Us Geothermal 10-Q 2010 Q4 Quarterly report

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 December 31, 2010

or

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

For the transition period from ____________ to ___________

Commission File Number: 001-34023

U.S. GEOTHERMAL INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware	84-1472231
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)
1505 Tyrell Lane
Boise, Idaho	83706
(Address of Principal Executive Offices)	(Zip Code)

208-424-1027
(Registrant’s Telephone Number, Including Area Code)

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 [   ]

-1-

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 the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [   ]	Accelerated filer [X]
Non-accelerated filer [   ] (Do not check if a smaller	Smaller reporting company [   ]
reporting company)

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding as of February 9, 2011
Common stock, par value	78,747,776
$ 0.001 per share

-2-

U.S. Geothermal Inc.
Form 10-Q
For the Third Quarter Ended December 31, 2010

INDEX

PART I – Financial Information
Item 1	- Financial Statements (Unaudited)	5
	Interim Consolidated Balance Sheets - December 31, 2010 and March 31, 2010	6
	Interim Consolidated Statements of Operations – Three Months and Nine Months Ended December 31, 2010 and December 31, 2009	7
	Interim Consolidated Statements of Cash Flow – Nine Months Ended December 31, 2010 and December 31, 2009	8
	Interim Consolidated Statement of Stockholders’ Equity – Year Ended March 31, 2010 and Nine Months Ended December 31, 2010	9
	Notes to Interim Consolidated Financial Statements	10
Item 2	- Management’s Discussion and Analysis of Financial Condition and Results of Operations
	- General Background and Discussion	34
	- Operating Results	41
	- Off Balance Sheet Arrangements	47
	- Liquidity and Capital Resources	47
	- Potential Acquisitions	48
	- Critical Accounting Policies	48
Item 3	- Quantitative and Qualitative Disclosures about Market Risk	50
Item 4	- Controls and Procedures	50
PART II – Other Information
Item 1	- Legal Proceedings	51
Item 1A	- Risk Factors	51
Item 2	- Unregistered Sales of Equity Securities and Use of Proceeds	51
Item 3	- Defaults Upon Senior Securities	51
Item 4	- Removed and Reserved	51
Item 5	- Other Information	51
Item 6	- Exhibits	51

-3-

Part I- Financial Information

Item 1 - Financial Statements

The financial statements included herein have been prepared by U.S. Geothermal Inc. (the “Company”), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles may have been condensed or omitted. However, in the opinion of management, all adjustments (which include only normal recurring accruals) necessary to present fairly the financial position and results of operations for the periods presented have been made. These financial statements should be read in conjunction with the accompanying notes, and with the audited financial statements and notes to the financial statements included in the Company’s annual report on Form 10-K for the year ended, March 31, 2010. The results of operations for the nine months ended December 31, 2010 are not necessarily indicative of the results to be expected for the fiscal year ending March 31, 2011.

-4-

U.S. GEOTHERMAL INC.

________

Consolidated Financial Statements
December 31, 2010

U.S. GEOTHERMAL INC.

CONSOLIDATED BALANCE SHEETS

(Stated in U.S. Dollars)

		(Unaudited)
		December 31, 2010			March 31, 2010
ASSETS
Current:
Cash and cash equivalents	$	5,785,602		$	12,970,612
Restricted cash (note 3)		645,000			585,000
Receivable from subsidiary		207,684			335,684
Trade accounts receivable		293,460			176,880
Other current assets		176,017			152,950
Total current assets		7,107,763			14,221,126
Deposit on mineral rights purchase		200,000			-
Investment in equity securities (note 4)		220,500			210,975
Investment in subsidiaries (note 5)		17,981,219			18,103,239
Property, plant and equipment, net ofaccumulated depreciation (note 6)		34,321,660			16,550,006
Intangible assets, net of accumulated amortization (note 7)		17,026,591			16,642,515
Total assets	$	76,857,733		$	65,727,861
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued liabilities	$	568,663		$	446,790
Related party accounts payable		4,869			1,897
Current portion of capital lease obligation		12,511			11,837
Promissory note payable, current (note 10)		230,000			-
Total current liabilities		816,043			460,524
Long-term Liabilities:
Capital lease obligation, less current portion		17,646			27,108
Promissory note payable (note 10)		-			230,000
Stock compensation payable		1,783,060			1,823,751
Convertible loan payable (note 11)		5,074,178			-
Construction loans payable (note 12)		8,251,559			-
Total liabilities		15,942,486			2,541,383
Commitments and Contingencies (note 19)		-			-
STOCKHOLDERS’ EQUITY
Capital stock (authorized: 250,000,000 common shares with a $0.001 par value; issued and outstanding: 78,710,276 shares at December 31, 2010; 78,647,776 shares at March 31, 2010)		78,710			78,648
Additional paid-in capital		84,657,376			83,667,011
Accumulated other comprehensive income		151,005			136,693
Accumulated deficit		(24,620,477	)		(21,353,761	)
		60,266,614			62,528,591
Non-controlling interest (note 20)		648,633			657,887
Total stockholders’ equity		60,915,247			63,186,478
Total liabilities and stockholders’ equity	$	76,857,733		$	65,727,861

The accompanying notes are an integral part of these interim consolidated financial statements.

-6-

U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Stated in U.S. Dollars)

		(Unaudited)						(Unaudited)
		Three Months Ended						Nine Months Ended
		December 31,						December 31,
		2010			2009			2010			2009
Operating Revenues:
Energy sales, San Emidio	$	629,867		$	463,286		$	1,837,769		$	1,247,879
Energy credit sales, San Emidio		37,243			-			61,128			26,470
Land, water, and mineral rights lease		45,012			112,548			135,036			164,532
Management fees		62,500			62,500			187,500			187,500
Gain from investment in subsidiary		77,893			92,981			222,018			234,124
Total operating revenues		852,515			731,315			2,443,451			1,860,505
Operating Expenses:
Consulting fees		8,000			57,203			19,678			59,777
Corporate administration		114,834			184,402			541,204			497,784
Professional and management fees		196,336			419,784			935,442			1,052,791
Salaries and wages		187,005			359,375			907,305			844,029
Stock based compensation		299,815			248,481			874,297			1,294,432
Travel and promotion		92,991			82,185			313,653			212,855
Plant operations, San Emidio		771,265			811,359			2,080,083			2,257,622
Lease and equipment repair		25,853			17,947			111,247			81,264
Total operating expenses		1,696,099			2,180,736			5,782,909			6,300,554
Loss from Operations		(843,584	)		(1,449,421	)		(3,339,458	)		(4,440,049	)
Other Income (Loss):
Foreign exchange gain (loss)		123			8,848			(4,922	)		20,004
Other income		9,450			-			29,844			-
Interest income		7,077			40,627			37,566			85,244
Total other income		16,650			49,475			62,488			105,248
Net Loss		(826,934	)		(1,399,946	)		(3,276,970	)		(4,334,801	)
Net loss attributable to the non- controlling interest		1,740			5,937			10,254			14,299
Net Loss Attributable to U.S.Geothermal Inc.		(825,194	)		(1,394,009	)		(3,266,716	)		(4,320,502	)
Other Comprehensive Income:
Unrealized gain (loss) on investment in equity securities		50,251			(14,010	)		14,312			92,247
Comprehensive Loss Attributable toU.S. Geothermal Inc.	$	(774,943	)	$	(1,408,019	)	$	(3,252,404	)	$	(4,228,255	)
Basic And Diluted Net Loss Per Share	$	(0.01	)	$	(0.01	)	$	(0.04	)	$	(0.07	)
Weighted Average Number of SharesOutstanding for Basic and DilutedCalculations		78,668,428			63,536,449			78,654,685			62,537,628

The accompanying notes are an integral part of these interim consolidated financial statements.

-7-

U.S. GEOTHERMAL INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)

		(Unaudited)
		For the Nine Months Ended December 31,
		2010			2009
Operating Activities:
Net loss	$	(3,276,970	)	$	(4,334,801	)
Add non-cash items:
Depreciation and amortization		960,274			741,878
Gain on operations of subsidiary		(222,018	)		(234,124	)
Foreign exchange (gain) loss		4,787			(20,004	)
Loss on equity investment		4,964			-
(Gain) loss on disposal of equipment		-			900
Stock based compensation		874,297			1,294,432
Change in non-cash working capital items:
Accounts receivable		11,420			(308,674	)
Accounts payable and accrued liabilities		(56,969	)		(30,327	)
Prepaid expenses & other		(21,807	)		(331,160	)
Total cash used by operating activities		(1,722,022	)		(3,221,880	)
Investing Activities:
Purchases of property, plant and equipment		(10,609,713	)		(3,360,107	)
Cash restricted by external entities		(60,000	)		(100,000	)
Deposit on mineral rights purchase		(200,000	)		-
Distribution from subsidiary		339,074			448,933
Investment by non-controlling interest		1,000			-
Proceeds from sale of equipment		-			500
Total cash used by investing activities		(10,529,639	)		(3,010,674	)
Financing Activities:
Issuance of share capital, net of issue cost		75,439			9,393,945
Issuance of subscription receipts		-			-
Proceeds from notes payable		5,000,000			230,000
Principal payments on capital lease		(8,788	)		(8,162	)
Total cash provided by financing activities		5,066,651			9,615,783
Decrease in Cash and Cash Equivalents		(7,185,010	)		3,383,229
Cash and Cash Equivalents, Beginning of Period		12,970,612			3,452,091
Cash and Cash Equivalents, End of Period	$	5,785,602		$	6,835,320
Supplemental Disclosures:
Non-cash investing and financing activities:
Purchase of property and equipment on account	$	181,814		$	121,586
Plant construction on account		8,154,618			-
Capitalized accrued interest		171,119			-
Other Items:
Interest paid		7,555			-

The accompanying notes are an integral part of these interim consolidated financial statements.

-8-

U.S.GEOTHERMAL INC.
CONSOLIDATEDSTATEMENTS OFCHANGES INSTOCKHOLDERS’EQUITY
For the Year Ended March 31, 2010 and the NineMonths EndedDecember 31, 2010
(Stated in U.S. Dollars)

					Additional								Accumulated		Non-
	Number of		Common		Paid-In		Stock			Accumulated			Comprehensive		controlling
	Shares		Shares		Capital		Issuable			Deficit			Income		Interest			Totals
Balance at April 1, 2009	62,033,882	$	62,034	$	64,694,849	$	-		$	(15,514,911	)	$	95,891	$	678,232		$	50,016,095
Stock issued from the exercise of stock options	304,375		304		368,110		-			-			-		-			368,414
Subscription receipts issued August 17, 2009 (note 13)	-		-		-		9,120,294			-			-		-			9,120,294
Stock issued from subscription receipts on December 17, 2009 (note 13)	8,100,000		8,100		9,112,194		(9,120,294	)		-			-		-			-
Capital stock issued as result of a private placement closed March 16, 2010, net of issuance costs (note 14)	8,209,519		8,210		7,914,186		-			-			-		-			7,922,396
Stock based compensation	-		-		1,577,672		-			-			-		-			1,577,672
Unrealized gain on investment	-		-		-		-			-			40,802		-			40,802
Net loss	-		-		-		-			(5,838,850	)		-		(20,345	)		(5,859,195	)
Balance at March 31, 2010	78,647,776		78,648		83,667,011		-			(21,353,761	)		136,693		657,887			63,186,478
Stock issued from the exercise of stock options	62,500		62		75,378		-			-			-		-			75,440
Stock based compensation	-		-		914,987		-			-			-		-			914,987
Unrealized loss on investment	-		-		-		-			-			14,312		-			14,312
Initial formation contribution by non- controlling interest in Oregon USG Holdings, LLC (note 20)	-		-		-		-			-			-		1,000			1,000
Net loss - unaudited	-		-		-		-			(3,266,716	)		-		(10,254	)		(3,276,970	)
Balance at December 31, 2010 - unaudited	78,710,276	$	78,710	$	84,657,376	$	-		$	(24,620,477	)	$	151,005	$	648,633		$	60,915,247

The accompanying notes are an integral part of these interim consolidated financial statements.

-9-

U.S. GEOTHERMAL INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 31, 2010

(Stated in U.S. Dollars)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

When U.S. Cobalt Inc. completed a reverse take-over on December 19, 2003, the former stockholders of U.S. Geothermal Inc. a company incorporated on February 26, 2002 in the State of Idaho, U.S.A. acquired control of U.S. Cobalt Inc. In connection with the transaction, U.S. Cobalt Inc. changed its name to U.S. Geothermal Inc. (the “Company”) and consolidated its common stock on a one new to five old basis. All references to common shares in these financial statements have been restated to reflect the roll-back of common stock.

The Company constructs and manages power plants that utilize geothermal resources to produce energy. The Company’s operations have been, primarily, focused in the Western United States of America.

All references to “dollars” or “$” are to United States dollars and all references to $ CDN are to Canadian dollars.

Basis of Presentation

These unaudited interim consolidated financial statements of the Company and its subsidiaries have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”). Such rules and regulations allow the omission of certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles in the United States of America, so long as such omissions do not render the financial statements misleading. Certain prior period amounts have been reclassified to conform to the current period presentation.

In the opinion of management, these financial statements reflect all adjustments that are necessary for a fair statement of the results for the periods presented. All adjustments were of a normal recurring nature. These interim financial statements should be read in conjunction with the annual financial statements of the Company included in its Annual Report on Form 10-K.

The Company consolidates subsidiaries that it controls (more-than-50% owned) and entities over which control is achieved through means other than voting rights. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, as well as one controlling interest. The accounts of the following companies are consolidated in these financial statements:

i)	U.S. Geothermal Inc. (incorporated in the State of Delaware);
ii)	U.S. Geothermal Inc. (incorporated in the State of Idaho);
iii)	Gerlach Geothermal LLC (organized in the State of Delaware);
iv)	U.S. Geothermal Services, LLC (organized in the State of Delaware);
v)	USG Nevada LLC (organized in the State of Delaware);
vi)	USG Gerlach LLC (organized in the State of Delaware);
vii)	USG Oregon LLC (organized in the State of Delaware)
viii)	Oregon USG Holdings, LLC (organized in the State of Delaware); and
ix)	U.S. Geothermal Guatemala, S.A.

All intercompany transactions are eliminated upon consolidation.

-10-

Raft River Energy I LLC (“RREI”), previously a 100% owned subsidiary, was consolidated through July 2006, after which the entity is recorded under the equity method (note 5).

In cases where the Company owns a majority interest in an entity but does not own 100% of the interest in the entity it recognizes a non-controlling interest. The Company will recognize 100% of the assets and liabilities of the entity, and disclose the non-controlling interest. The statements of operations will consolidate the subsidiary’s full operations, and will separately disclose the elimination of the non-controlling interest’s allocation of profits and losses.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The following are summarized accounting policies considered to be significant by the Company’s management:

Accounting Method

The Company’s consolidated financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied in the preparation of the consolidated financial statements.

Use of Estimates

The preparation of consolidated financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the consolidated financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company’s consolidated financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions and could have a material effect on the reported amounts of the Company’s consolidated financial position and consolidated results of operations.

Cash and Cash Equivalents

The Company considers all unrestricted cash, short-term deposits, and other investments with original maturities of no more than ninety days when acquired to be cash and cash equivalents for the purposes of the statement of cash flows. Discussion regarding restricted cash is included in Note 3.

Trade Accounts Receivable Allowance for Doubtful Accounts

Management estimates the amount of trade accounts receivable that may not be collectible and records an allowance for doubtful accounts, accordingly. The allowance is an estimate based upon aging of receivable balances, historical collection experience, and the periodic credit evaluations of our customers’ financial condition. Receivable balances are written off when we determine that the balance is uncollectible. As of December 31, 2010 and March 31, 2010, there were no balances that were over 90 days past due and no balance in allowance for doubtful accounts was recognized.

-11-

Concentration of Credit Risk

The Company’s cash and cash equivalents, including restricted cash, consisted of commercial bank deposits, money market accounts, and petty cash. Cash deposits are held in commercial banks in Boise, Idaho and Portland, Oregon. The accounts are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000 per legal entity through December 31, 2013. At December 31, 2010, the Company held deposits of $300,830 that were not covered by FDIC insurance. The money market funds totaled $4,999,381, and are invested in government backed securities and not subject to deposit insurance.

Equity Securities

We determine the appropriate classification of marketable securities at the time of purchase and reevaluate this designation as of each balance sheet date. We classify these securities as either held-to-maturity, trading, or available-for-sale. All marketable securities and restricted investments were classified as available-for-sale securities. The Company classifies its investments as “available for sale” because it does not intend to actively buy and sell for short-term profits. The Company's investments are subject to market risk, primarily interest rate and credit risk. The fair value of investments is determined using observable or quoted market prices for those securities.

Available-for-sale securities are carried at fair value, with unrealized gains and losses included as a component of accumulated other comprehensive income (loss). Realized gains and losses, declines in value judged to be other than temporary and interest on available-for-sale securities are included in net income. The cost of securities sold is based on the specific identification method.

Allocation of Profits and Losses from Subsidiaries with Complex Ownership Structures

For subsidiaries that have contractually complex ownership rights, benefits and obligations, the Company utilizes the hypothetical liquidation at book value method (“HLBV”) for allocating profits and losses. This method utilizes the specific terms outlined in the subsidiary’s operating agreement or other authoritative documents. These terms may include cash disbursement terms, associated financial instruments, debt arrangements, and rights to specific revenue streams.

According to the operating agreement, upon liquidation and, after payment of all outstanding debts, any remaining funds would be distributed to the Members in accordance to their positive capital account balance ratio. Certain contract provisions contain allocation of profit and loss items to arrive at the capital account balances. Since the Company is currently the minority member recording their investment in RREI under the equity method, we utilize a hypothetical liquidation at book value at each balance sheet date to value our investment.

For our investment in RREI, the investment will change based upon actual capital contributions, actual cash distributions, 70% of revenue from renewable energy credits, and 1% of all other profit and loss items. See Note 5.

Property, Plant and Equipment

Property, plant and equipment, including assets under capital lease, are recorded at historical cost. Costs of acquisition of geothermal properties are capitalized on a geothermal reservoir basis. If a geothermal reservoir is abandoned, the associated costs that have been capitalized are charged to income in the year of abandonment. Major improvements that significantly increase the useful lives and/or capabilities of the assets are capitalized. Expenditures for repairs and maintenance are charged to expense as incurred.

-12-

Interest costs incurred during the construction period of defined major projects from debt that is specifically incurred for those projects are capitalized.

Depreciation is calculated on a straight-line basis over the estimated useful life of the asset. Where appropriate, terms of property rights and revenue contracts can influence the determination of estimated useful lives. Estimated useful lives by major asset categories are summarized as follows:

	Estimated Useful
Asset Categories	Lives in Years
Furniture, vehicle and other equipment	3 to 5
Power plant, buildings and improvements	15 to 30
Wells	30
Well pumps and components	5 to 15
Pipelines	30
Transmission lines	30

Intangible Assets

All costs directly associated with the acquisition of geothermal and water rights are capitalized as intangible assets. These costs are amortized over their estimated utilization period. There are several factors that influence the estimated utilization periods as well as underlying fair value that include, but are not limited to, the following:

• contractual expiration terms of the right,
• contractual terms of an associated revenue contract (i.e., PPAs),
• compliance with utilization and other requirements, and
• hierarchy of other right holders who share the same resource.

Currently, amortization expense is being calculated on a straight-line basis over an estimated utilization period of 30 years for assets placed in service. If an intangible water or geothermal right is forfeited or otherwise lost, the remaining unamortized costs are expensed in the period of forfeiture. An impaired right is reduced to its estimated fair market value in the year the impairment is realized. Costs incurred that extend the term of an intangible right are capitalized and amortized over the new estimated period of utilization.

Impairment of Long-Lived Assets

The Company evaluates its long-term assets annually for impairment or when circumstances or events occur that may impact the fair value of the assets. The fair value of geothermal property is primarily evaluated based upon the present value of expected revenues directly associated with those assets. An impairment loss would be recognized if the carrying amount of a capitalized asset is not recoverable and exceeds its fair value. Management believes that there have not been any circumstances that have warranted the recognition of losses due to the impairment of long-lived assets as of December 31, 2010.

Stock Options Granted to Employees and Non-employees

The Company follows financial accounting standards that require the measurement of the value of employee services received in exchange for an award of an equity instrument based on the grant-date fair value of the award. For employees, directors and officers, the fair value of the awards are expensed over the vesting period. The current vesting period for all options is eighteen months.

-13-

Non-employee stock-based compensation is granted at the Board of Director’s discretion to award select consultants for exceptional performance. Prior to issuance of the awards, the Company was not under any obligation to issue the stock options. Subsequent to the award, the recipient was not obligated to perform any services. Therefore, the fair value of these options was expensed on the grant date, which was also the measurement date.

Under the fair value recognition provisions, share-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the vesting period. Determining the fair value of share-based awards at the grant date requires judgment. In addition, judgment is also required in estimating the amount of share-based awards that are expected to be forfeited. If actual results differ significantly from these estimates, stock-based compensation expense and our results of operations could be materially impacted.

The Company has adopted a standard that states that if certain conditions are present surrounding the issuance of equity instruments as share based compensation, then circumstances may warrant the recognition of a liability for financial reporting purposes. One such condition is present when the Company issued stock options denominated in a foreign currency (Canadian dollars) to employees. Authors of the standard have reasoned that when a condition is present that creates a financial risk to the recipient in addition to normal market risks (i.e., foreign currency translation risk), then the instrument takes on the characteristics of a liability, rather than an equity item. As the underlying stock options are exercised or are forfeited, then the stock based compensation liability will be reduced. The Company’s financial statements reflect these changes in the consolidated balance sheet. As the value of the options change over the vesting periods, these changes will ultimately be reflected in the amount of expense charged to operations.

Stock Based Compensation Granted to Employees

The Company recognizes the value of common stock granted to employees and directors over the periods in which the services are received. The value of those services is based upon the estimated fair value of the common stock to be awarded. Estimated fair value is adjusted each reporting period. At the end of each vesting period, estimated fair value is adjusted to fair market value. The adjustment is reflected in the reporting period in which the vesting occurs.

Earnings Per Share

The Company follows financial accounting standards, which provides for calculation of "basic" and "diluted" earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income available to common shareholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity similar to fully diluted earnings per share. Although there were common stock equivalents outstanding at December 31, 2010 and March 31, 2010, they were not included in the calculation of earnings per share because their inclusion would have been considered anti-dilutive. Total common stock equivalents at December 31, 2010 and March 31, 2010 were 94,997,193 and 96,404,418; respectively.

Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, trade account and other receivables, refundable tax credits, and accounts payable and accrued liabilities. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments. The fair values of these financial instruments approximate their carrying values, unless otherwise noted.

-14-

Refundable tax credit is comprised of Goods and Services Tax (“GST”) which is refundable from the Government of Canada and is included in other current assets.

The Company’s functional currency is the U.S. dollar. Monetary items are converted into U.S. dollars at the rate prevailing at the balance sheet date. Resulting gains and losses are generally included in determining net income for the period in which exchange rates change.

Revenue

Revenue Recognition

The energy sales revenue is recognized when the power is produced and delivered to the customer under the terms defined in the Power Purchase Agreements. Revenues from energy credits sales are recognized when the Company has met the terms of certain energy sales agreements with a financially capable buyer and has met the applicable governing regulations. Management fee income is recognized when the services have been provided. Royalties and Lease revenues are recognized as the resource has been utilized and other contractual obligations have been met.

Revenue Source

All of the Company’s direct and indirect operating revenues originate from energy production from its interests in geothermal power plants located in the states of Idaho and Nevada. All of the management fees and royalty revenues are earned from its subsidiary located in South Eastern Idaho. All of the power sales are earned from a power plant located in North Western Nevada.

Recent Accounting Pronouncements

Accounting for Various Topics

In January 2010, FASB issued Financial Accounting Standards Update 2010-22,Accounting for Various Topics(“Update 2010-22”). Update 2010-22 provides clarifications when to separate financial statement elements based upon materiality and volatility. The update was issued August 2010. Management believes that the Company is currently in compliance with the applicable contents of this update, and will continue to evaluate its impact on financial statements.

Accounting for Technical Amendments to Various SEC Rules and Schedules

In January 2010, FASB issued Financial Accounting Standards Update 2010-21,Accounting for Technical Amendments to Various SEC Rules and Schedules(“Update 2010-21”). Update 2010-21 provides clarifications on terminology on various elements that primarily pertain to the statement of equity. It also provided guidance on the proper reporting of changes in certain elements of equity. The update was issued August 2010. Management believes that the Company is currently in compliance with the applicable contents of this update, and will continue to evaluate its impact on financial statements.

Compensation-Stock Compensation

In January 2010, FASB issued Financial Accounting Standards Update 2010-13,Compensation-Stock Compensation (Topic 718): Effect of Denominating the Exercise Price of a Share-Based Payment Award in the Currency of the Market in Which the Underlying Equity Security Trades.(“Update 2010-13”). Update 2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of a market in which a substantial portion of the entity’s equity securities trades should not be considered to contain a condition that is not a market, performance, or service condition. Therefore, an entity would not classify such an award as a liability if it otherwise qualifies as equity. Amendments of this Update are effective for fiscal years, and interim periods within those fiscal years beginning on or after December 15, 2010. The Company is still evaluating the impact of this Update. The adoption of this Update may have an impact in the statement of financial position.

-15-

NOTE 3 – RESTRICTED CASH

The Company maintains cash balances that are restricted under Letter of Credit covenants for State and Federal well bonding requirements. These bonds renew on an annual basis. Restricted cash balances and explanations of the nature of the restrictions are summarized as follows:

		December		March 31,
State Agency		31, 2010		2010
Idaho Department of Water Resources, Geothermal Well Bond	$	260,000	$	260,000
Bureau of Land Management, Geothermal Lease Bond - Gerlach Geothermal		10,000		-
State of Nevada Division of Minerals, Statewide Drilling Bond		50,000		50,000
Bureau of Land Management, Geothermal Lease Bonds		150,000		150,000
Oregon Department of Geology and Mineral Industries, Mineral Land and Reclamation Program		175,000		125,000
	$	645,000	$	585,000

These bonding requirements ensure that the Company has sufficient financial resources to construct, operate and maintain geothermal wells while safeguarding subsurface, surface and atmospheric resources from unreasonable degradation, and to protect ground water aquifers and surface water sources from contamination. Other future costs of environmental remediation cannot be reasonably estimated and have not been recorded.

NOTE 4 – INVESTMENT IN EQUITY SECURITIES

Investments in equity securities (150,000 shares of a publicly traded geothermal entity) activities consisted of the following:

		Amount
Available-for-sale equity securities:
Cost basis	$	88,515
Unrealized gains		136,693
Foreign exchange losses		(14,233	)
Fair value at March 31, 2010		210,975
Unrealized gains		14,312
Foreign exchange losses		(4,787	)
Fair value at December 31, 2010	$	220,500

NOTE 5 – INVESTMENT IN SUBSIDIARIES

Raft River Energy I is a joint venture between the Company and Raft River I Holdings, LLC a subsidiary of Goldman Sachs Group, Inc. An Operating Agreement governs the rights and responsibilities of both parties. RREI is a voting interest entity recorded on the financial records of the Company as an equity investment.

-16-

For book and income tax purposes, Raft River I Holdings, LLC will receive a greater proportion of the share of losses and other income tax benefits. Additionally, during the initial years of operations Raft River I Holdings, LLC will receive a larger allocation of cash distributions.

RREI resulted from an August 9, 2006 agreement between the Company and Raft River Holdings, LLC, a subsidiary of the Goldman Sachs Group, for construction financing of Phase I of the Raft River project. To accommodate the construction financing, the Company sold 50% of its ownership in Raft River Energy to Raft River Holdings, LLC. As a result of the agreements, the Company was required to contribute cash and property sufficient to complete a 10 megawatt power plant, and Raft River Holdings was required to contribute $34,170,100.

As of September 30, 2010, the Company has contributed $17,953,640 in cash and property to the project, while Raft River Holdings, LLC has contributed $34,170,100.

For periods prior to August 2006, the Company was the 100% owner of RREI and consolidated the loss. For the period August 2006 to September 2009, U.S. Geothermal Inc. recorded RREI under the equity method of accounting for investments in subsidiaries based on the HLBV method.

Effective December 26, 2008, the fiscal year for RREI was changed to a calendar year due to the conversion of Goldman Sachs to a bank holding company. RREI’s latest audited financial information is summarized as follows:

		(Unaudited)
		December 31,		December 31,		November 28,
		2010		2009		2008
Total current assets	$	908,866	$	808,084	$	1,994,238
Property and equipment		45,939,087		47,993,261		50,016,779
	$	46,847,953	$	48,801,345	$	52,011,017
Total liabilities	$	420,480	$	791,116	$	1,434,413
Total members’ equity		46,427,473		48,010,229		50,576,604
	$	46,847,953	$	48,801,345	$	52,011,017

		(Unaudited)								Fiscal Year
		Year Ended			Year Ended			Month Ended		Ended
		December 31,			December 31,			December 26,		November 28,
		2010			2009			2008		2008
Operating revenues	$	4,542,477		$	4,718,949		$	537,831	$	4,880,303
Operating earnings (loss)		(733,098	)		(2,278,806	)		352,483		(528,916	)
Net earnings (loss)		(732,950	)		(2,270,718	)		352,960		(448,593	)
U.S. Geothermal Inc., portion of net earnings (loss)	$	375,198		$	279,072		$	54,713	$	(156,060	)

For the Company’s investment in RREI, the investment will change based upon actual capital contributions, actual cash distributions, 70% of revenue from renewable energy credits and 1% of all other profits and losses.

-17-

The Company’s investment in the RREI has changed since March 31, 2007 as follows:

			Increase (Decrease) in
Year ended	Activity		Investment
March 31, 2007	Investment Account Balance	$	6,360,349
	Capital Contributions		10,641,871
	Allocation of profit/loss		6,479
	Prepaid amount		97,000
March 31, 2008	Investment Account Balance		17,105,699
	Capital Contributions		948,054
	Allocation of profit/loss		539,815
	Prepaid amount		(97,000	)
March 31, 2009	Investment Account Balance		18,496,568
	Cash distributions		(722,222	)
	Allocation of profit/loss		323,929
March 31, 2010	Investment Account Balance		18,098,275
	Cash distributions		(339,074	)
	Allocation of profit/loss		222,018
December 31, 2010	Investment Account Balance	$	17,981,219

An investment in a northwest British Columbia geothermal prospect totaled $0 and $4,965 as of December 31, 2010 and March 31, 2010; respectively. This investment is combined with the investment in Raft River Energy I LLC.

NOTE 6 - PROPERTY, PLANT AND EQUIPMENT

During the quarter ended December 31, 2010, the Company continued development activities at Neal Hot Springs, Oregon and San Emidio, Nevada. At Neal Hot Springs, costs were incurred of approximately $3,053,000 for development of wells NHS# 2, 8, 10 and 13, in addition to reservoir flow testing. Legal, permitting and engineering costs exceeded $838,000 for plant development. Power plant construction, at San Emidio, Nevada, amounted to approximately $6,856,000 for the current quarter ($8,508,000 total project cost to date). Plant construction is expected to be completed September 2011, and construction costs are expected to total approximately $25 million. Also, at San Emidio, costs of approximately $276,000 ($189,207 reimbursed by grant) were incurred for surface geological mapping and a seismic survey. Costs of $70,642 were incurred for the testing and development of a pipeline and wells at Raft River, Idaho, as a part of the Department of Energy grant program. Grant reimbursements were received for 80% of these costs. Construction costs of approximately $253,000 were incurred on a test well at Gerlach, Nevada.

During the quarter ended September 30, 2010, the Company continued development activities at Neal Hot Springs, Oregon and San Emidio, Nevada. At Neal Hot Springs, drilling costs of approximately $2,979,000 were incurred primarily for the third production well (NHS-8) and a slim-hole injector. NHS-8 is substantially complete and is undergoing flow testing. Also, costs in excess of $434,000 were spent on geotechnical engineering and plant design for the planned Neal Hot Springs plant. Construction of the new power plant at San Emidio, Nevada began during the month of August 2010. Power plant construction costs exceeded $1,450,000 for the current quarter. Costs of over $910,000 were incurred for the testing and development of a pipeline and wells at Raft River, Idaho, as a part of the Department of Energy grant program. Grant reimbursements were received for 80% of these costs.

-18-

During the quarter ended June 30, 2010, the Company was primarily engaged in development activities at Neal Hot Springs, Oregon and San Emidio, Nevada. At Neal Hot Springs, costs in excess of $822,000 were spent on geophysical engineering and plant design, in addition to approximately $130,700 that was spent on transmission line studies and design. Drilling costs were incurred that exceeded $487,000 related to the temperature gradient drilling program at Neal Hot Springs. At San Emidio, over $186,000 was incurred for design and feasibility studies for the proposed power plant and transmission lines. The final payment of $582,000 to Constellation Energy related to the plant purchase price adjustment was completed in the current quarter. Also, at San Emidio costs of approximately $99,000 were incurred for geophysical studies and flow testing of well 75-16.

Property, plant and equipment, at cost, are summarized as follows:

		December 31, 2010			March 31, 2010
Land	$	652,507		$	652,507
Power production plant		2,275,475			1,665,882
Wells		3,617,312			3,617,312
Furniture and equipment		866,102			785,606
		7,411,396			6,721,307
Less: accumulated depreciation		(2,151,494	)		(1,396,605	)
		5,259,902			5,324,702
Construction in progress		29,061,758			11,225,304
	$	34,324,660		$	16,550,006

Changes in Construction in Progress for the nine months ended December 31, 2010 and the year ended March 31, 2010, at cost, are summarized as follows:

		Nine Months
		Ended December			Year Ended
		31, 2010			March 31, 2010
Beginning balances	$	11,225,304		$	7,807,445
Current development construction		19,051,499			3,417,859
Transfers into production		-			-
Grant reimbursements		(1,215,045	)		-
Write-off of unsuccessful projects		-			-
Ending balances	$	29,061,758		$	11,225,304

-19-

Construction in Progress, at cost, consisted of the following projects/assets by location at December 31, 2010 and March 31, 2010, as follows:

		December 31,		March 31,
		2010		2010
Raft River, Idaho:
Unit II, power plant, substation and transmission lines	$	995,572	$	733,284
Unit II, well construction		2,097,261		2,085,250
		3,092,833		2,818,534
San Emidio, Nevada:
Power plant (Re-power project)		8,508,063		50,872
Interconnection studies for transmission line		195,600		76,032
Well construction		2,885,981		2,678,102
		11,589,644		2,805,006
Neal Hot Springs, Oregon:
Production wells		11,424,145		4,916,905
Buildings and site preparation		2,627,617		493,852
Transmission lines and substation		327,519		191,007
		14,379,281		5,601,764
	$	29,061,758	$	11,225,304

For the nine months ended December 31, 2010, the Company incurred interest costs of $178,674, of which $171,119 was capitalized as a component of the Neal Hot Springs and San Emidio projects.

Depreciation expense was charged to operations for the following periods:

		December 31, 2010		December 31, 2009
Three months ended	$	270,158	$	180,647
Nine months ended	$	753,629	$	535,233

-20-

NOTE 7 – INTANGIBLE ASSETS

In April 2010, the Company incurred consulting fees of $600,000 necessary to acquire the geothermal energy rights concession in Guatemala. The concession area is located 14 miles southwest of Guatemala City. The concession contains 24,710 acres (38.6 square miles) of energy rights located in the center of the Aqua and Pacaya twin volcano complex.

Intangible assets, at cost, are summarized as follows:

		December 31, 2010			March 31, 2010
In operation:
Geothermal and mineral rights	$	8,265,800		$	8,265,800
Less: accumulated amortization		(734,738	)		(528,093	)
		7,531,062			7,737,707
Inactive:
Surface water rights		5,469,862			5,484,059
Geothermal and mineral rights		4,025,667			3,420,749
	$	17,026,591		$	16,642,515

Amortization expense will increase when the respective intangible assets have been placed into operations. Presently, estimated aggregate amortization expense for the next five fiscal years is as follows:

		Projected
		Amounts
Periods Ending
December 31,
2011	$	275,527
2012		275,527
2013		275,527
2014		275,527
2015		275,527
	$	1,377,635

Amortization expense was charged to operations for the following periods:

		December 31, 2010		December 31, 2009
Three months ended	$	68,882	$	68,882
Nine months ended	$	206,645	$	206,645

NOTE 8 – PROVISION FOR INCOME TAXES

Income taxes are provided based upon the liability method. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard imposed by accounting standards to allow recognition of such an asset.

-21-

At December 31, 2010, the Company had net deferred tax assets calculated at an expected rate, noted in the table below, of approximately $6,188,000 (March 31, 2010 - $4,942,000). As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset was recorded at December 31, 2010 and March 31, 2010.

The significant components of the net deferred tax asset calculated with the estimated effective income tax rate at December 31, 2010 and March 31, 2010 were as follows:

		December 31,			March 31,
		2010			2010
Deferred tax assets*:
Net operating loss carry forward	$	5,814,000		$	4,924,000
Stock based compensation		862,000			515,000
Deferred tax liabilities*:
Depreciation and amortization		(488,000	)		(497,000	)
Net deferred income tax asset		6,188,000			4,942,000
Deferred tax asset valuation allowance		(6,188,000	)		(4,942,000	)
Net deferred tax asset	$	-		$	-

* - significant components of deferred assets and liabilities are considered to be long-term.

The Company’s estimated effective income tax rate is summarized as follows:

	For the years ended March 31,
	2011		2010
U.S. Federal statutory rate	34.0%		34.0%
Average State income tax, net of federal tax effect	4.2		4.0
Production tax credits	(2.0	)	(2.0	)
Net effective tax rate	36.2%		36.0%

At December 31, 2010, the Company had net income tax operating loss carry forwards of approximately $16,061,000 ($13,678,000 in March 31, 2010), which expire in the years 2023 through 2034. The change in the allowance account from March 31, 2010 to December 31, 2010 was $1,246,000.

Although we believe that our estimates are reasonable, no assurance can be given that the final tax outcome of these matters will not be different than that which is reflected in our tax provisions. Ultimately, the actual tax benefits to be realized will be based upon future taxable earnings levels, which are very difficult to predict.

Accounting for Income Tax Uncertainties and Related Matters

We may be assessed penalties and interest related to the underpayment of income taxes. Such assessments would be treated as a provision of income tax expense on our financial statements. For the years ended March 31, 2010 and 2009, no income tax expense has been realized as a result of our operations and no income tax penalties and interest have been accrued related to uncertain tax positions. The Company files income tax returns in the U.S. federal jurisdiction and in the States of Idaho and Oregon. These filings are subject to a three year statute of limitations. Our evaluation of income tax positions included the fiscal years ended March 31, 2010, 2009, and 2008 which could be subject to agency examinations as of December 31, 2010. No filings are currently under examination. No adjustments have been made to reduce our estimated income tax benefit at fiscal year end. Any valuations relating to these income tax provisions comply with U.S. generally accepted accounting principles.

-22-

NOTE 9 - CAPITAL LEASE OBLIGATION

Effective November 10, 2008, the Company entered into a capital lease obligation for the purchase of a forklift that is payable in monthly payments of $1,193 including interest to Wells Fargo Equipment, Inc. The contract includes a purchase option of $5,345 the end of the lease term scheduled for November 2012. At December 31, 2010, equipment under capital lease amounted to $53,450 ($22,271 accumulated amortization). The schedule of minimum lease payments is as follows:

Years Ending December 31,		Principal		Interest		Totals
2011	$	12,511	$	1,805	$	14,316
2012		17,646		822		18,468
	$	30,157	$	2,627	$	32,784

NOTE 10 – PROMISORY NOTE PAYABLE

On July 7, 2009, the Company financed the purchase 40 acres of land and a building on property adjacent to our San Emidio power plant facility with a promissory note. The note for $230,000, is payable in 24 successive monthly installments commencing on the second month following the date of disbursement. The first 23 payments consist of interest only on the outstanding principal at 3.25% per annum. The entire principal and the accrued interest are due on the final payment scheduled for July, 2011. The note is unsecured. In the event of an assignment for the benefit of creditors, application for the appointment of a receiver or filing of a voluntary or involuntary petition in bankruptcy by or against the Company, the holder may declare this note immediately due and payable in full.

NOTE 11 – CONVERTIBLE PROMISSORY NOTE

In September 2010, the Company’s wholly owned subsidiary (Oregon USG Holdings LLC) entered into agreements that formulated a strategic partnership with Enbridge (U.S.) Inc. (“Enbridge”) to provide up to $23.8 million in funds for the Neal Hot Springs geothermal project located in Eastern Oregon.

A component of this funding included a $5 million unsecured convertible promissory note that was signed on September 8, 2010. The note is payable on demand on September 30, 2011, including interest at 4.75% per annum. Upon conversion, the note shall be considered to be fully satisfied, including interest, and shall be treated for all purposes as a contribution to Oregon USG Holding LLC as of the conversion date. The conversion occurs automatically upon the closing of the Department of Energy (“DOE”) guaranteed project loan. The Company has the option to pay all accrued interest in cash prior to the conversion date. The loan shall become payable in full at the option of the Enbridge following any of the circumstances that create an “Event of Default.” Notable Events of Default include the DOE or relevant governmental authority communicates that it will not or does not intend to guarantee the Project Loan or the Project is unable to obtain a reservoir certificate by an independent reservoir engineer. Repayment of the note is guaranteed by U.S. Geothermal, Inc.

NOTE 12 – CONSTRUCTION NOTES PAYABLE

Effective August 27, 2010, the Company’s wholly owned subsidiary (USG Nevada LLC) signed a construction loan agreement with Benham Constructors LLC (“Benham”). Benham will be the primary contractor in the relocation and replacement of the existing power plant. The new 8.6 net megawatt power plant is expected to cost approximately $25 million, and is expected to be completed September 2011. Upon completion, the Company will pay the debt in full within 30 days of receipt of the final statement prepared by Benham. Interest will accrue on outstanding balance at 9.5% per annum. When due, the Company expects to obtain funds to repay the loan balance with a long-term project loan. The loan is non-recourse and is secured by the Project’s assets. Title of all work and materials shall pass to the Company the later of delivery to the Site or upon payment in full.

-23-

NOTE 13 – SUBSCRIPTION RECEIPTS/STOCK ISSUABLE

In the second quarter ended September 30, 2009, the Company entered into an agreement to privately place approximately 8,100,000 Subscription Receipts (“Receipt”) at $1.35 CDN ($1.22) per Receipt for gross proceeds of approximately $10,935,000 CDN ($9,882,000). Each Receipt was automatically exchanged, without additional consideration on the exchange date for one (“Unit”) of the Company. The exchange date was December 17, 2009. Each Unit consisted of one share of common stock of the Company and one half of one common stock purchase warrant (a "Warrant"). Each Warrant entitled the holder thereof to acquire one additional share of common stock of the Company for a period of 24 months following the closing of the offering for $1.75 per share of common stock.

NOTE 14 - CAPITAL STOCK

The Company is authorized to issue 250,000,000 shares of common stock. All shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

During the quarter ended December 31, 2010, the Company issued 62,500 common shares to employees of the Company upon exercise of stock options at strike prices of $0.92 and $1.00 CDN.

On March 16, 2010, the Company completed a private placement stock offering where the Company issued 8,209,519 shares of Common Stock at a price of $1.05 per share for gross proceeds of $8.6 million ($7,922,396 net proceeds). Each investor was, also, issued a common share purchase warrant (“Warrant”) exercisable for 50% of the number of shares of Common Stock purchased. Each Warrant is exercisable at $1.25 per share for a period of five years beginning September 16, 2010.

During the quarter ended March 31, 2010, the Company issued 75,000 common shares to an employee of the Company upon exercise of stock options at a strike price of $0.90.

During the quarter ended December 31, 2009, the Company issued 181,375 common shares to employees and consultants of the Company upon exercise of stock options at a strike prices between $0.72 and $0.92.

As described in Note 13, the Company issued 8,100,000 shares for $1.35 CDN ($1.22) on December 17, 2009 for the exchange of subscription receipts.

During the quarter ended September 30, 2009, the Company issued 48,000 common shares to employees of the Company upon exercise of stock options at a strike price of $0.92.

-24-

NOTE 15 - STOCK BASED COMPENSATION

Stock Options

The Company has a stock incentive plan (the “Stock Incentive Plan”) for the purpose of attracting and motivating directors, officers, employees and consultants of the Corporation and advancing the interests of the Corporation. The Stock Incentive Plan is a 15% rolling plan approved by shareholders in December 2009, whereby the Company can grant options and/or restricted shares to the extent of 15% of the current outstanding common shares. Under the plan, all forfeited and exercised options can be replaced with new offerings. As of December 31, 2010, the Company can issue stock option and/or restricted share grants totaling up to 11,806,541 shares. Options are granted for a term of up to five years from the date of grant. Stock options granted generally vest over a period of eighteen months, with 25% vesting on the date of grant and 25% vesting every six months thereafter. Effective April 1, 2007, all grants will be stated in U.S. dollars. The Company recognizes compensation expense using the straight-line method of amortization. Historically, the Company has issued new shares to satisfy exercises of stock options and the Company expects to issue new shares to satisfy any future exercises of stock options. At December 31, 2010, the Company had 6,937,875 options granted and outstanding.

The following table reflects the summary of stock options outstanding at March 31, 2009 and changes during the year ended March 31, 2010, and the nine months ended December 31, 2010:

				Weighted
				Average		Weighted
	Number of			Exercise		Average		Aggregate
	shares under			Price Per		Fair		Intrinsic
	options			Share		Value		Value
Balance outstanding, March 31, 2009	4,239,250		$	1.62	$	1.00	$	4,234,719
Forfeited	(80,000	)		2.34		1.95		(156,000	)
Exercised	(304,375	)		0.90		0.82		(249,588	)
Granted	1,875,000			0.95		0.78		1,466,898
Balance outstanding, March 31, 2010	5,729,875			1.49		0.92		5,296,029
Forfeited	-			-		-		-
Exercised	-			-		-		-
Granted	-			-		-		-
Balance outstanding, June 30, 2010	5,729,875			1.49		0.92		5,296,029
Forfeited	-			-		-		-
Exercised	-			-		-		-
Granted	1,300,000			0.86		0.58		747,504
Balance outstanding, September 30, 2010	7,029,875			1.37		0.86		6,043,533
Forfeited	(29,500	)		2.01		0.75		(22,141	)
Exercised	(62,500	)		0.97		0.89		(55,776	)
Granted	-			-		-		-
Balance outstanding, December 31, 2010	6,937,875		$	1.37	$	0.86	$	5,965,616

The fair value of each option award is estimated on the date of grant using the Black-Scholes option-pricing model using the assumptions noted in the following table. Expected volatilities are based on historical volatility of the Company’s stock. The Company uses historical data to estimate option volatility within the Black-Scholes model. The expected term of options granted represents the period of time that options granted are expected to be outstanding, based upon past experience and future estimates and includes data from the Plan. The risk-free rate for periods within the expected term of the option is based upon the U.S. Treasury yield curve in effect at the time of grant. The Company currently does not foresee the payment of dividends in the near term.

-25-

The fair value of the stock options granted was estimated using the Black-Scholes option-pricing model and is amortized over the vesting period of the underlying options. The assumptions used to calculate the fair value are as follows:

	Nine Months
	Ended December	Year Ended
	31, 2010	March 31, 2010
Dividend yield	0	0
Expected volatility	72-93%	71-93%
Risk free interest rate	0.26-0.78%	0.46-1.32%
Expected life (years)	3.19	3.17

Changes in the subjective input assumptions can materially affect the fair value estimate and, therefore, the existing models do not necessarily provide a reliable measure of the fair value of the Company’s stock options.

The following table summarizes information about the stock options outstanding at December 31, 2010:

	OPTIONS OUTSTANDING
			REMAINING	NUMBER OF
	EXERCISE	NUMBER OF	CONTRACTUAL	OPTIONS		INTRINSIC
	PRICE	OPTIONS	LIFE (YEARS)	EXERCISABLE		VALUE
$	1.00 CDN	1,405,500	0.25	1,405,500	$	1,427,303
	1.15 CDN	78,750	0.58	78,750		86,626
	1.40 CDN	157,500	1.08	157,500		139,271
	2.41	652,500	1.58	652,500		460,975
	2.22	1,465,000	2.37	1,465,000		1,798,417
	1.78	95,000	2.73	95,000		81,172
	0.92	1,715,625	3.40	1,715,625		1,212,487
	1.58	68,000	3.42	68,000		26,435
	0.86	1,300,000	4.69	325,000		188,500
$	1.37	6,937,875	2.52	5,962,875	$	5,409,186

-26-

The following table summarizes information about the stock options outstanding at March 31, 2010:

	OPTIONS OUTSTANDING
			REMAINING	NUMBER OF
	EXERCISE	NUMBER OF	CONTRACTUAL	OPTIONS		INTRINSIC
	PRICE	OPTIONS	LIFE (YEARS)	EXERCISABLE		VALUE
$	1.00 CDN	1,443,000	1.00	1,443,000	$	1,465,385
	1.15 CDN	78,750	1.33	78,750		86,626
	1.40 CDN	157,500	1.83	157,500		139,271
	2.41	660,000	2.33	660,000		466,274
	2.22	1,475,000	3.12	1,475,000		1,798,611
	1.78	95,000	3.48	95,000		81,172
	0.92	1,740,625	4.15	867,125		612,825
	1.58	80,000	4.17	40,000		15,550
$	1.49	5,729,875	2.77	4,816,375	$	4,665,714

A summary of the status of the Company’s nonvested stock options outstanding at March 31, 2009 and changes during the fiscal year ended March 31, 2010, and the nine months ended December 31, 2010 are presented as follows:

				Weighted		Weighted
				Average Grant		Average
	Number of			Date Fair Value		Grant Date
	Options			Per Share		Fair Value
Nonvested, March 31, 2009	800,000		$	2.19	$	1.20
Granted	1,875,000			0.95		0.70
Vested	(1,681,500	)		1.52		0.97
Forfeited	(80,000	)		2.34		0.90
Nonvested, March 31, 2010	913,500			0.95		0.69
Granted	-			-		-
Vested	(438,344	)		0.92		0.71
Forfeited	-			-		-
Nonvested, June 30, 2010	475,156			0.98		0.68
Granted	1,300,000			0.86		0.58
Vested	(345,000	)		0.90		0.57
Forfeited	-			-		-
Nonvested, September 30, 2010	1,430,156			0.89		0.61
Granted	-			-		-
Vested	(455,156	)		0.95		0.69
Forfeited	-			-		-
Nonvested, December 31, 2010	975,000		$	0.86	$	0.57

As of December 31, 2010, there was $608,113 of total unrecognized compensation cost related to nonvested share-based compensation arrangements granted under the Plan. That cost is expected to be recognized over a weighted-average period of 1.5 years. The total fair value of options vested at December 31, 2010 and 2009 was $706,272 and $1,294,432; respectively.

-27-

Restricted Common Shares

On September 10, 2010, the Company granted officers, directors and select employees 705,000 common shares that will be distributed in three 6 month vesting periods. After vesting, there are no restrictions on shares. The vesting schedule is as follows:

	Number of Shares
Vesting Dates	Vesting
March 11, 2011	235,000
September 10, 2011	235,000
March 11, 2012	235,000
	705,000

Stock Purchase Warrants

At December 31, 2010, the outstanding broker warrants and share purchase warrants consisted of the following:

			Broker
			Warrant	Share		Warrant
	Broker		Exercise	Purchase		Exercise
Expiration Date	Warrants		Price	Warrants		Price
August 17, 2011	243,000	$	1.22	4,050,000	$	1.75
September 16, 2015	246,285		1.25	4,104,757		1.25

NOTE 16 – FAIR VALUE MEASUREMENT

On April 1, 2008, the Company adopted the provisions related to its financial assets and liabilities measured at fair value on a recurring basis. Current U.S. generally accepted accounting principles establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement).

The three levels of the fair value hierarchy are as follows:

Level 1 – Quoted prices are available in active markets for identical assets or liabilities. Active markets are those in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reporting date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace.

Level 3 – Pricing inputs include significant inputs that are generally unobservable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Level 3 instruments include those that may be more structured or otherwise tailored to the Company’s needs.

-28-

Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of fair value assets and liabilities and their placement within the fair value hierarchy levels.

The following table discloses by level within the fair value hierarchy the Company’s assets and liabilities measured and reported on its Consolidated Balance Sheet as of December 31, 2010 at fair value on a recurring basis:

		Total		Level 1		Level 2		Level 3
Assets:
Money market accounts	$	4,999,381	$	4,999,381	$	-	$	-
Investment in equity securities		220,500		-		220,500		-
	$	5,219,881	$	4,999,381	$	220,500	$	-

As allowed by current financial reporting standards, the Company has elected not to implement fair value recognition and reporting for all non-financial assets and non-financial liabilities, except for those that are recognized or disclosed at fair value in the financial statements on a recurring basis, that is, at least annually.

NOTE 17 - RELATED PARTY TRANSACTIONS

At December 31, 2010 and March 31, 2010, the amounts of $4,869 and $1,897; respectively, are payable to directors and officers of the Company for reimbursement of travel expenses. These amounts are unsecured and due on demand.

The Company’s subsidiary Raft River Energy I, LLC (“RREI”) owed the Company $207,684 and $335,684 at December 31, 2010 and March 31, 2010; respectively, for operating and maintenance expenses. The receivable balance is comprised of unsecured demand obligations due within twelve months. The Company received the following revenues from RREI:

		Nine Months Ended December 31,
		2010		2009
Management fees	$	187,500	$	187,500
Land, water, and mineral rights lease		135,036		164,532
	$	322,536	$	352,032

The Company’s equity investment in RREI is adjusted monthly for our share of the profit and loss based on various revenue stream and cost allocations. Our share of the costs to RREI associated with the above noted management fees and lease and royalty revenues are deemed immaterial at this time, and related U.S. Geothermal, Inc.’s revenues and RREI costs have not been eliminated in the financial statements.

The Company paid directors fees in the amounts of $67,500 and $45,000 for the nine months ended December 31, 2010 and 2009; respectively.

-29-

NOTE 18 – DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The material difference in respect to these financial statements between U.S. GAAP and Canadian GAAP is reflected in the recording of Property, Plant and Equipment. Under Canadian GAAP, development and exploration costs associated with the Raft River project (property lease payments, geological consulting fees, well monitoring and permitting, etc.) were recorded as a capital asset. Under U.S. GAAP, these amounts are expensed.

As a result of the above, under Canadian GAAP the following line items in the consolidated balance sheets and income statements would have been presented as follows:

Consolidated BalanceSheets		U.S. GAAPDecember 31,2010		CanadianGAAPDecember 31,2010		U.S. GAAPMarch 31,2010		CanadianGAAPMarch 31,2010
Plant, Property and Equipment	$	34,321,660	$	34,762,271	$	16,550,006	$	16,990,617
Intangible Assets		17,026,591		17,026,591		16,642,515		16,642,515
Total Assets		76,857,733		77,298,344		65,727,861		66,168,472
Stockholders’ Equity		60,266,614		60,707,225		62,528,591		62,969,202
Total Liabilities and Stockholders’ Equity	$	76,857,733	$	77,298,345	$	65,727,861	$	66,168,472

Consolidated Statementsof Operations andComprehensive Loss		U.S. GAAPNine MonthsEndedDecember 31,2010			CanadianGAAPNine MonthsEndedDecember 31,2010			U.S. GAAPNine MonthsEndedDecember 31,2009			CanadianGAAPNine MonthsEndedDecember 31,2009
Loss from Operations	$	(3,339,458	)	$	(3,339,458	)	$	(2,990,628	)	$	(2,990,628	)
Net Loss Attributable to U.S. Geothermal Inc.	$	(3,266,716	)	$	(3,266,716	)	$	(2,926,493	)	$	(2,926,493	)

The Company’s consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles. Effective our fiscal year beginning April 1, 2011, the Company will provide an explanation of differences between U.S. GAAP and International Financial Reporting Standards (“IFRS”) in a footnote to the financial statements.

NOTE 19 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements

The Company has entered into several lease agreements with terms expiring up to December 1, 2034 for geothermal properties in Washoe County Nevada; Neal Hot Springs, Oregon; Guatemala City, Republic of Guatemala and adjoining the Raft River properties in Raft River, Idaho. The Company incurred total lease expenses for nine months ended December 31, 2010 and 2009 totaling $117,079 and $149,581; respectively.

BLM Lease Agreements

Idaho

On August 1, 2007, the Company signed a geothermal resources lease agreement with the United States Department of the Interior Bureau of Land Management (“BLM”). The contract requires an annual payment of $3,502 including processing fees. The primary term of the agreement is 10 years. After the primary term, the Company has the right to extend the contract. BLM has the right to terminate the contract upon written notice if the Company does not comply with the terms of the agreement.

-30-

San Emidio

The lease contracts are for approximately 21,905 acres of land and geothermal rights located in the San Emidio Desert, Nevada. The lease contracts have primary terms of 10 years. Per federal regulations applicable for the contracts, the lessee has the option to extend the primary lease term another 40 years if the BLM does not need the land for any other purpose and the lessee is maintaining production at commercial quantities. The leases require the lessee to conduct operations in a manner that minimizes adverse impacts to the environment.

Gerlach

The Gerlach Geothermal LLC assets are comprised of two BLM geothermal leases and one private lease totaling 3,615 acres. Both BLM leases have a royalty rate which is based upon 10% of the value of the resource at the wellhead. The amounts are calculated according to a formula established by Minerals Management Service (“MMS”). One of the two BLM leases has a second royalty commitment to a third party of 4% of gross revenue for power generation and 5% for direct use based on BTUs consumed at a set comparable price of $7.00 per million BTU of natural gas. The private lease has a 10 year primary term and would receive a royalty of 3% gross revenue for the first 10 years and 4% thereafter.

Granite Creek

The Company has three geothermal lease contracts with the BLM for the Granite Creek properties. The lease contracts are for approximately 5,414 acres of land and geothermal water rights located in North Western Nevada. The lease contracts have primary terms of 10 years. Per federal regulations applicable for the contracts, the lessee has the option to extend the primary lease term another 40 years if the BLM does not need the land for any other purpose and the lessee is maintaining production at commercial quantities. The leases state annual lease payments of $5,414, not including processing fees, and expire October 31, 2012.

Office Lease

The Company entered into a 3 year lease contract effective January 1, 2008 through January 31, 2011, for general office space for an executive office located in Boise, Idaho. The lease payments are due in monthly installments that start at $5,637 per month and increase annually to $5,981 per month. The Company incurred total office lease expenses for nine months ended December 31, 2010 and 2009 totaling $53,826 and $52,258; respectively.

A new one year lease contract was signed in January 2011 for the same location noted in the previous paragraph. The lease payments are due in installments of $6,160 per month. The contract includes two one year renew options available to the Company.

Total Lease Obligations

The following is the total contracted lease operating obligations (operating leases, BLM lease agreements and office lease) for the next five fiscal years:

Year Ending
December 31,		Amount
2011	$	154,124
2012		94,579
2013		66,642
2014		64,138
2015		57,099
Thereafter		74,192

-31-

Power Purchase Agreements

The Company has signed a power purchase agreement with Idaho Power Company for sale of power generated from its joint venture Raft River Energy I, LLC. The Company has also signed a transmission agreement with Bonneville Power Administration for transmission of the electricity from this plant to Idaho Power, and from the phase two plants to other purchasers. These agreements will govern the operational revenues for the initial phases of the Company’s operating activities.

The Company signed a power purchase agreement on March 12, 2008 with Eugene Water and Electric Board for the planned phase two power plant at Raft River, Idaho. The agreement allows for variable output up to a maximum of 16 megawatts with a term of 25 years. The agreement is subject to successful drilling and resource development.

As a part of the purchase of the assets from Empire Geothermal Power, LLC and Michael B. Stewart acquisition (“Empire Acquisition”), a power purchase agreement with Sierra Pacific Power Company was assigned to the Company. The contract has a stated expected output of 3,250 kilowatts maximum per hour and extends through 2017. All power produced will be purchased and there are no penalties for not meeting or exceeding expected output levels.

401(k) Plan

The Company offers a defined contribution plan qualified under section 401(k) of the Internal Revenue Code to all its eligible employees. All employees are eligible at the beginning of the quarter after completing 3 months of service. The plan requires the Company to match 25% of the employee’s contribution up to 6%. Employees may contribute up to the maximum allowed by the Internal Revenue Code.

Mineral Rights Option Agreement

On May 24, 2010, USG Oregon LLC (a subsidiary of the Company) entered into an option agreement that allows for exclusive purchase of all mineral rights associated with 2,110 acres of land located in Malheur County, Oregon. Per the terms of the agreement, the Company transferred $200,000 to the seller. To exercise the option agreement, the Company must pay an additional $200,000 prior to November 25, 2012. If the second payment is not made, the Company loses all rights associated with the agreement.

NOTE 20 – JOINT VENTURES

Raft River Energy I LLC

Raft River Energy I is a joint venture between the Company and Raft River I Holdings, LLC a subsidiary of Goldman Sachs Group, Inc. An Operating Agreement governs the rights and responsibilities of both parties. At fiscal year end, the Company had contributed approximately $17.9 million in cash and property, and Raft River I Holdings, LLC has contributed approximately $34 million in cash. Profits and losses are allocated to the members based upon hypothetical liquidation at book value method. For income tax purposes, Raft River I Holdings, LLC will receive a greater proportion of the share of losses and other income tax benefits. This includes the allocation of production tax credits, which will be distributed 99% to Raft River I Holdings, LLC and 1% to the Company during the first 10 years of production. During the initial years of operations Raft River I Holdings, LLC will receive a larger allocation of cash distributions. During the initial term of the agreement, the Company accounts for its investment in this LLC under the equity method as a voting interest entity.

Gerlach Geothermal LLC

On April 28, 2008, the Companyformed Gerlach Geothermal, LLC (“Gerlach”) with our partner,Gerlach Green Energy, LLC (“GGE”). The purpose of the joint venture is the exploration of the Gerlach geothermal system, which is located in northwestern Nevada, near the town of Gerlach. Based upon the terms of the members’ agreement, the Company owns a 60% interest and GGE owns a 40% interest in Gerlach Geothermal, LLC. The agreement gives GGE an option to maintain its 40% ownership interest as additional capital contributions are required. If GGE dilutes to below a 10% interest, their ownership position in the joint venture would be converted to a 10% net profits interest. The Company has contributed $746,000 in cash and $300,000 for a geothermal lease and mineral rights; and the GGE has contributed $697,000 of geothermal lease, mineral rights and exploration data.

-32-

The consolidated financial statements reflect 100% of the assets and liabilities of Gerlach, and report the current non-controlling interest of GGE. The full results of Gerlach’s operations will be reflected in the statement of operations with the elimination of the non-controlling interest identified.

Oregon USG Holdings LLC

In September 2010, Oregon USG Holdings LLC (wholly owned by U.S. Geothermal Inc.) signed an LLC Operating Agreement with Enbridge Inc. for the right to participate in the Company’s project in the Neal Hot Springs project located in Malheur County, Oregon. The agreement provided for the issuance of a $5 million promissory note, with a conversion option, from Enbridge to Oregon USG Holdings LLC to provide funding for the completion of the drilling and testing activities (see Note 11 for details). Upon completion of the independent reservoir engineer’s report at Neal Hot Springs, Enbridge’s promissory note shall be converted into a direct equity ownership in Oregon USG Holdings LLC. Enbridge will earn a 20% direct ownership from conversion of $5 million convertible note and making an additional payment of $13.8 million to Oregon USG Holdings LLC. In the event of cost overruns for the project and at our election, an additional payment obligation of up to $5 million may be contributed by Enbridge that would increase their direct ownership by 1.5 percentage points for each $1 million contributed. Added to their base 20% ownership, additional payments could increase Enbridge’s ownership to a maximum of 27.5% .

During the current quarter ended December 31, 2010, Enbridge contributed $1,000 for the right to acquire a 20% ownership interest in Oregon USG Holdings LLC subject to completing the additional payment obligations and conversion of the promissory note.

-33-

Item 2 - Management’s Discussion and Analysis of Financial Condition and Results ofOperations

INFORMATION REGARDING FORWARD LOOKING STATEMENTS

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve a number of risks and uncertainties. We caution readers that any forward-looking statement is not a guarantee of future performance and that actual results could differ materially from those contained in the forward-looking statement. These statements are based on current expectations of future events. You can find many of these statements by looking for words like “believes,” “expects,” “anticipates,” “intend,” “estimates,” “may,” “should,” “will,” “could,” “plan,” “predict,” “potential,” or similar expressions in this document or in documents incorporated by reference in this document. Examples of these forward-looking statements include, but are not limited to:

• our business and growth strategies;
• our future results of operations;
• anticipated trends in our business;
• the capacity and utilization of our geothermal resources;
• our ability to successfully and economically explore for and develop geothermal resources;
• our exploration and development prospects, projects and programs, including construction of new projects and expansion of existing projects;
• availability and costs of drilling rigs and field services;
• our liquidity and ability to finance our exploration and development activities;
• our working capital requirements and availability;
• our illustrative plant economics;
• market conditions in the geothermal energy industry; and
• the impact of environmental and other governmental regulation.

These forward-looking statements are based on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. If underlying assumptions prove inaccurate or unknown risks or uncertainties materialize, actual results may differ materially from current expectations and projections. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements:

• the failure to obtain sufficient capital resources to fund our operations;
• unsuccessful construction and expansion activities, including delays or cancellations;
• incorrect estimates of required capital expenditures;
• increases in the cost of drilling and completion, or other costs of production and operations;
• the enforceability of the power purchase agreements for our projects;
• impact of environmental and other governmental regulation, including delays in obtaining permits;
• hazardous and risky operations relating to the development of geothermal energy;
• our ability to successfully identify and integrate acquisitions;

-34-

• our dependence on key personnel;
• the potential for claims arising from geothermal plant operations;
• general competitive conditions within the geothermal energy industry; and
• financial market conditions.

All subsequent written or oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. We do not undertake any obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events, except as may be required under applicable U.S. securities law. If we do update one or more forward-looking statements, no inference should be drawn that we will make additional updates with respect to those or other forward-looking statements.

The U.S. dollar is the Company’s functional currency; however some transactions involved the Canadian dollar. All references to “dollars” or “$” are to United States dollars and all references to $ CDN are to Canadian dollars.

General Background and Discussion

The following discussion should be read in conjunction with our unaudited consolidated financial statements for the quarter ended December 31, 2010 and notes thereto included in this report.

U.S. Geothermal Inc. (“the Company”) is a Delaware corporation. The Company’s common stock trades on the Toronto Stock Exchange under the symbol “GTH” and on the NYSE Amex LLC under the trade symbol “HTM.”

For the quarter ended December 31, 2010, the Company was focused on:

1)	Conducting a long term flow test on the Neal Hot Springs reservoir;
2)	Starting construction of the San Emidio Unit 1 power plant in Nevada;
3)	negotiating final documents for the Department of Energy Loan Guarantee for the Neal Hot Springs project;.
5)	redrilling the Peregrine test well at the Gerlach Joint Venture;
6)	optimizing the operation of the San Emidio power plant in Nevada, and planning for a plant shut down to tie in the new, Unit 1 brine pipelines;
7)	optimizing the operation of the well field at the Raft River project in Idaho (“Raft River Unit I”; and
8)	the evaluation of potential new geothermal project acquisitions.

Project Overview

The following is a list of projects that are in operation, under development or under exploration. Projects in operation have producing geothermal power plants. Projects under development have at least a geothermal resource discovery or may have wells in place, but require the drilling of new or additional production and injection wells in order to supply enough geothermal fluid sufficient to operate a commercial power plant. Projects under exploration do not have a geothermal resource discovery occurrence yet, but have significant thermal and other physical evidence that warrants the expenditure of capital in search of the discovery of a geothermal resource. Due to inflation and marketplace increases in the costs of labor and construction materials, previous estimates of property development costs may be low.

-35-

Projects in Operation
Project	Location	Ownership	GeneratingCapacity(megawatts)(1)	Power Purchaser	ContractExpiration
Raft River (Unit I)	Idaho	JV(2)	13.0	Idaho Power Company	2032
San Emidio (Existing)	Nevada	100%	3.6	Sierra Pacific Power Corp.	2017

(1)	Based on the designed annual average net output. The actual output of the Raft River Unit I plant currently varies between 7.1 and 10.0 megawatts and output of the San Emidio plant is approximately 2.6 megawatts.
(2)	As part of the financing package for Unit I of the Raft River project, we have contributed $16.5 million in cash and approximately $1.5 million in property to Raft River Energy I LLC, the Unit I project joint venture company. Raft River I Holdings, LLC, a subsidiary of The Goldman Sachs Group, contributed $34 million to finance the construction of the project. Additional investment may be required for Unit I to operate at design capacity.
3)	The repower below includes repairs to operating power plants.

Projects Under Development
					Estimated
			Target	Projected	Capital
			Development	Commercial	Required	Anticipated
Project	Location	Ownership	(Megawatts)	Operation Date	($million)	Power Purchaser
San Emidio Phase I (8.6 MW Repower)	Nevada	100%	5.0	December 2011	$32	TBD
San Emidio Phase II (Expansion)	Nevada	100%	8.6	2nd Quarter 2013	$50	TBD
San Emidio Phase III	Nevada	100%	17.2	4thQuarter 2013	$100	TBD
Neal Hot Springs I	Oregon	100%	23	3rd Quarter 2012	$129	Idaho Power
Neal Hot Springs II	Oregon	100%	28	TBD	TBD	TBD
Raft River I (Repower)	Idaho	JV	3	TBD	$8	Idaho Power
Raft River (Unit II)	Idaho	100%	26	4thQuarter 2013	$134	Eugene Water and Electric Board
Raft River (Unit III)	Idaho	100%	32	2ndQuarter 2015	$166	TBD

Additional Properties
Project	Location	Ownership	Target Development (Megawatts)
Gerlach	Nevada	60%	To be determined
Granite Creek	Nevada	100%	To be determined
El Ceibillo	Guatemala, S.A.	100%	To be determined

Resource Details
			Resource
	Property Size	Temperature	Potential
Property	(square miles)	(°F)	(Megawatts)	Depth (Ft)	Technology
Raft River	10.8(1)	275-302 (2)	127.0(1)	4,500-6,000	Binary
San Emidio	35.8	289-305 (2)	68.0(4)	1,500-2,000	Binary
Neal Hot Springs	9.6	311-347 (3)	50.0(5)	2,500-3,000	Binary
Gerlach	5.6	338-352 (3)	18.0	TBD	Binary
Granite Creek	8.5	TBD	25.0(6)	TBD	Binary
El Ciebillo	38.6	410-446 (3)	TBD	TBD	Steam

(1)	A third party's assessment of 94 megawatts was based on 6.0 square miles. The Company acquired additional acreage. The resource estimate of 127.0 megawatts is an internal estimate.
(2)	Actual production temperatures for existing wells.
(3)	Probable reservoir temperature as measured with a geothermometer.
(4)	A third party estimate with respect to 49.0 megawatts, remainder is an internal estimate.
(5)	A third party resource estimate with respect to 23.0 megawatts, remainder is an internal estimate.
(6)	Internal estimate.

-36-

Raft River Update

Raft River Energy Unit I, located in southern Idaho, is a binary cycle geothermal power plant with 13 net megawatts of installed capacity. The power plant achieved commercial operation in January 2008.

Raft River Unit I operated at 99.3% availability and generated an average of 8.1 net megawatts during the third fiscal quarter. For the 2010 calendar year, the plant averaged 8.39 net megawatts of generation with 97.7% availability. The plant is operating at reduced output due to the continued loss of temperature from production well RRG-7 and the shutdown of production well RRG-2.

In early January 2009, production well RRG-7 underwent a temperature decline that has now reduced the inlet fluid temperature to the power plant by approximately 11.8 degrees Fahrenheit. Power generation has been reduced by an estimated 1.5 megawatt due to the lower temperature fluid. It was determined that the cement in a lap joint (an overlap of well casing) had failed and washed out thereby allowing lower temperature fluid to enter the wellbore. A mechanical packer was installed to reduce the cold water inflow, but was unsuccessful. A remediation program has been planned for a cost of $813,300 that will “squeeze” cement into the lap joint and plug off the cold water flow to return the well temperature and increase power plant generation.

Production well RRG-2 was shut down on June 10, 2010 due to a reduction in flow and increased motor load which indicates an impending pump failure. A repair program, which includes a well stimulation procedure, has been planned for a cost of $512,750.

The project does not generate sufficient revenue to complete the repairs out of cash flow so the repairs must be completed by additional capital investment by the partners. Until the repairs are completed, the plant output will continue at an estimated annual average of about 7.8 megawatts. Plans for repair of both RRG-7 and RRG-2 are under a continuing discussion with Raft River I Holdings, a wholly owned subsidiary of Goldman Sachs Group Inc and the majority joint venture partner for Raft River Unit I.

The $10.2 million DOE cost-shared thermal fracturing program continues on schedule. Eight solar powered seismic stations were installed in June and will be used to monitor potential impacts from the test. Construction is complete on the injection pipeline that extends from the Unit 1 power plant to well RRG-9. A detailed, 3-D magnetotelluric survey was completed during the3^rd fiscal quarter of 2010. It is now expected that a drill rig will be mobilized to set casing down to the geologic formation targeted for the thermal fracture test, and the first phase of cold water injection will commence during the 2^nd quarter of 2011.

Raft River Operating Agreement

We hold a 50% interest in Raft River Energy I LLC, which owns Raft River Unit I (“Unit I”). Construction of Unit I required substantial capital, and partnering with a co-venturer tax partner allowed us to share the risks of ownership and monetize valuable tax credits and benefits. The joint venture partner structure allowed the project to monetize production tax credits which would not otherwise have been available to us. When Unit I operates at full capacity of 13 megawatts, we estimate we will receive cash payments totaling approximately $1.6 million for the first four years of its operations. While Unit I generates at less than full capacity, our annual cash payments from the Raft River I project will be lower. If insufficient cash is generated to satisfy all joint venture obligations, the management fees will be deferred. See Note 5 “Investment in Subsidiaries” in the financial statements for detail of cash payments from RREI.

-37-

The Company’s interests in the RREI as defined in the partnership agreements are summarized as follows:

		Years 1 - 4	Years 5 - 10	Years 11 - 20	Years 20 - 25
Cash Flow	RECs	70% (1)
	GAAP Income	1%	(2)	49%	80%
	Lease Payments, O&M Services & Royalties	100%
	Distributions	Guaranteed min. payment	1% (3)	49%	80%
Tax Benefits		1% (2)		49%	80%

(1)	U.S. Geothermal allocates 70% of income and receives 70% of available cash from RECs sold to third- parties. After year 10, REC income is shared with Idaho Power Co. For additional details, see U.S. Geothermal’s Form 10-Q filed on August 10, 2009 (Exhibit 10.36).
(2)	Flip to next tier occurs after the later of 10 years or Raft River I Holdings’ target IRR is achieved.
(3)	Flip to next tier occurs after Raft River I Holdings’ target IRR is achieved.

Neal Hot Springs Update

Neal Hot Springs is a promising geothermal resource located in Eastern Oregon.

On February 26, 2009 U.S. Geothermal submitted an application for the Neal Hot Springs project to the DOE’s Energy Efficiency, Renewable Energy and Advanced Transmission and Distribution Solicitation loan guarantee program under Title XVII of the Energy Policy Act of 2005. The project was selected to proceed into the loan process and was offered a conditional commitment for the loan in June. Final documentation for the loan is being prepared. The DOE guaranteed loan is expected to provide up to 75% of the $129 million estimated capital cost of Stage I up to a maximum loan amount of $97 million. The total capital cost has increased to $129 million from prior estimates of $124 million due to costs of labor, updated vendor pricing and construction materials, project loan costs and contingencies.

Detailed design and construction of a binary cycle power plant utilizing significantly improved technology is currently in progress. The new plant, designed to deliver approximately 23 megawatt of power net to the grid is scheduled to begin commercial operations during the fourth calendar quarter of 2012. The DOE guaranteed loan is a combined construction and 22 year term loan, and it is anticipated that it will provide the project with a low annual fixed interest rate compared to existing commercial loan rates. We are required to drill sufficient production wells for the 23 MW net plant as a condition precedent to drawing on the project loan. Currently we have drilled four substantial production wells and we believe they are sufficient to meet the condition precedent.

A long term reservoir test was initiated on November 16, 2010 with two production wells flowing brine at an average of 1,800-2,000 gallons per minute. Two injection wells were operated in tandem with the production to dispose of the fluid and to provide additional reservoir data. The flowing portion of the test ran until December 20, 2010 when the production wells were shut in and injection was halted. For a following 30 days, temperature and pressure instruments were maintained in the wells until January 24, 2011 when they were pulled and data downloaded.

Geologic information, flow, temperature and pressure data from the production and T/G drilling programs and the long term reservoir test is being incorporated into the ongoing development of a numerical reservoir model of the Neal Hot Springs geothermal system. This reservoir model and subsequent reservoir certificate is a condition precedent to the loan.

In early September, a production drilling program commenced with well NHS-8, the third production well on the Neal Hot Springs project. The completion of NHS-8 at a depth of 3,604 feet was announced on October 13th. NHS-8 flowed under artesian pressure at a rate of 2,315 gallons per minute (“gpm”) with a temperature of 286.5° F (141° C). Subsequent to the end of the quarter, production well NHS-2 was drilled and completed to a depth of 2,983 feet. Well NHS-2 intersected the reservoir fracture system and flowed at 3,047 gpm under artesian pressure. Production wells NHS-8 and NHS-2 bring the total number of production wells to four.

-38-

These four wells may provide the total number of production wells needed for the 23 net megawatt project. Two existing production wells have previously been drilled and tested in 2008 and 2009. Well NHS-1 intersected the reservoir at 2,287 feet and flows under artesian pressure at a rate of 2,315 gpm with a production temperature of 286.5º F (141º C). Well NHS-5 encountered the reservoir at 2,796 feet and flows at a rate of 1,500 gpm with a production temperature of 286º F (141º C).

The temperature gradient (“TG”) drilling program, utilizing a small diameter drill hole, was concluded in June with eleven TG wells, ranging in depth from 500 to 1,060 feet, completed. The TG wells provide valuable temperature gradient data for the overall area that hosts the Neal Hot Springs reservoir. The drill used for the TG program was redirected to drill injection wells for the project. Injection well NHS-10 was completed to a depth of 2,465 feet and successfully tested. Initial injection test analyses indicate that the well will sustain approximately 1,100 gpm of fluid injection for the life of the project. A second injection well, NHS-13, was completed to a depth of 2,302 feet and is able to sustain approximately 625 gpm of injection. Equipment procurement and pipeline fabrication has been completed, and the 30-day reservoir test began in mid-November, 2010. The test is designed for continuous, multi-well production, injection, and monitoring to provide data across the well field that will be integrated into the numerical reservoir model of the Neal Hot Springs geothermal system.

The Company received the Conditional Use Permit from the Malheur County Planning Commission for construction of its proposed 23 net megawatt power plant at Neal Hot Springs in eastern Oregon. The Conditional Use Permit received unanimous approval at a September 24, 2009 Planning Commission meeting and was issued on October 28, 2009. All of the Federal Energy Regulatory Commission (“FERC”) mandated transmission studies have been completed by Idaho Power Company. An interconnection agreement was signed with the Idaho Power Company in February 2009. Private right-of-ways for the transmission line have been acquired, the line route is surveyed and the final engineering design is complete. Idaho Power Company is responsible for the construction of the transmission line with the cost paid for by the project. Construction will be authorized once funds are available from the DOE loan.

The PPA for the project was signed on December 11, 2009 with the Idaho Power Company. The PPA has a 25 year term with a starting price of $96 per megawatt-hour and escalates at a variable percentage annually. On May 20, 2010, the Idaho Public Utilities Commission approved the PPA with no changes to the terms and conditions.

San Emidio Update

The San Emidio geothermal power plant has been producing power since 1987 and sells electricity to Sierra Pacific Power Corporation under an existing power purchase agreement that extends through 2017. Deeper wells with higher temperatures were drilled in 1994 to supply the plant after output declined due to cooling of the original, shallow production wells. The current configuration of the plant consists of four 1.2 gross megawatt Ormat Energy Converters (“OEC”), five production wells (two wells in use and three on stand by), and four injection wells (three wells in use and one on standby). A cooling tower was added in 1998 to improve summer peak power generation. During the third fiscal quarter ended December 31, 2010, the San Emidio plant operated at 99.3% availability and generated an average of 2.7 net megawatts during the period.

The San Emidio development plan has been changed to conform to requirements of the DOE Section 1705 loan guarantee program and is now planned for execution in three phases. Phase I will be the Unit 1 repower of approximately 8.6 net annual average megawatts (5.0 new megawatts). Phase II is a second 8.6 megawatt Unit 2 being added in the second quarter of 2012. Phase III will be an expansion of two additional power plant units of approximately 17.2 megawatts. Phase I and Phase II were submitted with John Hancock as the lender to the DOE Section 1705 Loan Guarantee program. The application passed the Part A review, and John Hancock and DOE are currently involved in detailed due diligence on the project.

-39-

Phase I will utilize the existing production and injection wells with a new, more efficient power plant. The existing, historic power plant will be decommissioned when the Phase I plant comes on line. As shown in the Project Development table above, the Phase I repower is anticipated to cost approximately $32 million, with Phase II at approximately $50 million and Phase III approximately $100 million. We believe 75% of the Phase I and Phase II development may be funded by project loans backed by a Department of Energy loan guarantee, with the remainder funded through equity financing.

The Phase I repower began construction during the third calendar quarter of 2010, with commercial operations planned to occur in December 2011. Phase II began construction in the second calendar quarter of 2010 with commercial operations commencing in the first calendar quarter of 2013. The Company expects to be granted about $28 million in ITC cash grant in lieu of PTC in connection with approximately $82 million Phase I and Phase II megawatt development. The Phase I development will require an amendment to the existing Sierra Pacific Power Purchase Agreement, and Phase II will require a new PPA.

Subsequent to the end of the quarter, a draft amendment to the existing PPA was submitted to Sierra Pacific Power for review and comment. Negotiations are underway with several potential purchasers for the power from the Phase I and Phase II projects.

The Company entered into agreements with Science Applications International Corporation (“SAIC”) for a project loan and an engineering procurement and construction contract for the San Emidio Phase I power plant. SAIC’s design-build subsidiary, the Benham Companies LLC, will execute the construction of an 8.6 net megawatt power plant at San Emidio, Nevada. TAS Energy of Houston, Texas will supply a modular power plant to the project. The financing agreement calls for the contractor to provide a non-recourse project loan for the estimated $32 million dollar project. The construction loan is expected to be repaid with long term project loan.

Two System Feasibility Studies were initiated in July 2008 with Sierra Pacific Power Company to begin the FERC mandated transmission study process for the development of the San Emidio resource. The studies examined two levels of power generation; 15 megawatts and 45 megawatts, several transmission routes and the costs associated with each level of generation. The 15 megawatt study, which is directed toward the Phase I repower and Phase II, has completed the study process and resulted in an increase of available transmission to 16 megawatts. A Small Generator Interconnection Agreement for 16 megawatts of transmission capacity was executed with Sierra Pacific Power Company on December 28, 2010.

The 45 megawatt study, which is directed toward the full build out of San Emidio with the addition of the 17.2 megawatt Phase III project, completed the second phase System Impact Study in April. A draft Interconnection Facilities Study, the third and final study, was received on November 22, 2010 and we are awaiting the final study.

On October 30, 2009, the Company was awarded $3.77 million in Recovery Act funding for the exploration and development of its San Emidio geothermal power project using advanced geophysical exploration techniques. This award was categorized under the “Innovative Exploration and Drilling Projects” section of the American Recovery and Reinvestment Act. The project at San Emidio will apply innovative, seismic and satellite imagery techniques along with state-of-the-art structural modeling, to locate large aperture factures that represent high-productivity geothermal drilling targets.

-40-

Surface geologic mapping by the University of Nevada-Reno has been completed and structural analysis of the mapping is underway. State-of-the-art interpretation of satellite data that measures ground surface deformation has also been completed. Preliminary results show excellent correlation between surface deformation and known producing fractures, establishing this method as an effective tool for locating wells. Field work for a high-precision seismic refraction survey is complete. Data processing and interpretation is complete and has been integrated with the structural mapping. It is planned to have drilling targets indentified and submitted to DOE by March 31. Upon approval of targets by the DOE, funds will be made available for the drilling portion of the grant program. Drilling is expected to take place in 2011.

Guatemala

A geothermal energy rights concession located 14 kilometers southwest of Guatemala City was awarded to U.S. Geothermal Guatemala S.A., a wholly owned subsidiary of the Company in April. The concession contains 24,710 acres (100 square kilometers) in the center of the Aqua and Pacaya twin volcano complex.

The concession contains the El Ceibillo geothermal project which has nine existing geothermal wells that were drilled in the l990s and have depths ranging from 560 to 2,000 feet (170 to 610 meters). Six of the wells have measured reservoir temperatures in the range of 365°F to 400°F and have high conductive gradients that indicate rapidly increasing temperature with depth. Fluid samples and mineralization from the wells indicate the existence of a high permeability reservoir below the existing well field.

An office and staff are located in Guatemala City and planning is underway to advance the project with initial work focused on negotiating necessary surface and access rights, a power sales agreement with the local utility company, strategic investors, and potential project lenders. Follow on work will include a detailed geophysical program, geologic mapping, sampling of hot springs, and to redrill one or two of the existing wells to test for deep, high temperature permeability.

Gerlach Joint Venture

The Gerlach Joint Venture, located adjacent to the town of Gerlach in Washoe County, Nevada is made up of both private and BLM geothermal leases. The Peregrine well, a historic exploration slim hole that encountered a lost circulation zone at a depth of 975 feet, was redrilled and the hole was opened from a 6.5 inch diameter well to a 12.5 inch diameter well. Lost circulation was confirmed with three zones through the 900 to 1,024 foot interval. The well was stopped at 1,070 total depth. Temperature surveys and a short clean out flow test were conducted on the well.

A 2,000 foot deep temperature gradient well is permitted for the BLM lease site and is designed to test the deep temperature potential of the central portion of the interpreted reservoir block. A production target has been identified from previous drilling data at a depth of 2,700 to 3,000 feet.

Granite Creek

The Granite Creek assets are comprised of three BLM geothermal leases totaling approximately 5,414 acres (8.5 square miles) located about 6 miles north of Gerlach, Nevada along a geologic structure known to host geothermal features including the Great Boiling Spring and the Fly Ranch Geyser. A first stage gravity geophysical program was completed in the third quarter of 2008 and will be used to evaluate the resource potential, and help determine where to drill temperature-gradient exploration wells.

Operating Results

For the nine months ended December 31, 2010, the Company reported a net loss of $3.28 million dollars ($0.04 loss per share) which represented a 24.3% decrease over the same period in 2009. For the three months ended December 31, 2010, the Company reported a net loss of $826,934 ($0.01 loss per share) which represented a 40.9% decrease over the same period in 2009. Notable favorable variances were reported for the San Emidio operations, stock based compensation, and professional and management fees. Unfavorable variances were noted in travel and promotion costs.

-41-

San Emidio, Nevada Plant Energy Sales and Plant Operating Expenses

For the nine months ended December 31, 2010, the San Emidio plant reported a net loss of $181,186 ($983,273 net loss in 2009), which represented 81.6% decrease in operating loss from the same period in 2009. Energy sales for the nine months ended December 31, 2010, were $1,837,769, which was a 47.3% increase from the same period in 2009. Energy production for the quarter ended December 31, 2010 was at the highest level (15.1% increase from the same period in 2009) since the plant’s acquisition. Energy production revenues were down slightly from the quarter ended September 30, 2010, due to the lower rates paid in the current quarter. During the months from June through September, the Company is paid a higher percentage of the higher “on peak” rate. For the nine months ended December 31, 2010, energy production was 30.0% higher than in the same period in 2009. Production increases were due to improvements made in 2009, as well as less down time. For the nine months ended December 31, 2010, repair and maintenance costs were $360,368, which was 72.2% lower than in the same period in 2009. In 2009, significant repair costs were incurred to install a new gear box, rebuild a pump and to retube an OEC condenser.

Summarized statements of operations for the San Emidio, Nevada plant are as follows:

	Nine Months Ended December 31,
		2010				2009				Variance
		$		%*		$		%*		$		%**
Operating revenues:
Energy sales		1,837,769		96.8		1,247,880		97.9		589,889		47.3
Energy credit sales		61,128		3.2		26,470		2.1		34,658		130.9
		1,898,897		100.0		1,274,350		100.0		624,547		49.0
Operating expenses:
General and administrative		275,429		14.5		271,773		21.3		(3,656	)	(1.3	)
Salaries and related costs		541,195		28.5		615,829		48.3		74,634		12.1
Operations:
Repairs and maintenance		106,552		5.6		466,920		36.7		360,368		77.2
Other		256,861		13.5		166,773		13.1		(90,088	)	(54.0	)
Rent and lease		22,477		1.2		71,155		5.6		48,678		68.4
Purchased utilities		41,586		2.2		49,998		3.9		8,412		16.8
Depreciation and amortization		835,983		44.0		615,174		48.3		(220,809	)	(35.9	)
		2,080,083		109.5		2,257,622		177.2		177,539		7.9
Net Loss		(181,186	)	(9.5	)	(983,272	)	(77.2	)	802,086		(81.6	)

%*- represents the percentage of total operating revenues.
%**- represents the percentage of change from 2009 to 2010.

-42-

	Three Months Ended December 31,
	2010				2009				Variance
	$		%*		$		%*		$		%**
Operating revenues:
Energy sales	629,867		94.4		463,286		100.0		166,581		36.0
Energy credit sales	37,243		5.6		-		-		37,243		-
	667,110		100.0		463,286		100.0		203,824		44.0
Operating expenses:
General and administrative	148,184		22.2		111,069		24.0		(37,115	)	(33.4	)
Salaries and related costs	176,910		26.5		227,022		49.0		50,112		22.1
Operations:
Repairs and maintenance	28,447		4.3		151,176		32.6		122,730		81.2
Other	90,877		13.6		45,941		9.9		(44,936	)	(97.8	)
Rent and lease	9,444		1.4		53,405		11.5		43,961		82.3
Purchased utilities	18,456		2.8		15,610		3.4		(2,846	)	(18.2	)
Depreciation and amortization	298,948		44.8		207,136		44.7		(91,812	)	(44.3	)
	771,265		115.6		811,359		(175.1	)	40,094		4.9
Net Loss	(104,154	)	(15.6	)	(348,073	)	(75.1	)	243,918		70.1

%*- represents the percentage of total operating revenues.
%**- represents the percentage of change from 2009 to 2010.

Key quarterly production data is summarized as follows:

			Ave. Rate			Depreciation
	Kilowatt	Energy	per			&
	Hours x	Sales	Kilowatt-	Net Loss		Amortization
Quarter Ended:	1,000	($)	Hour ($)	($)		($)
September 30, 2008	5,650	529,383	0.0937	(185,838	)	195,046
December 31, 2008	4,097	317,256	0.0774	(146,859	)	196,941
March 31, 2009	3,808	296,577	0.0779	(267,114	)	201,711
June 30, 2009	2,851	243,752	0.0855	(589,082	)	200,972
September 30, 2009	5,224	540,841	0.1035	(46,118	)	207,066
December 31, 2009	4,689	463,286	0.0988	(348,073	)	207,136
March 31, 2010	5,018	496,104	0.0989	(163,597	)	207,191
June 30, 2010	5,449	571,646	0.1049	(76,625	)	238,087
September 30, 2010	5,260	636,992	0.1210	(405	)	298,948
December 31, 2010	5,938	629,867	0.1061	(104,155	)	298,948

Gain on Investment in Subsidiary (Raft River Energy I, LLC)

The Company uses the hypothetical liquidation at book value method (“HLBV”) for allocating of Raft River Energy I, LLC’s (“RREI”) profits and losses. This method utilizes the specific terms outlined in the RREI’s operating agreement and other authoritative documents. These terms include cash disbursement terms, associated financial instruments, debt arrangements, and rights to specific revenue streams. The primary element of the profit and loss allocation from inception has been the amount of renewable energy credits earned.

Under the current conditions and terms of the agreement, energy credit sales are the primary factor in the Company’s profit and loss allocation formula. The Company’s gain from RREI of $222,018 for the nine

-43-

months ended December 31, 2010, was consistent with the same period in 2009. This was primarily due to similar production levels which drive the energy credit earnings. The net loss for the nine months ended December 31, 2010, decreased $1,244,829 (63.3%) from the same period in 2009. The $1,965,997 loss for the nine months ended December 31, 2009 was a direct result of both planned and unplanned maintenance and repairs that lead to lower revenues and increased repair costs. The entire plant was shut down for planned maintenance from April 1, 2009 to April 13, 2009 (5 day maintenance shut down in 2010). Repair costs on a production pump exceeded $500,000. The plant production continues to remain relatively low due to the lap joint failure and other issues that reduce the volume of water provided to the plant. In the quarter ended December 31, 2010, production was 17,877,880 kilowatt hours, which was 8.8% lower than production levels in the same period in 2009. In addition to the lap joint failure, production well RRG-2 was shut down on June 10, 2010 due to a reduction in flow and increased motor load which indicates an impending pump failure. A repair program, which includes a well stimulation procedure, has been planned for a cost of $512,750. Remediation plans have been formulated to address noted issues.

The summarized statements of operations for RREI are as follows:

	Nine Months Ended December 31,
		2010				2009				Variance
		$		%*		$		%*		$		%**
Operating revenues:
Energy sales		2,961,000		89.9		3,084,611		89.3		(123,611	)	(4.0	)
Energy credit sales		332,217		10.1		369,305		10.7		(37,088	)	(10.0	)
		3,293,217		100.0		3,453,916		100.0		(160,699	)	(4.7	)
Operating expenses:
Operations		2,478,994		75.3		3,887,778		112.6		1,408,784		36.2
Depreciation and amortization		1,535,487		46.6		1,538,072		44.5		2,585		0.2
		4,014,481		121.9		5,425,850		157.1		1,411,369		26.0
Operating Loss		(721,264	)	(21.9	)	(1,971,934	)	(57.1	)	1,250,670		63.4
Other income		96		0.0		5,937		0.3		(5,841	)	(98.4	)
Net Loss		(721,268	)	(21.9	)	(1,965,997	)	(56.8	)	1,244,829		63.3
U.S. Geothermal Inc.’s Allocation of Net Loss		222,018				234,124				(12,106	)	(0.5	)

%*- represents the percentage of total operating revenues.
%**- represents the percentage of change from 2009 to 2010.

-44-

	Three Months Ended December 31,
		2010				2009			Variance
		$		%*		$	%*		$		%**
Operating revenues:
Energy sales		1,135,062		90.9		1,218,372	90.1		(83,310	)	(6.8	)
Energy credit sales		113,090		9.1		133,644	9.9		(20,544	)	(15.4	)
		1,248,152		100.0		1,352,016	100.0		(103,864	)	(7.7	)
Operating expenses:
Operations		750,578		60.1		758,818	56.1		8,240		1.1
Depreciation and amortization		511,505		41.0		516,615	38.2		5,110		1.0
		1,262,083		101.1		1,275,433	94.3		13,350		1.0
Operating Loss		(13,931	)	(1.1	)	76,583	(5.7	)	(90,514	)	(118.2	)
Other income		-		-		101	0.0		(101	)	(100.0	)
Net Loss		(13,931	)	(1.1	)	76,684	(5.7	)	(90,615	)	(118.2	)
U.S. Geothermal Inc.’s Allocation of Net Loss		77,893				92,981			(15,088	)	(16.2	)

%*- represents the percentage of total operating revenues.
%**- represents the percentage of change from 2009 to 2010.

Key quarterly production data is summarized as follows:

	Kilo-		Renewable	Net Income (Loss)
	watt	Energy	Energy			USG’s
	Hours x	Sales	Credit Sales	Totals		Portion
Quarter Ended:	1,000	($)	($)	($)		($)
June 27, 2008	22,125	1,127,069	142,979	(119,141	)	97,463
September 26, 2008	21,153	1,408,357	154,018	(319,558	)	103,077
December 26, 2008	24,342	1,625,010	168,350	426,339		120,425
March 27, 2009	22,927	1,355,582	158,606	(14,170	)	109,296
June 30, 2009	15,479	848,176	109,873	(1,592,374	)	58,831
September. 30, 2009	17,940	1,253,724	125,788	(450,307	)	82,312
December 31, 2009	19,602	1,352,016	133,644	76,634		92,981
March 31, 2010	20,252	1,158,710	131,621	(102,333	)	89,805
June 30, 2010	17,599	806,439	114,394	(584,204	)	73,089
September 30, 2010	16,116	1,019,499	104,733	(123,032	)	71,035
December 31, 2010	17,878	1,173,232	113,090	(13,931	)	77,893

Professional and Management Fees

For the three months ended December 31, 2010, the Company incurred professional and management fees of $196,336, which was a decrease of $223,449 (53.2%) from the same period in 2009. In the three months ended December 31, 2009, the Company incurred legal costs that exceeded $127,500 for services primarily related to an SEC comment letter and a PIPE offering. In that same period, costs that exceeded $45,000 were incurred for accounting and consulting services related to the SEC comment letter and tax return preparation. The decrease in the current quarter largely offsets the higher levels of costs reported in the first quarter of 2010, related to legal and other professional fees needed to investigate the implications of potential business alternatives. For the nine months ended December 31, 2010, the Company incurred professional and management fees of $935,442, which was a decrease of $117,349 (11.1%) from the same period in 2009.

-45-

Salaries and Wages

For the nine months ended December 31, 2010, the Company reported $907,305 in salaries and related costs, which was consistent with the same period in 2009. The addition of two management and development employees and a general wage increase in the 2010 was partially offset by a higher percentage of salaries and related costs that were allocated to capital projects. Allocations have been made for the Neal Hot Springs project for engineering, design, permitting and project management efforts needed for well drilling and reservoir evaluation. At San Emidio, salary cost allocations have been made for efforts primarily related to the transmission line studies, the new power plant design, and on site construction for Phase I of the project.

Management and development employee salaries and related costs allocated to major U.S. Geothermal projects are summarized as follows:

	For the Nine Months Ended December 31,
	2010	2009	Variance
Company/Project	$	$	$	%
USG Nevada LLC (San Emidio Phase I Project)	256,762	64,493	192,269	298.1
USG Oregon LLC (Neal Hot Springs Project)	461,816	273,358	188,458	68.9
	718,578	337,851	380,727	112.7

%- represents the percentage of change from 2009 to 2010.

Stock Based Compensation

For the nine months ended December 31, 2010, the Company reported $874,297 in stock based compensation, which was a decrease of $420,135 (32.5%) from the same period in 2009. The variance was primarily due to the two factors of the delay in the issuance of the 2010 stock options and a lower average common share price. In prior years, the annual stock option grants were awarded in the first fiscal quarter of the year. In the current fiscal year, the option grant was made on September 10, 2010, which resulted in a decrease of approximately $238,000 in stock based compensation recognized in the nine months ended December 31, 2010 from the same period in 2009. For the nine months ended December 31, 2010, there was a decrease in average stock price by approximately 8.0% from the same period in 2009, which resulted in approximately $115,000 decrease reported stock compensation.

Travel and Promotional Costs

For the nine months ended December 31, 2010, the Company reported $313,653 in travel and promotional costs, which was an increase of $100,798 (47.4%) from the same period in 2009. In the third quarter ended December 31, 2010, travel and promotional costs increased $10,806 (13.1% increase) from the same period in 2009. The increases were primarily related to costs associated with two road shows in Europe and financial show sponsorships. Travel and sponsorship fees for two road shows in Europe amounted to over $78,000 for the nine months ended December 31, 2010 (approximately $49,900 in the quarter ended September 30, 2010). For the nine months ended December 31, 2010, sponsorship fees for two financial shows amounted to $38,221, which was an increase of $33,734 from the same period in 2009.

-46-

Off Balance Sheet Arrangements

As of December 31, 2010, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

We believe our cash and liquid investments at December 31, 2010 are adequate to fund our general operating activities through December 31, 2011 including limited drilling at Neal Hot Springs and general development support activities at San Emidio. Additional funding will be needed to finance the expansion of production volumes at Raft River and the development of the San Emidio, Nevada and Neal Hot Springs, Oregon projects. In addition to government loans and grants discussed below, we anticipate that the additional funding may be raised through the issuance of equity and/or through the sale of ownership interest in tax credits and benefits.

The current financial credit crisis is not anticipated to impact the ability of our customers, Idaho Power Company and Sierra Pacific Power, to pay for their power. This power is sold under long-term contracts at fixed prices to large utilities. Projections for 2011 indicate that both projects, Raft River and San Emidio, will generate positive cash flows to the Company. However, the current status of the credit and equity markets could delay our project development activities while the Company seeks to obtain economic credit terms or a favorable equity market price to further the drilling and construction activities. The Company continues discussions with potential investors to evaluate alternatives for funding at the corporate and project levels. We are also pursuing available DOE loans and guarantees in order to reduce interest costs for any debt instruments the Company may require. At the current market price for the Company’s stock, we anticipate that additional funding of approximately $1 million will result from the exercise of current stock options or warrants in the near future.

In September 2010, USG Oregon LLC (a wholly owned subsidiary) entered into agreements with Enbridge (U.S.) Inc. that formed a strategic and financial partnership to finance the Neal Hot Springs project located in eastern Oregon. A component of these agreements included a $5 million convertible promissory note. Upon conversion, the note shall be considered to be an equity contribution to the Company’s subsidiary. The conversion occurs automatically upon the closing of the Department of Energy (“DOE”) guaranteed project loan. The agreements also allow for additional equity contributions of $13.8 million from Enbridge that will earn them a 20% direct ownership in the subsidiary. In the event of cost overruns for the project, an additional payment obligation of up to $5 million would be contributed by Enbridge that would increase their direct ownership by 1.5 percentage points for each $1 million contributed. Added to their base 20% ownership, additional payments could increase Enbridge’s ownership to a maximum of 27.5% .

In August 2010, USG Nevada LLC (a wholly owned subsidiary) entered into agreements with Benham Companies, LLC (subsidiary of Science Applications International Corporation) for a project loan. The project loan is expected to provide substantially all of the funding needed to construct an 8.6 net megawatt power plant for Phase I of the San Emidio project in northwest Nevada. Construction costs are estimated to be approximately $27 million and expected to be completed in September 2011. The construction loan is expected to be repaid with long term financing from available sources such as the Section 1705 loan guarantee program from the U.S. Department of Energy.

As conditionally approved in May 2010, a DOE guaranteed loan is expected to provide 75% of the estimated capital cost of Stage I at Neal Hot Springs up to a maximum loan amount of $102.2 million. The capital cost has increased to $120 million from prior estimates of $106 million due to increases in the costs of labor, updated vendor pricing on construction materials, project loan costs and contingencies. Detailed design of a binary cycle power plant utilizing significantly improved technology is currently in progress with construction expected to begin in mid to late 2010. The new plant, designed to deliver approximately 22 MW of power net to the grid is scheduled to begin commercial operations in early 2012. The DOE guaranteed loan is anticipated to be a combined construction and term loan and provide the project with a low cost annual interest rate. We expect that we will be required to drill up to 8 additional wells as a condition precedent to drawing on the DOE guaranteed loan, if it is approved.

-47-

On March 16, 2010, the Company closed a private placement of securities issued pursuant to a securities purchase agreement (the "Purchase Agreement") entered into with several institutional investors, pursuant to which the Company issued 8,209,519 shares of common stock at a price of $1.05 per share for gross proceeds of approximately $8.6 million (the "Private Placement"). Pursuant to the terms of the Private Placement, each investor was also issued a common share purchase warrant (a "Warrant") exercisable for 50% of the number of shares of common stock purchased by the investor. The Company paid commissions to agents in connection with the Private Placement in the amount of approximately $516,000 and issued warrants to purchase up to 246,285 shares of common stock. The net proceeds of the offering (approximately $8.0 million) will be used by the Company to further develop its Neal Hot Springs geothermal project and for general working capital purposes.

On October 30, 2009, the Company was awarded $3.77 million in Recovery Act funding for the exploration and development of its San Emidio geothermal power project using advanced geophysical exploration techniques. This award was categorized under the “Innovative Exploration and Drilling Projects” section of the American Recovery and Reinvestment Act. The project at San Emidio will apply innovative, seismic and satellite imagery techniques along with state-of-the-art structural modeling, to locate large aperture fractures that represent high-productivity geothermal drilling targets.

On August 17, 2009, the Company completed a private placement of 8,100,000 Subscription Receipts (“Receipt”) at $1.35 CDN per Receipt for aggregate gross proceeds of CDN $10,935,000. Each Receipt was exchanged on December 17, 2009 for one share of common stock of the Company and one half of one common stock purchase warrant (a "Warrant"). Each Warrant entitles the holder thereof to acquire one additional share of common stock of the Company for $1.75 for 24 months from closing. The placement agents have been paid an aggregate cash fee of CDN $656,100, representing 6% of the aggregate gross proceeds of the offering, and have been issued compensation options, exercisable for 24 months, entitling the placement agents to purchase up to 243,000 shares of common stock of the Company at $1.22. The proceeds provided funds to drill production size wells at Neal Hot Springs to increase production capacity to 22 MW and allow a 30-day flow test to verify the well reservoir capacity. Completion of drilling is a condition precedent to the funding from the DOE loan program, if our application is approved.

Potential Acquisitions

The Company intends to continue its growth through the acquisition of ownership or leasehold interests in properties and/or property rights that it believes will add to the value of the Company’s geothermal resources, and through possible mergers with or acquisitions of operating power plants and geothermal or other renewable energy properties.

Critical Accounting Policies

The discussion and analysis of our financial condition and results of operations are based upon the consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been made. We evaluate our estimates and assumptions on a regular basis. We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for the financial statements.

-48-

See Management’s Discussion and Analysis and the financial statements and related footnotes included in our Annual Report on Form 10-K for the year ended March 31, 2010, as amended, for a description of our critical accounting policies.

-49-

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

Interest Risk on Investments

At December 31, 2010, the Company held investments of $4,999,381 in money market accounts. These are highly liquid investments that are subject to risks associated with changes in interest rates. The money market funds are invested in governmental obligations with minimal fluctuations in interest rates and fixed terms.

Foreign Currency Risk

The Company is subject to a limited amount of foreign currency risks associated with cash deposits maintained in Canadian currency. The Company has utilized and it is continuing to utilize the Canadian markets for raising capital. By proper timing of the transactions and then maintenance of adequate operating funds in other financial resources, the Company has been able to mitigate some of the risks surrounding foreign currency exchanges. At quarterly period ended December 31, 2010, the Company held deposits that amounted to less than $10,000 in U.S. dollar equivalents. As a matter of standard operating practice, the Company does not maintain large balances of Canadian currency; and substantially all operating transactions are conducted in U.S. dollars.

Prior to April 1, 2007, the strike price for the Company’s stock option plan had been stated in Canadian dollars as the plan had been administered through our Vancouver office and Pacific Corporate Trust Company. This subjected the Company to foreign currency risk in addition to the normal market risks associated with the stock price fluctuations. A long-term liability has been established to reflect the fair value of the stock options payable. The strike price on subsequent option grants is stated in U.S. dollars.

Commodity Price Risk

The Company is exposed to risks surrounding the volatility of energy prices. These risks are impacted by various circumstances surrounding the energy production from natural gas, nuclear, hydro, solar, coal and oil. The Company has been able to mitigate, to a certain extent, this risk by signing a power purchase contract for a 25 year period for the first power plant scheduled to go into production. This type of arrangement will be the model for power purchase contracts planned for future power plants.

Item 4 - Controls and Procedures

An evaluation was performed under the supervision and with the participation of our management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, our management, including the CEO and CFO, concluded that our disclosure controls and procedures were effective at the end of this period covered by this report to ensure that information we are required to disclose in the reports that we file or submit under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms relating to us, including our consolidated subsidiaries, and was accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There has been no change to our internal control over financial reporting during the quarter ended December 31, 2010 that has materially affected, or is likely to materially affect, our internal control over financial reporting.

-50-

PART II- OTHER INFORMATION

Item 1 - Legal Proceedings

None.

Item 1A - Risk Factors

See “Risk Factors” in our annual report on Form 10-K for the year ended March 31, 2010 and in our quarterly report on Form 10-Q for the quarter ended September 30, 2010. There have been no material changes in the risk factors during the quarter ended December 31, 2010.

Item 2 - Unregistered Sales Of Equity Securities And Use Of Proceeds

None.

Item 3 – Defaults Upon Senior Securities

None.

Item 4 – [Removed and Reserved]

Item 5 - Other Information

None.

Item 6 - Exhibits

See the exhibit index to this quarterly report on Form 10-Q.

-51-

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.

	U.S. GEOTHERMAL INC.
	(Registrant)
Date: February 9, 2011	By:/s/ Daniel J. Kunz.
	Daniel J. Kunz
	President, Chief Executive Officer and Director
Date: February 9, 2011
	By:/s/ Kerry D. Hawkley.
	Kerry D. Hawkley
	Chief Financial Officer and Corporate Secretary

-52-

EXHIBIT LIST

Exhibit	Description
Number
3.1	Second Amended and Restated Bylaws of U.S. Geothermal Inc. (Incorporated by reference to exhibit 99.1 to the registrant’s Form 8-K as filed on October 18, 2010)
10.1	Amended and Restated Change in Control Guaranty made and entered into as of October 13, 2010, by U.S. Geothermal Inc., in favor of Benham Constructors, LLC (Incorporated by reference to exhibit 99.2 to the registrant’s Form 8-K as filed on November 8, 2010)
31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

-53-