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 March 31, 2009





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.)





26BroadwayNewYorkNY10004(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 has submitted electronically and posted on
its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files). Yes  ̈ 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 company x





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
May
15, 2009 the registrant had 14,161,325 shares of Common Stock
outstanding.







TABLE
      OF CONTENTSPART
      I
                    FINANCIAL
      INFORMATIONITEM
      1
                    Financial
      StatementsCondensed
      Consolidated Balance Sheets as of March 31, 2009 (unaudited) and December
      31, 2008
                    2Condensed
      Consolidated Statements of Operations (unaudited) for the three month
      periods  ended March 31, 2009 and 2008
                    3Condensed
      Consolidated Statement of Stockholders' Equity (unaudited) for the
      period from January 1, 2009 through March 31, 2009
                    4Condensed
      Consolidated Statements of Cash Flows (unaudited) for the three month
      periods  ended March 31, 2009 and 2008
                    5Notes
      to Condensed Consolidated Financial Statements (unaudited)
                    6ITEM
      2
                    Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations
                    17ITEM
      3
                    Quantitative
      and Qualitative Disclosures about Market Risk
                    24ITEM
      4T
                    Controls
      and Procedures
                    24PART
      II
                    OTHER
      INFORMATIONITEM
      1
                    Legal
      Proceedings
                    24ITEM
      1A
                    Risk
      Factors
                    25ITEM
      2
                    Unregistered
      Sales of Equity Securities and Use of Proceeds
                    25ITEM
      3
                    Defaults
      Upon Senior Securities
                    25ITEM
      4
                    Submission
      of Matters to a Vote of Security Holders
                    25ITEM
      5
                    Other
      Information
                    25ITEM
      6
                    Exhibits
                    26SIGNATURES
                    27







FORWARD-LOOKING
STATEMENTS





Some of
the statements under “Business,” “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.


- 1
-





PART
I. FINANCIAL INFORMATION





ITEM
1. FINANCIAL STATEMENTS




MMC
ENERGY, INC.


CONDENSED
CONSOLIDATED BALANCE SHEETS


March
      31,
                                    
                                    
                                    December
      31,2009
                                    
                                    
                                    2008(unaudited)AssetsCurrent
      assets:Cash
      and equivalents
                                    
                                    $
                                    3,911,748
                                    
                                    
                                    $
                                    5,915,432Accounts
      receivable (Note 3)
                                    
                                    
                                    356,202
                                    
                                    
                                    
                                    420,209Unbilled
      receivables (Note 3)
                                    
                                    
                                    23,797
                                    
                                    
                                    
                                    230,722Spare
      parts inventories
                                    
                                    
                                    100,947
                                    
                                    
                                    
                                    98,500Prepaids
      and deposits (Note 3)
                                    
                                    
                                    223,404
                                    
                                    
                                    
                                    243,048Total
      current assets
                                    
                                    
                                    4,616,098
                                    
                                    
                                    
                                    6,907,911Property,
      plant and equipment, net (Note 4)
                                    
                                    
                                    36,372,669
                                    
                                    
                                    
                                    4,915,372Other
      assets:Deferred
      costs (Note 5)
                                    
                                    
                                    1,187,993
                                    
                                    
                                    
                                    2,659,477Long-term
      deposits (Note 6)
                                    
                                    
                                    2,063,206
                                    
                                    
                                    
                                    28,728,604Other
      assets and deferred charges (Note 7)
                                    
                                    
                                    340,409
                                    
                                    
                                    
                                    415,919Total
      other assets
                                    
                                    
                                    3,591,608
                                    
                                    
                                    
                                    31,804,000Total
      assets
                                    
                                    $
                                    44,580,375
                                    
                                    
                                    $
                                    43,627,283Liabilities
      & Stockholders' equityCurrent
      Liabilities:Current
      maturities of long-term debt (Note 8)
                                    
                                    $
                                    6,883,445
                                    
                                    
                                    $
                                    444,456Accounts
      payable
                                    
                                    
                                    807,631
                                    
                                    
                                    
                                    2,086,286Deferred
      gain
                                    
                                    
                                    398,000
                                    
                                    
                                    
                                    -Accrued
      interest
                                    
                                    
                                    12,108
                                    
                                    
                                    
                                    15,814Accrued
      compensation
                                    
                                    
                                    255,518
                                    
                                    
                                    
                                    344,022Other
      accrued expenses
                                    
                                    
                                    655,356
                                    
                                    
                                    
                                    2,276,671Total
      current liabilities
                                    
                                    
                                    9,012,058
                                    
                                    
                                    
                                    5,167,249Long-term
      debt (Note 8)
                                    
                                    
                                    1,407,366
                                    
                                    
                                    
                                    1,518,480Commitments
      & contingencies (Note 9)Stockholders'
      Equity (Note 11)Preferred
      Stock; 10,000,000 shares authorized; none issued and outstanding; $.001
      par value
                                    
                                    
                                    -
                                    
                                    
                                    
                                    -Common
      stock; 300,000,000 shares authorized with 14,194,347 issued and 14,161,325
      outstanding as of March 31, 2009 and as of December 31, 2008; $.001 par
      value
                                    
                                    
                                    14,194
                                    
                                    
                                    
                                    14,194Additional
      paid-in capital
                                    
                                    
                                    62,158,293
                                    
                                    
                                    
                                    62,041,693Accumulated
      deficit
                                    
                                    
                                    (27,982,173
                                    )
                                    
                                    
                                    (25,084,970
                                    )Treasury
      stock
                                    
                                    
                                    (29,363
                                    )
                                    
                                    
                                    (29,363
                                    )Total
      stockholders' equity
                                    
                                    
                                    34,160,951
                                    
                                    
                                    
                                    36,941,554Total
      liabilities and stockholders' equity
                                    
                                    $
                                    44,580,375
                                    
                                    
                                    $
                                    43,627,283




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 March 31,
                                                            2009
                                                          
                                                          
                                                          Three Months
                                                            Ended March 31,
                                                            2008Operating
      revenues:Resource
      adequacy capacity
                                                          
                                                          $
                                                          519,620
                                                          
                                                          
                                                          $
                                                          581,750Ancillary
      services
                                                          
                                                          
                                                          25,744
                                                          
                                                          
                                                          
                                                          5,138Energy
      production
                                                          
                                                          
                                                          62,267
                                                          
                                                          
                                                          
                                                          143,497Total
      operating revenues
                                                          
                                                          
                                                          607,631
                                                          
                                                          
                                                          
                                                          730,385Costs
      of sales:Costs
      of resource adequacy capacity
                                                          
                                                          
                                                          37,672
                                                          
                                                          
                                                          
                                                          42,177Costs
      of ancillary services
                                                          
                                                          
                                                          1,079
                                                          
                                                          
                                                          
                                                          4,316Costs
      of energy production
                                                          
                                                          
                                                          77,448
                                                          
                                                          
                                                          
                                                          75,045Total
      costs of sales
                                                          
                                                          
                                                          116,199
                                                          
                                                          
                                                          
                                                          121,538Gross
      Profit
                                                          
                                                          
                                                          491,432
                                                          
                                                          
                                                          
                                                          608,847Operating
      expenses:Depreciation
                                                          
                                                          
                                                          179,595
                                                          
                                                          
                                                          
                                                          294,322Operations
      and maintenance
                                                          
                                                          
                                                          647,201
                                                          
                                                          
                                                          
                                                          730,123General
      and administrative expenses
                                                          
                                                          
                                                          1,074,170
                                                          
                                                          
                                                          
                                                          1,517,587Loss
      on disposal
                                                          
                                                          
                                                          135,339
                                                          
                                                          
                                                          
                                                          -Impairment
      charges
                                                          
                                                          
                                                          1,292,985
                                                          
                                                          
                                                          
                                                          -Total
      operating expenses
                                                          
                                                          
                                                          3,329,290
                                                          
                                                          
                                                          
                                                          2,542,032Loss
      from operations
                                                          
                                                          
                                                          (2,837,858
                                                          )
                                                          
                                                          
                                                          (1,933,185
                                                          )Interest
      and other expensesInterest
      expense
                                                          
                                                          
                                                          (65,448
                                                          )
                                                          
                                                          
                                                          (65,021
                                                          )Interest
      income
                                                          
                                                          
                                                          6,103
                                                          
                                                          
                                                          
                                                          373,098Interest
      income (expense), net
                                                          
                                                          
                                                          (59,345
                                                          )
                                                          
                                                          
                                                          308,077Other
      income, net
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Total
      interest and other income (expense)
                                                          
                                                          
                                                          (59,345
                                                          )
                                                          
                                                          
                                                          308,077Net
      loss before provision for income taxes
                                                          
                                                          
                                                          (2,897,203
                                                          )
                                                          
                                                          
                                                          (1,625,108
                                                          )Provision
      for income taxes
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Net
      loss
                                                          
                                                          $
                                                          (2,897,203
                                                          )
                                                          
                                                          $
                                                          (1,625,108
                                                          )Basic
      (loss) earnings per common shareNet
      (loss) earnings per share
                                                          
                                                          $
                                                          (0.20
                                                          )
                                                          
                                                          $
                                                          (0.12
                                                          )Weighted
      average shares outstanding
                                                          
                                                          
                                                          14,161,325
                                                          
                                                          
                                                          
                                                          13,970,315Diluted
      (loss) earnings per common shareNet
      (loss) earnings per share
                                                          
                                                          $
                                                          (0.20
                                                          )
                                                          
                                                          $
                                                          (0.12
                                                          )Weighted
      average shares outstanding
                                                          
                                                          
                                                          14,161,325
                                                          
                                                          
                                                          
                                                          13,970,315Weighted
      average shares outstanding - basic
                                                          
                                                          
                                                          14,161,325
                                                          
                                                          
                                                          
                                                          13,970,315Dilutive
      effect of assumed exercise of employee stock options, warrants and
      immediate vesting of unvested stock awards
                                                          
                                                          
                                                          -
                                                          
                                                          
                                                          
                                                          -Weighted
      average shares outstanding - diluted
                                                          
                                                          
                                                          14,161,325
                                                          
                                                          
                                                          
                                                          13,970,315Anti-dilutive
      shares excluded from diluted EPS computations
                                                          
                                                          
                                                          879,755
                                                          
                                                          
                                                          
                                                          418,297




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, 2009 THROUGH MARCH 31, 2009


(Unaudited)





Common
                    
                    
                    Common
                    
                    
                    Additional
                    
                    
                    
                    
                    
                    
                    
                    
                    TotalShares
                    
                    
                    Stock
                    
                    
                    Paid-in
                    
                    
                    Accumulated
                    
                    
                    Treasury
                    
                    
                    Stockholders'$.001 Par Value
                    
                    
                    Amount
                    
                    
                    Capital
                    
                    
                    Deficit
                    
                    
                    Stock
                    
                    
                    EquityBalance
      at December 31, 2008
                    
                    
                    14,194,347
                    
                    
                    $
                    14,194
                    
                    
                    $
                    62,041,693
                    
                    
                    $
                    (25,084,970
                    )
                    
                    $
                    (29,363
                    )
                    
                    $
                    36,941,554Stock
      awards and options, net of cancellations
                    
                    
                    
                    
                    
                    
                    -
                    
                    
                    
                    116,600
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    116,600Net
      loss
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (2,897,203
                    )
                    
                    
                    
                    
                    
                    
                    (2,897,203
                    )Balance
      at March 31,  2009
                    
                    
                    14,194,347
                    
                    
                    $
                    14,194
                    
                    
                    $
                    62,158,293
                    
                    
                    $
                    (27,982,173
                    )
                    
                    $
                    (29,363
                    )
                    
                    $
                    34,160,951




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)


Three Months
                                                      Ended March 31,
                                                      2009
                                                    
                                                    
                                                    Three Months
                                                      Ended March 31,
                                                      2008Operating
      Activities of Continuing OperationsNet
      loss
                                                    
                                                    $
                                                    (2,897,203
                                                    )
                                                    
                                                    $
                                                    (1,625,108
                                                    )Adjustments
      to reconcile net loss to cash used in operating activitiesDepreciation
                                                    
                                                    
                                                    179,595
                                                    
                                                    
                                                    
                                                    294,322Stock-based
      compensation
                                                    
                                                    
                                                    116,600
                                                    
                                                    
                                                    
                                                    78,094Loss
      on disposal
                                                    
                                                    
                                                    135,339
                                                    
                                                    
                                                    
                                                    -Impairment
      charges
                                                    
                                                    
                                                    1,292,985
                                                    
                                                    
                                                    
                                                    -Changes
      in current assets & liabilitiesDecrease
      (increase) in receivables
                                                    
                                                    
                                                    270,932
                                                    
                                                    
                                                    
                                                    (91,030
                                                    )(Increase)
      decrease in spare parts inventories
                                                    
                                                    
                                                    (2,447
                                                    )
                                                    
                                                    
                                                    3,171Decrease
      (increase) in prepaids and deposits
                                                    
                                                    
                                                    19,644
                                                    
                                                    
                                                    
                                                    (98,796
                                                    )Decrease
      in other assets and deferred charges
                                                    
                                                    
                                                    48,995
                                                    
                                                    
                                                    
                                                    10,130Increase
      (decrease) in accounts payable
                                                    
                                                    
                                                    546,192
                                                    
                                                    
                                                    
                                                    (153,552
                                                    )Increase
      (decrease) in deferred gain
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    (65,713
                                                    )(Decrease)
      increase in other accrued expenses
                                                    
                                                    
                                                    (1,536,981
                                                    )
                                                    
                                                    
                                                    39,906(Decrease)
      in accrued compensation
                                                    
                                                    
                                                    (88,504
                                                    )
                                                    
                                                    
                                                    (1,400,621
                                                    )(Decrease)
      increase in accrued interest
                                                    
                                                    
                                                    (3,706
                                                    )
                                                    
                                                    
                                                    32,562Net
      cash used in operations
                                                    
                                                    
                                                    (1,918,559
                                                    )
                                                    
                                                    
                                                    (2,976,635
                                                    )Investing
      Activities of Continuing OperationsPurchases
      of property, plant and equipment
                                                    
                                                    
                                                    (79,424
                                                    )
                                                    
                                                    
                                                    (175,184
                                                    )Equipment
      deposits paid
                                                    
                                                    
                                                    (1,138,447
                                                    )
                                                    
                                                    
                                                    (9,539,243
                                                    )Proceeds
      from sale of equipment
                                                    
                                                    
                                                    1,478,333
                                                    
                                                    
                                                    
                                                    -Redemption
      (purchase) of securities available for sale, net
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    4,075,000Deferred
      acquisition costs
                                                    
                                                    
                                                    (234,473
                                                    )
                                                    
                                                    
                                                    (307,825
                                                    )Net
      cash provided by (used in) in investing activities
                                                    
                                                    
                                                    25,989
                                                    
                                                    
                                                    
                                                    (5,947,252
                                                    )Financing
      Activities of Continuing OperationsRepayment
      of long-term debt
                                                    
                                                    
                                                    (111,114
                                                    )
                                                    
                                                    
                                                    (111,114
                                                    )Net
      cash used in financing activities
                                                    
                                                    
                                                    (111,114
                                                    )
                                                    
                                                    
                                                    (111,114
                                                    )Net
      decrease in cash and cash equivalents
                                                    
                                                    
                                                    (2,003,684
                                                    )
                                                    
                                                    
                                                    (9,035,001
                                                    )Cash
      and cash equivalents at beginning of period
                                                    
                                                    
                                                    5,915,432
                                                    
                                                    
                                                    
                                                    42,582,697Cash
      and cash equivalents at end of period
                                                    
                                                    $
                                                    3,911,748
                                                    
                                                    
                                                    $
                                                    33,547,696Supplemental
      disclosures:Cash
      paid for income taxes
                                                    
                                                    $
                                                    -
                                                    
                                                    
                                                    $
                                                    -Cash
      paid for interest
                                                    
                                                    
                                                    69,154
                                                    
                                                    
                                                    
                                                    45,495Non-cash
      investing and financing activitiesStock-based
      compensation
                                                    
                                                    $
                                                    116,600
                                                    
                                                    
                                                    $
                                                    78,094Loan
      from GE Facility to GE Energy on behalf of the company
                                                    
                                                    
                                                    6,438,989
                                                    
                                                    
                                                    
                                                    -




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


- 5
-


MMC
ENERGY, INC.


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


March
31, 2009


(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 month period ended March 31, 2009, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2009. These unaudited condensed consolidated financial statements
should be read in conjunction with the consolidated December 31, 2008 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”).





Due to
the recent stresses in the financial markets, coupled with depressed electricity
prices, it has become increasingly difficult for the Company to continue to
execute its acquisition growth strategy.  Furthermore, the California
Energy Commission (the “CEC”) issued its Preliminary Decision in January 2009
denying the Company’s Chula Vista Energy Upgrade Project the required permit to
proceed, in what the Company believes to be an unprecedented reversal of the CEC
staff’s Final Staff Assessment in full support of the Company’s
application.  While the Company continues to evaluate its options to
contest the CEC’s preliminary decision, this unexpected development
substantially jeopardized the Chula Vista Energy Upgrade
Project.  While the Company has successfully permitted its Escondido
Energy Upgrade Project, we have yet to obtain a satisfactory long term revenue
contract to finance the Escondido Energy Upgrade Project’s
completion.





In
February 2009, the Company entered into a purchase and sale agreement with Pro
Energy Services, Inc. (“Pro Energy”) to sell its Mid-Sun facility’s GE LM2500
gas-fired turbine and related power generating equipment for a gross purchase
price of $4 million. The sale successfully closed on April 1, 2009. Subsequent
to closing, the Mid-Sun facility ceased all operations. The Company expects to
realize approximately $3.1 million after costs of selling and extinguishment of
associated liabilities. The Company had previously recorded impairment charges
to reflect its appraised net realizable value of the Mid-Sun facility. On April
1, 2009 the remaining $3.5 million cash purchase price was
received.





MMC
Energy, Inc. was originally incorporated in Nevada under the name High Tide
Ventures, Inc. on February 13, 2003. On May 3, 2006, High Tide Ventures changed
its name to MMC Energy, Inc. On May 15, 2006, a wholly-owned subsidiary of MMC
Energy, Inc. merged with and into MMC Energy North America LLC, a Delaware
limited liability company. Prior to this merger, MMC North America LLC acquired
the power generating facilities located in Chula Vista and Escondido, California
and otherwise conducted the Company’s current business as described throughout
this Quarterly Report. Prior to this merger, MMC Energy, Inc. did not conduct
meaningful operations. As a result of the merger, MMC Energy, Inc. thus acquired
thebusiness of MMC
Energy North America LLC, including the electricity generating facilities, and
the former members of MMC Energy North America LLC received shares of common
stock of MMC Energy, Inc. On September 22, 2006, the Company was reincorporated
as a Delaware corporation by means of a merger of the existing Nevada
corporation with and into MMC Energy, Inc., a newly-formed Delaware
corporation.  Pursuant to the reincorporation merger, the Delaware
corporation succeeded to the business of the Nevada corporation and the separate
existence of the Nevada corporation ceased.


- 6
-




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





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 (“Escondido II”). All intercompany accounts and transactions have been
eliminated. In 2008 the Company sold its membership interest in Escondido II and
that entity is no longer included in the consolidated financial
statements.





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
beforerevenue 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.





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 California
      Independent System Operators Corporation (“CAISO”) markets on a daily
      basis such that the Company’s capacity is available to the CAISO, if
      needed, at the Company’s bid price. The resource adequacy capacity amount
      cannot exceed the qualified capacity amount for the resource.
      Qualified capacity is certified by CAISO. For 2008 and 2009, the MMC
      Escondido and MMC Chula Vista facilities were certified by CAISO and the
      CPUC for 35.5 MW each and 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 deliver the awarded capacity within 10 minutes of dispatch
      regardless of whether already synchronized to the grid. As of September
      26, 2008 the CAISO has withdrawn the Company’s certification to provide
      spinning reserve services which was, through 2007, the Company’s primary
      ancillary service.





·
            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.




- 7
-


Income
Taxes





In
accordance with Statement of Financial Accounting Standards No. 109 “Accounting
For Income Taxes,” (“SFAS 109”) deferred income taxes are the result of the
expected future tax consequences of temporary differences between the financial
statement and tax basis 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 has provided a full
valuation allowance against its net deferred tax assets.





Cash
and 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.





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 Company does not
have an allowance for doubtful accounts.





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.





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.





The
Company also evaluates its long-lived assets for impairment per SFAS No. 157
“Fair Value Measurement.” Impairment charges for certain assets held for sale
were derived using Level 2 inputs.





During
the three month periods ended March 31, 2009 and 2008 the Company recorded
impairment charges of $1,292,985 and $0, respectively.





Assets
held for sale as of 03/31/2009 were valued at net realizable value per SFAS 144
and SFAS 157.





Interest
Cost Capitalization





In
accordance with Statement of Financial Accounting Standards No. 34
“Capitalization of Interest Cost” (“SFAS No. 34”) the Company capitalizes the
cost of interest incurred for assets that are constructed or otherwise produced
for its own use (including assets constructed or produced for the Company by
others for which deposits or progress payments have been made) and assets
intended for sale or lease that are constructed or otherwise produced as
discrete projects.  The Company does not capitalize interest for
assets that are in use or ready for their intended use in the Company's
operations.


- 8
-





At March
31, 2009, the Company capitalized approximately $329,000 of interest costs with
respect to the purchase of two GE LM6000 PC Sprint® turbines with respect to the
Chula Vista Upgrade project and the related GE Loan Facility
agreement.





Assets
Held For Sale





The
Company is seeking to sell its interest in MMC Chula Vista II, LLC (“Chula Vista
II”). Chula Vista II’s only asset is the contract to purchase two GE LM6000 PC
Sprint®  turbines from GE Packaged Power, Inc (“GE Power”). As of the
date of this report these turbines have been fully paid and are carried at their
full basis in property, plant and equipment. Their carrying value inclusive of
all deposits made and capitalized costs is approximately $31.4
million.





During
the fourth quarter of 2008 the Company had also reached an agreement to sell its
GE LM2500 turbine that was in operation at its Mid-Sun facility to Pro Energy
for the gross purchase price of $4 million. The Company received a deposit of
$500,000 in February 2007 and the remaining proceeds of $3.5 million on April 1,
2009 when the transaction successfully closed.





The
Company also has as held for sale an additional $2.2 million of assets
consisting primarily of its transformers to be purchased under contract from
Fortune Electric Co. Ltd (“Fortune”) and miscellaneous smaller assets. Assets
held for sale are held at net realizable value and distributed as
follows:





Property,
      plant and equipment
                        
                        $
                        36,372,669Project
      deposits
                        
                        
                        1,974,706Deferred
      acquisition costs
                        
                        
                        1,187,993Prepaids
      and short-term deposits
                        
                        
                        228,410Other
      assets and deferred charges
                        
                        
                        279,521Total
      assets held for sale
                        
                        $
                        40,043,299





Assets
held for sale as of 03/31/2009 were valued at net realizable value per SFAS 144
and SFAS 157.





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.


.


For the
three month periods ending March 31, 2009 and 2008, 86% & 80%, respectively
of the Company’s revenues were derived from Oxy, Inc., who contracts Resource
Adequacy Capacity on the Company’s behalf and collects its receivables on a
monthly basis on the Company’s behalf. The Company received the balance of its
revenues from CAISO.





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,  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.


- 9
-





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 months ended March 31, 2009
and 2008, under the provisions of SFAS No. 128, “Earnings Per Share” and as
amended/superseded in “Share-Based Payment”(“SFAS 123(R)”). As the Company
incurred losses for the three month periods ended March 31, 2009 and 2008
dilutive shares presented for those periods are identical to 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:





Three
      Months
                      Ended March
      31,
                      2009
                    
                    
                    Three
      Months
                      Ended March
      31,
                      2008Basic,
      diluted and anti-dilutive sharesWeighted
      average shares outstanding - basic
                    
                    
                    14,161,325
                    
                    
                    
                    13,970,315Dilutive
      effect of assumed exercise of employee stock options, warrants and
      immediate vesting of unvested stock awards
                    
                    
                    -
                    
                    
                    
                    -Weighted
      average shares outstanding - diluted
                    
                    
                    14,161,325
                    
                    
                    
                    13,970,315Anti-dilutive
      shares excluded from diluted EPS computations
                    
                    
                    879,755
                    
                    
                    
                    418,297





Stock-Based
Compensation





The
Company adopted SFAS 123(R) which no longer permits the use of the intrinsic
value method under Accounting Principles Board Opinion (“APB”) No. 25
“Accounting for Stock Issued to Employees.” The Company used the modified
prospective method allowed by SFAS 123(R), which requires compensation expense
to be recorded for all stock-based compensation granted on or after January 1,
2006, as well the unvested portion of previously granted options. The Company is
recording the compensation expense on a straight-line basis, generally over the
explicit service period of three years. 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.


- 10
-


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





Options Outstanding
                  
                  
                  Options ExercisableGrant 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 Price2006
                  
                  $
                  10.00
                  
                  
                  
                  72,000
                  
                  
                  
                  7.12
                  
                  
                  $
                  10.00
                  
                  
                  
                  64,666
                  
                  
                  
                  7.12
                  
                  
                  $
                  10.002007
                  
                  $
                  6.50
                  
                  
                  
                  21,000
                  
                  
                  
                  8.08
                  
                  
                  $
                  6.50
                  
                  
                  
                  7,000
                  
                  
                  
                  8.08
                  
                  
                  $
                  6.50Totals
                  
                  
                  
                  
                  
                  
                  93,000
                  
                  
                  
                  7.34
                  
                  
                  $
                  9.21
                  
                  
                  
                  71,666
                  
                  
                  
                  7.22
                  
                  
                  $
                  9.66





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


Number of Shares
                      
                      
                      Weighted Average
                        Price Per ShareOutstanding
      at December 31, 2008
                      
                      
                      93,000
                      
                      
                      $
                      9.21Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      -
                      
                      
                      
                      -Cancelled
      or expired
                      
                      
                      -
                      
                      
                      
                      -Outstanding
      at March 31, 2009
                      
                      
                      93,000
                      
                      
                      $
                      9.21





Based on
the Company’s closing stock price of $0.95 at March 31, 2009, stock options
currently outstanding had no aggregate intrinsic value, and there were no
in-the-money options exercisable.  As of March 31, 2009, such options
had a weighted-average remaining contractual life of 7.22 years and
weighted-average exercise price of $9.66 per share.





In
accordance with SFAS 123(R), the company uses the simplified expected term
midpoint method to estimate the expected life of its option grants.





There
were no grants of employee stock options for the three month periods ended March
31, 2009 and 2008.





Derivative
Instruments





The
Company accounts for freestanding derivative financial instruments potentially
settled in its own common stock under 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 three month
periods ended March 31, 2009 and 2008.





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.





Fair
Value Measurement




On Sept.
15, 2006, the Financial Accounting Standards Board (the “FASB”) issued SFAS No.
157, “Fair Value Measurement” (“SFAS 157”). The new standard applies whenever
other standards require (or permit) assets or liabilities to be measured at fair
value. SFAS 157 will change current practice by defining fair value: “Fair value
is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the
measurement date.” SFAS 157 now requires certain methods to be used to measure
fair value: measured as a market-based measurement, not an entity-specific
measurement, based on assumptions market participants would make in pricing the
asset or liability (i.e, on exit price). SFAS 157 establishes a three
level/input hierarchy for measuring fair value and expands disclosures about
fair value measurements. Level 1 inputs are quoted prices (unadjusted) in active
markets for identical assets or liabilities that the reporting entity has the
ability to access at the measurement date.  Level 2 inputs are inputs
other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly or indirectly. Level 3 inputs are
unobservable inputs for the asset or liability such as unobservable inputs which
reflect the reporting entity’s own assumptions about the assumptions that market
participants would use in pricing the asset or liability (including assumptions
about risk).


- 11
-




The
Company implemented the use of SFAS 157 in the determination of the impairment
values of certain assets and liabilities with the use of Level 2
inputs.





Recent Accounting
Pronouncements





SFAS No. 163. In May 2008, the FASB
issued 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.” 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, “The Hierarchy of Generally Accepted Accounting Principles” (“SFAS 162”)
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 162 to achieve that result. SFAS 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 any  impact on its financial position, results of
operations or cash flows.





Reclassifications





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





NOTE
3 – RECEIVABLES AND PREPAID ITEMS




At March
31, 2009 and December 31, 2008 accounts receivable and prepaid items consisted
of the following:




March 31,
                          
                          
                          December 31,2009
                          
                          
                          2008Accounts
      receivable
                          
                          $
                          269,122
                          
                          
                          $
                          314,169Employee
      loan
                          
                          
                          87,080
                          
                          
                          
                          106,040Total
                          
                          $
                          356,202
                          
                          
                          $
                          420,209Unbilled
      receivables
                          
                          $
                          23,797
                          
                          
                          $
                          230,722Total
                          
                          $
                          23,797
                          
                          
                          $
                          230,722Prepaid
      insurance
                          
                          $
                          141,727
                          
                          
                          $
                          129,983Prepaid
      expenses
                          
                          
                          81,177
                          
                          
                          
                          101,959Short-term
      deposits
                          
                          
                          500
                          
                          
                          
                          11,106Total
                          
                          $
                          223,404
                          
                          
                          $
                          243,048





The
Company is paid monthly in arrears on its resource adequacy capacity
contracts.  Commencing in November 2008, the Company is paid under its
energy management agreement with Macquarie Cook Power, Inc. (“MCPI”) for
revenues earned from CAISO for energy and ancillary services approximately 60
days in arrears.


- 12
-


NOTE
4 – PROPERTY, PLANT AND EQUIPMENT





At March
31, 2009 and December 31, 2008 property, plant and equipment consisted of the
following:





March 31,
                      
                      
                      December 31,2009
                      
                      
                      2008Land
                      
                      $
                      375,000
                      
                      
                      $
                      375,000Automobile
                      
                      
                      21,806
                      
                      
                      
                      21,927Office
      equipment
                      
                      
                      167,561
                      
                      
                      
                      148,156Transformer
                      
                      
                      204,280
                      
                      
                      
                      -Machinery,
      equipment & other
                      
                      
                      7,375,506
                      
                      
                      
                      8,207,849LM-6000
      Turbines
                      
                      
                      31,331,318
                      
                      
                      
                      -39,475,471
                      
                      
                      
                      8,752,932Impairment
      charges
                      
                      
                      -
                      
                      
                      
                      (914,353
                      )Accumulated
      depreciation
                      
                      
                      (3,102,802
                      )
                      
                      
                      (2,923,207
                      )Total
                      
                      $
                      36,372,669
                      
                      
                      $
                      4,915,372





Depreciation
for the three months ended March 31, 2009 and 2008 was $179,595 and $294,322,
respectively.





NOTE
5 – 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.




March 31,
              
              
              December 31,Deferred
      Costs
              
              2009
              
              
              2008Deferred
      development costs - Chula Vista
              
              $
              781,444
              
              
              $
              2,259,396Deferred
      development costs - Escondido
              
              
              406,549
              
              
              
              400,081Total
              
              $
              1,187,993
              
              
              $
              2,659,477





Completion
of the Chula Vista and Escondido Projects remain subject to securing long term
revenue contracts against which they can obtain debt financing. The Company’s
Escondido Energy Upgrade Project has been fully permitted. The CED issued its
Preliminary Decision in January 2009 denying the Company’s Chula Vista Energy
Upgrade Project the required permit to proceed, in what the Company believes to
be an unprecedented reversal of the CEC staff’s Final Staff Assessment in full
support of the Company’s application. While the Company continues to evaluate
its options to contest the CEC’s preliminary decision, this unexpected
development substantially jeopardized the Chula Vista Energy Upgrade Project
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.





NOTE
6 – LONG-TERM DEPOSITS





Long-term
deposits consist primarily of contractually scheduled prepayments related to two
agreements entered into with Fortune Electric Co. Ltd (“Fortune”) for the
purchase of two transformers for the Chula Vista and Escondido Upgrade Projects.
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.





The
Company is currently seeking to sell many of its assets, at this time, of the
$1.975 million listed as long-term deposits, approximately $1.975 million are
held for sale.


- 13
-


NOTE
7 – OTHER ASSETS & DEFERRED CHARGES





Other
assets and deferred charges include $227,952 of deferred maintenance
charges in connection with Planned Major Maintenance Activities (“PMMA”) for
large assets, net of amortization as well as $62,455 of capitalized financing
costs incurred during the closing of the Company’s loan facility with GE
Capital.





In
October 2008, the Company and Pacific West Energy, LLC (“PacWest”) jointly
formed Kauai Energy Partners, LLC (“KEP”), a venture to trade waste oil on the
island of Kauai in Hawaii. The Company initially provided the total contributed
capital of $112,458 which entitled the Company to 90% participation in the
profits of the venture as well as the role of Managing Partner of KEP.
Subsequently, in December 2008, the Company sold 50% of its position to Province
Line Capital, LLC for $62,458, while still retaining the position of Managing
Partner.  Accordingly, the Company holds a 44% capital interest, and
remains entitled to 45% profit interest. The profit sharing percentages are only
applicable after operations start and only after profits exceed the Company’s
contributed capital. The Company is entitled to 100% of the profits until
profits exceed the Company’s contributed capital.





KEP
cannot begin its operations to trade waste oil until it receives certain
regulatory approvals which are still outstanding. At the date of the balance
sheet KEP had no activity except for the incurrence of $12,458 of
organization cost.  Although KEP is eligible for consolidation due to its
immateriality the Company has chosen not to consolidate this entity and reports
the net investment amount of $50,000 on the “Other Assets and Deferred Charges”
line of the balance sheet.  In addition, the Company has guaranteed an
amount of up to $250,000 to KEP’s supplier of waste oil for any purchase
liabilities that KEP should fail to honor. Through the first quarter of
2009 KEP has remained inactive.





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 both three
months periods ending March 31, 2009 and 2008, the company amortized $32,562 of
deferred maintenance charges..





The
capitalized financing costs are amortized and increase the basis of the related
capital assets, (i.e. the two GE LM6000 PC Sprint natural gas-fired turbines)
whose purchase were partially financed by the GE loan facility.





NOTE 8
– 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 nine 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%.  Beginning in 2007, 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 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. In 2008,
MMC North America failed to maintain its required minimum net worth or debt
service coverage ratio, due solely to the effect of the CAISO settlement (see
“Legal Proceedings”) of which MMC North America was allocated 2/3rds, or
$666,000.  The Bank has agreed to waive the covenant requirements for 2008,
and accordingly MMC North America was not in default.  In 2007, the Company
was in compliance with all of its covenants.  The loans continue to be
collateralized by substantially all assets of MMC North
America.


- 14
-


MMC North
America has arranged for the issuance by the Bank of an irrevocable letter of
credit in the amount of $100,000 (the “Letter of Credit”) to a counterparty
under an energy services agreement entered into in November 2008 (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 December 31, 2009.  Availability under the Revolver is
reduced from $500,000 to $400,000 while the Letter of Credit remains
outstanding.





On June
30, 2008 the Company’s wholly owned subsidiaries, Chula Vista II and
Escondido II agreed to a $25.5 million loan facility with GE Energy Financial
Services (“GE Finance”) in connection with the purchase of three GE LM6000 PC
Sprint® natural gas-fired turbines from GE Energy.  This facility has
provided the additional funding needed to complete the purchase of the turbines.
The loan agreement originally allowed the Company’s subsidiaries to
borrow the $25.5 million, provided that it first contribute equity capital
to each subsidiary sufficient to cover the balance of the turbines' purchase
price, among other customary conditions. The loans bore interest at the prime
rate plus 275 basis points and are fully guaranteed by the Company. 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.




On
December 10, 2008 the Company completed the sale of its membership interest in
Escondido II a wholly-owned subsidiary whose only asset was an agreement to
acquire a General Electric LM6000 PC Sprint® turbine for $15.3 million to an
affiliate of Wellhead Electric Company, Inc. In connection with the sale, the
Company repaid its then entire outstanding loan balance of $8.574
million.  Also, in connection with the sale of the Company’s interest
in MMC Escondido II, the interest rate on borrowings was increased by 150 basis
points and the loan agreement amount was reduced to $10.275 million which is
sufficient to cover the balance of the remaining payments due on the turbines
purchased in connection with the Chula Vista upgrade project. As of the three
month period ended March 31, 2009 the Company had approximately $6.4 million of
outstanding debt related to the GE facility and has taken title to the
turbines.




As of
March 31, 2009, the Company had approximately $8.3 million of outstanding debt
consisting of $6.4 million of debt related to the GE facility with the remainder
consisting of its debt to the Bank.





NOTE 9
– 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 Securities
and Exchange Commission (the “SEC”) and, subsequently, the SEC recently
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 of this
matter, 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 issuance by the Bank of an irrevocable letter of
credit in the amount of $100,000 (the “Letter of Credit”) to a counterparty
under an energy services agreement entered into in November 2008 (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 December 31, 2009.  Availability under the Revolver is
reduced from $500,000 to $400,000 while the Letter of Credit remains
outstanding.


- 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 plane 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.  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.





As
discussed in Note 7, the Company has guaranteed an amount of up to $250,000 to
KEP’s supplier of waste oil for any purchase liabilities that KEP should fail to
honor. As of the report date these approvals are still pending and the guaranty
is not in effect.





The
Company’s primary office space is currently leased through December 31,
2010.





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 legal proceeding as of the report date.





NOTE 10
– 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 March 31,
2009, 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. These stock option awards were issued consistent with the market value of
the Company’s common stock at the time of issuance. As of March 31, 2009 the
Company had also issued 295,836 shares of restricted stock to employees and
directors. As of March 31, 2009, 111,164 shares remain available for issue under
the Plan.





For the
three month period ended March 31, 2009 and 2008 the Company issued -0- and
277,000 shares of restricted stock, respectively.





NOTE
11 - STOCKHOLDERS' EQUITY





As of
March 31, 2009, the Company had 300,000,000 shares authorized under its
Certificate of Incorporation and had issued 14,194,347 and outstanding
14,161,325 shares of Common Stock.   As of such date, the Company
also had 10,000,000 shares of preferred stock authorized under its Certificate
of Incorporation, none of which were issued or outstanding.





NOTE
12 – RELATED PARTY TRANSACTIONS





The
Company had no related party transactions for the three month periods ended
March 31, 2009 and 2008.





NOTE
13 – SUBSEQUENT EVENTS





On April
1, 2009, the Company closed on its sale of the LM2500 gas fired turbine at its
Mid-Sun facility. The Company received the remaining purchase price of $3.5
million and shut down its operations at the Mid-Sun Facility


- 16
-


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
and Management’s Plan of Operation




We are an
energy management company that actively manages electricity generating and
energy infrastructure related assets in the United States.  Our
historical mission was 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. We are in the process of
reviewing our strategic alternatives in an effort to maximize shareholder value,
which may include liquidating our assets in lieu of continuing to seek
additional acquisitions of small to medium-sized power generating
facilities.  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 the transmission grid
that distributes electricity to industrial and retail electricity providers.
During peak electricity usage times, such as the summer, we also sell our
electricity in the merchant market.




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, especially
asset management, commodity pricing and risk management as well as private
equity, structured finance and project finance transaction
experience.




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 these formerly idle facilities for what we believe to be a discounted
value to market. 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.





Due to
the recent stresses in the financial markets, coupled with depressed electricity
prices, it has become increasingly difficult for us to continue to execute our
acquisition growth strategy.  Furthermore, the California Energy
Commission, or the CEC, issued its Preliminary Decision in January 2009 denying
our Chula Vista Energy Upgrade Project the required permit to proceed, in what
we believe to be an unprecedented reversal of the CEC staff’s Final Staff
Assessment in full support of our application.  While we continue to
evaluate our options to contest the CEC’s Preliminary Decision, this unexpected
development substantially jeopardized the Chula Vista Energy Upgrade
Project.  While we have successfully permitted our Escondido Energy
Upgrade Project, we have yet to obtain a satisfactory long term revenue contract
to finance the Escondido Energy Upgrade Project’s completion.





These and
other events have led us to more aggressively evaluate our strategic
alternatives, including pursuing the sale of our assets, as noted above. Our
asset sales to date include the sale of: (1) our subsidiary MMC Escondido II,
LLC, whose only asset was one of three GE LM6000 PC Sprint® turbines we had on
order, (2) the GE LM2500 turbine and related equipment powering our MMC Mid-Sun
facility, which closed on April 1, 2009, and (3) our two natural gas compressors
on order.  These asset sales have resulted in approximately $9.7
million of cash to us after repayment of debt of $8.6 million and relieved us of
the obligation to pay an additional $2.1 million under relevant purchase
agreements. Of the $9.7 million in proceeds, $6.2 million were received as of
the balance sheet date. The remainder was received upon closing of the LM2500
sale on April 1, 2009.


- 17
-


If we are
not successful in selling our remaining assets and/or the company in its
entirety, we intend to reduce general and administrative expenses as much as
possible to minimize the extent of further cash utilized for operations. 
This effort is in process and included reduction of our headcount by 43%
effective March 31, 2009. We expect general administrative costs to continue to
trend downward during 2009, excluding related severance costs.





Critical
Accounting Policies




Our
consolidated financial statements are prepared in accordance with accounting
principals generally accepted in the United States. The preparation of our
consolidated 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; however, our operating
experience is limited. Future events 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 the California Independent System Operator, or CAISO, 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 CAISO 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.





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. 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 primarily provide "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 elsewhere in this quarterly report on Form
10-Q, we no longer provide spinning reserve revenues and do not expect to
generate such spin revenues going forward with our existing
facilities.





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





Interest
Cost Capitalization





In
accordance with SFAS No. 34 “Capitalization of Interest Cost” we capitalize the
cost of interest incurred for assets that are constructed or otherwise produced
for our entity's own use (including assets constructed or produced for us by
others for which deposits or progress payments have been made) and assets
intended for sale or lease that are constructed or otherwise produced as
discrete projects.  We do not capitalize interest for assets that are
in use or are ready for their intended use in our operations.


- 18
-


As of
March 31, 2009, we have capitalized approximately $329,000 of interest costs
with respect to the purchase of two GE LM6000 PC Sprint® turbines with respect
to the Chula Vista Upgrade project and the related GE Loan Facility
agreement.





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.





We also
evaluate our long-lived assets for impairment per SFAS No. 157 “Fair Value
Measurement.” Impairment charges for certain assets held for sale were derived
using Level 2 inputs.





During the three month periods ended
March 31, 2009 and 2008 we recorded impairment charges of $1,292,985 and $-0-,
respectively.





.Assets Held For
Sale





We are seeking to sell our interest in
MMC Chula Vista II, LLC (“Chula Vista II”). Chula Vista II’s only assets are two
GE LM6000 PC Sprint® turbines from GE Packaged Power, Inc (“GE Power”). As of
the date of this report these turbines have been fully paid and are carried at
their full basis on property, plant and equipment. Their carrying value,
inclusive of all deposit payments made and capitalized interest cost is
approximately $31.4 million.





During
the fourth quarter of 2008 we had also reached an agreement to sell our GE
LM2500 turbine that was in operation at our Mid-Sun facility to Pro Energy for
the gross purchase price of $4 million. We received a deposit of $500,000 in
February 2009 and the remaining proceeds of $3.5 million on April 1, 2009 when
the transaction successfully closed.





We also
have as held for sale an additional $2.2 million of assets consisting primarily
of our transformers to be purchased under contract from Fortune Electric Co. Ltd
(“Fortune”) and miscellaneous smaller assets. Assets held for sale are held at
net realizable value and distributed as follows:





Property,
      plant and equipment
                    
                    $
                    36,372,669Project
      deposits
                    
                    
                    1,974,706Deferred
      acquisition costs
                    
                    
                    1,187,993Prepaids
      and short-term deposits
                    
                    
                    228,410Other
      assets and deferred charges
                    
                    
                    279,521Total
      assets held for sale
                    
                    $
                    40,043,299





Assets
held for sale as of 03/31/2009 were valued at net realizable value per SFAS 144
and SFAS 157.





Results
of Operations





Revenues





Our
revenues consist of energy production, ancillary services, and resource adequacy
capacity revenues.




·
            Resource
      Adequacy Capacity – Regulatory capacity payments for generators of any
      type are based strictly on total installed capacity measured in MW.
      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 CPUC. The contract does not create an obligation
      to supply electricity to the counterparty, but does obligate us to
      bid its energy into the CAISO markets on a daily basis such that our
      capacity is available to the CAISO, if needed, at our 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 respectively and MMC’s Mid-Sun facility
      for 21.8 MW.


- 19
-


·
            Ancillary
      Services – Although there are several types of ancillary services, we
      primarily provide “non-spin” services which call for the facilities
      to deliver the awarded capacity within 10 minutes of dispatch
      regardless of whether already synchronized to the grid. As described in
      greater detail in the “Legal Proceedings” section, as of September 26,
      2008 the CAISO has withdrawn our  certification to provide
      spinning reserve services which was our primary ancillary service revenue
      generator through 2007. See Part 1, Item 3 – “Legal
      Proceedings.”





·
            Energy
      Production – We provide electricity to a 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 month periods ended March 31, 2009 and 2008 were $607,631 and
$730,385, respectively, and were distributed as follows:





Three Months
                      Ended March 31,
                    
                    
                    Three Months
                      Ended March 31,Operating revenues:
                    
                    2009
                    
                    
                    2008Resource
      adequacy capacity
                    
                    $
                    519,620
                    
                    
                    $
                    581,750Ancillary
      services
                    
                    
                    25,744
                    
                    
                    
                    5,138Energy
      production
                    
                    
                    62,267
                    
                    
                    
                    143,497Total
      operating revenues
                    
                    $
                    607,631
                    
                    
                    $
                    730,385




Revenues for three month period ended
March 31, 2009 decreased 17% to $607,631 from the same period in 2008. The
decrease was driven by less favorable resource adequacy contract pricing for the
Mid-Sun facility as well as a negative pricing adjustment for December 2008’s
results with respect to energy production. This negative adjustment was recorded
in the first quarter of 2009.





Cost
of Sales





Cost of sales for the three months
ended March 31, 2009 and 2008 were $116,199 and $121,538 respectively, yielding
gross profits of $491,432 and $608,847 and gross margins of approximately 81%
and 83%, 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, notwithstanding the negative adjustment from December 2008
as mentioned above, as we generally produce energy only during peak demand times
which result in the highest prices for energy.





Costs of sales and gross margins were
distributed as follows:


- 20
-





Three months Ended March
      31,Costs of sales:
                              
                              2009
                              
                              
                              2008Costs
      of resource adequacy capacity
                              
                              $
                              37,672
                              
                              
                              $
                              42,177Costs
      of ancillary services
                              
                              
                              1,079
                              
                              
                              
                              4,316Costs
      of energy production
                              
                              
                              77,448
                              
                              
                              
                              75,045Total costs of sales
                              
                              $
                              116,199
                              
                              
                              $
                              121,538Three months Ended March
      31,Gross
      margin:
                              
                              2009
                              
                              
                              2008Gross
      margin of resource adequacy capacity
                              
                              
                              92.8
                              %
                              
                              
                              92.7
                              %Gross
      margin of ancillary services
                              
                              
                              95.8
                              %
                              
                              
                              16.0
                              %Gross
      margin of energy production
                              
                              
                              -24.4
                              %
                              
                              
                              47.7
                              %Total costs of sales
                              
                              
                              80.9
                              %
                              
                              
                              83.4
                              %





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.





Operations
and Maintenance





Operations and maintenance expenses
consist of the direct overhead expenses for operating and maintaining our
electricity generating facilities. For the three month periods ended March 31,
2009 and 2008, operations and maintenance expenses were $647,201 and $730,123,
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.





General
and Administrative Expenses





For the three month periods ended March
31, 2009 and 2008, general and administrative expenses were $1,074,170 and
$1,517,587, respectively. General and administrative expenses for the three
month periods ended March 31, 2009 and 2008 were primarily driven by
compensation, severance costs, professional fees, relocation expense and
investor relations expenses.





We expect general and administrative
expenses will decrease in absolute terms as we continue to implement our current
operational strategy (see “Overview and Management’s Plan of Operation” for a
complete discussion).





Loss
on disposal and Impairment charges





The loss
on disposal of approximately $135,000 was a loss on disposal of our membership
interest in Escondido II and the sale of the LM2500 turbine located at our
Mid-Sun facility. The losses were primarily composed of professional fees
related to the consummation of these transactions.


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From time
to time we use estimates to adjust, if necessary, the assets and liabilities of
our continuing operations to their estimated fair value, less costs to sell.
These estimates include assumptions relating to the proceeds anticipated as a
result of any future asset sales. The adjustments to fair market value of these
assets/liabilities provide the basis for the gain or loss when sold. In
connection with the unfavorable preliminary CEC decision regarding our Chula
Vista Upgrade Project, the indefinite timing of obtaining a satisfactory
long-term revenue contract to finance our Escondido Upgrade Project, and holding
for sale the related equipment ordered for both projects, we have recorded
approximately $1.3 million in impairments to write-down capitalized professional
fees, permitting costs, engineering fees and equipment deposits related to the
Upgrade Projects.  The impairment charges recorded are summarized below and
were calculated in accordance with SFAS No. 157 using Level 2 inputs based on
contractual agreements and letters of interest:





Impairment
      charges:Development
      and permitting
                    
                    $
                    1,477,952Equipment
      depostis and cancellation charges
                    
                    
                    (227,190
                    )Other
                    
                    
                    42,223Total
                    
                    $
                    1,292,985





Interest
and Other Expenses





Net interest expense for the three
month periods ended March 31, 2009 of $59,345 and net interest income of
$308,077 for three month periods ended March 31, 2008 reflect primarily senior
debt interest expense and interest income earned on our cash balances, which
were substantially larger during the first quarter of 2008.





Liquidity
and Capital Resources





As of
March 31, 2009, we had $3.9 million in cash and equivalents.  The
majority of cash used was cash used during the quarter ended March 31, 2009 for
operations of approximately $1.9 million. This was partially offset by receipt
of approximately $1.5 million in net proceeds related to the sale of the KobelCo
compressors and a deposit related to the sale of the LM2500 turbine at Mid-Sun
that closed successfully on April 1, 2009. We received an additional $3.5
million in cash on April 1, 2009 related to the Mid-Sun turbine sale that will
be reflected on our Quarterly Report on Form 10-Q for the quarter ending June
30, 2009, less an estimated $900,000 of transaction and wind-up closing costs.
In addition, we drew $6.4 million from our loan facility with GE described below
to fund the final installments of our LM6000 turbines which are now paid in
full.





Our loan
facility with GE Finance expires in August 2009.  If we are not
successful in our efforts to liquidate our two remaining turbines and/or other
assets, 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 repayment of the GE loans. We expect to raise cash
from the sale of turbines and other potential asset sales.  If we fail to
sell assets on terms acceptable to us, it would have a material adverse effect
on 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 downturn has also affected market values of certain of our assets. We
believe that, after impairment charges recorded, these assets are held at fair
value, but there can be no assurances that we would realize these values if
sold.





The
United States stock and credit markets have recently experienced unprecedented
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 lack of
availability 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 have had  and may continue to
have a material adverse effect on the market value of our common stock and other
adverse effects on us and our business.


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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 nine 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 2007, 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.





As part
of such loan facility, MMC North America arranged for the issuance by the bank
of an irrevocable letter of credit in the amount of $100,000 to a counterparty
under an energy services agreement entered into in November 2008.  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 energy services agreement.  The letter of credit
expires on December 31, 2009.  Availability under the revolver is
reduced from $500,000 to $400,000 while the letter of credit remains
outstanding.





The Loan
and Security Agreement further subjects MMC North America to certain financial
and other covenants, including maintaining minimum net worth and minimum debt
service coverage ratio.  The financial covenants are measured annually. In
2008, MMC North America failed to maintain its required minimum net worth or
debt service coverage ratio, due solely to the effect of the CAISO settlement
(see “Legal Proceedings”) of which MMC North America was allocated 2/3, or
$666,000.  The Bank has agreed to waive the covenant requirements for 2008,
and accordingly MMC North America is not in default under the loan  The
loans continue to be collateralized by substantially all assets of MMC North
America.





On
January 29, 2008 we entered into an agreement with GE Packaged Power, Inc., or
GE Power, for the purchase of two LM6000 PC Sprint® turbines to be used in our
Chula Vista Upgrade Project for approximately $31 million. Through the date of
this quarterly report we have made all scheduled payments and have received
title to the turbines.





On May
15, 2008 we entered into an agreement with GE Power for the purchase of one
LM6000 PC Sprint® turbine to be used in our Escondido Upgrade Project for
approximately $15.3 million. Through the date of this quarterly report, we had
made payments of approximately $13.8 million. These payments were classified as
long-term deposits on our consolidated balance sheet. On December 10, 2008 we
sold our membership interest in Escondido II whose primary asset was a contract
to purchase on GE LM6000 PC Sprint® turbine from GE Packaged Power, Inc. We sold
the membership interest at the cost of the contract but did incur a loss on
disposal as described in our Annual Report on Form 10-K, filed March 31, 2009,
under “Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Loss on disposal and Impairment charges.”





On June
30, 2008 our wholly owned subsidiaries, Chula Vista II and Escondido II entered
into a $25.5 million loan facility with GE Finance in connection with the
purchase of the three turbines described above.   This facility
was intended to provide the additional funding needed to complete the purchase
of the turbines. On December 10, 2008, we completed the sale of our membership
interest in Escondido II a wholly-owned subsidiary, whose only asset was an
agreement to acquire one of the turbines described above for $15.3 million to an
affiliate of Wellhead Electric Company, Inc. We used a portion of the proceeds
received in the sale to repay our outstanding borrowings of $8.57 million to GE
Finance, of which $3.5 million related to the Escondido turbine and $5.0 million
related to the two Chula Vista turbines that remain on order, as well as paying
all accrued interest on such borrowings, applicable prepayment penalties, and
the remaining $1.5 million installment payment on the Escondido
turbine.




The loan
agreement with GE Finance originally allowed 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. As of August 15, 2008, we had made the
required equity contributions for turbines to be purchased for both Escondido II
Chula Vista II. 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. In connection with the sale of our interest in Escondido II the loan
agreement was modified with all prepayment penalty provisions removed and the
loan amount reduced to $10.275 million which is sufficient to cover the balance
of the turbines’ purchase price. The reduced facility amount is the only
substantial change in the loan agreement. As of March 31, 2009 we had
approximately $6.4 million due to GE Finance under the loan
facility.


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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.





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
March 31, 2009, 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.





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 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 16, 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.


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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 our 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 withdrew
our certification to provide spinning reserve services. On January 15, 2009 the
FERC approved the settlement agreement. Pursuant to that agreement we made a
payment of $500,000 on January 16, another payment of $250,000 on March 31, 2009
and a scheduled final payment of $250,000 on June 30, 2009.





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





ITEM
1A. RISK FACTORS





None.




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





None.





ITEM
3. DEFAULTS UPON SENIOR SECURITIES





None.





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





None.





ITEM
5. OTHER INFORMATION





None


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ITEM
6. EXHIBITS





(a)
Exhibits.




10.29
              Equipment
      Purchase Agreement, dated February 6, 2009, by and between MMC Mid-Sun LLC
      and Energy Parts Solutions LLC31.1
              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


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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:May
      15, 2009


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