**UNITED
      STATES**


**SECURITIES
      AND EXCHANGE COMMISSION**


WASHINGTON,
      D.C. 20549





**FORM
      10-Q**





**x** **QUARTERLY
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE**


**SECURITIES
      EXCHANGE ACT OF 1934**





For
      the
      quarterly period ended September 30, 2008





or





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





For
      the
      transition period from    to    .





*Commission
      file number 000-51968*





**MMC
                ENERGY, INC.**(Exact
                name of registrant as specified in its charter)




Delaware
            
            
            
            98-0493819(State or other jurisdiction of incorporation
              or
                organization)
            
            
            
            (IRS
                Employer Identification No.)





26
                Broadway New York NY 10004(Address
                of principal executive offices)(Zip
                Code)





(212)
      977-0900


(Registrant’s
      telephone number, including area code)


________________________________


(Former
      name, former address and former fiscal year,


if
      changed since last report)





Indicate
      by check mark whether the registrant (1) has filed all reports required to
      be
      filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
      the
      preceding 12 months (or for such shorter period that the registrant was required
      to file such reports), and (2) has been subject to such filing requirements
      for
      the past 90 days. Yes  x No  ̈





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, a non-accelerated filer, or a smaller reporting company.
      See
      definitions of “large accelerated filer,” “accelerated filer” and “smaller
      reporting company” in Rule 12b-2 of the Exchange Act.





Large
                Accelerated Filer ̈
            Accelerated
                Filer ̈





Non-Accelerated Filer ̈(Do not check if a smaller reporting company)
            Smaller
                reporting companyx





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





As
      of November 13, 2008 the registrant had 14,142,678 shares of Common Stock
      outstanding    .










TABLE
                OF CONTENTS





PART
                I
            
            FINANCIAL
                INFORMATIONITEM
                1
            
            Financial
                StatementsCondensed
                Consolidated Balance Sheets as of September 30, 2008 (unaudited)
                and
                December 31, 2007
            
            2Condensed
                Consolidated Statements of Operations (unaudited) for the three month
                and
                nine month periods ended September 30, 2008 and 2007
            
            3Condensed
                Consolidated Statement of Stockholders' Equity (unaudited) for the
                period from December 31, 2007 through September 30, 2008
            
            4Condensed
                Consolidated Statements of Cash Flows (unaudited) for the nine month
                periods ended September 30, 2008 and 2007
            
            5Notes
                to Condensed Consolidated Financial Statements (unaudited)
            
            6ITEM
                2
            
            Management's
                Discussion and Analysis of Financial Condition and Results of Operations
            
            18ITEM
                3
            
            Quantitative
                and Qualitative Disclosures about Market Risk
            
            24ITEM
                4T
            
            Controls
                and Procedures
            
            24PART
                II
            
            OTHER
                INFORMATIONITEM
                1
            
            Legal
                Proceedings
            
            25ITEM
                1A
            
            Risk
                Factors
            
            25ITEM
                2
            
            Unregistered
                Sales of Equity Securities and Use of Proceeds
            
            25ITEM
                3
            
            Defaults
                Upon Senior Securities
            
            26ITEM
                4
            
            Submission
                of Matters to a Vote of Security Holders
            
            26ITEM
                5
            
            Other
                Information
            
            26ITEM
                6
            
            Exhibits
            
            27SIGNATURES
            
            28











**FORWARD-LOOKING
      STATEMENTS**





Some
      of
      the statements under ‘‘business,’’ ‘‘Risk Factors,’’ ‘‘Management’s Discussion
      and Analysis of Financial Condition and Results of Operations,’’ and elsewhere
      in this Quarterly Report on Form 10-Q constitute forward-looking statements.
      These statements relate to future events or our strategy, future operations,
      future financial position, future revenues, projected costs, prospects, and
      the
      plans and objectives of management and involve known and unknown risks,
      uncertainties and other factors that may cause our or our industry’s actual
      results, levels of activity, performance or achievements to be materially
      different from any future results, levels of activity, performance or
      achievements expressed, implied or inferred by these forward-looking statements.
      Such factors include, among other things, those listed under ‘‘Risk Factors’’
and elsewhere in this Quarterly Report. In some cases, you can identify
      forward-looking statements by terminology such as ‘‘may,’’ ‘‘will,’’ ‘‘should,’’
‘‘could,’’ ‘‘would,’’ ‘‘expects,’’ ‘‘plans,’’ ‘‘intends,’’ ‘‘anticipates,’’
‘‘believes,’’ ‘‘estimates,’’ ‘‘predicts,’’ ‘‘potential’’ or ‘‘continue’’ or the
      negative of such terms and other comparable terminology.





Although
      we believe that the expectations reflected in the forward-looking statements
      are
      reasonable, we do not know whether we can achieve positive future results,
      levels of activity, performance, or goals. Actual events or results may differ
      materially. We undertake no obligation to update any of the forward-looking
      statements after the date of this Quarterly Report to conform those statements
      to reflect the occurrence of unanticipated events, except as required by
      applicable law.











**PART
      I. FINANCIAL INFORMATION**


**ITEM
      1. FINANCIAL STATEMENTS**




MMC
      ENERGY, INC.


CONDENSED
      CONSOLIDATED BALANCE SHEETS


**September
                    30, 2008**
              
              **December
                    31, 2007**(unaudited)**Assets**Current
                  assets:Cash
                  and equivalents
              
              $
              9,140,651
              
              $
              42,582,697Accounts
                  receivable (Note 3)
              
              
              822,720
              
              
              62,855Unbilled
                  receivables (Note 3)
              
              
              252,697
              
              
              -Spare
                  parts inventories
              
              
              98,500
              
              
              94,089Prepaids
                  and deposits (Note 3)
              
              
              252,756
              
              
              215,254Securities
                  avaliable for sale (Note 4)
              
              
              -
              
              
              4,075,000Total
                  current assets
              
              
              10,567,324
              
              
              47,029,895Property,
                  plant and equipment, net (Note 5)
              
              
              6,129,421
              
              
              6,721,153Other
                  assets:Deferred
                  costs (Note 6)
              
              
              3,406,269
              
              
              2,488,756Long-term
                  deposits (Note 7)
              
              
              35,259,293
              
              
              98,630Other
                  assets and deferred charges (Note 8)
              
              
              669,524
              
              
              390,762Total
                  other assets
              
              
              39,335,086
              
              
              2,978,148Total
                  assets
              
              $
              56,031,831
              
              $
              56,729,196**Liabilities
                  & Stockholders' equity**Current
                  Liabilities:Current
                  maturities of long-term debt (Note 9)
              
              $
              2,113,824
              
              $
              444,456Accounts
                  payable
              
              
              3,419,154
              
              
              437,725Deferred
                  revenue
              
              
              -
              
              
              65,713Accrued
                  interest
              
              
              28,767
              
              
              15,929Accrued
                  compensation
              
              
              602,264
              
              
              1,740,077Other
                  accrued expenses
              
              
              1,711,628
              
              
              769,164Total
                  current liabilities
              
              
              7,875,637
              
              
              3,473,064Long-term
                  debt (Note 9)
              
              
              1,629,594
              
              
              1,962,936Commitments
                  & contingencies (Note 10)Stockholders'
                  Equity (Note 12)Preferred
                  Stock; 10,000,000 shares authorized; none issued and outstanding;
                  $.001
                  par value
              
              
              -
              
              
              -Common
                  stock; 300,000,000 shares authorized with 14,144,347 issued and
                  14,142,678
                  outstanding as of September 30, 2008 and 13,917,347 outstanding
                  as of
                  December 31, 2007; $.001 par value
              
              
              14,144
              
              
              13,917Additional
                  paid-in capital
              
              
              61,878,891
              
              
              61,658,887Accumulated
                  deficit
              
              
              (15,362,315
              )
              
              (10,379,608
              )Treasury
                  stock
              
              
              (4,120
              )
              
              -Total
                  stockholders' equity
              
              
              46,526,600
              
              
              51,293,196Total
                  liabilities and stockholders' equity
              
              $
              56,031,831
              
              $
              56,729,196





The
      accompanying footnotes are an integral part of these unaudited condensed
      consolidated financial statements.





2





MMC
      ENERGY, INC.


CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)


**Three
                  Months Ended September 30,**
              
              **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Operating
                  revenues:**Resource
                  adequacy capacity
              
              $
              1,781,650
              
              $
              791,250
              
              $
              2,991,300
              
              $
              2,274,750Ancillary
                  services
              
              
              (886,605
              )
              
              1,496,289
              
              
              (553,986
              )
              
              2,500,676Energy
                  production
              
              
              404,601
              
              
              462,224
              
              
              600,560
              
              
              580,417Total
                  operating revenues
              
              
              1,299,646
              
              
              2,749,763
              
              
              3,037,874
              
              
              5,355,843**Costs
                  of sales:**Costs
                  of resource adequacy capacity
              
              
              129,170
              
              
              63,300
              
              
              216,869
              
              
              181,980Costs
                  of ancillary services
              
              
              (10,669
              )
              
              201,550
              
              
              37,571
              
              
              381,641Costs
                  of energy production
              
              
              240,547
              
              
              147,897
              
              
              358,483
              
              
              249,994Total
                  costs of sales
              
              
              359,048
              
              
              412,747
              
              
              612,923
              
              
              813,615**Gross
                  Profit**
              
              
              940,598
              
              
              2,337,016
              
              
              2,424,951
              
              
              4,542,228**Operating
                  expenses:**Depreciation
              
              
              305,319
              
              
              284,814
              
              
              899,980
              
              
              800,999Operations
                  and maintenance
              
              
              573,604
              
              
              652,576
              
              
              1,986,937
              
              
              1,864,201Re-commissioning
                  expenses
              
              
              -
              
              
              (5,231
              )
              
              -
              
              
              413,904General
                  and administrative expenses
              
              
              1,571,280
              
              
              1,146,620
              
              
              4,848,968
              
              
              3,701,162Total
                  operating expenses
              
              
              2,450,203
              
              
              2,078,779
              
              
              7,735,885
              
              
              6,780,266**Loss
                  from operations**
              
              
              (1,509,605
              )
              
              258,237
              
              
              (5,310,934
              )
              
              (2,238,038
              )**Interest
                  and other expenses**Interest
                  expense
              
              
              (199,551
              )
              
              (65,911
              )
              
              (320,350
              )
              
              (176,163
              )Interest
                  income
              
              
              87,844
              
              
              512,688
              
              
              648,577
              
              
              616,420Interest
                  income (expense), net
              
              
              (111,707
              )
              
              446,777
              
              
              328,227
              
              
              440,257Other
                  income, net
              
              
              -
              
              
              -
              
              
              -
              
              
              135,995Total
                  interest and other income (expense)
              
              
              (111,707
              )
              
              446,777
              
              
              328,227
              
              
              576,252**Net
                  loss before provision for income taxes**
              
              
              (1,621,312
              )
              
              705,014
              
              
              (4,982,707
              )
              
              (1,661,786
              )Provision
                  for income taxes
              
              
              -
              
              
              -
              
              
              -
              
              
              -**Net
                  loss**
              
              $
              (1,621,312
              )
              $
              705,014
              
              $
              (4,982,707
              )
              $
              (1,661,786
              )**Basic
                  (loss) earnings per common share**Net
                  (loss) earnings per share
              
              $
              (0.12
              )
              $
              0.05
              
              $
              (0.35
              )
              $
              (0.22
              )Weighted
                  average shares outstanding
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467**Diluted
                  (loss) earnings per common share**Net
                  (loss) earnings per share
              
              $
              (0.12
              )
              $
              0.05
              
              $
              (0.35
              )
              $
              (0.22
              )Weighted
                  average shares outstanding
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467Weighted
                  average shares outstanding - basic
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467Dilutive
                  effect of assumed exercise of employee stock options, warrants
                  and
                  immediate vesting of unvested stock awards
              
              
              -
              
              
              -
              
              
              -
              
              
              -Weighted
                  average shares outstanding - diluted
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467Anti-dilutive
                  shares excluded from diluted EPS computations
              
              
              555,201
              
              
              227,547
              
              
              540,306
              
              
              211,858





The
      accompanying footnotes are an integral part of these unaudited condensed
      consolidated financial statements.




3





MMC
      ENERGY, INC.


CONDENSED
      CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY


FOR
      THE
      PERIOD FROM JANUARY 1, 2008 THROUGH SEPTEMBER 30, 2008


(Unaudited)


**Common**
              
              **Common**
              
              **Additional**
              
              
              
              
              
              **Total****Shares**
              
              **Stock**
              
              **Paid-in**
              
              **Accumulated**
              
              **Treasury**
              
              **Stockholders'****$.001
                  Par Value**
              
              **Amount**
              
              **Capital**
              
              **Deficit**
              
              **Stock**
              
              **Equity****Balance
                  at December 31, 2007**
              
              
              13,917,347
              
              $
              13,917
              
              $
              61,658,887
              
              $
              (10,379,608
              )
              $
              -
              
              $
              51,293,196Stock
                  awards and options, net of cancellations
              
              
              227,000
              
              
              227
              
              
              220,004
              
              
              
              
              
              -
              
              
              220,231Common
                  stock acquired
              
              
              
              
              
              
              
              
              
              
              
              
              
              
              (4,120
              )
              
              (4,120
              )Net
                  loss
              
              
              
              
              
              
              
              
              
              
              
              (4,982,707
              )
              
              
              
              
              (4,982,707
              )**Balance
                  at September 30, 2008**
              
              
              14,144,347
              
              $
              14,144
              
              $
              61,878,891
              
              $
              (15,362,315
              )
              $
              (4,120
              )
              $
              46,526,600





The
      accompanying footnotes are an integral part of these unaudited condensed
      consolidated financial statements.





4





MMC
      ENERGY, INC.


CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)


**Nine
                  MonthsEndedSeptember 30, 2008**
              
              **Nine
                  MonthsEndedSeptember 30, 2007****Operating
                  Activities of Continuing Operations**Net
                  loss
              
              $
              (4,982,707
              )
              $
              (1,661,787
              )Adjustments
                  to reconcile net loss to cash used in operating activitiesDepreciation
              
              
              899,980
              
              
              800,999Stock-based
                  compensation
              
              
              220,231
              
              
              198,027Changes
                  in current assets & liabilitiesIncrease
                  in receivables
              
              
              (1,012,562
              )
              
              (235,724
              )Increase
                  in spare parts inventories
              
              
              (4,411
              )
              
              (74,251
              )(Increase)
                  decrease in prepaids and deposits
              
              
              (37,502
              )
              
              66,247Increase
                  (decrease) in accounts payable
              
              
              143,702
              
              
              (304,966
              )(Decrease)
                  increase in deferred revenues
              
              
              (65,713
              )
              
              30,360Increase
                  (decrease) in other accrued expenses
              
              
              663,180
              
              
              (471,959
              )(Decrease)
                  increase in accrued compensation
              
              
              (1,137,813
              )
              
              300,815Increase
                  in accrued interest expense
              
              
              12,838
              
              
              15,929Decrease
                  (Increase) in other assets and deferred charges
              
              
              210,618
              
              
              (423,324
              )**Net
                  cash used in operations**
              
              
              (5,090,159
              )
              
              (1,759,634
              )**Investing
                  Activities of Continuing Operations**Purchases
                  of property, plant and equipment
              
              
              (308,248
              )
              
              (441,466
              )Equipment
                  deposits paid
              
              
              (32,179,331
              )
              
              -Redemption
                  (purchase) of securities available for sale, net
              
              
              4,075,000
              
              
              (4,075,000
              )Deferred
                  acquisition costs
              
              
              (781,834
              )
              
              (1,223,759
              )**Net
                  cash used in investing activities**
              
              
              (29,194,413
              )
              
              (5,740,225
              )**Financing
                  Activities of Continuing Operations**Repayment
                  of long-term debt
              
              
              (333,342
              )
              
              (333,342
              )Draw
                  down of GE Loan Facility
              
              
              1,669,368
              
              
              -Deferred
                  financing costs
              
              
              (489,380
              )
              
              -Purchase
                  of treasury stock
              
              
              (4,120
              )
              
              -Proceeds
                  from (purchase) issuance of stock, net
              
              
              -
              
              
              46,069,483**Net
                  cash provided by financing activities**
              
              
              842,526
              
              
              45,736,141**Net
                  decrease in cash and cash equivalents**
              
              
              (33,442,046
              )
              
              38,236,282Cash
                  and cash equivalents at beginning of period
              
              
              42,582,697
              
              
              4,923,063Cash
                  and cash equivalents at end of period
              
              $
              9,140,651
              
              $
              43,159,345**Supplemental
                  disclosures:**Cash
                  paid for income taxes
              
              $
              -
              
              $
              -Cash
                  paid for interest
              
              
              156,888
              
              
              156,139**Non-cash
                  investing and financing activities**Stock-based
                  compensation
              
              
              220,231
              
              
              198,027Deferred
                  costs of public stock offering
              
              
              -
              
              
              314,161





The
      accompanying footnotes are an integral part of these unaudited condensed
      consolidated financial statements.





5





**MMC
      ENERGY, INC.**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**September
      30, 2008**


**(Unaudited)**




**NOTE
      1 – ORGANIZATION AND LINE OF BUSINESS**




**General**




The
      accompanying unaudited condensed consolidated financial statements have been
      prepared in accordance with accounting principles generally accepted in the
      United States of America for interim financial information and with the
      instructions to Form 10-Q. Accordingly, they do not include all of the
      information and footnotes required by generally accepted accounting principles
      for complete financial statements.





In
      the
      opinion of management, all adjustments (consisting of normal recurring accruals)
      considered necessary for a fair presentation have been included. However, the
      results from operations for the three and nine month periods ended September
      30,
      2008, are not necessarily indicative of the results that may be expected for
      the
      year ended December 31, 2008. These unaudited condensed consolidated financial
      statements should be read in conjunction with the consolidated December 31,
      2007
      financial statements and footnotes thereto included in the Company's Form 10-K
      filed with the Securities and Exchange Commission (the “SEC”).





**Organization
      and Line of Business**




The
      Company is an energy management company that acquires and actively manages
      electricity generating and energy infrastructure related assets in the United
      States. The Company seeks to acquire, directly or through joint ventures, a
      portfolio of small to mid-size electricity generating assets, generally below
      100 megawatts. In January 2006, the Company acquired two power generation
      facilities located in Chula Vista and Escondido, California, and in November
      2006, the Company acquired a facility in Bakersfield, California (“Mid-Sun”).
      The Company is pursuing additional acquisitions of small to medium-sized power
      generating facilities primarily in California, the Mid-Atlantic and the
      Northeastern United States. The Company has also begun the process of upgrading
      the existing Chula Vista and Escondido facilities.





**NOTE
      2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**





**Use
      of Estimates**





In
      the
      normal course of preparing financial statements in conformity with accounting
      principles generally accepted in the United States of America, management is
      required to make estimates and assumptions that affect the reported amounts
      of
      assets and liabilities and disclosure of contingent assets and liabilities
      at
      the date of the financial statements and the reported amounts of revenues and
      expenses during the reporting period. Significant estimates made by management
      include assessing collectibility of accounts receivable, determining the useful
      life of depreciable assets, the valuation of stock options expense, and the
      valuation allowance of deferred tax assets. Actual results could differ from
      those estimates.





**Basis
      of Consolidation**





These
      consolidated financial statements include the accounts of the Company and its
      wholly-owned subsidiaries: MMC Energy North America LLC, MMC Escondido LLC,
      MMC
      Chula Vista LLC, MMC Mid-Sun LLC, MMC Chula Vista II LLC and MMC Escondido
      II
      LLC. All intercompany accounts and transactions have been eliminated.





**Revenue
      Recognition**





The
      Company recognizes revenue from products and services, in accordance with SEC
      Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements”
(“SAB 101”). SAB 101 requires that four basic criteria must be met
      before ** revenue
      can be recognized: (1) persuasive evidence of an arrangement exists; (2)
      delivery has occurred or services have been rendered; (3) the selling price
      is
      fixed and determinable; and (4) collectibility is reasonably assured.
      Determination of criteria (3) and (4) are based on management’s judgments
      regarding the fixed nature of the selling prices of the products
      delivered/services rendered and the collectibility of those amounts. Provisions
      for discounts and rebates to customers, estimated returns and allowances, and
      other adjustments are provided for in the same period the related sales are
      recorded. The Company defers any revenue for which the product has not been
      delivered or services have not been rendered or is subject to refund until
      such
      time that the Company and the customer jointly determine that the product has
      been delivered or services have been rendered or no refund will be
      required.





6




The
      Company records revenues in connection with delivering electricity and ancillary
      services, generally being on call to provide power on ten minutes notice to
      the
      California Independent System Operator (“CAISO”), or such other first parties as
      it may contract with directly from time to time. In the event that the Company
      is compensated for services before they are rendered, the Company defers such
      revenue in the liability section of its balance sheet.





The
      Company’s electricity generating facilities are generally referred to as
“peaker” plants. Peaker plants are used to balance unexpected short term surges
      in demand, making them critical to the reliability of the power grids they
      serve. The Company’s revenues to date have been earned by providing resource
      adequacy capacity, ancillary services and energy production in the State of
      California.





·
            Resource
                Adequacy Capacity – Regulatory capacity payments for generators of
                any type are based strictly on total installed capacity measured
                in
                megawatts (“MW”). In the California market where the Company currently
                operates exclusively, market-based capacity revenues are earned through
                resource adequacy contracts, whereby the counterparty can point to
                the
                Company’s facilities' installed capacity as a source to supply its peak
                demand plus a mandatory safety margin as dictated by the California
                Public
                Utilities Commission (“CPUC”). The contract does not create an obligation
                to supply electricity to the counterparty, but does obligate the
                Company
                to bid its energy into the CAISO markets on a daily basis such that
                the
                Company’s capacity is available to the CAISO, if needed, at the Company’s
                price. The resource adequacy capacity amount cannot exceed the qualified
                capacity amount for the resource. Qualified capacity is certified
                by
                CAISO. For 2007, the MMC Escondido and MMC Chula Vista facilities
                were
                certified by CAISO and the CPUC for 35.5 MW each and Mid-Sun for
                22 MW,
                and for 2008, 35.5 MW each for the Escondido and Chula Vista facilities
                and MMC Mid-Sun for 21.8 MW.





·
            Ancillary
                Services – Although there are several types of ancillary services, the
                Company primarily provides “non-spin” services which call for the
                facilities to be delivering the awarded capacity within 10 minutes
                of
                dispatch regardless of whether already synchronized to the grid.
                See Note
                10 “Commitments and Contingent Liabilities” regarding the status of the
                proposed resolution of this dispute between the Company and the CAISO.
                As
                of September 26, 2008 the CAISO has withdrawn the Company’s certification
                to provide spinning reserve services.





·
            Energy
                Production – The Company provides electricity to a local power grid
                through day-ahead bidding and real time auctions managed by the CAISO,
                the
                “merchant market” or through financially settled bilateral agreements with
                a utility or other direct counterparty. As the Company has no outstanding
                electricity purchase agreements or other contracted energy production,
                all
                of its energy production revenues are earned in the daily merchant
                market.





**Income
      Taxes**





In
      accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
      deferred income taxes are the result of the expected future tax consequences
      of
      temporary differences between the financial statement and tax bases of assets
      and liabilities. Generally, deferred income taxes are classified as current
      or
      non-current in accordance with the classification of the related asset or
      liability. Items that are not related to an asset or liability are classified
      as
      current or non-current depending on the periods in which the temporary
      differences are expected to reverse. A valuation allowance is provided against
      deferred income tax assets in circumstances where management believes the
      recoverability of a portion of the assets is not reasonably assured. Losses
      incurred will be carried forward as applicable per SFAS 109 and the Internal
      Revenue Code and potentially may be used to offset taxable net income generated
      in the future. The Company has no history of generating taxable net income
      and
      therefore does not recognize any tax benefit on losses incurred currently nor
      has it in prior periods.





**Cash
      Equivalents**





For
      purposes of the Statement of Cash Flows, the Company considers all time deposits
      and highly liquid debt instruments purchased that mature in three months or
      less
      to be cash equivalents.





7





**Receivables**





Accounts
      receivable are composed substantially of trade accounts receivable that arise
      primarily from the sale of electricity or services on account and are stated
      at
      historical cost. Management evaluates accounts receivable to estimate the amount
      of accounts receivable that will not be collected in the future, if any, and
      records a provision for that amount. The provision for doubtful accounts is
      recorded as a charge to operating expense, while the credit is recorded in
      the
      allowance for doubtful accounts, which reduces accounts receivable as shown
      on
      the Company’s balance sheet. The estimated allowance for doubtful accounts is
      based primarily on management's evaluation of the aging of the accounts
      receivable balance, the financial condition of its customers, historical trends,
      and the length of time during which specific balances are outstanding. Actual
      collections of accounts receivable could differ from management's estimates
      due
      to changes in future economic, industry or customer financial conditions.
      Unbilled receivables are recorded for amounts due to the Company for revenues
      earned in a given period but not yet billed to the customer.





**Inventories**





Inventories
      are stated at cost based on the specific identification method. Inventories
      consist of spare parts to be used in general operations and maintenance.





**Securities
      Available for Sale**





S ecurities
      available-for-sale are accounted for under SFAS No. 115 “Accounting for Certain
      Investments in Debt and Equity Securities.” Securities available for sale are
      carried at fair value with the unrealized gains or losses, net of tax, included
      as a component of accumulated other comprehensive income (loss) in stockholders'
      equity. Realized gains and losses and declines in value judged to be
      other-than-temporary on available-for-sale securities are included in other
      income, net. The fair values for marketable debt and equity securities are
      based
      on quoted market prices. Although the Company has carried
      securities-available-for-sale in prior periods these securities did not generate
      unrealized gains or losses; as such to date the Company has not recognized
      other
      comprehensive income (loss) as a component of stockholders’ equity.





**Property,
      Plant and Equipment**





Property,
      plant and equipment are stated at cost. Depreciation is computed principally
      by
      using the straight-line method at rates based on estimated useful lives as
      follows:




Office
                equipment
            
            
            3
                yearsMachinery,
                automobiles and equipment
            
            
            3
                - 10 yearsSoftware
            
            
            3
                years





**Long-Lived
      Assets**





In
      accordance with SFAS No. 144, "Accounting for the Impairment or Disposal of
      Long-Lived Assets,'' long-lived assets are reviewed for impairment annually
      and
      whenever events or changes in circumstances indicate that the carrying amount
      of
      an asset may not be recoverable. If an indicator of impairment exists for any
      grouping of assets, an estimate of undiscounted future cash flows is produced
      and compared to its carrying value. If an asset or grouping of assets is
      determined to be impaired, the loss is measured by the excess of the carrying
      amount of the asset over its fair value as determined by an estimate of
      discounted future cash flows.





**Concentrations
      of Credit Risk**





Financial
      instruments and related items, which potentially subject the Company to
      concentrations of credit risk, consist primarily of cash and cash equivalents
      and accounts receivable. The Company places its cash and temporary cash
      investments with high credit quality institutions. At times, such investments
      may be in excess of the FDIC insurance limit for each institution.





Concentration
      of credit risk with respect to accounts receivable and revenues are high due
      to
      the small number of entities comprising the Company's customer base. For the
      three months ending September 30, 2008 and 2007, 78% and 29%, respectively,
      of
      the Company’s revenues were derived from one customer, Oxy, Inc (“Oxy”); a
      company which carries a senior debt rating of A3 as per Moody’s Rating Service.
      The Company received the balance of its revenues from CAISO.





For
      the
      nine months ending September 30, 2008 and 2007, 74% & 43%, respectively of
      the Company’s revenues were derived from Oxy. The Company received the balance
      of its revenues from CAISO. The percentages for the three and nine month periods
      ended September 30, 2008 exclude the effect of the adverse settlement with
      CAISO
      that resulted in a charge of $1 million being recorded directly against
      ancillary service revenues (See Note 10).





8




**Seasonal
      Nature of Business**





The
      Company’s business is seasonal, with a relatively high proportion of revenues
      and operating cash flows generated during the third quarter of the fiscal year,
      which include the peak summer months for energy demand, and a relatively low
      proportion of revenues and operating cash flows generated during the first
      quarter. As the Company derives most of its revenues from selling energy and
      ancillary services at spot market prices, as opposed to under longer term
      fixed-price contracts, its revenues and operating income are highly exposed
      to
      the seasonal fluctuation in commodity pricing, which generally corresponds
      to
      peak electricity demand. In addition, commencing in 2008, a portion of the
      Company’s resource adequacy capacity revenues are seasonal as well, with a
      significantly greater portion paid during the summer.





**Geographical
      and Regulatory Risk**





All
      of
      the Company’s facilities are located in Southern California, and generally
      provide electricity only in that state. The facilities maintain exempt wholesale
      generator (“EWG”) status and market based rate (“MBR”) authority as approved by
      the Federal Energy Regulatory Commission. Accordingly, the Company’s operations
      are regulated by the local Air Permit Control Boards, the CAISO and other
      related state and local agencies, as well as the Federal Energy Regulatory
      Commission. These organizations establish certain rules and limitations on
      operations and require that the Company maintain in good standing several
      required licenses and permits, such as permits for air emissions. These
      organizations may from time to time change the rules under which the Company
      operates and derives its revenues. The Company believes it has all such required
      licenses and permits to conduct its operations and believes that it is
      conducting those operations in compliance with said licenses and permits.





**Comprehensive
      Income**





SFAS
      No.
      130, “Reporting Comprehensive Income,” (“SFAS 130”) establishes standards for
      reporting and displaying of comprehensive income, its components and accumulated
      balances. Comprehensive income is defined to include all changes in equity
      except those resulting from investments by, and distributions to, owners. Among
      other disclosures, SFAS 130 requires that all items that are required to be
      recognized under current accounting standards as components of comprehensive
      income be reported in a financial statement that is displayed with the same
      prominence as other financial statements. In the past the Company held
      securities-available-for-sale that could have generated other comprehensive
      income (losses) but traded at par while they were held. As such, the Company
      has
      not generated any comprehensive income (losses) in the periods presented nor
      has
      it since its inception.





**Segment
      Information**




The
      Company adopted SFAS No. 131, “Disclosures about Segments of an Enterprise and
      Related Information” ("SFAS 131"). SFAS 131 establishes standards for reporting
      information regarding operating segments, to the extent that multiple discrete
      segments exist, in annual financial statements and requires selected information
      for those segments to be presented in interim financial reports issued to
      stockholders. SFAS 131 also establishes standards for related disclosures about
      products and services and geographic areas. Operating segments are identified
      as
      components of an enterprise about which separate discrete financial information
      is available for evaluation by the chief operating decision maker, or decision
      making group, in making decisions concerning how to allocate resources and
      assess performance. At this time, the Company only operates in one segment;
      the
      generation of electricity.





**Basic
      and Diluted Earnings (Loss) Per Share**




Basic
      and
      diluted income or loss per common share is based upon the weighted average
      number of common shares outstanding during the three and nine month periods
      ended September 30, 2008 and 2007, under the provisions of SFAS No. 128,
“Earnings Per Share” and as amended/superseded in SFAS No. 123(R), “Share-Based
      Payment”(“SFAS 123(R)”). As the Company incurred losses for the three and nine
      month periods ending September 30, 2008 and 2007 dilutive shares presented
      for
      those periods are identical with basic shares outstanding. Below is a
      reconciliation of basic to diluted shares outstanding for the applicable periods
      as well as anti-dilutive shares excluded from calculations for the relevant
      periods: ****


9


**Three Months**
                **Ended September****30,**
              
              **Three Months**
                **Ended September****30,**
              
              **Nine Months**
                **Ended September****30,**
              
              **Nine Months**
                **Ended****September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Basic, diluted and anti-dilutive shares**Weighted
                  average shares outstanding - basic
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467Dilutive
                  effect of assumed exercise of employee stock options, warrants
                  and
                  immediate vesting of unvested stock awards
              
              
              -
              
              
              -
              
              
              -
              
              
              -Weighted
                  average shares outstanding - diluted
              
              
              14,086,792
              
              
              13,413,277
              
              
              14,143,808
              
              
              7,708,467Anti-dilutive
                  shares excluded from diluted EPS computations
              
              
              555,201
              
              
              227,547
              
              
              540,306
              
              
              211,858




**Stock-Based
      Compensation**





The
      Company uses the modified prospective method to adopt SFAS 123(R), which
      requires compensation expense to be recorded for all stock-based compensation
      granted on or after January 1, 2006. The Company is recording the compensation
      expense on a straight-line basis, generally over the explicit service period
      of
      three years (except for retirement eligible employees and retirees). The Company
      made no stock-based compensation grants before January 1, 2006 and therefore
      has
      no unrecognized stock compensation related liabilities or expense unvested
      or
      vested prior to 2006.





The
      following table summarizes common stock options outstanding and the related
      exercise prices under the Company’s 2006 Equity Incentive Plan.





**Options Outstanding**
            
            **Options Exercisable****Grant Year**
            
            **Exercise Prices**
            
            **Number**
              **Outstanding**
            
            **Weighted Average**
              **Remaining**
              **Contractual Life**
              **(Years)**
            
            **Weighted Average**
              **Exercise Price**
            
            **Number**
              **Exercisable**
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual Life**
            
            **Weighted**
              **Average**
              **Exercise Price**2006
            
            $
            10.00
            
            
            72,000
            
            
            7.62
            
            $
            10.00
            
            
            64,666
            
            
            7.62
            
            $
            10.002007
            
            $
            6.50
            
            
            21,000
            
            
            8.58
            
            $
            6.50
            
            
            7,000
            
            
            8.58
            
            $
            6.50**Totals**
            
            
            
            
            
            93,000
            
            
            7.84
            
            $
            9.21
            
            
            71,666
            
            
            7.72
            
            $
            9.66





Transactions
      during 2008 involving stock options issued to employees are summarized as
      follows:





**Number of Shares**
            
            **Weighted Average**
              **Price Per Share****Outstanding
                at December 31, 2007**
            
            
            93,000
            
            $
            9.21Granted
            
            
            -
            
            
            -Exercised
            
            
            -
            
            
            -Cancelled
                or expired
            
            
            -
            
            
            -**Outstanding
                at September 30, 2008**
            
            
            **93,000**
            
            **$**
            **9.21**





Based
      on
      the Company’s closing stock price of $1.52 on September 30, 2008, all stock
      options currently outstanding have no aggregate intrinsic value, and there
      were
      no in-the-money options exercisable. As of September 30, 2008, all exercisable
      options had a weighted-average remaining contractual life of 7.72 years and
      weighted-average exercise price of $9.66 per share.





For
      the
      nine month periods ended September 30, 2008 and 2007 there were zero and 21,000
      options granted, respectively.





**Derivative
      Instruments**





The
      Company accounts for freestanding derivative financial instruments potentially
      settled in its own common stock under Emerging Issues Task Force ("EITF") Issue
      No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and
      Potentially Settled in, a Company's Own Stock.” Pursuant to EITF Issue No.
      00-19, the Company is required to recognize the initial fair value of the
      applicable contracts (consisting primarily of non-employee stock warrants and
      options to purchase common stock) as an asset or liability, and subsequently
      measure the change in the fair value (based on a Black-Scholes computation),
      with gains and losses included in a statement of operations. No such instruments
      were issued for the nine month periods ended September 30, 2008 and 2007.





10




**Fair
      Value of Financial Instruments**





The
      carrying amounts of the Company's cash, trade payables, accrued expenses, and
      notes payable approximate their estimated fair value due to the short-term
      nature of those financial instruments. In June 2006, the Company issued warrants
      to purchase 45,000 shares of common stock at an exercise price of $0.10 per
      share. These warrants were issued in lieu of cash as payment for professional
      services rendered to the Company. The warrants were valued at the fair value
      of
      the professional services received as determined by usual and customary fees
      associated with such services in transactions between unrelated parties. These
      warrants were exercised in their entirety by the end of the second quarter
      of
      2007 and none remain outstanding.





**Recent
      Accounting Pronouncements**





*SFAS
      No. 163* .
      In May
      2008, the Financial Accounting Standards Board (the “FASB”) issued Statement on
      Financial Accounting Standards (“SFAS”) No. 163, “Accounting for Financial
      Guarantee Insurance Contracts - an interpretation of SFAS No. 60” (“SFAS 163”).
      The FASB believes that diversity exists in practice in accounting for financial
      guarantee insurance contracts by insurance enterprises under FASB Statement
      No.
      60, “Accounting and Reporting by Insurance Enterprises.” That diversity results
      in inconsistencies in the recognition and measurement of claim liabilities
      because of differing views about when a loss has been incurred under SFAS No.
      5
“Accounting for Contingencies.” SFAS No. 163 is effective for financial
      statements issued for fiscal years beginning after December 15, 2008, and all
      interim periods within those fiscal years, except for some disclosures about
      the
      insurance enterprise’s risk-management activities. The Company is not an
      insurance enterprise and this standard will not have any impact on its financial
      position, results of operations or cash flows.





*SFAS
      No. 162* .
      In May
      2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
      Accounting Principles” which identifies the sources of accounting principles and
      the framework for selecting the principles to be used in the preparation of
      financial statements of nongovernmental entities that are presented in
      conformity with generally accepted accounting principles (GAAP) in the United
      States (the GAAP hierarchy). The FASB believes that the GAAP hierarchy should
      be
      directed to entities because it is the entity (not its auditor) that is
      responsible for selecting accounting principles for financial statements that
      are presented in conformity with GAAP. Accordingly, the FASB concluded that
      the
      GAAP hierarchy should reside in the accounting literature established by the
      FASB and issued SFAS No. 162 to achieve that result. SFAS No. 162 is effective
      60 days following the SEC approval of the Public Company Accounting Oversight
      Board amendments to AU Section 411, “The Meaning of Present Fairly in Conformity
      With Generally Accepted Accounting Principles.” As of the report date approval
      has not yet taken place. The Company does not expect that the adoption of this
      standard will have a material impact on its financial position, results of
      operations or cash flows.





*SFAS
      No. 161* .
      In
      March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
      Instruments and Hedging Activities - An Amendment of FASB Statement No.133”
(“SFAS 161”). SFAS 161 enhances required disclosures regarding derivatives and
      hedging activities, including enhanced disclosures regarding how: ( *a* )
      an
      entity uses derivative instruments; ( *b* )
      derivative instruments and related hedged items are accounted for under SFAS
      133 *;* and
      ( *c* )
      derivative instruments and related hedged items affect an entity's financial
      position, financial performance, and cash flows. Specifically, SFAS No. 161
      requires:  disclosure
      of the objectives for using derivative instruments in terms of underlying risk
      and accounting designation;  disclosure
      of the fair values of derivative instruments and their gains and losses in
      a
      tabular format;  disclosure
      of information about credit-risk-related contingent features; and  cross-reference
      from the derivative footnote to other footnotes in which derivative-related
      information is disclosed. SFAS 161 is effective for fiscal years and interim
      periods beginning after November 15, 2008. Currently, the Company does not
      utilize any derivatives and therefore expects that the adoption of this standard
      will have no impact on its financial position, results of operations or cash
      flows.





*SFAS
      No.160.* In
      December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
      Consolidated Financial Statements — an amendment of ARB No. 51” (“SFAS 160”).
      SFAS 160 requires that a non-controlling interest in a subsidiary be reported
      as
      equity and the amount of consolidated net income specifically attributable
      to
      the non-controlling interest be identified in the consolidated financial
      statements. It also requires consistency in the manner of reporting changes
      in
      the parent’s ownership interest and requires fair value measurement of any
      non-controlling equity investment retained in a deconsolidation. Currently,
      the
      Company does not have any noncontrolling interests to account for and therefore
      does not expect the adoption of SFAS 160 to have any effect on its consolidated
      financial statements.





11




*SFAS
      141(R)* .
      In
      December 2007, the FASB issued SFAS No. 141 (Revised 2007), “Business
      Combinations” (“SFAS 141 (R)”).
      SFAS 141(R) retains the fundamental requirements in Statement 141 that the
      acquisition method of accounting (which Statement
      141 called the purchase method) be used for all business combinations and for
      an
      acquirer to be identified for each business combination. In general, the
      statement 1) broadens the guidance of SFAS 141, extending its applicability
      to
      all events where one entity obtains control over one or more other businesses,
      2) broadens the use of fair value measurements used to recognize the assets
      acquired and liabilities assumed, 3) changes the accounting for acquisition
      related fees and restructuring costs incurred in connection with an acquisition
      and 4) increases required disclosures. SFAS 141R applies prospectively to
      business combinations for which the acquisition date is on or after the
      beginning of the first annual reporting period beginning on or after December
      15, 2008. Earlier ** adoption
      is prohibited *.* The
      Company will apply the provisions of this statement prospectively to business
      combinations for which the acquisition date is on or after January 1,
      2009.





**Reclassifications**





Certain
      reclassifications have been made to conform to prior period data to the current
      presentation. These reclassifications had no effect on reported
      losses.





**NOTE
      3 – RECEIVABLES AND PREPAID ITEMS**




At
      September 30, 2008 and December 31, 2007 accounts receivable and prepaid items
      consisted of the following:




**September
                  30,**
              
              **December
                  31,****2008**
              
              **2007**Accounts
                  receivable
              
              $
              697,720
              
              $
              62,855Employee
                  Loan
              
              $
              125,000
              
              $
              -Allowance
                  for doubtful accounts
              
              
              -
              
              
              -Total
              
              $
              822,720
              
              $
              62,855Unbilled
                  receivables
              
              $
              252,697
              
              $
              -Total
              
              $
              252,697
              
              $
              -Prepaid
                  insurance
              
              $
              147,773
              
              $
              114,785Prepaid
                  expenses
              
              
              104,483
              
              
              100,469Short-term
                  deposits
              
              
              500
              
              
              -Total
              
              $
              252,756
              
              $
              215,254




Commencing
      in 2008, the Company is paid monthly in arrears on its resource adequacy
      capacity contracts versus monthly in advance as was the case in 2007. 
Commencing in March 2008, the Company is paid under its energy management
      agreement with Bear Energy LP for revenues earned from CAISO for energy and
      ancillary services approximately 60 days in arrears versus 20 days in arrears
      in
      prior periods. Accordingly, unbilled receivables reflect two months of such
      revenues as of September 30, 2008 vs. one month as of December 31, 2007. This
      change in the payment schedule did not adversely affect the collectibility
      of
      such receivables.





**NOTE
      4 – SECURITIES AVAILABLE FOR SALE**





Securities
      Available-for-sale are accounted for under SFAS No. 115 “Accounting for Certain
      Investments in Debt and Equity Securities.” Securities available for sale are
      carried at fair value with the unrealized gains or losses, net of tax, included
      as a component of accumulated other comprehensive income (losses) in
      stockholders' equity. Realized gains and losses and declines in value judged
      to
      be other-than-temporary on available-for-sale securities are included in other
      income, net. The fair values for marketable debt and equity securities are
      based
      on quoted market prices. Securities available for sale, in the past, consisted
      of municipal variable-rate demand notes (“VRDNs”). VRDNs are long-term bonds
      that have an embedded put option. This put option is at par (100%)
      and is 7 days from the point of exercise.  Thus, rolling
      liquidity is available on this position on trade date plus seven days
      basis. In addition due to the presence of the put, the VRDNs are generally
      never subject to a change in market value and thus do not generate any
      mark-to-market adjustments except in extraordinary market situations. These
      VRDNs belong to a broader group known as Auction Rate Securities. The Company
      sold these securities at face value in the current quarter and did not incur
      any
      gains or losses while holding these securities or on such disposition. At the
      report date the Company had no instruments classified as securities available
      for sale.





12




**NOTE
      5 – PROPERTY, PLANT AND EQUIPMENT**





At
      September 30, 2008 and December 31, 2007 property, plant and equipment consisted
      of the following:





**September 30,**
            
            **December 31,****2008**
            
            **2007**Land
            
            $
            375,000
            
            $
            375,000Automobile
            
            
            21,927
            
            
            21,927Office
                equipment
            
            
            148,155
            
            
            115,825Machinery,
                equipment & other
            
            
            8,201,903
            
            
            7,925,9858,746,985
            
            
            8,438,737Accumulated
                depreciation
            
            
            (2,617,564
            )
            
            (1,717,584
            )**Total**
            
            $
            6,129,421
            
            $
            6,721,153





Depreciation
      for the three months ended September 30, 2008 and 2007 was $305,319 and
      $284,814, respectively.





Depreciation
      for the nine months ended September 30, 2008 and 2007 was $899,980 and $800,999,
      respectively.





**NOTE
      6 – DEFERRED COSTS**





Deferred
      costs consist of costs incurred in connection with acquisitions and capital
      raises and are accounted for based upon their stage in the acquisition/financing
      process. Costs of acquisitions and or financings can be broadly classified
      in
      four categories: exploratory, pre-acquisition, in-process and in-service.
      Typically, exploratory costs are expensed as incurred. When a financing or
      acquisition is determined to be probable as per management’s assessment, all
      costs in connection with such transaction are eligible to be capitalized at
      the
      assessment date as well as throughout the actual implementation. When the
      acquisition is completed, related deferred costs are capitalized as a component
      of the asset cost basis and depreciated over the useful life of the asset.
      Deferred costs related to the Company’s public stock offering consummated in
      July 2007 were offset directly against the gross proceeds of said offering.
      Outstanding deferred costs consisted entirely of the costs for the Company’s two
      re-powering projects at Chula Vista and Escondido.


**September
                  30,**
              
              **December
                  31,****2008**
              
              **2007****Deferred
                  Costs**Deferred
                  development costs - Chula Vista
              
              $
              3,018,888
              
              $
              2,202,176Deferred
                  development costs - Escondido
              
              
              387,381
              
              
              286,580-Total
              
              $
              3,406,269
              
              $
              2,488,756




The
      Company’s Escondido Energy Upgrade Project has been fully permitted. Completion
      of the Escondido Project remains subject to securing a long term revenue
      contract against which it can obtain debt financing. There can be no assurance
      that the Company will be successful in obtaining such a contract or debt
      financing at terms favorable to the Company.





The
      Chula
      Vista Energy Upgrade Project is proceeding through the California Energy
      Commission (the “Commission”) permitting process.   The
      Commission Staff's independent review of the Chula Vista Project found it to
      be
      consistent with local laws and ordinances and that construction and operation
      of
      the Project would not cause a significant environmental impact. 
The Project recently completed an evidentiary hearing with a
      committee consisting of two of the five members of
      the Commission.  The Company expects this committee to
      issue a proposed decision on the Project approximately 60 days from
      the date hereof.




The proposed decision
      will then be evaluated by the full Commission, which the Company expects
      will issue its final decision on the Chula Vista Project from the
      Commission in the first quarter of 2009. As with many projects of this nature,
      the Chula Vista Project faces opposition in the local community and, in any
      event, there can be no assurance the Commission will approve the Project. The
      Chula Vista Project would also be subject to the same contracting and financing
      risk as the Escondido Project





13




Notwithstanding
      the above risks, which are common for such projects, the Company continues
      to
      develop these projects and expects to see them through to completion.





**NOTE
      7 – LONG-TERM DEPOSITS**





Long-term
      deposits consist primarily of contractually scheduled prepayments related to
      two
      agreements entered into with GE Packaged Power, Inc. (“GE Power”) for the
      purchase of two LM-6000 turbines for the Chula Vista Upgrade Projects and one
      LM-6000 turbine for the Escondido Upgrade Project. The remainder of long-term
      deposits consist of other deposits for other work related to the upgrade
      projects as well as the security deposits for the leases for the Company’s Chula
      Vista facility as well for the corporate headquarters in New York City. Through
      the nine months ended September 30, 2008 the Company has made approximately
      $30.3 million in scheduled deposit payments with respect to the turbines being
      purchased from GE Power, of which $1.7 million were made using the loan facility
      with GE Finance.





**NOTE
      8 – OTHER ASSETS & DEFERRED CHARGES**





Other
      assts and deferred charges include $293,076 of deferred maintenance charges
      in
      connection with Planned Major Maintenance Activities (“PMMA”) for large assets,
      net of amortization as well as $376,449 of capitalized financing costs incurred
      during the closing of the Company’s loan facility with GE Capital.





Costs
      of
      PMMA are accounted for in accordance with the deferral method as described
      in
      FASB Staff Position’s “Audit Guide for Airlines” (“FSP-AIR”). As such PMMA costs
      are capitalized and then recognized over the earlier of (i) the remaining life
      of the asset or (ii) until the next PMMA for that equipment. For the three
      months ending September 30, 2008 and 2007, the company amortized $32,562 and
      $10,854 of deferred maintenance charges, respectively. For the nine months
      ending September 30, 2008 and 2007, the Company amortized $97,686 and $10,854
      of
      deferred maintenance charges, respectively.





The
      capitalized financing costs are charged to interest expense and recognized
      over
      the term of the facility. For the three and nine months ending September 30,
      2008 and 2007 the Company charged interest expense of $112,932 and 0,
      respectively, with respect to this facility.




**NOTE 9
      – LONG-TERM DEBT**





On
      January 31, 2006, MMC North America entered into a Loan and Security Agreement
      (the “Loan Agreement”) with TD Banknorth (the “Bank”), for a $3.5 million senior
      debt facility, including a $3.0 million term loan (the “Term Loan”) and a
      $500,000 revolving loan (the “Revolver,” together with the Term Loan, the
“Loans”). The Term Loan provides for interest payments only for the first eight
      months, and 81 monthly principal payments in the amount of $37,038 each
      thereafter, with a final maturity date of May 3, 2013. The Term Loan bears
      interest at a fixed rate equal to 7.58%. Approximately $2.1 million of the
      Term
      Loan proceeds were funded into an escrow account under control of the Bank
      and
      restricted in use to valid repair and re-commissioning costs in accordance
      with
      a re-commissioning plan agreed to between MMC North America and the Bank. The
      remaining proceeds, net of related transaction costs, were used for general
      working capital purposes. All escrowed funds for repair and re-commissioning
      were expended for the intended use.





Advances
      against the Revolver are payable on demand and bear interest at the Prime Rate
      plus 1.00%. Amounts outstanding under the Revolver must be repaid in full and
      a
      zero balance maintained for at least 30 consecutive days at any time during
      the
      year. MMC North America has not made any borrowings under the
      Revolver.





The
      Loan
      Agreement places certain restrictions on MMC North America’s ability to make
      distributions to the Company and on transactions with affiliates. The Loan
      Agreement further subjects MMC North America to certain financial and other
      covenants, including maintaining a minimum Net Worth and minimum Debt Service
      Coverage ratio. The financial covenants are measured annually. During the last
      measurement of these covenants, for the twelve months ended December 31, 2007,
      the Company was in compliance with all covenants. The loans are collateralized
      by substantially all assets of MMC North America.




14




On
      June
      30, 2008, the Company’s wholly owned subsidiaries, MMC Chula Vista II and MMC
      Escondido II, entered into a $25.5 million loan facility with GE Energy
      Financial Services, or GE Finance, in connection with the Company’s purchase of
      three GE LM-6000 PC Sprint natural gas-fired turbines from GE Energy, as
      described above.




The
      loan
      facility with GE Finance allows the Company’s subsidiaries to borrow the $25.5
      million, provided that the Company first contributes equity capital to each
      subsidiary sufficient to cover the balance of the turbines' purchase price,
      among other customary conditions. As of September 30, 2008 the Company had
      contributed the required equity contribution. Loans made under the facility
      bear
      interest at the prime rate plus 2.75% and are fully guaranteed by the Company.
      GE Finance has obtained a right of first refusal to provide the full project
      debt financing to each of the projects upon receipt of final permitting. The
      loans are due in full 150 days after the final turbine is ready to ship, and
      carry prepayment penalties if prepaid in the first 12 months or in the event
      the
      projects proceed with debt other than from GE Finance. The loans also include
      an
      unused annual line fee of 0.5% on the difference between the outstanding loan
      balance and the total commitment of $25.5 million. The facility also places
      certain restrictions on the subsidiaries’ ability to make distributions to the
      Company and with respect to maintaining the turbines as collateral among other
      covenants typical of such equipment loans. The loans are collateralized by
      substantially all assets of the subsidiaries.





As
      of
      September 30, 2008, the outstanding balance of loans under the facility was
      $1.67 million.





**NOTE 10
      – COMMITMENTS AND CONTINGENT LIABILITIES**





In
      February 2007, the Company announced that it had learned that one hundred
      thousand shares of its common stock issued as part of a 1.2 million share
      private placement transaction it consummated in May 2006 were purchased by
      an
      entity controlled by Louis Zehil, who at the time of the purchase was a partner
      of the Company’s external legal counsel for the private placement transaction,
      McGuireWoods LLP. The Company also announced that it believes that Mr. Zehil
      improperly caused the Company’s former transfer agent not to place a required
      restrictive legend on the certificate for these one hundred thousand shares
      and
      that Mr. Zehil then caused the entity he controlled to resell these shares.
      The
      Company reported Mr. Zehil’s conduct to the SEC and, subsequently, the SEC sued
      Mr. Zehil in connection with this matter further alleging that Mr. Zehil engaged
      in a similar fraudulent scheme with respect to six additional public companies
      represented at the relevant time by McGuireWoods LLP.





Persons
      who purchased shares directly from Mr. Zehil when he resold his shares may
      have
      a rescission right versus Mr. Zehil, and could make the claim that this
      rescission right somehow extends to the Company as well. One or more of the
      Company’s investors from the Company’s May 2006 private placement of 1.2 million
      shares could also claim a rescission right. It is also possible that one or
      more
      of the Company’s stockholders could claim that they somehow suffered a loss as a
      result of Mr. Zehil’s conduct and attempt to hold the Company responsible for
      their losses. The Company is unable to predict the extent of its ultimate
      liability with respect to any and all future securities matters. If any such
      claims are successfully made against the Company and it is not adequately
      indemnified for those claims from available sources of indemnification, then
      such claims could have a material adverse effect on the Company’s financial
      condition and operating results. The Company also may incur significant costs
      resulting from its investigation, any litigation it may initiate as a result
      and
      the Company’s cooperation with governmental authorities. The Company may not be
      adequately indemnified for such costs from available sources of
      indemnification.





MMC
      North
      America has arranged for the continuation of an irrevocable letter of credit
      in
      the amount of $100,000 (the “Letter of Credit”) to a counterparty with whom it
      originally entered into an energy services agreement in November 2006 (the
      “ESA”). The counterparty may draw upon the Letter of Credit to recover
      liquidated damages suffered by the counterparty in connection with any energy
      sales it may make on behalf of MMC North America and MMC Mid-Sun in the event
      MMC North America or MMC Mid-Sun fails to meet its obligations, or for any
      other
      unsatisfied obligations under the ESA. The Letter of Credit expires on February
      28, 2009. Availability under the Revolver is reduced from $500,000 to $400,000
      while the Letter of Credit remains outstanding.





On
      January 29, 2008, the Company entered into an agreement to purchase two LM-6000
      turbines from GE Packaged Power, Inc. in connection with its Chula Visa Upgrade
      Project. The total cost of these turbines is approximately $31.0 million. The
      Company will make scheduled deposit payments for the purchase price of the
      turbines through March 2009, the expected delivery date of the turbines. Through
      the date of this report, the Company has made approximately $21.2 million in
      scheduled payments.




On
      May
      15, 2008, the Company entered into an agreement to purchase one LM-6000 turbine
      from GE Packaged Power, Inc. in connection with its Escondido Upgrade Project.
      The total cost of the turbine is approximately $15.3 million. The Company will
      make scheduled deposit payments for the purchase price of the turbines through
      December 2008, the expected delivery date of the turbines. Through the date
      of
      this report, the Company has made approximately $12.0 million in scheduled
      payments.




Throughout
        2008, the Company has entered into several agreements with different vendors
        to
        purchase additional equipment required for the Upgrade Projects, including
        gas
        compressors, transformers, selective catalytic reduction catalysts (“SCRs”) as
        well as engineering, procurement, construction and management services in
        connection with its Chula Vista and Escondido Upgrade Projects. The total
        aggregate cost of these contracts is approximately $12.9 million. The Company
        will continue to make scheduled deposits payment for these contracts as per
        agreed upon schedules. Through the date of this report the Company has made
        approximately $4.5 million in scheduled payments.


15




As
      the
      Company’s facilities are located in California, they are exposed to the risk of
      potential damage from a catastrophic event such as an earthquake.  In
      addition, the Chula Vista facility lies within a designated flood plain and
      is
      therefore potentially at risk if subject to a 100 year flood event.  While
      the Company generally insures its facilities at replacement cost, the Company’s
      insurance policy imposes a $1 million limit on claims resulting from an
      earthquake or flood.  Supplemental coverage for these risks is cost
      prohibitive and therefore the Company has foregone purchasing such coverage
      and,
      effectively self insures for these risks.  Accordingly, should any of the
      Company’s facilities be damaged by such an event, the insurance proceeds to the
      Company may not be sufficient to cover the costs required to restore such
      facilities to operating condition.  Furthermore, should such a catastrophic
      event result in the permanent loss of any of its three facilities, the Company
      believes the insurance proceeds would not be sufficient to recover the loss
      of
      future cash flows, or expected market value, of the facility.





On
      June
      6, 2008, the FERC issued an order rejecting the Company’s arguments that its
      facilities comply with the CAISO's tariff to provide spinning reserve services,
      and that the Company be allowed to resume bidding into this market. The FERC
      determined that beginning on September 18, 2006, the Company was not in
      compliance with the existing CAISO spinning reserve services tariff, which
      caused the CAISO to assert the right to recover spinning reserve revenues paid
      to the Company after September 18, 2006. The FERC did, however, direct the
      CAISO
      to reimburse the Company for disputed charges related to spinning reserve
      revenues earned prior to and including September 18, 2006, and directed that
      a
      settlement judge be appointed to conduct settlement negotiations in an effort
      to
      resolve disputes as to any further reimbursements for contested charges
      subsequent to September 18, 2006. On July 7, 2008, the Company filed a request
      for rehearing of the FERC's ruling. Also on July 7, the CAISO filed a request
      for rehearing with respect to the recovery of the pre-September 18, 2006
      disputed charges awarded to the Company.





On
      September 22, 2008, the Company and the CAISO reached a settlement of this
      dispute. The Company agreed to pay the CAISO $1,000,000 to settle all
      outstanding disputed items and the Company recorded this proposed settlement
      as
      a $1,000,000 reduction of ancillary services revenue in the Statement of
      Operations at September 30, 2008 (the “Settlement Agreement”). The settlement is
      classified as a reduction of revenue which is consistent with the treatment
      described in Emerging Issues Task Force Issue No. 01-9 “Accounting for
      Consideration Give by a Vendor to a Customer (Including a Reseller of the
      Vendor’s Products)” (“EITF 01-9”). On October 14, 2008, the Company and the
      CAISO jointly filed an Offer of Settlement and Request for Expedited Action
      with
      the FERC requesting that the FERC expeditiously review and approve the
      Settlement Agreement without modification. Under the terms of the Settlement
      Agreement, the Company is required to make four equal installment payments
      of
      $250,000 to the CAISO with the first payment to be made conditioned upon receipt
      of FERC approval of the Settlement Agreement, with the remaining payments due
      on
      December 31, 2008, March 31, 2009 and June 30, 2009. As of September 26, 2008
      the CAISO had withdrawn the Company’s certification to provide spinning
      reserves.





Upon
      FERC
      approval of the Settlement Agreement, all pending requests for rehearing of
      the
      FERC's June 6 order will be deemed withdrawn and the FERC proceedings will
      be
      terminated.





The
      Company is unable to gauge the extent of its ultimate relief or any liability
      with respect to this and any and all future regulatory matters. The costs and
      other effects of any future litigation, regulatory proceedings, legal and
      administrative cases, settlements, judgments, claims and changes in this matter
      will not have a material adverse effect on the Company’s financial condition and
      liquidity but may have a material impact on future operating
      results.




The
      Company’s primary office space is currently leased through December 31, 2010.
      Additionally, in February 2008, the Company opened an office in San Diego which
      is currently leased through March 2009.





The
      Company has consulting agreements with outside contractors to provide various
      services. The Agreements are generally for a term of 12 months from inception
      and renewable automatically from year to year unless either the Company or
      the
      Consultant terminates such engagement by written notice.





The
      Company is subject to legal proceedings and claims which arise in the ordinary
      course of its business. Although occasional adverse decisions or settlements
      may
      occur, the Company believes that the final disposition of such matters should
      not have a material adverse effect on its financial position, results of
      operations or liquidity. Neither the Company nor any subsidiary has any
      involvement in any material legal proceeding as of the report date.





**NOTE 11
      – EQUITY COMPENSATION**





Under
      the
      Company’s 2006 Equity Incentive Plan (the “Plan”), 500,000 shares of common
      stock were reserved for issuance as incentive awards to executive officers,
      key
      employees and directors and outside consultants. As of September 30, 2008,
      93,000 shares have been granted to employees, net of cancellations, in the
      form
      of stock option grants, with a weighted average exercise price of $9.21 per
      share, consistent with the market value of the Company’s common stock at the
      time of issuances. An additional 245,836 shares of restricted stock have been
      granted to employees and directors. As of September 30, 2008, 161,164 shares
      are
      available for issue under the Plan.


16


During
      the three months ended September 30, 2008 and 2007 the company issued zero
      shares of restricted stock to its employees.





During
      the nine months ended September 30, 2008 and 2007 the company issued 227,000
      and
      2,561 shares of restricted stock to its employees, respectively.





**NOTE
      12 - STOCKHOLDERS' EQUITY**





During
      the quarter ended September 30, 2008, the Company issued 0 shares of restricted
      stock to its employees as compensation. As of the date of this report, the
      Company had 300,000,000 shares authorized under its Certificate of Incorporation
      and had issued 14,144,347 shares of Common Stock. During the quarter ended
      September 30, 2008 the Company repurchased 1,669 of the Company’s shares
      pursuant to its previously announced stock buyback program. As of the report
      date, the Company has 14,142,678 shares outstanding. As of the same date, the
      Company also had 10,000,000 shares of preferred stock authorized under its
      Certificate of Incorporation, none of which was issued or
      outstanding.





On
      April
      19, 2007, the Company effected a one-for-ten reverse stock split of its
      outstanding shares of common stock, $0.001 par value. Total authorized shares
      and par value remain unchanged. All references in the financial statements
      and
      notes to financial statements, numbers of shares and share amounts have been
      retroactively restated to reflect the reverse split, unless explicitly stated
      otherwise.





On
      July
      5, 2007, the Company completed a public offering of 9,090,910 shares of its
      common stock at $5.50 per share pursuant to a Form SB-2 Registration Statement
      under the Securities Act of 1933.





During
      the nine months ended September 30, 2008 and 2007 the Company has issued 227,000
      and 2,561 shares of restricted stock as compensation for its employees and
      directors.





**NOTE
      13 – RELATED PARTY TRANSACTIONS**





The
      Company had no related party transactions for the three and nine month periods
      ended September 30, 2008 and 2007.


17


**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND OF FINANCIAL CONDITION AND RESULTS
      OF OPERATIONS**




*The
      following discussion should be read in conjunction with the consolidated
      financial statements and notes thereto included in our public filings, including
      this report* **.**





*Information
      contained in this filing contains “forward-looking statements” which can be
      identified by the use of forward-looking terminology such as “believes,”
“expects,” “may,” “will,” “should,” “anticipates” or comparable terminology, or
      by discussions of strategy. We cannot assure you that the future results covered
      by these forward-looking statements will be achieved. Some of the matters
      described in the “Risk Factors” section of our Annual Report on Form 10-K and in
      our other public filings constitute cautionary statements which identify factors
      regarding these forward-looking statements, including certain risks and
      uncertainties that could cause actual results to vary materially from future
      results indicated in these forward-looking statements. Other factors could
      also
      cause actual results to vary materially from future results indicated in such
      forward-looking statements.*




**Overview**





We
      are an
      energy management company that acquires and actively manages electricity
      generating and energy infrastructure related assets in the United States. Our
      mission is to acquire, directly or through joint ventures, a portfolio of small
      to mid-size electricity generating assets, generally below 100 megawatts, or
      “MW.” To date, we have acquired three electricity generating assets in
      California, totaling 110 MW of capacity and are in the process of upgrading
      two
      of these assets. We are also pursuing additional acquisitions of small to
      medium-sized power generating facilities primarily in California the
      Mid-Atlantic states and the Northeastern portion of the United States. Our
      natural gas fueled electricity generating facilities are commonly referred
      to as
“peaker” plants. Our plants are used to balance unexpected short term surges in
      demand, making them critical to the reliability, or “insurance,” of the power
      grids they serve. Our assets generate revenue from providing capacity and
      ancillary reliability services to transmission grids that distribute electricity
      to industrial and retail electricity providers. During peak electricity usage
      times, such as the summer, we also sell our electricity in the daily merchant
      market.





Our
      primary business strategy is to create long-term value by focusing on five
      core
      principles:





*
      Targeting transmission and electricity constrained regions





*
      Acquiring, developing and operating electricity generating and infrastructure
      related assets





*
      Restructuring acquired assets to maximize revenues





*
      Managing risk to optimize profitability





*
      Opportunistically partnering to develop renewable energy generating
      assets





We
      are
      currently exploring additional value creation opportunities.   In
      March 2008, we announced the engagement of Merriman Curhan Ford as an exclusive
      financial advisor to assist us with evaluating potential joint venture
      partnerships, strategic alliances, asset sales, or other strategic transactions
      that may serve to increase shareholder value beyond pursuing the above strategy
      independently. More
      recently, we have entered into discussions with certain third parties interested
      in either acquiring certain of our assets or partnering with us on the
      development of our upgrade projects, with a greater emphasis on liquidity given
      the current financial market conditions. In
      March
      2008, we announced a $2.5 million share buy back program effective through
      September 30, 2008 (subsequently extended through December 31, 2008), due to
      our
      belief that our stock is currently undervalued. As of the date of this report
      we
      purchased 1,669 shares at a cost of $4,120. Prior to June 30, 2008 we
      successfully entered into agreements with GE Packaged Power, Inc to purchase
      three LM-6000 turbines for the Chula Vista and Escondido Upgrade projects.
      In
      addition, on June 30, 2008, we secured a debt facility for $25.5 million with
      GE
      Energy Financial Services, Inc. specifically for the purchase of those turbines.
      In July 2008, we secured the Authority to Construct permit for the Escondido
      project. This permit and the Conditional Use permit we secured in February
      2008
      for Escondido represent the successful completion of the permitting phase of
      the
      Escondido Upgrade Project. On
      August
      28, 2008, we received a favorable Final Staff Assessment from the CEC in support
      of Chula Vista Energy Upgrade Project. We expect final certification in early
      2009, pending the CEC’s final decision.





The
      Chula
      Vista Energy Upgrade Project (the “Project”) is proceeding through the
      California Energy Commission (the “Commission”) permitting
      process.   The Commission Staff's independent review of the
      Project found the Project consistent with local laws and ordinances and that
      construction and operation of the Project would not cause a significant
      environmental impact.  The Project recently completed an
      evidentiary hearing with a committee consisting of two of the five
      members of the Commission.  We expect this committee to
      issue a proposed decision on the Project approximately 60 days from
      the date hereof.


18


The proposed decision
      will then be evaluated by the full Commission, which we expect will issue
      its final decision on the Project from the Commission in the first quarter
      of 2009. As with many projects of this nature, the Project does face opposition
      in the local community and, in any event, there can be no assurance the
      Commission will approve the Project.





We
      are
      managed by a team of professionals with significant energy sector experience
      and
      knowledge. Our executive officers and Board of Directors have extensive
      experience with industry leaders in the energy and finance sectors, as well
      as
      private equity, structured finance and project finance transactional experience.
      We intend to leverage this extensive experience and our relationships within
      the
      energy and finance sectors to execute on our core strategy and build significant
      long-term value for our stockholders.





We
      launched our acquisition strategy in January 2006 with the acquisition of two
      44
      MW natural gas fired electricity generating facilities in San Diego County,
      one
      in Chula Vista and the other in Escondido, California. This acquisition provided
      us entry to the California wholesale electricity market. We fully
      re-commissioned the facilities and began earning revenues in June 2006. We
      acquired the formerly idle facilities for what we believe to be a discounted
      value to market, and believe the facilities appreciated substantially in value
      following their repair and re-commissioning. In November 2006, we acquired
      MMC
      Mid-Sun, a 22 MW facility near Bakersfield, California, which we also
      successfully re-commissioned and began operating in January 2007.





On
      July
      5, 2007, we listed our common stock on the Nasdaq Global Market in connection
      with the closing of a $50 million underwritten public offering of our common
      stock.





We
      currently have seven full time employees. However, we contract for third party
      labor for on-site operations and maintenance of our existing facilities, as
      well
      as energy management and trading support. We expect to manage any future
      facilities acquired in a similar fashion.





**Critical
      Accounting Policies**





Our
      consolidated financial statements are prepared in accordance with accounting
      principles generally accepted in the United States. The preparation of our
      financial statements in conformity with accounting principles generally accepted
      in the United States requires us to make estimates and assumptions that affect
      the reported amounts of assets, liabilities, revenues, costs and expenses,
      and
      related disclosure. We base our estimates and assumptions on historical
      experience and on various other assumptions that we believe to be reasonable
      under the circumstances. Future events, however, may differ markedly from our
      current expectations and assumptions. While there are a number of significant
      accounting policies affecting our consolidated financial statements, we believe
      the following critical accounting policies involve the most complex, difficult
      and subjective estimates and judgments.





**Revenue
      Recognition**





We
      recognize revenue when all of the following circumstances are satisfied: (1)
      persuasive evidence of an arrangement exists, (2) price is fixed or
      determinable, (3) collectibility is reasonably assured, and (4) delivery has
      occurred. Revenues are recognized upon delivery of energy or services. The
      revenues we collect for ancillary services and energy delivery fluctuate based
      on market prices established by CAISO on a daily, hourly and real-time basis.





We
      recognize energy production revenue when energy has been substantially
      transmitted to the customer. We recognize revenue when electricity is delivered
      to a customer pursuant to contractual commitments that specify volume, price
      and
      delivery requirements. Some sales of energy are based on economic dispatch,
      or
      "as-ordered," by an independent system operator, or "ISO," based on member
      participation agreements, but without an underlying contractual commitment.
      Revenues for sales of energy based on ISO dispatches are recorded on the basis
      of MW-hours delivered, at the applicable wholesale market prices. In addition
      to
      bilateral contracts that we may enter into from time to time, we generally
      offer
      our energy to the ISO daily at our variable cost to produce plus a desired
      minimum profit margin. Our facilities can be dispatched only if the market
      clearing price exceeds our bid price. We may also receive "out of merit"
      dispatches in times when the market price is less than our bid price, but our
      electricity is needed locally due to local transmission constraints, in which
      case we will be paid our bid price for energy provided.





As
      described under "Results of Operations" below, we also recognize revenues from
      the provision of ancillary services and under capacity contracts. Although
      there
      are several types of ancillary services, to date we have primarily provided
      "spin" and "non spin" services, which call for the facilities to be delivering
      the awarded capacity within 10 minutes of dispatch whether already connected
      to
      the grid (spin) or not (non-spin). As noted in Note 10, we no longer provide
      spinning reserve revenues and will not going forward with the existing
      facilities. We recognize these revenues at the time of dispatch by the ISO.
      Capacity (resource adequacy) contract revenues are recognized based on the
      facility's capacity as certified by the California Public Utility Commission,
      or
      CPUC, and by CAISO.


19


**Results
      of Operations**





**Revenues**





Our
      electricity generating facilities are generally referred to as “peaker” plants
      which are used to balance unexpected short term surges in electricity demand,
      making them critical to the reliability of the transmission grids they serve.
      Our revenues to date have been earned by providing resource adequacy capacity,
      ancillary services and energy production.





·
            Resource
                Adequacy Capacity – Regulatory capacity payments for generators of any
                type are based strictly on total installed capacity measured in megawatts.
                In the California market where we currently operate exclusively,
                market-based capacity revenues are earned through resource adequacy
                contracts, whereby the counterparty can point to our facilities'
                installed
                capacity as a source to supply its peak demand plus a mandatory safety
                margin as dictated by the California Public Utilities Commission
                or CPUC
                The contract does not create an obligation to supply electricity
                to the
                counterparty, but does obligate us to bid the facilities’ energy into the
                CAISO markets on a daily basis such that our capacity is available
                to the
                CAISO, if needed, at our bid price. The resource adequacy capacity
                amount
                cannot exceed the qualified capacity amount for the resource. Qualified
                capacity is certified by CAISO. For 2007, the MMC Escondido and MMC
                Chula
                Vista facilities were certified by CAISO and the CPUC for 35.5 MW
                each,
                and MMC Mid-Sun for 22 MW, and for 2008, 35.5 MW each for the Escondido
                and Chula Vista facilities and MMC Mid-Sun for 21.8
                MW.





·
            Ancillary
                Services – Although there are several types of ancillary services, we
                primarily provide “non-spin” services which call for the facilities to be
                delivering the awarded capacity within 10 minutes of dispatch regardless
                of whether already synchronized to the grid. While we expect non-spin
                pricing to recover somewhat during the peak summer period, our ancillary
                service revenues will likely not be as large a percentage of our
                total
                revenues as they have been historically. As of September 26, 2008
                the
                CAISO has withdrawn our certification to provide spinning reserves.





·
            Energy
                Production – We provide electricity to the local power grid through day
                ahead and real time auctions managed by the CAISO, the “merchant market”
                or through financially settled bilateral agreements with a utility
                or
                other direct counterparty. As we have no outstanding electricity
                purchase
                agreements or other contracted energy production, all of our energy
                production revenues are earned in the daily merchant market.





Revenues
      for the three and nine month periods ended September 30, 2008 and 2007 were
      distributed as follows:


**Three
                  Months Ended September 30,**
              
              **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Operating
                  revenues:**Resource
                  adequacy capacity
              
              $
              1,781,650
              
              $
              791,250
              
              $
              2,991,300
              
              $
              2,274,750Ancillary
                  services
              
              
              (886,605
              )
              
              1,496,289
              
              
              (553,986
              )
              
              2,500,676Energy
                  production
              
              
              404,601
              
              
              462,224
              
              
              600,560
              
              
              580,417**Total
                  operating revenues**
              
              $
              1,299,646
              
              $
              2,749,763
              
              $
              3,037,874
              
              $
              5,355,843




Revenues
        for the three month period ended September 30, 2008 decreased 53% to $1,299,646
        from the same period in 2007, and r evenues
        for the nine month period ended September 30, 2008 decreased 43% to $3,037,874
        from the same period in 2007. The decrease was driven
        primarily by the adverse settlement reached with CAISO for $1 million charged
        against ancillary services (see Note 10). The settlement is classified as
        a
        reduction of revenue which is consistent with the treatment described in
        EITF
        01-9.  The
        decrease was also driven by a drop in ancillary services revenues due to
        the
        suspension of our spinning reserve services qualification by the CAISO. The
        impact of these negative comparisons were offset in part by higher capacity
        revenues that were a result of our entering into a shaped contract for these
        services that matches revenues earned with peak seasonal demand, resulting
        in a
        higher third quarter revenue for 2008, compared to 2007 under the old agreement.
        Non-spinning reserve service has historically priced lower than spinning
        reserve
        service and this trend has been accentuated during the last four quarters,
        and
        can be expected to continue in future periods. In June 2008, the FERC upheld
        the
        CAISO’s position that MMC was not qualified to provide spinning reserve
        services. See Note 10 of our Condensed Consolidated Financial Statements
        included in this report for more detail.


20


**Cost
      of Sales**




Cost
        of
        sales for the three months ended September 30, 2008 and 2007 were $359,048
        and
        $412,747 respectively, yielding gross profits of $940,598 and $2,337,016
        and
        gross margin of 72% and 85%, respectively. Costs of sales for the nine months
        ended September 30, 2008 and 2007 were $612,923 and $813,615 respectively
        yielding gross profits of $2,424,951 and $4,542,228, respectively and gross
        margins of $80% and 85%, respectively.
 
 Our
        gross
        margin has been relatively high due to high margin resource adequacy capacity
        constituting the largest portion of our revenues. In addition, gross margins
        for
        energy production revenue remain high as we generally produce energy only
        during
        peak demand times which result in the highest prices for energy. We expect
        our
        gross margin to decrease significantly as a percentage of our revenues as
        we
        upgrade existing facilities and acquire additional facilities, which are
        expected to increase our gross energy production. Gross margins in 2008 were
        negatively impacted by our settlement with CAISO. Excluding the net effect
        of
        the settlement which included a small recovery of incentive fees, gross margins
        were 78% and 86% for the three and nine month periods ended September 30,
        2008
        compared to gross margins of 85% for such periods during 2007.




Costs
      of
      sales and gross margins were distributed as follows:




**Three
                  Months Ended September 30,**
              
              **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Costs
                  of sales:**Costs
                  of resource adequacy capacity
              
              
              129,170
              
              
              63,300
              
              
              216,869
              
              
              181,980Costs
                  of ancillary services
              
              
              (10,669
              )
              
              201,550
              
              
              37,571
              
              
              381,641Costs
                  of energy production
              
              
              240,547
              
              
              147,897
              
              
              358,483
              
              
              249,994**Total
                  costs of sales**
              
              $
              359,048
              
              $
              412,747
              
              $
              612,923
              
              $
              813,615
  **Three
                  Months Ended September 30,**
              
              **Three
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,**
              
              **Nine
                  Months Ended September 30,****2008**
              
              **2007**
              
              **2008**
              
              **2007****Gross
                margin:**Gross
                  margin of resource adequacy capacity
              
              
              92.7
              %
              
              92.0
              %
              
              92.8
              %
              
              92.0
              %Gross
                  margin of ancillary services
              
              
              n/a
              
              
              86.5
              %
              
              n/a
              
              
              84.7
              %Gross
                  margin of energy production
              
              
              40.5
              %
              
              68.0
              %
              
              40.3
              %
              
              56.9
              %**Total
                  costs of sales**
              
              
              72.4
              %
              
              85.0
              %
              
              79.8
              %
              
              84.8
              %





Costs
      of
      sales include these major expenses:





·
            Resource
                Adequacy Capacity – Includes primarily commissions paid to electricity
                marketers. We expect this revenue stream to remain at a very high
                margin.





·
            Ancillary
                Services — Includes primarily grid management charges, or costs incurred
                by the ISO directly related to the installation and maintenance of
                the
                electrical power grid necessary to permit the provision of energy
                and
                ancillary services. These costs are passed through to generators
                as
                mandated by regulatory and governing bodies. Costs also include variable
                incentive fees paid to our energy manager for exceeding revenue targets.
                This is typically a high margin
                service.





·
            Energy
                Production – Includes variable costs for fuel, primarily natural gas, used
                in the production of energy as well as pipeline fees for fuel
                transportation, grid management charges, variable incentive fees,
                and
                other direct charges associated with the provision of energy production.
                We expect our gross margin to decrease significantly as a percentage
                of
                our revenues as we upgrade existing facilities and acquire additional
                facilities, which are expected to increase our gross energy production.


21


**Operations
      and Maintenance**





Operations
      and maintenance expenses consist of the direct overhead expenses for operating
      and maintaining our electricity generating facilities. For the three months
      ended September 30, 2008 and 2007, operations and maintenance expenses were
      $573,604 and $652,576, respectively. These expenses consisted primarily of
      contracted labor, interconnection costs, repairs and maintenance, environmental
      consulting, environmental compliance and other semi-variable costs. The decrease
      in expenses was driven primarily by a decrease in unplanned repairs and lower
      labor costs.




For
        the
        nine months ended September 30, 2008 and 2007, operations and maintenance
        expenses were $1,986,937 and $1,864,201 respectively. The increase in expenses
        was primarily due to the first nine months of 2007 not reflecting a full
        nine
        months of operations for Mid-Sun, which was re-commissioned during the first
        quarter of 2007.





**Re-commissioning
      Expenses**





Re-commissioning
      expenses consist of the non-recurring initial planned repairs and
      re-commissioning costs required to restore electricity generating facilities
      and
      all related equipment to operating condition, including fuel and other costs
      relating to initial test runs of the facilities. Such expenditures are expensed
      for financial accounting purposes as they represent basic repairs and
      maintenance and do not otherwise extend the life of the assets. However, as
      such
      expenses are non-recurring on an asset by asset basis and pre-funded with the
      acquisition of the asset, management considers them part of its investment
      cost
      for evaluating returns on individual assets. We have completed the
      re-commissioning for our current assets, but expect to incur such costs with
      respect to future acquisitions, as they may be in mothball status and may have
      received little or no maintenance for significant periods of time.





For
      the
      three months ended September 30, 2008 and 2007, re-commissioning costs were
      $0
      and a gain of $5,213 resulting from an expense reversal, respectively, and
      for
      the nine months ended September 30, 2008 and 2007, re-commissioning costs were
      $0 and $413,904 respectively. In 2008, the company had no re-commissioning
      projects in process.





**General
      and Administrative Expenses**




For
        the
        three months ended September 30, 2008 and 2007, general and administrative
        expenses were $1,571,280 and $1,146,620, respectively. General and
        administrative expenses for the three months ended September 30, 2008 and
        2007
        were primarily driven by compensation, professional fees, relocation expense
        and
        investor relations expenses. The increase from 2007 was driven primarily
        by
        relocation expense, higher professional fees related to due diligence expenses
        for potential acquisitions.
  For
        the
        nine months ended September 30, 2008 and 2007, general and administrative
        expenses were $4,848,968 and $3,701,162, respectively. General and
        administrative expenses for the nine months ended September 30, 2008 and
        2007
        were primarily driven by compensation, professional fees and investor relations
        expenses, most of which were incurred in connection with our annual meeting
        of
        stockholders held May 28, 2008 and the related proxy fight. The increase
        from
        2007 was driven primarily by proxy fight related investor relations and legal
        fees, relocation expense and broken deal costs.
  While
      our
      recurring general and administrative expenses may increase on an absolute basis,
      we expect they will decrease as a percentage of total revenue as we continue
      to
      implement our growth strategy.





**Interest
      and Other Expenses**





Net
      interest expense for the three months ended September 30, 2008 reflects senior
      debt interest expense as well as interest expense related to our loan facility
      with GE Finance which commenced on June 30, 2008. This expense was partially
      offset by interest income from the investment of our July 2007 public offering
      proceeds in high-yield investment grade money market funds and debt securities.
      We expect to continue to earn net interest income until the proceeds from the
      offering are completely utilized to acquire additional assets.





Other
      income of $135,995 for the nine months ended September 30, 2007 reflects the
      recovery of substantially all legal and professional fees primarily related
      to
      unsuccessful financing activities prior to the July 2007 public
      offering.





**Liquidity
      and Capital Resources**





On
        July
        5, 2007, we consummated a registered public offering of 9,090,910 shares
        of our
        common stock at $5.50 per share. This transaction resulted in net proceeds
        to us
        of approximately $46.1 million. As of September 30, 2008, we had $9.1 million
        in
        cash and equivalents. The majority of cash we used during the first nine
        months
        of 2008 was attributable to approximately $30.1 million of deposits on turbines
        for our planned Chula Vista and Escondido upgrade projects, and cash used
        for
        operations year to date of approximately $5.1 million, including approximately
        $1.2 million in payments for severance and related costs in connection with
        the
        departure of our former chief executive officer.


22




The
        completion of our Chula Vista and Escondido Upgrade Projects, or any future
        acquisitions, may require us to obtain additional debt financing or other
        funding in a short period of time. We have entered into discussions with
        certain
        third parties interested in either acquiring certain of our assets or partnering
        with us on the development of our upgrade projects, which would be expected
        to
        significantly alleviate our cash requirements.  If we are not successful in
        these efforts we may need additional funding during the next twelve months
        since
        our existing cash resources will not be sufficient to cover anticipated losses
        from operations as well as the continued funding of our current growth strategy,
        inclusive of existing equipment purchase contracts.  The extent and timing
        of the capital requirements will depend on the availability of debt financing
        based on the revenue contracts we are ultimately able to secure for the Upgrade
        Projects, the extent of future operating losses, and the specific acquisition
        targets, if any, that we are able to source.
 
 If
        we
        fail to obtain sufficient capital resources on terms acceptable to us, it
        would
        have a material adverse effect on our plans to make additional acquisitions,
        cover unplanned repairs, required capital expenditures and/or our current
        business, results of operations, liquidity and financial condition. If we
        issue
        additional equity and/or debt securities to meet our future capital
        requirements, the terms of any future equity financings may be dilutive to
        our
        stockholders and the terms of any debt financings may contain restrictive
        covenants that may also negatively affect our stockholders. Our ability to
        consummate future financings will depend on the status of our business prospects
        as well as conditions then prevailing in the capital markets.
 
 The
        United States stock and credit markets have recently experienced significant
        price volatility, dislocations and liquidity disruptions, which have caused
        market prices of many stocks to fluctuate substantially and the spreads on
        prospective debt financings to widen considerably. These circumstances have
        materially impacted liquidity in the financial markets, making terms for
        certain
        financings less attractive, and in some cases have resulted in the
        unavailability of financing. Continued uncertainty in the stock and credit
        markets may negatively impact our ability to access additional financing
        for
        development of our properties and other purposes at reasonable terms, which
        may
        negatively affect our business. A prolonged downturn in the financial markets
        may cause us to seek alternative sources of potentially less attractive
        financing and there can be no assurance that financing will be available
        on any
        terms, and either such event would require us to adjust our business plan
        accordingly. The disruptions in the financial markets may have a material
        adverse effect on the market value of our common stock and other adverse
        effects
        on us and our business.
  On
        January 31, 2006, MMC North America, one of our wholly owned subsidiaries
        entered into a Loan and Security Agreement with TD Banknorth providing for
        a
        $3.5 million senior debt facility including a $3.0 million term loan and
        a
        $500,000 revolving loan. The term loan provides for interest-only payments
        during the first eight months, and 81 equal monthly principal payments in
        the
        amount of $37,038 thereafter, with a final maturity date of May 3, 2013.
        The
        term loan bears interest at a fixed rate equal to 7.58%.
 
 Advances
        against the revolver are payable on demand and bear interest at the prime
        rate
        plus 1.00%. Beginning in 2006, amounts outstanding under the revolver must
        be
        repaid in full and a zero balance maintained for at least 30 consecutive
        days at
        any time during the year. We have not borrowed under the revolver.
 
 MMC
        North America has arranged for the continuation of an irrevocable letter
        of
        credit in the amount of $100,000 (the “Letter of Credit”) to a counterparty with
        whom we originally entered into an energy services agreement in November
        2006
        (the “ESA”). The counterparty may draw upon the Letter of Credit to recover
        liquidated damages suffered by the counterparty in connection with any energy
        sales it may make on behalf of MMC North America and MMC Mid-Sun in the event
        MMC North America or MMC Mid-Sun fails to meet its obligations, or for any
        other
        unsatisfied obligations under the ESA. The Letter of Credit expires on February
        28, 2009. Availability under the Revolver is reduced from $500,000 to $400,000
        while the Letter of Credit remains outstanding.
 
 The
        Loan Agreement places certain restrictions on MMC North America’s ability to
        make distributions to us and on transactions with affiliates. The Loan Agreement
        further subjects MMC North America to certain financial and other covenants,
        including maintaining a minimum Net Worth and minimum Debt Service Coverage
        ratio. These financial covenants are measured annually. During the last
        measurement of these covenants, for the twelve months ended December 31,
        2007,
        we were in compliance with all covenants .
        The
        loans are collateralized by substantially all assets of MMC North
        America.
 
 On
        January 29, 2008 we entered into an agreement with GE Packaged Power, Inc.
        (“GE
        Power”) for the purchase of two LM-6000 turbines to be used in the Chula Vista
        Upgrade Project for approximately $31 million. Through the date of this report
        the Company has made payments of approximately $21.2 million. These payments
        are
        classified as long-term deposits on our condensed consolidated balance sheet.
 
 On
        May 15, 2008 the Company entered into an agreement with GE Power for the
        purchase of one LM-6000 turbine to be used in the Escondido Upgrade Project
        for
        approximately $15 million. Through the date of this report, we have made
        payments of approximately $12.0 million. These payments are classified as
        long-term deposits on our condensed consolidated balance sheet.
  Throughout
          2008, we have entered into several agreements with different vendors to
          purchase
          additional equipment required for our Upgrade Projects, including gas
          compressors, transformers, selective catalytic reduction catalysts (“SCRs”) as
          well as engineering, procurement, construction and management services
          in
          connection with our Chula Vista and Escondido Upgrade Projects. The total
          aggregate cost of these contracts is approximately $12.9 million. We will
          continue to make scheduled deposits payment for these contracts as per
          agreed
          upon schedules. Through the date of this report we have made approximately
          $4.5
          million in scheduled payments.
  On
        June 30, 2008 our wholly owned subsidiaries, MMC Chula Vista II, LLC and
        MMC
        Escondido II, LLC, agreed to a $25.5 million loan facility with GE Energy
        Financial Services (“GE Finance”) in connection with the purchase of three GE
        LM-6000 PC Sprint natural gas-fired turbines from GE Energy. We expect that
        this
        facility will provide the addition funding needed to complete the purchase
        of
        the turbines. As of September 30, 2008 the required equity contribution has
        been
        made.
  The
        loan agreement allows our subsidiaries to borrow the $25.5 million, provided
        that we first contribute equity capital to each subsidiary sufficient to
        cover
        the balance of the turbines' purchase price, among other customary conditions.
        The loans bear interest at the prime rate plus 275 basis points and are fully
        guaranteed by us. GE Finance has obtained the right of first refusal to provide
        the full project debt financing to each of the projects upon receipt of final
        permitting. The loans are due in full 150 days after the final turbine is
        ready
        to ship, and carry prepayment penalties if prepaid in the first 12 months
        or in
        the event the projects proceed with debt other than from GE Finance.


23


**Off-Balance
      Sheet Arrangements**





We
      do not
      have any off-balance sheet arrangements that are reasonably likely to have
      a
      current or future effect on our financial condition, revenues, results of
      operations, liquidity or capital expenditures, nor do we participate in
      non-exchange traded contracts requiring fair value accounting treatment.





In
      connection with the planned Chula Vista and Escondido upgrades and possible
      future acquisition of "mid-merit" electricity generation facilities, which
      are
      neither true baseload nor true peaking facilities, but somewhere in between,
      we
      may engage in certain hedging transactions. Such facilities would be more
      expensive to purchase but would be expected to generate substantially more
      energy production revenues. For such assets, hedging the commodity price risk
      becomes more critical and we would expect to enter into intermediate term
      financially settled hedge contracts that would serve the purpose of shifting
      the
      price risk of fuel cost and electricity pricing onto the counterparty, in effect
      swapping commodity price risk for credit risk. Management's experience in this
      area will become more critical with the purchase of such assets.





**Seasonality
      and Inflation**





Our
      business is seasonal, with a relatively high proportion of revenues and
      operating cash flows generated during the third quarter of the fiscal year,
      which includes the peak summer months for energy demand. As we derive most
      of
      our revenues from selling energy and ancillary services at then-current spot
      market prices, as opposed to under longer term fixed-price contracts, our
      revenues and operating income are highly exposed to the seasonal fluctuations
      in
      natural gas and electricity, which corresponds to peak summer demand. The effect
      of inflation on our revenue and operating results was not
      significant.





**Recent
      Accounting Pronouncements**





See
      Note
      2 of the Notes to Condensed Consolidated Financial Statements for recent
      accounting pronouncements.





**ITEM
      3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK**





Not
      Applicable





**ITEM
      4T. CONTROLS AND PROCEDURES**





**Evaluation
      of Disclosure Controls and Procedures**




We
      maintain disclosure controls and procedures that are designed to ensure that
      information required to be disclosed in our reports filed or submitted pursuant
      to the Securities Exchange Act of 1934 is recorded, processed, summarized and
      reported within the time periods specified in the SEC’s rules and forms, and
      that information required to be disclosed in our Exchange Act reports is
      accumulated and communicated to our Chief Executive Officer and Chief Financial
      Officer, to allow timely decisions regarding required disclosure.





Under
      the
      supervision and with the participation of our Chief Executive Officer and Chief
      Financial Officer as of September 30, 2008, we conducted an evaluation of
      effectiveness of the design and operation of our disclosure controls and
      procedures, (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange
      Act). Based upon that evaluation, our Chief Executive Officer and Chief
      Financial Officer concluded that our disclosure controls and procedures are
      effective as of such date to ensure that information required to be disclosed
      by
      us in the reports that we file or submit under the Exchange Act is recorded,
      processed, summarized and reported, within the time periods specified in the
      SEC’s rules and forms. Disclosure controls and procedures include, without
      limitation, controls and procedures designed to ensure that information required
      to be disclosed in our reports filed or submitted under the Exchange Act is
      accumulated and communicated to management, including our chief executive
      officer and chief financial officer, as appropriate to allow timely decisions
      regarding disclosure.




**Changes
      in Internal Control Over Financial Reporting**





There
      were no changes in our internal controls over financial reporting identified
      in
      connection with the evaluation required by paragraph (d) of Exchange Act Rules
      13a-15 or 15d-15 that occurred during our last fiscal quarter that have
      materially affected, or are reasonably likely to materially affect, our internal
      controls over financial reporting.


24


**PART
      II**


**OTHER
      INFORMATION**





**ITEM
      1. LEGAL PROCEEDINGS**





On
      March
      13, 2008, we filed a complaint with the Federal Energy Regulatory Commission
      (''FERC'') seeking an order directing the California Independent System Operator
      Corporation ("CAISO") to allow us to participate in the spinning reserve market.
      The CAISO filed an answer on April 14, 2008 disputing our position. On April
      29,
      2008 we reiterated our position in a response to the answer filed by CAISO.
      On
      June 6, 2008, the FERC issued an order rejecting our arguments that our
      facilities comply with the CAISO's tariff to provide spinning reserve services,
      and that we be allowed to resume bidding into this market. The FERC did,
      however, direct the CAISO to reimburse us for disputed charges related to
      spinning reserve revenues earned prior to and including September 18, 2006,
      and
      directed that a settlement judge be appointed to conduct settlement negotiations
      in an effort to resolve disputes as to any further reimbursements for contested
      charges subsequent to September 18, 2006.





On
      June
      6, 2008, the FERC issued an order rejecting our arguments that our facilities
      comply with the CAISO's tariff to provide spinning reserve services, and that
      we
      be allowed to resume bidding into this market. The FERC determined that
      beginning on September 18, 2006, we were not in compliance with the existing
      CAISO spinning reserve services tariff, which caused the CAISO to assert the
      right to recover spinning reserve revenues paid to us after September 18, 2006.
      The FERC did, however, direct the CAISO to reimburse us for disputed charges
      related to spinning reserve revenues earned prior to and including September
      18,
      2006, and directed that a settlement judge be appointed to conduct settlement
      negotiations in an effort to resolve disputes as to any further reimbursements
      for contested charges subsequent to September 18, 2006. On July 7, 2008, we
      filed a request for rehearing of the FERC's ruling. Also on July 7, the CAISO
      filed a request for rehearing with respect to the recovery of the pre-September
      18, 2006 disputed charges awarded to us.





On
      September 22, 2008, we and the CAISO reached a settlement of this dispute.
      We
      agreed to pay the CAISO $1 million to settle all outstanding disputed items
      and
      we recorded this proposed settlement as a $1 million reduction of ancillary
      services revenue in the Statement of Operations at September 30, 2008. On
      October 14, 2008, we and the CAISO jointly filed an Offer of Settlement and
      Request for Expedited Action with the FERC requesting that the FERC
      expeditiously review and approve the Settlement Agreement without modification.
      Under the terms of the Settlement Agreement, we are required to make four equal
      installment payments of $250,000 to the CAISO with the first payment to be
      made
      conditioned upon receipt of FERC approval of the Settlement Agreement, with
      the
      remaining payments due on December 31, 2008, March 31, 2009 and June 30, 2009.
      As of September 26, 2008 the CAISO has withdrawn our certification to provide
      spinning reserve services.





Upon
      FERC
      approval of the Settlement Agreement, all pending requests for rehearing of
      the
      FERC's June 6 order will be deemed withdrawn and the FERC proceedings will
      be
      terminated.





From
      time
      to time we may become a party to routine litigation or other legal proceedings
      that are incidental and part of the ordinary course of our business.. Management
      and legal counsel periodically review the probable outcome of such proceedings,
      the costs and expenses reasonably expected to be incurred, the availability
      and
      extent of insurance coverage, and established reserves.





We
      are
      unable to gauge the extent of its ultimate relief or any liability with respect
      to these and any and all future regulatory matters. The costs and other effects
      of any future litigation, regulatory proceedings, legal and administrative
      cases, settlements, judgments, claims and changes in these matters will not
      have
      a material adverse effect on our financial condition and liquidity but may
      have
      a material impact on future operating results





**ITEM
      1A. RISK FACTORS**




***Our
        current business plan may require us to obtain additional financing, which
        may
        not be available on commercially reasonable terms or at all.***
 
 The
        completion of our Chula Vista and Escondido Upgrade Projects, or any future
        acquisitions, may require us to obtain additional debt financing or other
        funding in a short period of time. We have entered into discussions with
        certain
        third parties interested in either acquiring certain of our assets or partnering
        with us on the development of our upgrade projects, which would be expected
        to
        significantly alleviate our cash requirements.  If we are not successful in
        these efforts we may need additional funding during the next twelve months
        since
        our existing cash resources will not be sufficient to cover anticipated losses
        from operations as well as the continued funding of our current growth strategy,
        inclusive of existing equipment purchase contracts.  The extent and timing
        of the capital requirements will depend on the availability of debt financing
        based on the revenue contracts we are ultimately able to secure for the Upgrade
        Projects, the extent of future operating losses, and the specific acquisition
        targets, if any, that we are able to source.
 
 If
        we
        fail to obtain sufficient capital resources on terms acceptable to us, it
        would
        have a material adverse effect on our plans to make additional acquisitions,
        cover unplanned repairs, required capital expenditures and/or our current
        business, results of operations, liquidity and financial condition. If we
        issue
        additional equity and/or debt securities to meet our future capital
        requirements, the terms of any future equity financings may be dilutive to
        our
        stockholders and the terms of any debt financings may contain restrictive
        covenants that may also negatively affect our stockholders. Our ability to
        consummate future financings will depend on the status of our business prospects
        as well as conditions then prevailing in the capital markets.
  ***Recent
        disruptions in the financial markets could affect our ability to obtain
        financing for our upgrade projects, acquisition growth strategy, and other
        purposes on reasonable terms or at all, and have other adverse effects on
        us and
        the market price of our common stock.***
 
 The
        United States stock and credit markets have recently experienced significant
        price volatility, dislocations and liquidity disruptions, which have caused
        market prices of many stocks to fluctuate substantially and the spreads on
        prospective debt financings to widen considerably. These circumstances have
        materially impacted liquidity in the financial markets, making terms for
        certain
        financings less attractive, and in some cases have resulted in the
        unavailability of financing. Continued uncertainty in the stock and credit
        markets may negatively impact our ability to access additional financing
        for
        development of our properties and other purposes at reasonable terms, which
        may
        negatively affect our business. A prolonged downturn in the financial markets
        may cause us to seek alternative sources of potentially less attractive
        financing and there can be no assurance that financing will be available
        on any
        terms, and either such event would require us to adjust our business plan
        accordingly. The disruptions in the financial markets may have a material
        adverse effect on the market value of our common stock and other adverse
        effects
        on us and our business.




**ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
      PROCEEDS**





(a)
            Not
                applicable


(b)
            Not
                applicable


(c)
            The
                table below presents shares of the Company’s stock which were acquired by
                the Company during the quarter:





25


**Period**
            
            **Total Number of**
              **Shares**
              **Purchased**
            
            **Average Price**
              **Paid per Share**
            
            **Total Number of**
              **Shares Purchased**
              **as Part of Publicly**
              **Announced Plans**
              **or Programs**
            
            **Maximum Number (or**
              **Approximate Dollar Amount**
              **in Thousands) of Shares that**
              **May Yet Be Purchased**
              **Under the Plans or Programs**July
                1 to July 31
            
            
            -
            
            $
            -
            
            
            -
            
            $
            2,500August
                1 to August 31
            
            
            656
            
            
            2.20
            
            
            656
            
            
            2,498September
                1 to September 30
            
            
            1,013
            
            
            2.64
            
            
            1,013
            
            
            2,496For
                the Third Quarter of 2008
            
            
            1,669
            
            
            2.47
            
            
            1,669
            
            
            2,496





All
      shares were purchased in open market transactions. The shares are repurchased
      pursuant to the stock buyback plan announced March 26, 2008 for purchases not
      to
      exceed $2.5 million dollars expiring September 30, 2008 (subsequently extended
      through December 31, 2008).





**ITEM
      3. DEFAULTS UPON SENIOR SECURITIES**





None.




**ITEM
      4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**





None.





**ITEM
      5. OTHER INFORMATION**





None


26


**ITEM
      6. EXHIBITS**





(a)  Exhibits.





10.26
            
            Energy
                Management Agreement, dated November 1, 2008, by and between MMC
                Energy
                North American, LLC, MMC Mid-Sun LLC, MMC Chula Vista LLC, MMC Escondido
                LLC, Macquarie Cook Power Inc. and Macquarie Cook Energy,
                LLC.*31.1
            
            Certification
                pursuant to Rules 13a – 14(a) and 15d – 14(a) under the Securities
                Exchange Act of 1934, as amended31.2
            
            Certification
                pursuant Rules 13a – 14(a) and 15d – 14(a) under the Securities Exchange
                Act of 1934, as amended32.1
            
            Certification
                pursuant to 18 U.S. C.Section
                135032.2
            
            Certification
                pursuant to 18 U.S. C.Section
                1350









* 
      Portions of this Exhibit were omitted and have been filed separately with the
      Secretary of the Commission pursuant to our application requesting confidential
      treatment under Rule 24b-2 of the Securities Exchange Act of
      1934.


27


**SIGNATURES**





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





**MMC
                ENERGY, INC.**By:
            /s/
                Michael J. HamiltonMichael
                J. HamiltonChief
                Executive Officer





By:
            /s/
                Denis GagnonDenis
                GagnonChief
                Financial Officer and Principal Accounting OfficerDATE:November
                14, 2008


28