U.S. Geothermal Inc. is a Delaware corporation. The Company's shares of common stock trade on the TSX under the symbol "GTH" and on the NYSE Amex under the trade symbol "HTM". On December 19, 2003, the Company acquired all of the outstanding securities of U.S. Geothermal Inc., an Idaho corporation ("Geo-Idaho") incorporated in February 2002, through a transaction merging Geo-Idaho into Evergreen Power Inc., a wholly-owned Idaho subsidiary formed for purposes of the merger transaction. Following the merger, the Company changed its name from U.S. Cobalt Inc. to U.S. Geothermal Inc. Pursuant to the merger, Geo-Idaho became the surviving subsidiary of the Company, and Evergreen Power, Inc. ceased to exist. GTH is still, primarily, a development stage company and has just started receiving revenues from operating activities.

1) optimizing the 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, planning and permitting drilling and field development activities at Neal Hot Springs in Oregon;

3) identifying potential buyers and negotiating a PPA for the Neal Hot Springs Project;

4) optimizing the operation of the San Emidio (formerly Empire) power plant in Nevada, and planning for repowering the existing plant;

5) drilling one exploration drill hole and permitting for additional exploration drill holes at the San Emidio Project; and

6) the evaluation of potential new geothermal project acquisitions.

Raft River Unit I achieved commercial operation on January 3, 2008. During 2008, Raft River operated at 95 percent availability and averaged 9.8 megawatts for the year. A reverse osmosis filter system was added to the cooling water system for the removal of higher than anticipated levels of chloride, which would damage plant equipment.

The Company has assembled a team of seven qualified technicians for the ongoing operation and maintenance of the Unit I power plant and planned future power plant units at Raft River. The team underwent operator training from Ormat and is currently operating the plant unassisted.

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, U.S. Geothermal elected to withdraw its Raft River 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.

On September 26 2007, Idaho Power Company and the Company announced the signing of a new, 13-megawatt, full output power purchase agreement. Idaho Power submitted the new PPA to the IPUC for their final approval, which was granted on January 16, 2008. The new PPA replaces the existing 10 megawatt, 20 year PPA and is part of Idaho Power's 2006 formal request for geothermal electricity under which the Company was named the sole successful bidder in March 2007.

The new PPA is for electricity sales of an annual average of 13-megawatts and has a 25-year term. It is the first contract signed as part of ongoing negotiations with Idaho Power for a total of 45.5 megawatts. Idaho Power and the Company expect to be able to use this first contract as a template for advancing negotiations for the output from the planned Unit Three at Raft River and 26 megawatts of planned production from the Company's Neal Hot Springs project located in southeast Oregon.

Eugene Water and Electric Board ("EWEB"), from Eugene, Oregon and U.S. Geothermal have signed a PPA with EWEB to purchase the full 13 megawatt annual electrical output of Raft River Unit II. With the execution of the EWEB PPA, and the increase of Unit I under the new Idaho Power PPA, the total planned output from the Unit I and Unit II Raft River power plants is expected to be 26 megawatts from two plants, instead of the originally planned 30 megawatts from three plants, resulting in substantial capital and operating cost savings through improved economy of scale. The ongoing negotiations with Idaho Power relating to Raft River Unit III and Neal Hot Springs and the signed EWEB PPA recognize that the PPAs are contingent upon extension of the federal Production Tax Credit, successful resource drilling and an economically feasible resource discovery at Raft River and Neal Hot Springs.

In May 2008, we acquired the geothermal assets, including a 3.6 net megawatt nameplate generating capacity power plant, from Empire Geothermal Power LLC and Michael B. Stewart, located in Washoe County, Nevada for approximately $16.6 million. The plant currently generates an approximate average net output of 3.1 megawatts, which is sold to Sierra Pacific Power Corporation. Subject to the receipt of all required permits, we intend to repower the project using the existing flow rate and build a new plant with 8 to 10 megawatts of capacity. When construction is complete, the existing 3.6 megawatt plant may be decommissioned. We believe the construction cost of the repower project will be approximately $25 to $26 million. Management is currently reviewing alternatives and believes project finance will be available for the development and construction. A new PPA for the amount of power above that is covered by the existing NV Energy PPA ( approximately 3 megawatts) will be required before financing can be completed. The method of financing the construction of the new power plant has not yet been determined.

Factors Affecting Our Results of Operations

Although other factors may impact our operations and financial condition, including many that we do not or cannot foresee, we believe that our results of operations and financial condition for the foreseeable future will be affected by the following factors.

Raft River LLC

We hold a 50% interest in Raft River LLC, which owns Raft River Energy Unit I. Construction of Raft River Energy Unit I required substantial capital, and partnering with a co-venturer allowed us to share the risks and rewards of ownership. The joint venture has also allowed us to take advantage of production tax credits which would not otherwise have been available to us. We estimate we will receive cash payments totaling approximately $1.6 million per year from the Raft River Unit I project for the first four years of its operations from a water lease ($90,000), management fees ($250,000), sales proceeds from renewable energy credits ($160,000) and projected cash distributions available from operations ($100,000).

We managed the construction of the Raft River Energy Unit I plant pursuant to our operating agreement with Raft River LLC. Raft Holdings has contributed to Raft River LLC a total of approximately $34.2 million in cash and we have contributed $16.4 million in cash and approximately $1.5 million in production and injection wells and geothermal leases through March 31, 2009.

Raft River Unit I is currently selling between 8.5 and 9.5 megawatts of power to Idaho Power Company. Raft River LLC has also entered into an agreement with Holy Cross Energy of Colorado for the sale of the RECs associated with the Raft River Unit I power plant. Holy Cross Energy has agreed to pay a price of $7.50 per megawatt hour for the first 10 megawatts of generation on an annual basis. The price for these RECs will decrease annually by $0.50 per megawatt until the contract terminates in 2017. We also receive revenue from Raft River LLC from water and energy leases.

We use the equity method of accounting to account for the operating results of Raft River LLC over which we have significant influence due to our management of the operations and our participation on the management committee. Under the equity method, we recognize our proportionate share of the net income (loss) of Raft River LLC in the line item "Loss from investment in subsidiary." Once we begin to receive the significant majority of the available cash distributions from Raft River LLC, we expect that Raft River Unit I will be accounted for as a consolidated entity.

Pursuant to a Management Services Agreement which continues until 2028, we provide operating and management services to Raft River LLC. We will receive approximately $250,000 per year for the next four year pursuant to this agreement. Thereafter, modest adjustments to this amount will occur according to an escalator clause in the agreement.

Power Purchase Agreements

Prior to the construction of a geothermal project, we typically enter into a power purchase agreement with a utility, which fixes the price of energy produced at a project for a 20 to 25 year period. Such PPAs are typically negotiated with the utility company and approved by a state utility commission or similar regulating body.

Raft River Energy I LLC currently earns revenue from a full-output PPA with Idaho Power, which is expected to be 13-megawatts annual average. The PPA expires in 2032. This PPA was signed as part of ongoing negotiations with Idaho Power for PPAs covering an expected total output of 45.5 megawatts and may be used as the template for additional PPAs. The price of energy sold under the Idaho Power PPA is split into three seasons: power produced during the peak periods of July, August, November and December will be purchased at 120% of the set price; power produced in the three month low demand season will be purchased at 73.50% of the set price; and power produced in the remaining five months of the year will be purchased at 100% of the set price. The PPA sets a first year average purchase price of $53.60 per megawatt hour. The $53.60 purchase price is escalated each year at a compound annual rate of 2.1% until year 15. From years 16 to 25 of the contract the escalation rate will drop to 0.6% per year.

Power generated by San Emidio is sold to Sierra Pacific Power Corp. (NV Energy) pursuant to a 30 year PURPA PPA that terminates in December 2017. The PPA includes energy and capacity payment components, as well as peak and off-peak rates. The average power price received in 2008 is approximately $77.00 per megawatt hour. Contract prices are adjusted annually on March 1 based upon the Handy-Whitman price index, total steam production plant category, as specified by Nevada Public Utility Commission standards for PURPA contracts.

Results of Operations

Fiscal Year Ended March 31, 2009 to March 31, 2008

For the years ended March 31, 2009 and 2008, we incurred net losses of $5,735,747 and $3,549,186 which represented ($0.06) and ($0.04) per share; respectively. The increase from 2008 to 2009 was $1,606,302 (61.6%) . These figures are indicative of several factors that are both financially favorable and unfavorable. As discussed in more detail in the following paragraphs, the figures are primarily attributable to management fee income, corporate administrative and development, professional and management fees, salaries and related costs, lease and repair costs, as well as the operations of the subsidiary and the newly acquired power plant.

Management Fee Income

For the year ended March 31, 2008, management fee income increased $187,500 compared to the same period in 2008. Management fees are earned by the Company from its subsidiary RREI at a rate of $20,833 per month ($250,000 annual). These fees began when the plant became operational in January 2008. In the fiscal year ended March 31, 2008, the Company earned 3 months of management fees. For the fiscal year ended March 31, 2009, the Company earned fees for an entire year.

Administrative and development costs increased by $173,010 (28.9%) from the prior year. The primary components of the increase were the increases in exchange filing fees ($25,400), insurance ($58,000) and administration office rent ($50,500). The Company moved into a new building in January 2008. Therefore, the prior fiscal year only included three months of the higher rental costs for the new building.

Professional and Management Fees

For the year ended March 31, 2009, professional and management costs increased $151,545 (17.9%) compared to the same period in 2008. The increase was primarily due to additional audit fees, compliance with Sarbanes-Oxley Act and contractors involved in plant support. The financial statement audit fees increased approximately $25,000 due to the larger scope of the audit engagement related to the Company's new entities. To comply with the Sarbanes-Oxley Act, additional audit fees of approximately $35,000 were incurred and additional consulting fees of $61,300 were incurred for a total of $136,000 for the fiscal year. An incremental amount of approximately $83,000 was paid to outside contractors that supported the operations of our primary subsidiary. These contractors were performing water testing and general plant operational support.

Salary and Related Costs

For the year ended March 31, 2009, our salary costs increased $563,324 (91.2%) as compared to 2007. There have not been notable changes in the number of management and development employees, pay scales or other benefits. Prior to January 3, 2008, 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 (approximately $455,000 and $437,000 for the fiscal years ended 2008 and 2007; respectively) 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.

Land Lease and Reservation Fees

For the year ended March 31, 2009, the lease and equipment maintenance costs increased $146,986 (211.5%) as compared to 2008. During the year, the Company began lease payments for utility line reservation fees of $101,928. Additional lease payments for geothermal water rights were incurred that amounted to over $81,000. Of that amount, $41,000 was for geothermal lease rights for the exploration activities conducted by the new joint venture company Gerlach Geothermal, LLC.

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

For the fiscal year ended March 31, 2009, the Company's portion of net loss reported by RREI was $8,178. This was a decrease of $220,056 in the loss reported in the same period ended in 2008. The plant became commercially operational on January 3, 2008. The quarterly financial information is presented in the table below. The operating loss experienced in the first 3 quarters of commercial operations reflects the 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. The quarter ended December 26, 2008, was the first quarter that RREI reported a profit. The drop in revenues and the related net loss reported in the quarter ended March 27, 2009 was related to the decline in temperature for one of the four production wells (RRG-7) and the lower contracted power rate for the month of March. The temperature reduction for well RRG-7 is an on-going condition that is still being addressed. Under the terms of the PPA, the Company was paid 100% of the contracted power rate for the months of January and February. In March, the Company is paid the lower seasonal rate of 73.5% of the contracted power rate.

Select quarterly financial information for RREI is illustrated as follows:

                                                 Net Income (Loss)
                       Total Operating                   U.S. Geothermal
  Quarter Ended:          Revenues           Total       Inc.'s Portion

March 28, 2008       $       1,025,459   $  (406,606 ) $        (136,440 )
June 27, 2008                1,126,051      (119,141 )           (40,125 )
September 26, 2008           1,408,357      (319,558 )          (110,070 )
December 26, 2008            1,625,010       426,339             146,900
March 27, 2009               1,355,582       (14,170 )            (4,883 )

San Emido, Nevada Plant Energy Sales and Plant Operating Expenses

During the fiscal year ended March 31, 2009, the Company reported operating revenues of $1,449,696 (energy sales $1,416,853 and production energy credit and other $32,843) and plant expenses of $2,265,277. Effective May 1, 2008, the Company purchased and began operating a geothermal power plant located in North Western Nevada. Therefore, this was the first year the Company reported revenues and expenses from this plant.

Energy sales revenues were higher in the quarter ended September 30, 2008 due to regular plant production and premium contracted rates. Based upon the terms of the PPA, premium rates are paid during the months June through September. The plant was not as productive in the quarters ended December 31, 2008 and March 31, 2009 due to the down time experienced while extensive repairs and maintenance was conducted.

Significant repair and maintenance costs were incurred during the quarters ended December 31, 2008 and March 31, 2009. Repairs and other improvements have been made that are expected to reduce operating costs, as well as increase power generation. During the last fiscal year, the Company has spent over $164,000 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 operating revenues and generate positive cash flow to the Company.

                                       Total
                          MWH        Operating
   Quarter Ended:       Produced      Revenues      Net Loss         Cash Flow

June 30, 2008 *            3,211   $    273,635   $  (215,769 ) $          (85,970 )
September 30, 2008 **      5,649        529,383       (63,779 )            131,267
December 31, 2008 **       4,097        337,272      (268,918 )            (71,977 )
March 31, 2009             3,808        309,406      (267,114 )            (65,402 )
                          16,765   $  1,449,696   $  (815,580 ) $          (92,082 )

* - two months of operations. ** - Net Loss reflects a reclassification adjustment of $122,059 in expenses.

Fiscal Year Ended March 31, 2008 to March 31, 2007

For the years ended March 31, 2008 and 2007, we incurred net losses of $3,549,186 and $1,942,884 which represented ($0.06) and ($0.04) per share; respectively. The increase from 2007 to 2008 was $1,606,302 (82.7%) . These figures are indicative of high levels of activities related to our efforts to develop, study and establish financing for our geothermal interests, as detailed below.

Operating Revenues

On January 3, 2008, the Company's first plant became commercially operational. As a result, the Company began receiving operating revenues for management fees and lease and royalty payments.

Loss on Operations of Subsidiary

The Company's share of the operating loss from the Company's major subsidiary increased $125,898 (123.0% increase) from the prior year. The subsidiary began commercial operations in January 2008 and costs are being incurred to optimize production levels. The Raft River Unit I plant is currently operating at between 9.6 to 11.7 megawatts output which is still below the design capacity. The plant has not yet been able to drop the purchases of third party power to run the production pumps as originally planned. The pump power purchases have increased the plant operating costs. Management continues to study the production issues related to this plant and believes that the plant will be profitable after initial start up costs have been incurred.

Corporate Administration and Development Activities

Administrative and development costs increased by $364,121 (168.6%) from the prior year. The primary component of the increase was the filing fee and other related costs for listing on the Toronto Stock Exchange ($269,273). Also, there were modest increases in insurance and depreciation costs.

Professional costs remained at a high level to support the legal and other consulting efforts to needed to comply with the Sarbanes-Oxley Act ($74,200), issue private placement offerings ($49,900), filing of a resale registration statement ($48,900), negotiate the terms of the Raft River Energy operating agreement ($45,200) and amend prior year tax returns ($21,100). Professional and management costs of $845,908 represent 17.6% of total operating expenses for the fiscal year ended March 31, 2008. These costs increased $137,384 (19.4%) and $423,218 (100.1%) from 2007.

Stock-Based Compensation Costs

Stock-based compensation represents 39.7% of the Company's operating expenses for the fiscal year ended March 31, 2008. These costs increased $774,563 (68.6%) from the prior year. The main reason for the increase is number of options granted to directors, officers and employees in fiscal years ending March 31, 2007 and 2008. The stock options are a part of our annual executive compensation plan, and are issued to obtain, retain and motivate our directors, executives and employees. During the fiscal year ended March 31, 2008, we attained several significant milestones (moving to Toronto Stock Exchange, moving to American Stock Exchange (now NYSE Amex), completion of Raft River Unit I, etc.) which necessitated recognition of the significant work effort of our directors, executives and employees for current and prior years.

Liquidity and Capital Resources

We believe our cash and liquid investments at March 31, 2009 are adequate to fund our general operating activities through March 31, 2010. 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 . . .