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, 2009 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, 2009 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 Amex LLC ("NYSE") under the trade symbol "HTM."

For the quarter year ended September 30, 2009, the Company was focused on:

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

2) planning and permitting for drilling at the Gerlach Joint Venture;

3) planning and permitting drilling and field development activities at Neal Hot Springs in Oregon;

4) negotiating a PPA for the Neal Hot Springs Project and the San Emidio Repower Project;

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

6) continuing due diligence for the Department of Energy Section 1703 loan guarantee program for the Neal Hot Springs Project; and

7) 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 96.8 percent availability and generated in a range of 7.1 to 10.0 net megawatts during the three month period averaging 8.2 megawatts. The reduction in output for the period was due to the loss of temperature from production well RRG-7, the mechanical failures in well RRG-1 and to increased seasonal temperatures.

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 reduced by an estimated 1megawatt due to the lower temperature fluid. It was determined that the cement in a lap joint had failed and a mechanical packer was installed to reduce the cold water inflow, but was unsuccessful. A remediation program is planned 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-1 experienced two mechanical breakdowns which reduced power generation for the plant. The first breakdown occurred in early June, when the production casing separated at a threaded joint and the pump and casing had to be pulled and replaced. The second breakdown occurred in late August when the pump suffered a mechanical failure. In total, 48 days of production were lost due to the mechanical problems in well RRG-1.

The Company has been selected by the U.S. Department of Energy ("DOE") to enter into due diligence review on an $85 million project loan for its Neal Hot Springs project in eastern Oregon. The DOE loan is expected to provide 80% of the $106 million estimated total capital cost. Construction of a binary cycle power plant utilizing significantly improved technology is expected to begin in mid 2010. The new plant, designed to deliver 22 megawatts ("MW") of power net to the grid, is scheduled to begin commercial operations in late 2011. The DOE loan is anticipated to be a combined construction and long term loan and provide the project with a low cost annual interest rate.

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 company was notified that its project application is complete, the power plant technology choice qualifies as new or improved under the program, and the project has been selected to proceed in the project loan process.

The renewable energy is expected to be sold under a long term power purchase agreement that is currently under advanced negotiations.

As we enter into due diligence with the DOE on this important $85 million loan we can now work to complete the balance of the project requirements necessary to construct an advanced and highly efficient geothermal power plant."

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 were approved by the state of Oregon on September 11th and drilling of the second production well, NHS-5, began on September 18th. October 15th, the Company successfully completed well NHS-5, the second full size production well at the Neal Hot Springs project located in eastern Oregon. NHS-5 encountered several lost circulation zones within the targeted horizon and intercepted a large aperture fracture at 2,796 feet resulting in a total loss of circulation. The well was completed to a depth of 2,896 feet. An initial 16 hour flow test completed using air lift produced fluid at a rate of 1,500 gallons per minute and resulted in a down hole flowing temperature of 286º F (141º C). The reservoir-hosting fracture zone intersected in NHS-5 is 509 feet deeper in the geologic system than the large producing fracture intersected by NHS-1 which is located approximately 600 feet to the southeast. Both wells were instrumented with pressure and temperature equipment during the flow test. Geologic information and flow data from the drilling and flow test is being incorporated into the ongoing development of a 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 22 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. The Company anticipates receipt of a term sheet for a project loan from the U.S. Department of Energy for the Neal Hot Springs project which is currently undergoing due diligence review. Work also continues on a draft power purchase agreement that is projected to be completed soon. The $106 million project is expected to qualify for about $27 million under the ITC cash grant program and is currently planned to be online by the fourth quarter of 2011.

All of the Federal Energy Regulatory Commission ("FERC") mandated transmission studies have been completed by the 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 and preliminary engineering designs have been initiated. Subsequent to the end of the quarter, the Malheur County Planning Commission approved and issued the Conditional Use Permit for construction of the Neal Hot Springs power plant.

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.

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 pump in production well 75B-16 failed after 5 years of service in late May and was repaired in early June resulting in 13 days of reduced production through the plant. OEC No. 11, one of the four power generation units, was shut down for a turbine rebuild, repair and retubing of the condenser during part of May, all of June and July. With substantial repairs complete, the average generation for the period increased from 2.0 megawatts in June to 2.6 megawatts in August.

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.

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 and will be used to evaluate the resource potential, and help determine where to drill temperature-gradient exploration wells.

In January 2009, Congress extended the federal production tax credit ("PTC") for renewable energy power plants for all projects initiating commercial production prior to December 31, 2014. The PTC enhances the annual revenues of the projects by about 25 percent per year for the first 10 years. Additionally, Congress provided that for power plants that begin construction before the end of 2010, the Company may elect to use the 30% Investment Tax Credit ("ITC") in lieu of the PTC. Application for the cash ITC payment may be made 60 days after the start of commercial generation and would be paid directly from the Department of Treasury.

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 generates at less than full capacity, our annual cash payments from the Raft River I project will be lower. See note 4 "Investment in Subsidiary" in the financial statements for detail of cash payments from RREI.

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

(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 Empire plant is approximately 2.6 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     Power
                                                                          Purchaser
   San Emidio      Nevada         100           27      1st Quarter 2011    To be
 (Replacement)                                                            determined
Neal Hot Springs    Oregon        100           26      4th Quarter 2011 Idaho Power
Raft River (Unit    Idaho          JV           13         2012/2013     Eugene Water
      II)
                                                                         and Electric
                                                                            Board
Raft River (Unit    Idaho         100           13         2013/2014         N/A
      III)

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



Resource Details
                                            Resource
                 Property Size  Temperature Potential
    Property     (square miles)    (°F)       (MW)    Depth (Ft)  Technology
Raft River          10.8(1)     275-302(2)    94.0    4,500-6,000   Binary
San Emidio            35.8      289-305(2)    40.0    1,500-2,000   Binary
Neal Hot Springs      9.6       311-347(3)     N/A    2,500-3,000   Binary

(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.

For the six months ended September 30, 2009, the Company reported a net loss of $2.9 million dollars ($0.05 loss per share) which was consistent with the same period in 2008. Notable favorable variances were noted in salaries and wages, as well as travel and promotional costs. Unfavorable variances were noted in gain from investment in subsidiary and interest income. The operating results improved at the San Emidio plant. Professional and management fees remained high.

Salary and Related Costs

For the six months ended September 30, 2009, our salary costs decreased $138,481 (28.6%) as compared to the same period in 2008. Two more management/development positions were added; however, a higher percentage salaries and related costs were allocated to the development activities that were primarily incurred for drilling activities at Neal Hot Springs, Oregon ("NHS"). Direct salary costs related to designing, permitting and managing of the project were allocated to the project. The design activities began in March 2009 and on-site work began August 15, 2009, on well NHS-5. For the six months ended September 30, 2009, salaries and related costs allocated to the NHS project amounted to approximately $183,000. No salary costs were allocated to the NHS project or to similar projects in the same period in 2008.

Travel and Promotional Costs

For the six months ended September 30, 2009, the Company's travel and promotional costs decreased $241,281 (185.8%) as compared to the same period in the prior year. Overall, the Company reduced its travel and promotional budget for the 2009-10 fiscal year. A notable cost savings of $175,000 was realized by canceling services for investor relations services provided by MJD Media LLC.

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

The Company's portion of the net operating loss of Subsidiary for the six months ended September 30, 2009 was a gain of $141,143 ($82,311 for the three months). RREI's net operating loss was $2,043,531 for the six months ended September 30, 2009, which was $1,604,832 higher than loss from the same period in 2008. This was primarily was due to both planned and unplanned maintenance and repairs that lead to lower revenues and increased costs. The entire plant was shut down for planned maintenance from April 1, 2009 to April 13, 2009 to replace a turbine damaged during startup. Energy production revenue was down more than $468,000 for the six months ended September 30, 2009 from the same period in 2008. Energy revenue was down approximately $371,000 for the six months ended September 30, 2009 from the prior period due to the down time for repairs and a loss in temperature due to a lap joint leaking at one production well. Energy produced in April 2009 was approximately 3.51 million kilowatt hours compared to 6.97 million kilowatt hours produced in April 2008. Repair costs were incurred for a pump failure and issues related a leak in a production pump column that exceeded $1.4 million. The pump repairs are believed to be substantially complete at September 30, 2009. A chemical treatment cost savings of approximately $442,000 was realized for the six months ended September 30, 2009 from the same period in 2008 as a result of the installation of the reverse osmosis system.

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

June 27, 2008        $       1,127,069   $   (119,141 ) $          97,463
September 26, 2008           1,408,357       (319,558 )           103,077
December 26, 2008            1,625,010        426,339             120,425
March 27, 2009               1,355,582        (14,170 )           109,296
June 30, 2009                  812,618     (1,593,224 )            58,831
September 30, 2009           1,254,409       (450,307 )            82,311

In the quarter ended June 30, 2008, the Company purchased a geothermal plant and ground 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. Therefore, the 2008 operating revenues and expenses represent a five month period. For the six months ended September 30, 2009, the San Emidio plant reported a loss of $635,200 ($811,063 operating revenues that includes energy credit sales, $1,446,263 operating expenses). The operating results improved during the last quarter due to operations uninhibited by repair and maintenance activities and to scheduled power rate increases. Energy production sales increased $297,089 (121.9%) from the quarter ended June 30, 2009 to the quarter ended September 30, 2009. In the quarter ended June 30, 2009, repair costs of over $112,000 were incurred to rebuild and reinstall a pump. Also, costs that amounted to over $59,000 were incurred to retube an OEC condenser and to install a new gear box. Due to the plant component repairs, energy production was down for the quarter ended June 30, 2009.

                         Kilowatt                                       Depreciation &
  Quarter Ended:       Hours x 1,000     Energy Sales     Net Loss       Amortization
September 30, 2008             5,650   $      529,383   $  (185,838 ) $        195,046
December 31, 2008              4,097          317,256      (146,859 )          196,941
  March 31, 2009               3,808          296,577      (267,114 )          201,711
  June 30, 2009                2,851          243,752      (589,082 )          200,972
September 30, 2009             5,224          540,841       (46,118 )          207,066

Professional and Management Fees

For the six months ended September 30, 2009, the Company incurred professional and management fees of $633,006, which is an increase of $91,118 (16.8%) from the same period in 2008. Professional fees were incurred for legal and accounting services related to the private placement offering ("PIPE"), SOX compliance and responses to SEC comment letters. Legal fees of $119,316 were paid to Goodman & Associates for assistance with compliance with the PIPE offering. Legal fees of $134,681 were paid to Dorsey & Whitney, primarily, for matters related to the PIPE offering and responses to the SEC comment letters. Consulting fees of $75,664 were paid to Hein & Associates, primarily, for SOX compliance. Accounting and consulting fees of $78,405 were paid to Williams and Webster (now Behler Mick), for services related to financial opinions and responses to the SEC letters of comment.

Off Balance Sheet Arrangements

As of September 30, 2009, the Company does not have any off balance sheet arrangements.

Liquidity and Capital Resources

We believe our cash and liquid investments at September 30, 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. . . .