accrual adjustments represent tax true-up items recognized in thecurrent year which relate to prior period items.

(3)             MainePublic Service Company’s net income includes the equity earnings in two jointventure companies which are accounted for under the equity method. Their equityearnings are excluded from MPS taxable income, and the dividends received areincluded in taxable income. Deferred taxes are not provided on the equityearnings or the dividends, since the joint venture companies dividend outessentially all of their earnings on a monthly basis, making the timingdifference minimal.

(4)             Accordingto regulated utility income tax accounting rules, MPS does not provide deferredincome tax on certain timing differences related to accelerated depreciation onAsset Depreciation Range property which was originally placed in service duringthe years 1971 through 1980.

        The elementsof deferred income tax expense (credit) are as follows ( *in thousands of dollars* ):

|                                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Temporary Differences  at Statutory Rates:         |       |     |       |     |       |     |       |
| Seabrook—costs                                |       | $        | (613       | )        | $          | (614     | )          | $ | (614 | ) |
| Liberalized  depreciation                          |       | 262      |       | 478      |       | 467      |       |
| Deferred fuel                                      |       | 1,740    |       | 1,808    |       | 1,420    |       |
| Deferred  regulatory expense                       |       | (146     | )          | (36      | )          | 239      |       |
| Flexible pricing  revenue                          |       | 51       |       | 58       |       | (104     | )          |
| Accrued pension  and postretirement benefits       |       | 115      |       | (335     | )          | (132     | )          |
| Wheelabrator-Sherman  power purchase restructuring |       | (579     | )          | (579     | )          | (579     | )          |
| Generating Asset  Sale                             |       | —   |       | —   |       | 178      |       |
| Reacquired debt                                    |       | (77      | )          | (83      | )          | (85      | )          |
| Software  Amortization                             |       | 114      |       | —   |       | —   |       |
| Other                                              |       | 28       |       | (13      | )          | (322     | )          |
|                                               |       |     |       |     |       |     |       |
| Total temporary  differences—statutory rates  |       | $        | 895        |     | $          | 684      |       | $ | 468 |   |

        TheCompany has not accrued U.S. income taxes on the undistributed earnings ofMe&NB, as the withholding taxes due on the distribution of any remainingamount would be principally offset by foreign tax credits. No dividends werereceived from Me&NB in 2005, 2004 or 2003.

        Asrequired by SFAS 109, Management of the Company has evaluated the positiveand negative evidence bearing upon the realizability of the Company’s deferredtax assets, which consist principally of pension and post-retirement benefitsand OCI—interest rate hedge. For the year ended December 31, 2005,Management evaluated the deferred tax asset valuation allowance and determinedthat no valuation was needed.

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        Thefollowing summarizes accumulated deferred income tax (assets) and liabilitiesestablished on temporary differences under SFAS 109 as ofDecember 31, 2005 and 2004 ( *inthousands of dollars)* :

|                                        | ** ** | **2005** | ** ** | **2004** | ** ** |
|----------------------------------------|------------|----------|------------|----------|------------|
| Seabrook                               |       | $        | 6,350      |     | $          | 6,964 |   |
| Property                               |       | 8,899    |       | 9,068    |       |
| Flexible pricing  revenue              |       | 584      |       | 925      |       |
| Deferred fuel                          |       | 11,931   |       | 9,832    |       |
| Wheelabrator-Sherman  up-front payment |       | 579      |       | 1,158    |       |
| Pension and  post-retirement benefits  |       | (938     | )          | (945     | )          |
| OCI                                    |       | (142     | )          | (272     | )          |
| Other                                  |       | 70       |       | 115      |       |
|                                   |       |     |       |     |       |
| Net accumulated  deferred income taxes |       | $        | 27,333     |     | $          | 26,845 |   |

**3.     DISCONTINUEDOPERATIONS—ENERGY ATLANTIC**

        OnMarch 1, 2004, EA suspended all active operations and has been classifiedas a discontinued operation in accordance with FASB No. 144. The Companyrecognized income (loss) from discontinued operations of $4,000, $(408,000),and $(143,000) for the years ended December 31, 2005, 2004 and 2003,respectively, classified as discontinued operations in the Statement ofConsolidated Operations. The 2005 net income from discontinued operationsrepresents the continued activity to finalize the shutdown of EA’s operations.This activity is expected to be complete in April 2006. The 2004 net lossrepresents additional software lease expense of $181,000, recognized on thebuy-out of a software lease by EA, $172,000 for employee severance payments,and a loss on disposal of fixed assets of $69,000.

        Thefollowing table summarizes the statement of operations for EA and the corporateservices provided to EA for each of the past three years:

|                                                                  | ** ** | **Year Ended December 31,** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                       | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Revenue                                                          |       | $                                          | —     |   | $ | 572 |   | $ | 6,064 |   |
| Expenses                                                         |       | —                                     |       | (1,164 | ) | (6,343 | ) |
| Other  Deductions, Income and Interest                           |       | 2                                          |       | (86 | ) | 26 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Pretax Income  (Loss) from Discontinued Operations               |       | 2                                          |       | (678 | ) | (253 | ) |
| Income Taxes                                                     |       | 2                                          |       | 270 |   | 110 |   |
|                                                             |       |                                       |       |   |   |   |   |
| Income (Loss)  from Discontinued Operations                      |       | $                                          | 4          |   | $ | (408 | ) | $ | (143 | ) |
|                                                             |       |                                       |       |   |   |   |   |
| Loss per Share  from Discontinued Operations (Basic and Diluted) |       | $                                          | —     |   | $ | (0.25 | ) | $ | (0.09 | ) |

 

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        Themajor classes of assets and liabilities of the discontinued operations includedin the Company’s consolidated balance sheets as of December 31, 2005, 2004and 2003, are as follows (in thousands of dollars):

|                                    | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Assets**                         |       |     |       |     |       |     |       |
| Cash and Cash  Equivalents         |       | $        | —     |     | $          | 183      |       | $ | 1,161 |   |
| Income Tax  Benefit (Intercompany) |       | 235      |       | 263      |       | 68       |       |
| Accounts  Receivable               |       | —   |       | —   |       | 711      |       |
| Other Assets                       |       | —   |       | 21       |       | 84       |       |
|                               |       |     |       |     |       |     |       |
| Total Assets                       |       | $        | 235        |     | $          | 467      |       | $ | 2,024 |   |
|                               |       |     |       |     |       |     |       |
| **Liabilities**                    |       |     |       |     |       |     |       |
| Accounts Payable                   |       | $        | 6          |     | $          | 67       |       | $ | 263 |   |
| Other Liabilities                  |       | —   |       | —   |       | 488      |       |
|                               |       |     |       |     |       |     |       |
| Total Liabilities                  |       | $        | 6          |     | $          | 67       |       | $ | 751 |   |

 

**4.     SEGMENTINFORMATION**

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

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

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

·                    Unregulatedreal estate development and investments: Maricor Properties Ltd and itssubsidiaries Mecel Properties Ltd and Cornwallis CourtDevelopments Ltd, and all of their real estate holdings;

·                    Unregulatedsoftware technology: Maricor Technologies, Inc.;

·                    Unregulatedenergy marketing: EA, an inactive subsidiary; and

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

        Thesegment information for 2004 and 2003 has been reclassified to conform to the2005 presentation.

65

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         Theaccounting policies of the segments are the same as those described inNote 1, “Summary of Significant Accounting Policies.” MAM did not have anymaterial assets or operations until it became a holding company onJune 30, 2003; however, MPS incurred expenses associated with theformation of MAM, which totaled approximately $638,000 for the year endedDecember 31, 2003. MAM provides certain administrative support services toMPS, TMG, Maricor Properties, MTI and their subsidiaries. The cost of servicesprovided to MPS is billed to MPS based on a combination of direct charges andallocations. The cost of corporate services provided to the other unregulatedentities remains at the holding company, and is not allocated or charged to thevarious subsidiaries. MPS also provides services to MAM and other affiliates.These services are billed to MAM at cost through inter-company transactions.
| ** **                                       | ** ** | ** **                                   | ** ** | **Twelve Months Ended December 31, 2005  Unregulated** | ** ** | ** **                 | ** ** |
|--------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                       | ** ** | **Regulated  Electric  Utility**             | ** ** | **Engineering  Services**                                                       | ** ** | **Real  Estate  Holdings** | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| ** **                                       | ** ** | **(In thousands of dollars)** | ** ** |
| Revenue from External  Customers                 |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated                                        |       | $                                            | 34,314     |                                                                            | $          | —                     |       | $ | — |   | $ | — |   | $ | — |   | $ | (15 | ) | $ | 34,299 |   |
| Unregulated                                      |       | —                                       |       | 5,291                                                                           |       | —                     |       | 115 |   | — |   | (23 | ) | 5,383 |   |
| Rental Income                                    |       | —                                       |       | —                                                                          |       | 501                        |       | — |   | — |   | (209 | ) | 292 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Revenues                         |       | 34,314                                       |       | 5,291                                                                           |       | 501                        |       | 115 |   | — |   | (247 | ) | 39,974 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Expenses                               |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance            |       | 14,352                                       |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 14,352 |   |
| Unregulated Operation & Maintenance          |       | —                                       |       | 5,928                                                                           |       | 272                        |       | 630 |   | — |   | 1,968 |   | 8,798 |   |
| Depreciation                                     |       | 2,781                                        |       | 21                                                                              |       | 154                        |       | — |   | — |   | 1 |   | 2,957 |   |
| Amortization of Stranded Cost                    |       | 10,533                                       |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 10,533 |   |
| Amortization                                     |       | 365                                          |       | 126                                                                             |       | —                     |       | — |   | — |   | — |   | 491 |   |
| Taxes Other than Income                          |       | 1,671                                        |       | 73                                                                              |       | —                     |       | 23 |   | — |   | 34 |   | 1,801 |   |
| Income Taxes                                     |       | 1,506                                        |       | (510                                                                            | )          | (91                        | )          | (222 | ) | — |   | (878 | ) | (195 | ) |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Expenses                         |       | 31,208                                       |       | 5,638                                                                           |       | 335                        |       | 431 |   | — |   | 1,125 |   | 38,737 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                         |       | 3,106                                        |       | (347                                                                            | )          | 166                        |       | (316 | ) | — |   | (1,372 | ) | 1,237 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                       |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies         |       | 182                                          |       | —                                                                          |       | (52                        | )          | — |   | — |   | (1 | ) | 129 |   |
| Interest and Dividend Income                     |       | 55                                           |       | 42                                                                              |       | 1                          |       | — |   | — |   | (74 | ) | 24 |   |
| Other Income (Deductions)                        |       | (39                                          | )          | (2                                                                              | )          | (28                        | )          | — |   | — |   | (24 | ) | (93 | ) |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Other Income (Deductions)                  |       | 198                                          |       | 40                                                                              |       | (79                        | )          | — |   | — |   | (99 | ) | 60 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges           |       | 3,304                                        |       | (307                                                                            | )          | 87                         |       | (316 | ) | — |   | (1,471 | ) | 1,297 |   |
| Interest Charges                                 |       | 1,040                                        |       | 382                                                                             |       | 202                        |       | 2 |   | — |   | (105 | ) | 1,521 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss)  from Continuing Operations        |       | 2,264                                        |       | (689                                                                            | )          | (115                       | )          | (318 | ) | — |   | (1,366 | ) | (224 | ) |
| (Loss) Income  from Discontinued Operations, Net |       | —                                       |       | —                                                                          |       | —                     |       | — |   | (1 | ) | 5 |   | 4 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Net Income  (Loss)                               |       | $                                            | 2,264      |                                                                            | $          | (689                       | )          | $ | (115 | ) | $ | (318 | ) | (1 | ) | $ | (1,361 | ) | $ | (220 | ) |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Assets                                     |       | $                                            | 137,440    |                                                                            | $          | 11,527                     |       | $ | 8,476 |   | $ | 1,706 |   | $ | 235 |   | $ | (1,609 | ) | $ | 157,775 |   |
|                                             |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Capital Expenditures                             |       | $                                            | 4,822      |                                                                            | $          | 238                        |       | $ | 409 |   | $ | 446 |   | $ | — |   | $ | — |   | $ | 5,915 |   |

 

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| ** **                                          | ** ** | ** **                                   | ** ** | **Twelve Months Ended December 31, 2004  Unregulated** | ** ** | ** **                 | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------------|------------|
| ** **                                          | ** ** | **Regulated  Electric  Utility**             | ** ** | **Engineering  Services**                                                       | ** ** | **Real  Estate  Holdings** | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
| ** **                                          | ** ** | **(In thousands of dollars)** | ** ** |
| Revenue from External  Customers                    |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated                                           |       | $                                            | 33,734     |                                                                            | $          | —                     |       | $ | — |   | $ | — |   | $ | — |   | $ | (1 | ) | $ | 33,733 |   |
| Unregulated                                         |       | —                                       |       | 3,412                                                                           |       | 54                         |       | — |   | — |   | (61 | ) | 3,405 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Revenues                            |       | 33,734                                       |       | 3,412                                                                           |       | 54                         |       | — |   | — |   | (62 | ) | 37,138 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Expenses                                  |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance               |       | 14,065                                       |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 14,065 |   |
| Unregulated Operation & Maintenance   |       | —                                       |       | 3,963                                                                           |       | 48                         |       | — |   | — |   | 1,232 |   | 5,243 |   |
| Depreciation                                        |       | 2,635                                        |       | 7                                                                               |       | 5                          |       | — |   | — |   | 1 |   | 2,648 |   |
| Amortization of Stranded Cost                       |       | 10,011                                       |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 10,011 |   |
| Amortization                                        |       | 194                                          |       | 30                                                                              |       | —                     |       | — |   | — |   | — |   | 224 |   |
| Taxes Other than Income                             |       | 1,603                                        |       | 52                                                                              |       | —                     |       | — |   | — |   | — |   | 1,655 |   |
| Income Taxes                                        |       | 1,234                                        |       | (254                                                                            | )          | (7                         | )          | — |   | — |   | (536 | ) | 437 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Expenses                            |       | 29,742                                       |       | 3,798                                                                           |       | 46                         |       | — |   | — |   | 697 |   | 34,283 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                            |       | 3,992                                        |       | (386                                                                            | )          | 8                          |       | — |   | — |   | (759 | ) | 2,855 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                          |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies            |       | 204                                          |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 204 |   |
| Interest and Dividend Income                        |       | 17                                           |       | 4                                                                               |       | 1                          |       | — |   | — |   | (20 | ) | 2 |   |
| Other Deductions                                    |       | (186                                         | )          | (8                                                                              | )          | —                     |       | — |   | — |   | (85 | ) | (279 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Other Income (Deductions)                     |       | 35                                           |       | (4                                                                              | )          | 1                          |       | — |   | — |   | (105 | ) | (73 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges              |       | 4,027                                        |       | (390                                                                            | )          | 9                          |       | — |   | — |   | (864 | ) | 2,782 |   |
| Interest Charges                                    |       | 985                                          |       | 98                                                                              |       | 31                         |       | — |   | — |   | (58 | ) | 1,056 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss)  from Continuing Operations      |       | 3,042                                        |       | (488                                                                            | )          | (22                        | )          | — |   | — |   | (806 | ) | 1,726 |   |
| (Loss) Income  from Discontinued Operations, Net    |       | —                                       |       | —                                                                          |       | —                     |       | — |   | (380 | ) | (28 | ) | (408 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Net Income  (Loss)                                  |       | $                                            | 3,042      |                                                                            | $          | (488                       | )          | $ | (22 | ) | $ | — |   | $ | (380 | ) | $ | (834 | ) | $ | 1,318 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Assets                                        |       | $                                            | 137,742    |                                                                            | $          | 9,941                      |       | $ | 2,773 |   | $ | — |   | $ | 467 |   | $ | (117 | ) | $ | 150,806 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Capital Expenditures                                |       | $                                            | 6,276      |                                                                            | $          | 258                        |       | $ | 1,974 |   | $ | — |   | $ | — |   | $ | 3 |   | $ | 8,511 |   |

 

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|                                                | ** ** | ** **                                   | ** ** | **Twelve Months Ended December 31, 2003  Unregulated** | ** ** | ** **                 | ** ** |
|-----------------------------------------------------|------------|----------------------------------------------|------------|---------------------------------------------------------------------------------|------------|----------------------------|------------|
|                                                | ** ** | **Regulated  Electric  Utility**             | ** ** | **Engineering  Services**                                                       | ** ** | **Real  Estate  Holdings** | ** ** | **Software  Technology** | ** ** | **Energy  Marketing** | ** ** | **Other** | ** ** | **Total** | ** ** |
|                                                | ** ** | **(In thousands of dollars)** | ** ** |
| Revenue from External  Customers                    |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated                                           |       | $                                            | 31,748     |                                                                            | $          | —                     |       | $ | — |   | $ | — |   | $ | — |   | $ | (9 | ) | $ | 31,739 |   |
| Unregulated                                         |       | —                                       |       | 57                                                                              |       | —                     |       | — |   | — |   | 1 |   | 58 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Revenues                            |       | 31,748                                       |       | 57                                                                              |       | —                     |       | — |   | — |   | (8 | ) | 31,797 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Expenses                                  |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Regulated Operation & Maintenance               |       | 12,851                                       |       | —                                                                          |       | —                     |       | — |   | — |   | (43 | ) | 12,808 |   |
| Unregulated Operation & Maintenance   |       | 638                                          |       | 40                                                                              |       | —                     |       | — |   | — |   | 214 |   | 892 |   |
| Depreciation                                        |       | 2,647                                        |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 2,647 |   |
| Amortization of Stranded Cost                       |       | 9,189                                        |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 9,189 |   |
| Amortization                                        |       | 206                                          |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 206 |   |
| Taxes Other than Income                             |       | 1,460                                        |       | —                                                                          |       | —                     |       | — |   | — |   | — |   | 1,460 |   |
| Income Taxes                                        |       | 1,364                                        |       | 6                                                                               |       | —                     |       | — |   | — |   | (104 | ) | 1,266 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Operating Expenses                            |       | 28,355                                       |       | 46                                                                              |       | —                     |       | — |   | — |   | 67 |   | 28,468 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Operating Income  (Loss)                            |       | 3,393                                        |       | 11                                                                              |       | —                     |       | — |   | — |   | (75 | ) | 3,329 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Other Income  (Deductions)                          |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Equity in Income of Associated Companies            |       | 298                                          |       | —                                                                          |       | —                     |       | — |   | — |   | (26 | ) | 272 |   |
| Interest and Dividend Income                        |       | 21                                           |       | —                                                                          |       | —                     |       | — |   | — |   | (40 | ) | (19 |   |
| Other Deductions                                    |       | (258                                         | )          | —                                                                          |       | —                     |       | — |   | — |   | (78 | ) | (336 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Other Income (Deductions)                     |       | 61                                           |       | —                                                                          |       | —                     |       | — |   | — |   | (144 | ) | (83 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges              |       | 3,454                                        |       | 11                                                                              |       | —                     |       | — |   | — |   | (219 | ) | 3,246 |   |
| Interest Charges                                    |       | 323                                          |       | —                                                                          |       | —                     |       | — |   | — |   | (26 | ) | 297 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Income (Loss) from  Continuing Operations      |       | 3,131                                        |       | 11                                                                              |       | —                     |       | — |   | — |   | (193 | ) | 2,949 |   |
| (Loss) Income  from Discontinued Operations, Net    |       | —                                       |       | —                                                                          |       | —                     |       | — |   | (80 | ) | (63 | ) | (143 | ) |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Net Income  (Loss)                                  |       | $                                            | 3,131      |                                                                            | $          | 11                         |       | $ | — |   | $ | — |   | $ | (80 | ) | $ | (256 | ) | $ | 2,806 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Total Assets                                        |       | $                                            | 135,870    |                                                                            | $          | 1,169                      |       | $ | — |   | $ | — |   | $ | 2,024 |   | $ | 2,206 |   | $ | 141,269 |   |
|                                                |       |                                         |       |                                                                            |       |                       |       |   |   |   |   |   |   |   |   |
| Capital Expenditures                                |       | $                                            | 4,609      |                                                                            | $          | 46                         |       | $ | — |   | $ | — |   | $ | — |   | $ | 221 |   | $ | 4,876 |   |

 

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         Thefollowing tables present the operations and assets of the Company by geographiclocation:

**FinancialInformation about Foreign and Domestic Operations(In thousands of U.S. dollars)**
| ** **                                         | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Revenues:**                                      |       |     |       |     |       |     |       |
| Revenues from  Domestic Operations:                |       |     |       |     |       |     |       |
| Maine Public Service Company                       |       | $        | 34,314     |     | $          | 33,734   |       | $ | 31,748 |   |
| The Maricor Group                                  |       | 2,064    |       | 1,282    |       | —   |       |
| Maricor Technologies, Inc.                         |       | 115      |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 36,493   |       | 35,016   |       | 31,748   |       |
|                                               |       |     |       |     |       |     |       |
| Revenues from  Foreign Operations:                 |       |     |       |     |       |     |       |
| The Maricor Group, Canada                          |       | 3,227    |       | 2,130    |       | 57       |       |
| Maricor Properties Ltd                             |       | 501      |       | 54       |       | —   |       |
| Maine & New Brunswick                          |       | —   |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 3,728    |       | 2,184    |       | 57       |       |
|                                               |       |     |       |     |       |     |       |
| Other*                                             |       | (247     | )          | (62      | )          | (8       | )          |
|                                               |       |     |       |     |       |     |       |
| Total Operating Revenues                           |       | $        | 39,974     |     | $          | 37,138   |       | $ | 31,797 |   |
|                                               |       |     |       |     |       |     |       |
| **Inter-Company Revenues:**                        |       |     |       |     |       |     |       |
| Inter-Company  Revenues from Domestic Operations   |       |     |       |     |       |     |       |
| Maine Public Service Company                       |       | $        | 15         |     | $          | —   |       | $ | — |   |
| The Maricor Group                                  |       | —   |       | —   |       | —   |       |
| Maricor Technologies, Inc.                         |       | 19       |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 34       |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Inter-Company  Revenues from Foreign Operations    |       |     |       |     |       |     |       |
| The Maricor Group, Canada                          |       | 58       |       | 53       |       | —   |       |
| Maricor Properties Ltd                             |       | 209      |       | 54       |       | —   |       |
| Maine & New Brunswick                          |       | —   |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 267      |       | 107      |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Other*                                             |       | —   |       | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Discontinued Operations                            |       | —   |       | —   |       | 9        |       |
|                                               |       |     |       |     |       |     |       |
| Total Inter-Company Revenues                       |       | $        | 301        |     | $          | 107      |       | $ | 9 |   |
|                                               |       |     |       |     |       |     |       |
| **Operating Income:**                              |       |     |       |     |       |     |       |
| Operating Income  (Loss) from Domestic Operations: |       |     |       |     |       |     |       |
| Maine Public Service Company                       |       | $        | 3,118      |     | $          | 4,009    |       | $ | 3,316 |   |
| The Maricor Group                                  |       | (481     | )          | (345     | )          | —   |       |
| Maricor Technologies, Inc.                         |       | (316     | )          | —   |       | —   |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 2,321    |       | 3,664    |       | 3,316    |       |
|                                               |       |     |       |     |       |     |       |
| Operating Income  (Loss) from Foreign Operations:  |       |     |       |     |       |     |       |
| The Maricor Group, Canada                          |       | 134      |       | (41      | )          | 11       |       |
| Maricor Properties Ltd                             |       | 166      |       | 8        |       | —   |       |
| Maine & New Brunswick                          |       | (12      | )          | (17      | )          | 77       |       |
|                                               |       |     |       |     |       |     |       |
| Subtotal                                           |       | 288      |       | (50      | )          | 88       |       |
|                                               |       |     |       |     |       |     |       |
| Other*                                             |       | (1,372   | )          | (759     | )          | (75      | )          |
|                                               |       |     |       |     |       |     |       |
| Total Operating Income (Loss)                      |       | $        | 1,237      |     | $          | 2,855    |       | $ | 3,329 |   |

 

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| ** **                                     | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Net Income:**                                |       |     |       |     |       |     |       |
| Net Income  (Loss) from Domestic Operations:   |       |     |       |     |       |     |       |
| Maine Public Service Company                   |       | $        | 2,261      |     | $          | 3,054    |       | $ | 2,994 |   |
| The Maricor Group                              |       | (629     | )          | (368     | )          | —   |       |
| Maricor Technologies, Inc.                     |       | (318     | )          | —   |       | —   |       |
|                                           |       |     |       |     |       |     |       |
| Subtotal                                       |       | 1,314    |       | 2,686    |       | 2,994    |       |
|                                           |       |     |       |     |       |     |       |
| Net Income  (Loss) from Foreign Operations:    |       |     |       |     |       |     |       |
| The Maricor Group, Canada                      |       | (60      | )          | (120     | )          | 11       |       |
| Maricor Properties Ltd                         |       | (115     | )          | (22      | )          | —   |       |
| Maine & New Brunswick                      |       | 3        |       | (12      | )          | 137      |       |
|                                           |       |     |       |     |       |     |       |
| Subtotal                                       |       | (172     | )          | (154     | )          | 148      |       |
|                                           |       |     |       |     |       |     |       |
| Other*                                         |       | (1,361   | )          | (834     | )          | (256     | )          |
|                                           |       |     |       |     |       |     |       |
| Discontinued Operations                        |       | (1       | )          | (380     | )          | (80      | )          |
|                                           |       |     |       |     |       |     |       |
| Total Net Income (Loss)                        |       | $        | (220       | )        | $          | 1,318    |       | $ | 2,806 |   |
|                                           |       |     |       |     |       |     |       |
|                                           |       |     |       |     |       |     |       |
| **Identifiable Assets:**                       |       |     |       |     |       |     |       |
| Identifiable  Assets from Domestic Operations: |       |     |       |     |       |     |       |
| Maine Public Service Company                   |       | $        | 137,312    |     | $          | 137,572  |       | $ | 134,996 |   |
| The Maricor Group                              |       | 4,207    |       | 3,882    |       | —   |       |
| Maricor Technologies, Inc.                     |       | 1,706    |       | —   |       | —   |       |
|                                           |       |     |       |     |       |     |       |
| Subtotal                                       |       | 143,225  |       | 141,454  |       | 134,996  |       |
|                                           |       |     |       |     |       |     |       |
| Identifiable  Assets from Foreign Operations:  |       |     |       |     |       |     |       |
| The Maricor Group, Canada                      |       | 7,320    |       | 6,059    |       | 1,169    |       |
| Maricor Properties Ltd                         |       | 8,476    |       | 2,773    |       | —   |       |
| Maine & New Brunswick                      |       | 128      |       | 170      |       | 874      |       |
|                                           |       |     |       |     |       |     |       |
| Subtotal                                       |       | 15,924   |       | 9,002    |       | 2,043    |       |
|                                           |       |     |       |     |       |     |       |
| Other*                                         |       | (1,609   | )          | (117     | )          | 2,206    |       |
|                                           |       |     |       |     |       |     |       |
| Discontinued Operations                        |       | 235      |       | 467      |       | 2,024    |       |
|                                           |       |     |       |     |       |     |       |
| Total  Identifiable Assets                     |       | $        | 157,775    |     | $          | 150,806  |       | $ | 141,269 |   |

----

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

**5.     INVESTMENTSIN ASSOCIATED COMPANIES**

**MaricorAshford Ltd**

        MaricorProperties Ltd is an equal partner in Maricor Ashford Ltd, a jointventure with Ashford Investments, Ltd., an unaffiliated real estatemanagement company. Maricor Ashford Ltd is a real estate development andredevelopment company based in Moncton, New Brunswick, Canada. Managementreviewed the characteristics of this joint venture in accordance with FinancialAccounting Standards Board Interpretation No. 46(R), “Consolidation ofVariable Interest Entities, an Interpretation of ARB 51” (“FIN 46(R)”), anddetermined that Maricor Properties Ltd is not the primary beneficiary ofthis joint venture. Accordingly, the activity of Maricor Ashford Ltd hasbeen recorded in these financial statements under the equity method, andMaricor Ashford Ltd is not consolidated with these financial statements.Maricor Properties’ investment in the joint venture totaled $46,000 atDecember 31, 2005. Also, Maricor Properties recognized $52,000 or 50% ofthe loss of Maricor Ashford as equity earnings in 2005.

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** **

**MaineYankee and MEPCO**

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

        Dividendsreceived during 2005, 2004 and 2003 from Maine Yankee were $91,000, $355,000and $301,000, respectively, and from MEPCO $174,000, $7,000 and $99,000,respectively. In 2005, 2004 and 2003, MPS also received Maine Yankee stockredemptions of $350,000, $200,000 and $525,000, respectively. Substantially allearnings of Maine Yankee and MEPCO are distributed to investor companies.Condensed financial information for Maine Yankee and MEPCO is as follows *(in thousands of dollars)* :

 
| ** **                                   | ** ** | **Maine Yankee** | ** ** | **MEPCO** | ** ** |
|----------------------------------------------|------------|-----------------------|------------|-----------|------------|
| ** **                                   | ** ** | **2005**              | ** ** | **2004**  | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| **Earnings**                                 |       |                  |       |      |       |   |   |   |   |   |   |   |   |
| Operating  revenues                          |       | $                     | 60,060     |      | $          | 62,032 |   | $ | 53,222 |   | $ | 3,339 |   | $ | 3,628 |   | $ | 3,792 |   |
| Earnings  applicable to Common Stock         |       | 1,879                 |       | 2,494     |       | 3,217 |   | 988 |   | 1,207 |   | 1,258 |   |
| Company’s equity  share of net earnings |       | $                     | 94         |      | $          | 125 |   | $ | 161 |   | $ | 74 |   | $ | 90 |   | $ | 94 |   |
| **Investment**                               |       |                  |       |      |       |   |   |   |   |   |   |   |   |
| Total assets                                 |       | $                     | 451,377    |      | $          | 478,299 |   | $ | 561,523 |   | $ | 9,927 |   | $ | 8,966 |   | $ | 8,100 |   |
| Less:                                        |       |                  |       |      |       |   |   |   |   |   |   |   |   |
| Long-term debt                               |       | —                |       | —    |       | 2,680 |   | — |   | — |   | — |   |
| Other  liabilities and deferred credits      |       | 422,511               |       | 442,486   |       | 514,423 |   | 3,167 |   | 898 |   | 1,142 |   |
|                                         |       |                  |       |      |       |   |   |   |   |   |   |   |   |
| Net assets                                   |       | $                     | 28,866     |      | $          | 35,813 |   | $ | 44,420 |   | $ | 6,760 |   | $ | 8,068 |   | $ | 6,958 |   |
| MPS’s equity in net  assets             |       | $                     | 1,443      |      | $          | 1,791 |   | $ | 2,221 |   | $ | 506 |   | $ | 604 |   | $ | 521 |   |

        Inaccordance with a plan approved by the Securities and Exchange Commission,Maine Yankee has started the redemption of its common stock periodicallythrough 2008. Shares redeemed through December 31, 2005, are as follows:
| **Maine Yankee Board Meeting** | ** ** | **Total Shares  Redeemed** | ** ** | **MPS Shares** | ** ** | **Amounts Received** | ** ** | **Date Received** | ** **        |
|-----------------------------------------------|------------|---------------------------------|------------|---------------------|------------|---------------------------|------------|------------------------|-------------------|
| September 27,  2001                           |       | 75,200                          |       | 3,760               |       | $                         | 499,484    |                   | October  4, 2001  |   |
| June 27, 2002                                 |       | 22,600                          |       | 1,130               |       | $                         | 150,110    |                   | July  11, 2002    |   |
| September 26,  2002                           |       | 33,900                          |       | 1,695               |       | $                         | 225,166    |                   | October  4, 2002  |   |
| December 18,  2002                            |       | 33,800                          |       | 1,690               |       | $                         | 224,502    |                   | January  9, 2003  |   |
| September 25,  2003                           |       | 45,200                          |       | 2,260               |       | $                         | 300,222    |                   | October  14, 2003 |   |
| December 17,  2003                            |       | 30,100                          |       | 1,505               |       | $                         | 199,926    |                   | January  7, 2004  |   |
| March 29, 2005                                |       | 52,700                          |       | 2,635               |       | $                         | 350,037    |                   | April  13, 2005   |   |
|                                          |       |                            |       |                |       |                      |       |                   |              |
|                                          |       | 293,500                         |       | 14,675              |       | $                         | 1,949,447  |                   |              |   |

 

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 **6.     SHORT-TERM CREDITARRANGEMENTS**

        Thefollowing table summarizes the balances outstanding under the Company’sshort-term credit arrangements at December 31, 2005 and 2004:
| ** **                                                       | ** ** | **2005** | ** ** | **2004** | ** ** |
|------------------------------------------------------------------|------------|----------|------------|----------|------------|
| **Maine Public Service Company**                                 |       |     |       |     |       |
| Bank of America,  N.A. (Formerly Fleet National Bank):           |       |     |       |     |       |
| $10,000,000, 3 Year Revolving Working Capital Line  of Credit    |       | $        | 7,900      |     | $          | — |   |
| The Bank of New  York:                                           |       |     |       |     |       |
| A Loan                                                           |       | —   |       | 3,000    |       |
| B Loan                                                           |       | —   |       | 200      |       |
|                                                             |       |     |       |     |       |
| **The Maricor Group**                                            |       |     |       |     |       |
| TD BankNorth,  N.A.:                                             |       |     |       |     |       |
| $1,000,000 Revolving Working Capital Credit  Arrangement         |       | —   |       | 789      |       |
| Katahdin Trust Company:                                          |       |     |       |     |       |
| $1,000,000 Secured Revolving Working Capital Credit  Arrangement |       | 1,000    |       | —   |       |
|                                                             |       |     |       |     |       |
| **Maricor Properties**                                           |       |     |       |     |       |
| Royal Bank of  Canada:                                           |       |     |       |     |       |
| $2,300,000 CDN 1 Year Revolving Term Note                        |       | 1,978    |       | —   |       |
| $2,000,000 CDN 1 Year Revolving Term Note                        |       | 1,720    |       | —   |       |
|                                                             |       |     |       |     |       |
| **Maine & Maritimes**                                        |       |     |       |     |       |
| Bank of America,  N.A. (Formerly Fleet National Bank):           |       |     |       |     |       |
| $4,000,000, 3 Year Revolving Working Capital Line of  Credit     |       | 1,500    |       | —   |       |
|                                                             |       |     |       |     |       |
| **Total**                                                        |       | $        | 14,098     |     | $          | 3,989 |   |

 

On October 7, 2005, MPS arranged a three-year,$10 million revolving, working capital line of credit with Bank of Americaas Agent, secured by $6.0 million of first mortgage bonds. This line ofcredit replaces the former $6 million line of credit with Bank of New Yorkas Agent. Interest rates on the new facility are 30-, 60-, or 90-day LIBOR plus1.375% or Bank of America’s prime rate. This line of credit is subject tocertain financial covenants, measured quarterly beginning December 31,2005. These covenants include a minimum tangible net worth, a minimum debtservice coverage ratio and a maximum debt-to-total capital ratio. Failure tocomply with these covenants could result in a 400 basis point increase in theinterest rate or calling of the outstanding balance of the Line. As ofDecember 31, 2005, there was $7.9 million outstanding on this line ofcredit, with $2.1 million available.

        Priorto the $10.0 million line of credit from Bank of America, MPS had a revolvingcredit arrangement with two banks for borrowings up to $6 million, whichwas secured by a $6 million first mortgage bond. These agreementscontained certain restrictive covenants including interest coverage tests anddebt-to-equity ratios, similar to those under the new line of credit. MPS couldutilize, at its discretion, two types of loan options: A Loans, which wereprovided on a pro rata basis in accordance with each participating bank’s shareof the commitment amount, and B Loans, which were provided as arranged betweenMPS and each of the participating banks. The A Loans, at MPS’s option, boreinterest equal to either the agent bank’s prime rate or LIBOR-based pricing.MPS also paid a quarterly commitment fee of .50% of the unused portion of the ALoans. The B Loans bore interest as arranged between MPS and the participatingbank. As of December 31, 2004, A Loans of $3,000,000 were outstandingunder the revolving credit arrangement at an interest rate of 3.6875%; B Loansof $200,000 were outstanding at an interest rate of 4.04%. As ofDecember 31, 2003, A Loans for $5.0 million were outstanding underthe revolving credit arrangement at an interest rate of 2.5625%, as well as a BLoan

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of $200,000 of2.76%. At December 31, 2004, and 2003, the unused portion of the MPS$6.0 million revolving credit line was $2.8 million and$0.8 million, respectively.

        OnOctober 1, 2003, MPS executed an additional unsecured $3 million lineof credit with the Bank of New York. This new facility expired on December 31,2004; therefore, there was no balance outstanding or available as ofDecember 31, 2004. At December 31, 2003, there was $1.0 millionoutstanding on this line of credit at an interest rate of 2.8125% and$2.0 million of available capacity.

        OnJuly 28, 2005, MAM arranged a $750,000 unsecured, ninety-day workingcapital line of credit with Katahdin Trust Company. The interest rate on thisloan was three-month LIBOR plus 3.0%. The proceeds were used for general corporatepurposes for the interim period prior to arranging the $4.0 millionrevolving line of credit at MAM.

        OnOctober 21, 2005, MAM arranged a new, three-year $4.0 millionrevolving line of credit with Bank of America for working capital, letters ofcredit and the repayment of the $750,000 Katahdin Trust Company ninety-day lineof credit. $1.73 million of the $4 million line of credit is in theform of a letter of credit securing a loan from Royal Bank of Canada which loanwas used toward the acquisition of Cornwallis Court Developments. The MAM lineof credit is secured by a general security interest in the business assets ofMAM, excluding the assets of MPS. The interest rate is 30, 60 or 90 dayLIBOR plus 2.0% or Bank of America’s prime rate. The loan agreement contains certainfinancial covenants, measured quarterly beginning December 31, 2005, whichrequire MAM to maintain a minimum tangible net worth, a minimum debt servicecoverage ratio and a maximum debt-to-total capital ratio. Failure to complywith these covenants could result in a 400 basis point increase in the interestrate or calling of the outstanding balance of the Line. At December 31,2005, there was $1.5 million outstanding on this line of credit, with$770,000 available.

        OnOctober 7, 2005, in connection with the acquisition of Cornwallis CourtDevelopments, Maricor Properties Ltd entered into a $2.0 million CDN,one-year loan from Royal Bank of Canada. This loan is secured by a$2.0 million CDN ($1.73 million USD) letter of credit in favor ofRoyal Bank of Canada from Bank of America.

        OnOctober 31, 2005, Maricor Properties Ltd arranged a $2.3 millionCDN, one-year revolving term loan with Royal Bank of Canada, the proceeds ofwhich were used to repay Katahdin Trust Company’s $2.0 US million term loan forthe acquisition and renovation of the Vaughan Harvey property. The term of theRBC note is one-year at Royal Bank of Canada’s prime rate plus 0.50%. This loanis secured by a collateral mortgage on the Vaughan Harvey Boulevard property inMoncton, New Brunswick, by a $570,000 CDN guarantee from Mecel Holdings and acollateral mortgage covering the Mecel Holdings property in Halifax, NovaScotia. This loan is also guaranteed by MAM, limited to $1.73 million.

        OnAugust 12, 2004, Maine & Maritimes Corporation entered into a$2.0 million, unsecured, two-year term loan with Katahdin Trust Company.The proceeds of the loan were used to acquire and renovate the Vaughan HarveyBoulevard property in Moncton, New Brunswick, Canada. The loan requiredinterest-only payments from September 12, 2004, through maturity at avariable interest rate of Three-Month LIBOR plus 2.65%. This loan was repaidwith the proceeds of the $2.3 million CDN note from Royal Bank of Canada,described above.

        OnNovember 29, 2005, The Maricor Group entered into a $1.0 million,secured revolving credit arrangement for working capital borrowings withKatahdin Trust Company. The proceeds of the loan were used to repay andrefinance the $1.0 million, revolving credit facility with BankNorth N.A.(now TD BankNorth). The interest rate on this loan is at a variable interestrate of three-month LIBOR plus 2.75%. This loan is guaranteed by MAM and by TheMaricor Group, Canada Ltd. The loan agreement contains certain financialcovenants, measured quarterly beginning December 31, 2005, which requireMAM to maintain a minimum tangible net worth, a minimum debt service coverageratio and a

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maximumdebt-to-total capital ratio and require The Maricor Group to maintain a minimumdebt service coverage ratio. The agreement requires that the outstandingbalance be paid down to a zero balance for 30 consecutive days every year.There was $1.0 million outstanding on this line of credit atDecember 31, 2005, with no funds available.

        TheMaricor Group had a revolving credit arrangement with BankNorth N.A. (now TDBankNorth) for working capital borrowings up to $1.0 million, which waspaid down prior to expiration with the proceeds from the $1.0 million KatahdinTrust Company revolving credit arrangement. This revolving credit arrangementwas arranged on September 21, 2004, and was for a term of one year. Theagreement contained certain covenants regarding debt service coverage beginningin 2005 and was secured by substantially all of the assets of TMGNE and TheMaricor Group, Canada Ltd. The agreement also required that theoutstanding balance be paid down to a zero balance for 30 consecutive daysevery year commencing January 1, 2005. The interest rate on this loan wasone-month LIBOR plus 2.0%. This loan was guaranteed by Maricor, Ltd, RESEngineering and by MAM.

**7.     ACCUMULATEDOTHER COMPREHENSIVE INCOME (LOSS)**

        MPShas three issues of long-term debt with variable interest rates. Pursuant toits rate order in MPUC Docket 2003-85, MPS agreed to fix its interest rates andthe MPUC allowed recovery of the fixed interest costs in rates. OnSeptember 9, 2003, MPS executed swap agreements for the threevariable-rate issues, locking in the rates over the remaining terms of the issues.For the Finance Authority of Maine (“FAME”) 1998 Taxable Electric RateStabilization Revenue Notes due 2008, the effective fixed interest rate hasbeen set at 2.79%. For the two series of tax-exempt bonds issued by the MainePublic Utilities Financing Bank (“MPUFB”), the effective fixed interest ratesfor the 1996 Series due 2021 and the 2000 Series due 2025 are 4.57% and 4.68%,respectively.

        AtDecember 31, 2005, the fair value of these qualified cash flow hedges was$(1.39) million, reflecting a change in swap rates since the execution date.For the year ended December 31, 2005, the difference between the fixedrates and the underlying variable rates on the issues of approximately $437,000was charged to interest expense. Although the fixed interest rates were higherthan the underlying variable rates, a portion of the MPUC approved rateincrease was to cover this difference. Management believes that the fixing ofinterest rates over the terms of the Company’s debt will prove to protect bothshareholders and consumers from upward variable debt pressures. The gain infair value on the interest rate swaps from December 31, 2004, as comparedto December 31, 2005, of $84,000 less the deferred tax of $33,000 has beenrecorded as Other Comprehensive Income (Loss), affecting common shareholder’sequity. Gains or losses in the fair market value of the interest rate swaps donot impact net income or the revenues of the Company, unless MPS’s shareholder’scommon equity falls below the minimum allowable 48 percent of totalcapital, the floor established by the MPUC Order in Docket No. 2002-676authorizing the formation of the holding company, MAM.

        OnNovember 20, 2000, MPS purchased an interest cap of 6% that applied to the2000 and 1996 Series of Maine Public Utilities Financing Bank’s (“MPUFB”) bondsissued on behalf of MPS with outstanding balances of $9 million and$13.6 million, respectively. The interest cap expired inNovember 2003.

        OnJune 1, 1998, MPS purchased an interest rate cap of 7% at a cost of$172,000, to expire June 8, 2008, on $11,450,000 of FAME’s TaxableElectric Rate Stabilization Notes, Series 1998A, issued on behalf of MPS.In accordance with the rate treatment prescribed by the MPUC, the original costof the interest rate cap has been amortized along with other issuance costswith $45,000, $62,000 and $79,000 remaining at the end of 2005, 2004 and 2003,respectively, as a regulatory asset. The provider of the cap estimated its fairvalue at December 31, 2005 at approximately $(1,000).

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**8.     LONG-TERMDEBT**

        OnOctober 19, 2000, the Maine Public Utilities Financing Bank (“MPUFB”)issued $9 million of its tax-exempt bonds due October 1, 2025 (“2000Series”) on behalf of MPS. The proceeds were placed in trust to be drawn downfor the reimbursement of issuance costs and for the construction of qualifyingdistribution property. On October 17, 2003, MPS received the finaldistribution from the trust. Pursuant to the long-term note issued under a loanagreement between MPS and the MPUFB, MPS has agreed to make payments to theMPUFB for the principal and interest on the bonds. Concurrently, pursuant to aletter of credit and reimbursement agreement, MPS caused a Direct Pay Letter ofCredit for an initial term of nineteen months, subsequently extended untilJune, 2006, to be issued by The Bank of New York for the benefit of the holdersof such bonds. On February 28, 2006, Bank of America issued its Direct PayLetter of Credit to expire March 2009, to replace Bank of New York’sLetter of Credit. To secure MPS’s obligations under the letter of credit andreimbursement agreement, MPS issued first and second mortgage bonds, in theamounts of $5.0 million and $4.53 million, respectively. MPS has theoption of selecting weekly, monthly, annual or term interest rate periods forthe 2000 Series, and, at issuance, selected the weekly interest period, with aninitial interest rate of 4.35%. On November 20, 2000, MPS purchased aninterest rate cap of 6% at a cost of $36,000 that expired in November 2003,that applied to the 2000 and 1996 Series, as described below. At the end of2005, the cumulative effective interest rate of the 2000 Series, including theeffective fixed swap rate of 4.68%, issuance costs and credit enhancement feessince issuance were 7.14%.

        Asimilarly structured series of Bonds was issued on behalf of MPS by the MPUFBin 1996 (“1996 Series”), with $13.6 million outstanding due in 2021. ADirect Pay Letter of Credit was issued by The Bank of New York, which had beenextended to June 2006, and is secured by $14.4 million of secondmortgage bonds. On February 28, 2006, Bank of America issued its DirectPay Letter of Credit to expire March 2009, to replace Bank of New York’sLetter of Credit. At the end of 2005, the cumulative effective interest rate ofthe 1996 series, including the effective fixed swap rate of 4.57%, issuancecosts and credit enhancement fees were 6.13%.

        OnMay 29, 1998, FAME issued $11,540,000 of its Taxable Electric RateStabilization Revenue Notes, Series 1998A (“Notes”) on behalf of MPS. TheNotes were issued pursuant to, and are secured under, a Trust Indenture by andbetween FAME and Peoples Heritage Bank (now TD BankNorth), Portland, Maine, asTrustee (“the Trustee”), for the purpose of: (i) financing the up-frontpayment to Wheelabrator-Sherman of approximately $8.7 million, as requiredunder an amended purchase power agreement; (ii) for the Capital ReserveFund, as required by FAME under their Electric Rate Stabilization Program; and(iii) for issuance costs. The Notes are limited obligations of FAME,payable solely out of the trust estate available under the Indenture,principally the Loan Note and Loan Agreement with MPS and the Capital ReserveFund held by the Trustee, which was approximately $2.38 million at the endof 2005 and 2004. MPS has issued $4.0 million of its first mortgage bondsand $7.54 million of its second mortgage bonds as collateral for itsperformance under the Loan Note issue pursuant to the Loan Agreement. The Noteswill bear interest at a Floating Interest Rate and are adjusted weekly. OnJune 1, 1998, MPS purchased an interest rate cap of 7% at a cost of$172,000, to expire June 2008, to limit its interest rate exposure toquarterly U.S. LIBOR rates. At the end of 2005, the cumulative effectiveinterest rate, including the fixed swap rate of 2.79%, issuance costs andcredit enhancement fees for the Notes were 3.81%.

        TheMPUFB tax-exempt issues are subject to the same restrictive covenants as thosediscussed for MPS’s revolving credit arrangement in Note 6, “Short-TermCredit Arrangements.”

        Thefirst and second mortgage bonds described above that secure MPS’s long-termdebt are supported by the bondable additions of substantially all of MPS’sutility plant.

        OnNovember 22, 2004, MPS entered into a $6,000,000, unsecured, 7-year termloan with Fleet National Bank, now Bank of America. The proceeds of the loanwere used to repay and refinance a

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portion of the amounts outstanding under MPS’srevolving credit arrangement associated with the Company’s prior capitalexpenditures. The loan agreement contains certain covenants requiring themaintenance of a minimum Tangible Net Worth, maximum Ratio of Indebtedness forBorrowed Money to Total Capital and a minimum Ratio of Net Income to FixedCharges. Interest is payable monthly at a variable interest rate of one-monthLIBOR plus 1.5%. The loan is to be repaid in scheduled monthly principalpayments as follows:

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

        OnOctober 7, 2005, in connection with the acquisition of Cornwallis CourtDevelopments, Maricor Properties Ltd assumed a seven year,$4.4 million CDN mortgage loan from Standard Life Assurance Company. Thebalance remaining on this loan when the loan was assumed was approximately$3.6 million CDN. This loan is secured by a collateral mortgage on the J.MacDonald Building owned by Cornwallis Court Developments. This loan matures onSeptember 1, 2010.

        OnNovember 29, 2005 The Maricor Group entered into a $2.2 million,secured, five-year term loan with Katahdin Trust Company. The proceeds of theloan were used to repay and refinance a $2.2 million term loan fromBankNorth N.A. (now TD BankNorth). The loan requires interest-only payments ata variable interest rate of three-month LIBOR, plus 2.75% throughNovember 29, 2007. Monthly, principal payments of approximately $18,300commence December 29, 2007, with a final payment of $1.54 million atmaturity on December 29, 2010. This loan is guaranteed by MAM and by TheMaricor Group, Canada Ltd. The loan agreement contains certain financialcovenants, measured quarterly beginning December 31, 2005, which requireMAM to maintain a minimum tangible net worth, a minimum debt service coverageratio and a maximum debt-to-total capital ratio and require The Maricor Groupto maintain a minimum debt service coverage ratio.

        OnSeptember 21, 2004, The Maricor Group entered into a $2.2 millionsecured, 10-year term loan with BankNorth N.A. (now TD BankNorth). The proceedsof the loan were used, in part, for the acquisition of the common stock of RESEngineering and Morris & Richard Consulting Engineers. The loanrequired interest-only payments at a variable interest rate of one-month LIBOR,plus 2.00% through September 1, 2007. Quarterly, principal payments ofapproximately $79,000 were to commence October 1, 2007, through maturityat September 1, 2014. This loan was guaranteed by Maricor, Ltd, RESEngineering and by MAM. This loan was refinanced through Katahdin TrustCompany, described in the preceding paragraph.

        OnAugust 12, 2004, Maine & Maritimes Corporation entered into a$2.0 million, unsecured, two-year term loan with Katahdin Trust Company.The proceeds of the loan were used to acquire and renovate certain real estateassets in Moncton, New Brunswick, Canada. The loan requires interest-onlypayments from September 12, 2004 through maturity at a variable interestrate of Three-Month LIBOR plus 2.65%. This debt was repaid with the$2.3 million CDN short-term loan from Royal Bank of Canada, described inNote 6, “Short-Term Credit Arrangements” and other funds.

**9.     STOCKCOMPENSATION PLAN**

        Uponapproval by MPS’s shareholders in June 2002, MPS adopted the 2002 StockOption Plan (the “Plan”). The Plan was subsequently adopted by MAM after itsformation. The Plan provides designated employees of the Company and itsSubsidiaries with stock ownership opportunities and additional incentives tocontribute to the success of the Company, and to attract, reward and retainemployees of outstanding ability. The Plan is administered by the members ofthe Performance and Compensation Committee of the Board of Directors, who arenot employees of the Company or its subsidiaries. The Company may grant optionsto its employees for up to 150,000 shares of common

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stock, providedthat the maximum aggregate number of shares which may be issued under the Planpursuant to incentive stock options shall be 120,000 shares. The exercise pricefor shares 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 ofDecember 31, 2005, the CEO has been the only employee to receive stockoptions.

        TheCompany accounts for the fair value of its grants under the Plan in accordancewith the expense provisions of Statement of Financial Accounting StandardsNo. 123, “Accounting for Stock-Based Compensation.”

        Thefair value of each option grant is estimated on the date of grant using theBlack-Scholes option-pricing model with the following weighted-averageassumptions used for the grants:

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

        Asummary of the status of the Company’s stock option plan as ofDecember 31, 2005, and changes during the year then ended is presentedbelow:

| Options                                         | ** ** | **Shares  2005**                             | ** ** | **Average  Exercise Price  2005** | ** ** |
|-------------------------------------------------|------------|----------------------------------------------|------------|----------------------------------------|------------|
| ** **                                      | ** ** | **(In thousands of dollars)** | ** ** |
| Outstanding at  December 31, 2004               |       | 15,750                                       |       | $                                      | 30.85      |   |
| Granted                                         |       | 5,250                                        |       | 26.65                                  |       |
| Exercised                                       |       | —                                       |       | —                                 |       |
| Forfeited                                       |       | —                                       |       | —                                 |       |
|                                            |       |                                         |       |                                   |       |
| Outstanding at  December 31, 2005               |       | 21,000                                       |       | $                                      | 29.80      |   |
|                                            |       |                                         |       |                                   |       |
| Options  exercisable at December 31, 2005       |       | 5,250                                        |       | $                                      | 30.45      |   |
| Weighted-average fair  value of options granted |       | $                                            | 4.31       |                                   |       |   |
|                                                 |            |                                              |            |                                        |            |  |  |

        Thefollowing table summarizes information about fixed stock options outstanding atDecember 31, 2005:
| ** **                                  | ** ** | **Options Outstanding**              | ** ** | **Options Exercisable**                             | ** ** |
|---------------------------------------------|------------|-------------------------------------------|------------|----------------------------------------------------------|------------|
| **Range of Exercise Prices** | ** ** | **Number  Outstanding at  12/31/05** | ** ** | **Weighted-  Average  Remaining  Contractual Life** | ** ** | **Weighted-  Average  Exercise** | ** ** | **Number  Exercisable at  12/31/05** | ** ** | **Weighted-  Average  Exercise** | ** ** |
| $26.65 - $32.00                             |       | 21,000                                    |       | 8.17 yrs                                                 |       | $ | 29.80 |   | 5,250 |   | $ | 30.45 |   |
|                                             |            |                                           |            |                                                          |            |  |  |  |  |  |  |  |  |

 

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        Dilutiveearnings per share impact of outstanding stock options:

|                                                                                        | ** ** | **Year Ended December 31,** | ** ** |
|----------------------------------------------------------------------------------------|------------|--------------------------------------------|------------|
| ** **                                                                             | ** ** | **2005**                                   | ** ** | **2004** | ** ** | **2003** | ** ** |
| Net (Loss)  Income (in thousands)                                                      |       | $                                          | (220       | ) | $ | 1,318 |   | $ | 2,806 |   |
| Shares used in  computation:                                                           |       |                                       |       |   |   |   |   |
| Weighted-Average common shares outstanding in  Computation of basic earnings per share |       | 1,636,322                                  |       | 1,612,696 |   | 1,575,066 |   |
| Dilutive effect  of common stock options                                               |       | —                                     |       | 13,125 |   | 7,875 |   |
| Shares used in  computation of earnings per common share assuming dilution*            |       | 1,636,322                                  |       | 1,625,821 |   | 1,582,941 |   |
| Net (loss)  income per share basic                                                     |       | $                                          | (0.13      | ) | $ | 0.82 |   | $ | 1.78 |   |
| Net (loss) income per  common share diluted                                            |       | $                                          | (0.13      | ) | $ | 0.81 |   | $ | 1.77 |   |

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*                    Note:The common stock options and preferred stock are anti-dilutive in 2005, andtherefore omitted from the calculation of Diluted Earnings per Share.

        Anadditional 20,000 shares were originally available for issuance to the Company’sBoard of Directors pursuant to the Stock Plan for Outside Directors. There are7,046 of these shares remaining available for future issuance.

**10.   BENEFIT PROGRAMS**

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

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

        TheCompany has an insured non-contributory defined benefit pension plan coveringMaine Public Service and certain MAM employees. Maine Public Service employeeshired on or after January 1, 2006, are not eligible for this benefit plan.Non-regulated employees are not eligible for this benefit plan. Benefits underthe plan are based on employees’ years of service and compensation prior toretirement. The Company’s policy has been to fund pension costs accrued. Inaccordance with that policy, the Company made tax-deductible contributions of$520,000 for the 2005 plan year throughout 2005, $441,000 for the 2004 planyear in 2005, prior to the filing of the 2004 corporate income tax return, and$409,000 for the 2003 plan year in December 2003. The Company alsocontributed $173,000 to the pension plan for 2005 in January 2006, andplans to contribute an additional $162,000 to the pension plan for 2005 in 2006prior to the filing of its 2005 corporate income tax return.

**Health Care Benefits**

        TheCompany provides certain health care benefits to eligible employees. Eligibleemployees share in the cost of their medical benefits, in addition to plandeductibles and coinsurance payments, totaling approximately 14.9% in 2005,13.5% in 2004 and 12.2% in 2003. The plan also covers retiree medical coveragefor employees of Maine Public Service Company, the regulated utility. In 2005,certain amendments were made to the plan, including the following: employeeshired on or after October 1,

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2005, are noteligible for post-retirement medical coverage. Effective January 1, 2006,certain retiree co-pays were increased, and spousal contributions commenced.

        In2002, certain amendments were made to the plan, including the following:effective with retirements after January 1, 1995, and employees hiredbefore January 1, 2003, retirees will be eligible for retiree medicalcoverage after completing twenty years of service, subject to a contributionschedule. Employees hired after January 1, 2003, will be eligible forretiree medical coverage after completing twenty-five years of service;however, their spouse will not be eligible for coverage. For employees hiredafter December 31, 1999, and prior to January 1, 2003, spousalretiree medical coverage ceases upon the spouse’s attainment of age 65. Theamendments in 2005 and 2002, described above, have been incorporated into thecalculation of the related actuarial benefit obligation.

        Basedon prior MPUC accounting orders, the Company established a regulatory asset ofapproximately $1.06 million, representing deferred post-retirementbenefits. As an element of its four-year rate plan, the Company beganrecovering these deferred expenses over a ten-year period, along with theannual expenses in excess of pay-as-you-go expenses, starting in 1996. TheCompany made a payment of $354,000 to fund the 401(h) sub-account of thePension Trust for non-union retiree medical payments on September 14,2000, and $92,190 on June 19, 2003. On December 28, 1999, andDecember 27, 2001, the Company made payments of $2.1 million and$641,000, respectively, to a Voluntary Employee Benefit Association (“VEBA”)trust fund, an independent external trust fund for union retiree medicalpayments. These payments provide funding for future post-retirement health carecosts at such time as customers are paying for these costs in their rates. Forpurposes of determining the accrued post-retirement benefit cost as ofDecember 31, 2005, the health care cost trend rate used was 7.5% in 2005and graded down to 4% in 2012, remaining at that level thereafter. These rateshave a significant effect on the amounts reported for the health care plan. Aone-percentage-point change in the trend rates would have the followingeffects:

|                                                               | ** ** | **One-Percentage-Point**                     | ** ** |
|---------------------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                                    | ** ** | **Increase**                                 | ** ** | **Decrease** | ** ** |
| ** **                                                    | ** ** | **(In thousands of dollars)** | ** ** |
| Effect on total  cost of service and interest cost components |       | $                                            | 124        |   | $ | (98 | ) |
| Effect on  post-retirement benefit obligation                 |       | $                                            | 1,382      |   | $ | (1,126 | ) |

 

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         Thefollowing table sets forth the pension and post-retirement medical plans’change in benefit obligation, change in plan assets, funded status and assumptionsas of December 31, 2005, and 2004, *(inthousands of dollars)* :
| ** **                                                                       | ** ** | **Pension** | ** ** | **Health Care** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------|------------|----------------------|------------|
| **Benefits**                                                                     | ** ** | **2005**    | ** ** | **2004**             | ** ** | **2005** | ** ** | **2004** | ** ** |
| **Changes in benefit obligation**                                                |       |        |       |                 |       |   |   |   |   |
| Benefit  obligation at beginning of year                                         |       | $           | 19,863     |                 | $          | 19,072 |   | $ | 9,328 |   | $ | 9,626 |   |
| Service cost                                                                     |       | 488         |       | 479                  |       | 182 |   | 194 |   |
| Interest cost                                                                    |       | 1,133       |       | 1,138                |       | 504 |   | 535 |   |
| Actuarial gain  (loss)                                                           |       | (52         | )          | 373                  |       | (572 | ) | (513 | ) |
| Employee’s  contributions                                                   |       | —      |       | —               |       | 32 |   | 28 |   |
| Benefits paid                                                                    |       | (1,045      | )          | (1,061               | )          | (486 | ) | (542 | ) |
| Administrative  expenses                                                         |       | (148        | )          | (138                 | )          | — |   | — |   |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| Benefit  obligation at end of year                                               |       | 20,239      |       | 19,863               |       | 8,988 |   | 9,328 |   |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| **Change in plan assets**                                                        |       |        |       |                 |       |   |   |   |   |
| Fair value of  plan assets at Beginning of year                                  |       | 13,623      |       | 14,896               |       | 2,607 |   | 2,634 |   |
| Actual return on  plan assets                                                    |       | 413         |       | 935                  |       | 90 |   | 160 |   |
| Employee  contributions                                                          |       | —      |       | —               |       | 32 |   | 29 |   |
| Employer  contribution                                                           |       | 961         |       | —               |       | 321 |   | 326 |   |
| Benefits paid                                                                    |       | (1,045      | )          | (1,061               | )          | (486 | ) | (542 | ) |
| Removal of  assets for guaranteed insurance contracts*                           |       | —      |       | (1,009               | )          | — |   | — |   |
| Administrative  expenses                                                         |       | (148        | )          | (138                 | )          | — |   | — |   |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| Fair value of  plan assets at end of year                                        |       | 13,804      |       | 13,623               |       | 2,564 |   | 2,607 |   |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| **Funded  Status**** **(Benefit Obligation—Fair Value at  end of year) |       | (6,435      | )          | (6,240               | )          | (6,423 | ) | (6,721 | ) |
| Unrecognized  transition Obligation                                              |       | —      |       | —               |       | 986 |   | 1,129 |   |
| Unrecognized  prior service costs                                                |       | 389         |       | 479                  |       | (347 | ) | (407 | ) |
| Unrecognized net  actuarial loss                                                 |       | 3,695       |       | 3,186                |       | 3,549 |   | 4,166 |   |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| **Accrued  benefit cost**                                                        |       | $           | (2,351     | )                    | $          | (2,575 | ) | $ | (2,235 | ) | $ | (1,833 | ) |
|                                                                             |       |        |       |                 |       |   |   |   |   |
| Weighted-average  assumptions as of December 31 (measurement date)               |       |        |       |                 |       |   |   |   |   |
| Discount rate                                                                    |       | 5.88        | %          | 6.00                 | %          | 5.88 | % | 6.00 | % |
| Expected return  on plan assets                                                  |       | 8.50        | %          | 8.50                 | %          | 8.50 | % | 8.50 | % |
| Rate of compensation  increase                                                   |       | 4.00        | %          | 4.00                 | %          | N/A |   | N/A |   |

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*                    During2004, the Company identified guaranteed contracts for the settlement of pensionobligations which were included in the plan assets and plan obligations inerror. The effect of the correction of this error increased the FAS 87recognized pension expense by $70,632 for 2004. The reduction in plan assets andplan obligations were $1.0 million and $0.65 million respectively.

        TheCompany’s investment objective is to achieve long-term growth of capital, withexposure to risk set at an appropriate level. This objective shall beaccomplished through the utilization of a diversified asset mix consisting ofequities (domestic and international) and taxable fixed income securities. Theaccount is to be managed on a fully discretionary basis to obtain the highesttotal rate of return in keeping with a moderate level of risk. The target rateof return for the portfolio will be 8.5% with the goal of exceeding returns ofthe S&P 500 on the equity investments and the Lehman

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Brothers AggregateBond Index on the fixed income investments. Management determined the expectedportfolio return of 8.5% based on its review of published studies fromindependent third parties, discussion with the Company’s actuary, as well asthe plans’ new asset manager, who began custody of plan assets on January 3,2006.  Historical plan returns throughthe third quarter of 2005 support the assumption of future returns of8.5%.  Management considered the weakenedplan and general market performance during the fourth quarter of 2005, but,based on the longer-term future projections discussed above, concluded that themore recent performance was not indicative of the returns that could beexpected in the future. The following table sets forth the target allocation ofthe plan assets and actual allocation:

|                                            | ** ** | ** **     | ** ** | **Percentage of Plan Asset at** | ** ** |
|--------------------------------------------|------------|----------------|------------|-----------------------------------------------------|------------|
| ** **                                 | ** ** | **Target**     | ** ** | **December 31,**                               | ** ** |
| ** **                                 | ** ** | **Allocation** | ** ** | **2005**                                            | ** ** | **2004** | ** ** |
| **Plan Assets**                            |       |           |       |                                                |       |   |   |
| ***Pension  Plan Asset Category***         |       |           |       |                                                |       |   |   |
| Equity  Securities                         |       | 50-65          | %          | 52                                                  | %          | 67 | % |
| Debt Securities                            |       | 30-45          | %          | 34                                                  | %          | 33 | % |
| Other                                      |       | 5-15           | %          | 14                                                  | %          | 0 | % |
|                                       |       |           |       |                                                |       |   |   |
| Total                                      |       |           |       | 100                                                 | %          | 100 | % |
| ***Health  Care Benefits Asset Category*** |       |           |       |                                                |       |   |   |
| Equity  Securities                         |       | 50-70          | %          | 13                                                  | %          | 66 | % |
| Debt Securities                            |       | 30-45          | %          | 33                                                  | %          | 34 | % |
| Other                                      |       | 0-5            | %          | 54                                                  | %          | 0 | % |
|                                       |       |           |       |                                                |       |   |   |
| Total                                      |       |           |       | 100                                                 | %          | 100 | % |

        TheCompany transferred the pension and post-retirement health plans’ assets fromThe Bank of New York to Bank of America on January 3, 2006. The healthcare benefits assets had been partially converted to cash as ofDecember 31, 2005, resulting in a higher percentage of assets classifiedas “Other”.

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        Thefollowing tables set forth the plans’ net periodic benefit cost and cash flowsfor 2005, 2004 and 2003:

 
| ** **                             | ** ** | **Pension Benefits**                    | ** ** | **Health Care Benefits** | ** ** |
|----------------------------------------|------------|----------------------------------------------|------------|------------------------------------|------------|
| ** **                             | ** ** | **2005**                                     | ** ** | **2004**                           | ** ** | **2003** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
| ** **                             | ** ** | **(In thousands of dollars)** | ** ** |
| Service cost                           |       | $                                            | 488        |                               | $          | 478 |   | $ | 430 |   | $ | 182 |   | $ | 194 |   | $ | 193 |   |
| Interest cost                          |       | 1,133                                        |       | 1,138                              |       | 1,144 |   | 504 |   | 535 |   | 539 |   |
| Expected return  on plan assets        |       | (1,077                                       | )          | (1,123                             | )          | (1,239 | ) | (215 | ) | (216 | ) | (195 | ) |
| Amortization of  transition obligation |       | —                                       |       | —                             |       | (16 | ) | 143 |   | 143 |   | 142 |   |
| Amortization of  prior service cost    |       | 90                                           |       | 90                                 |       | 90 |   | (60 | ) | (60 | ) | (60 | ) |
| Recognized net  actuarial (gain)       |       | 104                                          |       | 35                                 |       | — |   | 170 |   | 184 |   | 192 |   |
|                                   |       |                                         |       |                               |       |   |   |   |   |   |   |   |   |
| Net periodic benefit  cost             |       | $                                            | 738        |                               | $          | 618 |   | $ | 409 |   | $ | 724 |   | $ | 780 |   | $ | 811 |   |

 
| ** **                         | ** ** | **Pension Benefits** | ** ** | **Health Care Benefits** | ** ** |
|------------------------------------|------------|---------------------------|------------|------------------------------------|------------|
| ** **                         | ** ** | **Employer**              | ** ** | **Employer**                       | ** ** | **Participants** | ** ** |
| **Cash Flows**                |       |                      |       |                               |       |   |   |
| Contributions                      |       |                      |       |                               |       |   |   |
| 2003                               |       | $                         | 658,570    |                               | $          | 422,804 |   | $ | 30,707 |   |
| 2004                               |       | —                    |       | 326,460                            |       | 28,726 |   |
| 2005                               |       | 960,518                   |       | 321,841                            |       | 31,565 |   |
| Expected 2006                      |       | 976,995                   |       | 305,236                            |       | 44,358 |   |
|                               |       |                      |       |                               |       |   |   |
| Benefit Payments                   |       |                      |       |                               |       |   |   |
| 2003                               |       | $                         | 1,219,266  |                               | $          | 549,089 |   |   |   |
| 2004                               |       | 1,061,009                 |       | 542,828                            |       |   |   |
| 2005                               |       | 1,045,469                 |       | 485,832                            |       |   |   |
|                               |       |                      |       |                               |       |   |   |
| Estimated Future  Benefit Payments |       |                      |       |                               |       |   |   |
| 2006                               |       | 1,039,663                 |       | 444,681                            |       |   |   |
| 2007                               |       | 1,034,034                 |       | 450,868                            |       |   |   |
| 2008                               |       | 1,031,306                 |       | 458,953                            |       |   |   |
| 2009                               |       | 1,048,222                 |       | 466,889                            |       |   |   |
| 2010                               |       | 1,091,251                 |       | 496,668                            |       |   |   |
| Years 2011 -  2014                 |       | 6,147,448                 |       | 2,842,130                          |       |   |   |
|                                    |            |                           |            |                                    |            |  |  |  |  |  |

        OnDecember 8, 2003, President Bush signed into law the Medicare PrescriptionDrug, Improvement and Modernization Act of 2003 (the “Act”). The Act introducesa federal subsidy to sponsors of retiree health care benefit plans that providea benefit that is at least actuarially equivalent to Medicare Part D.

        Effectivefor interim and annual periods ending on or after June 15, 2004, the FASBstaff issued FASB Statement of Position 106-2, “Account and DisclosureRequirements Related to the Medicare Prescription Drug, Improvement andModernization Act of 2003” (“FSP 106-2”). Under the Act, the Company may beentitled to a subsidy for its prescription drug benefit costs and the effectcan be reflected in post-retirement medical expense if the effect of thesubsidy can be reasonably estimated. The actuary’s calculation of the benefitobligation information assumes that the prescription drug benefits under theRetiree Medical Plan would be eligible for the subsidy.

        Thesubsidy for a plan sponsor is 28% of a participant’s annual drug costs between$250 and $5,000, which amounts to a maximum subsidy per participant of $1,330.For the employer to receive

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this subsidy forany particular participant, that participant must decline coverage in Medicare’sPart D drug program.

        Priorto recognition of the new Medicare Prescription Drug Program, the 2004 netperiodic post-retirement benefit cost would have been approximately $890,000.Therefore, recognition of the subsidy reduced the 2004 net periodicpost-retirement benefit cost by approximately $110,000. The related reductionin the accumulated post-retirement benefit obligation was approximately$789,000, or about 8.2%. This reduction was based on an estimate by the Company’sactuary and any actual reduction may differ from this amount in the future.

**Retirement Savings Plan**

        TheCompany has adopted a defined contribution plan (under Section 401(k) ofthe Internal Revenue Code) covering substantially all of the Company’semployees. Participants may elect to defer from 1% to 25% of currentcompensation, and the Company contributes such amounts to the plan. The Companyalso matches contributions, with a maximum matching contribution of 2% ofcurrent compensation. Effective January 1, 2006, new employees under thecollective bargaining agreement receive a matching contribution of 4%, tocompensate for their ineligibility in the pension plan. Participants are 100%vested at all times in contributions they make; employer match contributionsare vested after three years. The Company’s matching contributions to the planwere approximately $109,000, $104,000, and $112,000 in 2005, 2004, and 2003,respectively. Effective July 1, 2004, the Company also offered a CanadianPension Plan similar to a 401(k) plan for eligible Canadian employees. TheCompany matches employee contributions of 1% of current compensation. The planalso provides for a discretionary match based on profitability. The matchingcontributions and profit-sharing payments were $76,000 and $25,000 in 2005 and2004, respectively.

**11.   FAIR VALUE OFFINANCIAL INSTRUMENTS**

        TheCompany’s financial instruments consist primarily of cash in banks, receivablesand debt. The carrying amounts for cash, receivables, and short-term debtapproximate their fair value due to the short-term nature of these items. AtDecember 31, 2005, the Company’s long-term debt had a carrying value and afair value of approximately $38.2 million.

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

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

        OnMay 31, 2005, pursuant to Section 205 of the Federal Power Act, 16U.S.C. Section 824d, and Title 18 CFR Sections 35.11 and 35.13 of theregulations of the FERC, MPS submitted for filing its proposed revisions to itsFERC Open Access Transmission Tariff in Docket No. ER 05 (the “2005 OATT”) tomodify its transmission rate formula. MPS filed its updated rates under the2005 OATT formula on June 15, 2005, pursuant to Docket ER00-1053 with aneffective date of June 1, 2005, for both wholesale and retail customers,subject to a customer refund that may occur as a result of the proceeding andpotential settlement negotiations. The retail transmission revenue requirementwas increased by $288,670 on June 1, 2005, under the 2005 OATT. Thisrepresented an increase of 8% to the transmission component of retail deliveryrates or an overall impact on total retail delivery rates of 0.7%. The primaryreasons for the increase were the increase to costs due to mandatedSarbanes-Oxley requirements, and the purchase of a new Oracle-based accountingsystem.

        Aspart of the settlement data request process, the Company identified severaladjustments to its FERC Form 1 filing for 2004, which flow through theCompany’s transmission rate formula. The approximate net impact of thesecorrections, once implemented, will be to reduce the overall increase to theprojected retail transmission revenue and result in a revised projected netincrease to the retail transmission revenue requirement of $238,422 instead ofthe previously projected increase of $388,923.

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This adjustmentwill flow through Schedule 1.1.2 of the MPS OATT to be effectiveJune 1, 2006, and will be passed through retail rates on July 1,2006, when the retail rates are next adjusted. The Company has reported to FERCas scheduled that the parties are proceeding with the settlement process andwill continue to provide progress reports as required. Because the Company iscurrently in the midst of a settlement process, it cannot predict the exactdollar outcome of this proceeding at this time.

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

        Peragreement with the Maine Public Utilities Commission (“MPUC”), the newtransmission rates for retail customers (above) were put into retail rates onJuly 1, 2005, to coincide with MPS’s related State jurisdictionalcompliance filing in MPUC Docket No. 2003-516 to increase the DSM MilRate. These rates were approved by the MPUC on June 20, 2005. Per thisfiling, total retail delivery rates increased by 1.1%.

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

        OnOctober 4, 2004, MPS filed a Petition with the MPUC requesting theissuance of Certificate of Public Convenience and Necessity pursuant to 35-AM.R.S.A. Section 3132 to construct a 138 kV transmission line originatingat an existing substation in Limestone, Maine and extending to the CanadianBorder near Hamlin, Maine.

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

        TheMPUC Commissioners deliberated the Docket on August 29, 2005, and deniedthe petition, determining that there was no immediate reliability risk innorthern Maine. The Commission concluded that the risk of losing on-systemwood-fired generation was not sufficient to warrant the new transmission line.The Commission issued the Order on October 21, 2005, that describedactions to be taken by MPS and the Northern Maine ISA to reduce certain risksidentified by MPS. The Company filed for reconsideration of the Order onNovember 8, 2005 based on the likelihood that Linekin Bay Energy Company,LLC may elect to utilize the CPCN filed in this Docket in order to constructtransmission facilities necessary to connect their proposed generation projectto the MPS electrical system. The Commission approved the request forreconsideration and will revisit the issue on or before March 31, 2006.Additionally, on November 23, 2005, the Commission granted an MPS requestfor waiver of the specific requirements of the October 21, 2005 Orderuntil the NMISA finalizes currently proposed market rule changes that arecurrently scheduled to be presented to the Commission on March 1, 2006.Through December 31, 2005, approximately $844,000 was spent on andincluded in construction work-in-progress related to this transmission project.MPS expects to seek recovery of these costs in its transmission rates and iscurrently pursuing other recovery options. MPS believes it is probable theamounts deferred can be recovered, either through future rate cases or throughsale of the assets to a third party.

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        InSeptember 2004, MPS entered into a Commitment Agreement with NB Power.Under this Agreement, which is subject to MPS obtaining all necessaryregulatory approvals, MPS will reserve 35 MW of transmission capacity on the NBPower system in conjunction with the construction of a new 345 kV transmissionline to be constructed from Point Lepreau near Saint John, NB to Orrington,Maine. NB Power will own and operate the portion of the line on its side of theborder, while Bangor Hydro-Electric Company (“BHE”) will own and operate theportion of the line on the U.S. side of the border known as the NortheastReliability Interconnect (“NRI”). BHE filed for a Certificate of PublicConvenience and Necessity for this line on November 5, 2004, in MPUCDocket No. 2004-771. MPS filed a petition with the MPUC seeking approvalto make the reservation required under the Commitment Agreement onDecember 13, 2004, in MPUC Docket No. 2004-775 which was subsequentlychanged to MPUC Docket No. 2004-538 Phase II. On October 7, 2005, MPSproposed several changes to the Commitment Agreement, to include a reduction inthe reservation quantity from 35 MW to 20 MW. Hearings on Phase II wereconducted on December 6 and 7, 2005. A Commission Order is expected duringMarch, 2006. As noted above, MPS’s obligations under the Commitment Agreementare dependent upon securing regulatory approval. MPS cannot predict the outcomeof Phase II of this case at this time.

**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. The PPAwas subsequently amended in 1997, with WS agreeing to price reductions of$10.0 million through the end of the original term in exchange for anup-front payment of $8.7 million in May 1998. The MPUC’sDecember 1997 approval of the amended PPA included a determination thatthe up-front payment would be treated as stranded cost and, therefore,recovered in rates of the transmission and distribution company. Total strandedcost included as a regulatory asset under the caption “deferred fuel andpurchased energy cost and regulatory asset—Power Purchase AgreementRestructuring” in the accompanying balance sheet related to this contract is$31.4 million at December 31, 2005, and $28.5 million atDecember 31, 2004.

        MPSand WS also agreed to renew the PPA for an additional six years at agreed-uponprices and an increase of output to 136,982 MW beginning in 2001. Energy supplypurchases under this contract through February 29, 2000, were$2.6 million. Purchases from WS after March 1, 2000, are reflected asstranded costs. MPS estimates its remaining commitment to purchase power underthis contract to be $12.1 million throughout 2006.

        MPScurrently sells 100% of WS’s output to WPS-PDI and will continue to do sothrough the expiration of the contract between MPS and WS. From March 1,2002, through February 29, 2004, Energy Atlantic, the Company’swholly-owned marketing subsidiary, took delivery of 40% of WS’s output andWPS-PDI took the remainder.

        AlthoughMPS’s earnings associated with stranded costs will be reduced during the periodfrom 2004 through 2012, it should not impact the collection of “stranded costfreed-up cash flows” post-2006 that are a result of levelization of strandedcosts and the deferring of total collections of stranded costs associated withits Wheelabrator-Sherman NUG Contract during the years 1999 through 2006. Inthe 1998-99 timeframe, in order to reduce the rate impact of stranded costrecovery, MPS chose to collect its stranded costs on a levelized recovery basisover a longer term versus collecting stranded costs equaling annualized payoutsof its NUG generation contract with Wheelabrator-Sherman. In so doing, MPS hasand will pay the full contract costs of the Wheelabrator-Sherman NUG Contractuntil it expires in 2006. However, during this term MPS has and will only collecta percentage of the total costs from its consumers. From 2007 untilapproximately 2012, MPS will collect the balance due from its ratepayers, butwill no longer have the liability of the Wheelabrator-Sherman NUG Contract.Those monies that were deferred will be collected during the referenced periodand are referred to as

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“stranded costfreed-up cash flows.” MPS has received and continues to receive varying ratesof return on its stranded cost regulatory assets.

**MPUC Approves Stranded Cost RevenueRequirements Effective March 1, 2004**

        Inan Order dated February 27, 2004, MPS received final approval from theMPUC for the stranded cost revenue component of its electric delivery rates,effective March 1, 2004. Under Title 35-A of the Maine Revised StatutesAnnotated, Section 3208, the MPUC is required to periodically investigateand adjust the stranded cost charges reflected in the rates of a transmissionand distribution utility. In accordance with this provision, onSeptember 16, 2003, in Docket No. 2003-666, the MPUC issued a noticeof investigation in order to determine whether MPS’s rates must be changedeffective March 1, 2004 to reflect any changes in MPS’s stranded costs. OnFebruary 27, 2004, the MPUC issued an order approving a stipulation underwhich MPS is allowed to recover $11,785,339 per year to satisfy its approvedstranded cost revenue requirements for the “rate effective period” beginningMarch 1, 2004 and ending on December 31, 2006. The approved revenuerequirement for the rate effective period ended February 29, 2004 was$11,540,000. Under the approved stipulation MPS’s stranded cost rates approvedin Docket No. 2003-85 will remain in effect during the rate effectiveperiod **.** The stipulation approvedby the MPUC in Docket 2003-666 also approved and reaffirmed each of theelements and associated balances of MPS’s recoverable stranded costs.

        Asexplained more fully below, during the course of Docket 2003-666 the partiesreviewed the manner in which MPS was recovering and accounting for its carryingcharges associated with the deferred fuel element of its stranded cost. As aresult of the stipulation approved in Docket No. 2003-666, MPS will recorddeferred income tax expense associated with deferred fuel carrying charges duringthe rate effective period from March 1, 2004 through December 31,2006, as compared to past treatment where such expense was deferred for futurerecovery. Because the deferred fuel carrying charge component of MPS’s strandedcosts is not expected to fully amortize until 2012, the Company anticipatesthat deferred income tax expense will be incurred through 2012, subject tofuture stranded cost filings with the MPUC. In Dockets 98-577 and 2001-240, theparties stipulated that MPS would accrue carrying costs on its unrecovered fuelbalance (the “deferred fuel account”) during the respective rate effectiveperiod at its net-of-tax cost of capital rate. Consistent with the stipulationin Docket No. 2001-240, MPS accrued a carrying charge using the net of taxrate of 7.98% through October 31, 2003, applied against its unrecovereddeferred fuel balance. From November 1, 2003, to December 31, 2003,MPS accrued its carrying charge using a net-of-tax rate of 7.06%, based on thecost of capital approved in Docket No. 2003-85 (described in Docket2003-85 Partial Stipulation filed on September 2, 2003).

        Duringthe course of the Docket 2003-666 proceeding, MPS determined that it had notpreviously recognized accumulated deferred income taxes with respect to thecarrying charges on the deferred fuel account and that the recording of adeferred tax liability to its balance sheet pursuant to FAS 109 in theamount of $2.896 million was required, of this, $2.739 million wasrecorded as of December 31, 2003. The deferred fuel balance as ofMarch 1, 2004, prior to any adjustment was projected to be $18,838,000.Under the stipulation MPS was allowed to adjust its accumulated deferred incometax account and the deferred fuel balance by $2,896,000, as of March 1,2004, resulting in a total projected deferred balance as of March 1, 2004of $21,734,000. Under the approved stipulation the parties also agreed that thereturn component on the deferred fuel balance should be reduced in such amanner that ratepayers were held harmless on a net present value basis as aresult of the March 1, 2004, adjustment to the deferred fuel balance.During the rate effective period ending on December 31, 2006, the overallpre-tax return component on the deferred fuel balance will be 8.28%, reflectinga 6.17% return on equity. The return on the deferred fuel balance will bereviewed in future stranded cost rate setting proceedings and will be adjustedas necessary in order that the present value of the revenue requirements of thedeferred fuel account without the adjustments described above equals thepresent

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

        Thedecreased cost of capital rate beginning on March 1, 2004, will have animpact on future stranded cost earnings and cash flow, but will not impactfuture distribution or transmission earnings. In the year 2004, the Companyrecorded deferred income tax expense of approximately $412,000 associated withthe deferred fuel carrying charges. The amount of deferred income tax expenserecorded in future years will vary depending upon the amount of the accruedcarrying charge in any year, and the tax rates then in effect. Earnings fromcarrying charges on the Company’s stranded costs in 2004 were approximately$267,000 lower than the amount that would have been recorded had the Companycontinued to use the original cost of capital on its deferred fuel balance, fora total earnings impact of $679,000 in 2004. The impact on future earningsresulting from the agreed upon lower cost of capital, when compared against thecost of capital used in prior stranded cost filings, will vary. Schedules filedby the Company as part of the stipulation in Docket No. 2003-666 reflectthe deferred fuel balance as of March 1, 2003, certain additions torelating to the Wheelabrator-Sherman above-market contract through December,2006 and the amortization of the deferred fuel balance though 2012. Applyingthese assumptions, current tax rates and the agreed upon cost of capital, theCompany anticipates that the impact on future earnings resulting from recordingdeferred income taxes on accrued carrying charges and applying a lower cost ofcapital to the deferred fuel balance could range from $1.0 million in2005, increasing to $1.2 million in 2007, then gradually decreasing to$17,000 in 2012. These amounts may vary with changes in the deferred fuelbalance and other variables which the Company cannot predict with certainty atthis time. Management is analyzing means to mitigate the impact of thisstipulation on future net income and cash flows.

        Inaddition to the return allowed on its deferred fuel account as set forth above,under the approved stipulation MPS shall be allowed to recover the followingpre-tax returns on the applicable stranded cost rate base components during therate effective period: (i) the pre-tax return on unrecovered balance ofthe Wheelabrator-Sherman Contract Buydown shall be 2.79% plus its FAME issuancecosts; (ii) the pre-tax return on the unrecovered Seabrook Investment andapproved special rate contract costs shall be 11.74%; and, (iii) thepre-tax return on the Maine Yankee decommissioning related costs shall be8.56%.

**Seabrook Nuclear Power Project**

        In1986, MPS sold its 1.46% ownership interest in the Seabrook Nuclear PowerProject with a cost of approximately $92.1 million for $21.4 million.Both the MPUC and the FERC allowed recovery of MPS’s remaining investment inSeabrook Units 1 and 2, adjusted by disallowed costs and sale proceeds, withthe costs being amortized over thirty years.

 

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         RecoverableSeabrook costs at December 31, 2005, and 2004, are as follows *(in thousands of dollars)* :

|                                                  | ** ** | **2005** | ** ** | **2004** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|
| Recoverable  Seabrook Costs                      |       | $        | 43,136     |     | $          | 43,136 |   |
| Accumulated  Amortization                        |       | (31,467  | )          | (30,358  | )          |
|                                             |       |     |       |     |       |
| Recoverable  Seabrook Costs, Net of Amortization |       | $        | 11,669     |     | $          | 12,778 |   |
|                                             |       |     |       |     |       |

        InMarch 2000, MPS was allowed to offset $7.0 million of the recoverableSeabrook costs with the available value from its deferred asset sale gain, asdetailed in “Capacity Arrangements-Generating Asset Sale,” below. The decreasein recoverable Seabrook costs represents monthly amortization, recorded asamortization expense in January and February 2000, and then as strandedcosts applied to the deferred asset sale gain beginning in March 2000, asdescribed in “MPUC Approves Elements of Rates Effective March 1, 2000”above.

**Nuclear Insurance**

        In1988, Congress extended the Price-Anderson Act for fifteen years and increasedthe maximum liability for a nuclear-related accident. In the event of a nuclearaccident, coverage for the higher liability now provided for by commercialinsurance coverage will be provided by a retrospective premium of up to$88.1 million for each reactor owned, with a maximum assessment of$10 million per reactor for any year. Maine Yankee is not liable for “events”or “accidents” occurring after January 7, 1999, when exemption wasreceived from the Nuclear Regulatory Commission. These limits are also subjectto inflation indexing at five-year intervals as well as an additional 5%surcharge, should total claims exceed funds available to pay such claims. Basedon MPS’s 5% equity ownership in Maine Yankee (see Note 5, “Investments inAssociated Companies”), MPS’s share of any retrospective premium would notexceed approximately $1.8 million or $500,000 annually, withoutconsidering inflation indexing.

**Generating Asset Sale**

        OnJuly 7, 1998, MPS and WPS Power Development, Inc., (“WPS-PDI”) signeda purchase and sale agreement for MPS’s electric generating assets. WPS-PDIagreed to purchase 91.8 megawatts of generating capacity for$37.4 million, which was 3.2 times higher than the net book value of theassets. The gain from the asset sale reduced stranded cost revenuerequirements, as discussed in “MPUC Approves Elements of Rates EffectiveMarch 1, 2000,” above.

        OnJune 8, 1999, after receiving all of the major regulatory approvals, MPScompleted the sale to WPS-PDI for $37.4 million. MPS’s 5% ownership inMaine Yankee was not part of the sale, since the plant is being decommissioned.After paying Canadian, Federal and State income taxes, the remaining proceeds,along with interest in the trust account, were used to reduce MPS’s debt. Thegain from the sale was deferred, and recognized according to the MPUC’sdecision on MPS’s determination of

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stranded costs,transmission and distribution costs, and rate design. The components of thedeferred gain were as follows *(in thousandsof dollars)* :

| Gross proceeds*                                 |   | $      | 38.6   |   |
|-------------------------------------------------|--------|--------|--------|--------|
| Settlement  adjustments                         |   | (0.1   | )      |
|                                            |   |   |   |
| Net proceeds                                    |   | 38.5   |   |
| Net book value                                  |   | (11.5  | )      |
| Excess taxes on  sale of Canadian Assets        |   | (3.4   | )      |
| Transition  costs, net                          |   | (1.9   | )      |
| Other                                           |   | 0.7    |   |
|                                            |   |   |   |
| Available  deferred gain                        |   | 22.4   |   |
| Utilization of  available value per MPUC orders |   | (22.4  | )      |
|                                            |   |   |   |
| Remaining deferred gain                         |   | $      | — |   |

----

*                    Grossproceeds were increased by $1.05 million before tax in September 2001due to an MPUC approved settlement between CMP and other former owners of WymanUnit No. 4, including MPS. The proceeds increased the deferred gain andfurther reduced stranded costs.

        Withthe sale of MPS’s generating assets in June, 1999, MPS purchased energy fromthe new owners under an agreement that expired February 29, 2000, andthese purchases are classified as purchased energy.

        Aspart of the generating asset sale on June 8, 1999, MPS has entered intotwo indemnity obligations with the purchaser, WPS-PDI. First, MPS will beliable, with certain limitations, for certain Aroostook River flowage damage.This liability will continue for ten years after the sale and shall not exceed$2.0 million in the aggregate. Second, MPS has warranteed the condition ofthe sites sold to WPS-PDI, with an aggregate limit of $3.0 million for twoyears after the date of sale, and five years after the sale for environmentalclaims. The Company is unaware of any pending claims under either of theseindemnity obligations.

**Maine Yankee**

        MPSowns 5% of the common stock of Maine Yankee Atomic Power Company (“MY’), whichoperated an 860 MW nuclear power plant in Wiscasset, Maine that has ceasedpower operations and is now in the final stages of decommissioning.

        Basedon the decommissioning of the Yankee Atomic nuclear plant, MPS believes it isentitled to recover substantially all of its share of such costs from itscustomers and, as of December 31, 2005, is carrying on its consolidatedbalance sheet a regulatory asset and a corresponding liability in the amount of$10.8 million, which reflects MPS’s 5% share of Maine Yankee’s most recentestimate of the remaining decommissioning costs, less actual decommissioningpayments made since then, and discounted by a risk-free interest rate.

        Inaccordance with its 1999 FERC rate case settlement, on October 21, 2003,MY filed a revised formula rate schedule with the FERC, proposing an effectivedate of January 1, 2004, when major decommissioning activities wereexpected to be nearing completion. The filing contains a reviseddecommissioning cost estimate and collection schedule to assure that adequatefunds are available to safely and promptly decommission the Plant and operateand manage the independent spent fuel storage installation (“ISFSI”). In thefiling, MY also requests a change in its billing formula and an increase in thelevel of collection for certain post-retirement benefits. To meet these needs,MY proposes to collect an additional $3.77 million per year throughOctober 2008, over current decommissioning collection levels, exclusive ofany income-tax liability, for the decommissioning and

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spent-fuelmanagement expense, and to collect the amounts needed to replenish its SpentFuel Trust for funds previously used for ISFSI construction fromNovember 2008 through October 2010. MY believes it is entitled torecover the costs underlying the proposed new rates, but cannot predict theoutcome of the rate proceeding. If approved by FERC, MPS’s share of thisincrease, approximately $189,000, will be recovered as stranded costs.

        Inaccordance with the process set forth in the legislation, inFebruary 2002, the Secretary of Energy recommended the Yucca Mountain siteto the President for the development of a nuclear waste repository, and thePresident then recommended development of the site to Congress. As provided inthe statutory procedure, the State of Nevada formally objected to the site inApril 2002, and in July 2002, Congress overrode the objection.Construction of the repository requires the approval of the Nuclear RegulatoryCommission. Maine Yankee’s License Termination Plan was approved without anyunexpected conditions. In accordance with a plan approved by the Securities andExchange Commission, Maine Yankee has started the redemption of its commonstock periodically through 2008.

**MEPCO**

        MPSalso owns 7.49% of the common stock of Maine Electric Power Company, Inc.,(“MEPCO”). MEPCO owns and operates a 345-KV (“kilovolt”) transmission lineapproximately 180 miles long which connects the NB Power system with the NewEngland Power Pool.

**Poly Chlorinated Bi-PhenolTransformers**

        Inresponse to a Maine environmental regulation to phase out Poly ChlorinatedBi-phenol (“PCB”) transformers, MPS has implemented a program to eliminatetransformers on its system that do not meet the new State environmentalguidelines. The program is in the process of testing almost 13,000 distributiontransformers over a ten-year period. MPS is currently in its fifth year of thisten-year program. In addition, transformers that pass the inspection criteriawill be refurbished and refitted with lightning arrestors and animal guards.The current estimated budget for this project is $2.7 million. As ofDecember 31, 2005, $1.4 million has been spent on this effort.

**Off-Balance Sheet Arrangements**

        TheMaricor Ashford Ltd joint venture is a variable interest entity, asdefined by Financial Accounting Standards Board Interpretation No. 46, “Consolidationof Variable Interest Entities,” (“FIN 46”) promulgated on January 17,2003. However, Management has determined that Maricor Ashford should not beconsolidated with these financial statements, as Maricor Properties is not theprimary beneficiary of the joint venture.

        Exceptfor operating leases used for office and field equipment, vehicles and computerhardware and software, accounted for in accordance with Financial AccountingStandards No. 13, “Accounting for Leases,” (“FAS 13”) the Company hasno other form of off-balance sheet arrangements. The following

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summarizes payments for leases for a period in excessof one year for the years ended December 31, 2005, and 2004 *(in thousands of dollars)* :

|                                 | ** ** | **2005** | ** ** | **2004** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Office Equipment                |       | $        | 15         |     | $          | 19 |   |
| Building                        |       | 174      |       | 66       |       |
| Vehicles                        |       | 7        |       | 10       |       |
| Computer  Hardware and Software |       | 29       |       | 137      |       |
| Rights of Way                   |       | 32       |       | 32       |       |
| Field Equipment                 |       | 20       |       | 22       |       |
|                            |       |     |       |     |       |
| Total                           |       | $        | 277        |     | $          | 286 |   |

 

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

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

| Years      | ** ** | **Minimum Lease  Payments**             | ** ** |
|------------|------------|----------------------------------------------|------------|
| ** ** | ** ** | **(In thousands of dollars)** | ** ** |
| 2006       |       | $                                            | 249        |   |
| 2007       |       | $                                            | 214        |   |
| 2008       |       | $                                            | 221        |   |
| 2009       |       | $                                            | 185        |   |
| 2010       |       | $                                            | 71         |   |

**Maricor Properties’ Leases**

        MaricorProperties leases office space to the Moncton and Halifax operating divisionsof The Maricor Group, Canada Ltd. Maricor Properties also has leases foroffice space to outside third parties. All of these leases are operating leasesand any inter-company profit from rental revenue has been eliminated inconsolidation. The minimum lease revenue expected from the third party leasearrangements does not include utilities and maintenance expenses that will bepaid by the third parties.

**5-YearMinimum Lease Payments for External Party Leases**

| 2006 |   | $ | 474,000 |   |
|------|--------|---|---------|--------|
| 2007 |   | $ | 467,000 |   |
| 2008 |   | $ | 467,000 |   |
| 2009 |   | $ | 440,000 |   |
| 2010 |   | $ | 377,000 |   |

**Financial Information System HostingAgreement**

        InDecember 2003, the Company entered into a ten-year agreement with DelineaCorporation to host and provide technical and functional support for theintegrated Oracle Financial Information System. The base hosting fees were$450,000 for 2004, $510,000 for 2005, and will be $575,000 per year for years2006-2013. The contract also includes an adjustment for inflation, as well astravel expenses for on-site support services. These amounts are not reflectedin the base hosting fee amounts above. The total hosting fee for 2005 was$527,000.

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**13.   GUARANTORARRANGEMENTS**

        InNovember 2002, the FASB issued FIN No. 45, “Guarantor’s Accountingand Disclosure Requirements for Guarantees, Including Indirect Guarantees ofIndebtedness of Others an interpretation of FASB Statements No. 5, 57, and107 and rescission of FASB Interpretation No. 34,” (“FIN 45”). FIN 45requires that a guarantor recognize, at the inception of a guarantee, aliability for the fair value of the obligation undertaken by issuing theguarantee. FIN 45 also requires additional disclosures to be made by aguarantor in its interim and annual financial statements about its obligationsunder certain guarantees it has issued. The accounting requirements for theinitial recognition of guarantees are applicable on a prospective basis forguarantees issued or modified after December 31, 2002. The disclosurerequirements are effective for all guarantees outstanding, regardless of whenthey were issued or modified for financial statements for interim or annualperiods ending after December 15, 2002. The adoption of the recognitionprovisions of FIN 45 did not have a material effect on the Company’sconsolidated financial statements.

        Thefollowing is a summary of our agreements that Management has determined arewithin the scope of FIN 45: As permitted under Maine law, the Company hasagreements that indemnify the Company’s Officers and Directors for certainevents or occurrences while the Officer or Director is, or was serving, at theCompany’s request in such capacity. The term of the indemnification period isfor the Officer’s or Director’s lifetime. The maximum potential amount offuture payments that could be required under these indemnification agreementsis unlimited; however, the Company has a Director and Officer insurance policythat limits exposure and enables recovery of a portion of any future amountspaid. As a result of the insurance policy coverage, the Company believes theestimated fair value of these indemnification agreements is minimal. All ofthese indemnification agreements were grandfathered under the provisions of FIN45 as they were in effect prior to December 31, 2002. Accordingly, noliability is recorded for these agreements as of December 31, 2005.

**14.   ACQUISITIONS**

**Cornwallis Court Acquisition**

        OnOctober 7, 2005, Maricor Properties completed the purchase of CornwallisCourt Developments Ltd. Maricor Properties acquired all of the outstandingshares of Cornwallis for $2.0 million CDN and the assumption of a$3.69 million CDN mortgage. The $2.0 million acquisition cost wasfinanced through RBC and is secured by a $1.73 million USD letter ofcredit from Bank of America. The term of the new RBC note is one-year at aninterest rate of Royal Bank prime plus 0.25%. The only asset of Cornwallis wasthe J. Angus MacDonald Building, a 60,000 square foot facility located indowntown Halifax, Nova Scotia, Canada. The building was fully leased at thetime of acquisition. This purchase is the second building acquired in Halifaxin the past eighteen months, and represents further execution of the Company’sreal estate investment strategy.

        Thefollowing table summarizes the estimated fair values of the assets acquired andliabilities assumed at the date of acquisition for the Cornwallis CourtDevelopments Ltd acquisition. The

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Company is in theprocess of finalizing the purchase price allocation in accordance withStatement of Financial Accounting Standards No. 141, “BusinessCombinations” (“SFAS 141”).

| Current Assets             |   | $      | 215    |   |
|----------------------------|--------|--------|--------|--------|
| Building, Land  and Leases |   | 4,968  |   |
|                       |   |   |   |
| Total Assets Acquired      |   | 5,183  |   |
|                       |   |   |   |
| Current Liabilities        |   | 413    |   |
| Long-Term Debt             |   | 2,922  |   |
|                       |   |   |   |
| Total Liabilities Acquired |   | 3,335  |   |
|                       |   |   |   |
| Net Assets  Acquired       |   | $      | 1,848  |   |

 

        Thefollowing unaudited Pro Forma information represents the 2005 consolidatedstatements of income as if Cornwallis Court Developments Ltd had beenacquired at the beginning of 2005.
| **Consolidated Pro Forma (unaudited)**                         | ** ** | **Income  Statement As  Presented  2005**                                                 | ** ** | **Income  Statement  Pro Forma  Additions  2005** | ** ** | **Income  Statement  Pro Forma  2005** | ** ** |
|-------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                    | ** ** | **(In thousands of dollars, except per share information)** | ** ** |
| Operating Revenues                                                            |       |                                                                                           |       |                                                   |       |                                        |       |
| Regulated                                                                     |       | $                                                                                              | 34,299     |                                                   | $          | —                                      |       | $ | 34,299 |   |
| Unregulated                                                                   |       | 5,383                                                                                          |       | —                                                 |       | 5,383                                       |       |
| Rental Income                                                                 |       | 292                                                                                            |       | 517                                                    |       | 809                                         |       |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Total Operating Revenues                                                      |       | $                                                                                              | 39,974     |                                                   | $          | 517                                         |       | $ | 40,491 |   |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Net (Loss)  Income from Continuing Operations                                 |       | $                                                                                              | (224       | )                                                      | $          | 98                                          |       | $ | (126 | ) |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Income from  Discontinued Operations                                          |       | 4                                                                                              |       | —                                                 |       | 4                                           |       |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Net (Loss)  Income Available for Common Stockholders                          |       | $                                                                                              | (220       | )                                                      | $          | 98                                          |       | $ | (122 | ) |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Average Shares  Outstanding—Basic                                        |       | 1,636,322                                                                                      |       | 1,636,322                                              |       | 1,636,322                                   |       |
| Average Shares  Outstanding—Diluted                                      |       | 1,636,322                                                                                      |       | 1,660,652                                              |       | 1,636,322                                   |       |
| Basic (Loss)  Earnings Per Share of Common Stock From Continuing Operations   |       | $                                                                                              | (0.13      | )                                                      | $          | 0.06                                        |       | $ | (0.07 | ) |
| Basic Loss Per  Share of Common Stock From Discontinued Operations       |       | —                                                                                         |       | —                                                 |       | —                                      |       |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Basic (Loss)  Earnings Per Share of Common Stock From Net (Loss) Income       |       | $                                                                                              | (0.13      | )                                                      | $          | 0.06                                        |       | $ | (0.07 | ) |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Diluted (Loss)  Earnings Per Share of Common Stock From Continuing Operations |       | $                                                                                              | (0.13      | )                                                      | $          | 0.06                                        |       | $ | (0.07 | ) |
| Diluted Loss Per  Share of Common Stock From Discontinued Operations          |       | —                                                                                         |       | —                                                 |       | —                                      |       |
|                                                                          |       |                                                                                           |       |                                                   |       |                                        |       |
| Diluted (Loss)  Earnings Per Share of Common Stock From Net (Loss) Income     |       | $                                                                                              | (0.13      | )                                                      | $          | 0.06                                        |       | $ | (0.07 | ) |

**Formation of Maricor Technologies andAsset Acquisition**

        OnFebruary 22, 2005, the Company announced the formation of MaricorTechnologies, Inc. (“MTI”), a wholly-owned, technology-based subsidiary.Concurrently, MTI acquired lifecycle asset

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management andcapital budget planning software assets that will complement MAM’s U.S. andCanadian engineering and facilities lifecycle asset management servicescompanies. MTI is headquartered in Presque Isle, Maine, with offices inPortland, Maine. The total purchase price at closing was approximately$1.0 million, which was in the form of convertible preferred shares ofapproximately $950,000 and $50,000 in cash, paid in exchange for software andan immaterial amount of net assets. Additional cash or stock considerationbetween $200,000 and $600,000 will be paid to the seller depending on theexercise of options available to the buyer and seller during the four-yearperiod following closing. Two new employees involved with the development ofthe software were added to MTI.

**2004 Acquisitions**

        During2004, the Company acquired three entities, none of which individually is deemedmaterial. The total cost of the acquisitions was $6.0 million, consistingof 54,332 shares of MAM common stock, valued at $1.68 million,$3.62 million of cash and $700,000 of external costs for the acquisition.The per share value of the 54,332 common shares issued was determined based onthe average market price of the Company’s common shares over the ten businessdays ending on the fifth day prior to the acquisitions. The aggregate amount ofgoodwill and other intangible assets arising from the acquisitions was$5.21 million, and is reported in the unregulated engineering services andunregulated real estate operating segments.

        Followingis a brief description of each of the entities acquired:

·                    Morris &Richard Consulting Engineers Limited (“M&R”), a mechanical and electricalengineering services firm headquartered in Halifax, Nova Scotia, Canada,acquired on June 1, 2004, a division of The Maricor Group,Canada Ltd.

·                    MecelProperties Limited, a real estate holding company headquartered in Halifax,Nova Scotia, Canada, acquired on June 1, 2004, a wholly-owned subsidiaryof Maricor Properties Ltd.

·                    RESEngineering Inc. (“RES”), a mechanical and electrical engineering servicesfirm headquartered in Hudson, Massachusetts, acquired on June 15, 2004, awholly-owned subsidiary of The Maricor Group.

        Underthe terms of the agreements, the former shareholders of these companies areprohibited from selling their shares of stock for a certain period after theacquisition. For a period following that restricted period, if the formershareholders sell their stock for a price less than the value per share used tocalculate the purchase price, additional cash consideration will be paid to theformer shareholders for that difference. The exposure for such “true-up”provisions is $814,000 at December 31, 2005.

        Theformer shareholders were also entitled to additional cash consideration of upto $1.7 million, payable at specific dates through 2007, if certain futuretargets are met. If these targets are met, the value of the considerationultimately paid will be added to the cost of the acquisition, increasing theamount of goodwill.

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        Thefollowing table summarizes the fair values of the assets acquired and liabilitiesassumed at the date of acquisition for the three acquisitions made during 2004.None of these acquisitions were deemed individually material.

 

| Current Assets                    |   | $      | 1,887  |   |
|-----------------------------------|--------|--------|--------|--------|
| Property, Plant, &  Equipment |   | 574    |   |
| Goodwill and Intangibles          |   | 5,210  |   |
|                              |   |   |   |
| Total Assets  Acquired            |   | 7,671  |   |
|                              |   |   |   |
| Current Liabilities               |   | 1,670  |   |
| Long-Term Debt                    |   | — |   |
|                              |   |   |   |
| Total  Liabilities Assumed        |   | 1,670  |   |
|                              |   |   |   |
| Net Assets  Acquired              |   | $      | 6,001  |   |

 

        Goodwillis deductible for tax purposes in the United States for these acquisitions.Goodwill is not deductible in Canada for the acquisitions of M&R andEastcan. The deductibility of goodwill is subject to the details of eachindividual transaction.

 

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        Thefollowing unaudited consolidated MAM pro forma information includes the 2004acquisitions of M&R and RES as if they had been owned from the beginning ofthe year ending 2004. Mecel Properties was acquired as a holding company andowns the building in which M&R resides. There is no revenue or profit inthe pro forma numbers below related to Mecel as these intercompany revenues andprofits are eliminated in consolidation.
| **Consolidated Pro Forma (unaudited)**                          | ** ** | **Income  Statement As  Presented  2004**                                                 | ** ** | **Income  Statement  Pro Forma  Additions  2004** | ** ** | **Income  Statement  Pro Forma  2004** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                                     | ** ** | **(In thousands of dollars, except per share information)** | ** ** |
| Operating Revenues                                                             |       |                                                                                           |       |                                                   |       |                                        |       |
| Regulated                                                                      |       | $                                                                                              | 33,733     |                                                   | $          | —                                      |       | $ | 33,733 |   |
| Unregulated                                                                    |       | 3,405                                                                                          |       | 3,485                                                  |       | 6,890                                       |       |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Total Operating Revenues                                                       |       | $                                                                                              | 37,138     |                                                   | $          | 3,485                                       |       | $ | 40,623 |   |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Net Income  (Loss) from Continuing Operations                                  |       | $                                                                                              | 1,726      |                                                   | $          | (603                                        | )          | $ | 1,123 |   |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Discontinued Operations                                                        |       |                                                                                           |       |                                                   |       |                                        |       |
| Loss from Discontinued Operations (including loss on  disposal of $69 in 2004) |       | (678                                                                                           | )          | —                                                 |       | (678                                        | )          |
| Income Tax Benefit                                                             |       | 270                                                                                            |       | —                                                 |       | 270                                         |       |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Loss from  Discontinued Operations                                             |       | (408                                                                                           | )          | —                                                 |       | (408                                        | )          |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Net Income  (Loss) Available for Common Stockholders                           |       | $                                                                                              | 1,318      |                                                   | $          | (603                                        | )          | $ | 715 |   |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Average Shares  Outstanding—Basic                                         |       | 1,612,696                                                                                      |       | 1,612,696                                              |       | 1,612,696                                   |       |
| Average Shares  Outstanding—Diluted                                       |       | 1,625,821                                                                                      |       | 1,625,821                                              |       | 1,625,821                                   |       |
| Basic Earnings  (Loss) Per Share of Common Stock From Continuing Operations    |       | $                                                                                              | 1.07       |                                                   | $          | (0.37                                       | )          | $ | 0.70 |   |
| Basic Loss Per  Share of Common Stock From Discontinued Operations        |       | (0.25                                                                                          | )          | —                                                 |       | (0.25                                       | )          |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Basic Earnings  (Loss) Per Share of Common Stock From Net Income (Loss)        |       | $                                                                                              | 0.82       |                                                   | $          | (0.37                                       | )          | $ | 0.45 |   |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Diluted Earnings  (Loss) Per Share of Common Stock From Continuing Operations  |       | $                                                                                              | 1.06       |                                                   | $          | (0.37                                       | )          | $ | 0.69 |   |
| Diluted Loss Per  Share of Common Stock From Discontinued Operations           |       | (0.25                                                                                          | )          | —                                                 |       | (0.25                                       | )          |
|                                                                           |       |                                                                                           |       |                                                   |       |                                        |       |
| Diluted Earnings (Loss)  Per Share of Common Stock From Net Income (Loss)      |       | $                                                                                              | 0.81       |                                                   | $          | (0.37                                       | )          | $ | 0.44 |   |

**2004 Property Addition**

        Duringthe third quarter of 2004, the Company purchased real property which isreported in the unregulated real estate operating segment. On August 13,2004, Maricor Properties Ltd completed the acquisition of a multi-tenantfacility at 77 Vaughan Harvey Boulevard in the downtown area of Moncton, NewBrunswick, Canada (the “Vaughan Harvey Property”) from Sun Life AssuranceCompany of Canada (“Sun Life”), as well as an adjacent home. The home has beendemolished and converted into parking space, allowing for ownership of acomplete city block within Moncton, New Brunswick, consisting of the mid-riseoffice building and parking.

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        Thevacant facility was in need of revitalization, which was undertaken using theexpertise of TMGC to upgrade the facilities mechanical and electrical systems,with additional architectural, aesthetic and landscaping improvements. Thefacility was partially leased (approximately 40%) during 2005 to a third partytenant and TMGC’s Moncton division. Lease revenues from TMGC’s Moncton divisionare also eliminated in consolidation. In late 2005, Management was successfulin leasing-up the facility with actual leases being signed during early 2006and tenant improvements under construction in early 2006 as well. The leasingof the facility will have a positive impact on Maricor Properties in 2006.

        Asa part of the acquisition of the Vaughan Harvey Property, a participation inthe project was granted to the Ashford Group, a group of real estatedevelopment and management companies located in Moncton, New Brunswick. AshfordInvestments, Inc. controlled the rights to acquire the real estate andassigned their right to Maricor Properties Ltd for certain considerations.Ashford Properties, Inc., which will serve as the outsourced facilitiesmanagement group for the building, could have earned up to thirty percenteconomic ownership in the building depending upon the pace of leasing of thefacility. Maricor Properties negotiated to purchase this economic ownershipinterest from Ashford Investments, Inc., for $320,000, payable in equalinstallment payments in November 2005 and April 2006.

        Inaddition to the real estate participation, for the grant of participation,which includes no control rights, MAM received a right-of-first refusal on allreal estate holdings of the Ashford Group, as well as the company and itssubsidiaries, and Maricor Properties received the right-of-first refusal on allfuture projects developed by the Ashford Group. Also, the Ashford Groupreleased The Maricor Group, Canada from its lease of office space owned by theAshford Group, allowing The Maricor Group, Canada to relocate to the VaughanHarvey Property during the fourth quarter of 2004.

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**15.   QUARTERLYINFORMATION (UNAUDITED)**

        Thefollowing tables summarize the quarterly financial data for the two years endedDecember 31, 2005:

 
| ** **                                  | ** ** | **2005 by Quarter**                                                      | ** ** |
|---------------------------------------------|------------|------------------------------------------------------------------------------------|------------|
| ** **                                  | ** ** | **1st**                                                                            | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** | ** ** |
| ** **                                  | ** ** | **(Dollars in thousands, except per share amounts)** | ** ** |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Operating Revenues                          |       |                                                                               |       |   |   |   |   |   |   |
| Regulated Electric Utility                  |       | $                                                                                  | 10,315     |   | $ | 7,073 |   | $ | 7,445 |   | $ | 9,466 |   |
| Unregulated Engineering Services            |       | 1,403                                                                              |       | 1,366 |   | 1,267 |   | 1,238 |   |
| Unregulated Real Estate Holdings            |       | 69                                                                                 |       | 76 |   | 77 |   | 225 |   |
| Unregulated Software Technology             |       | 3                                                                                  |       | 35 |   | 29 |   | 48 |   |
| Other                                       |       | (54                                                                                | )          | (55 | ) | (51 | ) | (1 | ) |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Total Revenues                              |       | 11,736                                                                             |       | 8,495 |   | 8,767 |   | 10,976 |   |
| Operating  Expenses                         |       | 10,191                                                                             |       | 9,057 |   | 9,345 |   | 10,144 |   |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Operating Income  (Loss)                    |       | 1,545                                                                              |       | (562 | ) | (578 | ) | 832 |   |
| Other Income  (Deductions)                  |       | 29                                                                                 |       | 80 |   | (2 | ) | (47 | ) |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges      |       | 1,574                                                                              |       | (482 | ) | (580 | ) | 785 |   |
| Interest Charges                            |       | 305                                                                                |       | 313 |   | 346 |   | 557 |   |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Income (Loss)  From Continuing Operations   |       | 1,269                                                                              |       | (795 | ) | (926 | ) | 228 |   |
| Income (Loss)  from Discontinued Operations |       | 8                                                                                  |       | (3 | ) | 0 |   | (1 | ) |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Net Income  (Loss)                          |       | $                                                                                  | 1,277      |   | $ | (798 | ) | $ | (926 | ) | $ | 227 |   |
|                                        |       |                                                                               |       |   |   |   |   |   |   |
| Earnings Per Share                          |       | $                                                                                  | 0.78       |   | $ | (0.49 | ) | (0.57 | ) | $ | 0.14 |   |

 

 
| ** **                                | ** ** | **2004 by Quarter**                                                    | ** ** |
|-------------------------------------------|------------|----------------------------------------------------------------------------------|------------|
| ** **                                | ** ** | **1st**                                                                          | ** ** | **2nd** | ** ** | **3rd** | ** ** | **4th** | ** ** |
| ** **                                | ** ** | **(Dollars in thousand except per share amounts)** | ** ** |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Operating Revenues                        |       |                                                                             |       |   |   |   |   |   |   |
| Regulated Electric Utility                |       | $                                                                                | 10,209     |   | $ | 6,881 |   | $ | 7,215 |   | $ | 9,429 |   |
| Unregulated Engineering Services          |       | 290                                                                              |       | 625 |   | 1,292 |   | 1,205 |   |
| Unregulated Real Estate Holdings          |       | —                                                                           |       | — |   | 17 |   | 37 |   |
| Other                                     |       | (1                                                                               | )          | 1 |   | (25 | ) | (37 | ) |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Total Revenues                            |       | 10,498                                                                           |       | 7,507 |   | 8,499 |   | 10,634 |   |
| Operating  Expenses                       |       | 8,302                                                                            |       | 7,554 |   | 8,583 |   | 9,844 |   |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Operating Income  (Loss)                  |       | 2,196                                                                            |       | (47 | ) | (84 | ) | 790 |   |
| Other Income  (Deductions)                |       | (54                                                                              | )          | 27 |   | (86 | ) | 40 |   |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Income (Loss)  Before Interest Charges    |       | 2,142                                                                            |       | (20 | ) | (170 | ) | 830 |   |
| Interest Charges                          |       | 234                                                                              |       | 255 |   | 256 |   | 311 |   |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Income (Loss) From  Continuing Operations |       | 1,908                                                                            |       | (275 | ) | (426 | ) | 519 |   |
| Loss from  Discontinued Operations        |       | (358                                                                             | )          | (33 | ) | (6 | ) | (11 | ) |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Net Income  (Loss)                        |       | $                                                                                | 1,550      |   | $ | (308 | ) | $ | (432 | ) | $ | 508 |   |
|                                      |       |                                                                             |       |   |   |   |   |   |   |
| Earnings Per Share                        |       | $                                                                                | 0.98       |   | $ | (0.19 | ) | $ | (0.26 | ) | $ | 0.31 |   |

 

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**Item9.    Changes In and Disagreements With Accountants OnAccounting and Financial Disclosure**

        Forinformation regarding change in accountants, see Form 8-K filed by theCompany on August 23, 2004, which is incorporated in this section byreference. There were no disagreements with the accountants.

**Item9A.    Controls and Procedures**

1.             Evaluationof disclosure controls and procedures.

        TheCompany’s management, including the Company’s principal executive officer and principalfinancial officer, are responsible for establishing and maintaining disclosurecontrols and 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 isaccumulated and communicated to Management to allow timely decisions regardingrequired disclosure.  Managementevaluated the Company’s disclosure controls and procedures as of the end of theperiod covered by this annual report. Based on the evaluation, the aforementioned officers concluded that theCompany’s disclosure controls and procedures are working effectively.

2.             Changesin Internal Controls over Financial Reporting

        Therewas no change in the Company’s internal control over financial reporting thatoccurred during the most recent fiscal quarter.

        Asa non-accelerated filer, the Company is evaluating actions necessary to complywith Section 404 of The Sarbanes-Oxley Act with respect to its internalcontrol over financial reporting.

        TheCompany continues to assess the internal control environment, control designsand operating effectiveness, to ensure no significant deficiencies or materialweaknesses exist. The Company also continues to monitor the potential changesto the requirements of the Act for non-accelerated filers.

**Item 9B.    OtherInformation**

        None.

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**PART III**

**Item10.    Directors and Executive Officers of the Registrant**

        Informationwith regard to the Directors of the registrant is set forth in the ProxyStatement of the registrant relating to its 2006 Annual Meeting ofStockholders, which information is incorporated herein by this reference.Certain information regarding Executive Officers is set forth below and also inthe Proxy Statement of the registrant relating to the 2005 Annual Meeting ofStockholders, under “Compliance with Section 16(a) of the Securities andExchange Act of 1934,” which information is incorporated by this reference. Wehave adopted a Code of Ethics for Senior Officers and all other PrincipalExecutive Officers and Managers that applies to our Chief Executive Officer,Chief Financial Officer and other Senior Financial Officers. The code of ethicsis publicly available on our website at www.maineandmaritimes.com.

***Executive Officers***

        TheExecutive Officers of the registrant are as follows:
| Name                      | ** ** | **Title**                                                                                                  | ** ** | **Age** | ** ** | **Office  Continuously  Held Since** |
|---------------------------|------------|------------------------------------------------------------------------------------------------------------|------------|---------|------------|--------------------------------------|
| J. Nicholas  Bayne        |       | President and Chief Executive Officer                                                                      |       | 52      |       | 9/1/2002                             |
|  Michael I. Williams |       | Vice President, Acting Chief Financial Officer,  Controller, Assistant Treasurer & Assistant Secretary |       | 38      |       | 12/5/2005                            |
|  John P. Havrilla    |       | Vice President, Corporate Strategy and Chief  Development Officer                                          |       | 48      |       | 6/3/2005                             |
|  Annette N. Arribas  |       | Vice President, Investor Relations & Treasurer                                                         |       | 41      |       | 6/3/2005                             |
|  Patrick C. Cannon   |       | General Counsel, Secretary and Clerk                                                                       |       | 34      |       | 12/1/2004                            |

        **James Nicholas (Nick) Bayne,** age52, has been a Director since 2002 and serves as MAM’s President and ChiefExecutive Officer. He also holds the office of Chief Executive Officer andserves on the Board of Directors of Maine Public Service Company, and holds theoffice of President and Chief Executive Officer and serves on the Boards ofDirectors of Maine & New Brunswick Electrical Power Co., Ltd.,The Maricor Group, The Maricor Group, Canada Ltd, The Maricor Group NewEngland, Inc., Maricor Properties Ltd, MaricorTechnologies, Inc., Mecel Properties Ltd, Cornwallis CourtDevelopments Ltd. and Maricor Ashford, Ltd. Mr. Bayne has extensiveexecutive management experience in the regulated and unregulated energy,electric utility and economic/real estate development industries. He has servedas an executive consultant to the energy and information technologiesindustries; CEO of Aspect, LP, a Houston-based energy risk management and FASB133 ASP software firm; Senior Vice President for Energy Sales and Operationsfor Duke Energy’s unregulated retail energy services company; Vice Presidentfor MEAG Power; President of the Business and Industrial DevelopmentCorporation; and positions with Carolina Power & Light Company andCentral Electric Power Cooperative, Inc. He holds degrees fromSouthwestern Community College and the University of South Carolina withconcentrations in environmental science, business administration, and economicgeography.

        **Michael I. Williams, CPA, CIA,** age38, Vice President, Acting Chief Financial Officer, Chief Accounting Officer,Controller, Assistant Treasurer, and Assistant Secretary. A Certified PublicAccountant and Certified Internal Auditor, Mr. Williams has over fifteenyears of experience, including positions in accounting, external auditing,internal auditing, project management, operations management, and informationtechnology management. Mr. Williams also brings ten years of

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experience in theutilities industry with Bangor Hydro-Electric Company, his employer prior tojoining Maine & Maritimes Corporation. He is a graduate of theUniversity of Maine.

        **John P. Havrilla, P.E.,** age 48, VicePresident, Corporate Strategy and Chief Development Officer. Mr. Havrilladirects Maine & Maritimes Corporation’s unregulated growth anddiversification strategy. Mr. Havrilla has more than twenty years ofelectric and natural gas industry experience, as well as consulting engineeringexperience in both regulated and unregulated environments. Prior to joining theCompany, he served as an executive energy and engineering consultant to theelectric utilities and industrial sectors. He served as Vice President ofStrategic and Financial Systems and Corporate Secretary for Duke Energy’sunregulated retail energy services company serving the U.S. and Canada. He hasalso served in positions with Duke Power and New York State Electric &Gas. Mr. Havrilla holds a Bachelor of Science in Electrical EngineeringTechnology from the Pennsylvania State University and is a LicensedProfessional Engineer in the states of Maine and New York.

        **Annette N. Arribas, CTP,** age 41,Vice President, Investor Relations and Treasurer. Ms. Arribas isresponsible for all investor relations activities, as well as the corporatetreasury function. Her experience includes having worked in both the regulatedand unregulated electric energy sectors, as well as managerial and investor relationspositions in the banking and insurance/investment industries. She holds aMasters in Business Administration degree from the University of Maine,Graduate School of Business, a Bachelor of Arts degree in Management from theUniversity of Maine, is a graduate of the Investor Relations Program of theNational Investor Relations Institute at the University of Michigan BusinessSchool, and has earned the designation of Certified Treasury Professional.

        **Patrick C. Cannon,** Esquire, 34,General Counsel, Secretary and Clerk. Mr. Cannon serves as General Counseland Secretary. He is responsible for managing legal affairs for the Company andeach of its subsidiaries. Prior to joining Maine & MaritimesCorporation, Mr. Cannon spent seven years in private practice with the lawfirms of Davis Wright Tremaine LLP in Seattle, Washington and ParsonsBehle & Latimer in Salt Lake City, Utah, concentrating on corporatefinance, mergers and acquisitions and corporate governance matters. He is agraduate of Brigham Young University and received his Juris Doctorate degreefrom Boston College Law School.

        Eachexecutive office is a full-time position and has been the principal occupationof each Officer since first elected. All Officers were elected to serve untilthe next annual election of Officers and until their successors shall have beenduly chosen and qualified. The next annual election of Officers will be onMay 9, 2006.

        Thereare no family relationships among Executive Officers.

**Item 11.    ExecutiveCompensation**

        Informationfor this item is set forth in the Proxy Statement of the registrant relating toits 2006 Annual Meeting of Stockholders, which information is incorporatedherein by this reference.

**Item12.    Security Ownership of Certain Beneficial Owners andManagement**

        Informationfor this item is set forth in the Proxy Statement of the registrant relating toits 2006 Annual Meeting of Stockholders, which information is incorporatedherein by this reference.

**Item 13.    CertainRelationships and Related Transactions**

        Informationfor this item is set forth in the Proxy Statement of the registrant relating toits 2006 Annual Meeting of Stockholders, which information is incorporatedherein by this reference.

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**Item 14.    PrincipalAccountant Services and Fees.**

        Informationfor this item is set forth in the Proxy Statement of the registrant relating toits 2006 Annual Meeting of Stockholders, which information is incorporatedherein by this reference.

**PART IV**

**Item15.    Exhibits, Financial Statement Schedules**

(a)             Thefollowing documents are filed as part of this report:

(1)            ConsolidatedFinancial Statements are included in Part II—Item 8 of this report.

(2)            Schedule I—CondensedFinancial Information of Registrant.

(3)            Schedule II—Valuationof Qualifying Accounts and Reserves.

All other schedules have been omitted for the reasonthat they are not required or are not applicable, or the required informationis shown in the financial statements or notes thereto.

(4)            Exhibitsfor Maine & Maritimes Corporation are listed in the Index to Exhibits.

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** **

**Signatures**

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the registrant has duly caused this report to be signed on its behalf bythe undersigned, hereunto duly authorized, on the 13th of September, 2006.
|        | MAINE & MARITIMES CORPORATION |
|--------|-----------------------------------|
|   |                              |   |
|   | By:                               | /s/ MICHAEL I.  WILLIAMS |
|   |                              | Michael I.  Williams |
|   |                              | *Senior  Vice President, Chief Financial Officer and Interim Chief Operating Officer* |

 

Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons in the capacities and on the dateindicated.
| Signature               | ** ** | **Title**                          | ** ** | **Date** |
|-------------------------|------------|------------------------------------|------------|----------|
|                    |       |                               |       |     |
| /s/ RICHARD G.  DAIGLE  |       | Chairman of the Board and Director |       |     |
| Richard G.  Daigle      |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ NATHAN L. GRASS     |       | Director and Interim CEO           |       |     |
| Nathan L. Grass         |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ ROBERT E.  ANDERSON |       | Director                           |       |     |
| Robert E.  Anderson     |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ D. JAMES  DAIGLE    |       | Director                           |       |     |
| D.James Daigle          |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ DAVID N.  FELCH     |       | Director                           |       |     |
| David N. Felch          |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ MICHAEL W.  CARON   |       | Director                           |       |     |
| Michael W. Caron        |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ DEBORAH L.  GALLANT |       | Director                           |       |     |
| Deborah L.  Gallant     |       |                               |       |     |
|                    |       |                               |       |     |
| /s/ LANCE A.  SMITH     |       | Director                           |       |     |
| Lance A. Smith          |       |                               |       |     |

 

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** **

**Schedule I**

**Condensed Financial Information ofRegistrant**

**Maine &Maritimes CorporationCondensed Statements of Operations(In thousands of dollars)**
| ** **                                                            | ** ** | ** **                             | ** ** | **For the Six** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------|------------|
| ** **                                                            | ** ** | **For the Years Ended** | ** ** | **Months Ended**     | ** ** |
| ** **                                                            | ** ** | **December 31,**                  | ** ** | **December 31,**     | ** ** |
| ** **                                                            | ** ** | **2005**                               | ** ** | **2004**                  | ** ** | **2003** | ** ** |
| **Operating Expenses**                                                | ** ** | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** |
| Unregulated  Operation & Maintenance and Other Operating Expenses |       | $                                      | 2,238      |                      | $          | 1,335 |   | $ | 368 |   |
| Income Taxes                                                          |       | (879                                   | )          | (556                      | )          | (152 | ) |
| **Total  Operating Expenses**                                         |       | 1,359                                  |       | 779                       |       | 216 |   |
|                                                                  |       |                                   |       |                      |       |   |   |
| **Operating Loss**                                                    |       | (1,359                                 | )          | (779                      | )          | (216 | ) |
|                                                                  |       |                                   |       |                      |       |   |   |
| **Other Income (Deductions)**                                         | ** ** | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** |
| Equity in Income  of Subsidiaries and Associated Companies            |       | 1,126                                  |       | 2,145                     |       | 1,318 |   |
| Interest and  Dividend Income                                         |       | 112                                    |       | 48                        |       | — |   |
| Other—Net                                                        |       | (25                                    | )          | (83                       | )          | — |   |
| **Total**                                                             |       | 1,213                                  |       | 2,110                     |       | 1,318 |   |
| **(Loss) Income Before Interest  Charges**                            |       | (146                                   | )          | 1,331                     |       | 1,102 |   |
| **Interest Charges**                                                  |       | 74                                     |       | 13                        |       | — |   |
| **Net (Loss) Income**                                                 |       | $                                      | (220       | )                         | $          | 1,318 |   | $ | 1,102 |   |
|                                                                  |       |                                   |       |                      |       |   |   |
| **Average Shares Outstanding —  Basic**                          |       | 1,636,322                              |       | 1,612,696                 |       | 1,578,547 |   |
| **Average Shares Outstanding —  Diluted**                        |       | 1,636,322                              |       | 1,625,821                 |       | 1,589,047 |   |
|                                                                  |       |                                   |       |                      |       |   |   |
| **Basic (Loss) Earnings Per Share**                                   |       | $                                      | (0.13      | )                         | $          | 0.82 |   | $ | 0.70 |   |
| **Diluted (Loss) Earnings Per Share**                                 | ** ** | $                                      | (0.13      | )                         | $          | 0.81 |   | $ | 0.69 |   |

 

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** **

**Schedule I**

**Condensed Financial Information ofRegistrant (Continued)**

**Maine &Maritimes Corporation Condensed Statements of Cash Flows (In thousands of dollars)**
| ** **                                                                      | ** ** | ** **                             | ** ** | **For the Six** | ** ** |
|---------------------------------------------------------------------------------|------------|----------------------------------------|------------|---------------------------|------------|
| ** **                                                                      | ** ** | **For the Years Ended** | ** ** | **Months Ended**     | ** ** |
| ** **                                                                      | ** ** | **December 31,**                  | ** ** | **December 31,**     | ** ** |
| ** **                                                                      | ** ** | **2005**                               | ** ** | **2004**                  | ** ** | **2003** | ** ** |
| **Cash  Flow from Operating Activities**                                        | ** ** | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** |
| Net (Loss) Income                                                               |       | $                                      | (220       | )                         | $          | 1,318 |   | $ | 1,102 |   |
| Equity in Earnings of Subsidiaries                                              |       | (1,126                                 | )          | (2,145                    | )          | (1,318 | ) |
| Adjustments to Reconcile Net (Loss) Income to Net  Cash Provided by Operations: |       |                                   |       |                      |       |   |   |
| Changes in Current Assets and Liabilities:                                      |       |                                   |       |                      |       |   |   |
| Intercompany Accounts Receivable                                                |       | (2,501                                 | )          | (2,123                    | )          | (222 | ) |
| Other Current Assets                                                            |       | 80                                     |       | 227                       |       | (307 | ) |
| Current Liabilities                                                             |       | 288                                    |       | 509                       |       | 247 |   |
| Other — Net                                                                |       | 512                                    |       | (444                      | )          | 295 |   |
| **Net Cash Flow Used By Operating Activities**                                  |       | $                                      | (2,967     | )                         | $          | (2,658 | ) | $ | (203 | ) |
|                                                                            |       |                                   |       |                      |       |   |   |
| **Cash  Flow From Financing Activities**                                        | ** ** | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** |
| Dividend Payments                                                               |       | (1,227                                 | )          | (2,161                    | )          | (1,183 | ) |
| Retirements of Long-Term Debt                                                   |       | (2,000                                 | )          | —                    |       | — |   |
| Borrowings of Long-Term Debt                                                    |       | —                                 |       | 2,000                     |       | — |   |
| Short-Term Borrowings (Repayments), Net                                         |       | 1,500                                  |       | —                    |       | — |   |
| Notes Receivable from Subsidiaries, Net                                         |       | 320                                    |       | (3,949                    | )          | (519 | ) |
| **Net Cash Flow Used By Financing Activities**                                  |       | $                                      | (1,407     | )                         | $          | (4,110 | ) | $ | (1,702 | ) |
|                                                                            |       |                                   |       |                      |       |   |   |
| **Cash  Flow From Investing Activities**                                        | ** ** | ** **                             | ** ** | ** **                | ** ** | ** ** | ** ** |
| Dividends Received from Subsidiaries                                            |       | 3,309                                  |       | 3,363                     |       | 5,181 |   |
| Other Changes in Investments in Subsidiaries                                    |       | 1,145                                  |       | 751                       |       | (317 | ) |
| Investment in Fixed Assets                                                      |       | —                                 |       | —                    |       | (263 | ) |
| Cash Paid for Stock Contingencies from Acquisition  Agreements                  |       | (122                                   | )          | —                    |       | — |   |
| **Net Cash Flow Provided By Investing Activities**                              |       | $                                      | 4,332      |                      | $          | 4,114 |   | $ | 4,601 |   |
|                                                                            |       |                                   |       |                      |       |   |   |
| **Decrease  in Cash and Cash Equivalents**                                      |       | (42                                    | )          | (2,654                    | )          | 2,696 |   |
| Cash and Cash  Equivalents at Beginning of Period                               |       | 42                                     |       | 2,696                     |       | — |   |
| **Cash  and Cash Equivalents at End of Period**                                 |       | $                                      | —     |                      | $          | 42 |   | $ | 2,696 |   |

 

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** **

**Schedule I**

**Condensed Financial Information ofRegistrant (Continued)**

**Maine &Maritimes Corporation Condensed Balance Sheets (In thousands of dollars)**
| ** **                                     | ** ** | **As of December 31,** | ** ** |
|------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                     | ** ** | **2005**                              | ** ** | **2004** | ** ** | **2003** | ** ** |
| **ASSETS**                                     | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Plant:**                                     | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Non-Utility Plant                              |       | $                                     | 3          |   | $ | 266 |   | $ | 263 |   |
| Accumulated Depreciation                       |       | (1                                    | )          | (1 | ) | — |   |
| **Net Plant in Service**                       |       | 2                                     |       | 265 |   | 263 |   |
| **Investment  in Subsidiaries**                |       | 41,821                                |       | 43,936 |   | 44,228 |   |
| **Net  Plant and Investment in Subsidiaries**  |       | 41,823                                |       | 44,201 |   | 44,491 |   |
|                                           |       |                                  |       |   |   |   |   |
| **Current  Assets:**                           | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Cash and Cash Equivalents                      |       | —                                |       | 42 |   | 2,696 |   |
| Intercompany Accounts Receivable               |       | 4,846                                 |       | 2,345 |   | 222 |   |
| Other Current Assets                           |       | —                                |       | 80 |   | 307 |   |
| **Total**                                      |       | 4,846                                 |       | 2,467 |   | 3,225 |   |
|                                           |       |                                  |       |   |   |   |   |
| **Other  Assets:**                             | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Intercompany Notes Receivable                  |       | 4,148                                 |       | 4,468 |   | 519 |   |
| Miscellaneous                                  |       | 195                                   |       | 592 |   | 15 |   |
| **Total**                                      |       | 4,343                                 |       | 5,060 |   | 534 |   |
| **Total  Assets**                              |       | $                                     | 51,012     |   | $ | 51,728 |   | $ | 48,250 |   |
|                                           |       |                                  |       |   |   |   |   |
| **CAPITALIZATION  & LIABILITIES**          | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Capitalization:**                            | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Shareholders' Equity                           |       | $                                     | 47,984     |   | $ | 48,564 |   | $ | 47,705 |   |
| Long-Term Debt                                 |       | —                                |       | 2,000 |   | — |   |
| **Total**                                      |       | 47,984                                |       | 50,564 |   | 47,705 |   |
|                                           |       |                                  |       |   |   |   |   |
| **Current  Liabilities:**                      | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Notes Payable to Banks                         |       | 1,500                                 |       | — |   | — |   |
| Accounts Payable and Other Current Liabilities |       | 1,044                                 |       | 756 |   | 247 |   |
| **Total**                                      |       | 2,544                                 |       | 756 |   | 247 |   |
|                                           |       |                                  |       |   |   |   |   |
| **Other  Liabilities:**                        | ** ** | ** **                            | ** ** | ** ** | ** ** | ** ** | ** ** |
| Miscellaneous                                  |       | 484                                   |       | 408 |   | 298 |   |
| **Total**                                      |       | 484                                   |       | 408 |   | 298 |   |
| **Total Capitalization and  Liabilities**      |       | $                                     | 51,012     |   | $ | 51,728 |   | $ | 48,250 |   |

 

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** **

**Schedule I**

**Condensed Financial Information ofRegistrant (Continued)**

**Maine &Maritimes CorporationNotes to Condensed Financial Information**

**1.             BASISOF PRESENTATION AND CREATION OF HOLDING COMPANY**

**Basis of Presentation**

The parent company’s investment in its subsidiaries isstated at cost plus equity in earnings (losses) of its subsidiaries.  The financial statements of the parentcompany should be read in conjunction with the consolidated financialstatements and related footnotes of the Company for the year ended December 31,2005.

**Creation of Maine & Maritimes Corporation**

Maine & Maritimes Corporation (parent company) isa utility holding company organized effective June 30, 2003.  The parent company only financial statementspresented in this Schedule I for the period ended December 31, 2003,incorporates the activity of the parent company from its creation on June 30,2003, through December 31, 2003.

**2.             DIVIDENDSAND RETURNS OF EQUITY FROM SUBSIDIARIES**

The following common stock cash dividends and returnsof equity were paid to Maine & Maritimes Corporation by its subsidiaries:

 

|                               | ** ** | ** **                             | ** ** | **For the Six** | ** ** |
|-------------------------------|------------|----------------------------------------|------------|---------------------------|------------|
| ** **                    | ** ** | **For the Years Ended** | ** ** | **Months Ended**     | ** ** |
| ** **                    | ** ** | **December 31,**                  | ** ** | **December 31,**     | ** ** |
| ** **                    | ** ** | **2005**                               | ** ** | **2004**                  | ** ** | **2003** | ** ** |
| Maine Public  Service Company |       | $                                      | 2,317      |                      | $          | 2,663 |   | $ | 1,181 |   |
| Maricor  Properties           |       | 802                                    |       | —                    |       | — |   |
| Energy Atlantic,  LLC         |       | 183                                    |       | 700                       |       | 4,000 |   |
| The Maricor  Group            |       | 7                                      |       | —                    |       | — |   |
| **Total**                     |       | $                                      | 3,309      |                      | $          | 3,363 |   | $ | 5,181 |   |

 

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** **

**Schedule II**

**Maine &Maritimes Corporation & SubsidiariesValuation of Qualifying Accounts & ReservesFor the Years Ended December 31, 2005, 2004 and 2003**
| ** **                                        | ** ** | ** **                                     | ** ** | **Additions**                  | ** ** | **Deductions**                             | ** ** | ** **                                 | ** ** |
|---------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------|------------|--------------------------------------------|------------|--------------------------------------------|------------|
| **(In thousands of dollars)**      | ** ** | **Balance at  Beginning  of Period** | ** ** | **Costs &  Expenses** | ** ** | **Accounts  Previously  Written Off** | ** ** | **Reserve on  Acquired  Receivables** | ** ** | **Accounts  Written Off As  Uncollectible** | ** ** | **Balance at  End of  Period** | ** ** |
| Reserve Deducted  From Asset To Which It Applies: |       |                                           |       |                           |       |                                       |       |                                       |       |   |   |   |   |
| Allowance for  uncollectible accounts             |       |                                           |       |                           |       |                                       |       |                                       |       |   |   |   |   |
| 2005                                              |       | 690                                            |       | (90                            | )          | 163                                        |       | —                                     |       | 391 |   | 372 |   |
| 2004                                              |       | 236                                            |       | 466                            |       | 135                                        |       | 305                                        |       | 452 |   | 690 |   |
| 2003                                              |       | 214                                            |       | 297                            |       | 157                                        |       | —                                     |       | 432 |   | 236 |   |

 

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** **

**INDEXTO EXHIBITS**

Certain of thefollowing exhibits are filed herewith. Certain other of the following exhibitshave heretofore been filed with the Securities and Exchange Commission and areincorporated herein by reference. (* indicates filed herewith)
| 3(a)   |   | Articles of Incorporation (Exhibit 3(a) to 2004 MAM  Form 10-K)                                                                                                                                                                                     |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                |
| 3(b)   |   | By-laws of the Company (Exhibit 3(b) to 2004 MAM  Form 10-K)                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                |
| 4(a)   |   | Indenture of Mortgage and Deed of Trust defining the  rights of the holders of MPS’s First Mortgage Bonds. (Exhibit 4(a) to 1980  MPS Form 10-K)                                                                                               |
|   |   |                                                                                                                                                                                                                                                |
| 4(b)   |   | Nineteenth Supplemental Indenture, Dated May 1,  1998. (Exhibit 4(v) to 1998 MPS Form 10-K)                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                |
| 4(c)   |   | Twentieth Supplemental Indenture, Dated October 1,  2000. (Exhibit 4(w) to 2000 MPS Form 10-K)                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                |
| 4(d)   |   | Twenty-first Supplemental Indenture, Dated March 1,  2005.                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                |
| 4(e)   |   | Indenture of Second Mortgage and Deed of Trust,  dated as of October 1, 1985, made by MPS to J. Henry Schroder Bank and Trust  Company, as Trustee. (Exhibit 10(i) to MPS Form 8-K dated November 1, 1985)                                          |
|   |   |                                                                                                                                                                                                                                                |
| 4(f)   |   | Fourth Supplemental Indenture of the Second Mortgage  and Deed of Trust Dated May 1, 1998. (Exhibit 10(v) to 1998 MPS Form 10-K).                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                |
| 4(g)   |   | Fifth Supplemental Indenture of the Second Mortgage  and Deed of Trust dated October 1, 2000. (Exhibit 10(y) to 1998 MPS Form  10-K).                                                                                                               |
|   |   |                                                                                                                                                                                                                                                |
| 4(h)   |   | Sixth Supplemental Indenture of the Second Mortgage  and Deed of Trust dated June 1, 2002. (Exhibit 10.1 to MPS’s Form 10-Q for  the quarter ended June 30, 2002).                                                                             |
|   |   |                                                                                                                                                                                                                                                |
| 10(a)  |   | Agreement of Purchase and Sale between Maine Public  Service and Eastern Utilities Associates, dated April 7, 1986. (Exhibit 28(a)  to MPS Form 10-Q for the quarter ended June 30, 1986)                                                           |
|   |   |                                                                                                                                                                                                                                                |
| 10(b)  |   | Addendum to Agreement of Purchase and Sale, dated  June 26, 1986. (Exhibit 28(b) to MPS Form 10-Q for the Quarter ended June 30,  1986)                                                                                                             |
|   |   |                                                                                                                                                                                                                                                |
| 10(c)  |   | Capital Funds Agreement, dated as of May 20, 1968  between Maine Yankee Atomic Power Company and MPS. (Exhibit 10(b)(1) to MPS  Form 10-Q for the quarter ended March 31, 1983)                                                                     |
|   |   |                                                                                                                                                                                                                                                |
| 10(d)  |   | Power Contract, dated as of May 20, 1968 between  Maine Yankee Atomic Power Company and MPS. (Exhibit 10(b)(2) to MPS Form 10-Q  for the quarter ended March 31, 1983)                                                                              |
|   |   |                                                                                                                                                                                                                                                |
| 10(e)  |   | Stipulation between Maine Public Service Company,  the Staff of the Commission and the Maine Public Utilities Commission and the  Maine Public Advocate, dated July 14, 1986. (Exhibit 28(c) to MPS Form 10-Q  for the quarter ended June 30, 1986) |
|   |   |                                                                                                                                                                                                                                                |
| 10(f)  |   | Participation Agreement, as of June 20, 1969, with  Maine Electric Power Company, Inc. (Exhibit 10(c)(1) to MPS Form 10-Q for the  quarter ended March 31, 1983)                                                                                    |
|   |   |                                                                                                                                                                                                                                                |
| 10(g)  |   | Agreement, as of June 20, 1969, among MPS and the  other Maine Participants. (Exhibit 10(c)(2) to MPS Form 10-Q for quarter  ended March 31, 1983)                                                                                                  |

 

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| 10(h)  |   | Power Purchase and Transmission Agreement Supplement  to Participation Agreement, dated as of August 1, 1969, with Maine Electric  Power Company, Inc. (Exhibit 10(c)(3) to MPS Form 10-Q for quarter ended  March 31, 1983)                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(i)  |   | Supplement Amending Participation Agreement, as of  June 24, 1970, with Maine Electric Power Company, Inc. (Exhibit 10(c)(4) to  MPS Form 10-Q for quarter ended March 31, 1983)                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(j)  |   | Second Supplement to Participation Agreement, dated  as of December 1, 1971, including as Exhibit A the Unit Participation  Agreement dated November 15, 1971, as amended, between Maine Electric Power  Company, Inc. and the New Brunswick Electric Power Commission. (Exhibit  10(c)(5) to MPS Form 10-Q for quarter ended March 31, 1983) |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(k)  |   | Assignment Agreement as of January 1, 1981, between  Central Maine Power Company and MPS. (Exhibit 10(c)(8) to MPS Form 10-Q for  the quarter ended March 31, 1983)                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(l)  |   | Amendment to July 14, 1986 Stipulation, dated July  18, 1986. (Exhibit 28(d) to MPS Form 10-Q for the quarter ended June 30,  1986)                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(m)  |   | Order of the Maine Public Utilities Commission dated  July 21, 1986, Docket Nos. 84-80, 84-113 and 86-3. (Exhibit 28(g) to 1986 MPS  Form 10-K)                                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(n)  |   | Order of the Maine Public Utilities Commission,  dated May 9, 1986, Docket Nos. 84-113 and 86-3 (with attached Stipulations).  (Exhibit 28(r) to 1986 MPS Form 10-K)                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(o)  |   | Order of the Maine Public Utilities Commission,  dated July 31, 1987, Docket Nos. 84-80, 84-113, 87-96 and 87-167 (with  attached Stipulation). (Exhibit 28(i) to 1988 MPS Form 10-K)                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(p)  |   | Agreement between Maine Public Service Company and  various current Seabrook Nuclear Project Joint Owners, dated January 13,  1989. (Exhibit 28(o) to 1988 MPS Form 10-K)                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(q)  |   | Maine Public Service Company, Prior Service  Executive Retirement Plan, dated May 12, 1992. (Exhibit 10(s) to 1992 MPS  Form 10-K)                                                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(r)  |   | Further Settlement Agreement between the Maine  Public Utilities Commission, the Public Advocate and MPS dated January 24,  2002 regarding Maine Yankee Power costs. (Exhibit 99(ak) to 2001 MPS Form  10-K)                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(s)  |   | Order dated March 26, 2003 of Maine Public Utilities  Commission in Docket No. 2002-676 approving reorganization. (Exhibit 99(ao)  to 2003 MAM Form 10-K.)                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(t)  |   | Order dated October 29, 2003 of Maine Public  Utilities Commission in Docket No. 2003-85 giving final approval to increase  in MPS electric delivery rates. (Exhibit 99(ap) to 2003 MAM Form 10-K.)                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(u)  |   | Agreement between WPS Power Development, Inc. and  Maine Public Service Company, dated July 7, 1998. (Exhibit 10(w) to 1998 MPS  Form 10-K)                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(v)  |   | Settlement Agreement dated February 11, 2004, among,  MPS, other parties, FERC Trial Staff, and the MPUC regarding changes to the  MPS Formula Rate under the FERC Open Access Transmission Tariff. (Exhibit  99(aq) to 2003 MAM Form 10-K.)                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                          |
| 10(w)  |   | Agreement between Wheelabrator-Sherman Energy  Company and Maine Public Service Company, dated October 15, 1997, with  amendments dated January 30, 1998 and April 28, 1998. (Exhibit 10(x) to 1998  MPS Form 10-K)                                                                                                                           |

 

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| 10(x)  |   | Stipulation dated February 19, 2004, approved by  order dated February 27, 2004 of Maine Public Utilities Commission dated  April 29, 2002 in Docket No. 2003-666 approving stranded cost revenue  requirements effective March 1, 2004. (Exhibit 99 to MAM Form 8-K, dated  March 2, 2004.) |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(y)  |   | Maine & Maritimes Corporation 2002 Stock Option  Plan                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(z)  |   | Form of Stock Option Agreement between Maine &  Maritimes Corporation and the person listed at the end of such Agreement.                                                                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(aa) |   | Maine Public Service Company, Deferred Compensation  Plan for Outside Directors                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ab) |   | Form of Deferred Compensation Agreement between  Maine Public Service Company and the persons listed at the end of such  Agreement.                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ac) |   | Maine & Maritimes Corporation Stock Plan for  Outside Directors (Exhibit 4 to Post-Effective Amendment No. 1 to Form S-8,  dated July 30, 2003)                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ad) |   | Interest Rate Swap Confirmation for 1996 Tax-Exempt  Bonds, dated September 9, 2003. (Exhibit 10(aj) to 2003 MAM Form 10-K.)                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ae) |   | Interest Rate Swap Confirmation for 1998 FAME Note,  dated September 9, 2003. (Exhibit 10(ak) to 2003 MAM Form 10-K.)                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(af) |   | Interest Rate Swap Confirmation for 2000 Tax-Exempt  Bonds, dated September 9, 2003. (Exhibit 10(al) to 2003 MAM Form 10-K.)                                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ag) |   | Assignment and Amendment Agreement to Employee  Retention Agreement between J. Nicholas Bayne and Maine & Maritimes  Corporation and Maine Public Service Company, dated October 3, 2003. (Exhibit  10(an) to 2003 MAM Form 10-K.)                                                       |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ah) |   | Form of Employee Retention Agreement between Maine  & Maritimes Corporation and the persons listed at the end of such  Agreement.                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ai) |   | Master Loan Agreement between MPS and Fleet Bank,  dated November 22, 2004.                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(aj) |   | Credit Agreement between MPS and Bank of America,  dated October 7, 2005.                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(ak) |   | Credit Agreement between MAM and Bank of America,  dated October 21, 2005.                                                                                                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                         |
| 10(al) |   | Letter of Credit and Reimbursement Agreements  between MPS and Bank of America, dated February 28, 2006.                                                                                                                                                                                     |
|   |   |                                                                                                                                                                                                                                                                                         |
| *21    |   | Subsidiaries of the Company                                                                                                                                                                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                         |
| *23    |   | Consent of Independent Registered Public Accounting  Firm                                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                         |
| *31    |   | Rule 13a-14(a)/15d-14(a) Certifications                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                         |
| *32    |   | Certification of Financial Reports Pursuant to 18  USC Section 1350                                                                                                                                                                                                                          |

 

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