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U.S. GEOTHERMAL INC.
(A Development Stage Company)

Consolidated Financial Statements
March 31, 2007

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Board of Directors
U.S. Geothermal Inc.
Boise, Idaho

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have audited the accompanying consolidated balance sheet of U.S. Geothermal
Inc. (a development stage company) as of March 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders’ equity and cash
flows for the year then ended and for the period from February 26, 2002
(inception) through March 31, 2007. These consolidated financial statements are
the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audit.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of U.S. Geothermal Inc.
as of March 31, 2007 and 2006 and the results of its operations, stockholders’
equity, and cash flows for the year then ended and for the period from February
26, 2002 (inception) through March 31, 2007 in conformity with accounting
principles generally accepted in the United States of America.

 

 

Williams & Webster, P.S.
Certified Public Accountants
Spokane, Washington
June 25, 2007

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U.S. GEOTHERMAL INC.
(A Development Stage Company)
CONSOLIDATED BALANCE SHEETS
(Stated in U.S. Dollars)

    March 31,     March 31,       2007     2006                 ASSETS          
                Current                      Cash and cash equivalents $
 6,759,161   $  196,499            Restricted cash   5,363,400     -          
 Private placement proceeds receivable   -     19,961,890            Accounts
receivable from subsidiary   154,277     -            Other current assets  
27,706     11,429                      Total current assets   12,304,544    
20,169,818                 Investment in subsidiary (note 2)   6,230,410     -  
Property, plant and equipment   4,138,386     1,726,115  
                            Total assets $  22,673,340   $  21,895,933          
                    LIABILITIES                           Current:              
       Accounts payable and accrued liabilities $  1,446,952   $  270,831      
     Related party accounts payable   9,510     10,083                    
 Total current liabilities   1,456,462     280,914   Long-term:                
     Stock compensation payable (note 2 and 6)   2,397,564     1,707,548  
                            Total liabilities   3,854,026     1,988,462        
        STOCKHOLDERS’ EQUITY                           Capital stock            
         Authorized:                          100,000,000 common shares with a
$0.001 par value                      Issued and outstanding:                  
         43,810,512 shares at March 31, 2007 and            
               18,263,844 shares at March 31, 2006   43,811     18,264   Capital
stock issuable   -     20,134,260   Additional paid-in capital   25,767,826    
4,954,690   Accumulated deficit before development stage   (1,004,630 )  
(1,004,630 ) Accumulated deficit during development stage   (5,987,693 )  
(4,195,113 )                    Total stockholders’ equity   18,819,314    
19,907,471                                             Total liabilities and
stockholders’ equity $  22,673,340   $  21,895,933  

The accompanying notes are an integral part of these consolidated financial
statements.
-3-

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U.S. GEOTHERMAL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Stated in U.S. Dollars)

                      Cumulative Period       Year Ended March 31,     From
February 26,                         2002 (Inception) to     2007     2006    
2005     March 31, 2007                             Revenue $  -   $     $  -  
$  -                             Operating Expenses                         Loss
from investment in subsidiary   102,336     -     -     102,336   Consulting
fees   67,913     29,005     489,747     463,804   Corporate admin and
development   215,914     185,186     118,098     549,481   Exploration
expenditures   -     -     438,885     440,611   Professional fees   663,009    
386,275     104,081     1,627,001   Management fees   45,515     36,415    
86,463     326,748   Salaries and wages   506,354     484,656     129,219    
1,094,223   Stock based compensation   978,772     180,779     295,540    
1,751,163   Travel and promotion   408,056     360,753     89,497     882,574  
                  Loss from Operations   (2,987,869 )   (1,663,069 )  
(1,751,530 )   (7,237,941 )                           Other Income              
          Foreign exchange gain   411,341     149,200     (95,885 )   422,611  
Other income   90,206     -     -     90,206   Interest income   693,738    
23,276     16,994     737,431                             Net Loss $  (1,792,584
) $  (1,490,593 ) $  (1,830,421 ) $  (5,987,693 )                              
                      Basic And Diluted Net Loss Per Share $  (0.04 ) $  (0.09 )
$  (0.12 )                                                           Weighted
Average Number Of Shares                         Outstanding for Basic and
Diluted Calculations   43,640,303     17,797,637     15,209,468                
                                                                      Other
Comprehensive Income (Loss)                                    Net loss for the
period $  (1,792,584 ) $  (1,490,593 ) $  (1,830,421 ) $  (5,987,693 )
           Foreign currency translation                                        
adjustment   -     (165,262 )   165,262     -                             Total
Comprehensive Loss $  (1,792,584 ) $  (1,655,855 ) $  (1,665,159 ) $  (5,987,693
)

The accompanying notes are an integral part of these consolidated financial
statements.
-4-

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U.S. GEOTHERMAL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Stated in U.S. Dollars)

                      From February                         26, 2002       Year
Ended March 31,     (Inception) to       2007     2006     2005     March 31,
2007                             Operating Activities:                        
Net loss $  (1,792,584 ) $  (1,490,593 ) $  (1,830,421 ) $  (5,987,693 ) Add
non-cash items:                                Depreciation   16,511     1,350  
  1,399     19,836          Loss of operations of subsidiary   133,304     -    
-     133,304          Shares issued for other than cash   65,384     84,000    
-     198,984          Stock based compensation   978,772     180,779    
295,540     1,751,162   Change in non-cash working capital items:              
                 Accounts receivable, subsidiary   (154,277 )   -          
(154,277 )        Accounts payable and accrued                        
            liabilities   (160,166 )   115,812     (20,363 )   120,748        
 Prepaid expenses & other   (16,277 )   (1,608 )   (24,294 )   (27,706 ) Total
cash used by operating activities   (929,333 )   (1,110,260 )   (1,578,139 )  
(3,945,642 )                           Investing Activities:                    
    Purchases of property, plant and equipment   (1,093,068 )   (1,131,764 )  
(41,331 )   (2,822,508 ) Cash acquired in business combination   -     -     -  
  5,798   Cash restricted under contract   (5,363,400 )   -     -     (5,363,400
) Investment in subsidiary   (6,363,714 )   -     -     (6,363,714 )      
 Total cash used by investing activities   (12,820,182 )   (1,131,764 )  
(41,331 )   (14,543,824 )                           Financing Activities:      
                  Issuance of share capital, net of share issue                
           cost   20,312,177     646,710     2,576,562     25,215,835        
 Total cash provided by financing                                     activities
  20,312,177     646,710     2,576,562     25,215,835                          
  Foreign Exchange Effect On Cash And                            Cash
Equivalents   -     (165,262 )   129,470     -                            
Increase (Decrease) In Cash And Cash                            Equivalents  
6,562,662     (1,760,576 )   1,086,562     6,759,161                            
Cash And Cash Equivalents, Beginning                            Of Period  
196,499     1,957,075     870,513     -                             Cash And
Cash Equivalents, End Of Period $  6,759,161   $  196,499   $  1,957,075   $
 6,759,161  

The accompanying notes are an integral part of these consolidated financial
statements.
-5-

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U.S. GEOTHERMAL INC.
(A Development Stage Company)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Stated in U.S. Dollars)

    Year Ended     From February 26, 2002               March 31,          
(Inception) to       2007     2006     2005     March 31, 2007                  
          Supplemental Disclosure:                            Non-cash investing
and financing activities                                  Shares issued for
settlement of debt                   $ 173,639            Shares issued with
employment agreements $  65,384   $  84,000           198,984            Shares
issued for geothermal property             $  60,350     77,350          
 Purchase of property and equipment on account   1,335,714                
1,335,714            Warrants issued for share issue cost                    
158,778  

The accompanying notes are an integral part of these consolidated financial
statements.
-6-

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U.S. GEOTHERMALINC.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Continued)

FROM INCEPTION, FEBRUARY 26, 2002 TO MARCH 31, 2007
(Stated in U.S. Dollars)

                                ACCUM.                 NUMBER          
ADDITIONAL     CAPITAL     STOCK     OTHER                 OF           PAID-IN
    STOCK     PURCHASE     COMP.     ACCUM.           SHARES     AMOUNT    
CAPITAL     ISSUABLE     WARRANTS     INCOME     DEFICIT     TOTAL              
                                    Shares issued for cash at $0.015 per share –
February 26,                                                  2002 2,600,000   $
 2,600   $  37,400   $  -   $  -   $  -   $  -   $  40,000   Shares and warrants
issued for Geothermal property at                                              
   $0.009 – March 5, 2002 1,895,000     1,895     15,105                        
    17,000                                                                      
                            Balance, March 31, 2002 – U.S. Geothermal Inc. –
Idaho 4,495,000     4,495     52,505     -     -     -     -     57,000        
                                                                               
          Shares issued for cash at $0.25 per share – May 28, 2002 395,000    
395     98,355                             98,750   Shares issued for services
at $0.25 per share – May 28,                                                
 2002 5,000     5     1,245                             1,250   Shares issued
for cash at $0.30 per share – November 1,                                      
           2002 1,023,667     1,024     306,076                            
307,100   Shares issued for services at $0.30 per share – November              
                                   1, 2002 10,000     10     2,990              
              3,000   Shares issued for services at $0.30 per share – February  
                                               14, 2003 151,170     151    
45,199                             45,350                                      
            Net loss for the period                                     (164,909
)   (164,909 )                                                 Balance carried
forward, March 31, 2003 – U.S.                                                
 Geothermal Inc. – Idaho 6,079,837   $  6,080   $  506,370   $  -   $  -   $  -
  $  (164,909 ) $  347,541  

-6-

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U.S. GEOTHERMALINC.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Continued)

FROM INCEPTION, FEBRUARY 26, 2002, TO MARCH 31, 2007
(Stated in U.S. Dollars)

                                ACCUM.                 NUMBER          
ADDITIONAL     CAPITAL     STOCK     OTHER                 OF           PAID-IN
    STOCK     PURCHASE     COMP.     ACCUM.           SHARES     AMOUNT    
CAPITAL     ISSUABLE     WARRANTS     INCOME     DEFICIT     TOTAL              
                                    Balance carried forward, March 31, 2003 –
U.S.                                                  Geothermal Inc. – Idaho
6,079,837   $  6,080   $  506,370   $  -   $  -   $  -   $  (164,909 ) $
 347,541                                                   Consolidation
adjustment to the number of shares issued                                      
           and outstanding as a result of the reverse take-over                
                                 transaction- U.S. Geothermal Inc.- Idaho;
December                                                  19, 2003 (6,079,837 )
  (6,080 )   6,080                             -   Legal parent company shares
issued and outstanding at                                                  time
of reverse take-over- U.S. Cobalt Inc.; December                                
                 19, 2003 2,274,616     2,275     (2,275 )                      
    -   Shares issued for acquisition of U.S. Geothermal Inc.-                  
                               Idaho 6,939,992     6,940     (6,940 )          
          (408,166 )   (408,166 ) Warrants issued for acquisition of U.S.
Geothermal Inc.-                                                  Idaho        
                629,256           (629,256 )   -                                
                  Shares and warrants issued for cash at a price of $0.45 per  
                                               share in a private placement, net
of share issue costs of                                                  $75,122
paid in cash and $25,437 paid by issuance of                                    
             83,333 agent’s warrants- December 19, 2003 3,322,221     3,322    
959,230           457,326                 1,419,878   Shares and warrants issued
for conversion of notes at                                                
 $0.45 per share – February 20, 2004 385,864     386     123,090          
50,162                 173,638   Stock options granted             296,081      
                      296,081                                                  
Foreign currency translation gain                               35,792          
35,792                                                   Net loss for the year  
                                  (676,398 )   (676,398 )                      
                          Balance, March 31, 2004 12,922,693   $  12,923   $
 1,881,636   $  -   $  1,136,744   $  35,792   $  (1,878,729 ) $  1,188,366  

-7-

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U.S. GEOTHERMALINC.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Continued)

FROM INCEPTION, FEBRUARY 26, 2002 TO MARCH 31, 2007
(Stated in U.S. Dollars)

                                ACCUM.                 NUMBER          
ADDITIONAL     CAPITAL     STOCK     OTHER                 OF           PAID-IN
    STOCK     PURCHASE     COMP.     ACCUM.           SHARES     AMOUNT    
CAPITAL     ISSUABLE     WARRANTS     INCOME     DEFICIT     TOTAL              
                                    Balance, March 31, 2004 12,922,693   $
 12,923   $  1,881,636   $  -   $  1,136,744   $  35,792   $  (1,878,729 ) $
 1,188,366                                                   Shares and warrants
issued for cash at a price of $0.66 in                                          
       a private placement, net of share issue costs of                        
                         $225,131 paid in cash and $133,341 paid by the        
                                         issuance of 280,000 agent’s warrants-
September 17,                                                  2004 4,000,001  
  4,000     1,103,082           1,324,038                 2,431,120   Shares
issued for property at a price of $0.60- February                              
                   22, 2005 100,000     100     60,251                          
  60,351   Shares issued for stock options exercised 308,735     309     145,133
                            145,442   Stock options granted             295,540
                            295,540   Foreign currency translation gain        
                      129,470           129,470   Net loss for the year        
                            (1,830,421 )   (1,830,421 ) Balance, March 31, 2005
17,331,429     17,332     3,485,642     -     2,460,782     165,262    
(3,709,150 )   2,419,868   Stock options granted             180,780            
                180,780   Expiration of stock purchase warrants            
1,061,145           (1,061,145 )               -   Shares issued for stock
options and warrants exercised 812,415     812     526,753           (75,599 )  
            451,966   Stock issued as result of employment agreements 120,000  
  120     83,880                             84,000   Foreign currency
translation loss                               (165,262 )   32,792     (132,470
) Capital stock issuable as result of a private placement to                    
                          be closed April 3, 2006                   20,134,260  
                    20,134,260   Stock compensation liability            
(383,510 )         (1,324,038 )               (1,707,548 )                      
                          Net loss for the year                                
    (1,523,385 )   (1,523,385 )                                                
Balance, March 31, 2006 18,263,844   $  18,264   $  4,954,690   $  20,134,260  
$  -   $  -   $  (5,199,743 ) $  19,907,471  

-8-

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U.S. GEOTHERMALINC.
(A Development Stage Company)

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (Continued)

FROM INCEPTION, FEBRUARY 26, 2002 TO MARCH 31, 2007
(Stated in U.S. Dollars)

                                ACCUM.                 NUMBER          
ADDITIONAL     CAPITAL     STOCK     OTHER                 OF           PAID-IN
    STOCK     PURCHASE     COMP.     ACCUM.           SHARES     AMOUNT    
CAPITAL     ISSUABLE     WARRANTS     INCOME     DEFICIT     TOTAL              
                                                                               
    Balance, March 31, 2006 18,263,844   $  18,264   $  4,954,690   $
 20,134,260   $  -   $  -   $  (5,199,743 ) $  19,907,471                      
                            Stock issued as result of employment agreements
49,168     49     65,331                       4     65,384   Stock options
granted             978,772                             978,772   Shares issued
for stock options and warrants                                                  
 exercised 497,500     498     487,595           (137,806 )              
350,287   Capital stock issued as result of a private                          
                         placement closed April 3, 2006 25,000,000     25,000  
  20,109,260     (20,134,260 )                     -   Stock purchase warrants
expired             1,186,232           (1,186,232 )               -            
                                      Stock compensation liability            
(2,014,054 )         1,324,038                 (690,016 )                      
                          Net loss for the period                              
      (1,792,584 )   (1,792,584 )                                              
  Balance, March 31, 2007 43,810,512   $  43,811   $  25,767,826   $  -   $  -  
$  -   $  (6,992,323 ) $  18,819,314  

The accompanying notes are an integral part of these consolidated financial
statements.
-9-

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U.S. GEOTHERMAL INC.
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2007
(Stated in U.S. Dollars)

NOTE 1 - ORGANIZATION AND DESCRIPTION OF BUSINESS

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

The Company has been in the development stage since its formation and has not
yet realized any revenues from its planned operations. GEO - Idaho operates for
the purpose of acquiring geothermal properties and entered into an agreement
with Vulcan Power Company (“Vulcan”) of Bend, Oregon, U.S.A., pursuant to which
it acquired a 100% interest in the Raft River Geothermal Property located in
Cassia County, Idaho, U.S.A. (Note 3).

Basis of Presentation

These consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America. The
Company consolidates more-than-50% owned subsidiaries that it controls and
entities over which control is achieved through means other than voting rights.
These consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. The accounts of the following companies are
consolidated in these financial statements:

  i)

U.S. Geothermal Inc. (incorporated in the State of Delaware);

  ii)

U.S. Geothermal Inc. (incorporated in the State of Idaho);

  iii)

U.S. Cobalt Inc. (incorporated in the State of Colorado);

  iv)

U.S. Geothermal Services, LLC (incorporated in the State of Delaware).

All Company transactions are eliminated on consolidation.

Raft River Energy I LLC was consolidated through July 2006, after which the
entity is recorded under the equity method. See Consolidation of Variable
Interest Entity in Note 2 for further discussion.

Reclassification

Certain amounts from prior periods have been reclassified to conform to the
current period presentation. This reclassification has resulted in no changes to
the Company’s accumulated deficit or net losses presented.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

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Accounting Method

The Company’s financial statements are prepared using the accrual basis of
accounting in accordance with accounting principles generally accepted in the
United States of America and have been consistently applied in the preparation
of the financial statements.

Development Stage Company

Pursuant to Statement of Financial Accounting Standards No. 7, “Accounting and
Reporting by Development Stage Enterprises” (SFAS 7), the Company is considered
to be a development stage enterprise since its planned principal operations have
not commenced. The various entities that comprised the Company prior to February
26, 2002 were not engaged in operations directly related to the development of
geothermal power plants. After that time, the Company began its current and
primary development activities, and accordingly, accounted for the accumulated
deficit separately from the prior operations. The statements of operations,
stockholders’ equity and cash flows present the accumulated activities from the
inception of the current operating activities to present. This presentation will
continue until the Company begins operations.

Use of Estimates

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

Cash and Cash Equivalents

The Company considers all unrestricted cash, short term deposits, and other
investments with maturities of no more than ninety days when acquired to be cash
and cash equivalents for the purposes of the statement of cash flows. Discussion
regarding restricted cash is included in Notes 5 and 9. With the large value of
funds invested in short term deposits, small variations in short term interest
rates may materially affect the value of cash equivalents. Investments in
government obligations accumulate higher interest, but the principal balance is
not insured by the FDIC. All investments held by the Company are highly liquid,
available on demand.

Concentration of Credit Risk

The Company’s cash and cash equivalents consisted of commercial bank deposits, a
money market account, and petty cash. The money market funds totaled
$12,081,369, and are not subject to deposit insurance. Cash deposits are held in
a commercial bank in Boise, Idaho, and in a commercial bank in Vancouver,
British Columbia. The accounts in Idaho are guaranteed by the Federal Deposit
Insurance Corporation (FDIC) up to $100,000. The Canadian dollar accounts in
British Columbia are guaranteed by the Canadian Deposit Insurance Corporation
(CIDC) up to $100,000 Canadian (approximately $86,000 in U.S. dollars at March
31, 2007). At March 31, 2007, the Company exceeded the FDIC insured amount by
approximately $53,800 and did not exceed the CIDC insured amount.

Consolidation of Variable Interest Entities

The Company has a significant interest in a Raft River Energy I, LLC (RREI),
which has been

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determined to be a variable interest entity as defined by FASB Interpretation
No. 46(R) (FIN 46(R)). RREI’s purpose is to hold the financial interests of the
first phase of the Raft River project for the construction of a 10 megawatt
geothermal power plant. As described below, the Company’s interest changed
during the current fiscal period from primary beneficiary to a significant
interest.

RREI resulted from agreements signed August 9, 2006, between U.S. Geothermal
Inc. and Raft River Holdings, LLC, a subsidiary of the Goldman Sachs Group, for
construction financing of Phase I of the Raft River project. To accommodate the
construction financing, U.S. Geothermal sold 50% of its ownership in Raft River
Energy to Raft River Holdings. As a result of the agreements, U.S. Geothermal is
required to contribute approximately $6,400,000 in cash and property, and Raft
River Holdings is required to contribute $34,000,000 to Raft River Energy.

As of March 31, 2007, U.S. Geothermal Inc. has contributed $6,363,714 in cash
and property to the project, while Raft River Holdings has contributed
$23,458,100. As a result, Raft River Holdings has been designated the primary
beneficiary.

For periods prior to August 2006, U.S. Geothermal was the 100% owner of RREI and
consolidated the loss of $30,968. For the period August 2006 to March 2007, U.S.
Geothermal recorded RREI under the equity method of accounting for investments
in subsidiaries based on the capital contribution ratio at March 31, 2007 (loss
of $102,336).

RREI’s financial information is summarized as follows:

As of November 24, 2006:                Total current assets $  3,417,793      
     Property and equipment   18,618,764                      Total assets $
 22,036,557                    Total current liabilities $  3,360,052          
 Members’ equity   18,676,505                      Total liabilities and equity
$  22,036,557           From inception on August 18, 2005 to           November
24, 2006:                Operating revenues $  0            Operating loss  
(245,879 )          Net loss   (237,309 )

Property, Plant and Equipment

Costs of acquisition of geothermal properties are capitalized on an
area-of-interest basis. Geothermal properties include all direct costs for the
acquisition of land rights, water rights and mineral rights. Amortization of
these costs will be on a unit-of-production basis, based on estimated proven
geothermal reserves should such reserves be found. If an area of interest is
abandoned, the costs thereof are charged to income in the year of abandonment.
With the inherent uncertainty of calculating the units of production for a
renewable resource, revisions to the estimates and the subsequent field
performance of the resource would cause the life of the resource to differ
significantly from the estimated units of production. A large percentage
increase or decrease in the estimated reserves would decrease or increase the
depreciation, depletion or amortization of capital costs proportionately.

The Company expenses all costs related to the development of geothermal reserves
prior to the establishment of proven and probable reserves.

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Depreciation will be based upon the estimated useful life of the asset. For
assets directly related to revenue production defined by a specific contract,
the estimated useful lives will not exceed the life of the contract. Depletion
on wells and other assets directly involved in the extraction of the natural
resources will be based upon the total estimated capacity on a unit of
production basis. Units will be defined as gallons of geothermal water,
processed through the plant, used directly in the production of revenues.

Other equipment is recorded at cost. Depreciation of other equipment is
calculated on a straight-line basis at an annual rate of 30%.

Impairment of Long-Lived Assets

Statement of Financial Accounting Standards No. 144 “Accounting for the
Impairment or Disposal of Long-Lived Assets” (SFAS 144) establishes a single
accounting model for long-lived assets to be disposed of by sale including
discontinued operations. SFAS 144 requires that these long-lived assets be
measured at the lower of the carrying amount or fair value less cost to sell,
whether reported in continuing operations or discontinued operations. The
Company has adopted SFAS 144 and evaluates its long-term assets annually for
impairment or when circumstances or events occur that may impact the fair value
of the assets. The fair value of geothermal property is primarily evaluated
based upon the present value of expected revenues directly associated with those
assets. An impairment loss would be recognized if the carrying amount of a
capitalized asset is not recoverable and exceeds its fair value. As expected for
the initial stages of the Company’s operations, circumstances have not warranted
the recognition of losses due to the impairment of long-lived assets.

Asset Retirement Obligations

Statement of Financial Accounting Standards No. 143, “Accounting for Asset
Retirement Obligations,” requires legal obligations associated with the
retirement of long-lived assets to be recognized at their fair value at the time
the obligations are incurred. Upon initial recognition of a liability, that cost
should be capitalized as part of the related long-lived asset and allocated to
expense over the useful life of the asset. The Company has previously adopted
this statement, with no impact to the Company’s financial statements.

Stock Options Granted to Employees and Non-employees

On April 1, 2006, the Company adopted Statement of Financial Accounting
Standards No. 123 (revised 2004), “Share-Based Payment” (SFAS 123(R)), which
requires the measurement of the value of employee services received in exchange
for an award of an equity instrument based on the grant-date fair value of the
award. For employees, directors and officers, the fair value of the awards are
expensed over the vesting period. The current vesting period for all options is
eighteen months.

Under SFAS 123(R), the Company has elected to use the modified prospective
transition method, and accordingly, the Company’s consolidated financial
statements for periods prior to adoption of SFAS 123(R) have not been restated
to reflect, and do not include the impact of adopting.

For non-employee stock based compensation, the Company has adopted EITF Issue
No. 96-18, “Accounting for Equity Instruments That Are Issued to Other Than
Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and
EITF Issue No. 00-18, “Accounting Recognition for Certain Transactions involving
Equity Instruments Granted to Other Than Employees.” Non-employee stock options
have been granted, at the Board of Director’s discretion, to select vendors as a
bonus for exceptional performance. Prior to issuance of the awards, the Company
was not under any obligation to issue the stock options. Subsequent to the
award, the recipient was not obligated to perform any services. Therefore, the
fair value of these options was expensed on the grant date which was also the
measurement date.

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Pursuant to the requirements to SFAS 123(R), the Company made certain
reclassifications to its consolidated balance sheet as of March 31, 2006, to
reflect the stock compensation liability that resulted from the issuance of
stock options denominated in a foreign currency. The reclassification from
shareholder equity to liabilities amounted to $1,707,548 at March 31, 2006. We
account for stock-based compensation in accordance with SFAS No.123(R),
Share-Based Payment. Under the fair value recognition provisions of this
statement, share-based compensation cost is measured at the grant date based on
the value of the award and is recognized as expense over the vesting period.
Determining the fair value of share-based awards at the grant date requires
judgment, including estimating expected dividends. In addition, judgment is also
required in estimating the amount of share-based awards that are expected to be
forfeited. If actual results differ significantly from these estimates,
stock-based compensation expense and our results of operations could be
materially impacted.

Earnings Per Share

The Company has adopted Statement of Financial Accounting Standard No. 128
“Earnings per Share” (SFAS 128), which provides for calculation of "basic" and
"diluted" earnings per share. Basic earnings per share includes no dilution and
is computed by dividing net income available to common shareholders by the
weighted average common shares outstanding for the period. Diluted earnings per
share reflect the potential dilution of securities that could share in the
earnings of an entity similar to fully diluted earnings per share. Although
there were common stock equivalents outstanding at March 31, 2007 and 2006, they
were not included in the calculation of earnings per share because their
inclusion would have been considered anti-dilutive.

Financial Instruments

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

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

Foreign Currency Translation

The Company’s functional currency is the U.S. dollar. Transactions in foreign
currency are converted into U.S. dollars using the current method as follows:

 * Monetary items at the rate prevailing at the balance sheet date;
 * Non-monetary items at the historical exchange rate;
 * Revenue and expenses at the average rate in effect during the applicable
   accounting period.

Adjustments arising from the translation of the foreign currency amounts are
included as a separate component of stockholders’ equity.

Foreign Operations

The accompanying balance sheet contains certain recorded Company assets
(principally cash) in a foreign country (Canada). Although Canada is considered
economically stable, it is always possible that unanticipated events in foreign
countries could disrupt the Company’s operations.

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Provision for Taxes

Income taxes are provided based upon the liability method of accounting pursuant
to Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes” (SFAS 109). Under this approach, deferred income taxes are recorded to
reflect the tax consequences in future years of differences between the tax
basis of assets and liabilities and their financial reporting amounts at each
year-end. A valuation allowance is recorded against deferred tax assets if
management does not believe the Company has met the “more likely than not”
standard imposed by SFAS 109 to allow recognition of such an asset.

At March 31, 2007, the Company had net deferred tax assets calculated at an
expected rate of 34% of approximately $2,177,500 (March 31, 2006 - $1,568,000)
principally arising from net operating loss carry forwards and stock
compensation. As management of the Company cannot determine that it is more
likely than not that the Company will realize the benefit of the net deferred
tax asset, a valuation allowance equal to the net deferred tax asset was
recorded at March 31, 2007. The significant components of the deferred tax asset
at March 31, 2007 and March 31, 2006 were as follows:

    March 31,     March 31,       2007     2006   Net operating loss carry
forward $  6,404,500   $  4,612,100                 Deferred tax asset $
 2,177,500   $  1,568,000   Deferred tax asset valuation allowance   (2,177,500
)   (1,568,000 ) Net deferred tax asset $  -   $  -  

At March 31, 2007, the Company has net operating loss carry forwards of
approximately $6,404,500 ($4,612,100 in March 31, 2006), which expire in the
years 2023 through 2027. The change in the allowance account from March 31, 2006
to March 31, 2007 was $609,500.

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

Going Concern

Based on the Company’s projected spending over the next 12 months, the
$20,134,260 cash received from the private placement completed April 3, 2006,
and the private placement completed in June 2007 (details provided in footnote
10), the Company’s auditors have removed the going concern qualification from
the Company’s financial statements. Management believes that sufficient funding
will be available to meet its business objectives, including anticipated cash
needs for working capital, and financing for construction of the phase one power
plant. As shown in the accompanying consolidated financial statements, the
Company has incurred an accumulated deficit of $7,025,115 and has no revenue
from operations. In the ordinary course of constructing a power plant facility
of this size and complexity, cost overruns and contract delays can significantly
affect the economics of the project. Failure to achieve commercial operations of
the power plant prior to December 31, 2008 would jeopardize the production tax
credit, and could materially affect the ability of U.S. Geothermal to operate as
a going concern.

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Accounting Pronouncements - Recent

The Fair Value Option for Financial Assets and Financial Liabilities
In February 2007, the FASB issued Statement of Financial Accounting Standards
No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities”
(SFAS 159). This statement permits entities to choose to measure many financial
instruments and certain other items at fair value. The objective is to improve
financial reporting by providing entities with the opportunity to mitigate
volatility in reported earnings caused by measuring related assets and
liabilities differently without having to apply complex hedge accounting
provisions. This Statement is expected to expand the use of fair value
measurement, which is consistent with the Board’s long-term measurement
objectives for accounting for financial instruments. This Statement is effective
as of the beginning of an entity’s first fiscal year that begins after November
15, 2007, although early adoption is permitted. Management is currently
evaluating the potential impact of the adoption of this statement on the
financial position, results of operations and cash flows of the Company.
Management has not elected early adoption of this statement.

Defined Benefit Pension and Other Postretirement Plans
In September, 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 158, “Employers’ Accounting for Defined
Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements
No. 87,88,106, and 132(R)” (SFAS No. 158”). This statement requires an employer
to recognize the overfunded or underfunded statues of a defined benefit
postretirement plan (other than a multiemployer plan) as an asset or liability
in its statement of financial position and to recognize changes in that funded
status in the year in which the changes occur through comprehensive income of a
business entity or changes in unrestricted net assets of a not for profit
organization. This statement also requires an employer to measure the funded
status of a plan as of the date of its year end statement of financial position,
with limited exceptions. The adoption of this statement had no immediate
material effect on the Company’s financial condition or results of operations.

Fair Value Measurements
In September 2006, the FASB issued Statement of Financial Accounting Standards
No. 157, “Fair Value Measurements” (SFAS 157). This statement defines fair value
as used in numerous accounting pronouncements, establishes a framework for
measuring fair value in generally accepted accounting principles and expands
disclosure related to the use of fair value measures in financial statements.
The statement is to be effective for financial statements issued in 2008;
however, earlier application is encouraged. The Company is currently evaluating
the timing of adoption and the impact that adoption might have on its financial
position or results of operations.

Accounting for Uncertainty in Income Taxes
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for
Uncertainty in Income Taxes” (FIN 48). The interpretation clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with SFAS 109. Specifically, the pronouncement
prescribes a recognition threshold and a measurement attribute for the financial
statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. The interpretation also provides guidance on the related
derecognition, classification, interest and penalties, accounting for interim
periods, disclosure and transition of uncertain tax positions. The
interpretation is effective for fiscal years beginning after December 15, 2006.
The Company does not expect the adoption of FIN 48 to have a material impact on
the Company's consolidated financial position, results of operations, cash flows
or financial statement disclosures.

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NOTE 3 - REVERSE TAKE-OVER

Effective December 19, 2003, GTH acquired 100% of the issued and outstanding
voting shares of GEO - Idaho by issuing 6,939,992 common shares and 2,420,217
share purchase warrants, of which 2,150,309 common shares and no share purchase
warrants were held in escrow as at December 31, 2005 (as of March 31, 2005,
4,243,325 common shares and 1,946,937 share purchase warrants were held in
escrow). Each share purchase warrant entitled the holder to purchase one
additional common share at a price of $0.75 per share until December 19, 2005.
As of December 31, 2005, the 2,420,217 stock purchase warrants noted above
expired without exercise. Since the transaction resulted in the former
shareholders of GEO - Idaho owning the majority of the issued shares of GTH, the
transaction, which is referred to as a “reverse take-over”, has been treated for
accounting purposes as an acquisition by GEO - Idaho of the net assets and
liabilities of GTH. Under this purchase method of accounting, the results of
operations of GTH are included in these financial statements from December 19,
2003. GEO - Idaho is deemed to be the purchaser for accounting purposes.
Accordingly, its net assets are included in the balance sheet at their
previously recorded values.

The Company determined that the share purchase warrants issued as part of the
aforementioned transaction have a fair value of $629,256 as determined by using
the Black-Scholes pricing model with the assumptions as stated in Note 6. The
amount is considered to be additional consideration given to the former GEO -
Idaho shareholders and, as such, was allocated, along with the net liabilities
assumed of GTH, to accumulated deficit. The acquisition is summarized as
follows:

Current assets (including cash of $5,798) $  11,616   Current liabilities  
(419,782 ) Net liabilities assumed $  (408,166 )

The net liabilities assumed have been charged to accumulated deficit.

NOTE 4 - PROPERTY, PLANT AND EQUIPMENT

During the year ended March 31, 2007, the Company incurred an additional
$12,084,849 in construction costs for Raft River Project phase I. These costs
were primarily for the drilling of additional wells and the construction of the
power plant and related infrastructure. Raft River Holdings reimbursed the
Company for $4,917,100 in amounts associated with Raft River Energy phase I. As
described in note 2, property (both geothermal property and construction in
process) was transferred to Raft River Energy, in exchange Company’s interest in
the subsidiary that amounted to $6,363,714. In addition to construction
activities, the Company acquired 1,083 acres of surface rights in exchange for
cash payments of $1,281,006 and 631 acre feet per annum in water rights for
$138,820. Legal fees for $87,121 were incurred for the acquisition of mineral
rights. The Company acquired access to 5,409 acres of surface, mineral and
geothermal rights through a lease payment of $15,000. Vehicles, furniture and
computer equipment utilized by the corporate administrative and the Raft River
site offices were purchased for $102,800.

For the year ended March 31, 2006, the Company acquired a 100% interest in the
Raft River Geothermal Property by making cash payments totalling $250,000 in
2003, $225,000 in 2004 and the final instalment of $125,000 in 2005. The Company
has also completed the requisite work program. In addition, the Company has paid
$57,728 to acquire two purchase options on 1,083 acres of surface and water
rights, and paid $949,036 to initiate construction of the Raft River Project.

Property, plant and equipment consisted of the following at the dates shown:

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      March 31,     March 31,         2007     2006     Geothermal Property
(land and equipment)                        Balance, beginning of period $
 775,079   $  592,351              Contributed to subsidiary   (480,911 )   -  
           Acquisitions   1,521,947     182,728              Balance, end of
period   1,816,115     775,079                     Construction in Process- Raft
River Project                      Balance, beginning of period   949,036     -
           Contributed to subsidiary   (5,882,803 )   -            Reimbursed by
partner   (4,917,100 )   -            Acquisitions   12,084,849     949,036    
       Balance, end of period   2,233,982     949,036                     Other
Equipment                      Balance, beginning of period   5,325     5,325  
         Acquisitions   102,800     -              Balance, end of period  
108,125     5,325              Less: Accumulated depreciation   (19,836 )  
(3,325 )          Balance, end of period   88,289     2,000                    
  $  4,138,386   $  1,726,115  

NOTE 5 - CAPITAL STOCK

The Company is authorized to issue 100,000,000 shares of common stock. All
shares have equal voting rights, are non-assessable and have one vote per share.
Voting rights are not cumulative and, therefore, the holders of more than 50% of
the common stock could, if they choose to do so, elect all of the directors of
the Company.

During the quarter ended March 31, 2007, the Company issued 62,500 common shares
upon the exercise of 12,500 stock options, plus 50,000 broker compensation
options at an exercise price of $1.00 CDN ($0.83 U.S.).

During the quarter ended December 31, 2006, the Company issued 72,741 shares to
employees in satisfaction of employment agreements at an average price of $0.90,
and 23,573 shares previously held in escrow were cancelled and returned to
treasury.

During the quarter ended September 30, 2006, the Company issued 395,000 common
shares upon the exercise of 280,000 stock purchase warrants at an exercise price
of $0.85 CDN ($0.73 -$0.75 U.S.), the exercise of 15,000 stock purchase warrants
at an exercise price of $1.25 CDN ($0.86 U.S.), and the exercise of 100,000
options at an exercise price of $0.60 CDN ($0.54 U.S.).

During the quarter ended June 30, 2006, the Company issued 40,000 common shares
upon the exercise of 40,000 options at an exercise price of $0.60 CDN ($0.53
U.S.).

On April 3, 2006, the Company completed a private placement of 25,000,000 common
shares at a price of $1.00 CDN ($0.86 U.S. as of April 3, 2006). Proceeds, net
of financing fees, totaled $20,134,260. Of the net proceeds, $172,370 had been
received in the Company’s bank accounts prior to year end. Since the
subscription forms reflected a March 30, 2006 date, and the remainder of the
cash of $19,961,890 was on deposit with Dundee Securities Corporation, the
private placement was

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recorded as “Private placement proceeds receivable” and as “Capital Stock
Issuable” in the financial statements at March 31, 2006.

During the quarter ended March 31, 2006, the Company issued 691,304 common
shares upon the exercise of 378,370 options at an exercise price of $0.60 CDN
($0.51 U.S.), the exercise of 192,934 stock purchase warrants at an exercise
price of $0.75 U.S., and 120,000 common shares as a signing bonus as part of an
employment agreement at a deemed price of $0.72 CDN ($0.61 U.S.).

During the quarter ended December 31, 2005, the Company issued 183,333 common
shares upon the exercise of 100,000 options at an exercise price of $0.60 CDN
($0.51 U.S.) and 83,333 purchase warrants at an exercise price of $0.45 U.S.

During the quarter ended September 30, 2005, the Company issued 40,000 common
shares upon the exercise of 40,000 options at an exercise price of $0.60 CDN
($0.51 U.S.).

During the quarter ended June 30, 2005, the Company issued 17,778 common shares
upon the exercise of 17,778 options at an exercise price of $0.90 CDN ($0.73
U.S.).

Escrow Shares and Warrants

The following common shares are in escrow at the dates shown:

  March 31, March 31,   2007 2006       Common shares 0 2,150,309 Share purchase
warrants 0 0

The escrow shares and warrants were held in escrow pursuant to standard
requirements of the TSX Venture Exchange, which required that escrow conditions
be placed upon the shares and share purchase warrants issued in conjunction with
the acquisition of GEO - Idaho and the concurrently completed private placement,
noted above. Shares were released from escrow at six month intervals, with the
last release from escrow completed December 19, 2006. All stock purchase
warrants previously held in escrow expired as of December 31, 2005, without
exercise.

NOTE 6 - STOCK BASED COMPENSATION

The Company’s stock option plan provides for the grant of incentive stock
options for up to 4,381,051 common shares to employees, consultants, officers
and directors of the Company. All terms and conditions of the options are the
same for external parties as well as internal employees and directors. Options
are granted for a term of up to five years from the date of grant. Stock options
granted generally vest over a period of eighteen months, with no conditions
precedent to vesting. Since the plan has been administered by the Company’s
Vancouver office and Pacific Corporate Trust Company, the Company has issued
stock options with an exercise price stated in Canadian dollars per share.

U.S. Geothermal and their Board of Directors have previously provided additional
incentive to our United States (“U.S.A.”) employees and consultants by offering
stock options at a discount off market price as allowed by the TSX Venture
exchange. The U.S.A. legislature and the Internal Revenue Service (“IRS”) are
now issuing regulations to dissuade companies from granting these discounted
stock options. Through the American Jobs Creation Act of 2004 and the Internal
Revenue Code Section 409A, discounted stock options have now been classified as
deferred compensation in which

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the “discount” is taxable at the date of vesting, instead of upon the date of
exercise. They have also dictated that a 20% penalty on all discounts is to be
paid at date of vesting. These new rules have been retroactively applied to all
options vesting after January 1, 2005.

Since U.S. Geothermal stock options vest 25% on date of grant and 25% every six
months thereafter, option holders would be subject to amending tax returns for
prior years and paying tax and penalty on the value of the discount. These
amendment and payments would be required whether or not the option holder
exercises the options. The IRS is allowing option holders until December 31,
2007 to rectify the situation by allowing them to reprice the existing options
to the market price on the date of option grant. As of March 31, 2007, the
majority of our U.S.A. option holders have repriced their options to the market
price on the date of grant. An adjustment to the fair market value of the
repriced options was included in the stock compensation accrual for March 2007.

During the quarter ended March 31, 2007, the Company granted 235,000 stock
options to consultants and employees exercisable at a price of $1.40 CDN ($1.24
U.S.) until January 22, 2012.

During the quarter ended September 30, 2006, the Company granted 170,000 stock
options to consultants and employees exercisable at a price of $1.00 CDN ($0.89
U.S.) until July 31, 2011.

During the quarter ended June 30, 2006, the Company granted 1,763,000 stock
options to consultants, employees, directors and officers exercisable at prices
ranging from $0.85 to $1.00 CDN ($0.77 to $0.90 U.S.) until April 12, 2011.

During the year ended March 31, 2006, the Company granted 50,000 stock options
to a consultant exercisable at a price of $0.72 CDN ($0.58 U.S.).

During the year ended March 31, 2005, the Company granted 560,000 stock options
to consultants, directors and officers exercisable at prices ranging from $0.72
to $0.90 CDN ($0.58 to $0.72 U.S.).

During the year ended March 31, 2004, the Company granted 1,745,000 stock
options to consultants, directors and officers exercisable at a price of $0.60
CDN ($0.48 U.S.).

The changes in stock options are as follows:

          Weighted                         Average     Weighted            
Number of     Exercise     Average     Aggregate       shares under     Price
Per     Fair Value     Intrinsic       options     Share     (US $)     Value
(US $)                             Balance outstanding, March 31, 2004  
1,745,000   $  0.60 CDN   $  0.28   $  495,489        Forfeited   (240,000 )  
0.60 CDN     0.30     (70,880 )      Exercised   (308,735 )   0.60 CDN     0.27
    (84,984 )      Granted   560,000     0.85 CDN     0.45     250,408   Balance
outstanding, March 31, 2005   1,756,265     0.68 CDN     0.34     590,033      
 Forfeited   (204,489 )   0.63 CDN     0.31     (64,037 )      Exercised  
(536,148 )   0.61 CDN     0.29     (153,641 )      Granted   50,000     0.72 CDN
    0.54     26,791   Balance outstanding, March 31, 2006   1,065,628     0.69
CDN     0.37     399,146        Forfeited   (145,000 )   0.86 CDN     0.62    
(90,487 )      Exercised   (152,500 )   0.63 CDN     0.30     (46,427 )    
 Granted   2,168,000     1.05 CDN     0.99     2,140,719  

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Balance outstanding, March 31, 2007   2,936,128   $  0.96 CDN   $  0.82   $
 2,402,951  

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

The fair value of the stock options granted was estimated using the
Black-Scholes option-pricing model and is amortized over the vesting period of
the underlying options. The weighted average fair value of options granted was
$0.89 per share. The assumptions used to calculate the fair value are as
follows:

  Fiscal Years Ended   2007 2006 2005         Dividend yield 0 0 0 Expected
volatility 82-149% 140% 144-155% Risk free interest rate 3.94-4.20% 3.25%
2.83-3.18% Expected life (years) 3.36 3.00 3.06

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

The following table summarizes information about the stock options outstanding
at March 31, 2007:

OPTIONS OUTSTANDING   OPTIONS EXERCISABLE     REMAINING     EXERCISE NUMBER OF
CONTRACTUAL   NUMBER OF PRICE SHARES LIFE (YEARS)   SHARES           $    
 0.60CDN       355,628 1.91   355,628   0.72CDN 197,500 2.67   197,500  0.85 CDN
20,000 4.00   15,000   0.90CDN 347,500 2.67   347,500  1.00 CDN 1,615,500 4.00  
807,750   1.15CDN 165,000 4.50   82,500   1.40 CDN 235,000 4.83   58,750        
  $      0.96CDN      2,936,128 3.59   1,864,628

The following table summarizes information about the stock options outstanding
at March 31, 2006:

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OPTIONS OUTSTANDING   OPTIONS EXERCISABLE     REMAINING     EXERCISE NUMBER OF
CONTRACTUAL   NUMBER OF PRICE SHARES LIFE (YEARS)   SHARES           $    
 0.60CDN 495,628 2.76   495,628          0.72CDN  520,000 3.67   390,000        
 0.90CDN  50,000 3.67   37,500           $      0.67CDN 1,065,628 3.25   923,128

A summary of the status of the Company’s nonvested shares for the fiscal years
ended March 31, 2007 and 2006, and changes during the years ended March 31, 2007
and 2006, are presented as follows:

          Weighted     Weighted             Average Grant     Average      
Number of     Date Fair Value     Grant Date       shares     Per Share     Fair
Value                       Nonvested, March 31, 2005   719,066   $  0.68 CDN  
$  0.34        Granted   50,000     0.72 CDN     0.54        Vested   (386,566 )
  0.61 CDN     0.29        Forfeited   (240,000 )   0.63 CDN     0.31  
Nonvested, March 31, 2006   142,500     0.69 CDN     0.37                      
     Granted   2,168,000     1.05 CDN     0.99        Vested   (1,094,000 )  
0.63 CDN     0.30        Forfeited   (145,000 )   0.86 CDN     0.62   Nonvested,
March 31, 2007   1,071,500   $  0.96 CDN   $  0.82  

As of March 31, 2007, there was $408,078 of total unrecognized compensation cost
related to nonvested share-based compensation arrangements granted under the
Plan. That cost is expected to be recognized over a weighted-average period of
1.5 years. The total fair value of shares vested during the years ended March
31, 2007, 2006, and 2005, was $992,778, $166,773, and $295,540, respectively.

Stock Purchase Warrants

As at March 31, 2007, no share purchase warrants are outstanding.

During the quarter ended September 30, 2006, stock purchase warrants
representing 3,985,001 common shares at an exercise price of $1.25 CDN expired
without being exercised, stock purchase warrants representing 280,000 common
shares at an exercise price of $0.85 CDN were exercised, and stock purchase
warrants representing 15,000 common shares at an exercise price of $1.25 CDN
were exercised.

During the year ended March 31, 2006, stock purchase warrants representing
4,081,327 shares at an exercise price of $0.75 expired without exercise, stock
purchase warrants representing 192,934 common shares at an exercise price of
$0.75 were exercised, and stock purchase warrants representing 83,333 common
shares at an exercise price of $0.45 were exercised.

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NOTE 7 - RELATED PARTY TRANSACTIONS

At March 31, 2007 and March 31, 2006, the amounts of $9,510 and $10,083,
respectively, are payable to directors and officers of the Company. These
amounts are unsecured and due on demand.

At March 31, 2007, the Company’s subsidiary Raft River Energy I, LLC owed the
Company $154,277 for operating and maintenance expenses. The receivable balance
is comprised of unsecured demand obligations due within the next year of
operations.

The Company incurred the following transactions with directors, officers and a
company with a common director:

      Year Ended     Year Ended         March 31,     March 31,         2007    
2006                     Administrative services $  20,563   $  19,584    
Director fees   23,250     21,500     Consulting fees   24,000     24,960    
Legal fees   -     871     Rent   -     13,863                       $  67,813  
$  80,778  

NOTE 8 - DIFFERENCES BETWEEN CANADIAN AND U.S. GAAP

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

Consolidated Balance Sheets U.S. GAAP
March 31,
2007 Canadian
GAAP
March 31,
2007 U.S. GAAP
March 31,
2006 Canadian
GAAP
March 31,
2006 Plant, Property & Equipment $ 4,138,386 $ 4,578,997 $ 1,726,115 $ 2,166,726
Total Assets 22,673,340      23,113,951 21,895,933 22,336,544 Stockholders’
Equity 21,216,878      21,657,489 21,615,019 22,055,630 Total Liabilities &
Stockholders’ Equity 22,673,340      23,113,951 21,895,933      22,336,544

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Consolidated Statements of
Operations and
Comprehensive Loss U.S. GAAP
Year Ended
March 31,
2007 Canadian
GAAP Year
Ended March
31, 2007 U.S. GAAP
Year ended
December
31, 2006 Canadian
GAAP Year
ended
December
31, 2006 Exploration Expenditures $ - $ - $ - $ - Loss from Operations      
 (2,987,869)  (2,987,869) (1,663,069)      (1,607,755) Net Loss      
 (1,792,584)  (1,792,584) (1,523,385)      (1,468,071)

NOTE 9 - COMMITMENTS AND CONTINGENCIES

Operating Lease Agreements
The Company has entered into several lease agreements with terms expiring up to
December 1, 2034 for geothermal properties adjoining the Raft River Geothermal
Property and for Neal Hot Springs. The leases provide for the following annual
payments within the next five fiscal years:

    Year Ending       March 31,           2007 $  40,100   2008   45,400   2009
  50,800   2010   53,800   2011   50,100   Thereafter   425,350  

Power Sales Agreement
The Company has signed a 10 megawatt power purchase agreement with Idaho Power
Company for sale of power generated from its planned phase one power plant. Sale
of power generated from phase two power plants are currently under discussion.
The Company has also signed a transmission agreement with Bonneville Power
Administration for transmission of the electricity from this plant to Idaho
Power, and from the phase two plants to other purchasers. These agreements are
all contingent upon successful financing and construction of the power plant at
Raft River.

Construction Contract
On December 5, 2005, the Company signed a contract (the “Ormat EPC Agreement”)
with Ormat Nevada, Inc. (Ormat) for Ormat to construct a 13 megawatt geothermal
power plant at Raft River, Idaho for a lump sum price of $20,200,000 (exclusive
of taxes). The Company expects the output of the plant will be used to meet
power delivery requirements of the Company’s agreements with Idaho Power
Company. As part of the Ormat EPC Agreement, as amended, the Company has
established a $1,000,000 letter of credit with Wells Fargo Bank to collateralize
amounts committed by Ormat, but not paid by the Company. The amount will
increase monthly until a maximum letter of credit amount of $10,252,000 is
reached. A $5,363,400 money market fund is pledged as collateral backing the
letter of credit as of March 31, 2007, and is reported as restricted cash.

Partnership Agreement Construction Costs
Under the Amended and Restated Operating Agreement of Raft River Energy I LLC,
dated as of August 9, 2006, among Raft River Energy I LLC, Raft River I
Holdings, LLC and us, Raft River I Holdings, LLC, a subsidiary of The Goldman
Sachs Group Inc., will contribute in staged payments a total of $34 million in
cash and we will contribute $5 million in cash and approximately $1.5 million in
production and injection wells and geothermal leases to Raft River Energy I LLC,
the Phase 1 project joint venture company. If total construction costs exceed
budget, US Geothermal will contribute the required additional funding to the
joint venture.

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Office Lease
The Company leases general office space for an executive office in Boise at an
annual cost of $31,051. The underlying lease is a year-to-year lease that
expires on January 31, 2008.

NOTE 10 - SUBSQUENT EVENT

The Company entered into an agreement with a syndicate of Canadian investment
dealers to underwrite a private placement of 6,818,182 shares of common shares
at a cost of $2.20 CDN per share to raise gross proceeds of approximately $15
million in Canadian dollars ($13.5 million US Dollars). The Underwriters
exercised their option to purchase an additional 2,272,727 common shares at the
issue price under the offering which could provide aggregate proceeds of
approximately $20 million in Canadian dollars ($18.8 million US Dollars). The
proceeds will be used to fund current and future plant development. The offering
closed June 5, 2007 and is subject to certain conditions including, but not
limited to, the approval of the TSX Venture Exchange.

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