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 June 30, 2009, the Company was focused on:

1) optimizing the operation of the Unit I power plant at the Raft River, Idaho geothermal project ("Raft River Unit I");
2) performed a scheduled outage at Raft River to replace the turbine damaged during startup;
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; and
6) 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 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 in December 2008 to the cooling water system for the removal of higher than anticipated levels of chloride, which would have damaged the plant cooling equipment. The RO filter is expected to significantly reduce chloride levels and operating costs for chemical consumption in the cooling tower.

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 ended June 30, 2009. 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.

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 1 megawatt. 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.

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.

On February 26, 2009, the Company submitted an application for the Neal Hot Springs project to the Department of Energy ("DOE") 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 Company announced on May 26, 2009, that it has been selected by the DOE to enter into due diligence review on an $85 million project loan for the Neal Hot Springs project located in eastern Oregon. If awarded, the loan is expected to provide 80% of the $106 million estimated total capital cost. The new plant, designed to deliver 22 megawatts of power net to the grid, is scheduled to begin commercial operations in late 2011.

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.

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.

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 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.

Announced July 31, 2009, the Company has entered into an agreement to privately place approximately 8,100,000 Subscription Receipts ("Receipt") at $1.35 CDN per Receipt for gross proceeds of approximately $10,935,000 CDN. Each Receipt will be automatically exchanged, without additional consideration on the exchange date for one ("Unit") of the Company. Exchange date will be the earlier of the date on which the receipt of a final prospectus to qualify the Common Stock and Warrants issuable upon exercise of the Subscription Receipts or four months and one day after the closing of this offering. The offering is scheduled to close on or about August 12, 2009. Each Unit consists of one share of common stock of the Company and one half of one common stock purchase warrant (a "Warrant"). Each Warrant will entitle 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. The net proceeds of the offering will be used by the Company for drilling wells at the Neal Hot Springs geothermal project and for general working capital purposes.

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.

Projects in Operation
                                                           Generating                      Contract
             Project      Location      Ownership     Capacity (MW)(1 )        Power     Expiration
                                                                           Purchaser
Raft River (Unit I)          Idaho           JV(2 )              13.0          Idaho           2032
                                                                               Power
                                                                             Company
San Emidio (Existing)       Nevada           100%                 3.6         Sierra           2017
                                                                             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 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 )         Power
                                                                       Date(2       Purchaser
San Emidio               Nevada            100               9            1st           To be
(Replacement)                                                         Quarter      determined
                                                                         2011
Neal Hot Springs         Oregon            100              22            3rd     Idaho Power
                                                                      Quarter
                                                                         2011
Raft River (Unit          Idaho             JV              13      2012/2013          Eugene
II)                                                                                 Water 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                9.6           311-347 (3)          N/A     2,500-3,000         Binary
Springs

(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 three months ended June 30, 2009, the Company reported a net loss of $2.4 million dollars ($0.04 loss per share) which represented an increase of a $.5 million dollar net loss as compared to the same period in 2008. A notable favorable variance was noted for corporate administration and development costs. Significant unfavorable trends were reported for the Company's interest in its primary subsidiary Raft River Energy I, LLC and the operations of the San Emidio plant.

Corporate Administrative and Development Costs

For the three months ended June 30, 2009, corporate and administrative costs decreased $161,391 (58.8%) compared to the same period in 2008. The decrease was primarily due filing/application fees ($40,683 to TSX and $89,375 to AMEX/NYSE) incurred in the quarter ended June 30, 2008 that were not incurred in the current quarter ended 2009. Effective April 14, 2008, the common stock of the Company began trading on the American Stock Exchange, now the NYSE Amex Equities.

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

The Company's portion of the net operating loss of Subsidiary for the three months ended June 30, 2009 was $548,766 ($1,627,932 total entity) which was an increase of $508,641 from the same period in 2008. The loss 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. Energy production revenue was down more than $244,000 for the three months ended June 30, 2009 from the same period in 2008. Energy produced in April 2009 was approximately 3.51 million kilowatt hours compared to 6.97 million kilowatt hours produced in April 2008. Overall, energy production was down 6.6 million kilowatts for the quarter. On June 1, 2009, the production pipe column on a well at Raft River Energy I, LLC failed. This is the pipe that carries the geothermal fluid to the surface and supports the pump weight. Repair costs for this repair, exceeded $500,000. Also, a lap joint failed in a production well in January 2009 causing a loss of temperature. A repair was attempted in April 2009 and the well was off line for 22 days. The total repair and maintenance costs exceeded $1.1 million for the quarter ended June 30, 2009.

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

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 )
June 30, 2009                812,618     (1,627,932 )          (548,766 )

San Emidio, Nevada Plant Energy Sales and Plant Operating Expenses

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 two month period. For the three months ended June 30, 2009, the San Emidio plant reported a loss of $589,082 ($243,752 operating revenues, $832,834 operating expenses). This was due to repair costs and the reduced production levels related to the items under repair. Repair costs of over $112,000 were incurred to rebuild and reinstall a pump. 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 failures, energy production was down for the quarter. For the eleven months of operations ended March 31, 2009, the plant averaged $128,805 in energy sales per month (1,487,775 average kilowatts hours per month). Energy production for April, May and June of 2009, was 825,292, 737,313, and 1,288,309 kilowatts hours; respectively.

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

Liquidity and Capital Resources

We believe our cash and liquid investments at June 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. 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. A private financing scheduled to close August 12, 2009, will provide funds to drill three 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 capability. Completion of drilling is a condition precedent to the funding from the DOE loan program, if our application is approved.

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 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 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 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.

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.