With the exception of historical facts, the statements contained in this report are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, which reflect our current expectations and beliefs regarding our future results of operations, performance and achievements. These statements are subject to risks and uncertainties and are based upon assumptions and beliefs that may or may not materialize. Forward-looking statements may be identified by words such as "may", "should", "anticipates", "expects", "believes", "plans", "predicts" and similar terms. These forward-looking statements include, but are not limited to, statements concerning our strategy, operating forecasts, and our working capital requirements and availability. Forward-looking statements are not guarantees of future performance, and are subject to various risks and uncertainties that could cause our actual results and outcomes to differ materially from those discussed or anticipated, including the factors set forth in the section entitled "Risk Factors" included in our Annual Report on Form 10-K for the year ended March 31, 2008 and our other filings with the Securities and Exchange Commission. We also wish to advise readers not to place any undue reliance on the forward-looking statements contained in this report, which reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances or any changes in our beliefs or expectations, other than as required by law.

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 audited consolidated financial statements for the year ended March 31, 2008 and notes thereto included in this report.

U.S. Geothermal Inc. ("the Company") is a Delaware corporation. The Company's common shares began trading on the Toronto Stock Exchange ("TSX") on October 1, 2007 and ceased trading on the TSX Venture Exchange on September 28, 2007. Our Company's common shares trading symbol has been and continues to be "GTH" in Canada. From June 3, 2005 to April 15, 2008, the common stock of U.S. Geothermal Inc. was quoted on the Over-The-Counter Bulletin Board under the trading symbol "UGTH". Effective April 14, 2008, the common stock of U.S. Geothermal Inc. began trading on the NYSE Alternext US, LLC ("NYSE") under the trade symbol "HTM."

During the quarter ended December 31, 2008, the Company was focused on:

1) operation of the Unit I power plant at the Raft River, Idaho geothermal project ("Raft River Unit I");

2) evaluating flow test results from exploration well NHS-1, and planning drilling and field development drilled at Neal Hot Springs in Oregon;

3) integration and operation of the newly acquired San Emidio (formerly Empire) power plant in Nevada, and planning for repowering the existing plant;

4) acquisition of permits for exploration drill holes and drilling the first new exploration well at the San Emidio Project; and

5) the evaluation of potential new geothermal project acquisitions.

With carbon regulation widely anticipated to increase the cost of power sourced from coal, and limited opportunities to purchase baseload geothermal power, the Company has found that utilities across the Western United States have been eager to discuss power purchases from the Raft River geothermal resource. As a result of the increased interest, the Company elected to withdraw its Unit II and Unit III Idaho Power PPAs without submitting them to the Idaho Public Utility Commission ("IPUC") for approval in order to pursue larger capacity PPAs with other utilities. With the concurrence of Idaho Power, the Unit II and Unit III 10 megawatt contracts were voided without further obligation on either party.

Raft River Unit I operated through the period at over 99 percent availability and generated 9.9 to 11.6 net megawatts during the three month period. A reverse osmosis ("RO") water filter was installed in December to improve the quality of the water being used in the cooling tower and power plant condensers. The RO filter is expected to significantly reduce chloride levels and operating costs for chemical consumption in the cooling tower.

Subsequent to the end of the quarter, in early January 2009, production well RRG-7 underwent a temperature decline that has reduced the inlet fluid temperature to the power plant by approximately 4 degrees fahrenheit. At the same time of the temperature change, fluid flow increased. Power generation has been impacted by 200 t0 300 kilowatts. The well is being studied and will be inspected during a scheduled plant outage scheduled for late early spring of this year.

At our Neal Hot Springs project, an infill geophysical program was carried out to increase the density of data to highlight suspected geologic targets and structures. Applications for four additional exploration wells to further delineate the geothermal resource with production and injection targets have been made to the state of Oregon and are pending approval. All of the Federal Energy Regulatory Commission ("FERC") mandated transmission studies have been completed by the Idaho Power Company. An interconnection agreement is being negotiated and it is expected that it will be signed in the first quarter of 2009.

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 megawatt Ormat Energy Converters, 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.

Power sales from the San Emidio plant for 2008 averaged 2.3 megawatts. The plant underwent a planned, 6 day maintenance shut down in November to address a number of maintenance issues, including a major cleaning of the cooling tower and cooling tower basin, aligning turbines and gear boxes on OECs and cooling tower, repairing leaking condenser tubes and replace turbine seals. The San Emidio equipment is outdated and has low efficiency compared to current power plant technology.

The Company drilled a new exploration well, SE-2, approximately 3,500 feet north of the existing production wells. Well SE-2 was drilled to a depth of 3,200 feet and intersected one of the range front faults, but did not encounter commercial levels of permeability. The drilling of a second, deviated leg out of the SE-2 wellbore to target another potential production zone is being considered once drilling operations continue. Drilling operations were suspended in response to the deterioration of the capital markets.

A System Feasibility Study was initiated with Sierra Pacific Power Corporation to begin the FERC mandated transmission study process. The study will examine several transmission routes and study the cost of upgrading the existing transmission line.

In October 2008, Congress extended the federal production tax credit ("PTC") for renewable energy power plants for all projects initiating commercial production prior to December 31, 2010. The PTC enhances the annual revenues of the projects by about 25 percent per year for the first 10 years.

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.

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 allowed us to share the risks of ownership. The joint venture has also allowed the project to take advantage of 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 operates at less than full capacity, our annual cash payments from the Raft River I project will be lower.

Projects in Operation
                                         Generating                       Contract
             Project  Location Ownership Capacity (MW)(1) Power Purchaser Expiration
                                                          Idaho Power
Raft River (Unit I)   Idaho        JV(2) 13.0             Company         2032
San Emidio                                                Sierra Pacific
(Existing)            Nevada        100% 3.6              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 9.9 and 11.7 megawatts and output of the Empire plant is approximately 3.1 megawatts.

(2) As part of the financing package for Unit I of the Raft River project, we have contributed $13 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.

Projects Under Development
                                          Target       Projected
                                          Development  Commercial        Anticipated
       Project  Location     Ownership    (MW)         Operation Date(2) Power
                                                                         Purchaser
San Emidio      Nevada       100          27           4th Quarter 2010  To be
(Replacement)                                                            determined
Neal Hot        Oregon       100          26           3rd Quarter 2011  Idaho Power
Springs
                                                                         Eugene Water
Raft River      Idaho        JV           13           2012/2013         and Electric
(Unit II)                                                                Board

Additional Properties
Project               Location Ownership Target Development (MW)
Gerlach               Nevada   60%       To be determined
Granite Creek         Nevada   100%      To be determined



Resource Details
                                            Resource

(1) The resource assessment is based on 6.0 square miles. The remaining acreage was acquired subsequent to the GeothermEx report.

(2) Actual production temperatures for existing wells.

(3) Probable reservoir temperature as measured by Teplow and MWH Geo-Surveys Inc with a geothermometer.

Operating Results

For the nine months ended December 31, 2008, the Company reported a net loss of $4.4 million dollars ($0.07 loss per share) which represented an increase of a $2.1 million dollar net loss as compared to the same period in 2007. Notable variances were incurred in corporate administration and development costs, and salary costs. Favorable trends were reported for the Company's interest in its primary subsidiary Raft River Energy I, LLC. The Company continues to improve the operations of the San Emidio plant that contributed to the overall net loss for the current period.

Corporate Administrative and Development Costs

For the nine months ended December 31, 2008, corporate and administrative costs increased $303,147 (150.9%) compared to the same period in 2007. The increase was primarily due to increased or new costs incurred for stock exchange filing fees for the NYSE, the Annual General Meeting and lease costs. These costs decreased from the quarter ended September 30, 2008.

Salary costs

For the nine months ended December 31, 2008, the salary costs increased $648,953 (262.5%) as compared to the same period in 2007. There have not been notable changes in the number of management and development employees or the pay scales. In 2007, the Company's primary subsidiary was in a development stage, and directly involved efforts from management and development employees. Accordingly, their salaries and related costs were allocated to the subsidiary. After the subsidiary became operational in 2008, the amount of salary costs from management and development employees were significantly reduced at the subsidiary level and now are carried at the corporate level. Currently, these employees are primarily engaged in exploration and development activities which are, generally, expensed in the period incurred.

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

The quarter ended December 26, 2008, was the first quarter that RREI reported a profit since it became commercially operational January 3, 2008. The Company's portion of the net operating income for the quarter was $146,900, which reduced the net losses from the first two quarters to $3,295 for the three quarters ended December 26, 2008. The year ended November 28, 2008, was the first full operational year for the RREI power plant. The operating loss experienced in the first year of commercial operation reflects the adverse effect of reduced power generation due to plant startup in winter conditions, completion of construction punch list activities and the resulting higher labor costs, and increased chemical treatment costs for the reduction of elevated chloride in the cooling water circuit that were higher than anticipated. In addition, the mechanical failure of the pump in production well RRG-2 caused several weeks of reduced power generation and the associated lost revenues. Also, increased costs were incurred related to the installation of a reverse osmosis unit for cooling water filtration. RREI reported net income of $426,339 for the three months ended December 26, 2008. Management expects this favorable trend to continue in 2009.

San Emido, Nevada Plant Energy Sales and Plant Operating Expenses

In the quarter ended June 30, 2008, the Company purchased a geothermal plant and geothermal water rights located in North Western Nevada. Energy sales and the related plant operating expenses began when the Company took over plant operations effective May 1, 2008. Significant repair and maintenance costs were incurred during the first months immediately following acquisition. For the first two months of operations, the plant's net loss was $215,769. The plant's net losses were $185,838 and $146,266 for the quarters ended September 31, 2008 and December 31, 2008; respectively. Repairs and other improvements have been made that are expected to reduce operating costs, as well as increase power generation. In the eight months since purchasing the San Emidio facility, the Company has spent over $138,000 making various repairs to allow the facility to continue to generate power until the repower or replacement of the power plant facility is completed. Items included in the repairs and maintenance total includes repair of electrical breakers and system controls, repair pentane storage and transfer system, gear box and drive shaft alignments on all OECs and cooling tower fans, repair leaking condenser tubes, replace turbine inlet gaskets, modification of OEC oil cooler water supply pipelines, replacement of leaking brine valves on the OECs and replacement of check valve on production pump 76-16. With these repairs, the power plant facility should continue to provide revenues and cash flow to the Company.

Off Balance Sheet Arrangements

As of December 31, 2008, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

We believe our cash and liquid investments at December 31, 2008 are adequate to fund our general operating activities through December 31, 2009. 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. We anticipate that the additional funding may be raised through the issuance of shares 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 2009 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 loan 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 do not anticipate that additional funding will result from the exercise of current stock options or warrants.

In these difficult times, the Company has also implemented procedures to conserve cash, reduce costs and maximize revenue. At the corporate level, we have suspended drilling activities, cancelled non-essential consulting contracts and are reducing all non-critical expenditures. At the project level, Raft River and San Emidio are increasing efforts to reduce operating costs and will continue to find additional cost savings. The Company has instituted a wage and salary freeze for all employees effective January 1, 2009. The wage and salary freeze means that we will not be granting merit pay increases until economic conditions improve and we are able to finance the Company in the equity markets. In addition, the Company has required that employees contribute a share of the medical insurance premiums for dependent coverage. The Company will continue to pay 100% of the insurance premiums for the employees.

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.

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, 2008 for a description of our critical accounting policies.